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By Doug Palmer
WASHINGTON, Dec 19 (Reuters) - The United States has begun legal action at the World Trade Organization aimed at halting Chinese government subsidy programs to boost the sale of Chinese-branded goods around the world, the U.S. Trade Representative's office said on Friday.
"We were disturbed to find that China still appears to be using WTO-illegal measures to promote its exports, ranging from textiles and refrigerators to beer and peanuts," U.S. Trade Representative Susan Schwab said in a statement.
The subsidies to help develop and promote Chinese "famous brands" include cash grant rewards for exporting, preferential loans for exporters, research and development funding to develop new products for export and payments to lower the cost of export credit insurance, the USTR office said.
They are used in several Chinese provinces that collectively accounted for more than 80 percent of China's $1.2 trillion in exports to the world last year, USTR said.
The subsidies benefit a wide range of Chinese industrial sectors, including household electronic appliances, textiles and apparel, a range of light manufacturing industries, agricultural and food products, metal and chemical products, medicines and health products, USTR said.
U.S. textile producers, who fear a surge in imports from China when certain quotas at expire at the end of this month, welcomed the trade office's decision.
"The USTR action confirms yet again that China's export machine is built in large part on unfair government subsidies, many of which are illegal," said Cass Johnson, president of the National Council of Textile Organizations.
The new case, which began with a formal request for dispute settlement consultations with China, comes just one month before the Bush administration leaves office on Jan. 20.
It will be up to the incoming administration of President-elect Barack Obama to decide whether to take the next step and request a dispute settlement panel, if the two sides can not negotiate a solution in the next 60 days.
The USTR action also came on the same day the White House announced a $17.4 billion government loan program to bail out ailing U.S. automakers, a step that itself raise questions of whether it violates WTO rules on industrial subsidies.
However, some trade experts think the United States could be spared a WTO challenge on that front because other countries also are taking action to prop up their auto sectors in the face of slumping global consumer demand.
The World Bank has forecast the global economic slowdown to cause world trade to decline about 2.5 percent in 2009, forcing U.S. and other manufacturers around the world into a fierce battle for diminishing export sales.
"We are going to the WTO today because we are determined to use all resources available to fight industrial policies that aim to unfairly promote Chinese branded products at the expense of American workers, farmers, ranchers, manufacturers and intellectual property owners," Schwab said.
The U.S. trade deficit with China set a record $256.2 billion in 2007, and could surpass that this year even with the recent slump in world trade. (Editing by Bill Trott)