WASHINGTON — The U.S. has joined as a third party with Mexico at the World Trade Organization in a case that charges China with using illegal import substitution and export subsidies in its apparel and textile sector.

This story first appeared in the November 1, 2012 issue of WWD. Subscribe Today.

Mexico filed a WTO case against China’s apparel and textile subsidies on Oct. 15, charging that China “appears to maintain a wide variety of measures that support producers and exporters of apparel and textile products, both directly and indirectly,” adding that “these measures appear to involve both prohibited and actionable subsidies that are inconsistent with China’s obligations under” several international agreements, as well as China’s WTO accession agreement.

The case will be closely watched by the U.S. textile industry, which has argued for some time that China’s subsidized industry puts domestic producers at a competitive disadvantage, and retailers and apparel brands that produce billions of dollars of apparel in China. Apparel and textile imports from China, the number-one supplier to the U.S., hit $40.7 billion in the year through Aug. 31.

“Mexico’s request for consultations appears to raise serious questions about numerous Chinese government subsidies that may be causing market distortions in the textiles and apparel sector,” said a spokeswoman with the U.S. Trade Representative’s office. “Mexico’s complaint also alleges that some of these subsidies are import substitution subsidies and export subsidies, both of which are prohibited under WTO rules.”

U.S. textile officials have been pressing for action against China for months. The National Council of Textile Organizations said it has identified 30 subsidies, the largest being currency manipulation, allegedly given to Chinese textile and apparel producers by their government.

“We are pleased that the U.S. is joining the consultations on this very important case,” said Cass Johnson, president of the National Council of Textile Organizations. “For decades, large and comprehensive subsidies by the Chinese government have prevented free and fair markets from operating in world trade in textiles and apparel. These subsidies have directly contributed to the loss of hundreds of thousands of U.S. textile workers.”

Johnson said it is a “landmark case” that “exposes the Chinese government intervention for exactly what it is — a mercantilist, state-guided effort to control one of the world’s largest manufacturing sectors.”

In the WTO case, Mexico cited several alleged measures taken by China to give its textile and apparel producers a competitive advantage in the global market. Among them was the alleged support given by the Chinese government to cotton farmers, transporters, processors, millers and spinners through tax breaks, cash payments, loans from state-owned banks and the “distortion of domestic supply volumes” through the use of state-trade enterprises and tariff rate quotas.