Beijing Stalls WTO Subsidy Investigation

GENEVA (AP) - China has blocked the establishment of a World Trade Organization investigation into U.S. and Mexican allegations of subsidies for a range of Chinese industries, officials said.

But investigative panels examining U.S. and Mexican arguments will almost certainly be established at the next meeting in September of the WTO's dispute settlement body. Under WTO rules, a second request for a formal investigation is automatically granted.

The U.S. accuses Beijing of using WTO-prohibited tax breaks to encourage Chinese companies to export more to the United States while imposing tax and tariff penalties to limit purchases of U.S. products in China.

''China is providing numerous subsidies that appear to be prohibited under WTO rules,'' U.S. trade lawyer Juan Millan told the WTO's dispute body Tuesday. ''China offers tax refunds, reductions and exemptions that discriminate against imported products ... or that subsidize China's exports.''

Mexico said it shared Washington's views and, like the U.S., hoped that the WTO could merge both of their complaints into a single investigation.

Beijing rejected all claims of wrongdoing.

''We are puzzled by the complainants' decision to initiate the panel process,'' China said after the U.S. and Mexico spoke. ''Measures identified by the complainants are fully consistent with WTO subsidy rules. Furthermore, the inclusion of several nonexistent measures could only prove the misunderstanding and 'misallegation' of the complainants.''

The administration of U.S. President George W. Bush brought the complaint to the WTO in February, amid increased pressure from the Democratic-controlled Congress to do something about America's soaring trade deficits and lost manufacturing jobs, which critics blame in part on unfair trade practices by foreign nations.

Two rounds of consultations between Washington and Beijing failed to resolve the dispute. A WTO panel would likely take years to authorize retaliatory sanctions. Mexico later made its own complaint.

In April, the U.S. filed two more cases with the WTO over China's rules on copyright policy and restrictions on the sale of American movies, music and books, trade officials said. The second case was recently expanded to include rules on music downloading and cinema rights that apparently discriminate against U.S. Internet music providers such as Apple Inc.'s iTunes store and Hollywood studios.

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

The U.S. trade deficit set a record for the fifth consecutive year in 2006 at US$765.3 billion (euro553.24 billion). The imbalance with China grew to US$232.5 billion (euro168.08 billion), the highest ever with a single country.