The Bush administration, under pressure from a Democratic-controlled Congress to do something about America's soaring trade deficit, filed a trade case Friday against China in a dispute involving government subsidies.
The complaint, filed with the World Trade Organization in Geneva, alleges that China is using government support and tax policies to bolster Chinese firms in competition against U.S. and other foreign firms.
"We are seeking to level the playing field to allow U.S. manufacturers to compete fairly with Chinese firms," U.S. Trade Representative Susan Schwab said in announcing the case.
The action will trigger a consultation during which trade negotiators will try to resolve the dispute. If that fails, a WTO hearing panel will be convened to handle the dispute.
A win by the administration would clear the way for the U.S. to impose economic sanctions against China if Beijing still refuses to change its subsidy program.
Schwab's announcement that a case was being filed came just two days after Treasury Secretary Henry Paulson faced stiff questioning before a congressional panel, where both Democrats and Republicans accusing the administration of doing too little to deal with a swelling trade deficit with China.
The case against China on subsidies is the second WTO case the administration has filed in the past year. Last March, it filed a case accusing China of using a WTO-illegal tax system to block imports of U.S. and other foreign-made auto parts into China.
Paulson told the Senate Banking Committee on Wednesday that he believed a high-level dialogue that was begun last December with top Chinese officials offered the best approach to dealing with America's trade problems with China.
The administration has been trying to get China to allow its currency to rise in value against the dollar. U.S. manufacturers contend that the Chinese currency, the yuan, is undervalued by as much as 40%, giving Chinese products a huge competitive advantage against American goods.