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WTO probes US, Mexican allegations against China

"We are concerned about a series of measures maintained by China that appear to constitute subsidies prohibited under WTO rules. China offers tax refunds, reductions and exemptions that appear to be contingent on a firm's use of domestic over imported products or on a firm's export performance."

Juan Millan, US trade lawyer

The WTO has opened a formal investigation into US and Mexican allegations that China is providing illegal subsidies for a range of industries, officials said.

The two countries are accusing Beijing of using WTO-prohibited tax breaks to encourage Chinese companies to boost exports, while imposing tax and tariff penalties to limit purchases of foreign products in China.

"We are concerned about a series of measures maintained by China that appear to constitute subsidies prohibited under WTO rules," US trade lawyer Juan Millan told the WTO's dispute body on Friday. "China offers tax refunds, reductions and exemptions that appear to be contingent on a firm's use of domestic over imported products or on a firm's export performance."

Beijing, meanwhile, blocked a separate probe of its rules for protecting intellectual property rights. But the move will probably only delay the creation of a panel until the next meeting of the WTO's dispute body in September, when Washington can bring up the issue again.

Under WTO rules, a second request for an investigative panel is automatically granted.

The administration of US President George W. Bush brought the two complaints to the global commerce body earlier this year amid pressure from the Democrat-controlled US Congress to do something about the US' soaring trade deficits and lost manufacturing jobs.

Critics blame these problems in part on unfair trade practices by other countries.

The US trade deficit set a record for the fifth consecutive year last year at US$765.3 billion. The imbalance with China grew to US$232.5 billion, the highest ever with a single country.

Mexico later joined the industrial subsidies dispute, saying its companies also have been hurt by Chinese rules.

The WTO could take months -- and possibly years -- to reach a final ruling that would open the door to retaliatory sanctions.

"Mexico will look for ways to work with China with a view to reaching a negotiated solution," trade official Carlos Vejar said.

Beijing rejected all claims of wrongdoing.

"It is very disappointing and deeply regrettable that the United States and Mexico pursued this matter further," China said, adding that its regulations comply with international trade rules. "China will defend its position and interests."

In the second case, over rampant piracy of intellectual property in China, the US announced earlier this month it would seek a WTO ruling after consultations with Beijing failed.

Washington says that Beijing's lax enforcement of copyright and trademark protections costs US companies billions of dollars each year.

It argues that China effectively provides a safe haven for pirates and counterfeiters by maintaining "excessively high" thresholds for criminal prosecution.

The two countries are planning to hold another round of consultations over a US complaint about Chinese restrictions on the sale of US movies, music and books that don't apply to Chinese products. Washington expanded its complaint last month to include what it says are similar discriminatory practices for music downloads and cinema rights that hurt Hollywood studios and US Internet music providers such as Apple Inc's iTunes store.

A WTO panel is already examining a complaint by the United States and the 27-nation European Union on whether China maintains an illegal tax system to block imports of foreign-made auto parts into China.

A first decision in the dispute -- which came as a five-year transition period following Beijing's 2001 entry into the WTO ended -- is expected late this year or early next year.
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