White House to file case against China at WTO

Accuses Beijing of subsidising services like IT, product design and worker training for industries that aim their products at the export market

The Obama administration accused China on Wednesday of providing illegal export subsidies to critical industries, flexing its muscle on trade as it presses Congress to expand President Barack Obama's authority to secure major trade accords.

Flanked by House members from both parties, Michael B Froman, the United States trade representative, said the administration was filing a broad case at the World Trade Organization, accusing Beijing of subsidising services like information technology, product design and worker training for industries that aim their products at the export market. Those export industries include textiles, apparel and footwear, advanced metals, specialty chemicals, medical products and agriculture.

"We're ensuring that it's the United States that leads and defines the rules of the road," Froman said, pledging a commitment "to the decisive, effective enforcement of our trade rights."

Froman's message - echoed by Representatives Charles W Boustany Jr, Republican of Louisiana and a senior member of the Ways and Means Committee; David E Price, a Democrat from trade-averse North Carolina; and House Democrats from the trade-friendly West Coast - was aimed as much at Capitol Hill as it was at Beijing.

The administration wants Congress to give it the power to negotiate a Trans-Pacific Partnership, which is intended to lower trade barriers while adding a range of measures that protect patents and other forms of intellectual property across a dozen Pacific nations. Crucially, it is pressing Congress to accept, as it has for past trade deals, that any agreement be subject to a yes-or-no vote with no amendments allowed.

China is not part of the partnership talks, but officials say if the accord is reached and ratified, the Chinese will have to join in or seek a similar agreement to compete with other Pacific Rim countries in the trade deal.

The reported Chinese subsidies affect American industries with powerful political constituencies on Capitol Hill, and with links to fence-sitters in Congress whose support the administration needs to win the trade negotiating authority that it seeks.

The administration accused China of providing almost $1 billion in illegal subsidies over three years by offering so-called common service platforms to help exporters. The administration is also contending that China set up 179 "demonstration bases" for exporters in these industries, providing at least $635,000 apiece at some of the bases.

If the administration wins its cases, China would be required to halt the subsidies or provide some compensation. W.T.O. rules ban virtually all export subsidies so as to discourage member nations from trying to buy market share for their companies in other countries.

The administration's announcement came late at night in China, and Beijing had no immediate reaction. But the response among lawmakers was what the administration wanted. Democrats are leading the opposition to the president's trade push, and they greeted the administration's actions warmly.

"The administration has shown through its action today the importance of W.T.O. rules that protect American manufacturing jobs and businesses," said Representative Sander M. Levin of Michigan, an influential trade sceptic and the ranking Democrat on the Ways and Means Committee, which is responsible for trade policy. "This case is clear cut: These types of export subsidies are prohibited because they profoundly distort trade and create serious disadvantages for competition."

Representative Steny H. Hoyer of Maryland, the second-ranking House Democrat, said the administration's action "is exactly what so many House Democrats have been calling for."

The administration's case might be tricky, though. Mr. Froman said that by receiving free or discounted back-office services, Chinese export companies were able to lower their cost of doing business, thus helping reduce what they charge foreign customers for their goods. But the W.T.O. could see such indirect subsidies as widely used, even in the United States.

President Obama is pushing to expand his Manufacturing Innovation Hubs, federally funded research centers that disseminate advanced manufacturing knowledge. Pharmaceutical companies in the United States have long enjoyed a pipeline from government-funded research at the National Institutes of Health to their medicinal offerings. Private sector companies team up with the Energy Department's national laboratories all the time.

A United States trade official said China's "demonstration base" program provided subsidies that were expressly contingent on exportation. United States government-private sector ventures do not, and these programs in the United States have not been challenged before the W.T.O.

The announcement on Wednesday came the morning after President Obama and President Xi Jinping of China spoke on the phone and agreed that Mr. Xi would visit Washington in September. According to a White House statement, the presidents discussed climate change, Iran's nuclear program and China's currency policy. The statement made no mention of trade.

Asked whether Mr. Obama personally warned Mr. Xi of the coming case, an American trade official responded only that "the Chinese were notified ahead of time through senior channels." The official spoke only on the condition of anonymity because of the diplomatic sensitivities involved.

The specific legal measure that the administration took on Wednesday is a formal request to China for consultations at the W.T.O. Unless those produce a mutually acceptable agreement - and such talks seldom do - the next step for the United States would be to request that a dispute resolution panel be convened at the W.T.O. in Geneva to rule on which country is right.

The scale of the purported subsidies is small compared with China's overall exports of goods to the United States, which reached $467 billion last year. American exports to China, by comparison, totaled $124 billion last year.

©2015 The New York Times News Service