WTO investigates allegations of illegal China subsidies

GENEVA -- The World Trade Organization opened a formal investigation Friday into allegations by the USA and Mexico 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 Bush administration 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 $765.3 billion. The imbalance with China grew to $232.5 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 alleged product piracy in China, the USA announced earlier this month it would seek a WTO ruling after consultations with Beijing failed.