By and  on February 5, 2007

WASHINGTON — The Bush administration's decision to bring an illegal subsidies case against China in the World Trade Organization comes against the backdrop of a record trade deficit and increased pressure from Democrats in Congress pushing for a harder line against that country.

The case, which is the first step in a long process that could lead to removing the subsidies or higher tariffs on Chinese-made goods, might influence the debate among lawmakers who will decide whether to extend President Bush's authority to negotiate trade deals without congressional amendments.

"The export subsidies give an unfair competitive advantage to Chinese products when they are exported," said U.S. Trade Representative Susan Schwab at a news conference Friday. "That means a range of domestically produced goods in the United States, from steel to wood products to infotech, are denied an opportunity to compete fairly in the United States and in third-country markets where they are up against subsidized imports from China."

During the first 11 months of 2006, the trade deficit with China reached a record $213.5 billion.

Schwab said the U.S. did not know the full impact of the subsidies, which come in several forms, including income tax reductions, discounted lending rates and exemptions from contributing to worker benefits, all for companies that reach certain export thresholds. Apparel and textile manufacturers are among the producers who might be supported.

China agreed to eliminate WTO-prohibited subsidies when it joined the global trading body in 2001, but has taken no action to do so, Schwab said.

This marks the third time the U.S. has brought a case against China to the WTO. The first, involving semiconductors, was settled. A case on auto parts is pending. Such complaints may take years to reach a resolution, either by negotiated settlement, WTO arbitration or, if that fails, a WTO ruling on removing the subsidies or imposing higher tariffs on Chinese goods.

The move was long overdue, said Auggie Tan­tillo, executive director of the American Manu­facturing Trade Action Coalition. "This case now gives other countries an easy vehicle to attach themselves to," he said. "Hopefully, this case snowballs through numerous other players and brings this issue of Chinese state-sponsored subsidies to a head."The action is well-timed, considering the administration's bid to renew the president's trade promotion authority, said Julia Hughes, senior vice president of international trade at the U.S. Association of Importers of Textiles & Apparel. Even though the case might ultimately lead to higher prices, Hughes backed the effort to apply WTO rules.

Schwab's announcement came two days after Treasury Secretary Henry Paulson Jr., appearing at a Senate hearing, faced sharp criticism and questions from Democrats and Republicans over the administration's handling of China's trade and currency policies. Paulson said he had made reform of China's economic and fiscal policies his top priority. He reiterated that dialogue, not punitive measures, would prod the Chinese to reform their policies.

Democrats said the administration's trade case against China was a good first step, but stressed the need for a more comprehensive and aggressive strategy.

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