U.S. challenges Chinese export subsidies

U.S. Trade Representative Michael Froman said Chinese companies in designated export hubs benefited from free or subsidized services, cash grants and other incentives which gave their products an unfair advantage.

The request for consultations, lodged on Wednesday, is the first step in a World Trade Organization dispute. The administration has also been trying to convince lawmakers, in particular Democrats, to support a new 12-nation Asia-Pacific trade deal and a bill to streamline Congressional passage of trade deals.

"We are equally committed to the decisive, effective enforcement of our trade rights," Froman told a news conference, flanked by seven members of Congress, six of them Democrats.

China expressed "regret" at the move by Washington.

USTR estimates suppliers of subsidized services to Chinese export hub companies received more than $1 billion from the Chinese government over three years and said some companies received at least $635,000 in support annually.

China had 179 such hubs called demonstration bases. Exports from just 16 of them, specializing in textiles, totaled more than $33 billion in 2012, a USTR official said. Other industries covered by the program include chemicals, medical products, metals and hardware.

Louisiana Representative Charles Boustany, a Republican, said unfairly subsidized shrimp imports threatened the livelihood of thousands of families in his state.

Representative Jim Costa, a California Democrat who voted for three major trade deals in 2011, said Chinese export subsidies had a significant impact on his state's farm exports and enforcing trade rules was critical to winning support for trade deals under negotiation.

"If we are going to convince our constituents here in the United States, American workers, American businesses, that these negotiations will be good for our country, for the economy and for the world order of future trade, we have to ensure that our existing trade agreements are being followed," he said.

The United Steelworkers Union, which opposes the Trans-Pacific Partnership and planned legislation to fast-track trade deals, said the move would help establish a level playing field for workers whose jobs were at risk due to Chinese subsidies.

China's Commerce Ministry on Thursday defended its policies, saying the demonstration bases were "important measures" to promote healthy and stable foreign trade.

"China expresses regret over the United States putting forth a consultation request, and will appropriately handle it based on WTO dispute resolution procedures," an unnamed official said in a statement posted on the ministry's website.

Chin Leng Lim, a law professor at the University of Hong Kong, said Washington's case fitted a rising trend of using anti-subsidy action as the new trade weapon of choice. As China prepares to get market economy status in 2016 under its WTO accession agreement, it will be harder to bring anti-dumping cases against Chinese companies.

"When the allegation is unfair subsidization, you've got to remember that you're not just going after companies abroad for behaving unfairly. You're going after an entire foreign economy for being run differently," Lim said.

(Reporting by Krista Hughes; Additional reporting by Tom Miles in Geneva and Michael Martina in Beijing; Editing by Peter Cooney, David Gregorio and Alex Richardson)