By  on December 19, 2008

WASHINGTON — The U.S. filed a World Trade Organization case against China on Friday for allegedly providing illegal subsidies in several export categories, including textiles and apparel.

The case centers on China’s Famous Brands programs that were ostensibly set up to help the country build and promote its own brand names. U.S. trade officials charge the programs include export subsidies that are prohibited by WTO rules and signify an underlying government protectionism.

“We were disturbed to find that China still appears to be using WTO-illegal measures to promote its exports, ranging from textiles and refrigerators to beer and peanuts,” said U.S. Trade Representative Susan Schwab. “We are going to the WTO today because we are determined to use all resources available to fight industrial policies that aim to unfairly promote Chinese-branded products at the expense of American workers, farmers, ranchers, manufacturers and intellectual property owners.”

The U.S. alleges that China subsidizes select export categories through measures such as preferential loans and cash grant rewards. A range of categories are part of the Famous Brands program, including textiles and apparel, health products and household appliances. There are additional illegal export subsidies in sectors, including textiles, for products that do not participate in the Famous Brands program, trade officials said.

The domestic textile industry last year lobbied the USTR to file a case.

“This is a significant step forward in the fight to inject fairness back into our trading system with China,” said Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition. “We believe this is a slam dunk. China’s actions are so blatant and clearly outside the boundaries of what’s allowed under the WTO, that we have no doubt China will be required to eliminate these programs.”

Cass Johnson, president of the National Council of Textile Organizations, said, “What is astonishing is that the USTR case makes clear that the Chinese Central Government implemented these large programs after China joined the WTO and committed to following its rules. The U.S. textile industry is extremely concerned that China will use these, as well as many other subsides, to surge into the U.S. market once quotas on Chinese textile and apparel products are removed on Jan. 1.”

U.S. importers are challenging whether the Chinese government programs crossed over into illegal subsidies or were within WTO rules.

“Clearly [the case] is targeting the textile sector, which makes us a bit nervous,” said Julia Hughes, senior vice president of international trade for the U.S. Association of Importers of Textiles & Apparel.

What is less clear, she said, was the extent to which the case will involve Chinese apparel exports.

“This does not prove that there is bad stuff going on in China,” said Stephen Lamar, executive vice president, American Apparel & Footwear Association.

WTO cases can take years to work their way through the system, which was established to resolve disputes between members. Mandatory consultations aimed at settling the charges will be triggered by the case. If that interaction is not productive, the case would move to dispute settlement, and a WTO panel would render a binding decision on whether China has given its domestic industries illegal subsidies.

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