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U.S.-China tensions rise over alleged subsidies

/ Source: Financial Times

The U.S. on Friday launched a major trade dispute with China over alleged subsidies for manufacturing exports in an escalation of economic tensions with Beijing.

Susan Schwab, the U.S. trade representative, said: "Our decision to bring this case to the World Trade Organization comes after our efforts at dialogue failed."

The escalation by the Bush administration follows pressure from the new Democratic majority in Congress and for tougher action over a record annual trade deficit with China of $214 billion.

The U.S. filing alleges China "uses its basic tax laws and other tools to encourage exports and to discriminate against imports of a variety of American manufactured goods."

"The subsidies at issue are offered across the spectrum of industry sectors in China — whether in steel, wood products, information technology or others," said Schwab.

The action by the Bush administration was viewed as part of a strategy to win congressional approval for the renewal of the president's fast-track trade negotiating authority when it expires on June 30.

The executive negotiating authority is viewed by White House advisers as necessary to advance their economic agenda during President Bush's last two years in office.

Max Baucus, chairman of the Senate Finance Committee, said: "I hope that today's action is a signal that the U.S. trade representative will take more vigorous action in the future when China or any other country fails to abide by trade agreements."

Edward Alden, a senior fellow at the Council on Foreign Relations, said: "It's a smart move politically, though practically it's a far bigger and more complicated case than anything the U.S. has attempted against China so far."

Daniel Griswold, an analyst at the Cato Institute, a conservative think tank, said the case would "give the U.S. leverage with China to compel it to change its tax laws."

"I think this strategy does carry the risk that it will create tensions and maybe even harden the Chinese position," he said.

The dispute process allows time for the case to be resolved through dialogue and was several steps away from a "full-blown trade war," the analyst said.

U.S. manufacturers welcomed the dispute and urged the White House to pursue the case to its conclusion.

Frank Vargo, of the National Association of Manufacturers, said: "We have been pressing the US government for some time to take action. We hope consultations are enough in themselves, but if not, the case should go all the way with the WTO."