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United States Requests WTO Panel in Challenge to China's Prohibited Subsidies

July 12, 2007



Washington, DC - The
Office of the United States Representative announced today that the
United States has requested
the World Trade Organization (WTO) to establish a dispute settlement panel
regarding subsidies provided by China that appear to be prohibited by
WTO rules.

“Although our two rounds of WTO consultations with China
have been constructive, they have not resolved our concerns about China’s
apparent use of trade-distorting subsidies that it pledged to eliminate upon
joining the World Trade Organization,” said USTR Spokesman Sean Spicer. 
“China has taken a positive step by
repealing one of the subsidy programs we challenged, but much more needs to be
done.  We continue to prefer a negotiated settlement to this dispute, but
without assurance of complete corrective action by China, we must
continue to pursue the WTO process to enforce our rights.”

The U.S. request for a WTO dispute settlement panel
challenges several subsidy programs maintained by China that the United States
believes are prohibited by WTO rules.  Subsidies conditioned either on a
firm's use of domestic over imported products or on exports are prohibited by
the WTO Agreement on Subsidies and Countervailing Measures.  They also are
inconsistent with other WTO obligations, including specific commitments
undertaken by China as part of its WTO accession
agreement to eliminate such subsidies before it joined the WTO on December 11,

The United
States and Mexico requested WTO consultations with
China over these subsidies in
February and then filed supplemental consultation requests in April after
China eliminated one subsidy and
passed a revised income tax law with new provisions that appear to provide for
prohibited subsidies.   While consultations have been productive and
useful, China has not to date been able to assure the United States and Mexico
that it will promptly eliminate all of the subsidy programs that remain of

plans to join with the United
States and file its own request for the
establishment of a WTO panel today.


The United
States initiated the dispute over China's prohibited subsidies by requesting
consultations with China on February 2, 2007. 
Mexico requested
consultations with China on the same measures on
February 26, 2007.  Shortly before joint consultations were held on March
20, 2007, China eliminated
one of the subsidy programs challenged by the United States and Mexico, but also
adopted a new income tax law providing additional tax breaks for qualifying
firms.  In order to clarify whether these new tax breaks constituted new
prohibited subsidies, the United
States and Mexico requested supplemental consultations with
China, which were held jointly on
June 22, 2007. 

Under WTO rules, the WTO Dispute Settlement Body (DSB)
will consider the United
States' request for the establishment of a
panel at its next meeting on July 24, 2007.  In addition to allegations
under the WTO Agreement on Subsidies and Countervailing Measures and
China's Protocol of
Accession, the United
States' complaint also alleges violations of
the 1994 General Agreement on Tariffs and Trade and the Agreement on
Trade-Related Investment Measures.

This is the second dispute against China for which the United States
has requested a WTO dispute settlement panel.  The United States, together with Canada and the European Communities, requested a
panel in September 2006 to examine China's regulations imposing local
content requirements in the auto sector through discriminatory charges on
imported auto parts.   Panel proceedings in that dispute are