WTO Launches Probe Of Chinese Illegal Subsidies

World Trade Organization to investigate U.S. and Mexican allegations that China is providing illegal subsidies for a range of industries.

GENEVA (AP) — The World Trade Organization opened a formal investigation Friday into U.S. and Mexican allegations that China is providing illegal subsidies for a range of industries, officials said.
The North American countries accuse 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.
''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 last month. ''China offers tax refunds, reductions and exemptions that discriminate against imported products ... or that subsidize China's exports.''
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 U.S. President George W. Bush brought the two complaints to the global commerce body earlier this year amid pressure from the Democrat-controlled U.S. 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.
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.
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.
Beijing has rejected all claims of wrongdoing.
In the second case, over rampant product piracy in China, the U.S. announced earlier this month it would seek a WTO ruling after consultations with Beijing failed.
China is one of the world's biggest sources of illegally copied goods ranging from movies, music and designer clothes to sporting goods and medications. But the WTO's scope would be limited to whether Beijing has taken sufficient action to combat the intellectual property theft.
The U.S. says Beijing's lax enforcement of copyright and trademark protections costs American companies billions of dollars (euros) annually. It argues that China effectively provides a safe haven for pirates and counterfeiters by maintaining ''excessively high'' thresholds for criminal prosecution.
More U.S.-China trade disputes are pending.
The two countries plan to hold another round of consultations over a U.S. complaint about Chinese restrictions on the sale of American 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 U.S. 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 2008.
More in Supply Chain