WTO probes China export subsidy claims

The World Trade Organisation on Friday launched a formal investigation into allegations by the US and Mexico that China is unfairly subsidising exports through tax breaks and other incentives.

An independent dispute panel will rule on the allegations, originally filed by the US in February. Mexico, which has been overtaken by China as the second largest exporter to the US after Canada, joined the complaint shortly afterwards.

Mexico faces a year-end deadline to eliminate special quotas on Chinese goods, aimed at protecting domestic industry from a surge of cheap imports, which remained in place after China joined the WTO in December 2001.

Although Beijing earlier this year eliminated one subsidy programme challenged by the two countries, it also passed a revised income tax law that Washington says appears to provide new prohibited subsidies.

The measures targeted by the US and Mexico include tax refunds, reductions and exemptions that allegedly subsidise exports and discriminate against imports in a wide range of industries.

China's trade gap with the US surged to a record $230bn last year and is on course for a new peak in 2007, prompting calls by US lawmakers for tough action againstBeijing's alleged unfair practices, including an undervalued currency.

However, the WTO panel will take at best a minimum of six months to issue its ruling, and appeals and other delays mean a definitive verdict is unlikely before late 2008.

The panel is the second to be set up to deal with alleged breaches of international trade rules by China. Another panel established last year at the request of the US, EU and Canada is examining whether China's local content requirements discriminate against foreign car parts.

In a third case, China on Friday temporarily blocked a US request for a panel to rule on its complaint concerning piracy and market access for US films, DVDs, books and music.