The Bush administration announced Thursday that it was filing the first trade case against China before the World Trade Organization (search), charging that the Asian country is using its tax code to unfairly discriminate against American semiconductor manufacturers.

The action, the first case brought against China by any country since it joined the WTO in late 2001, is another step in the administration's effort to show it is taking action to deal with America's surging trade deficit with China, which last year hit $124 billion, the largest trade gap the United States has ever recorded with any nation.

America's soaring trade deficits, coming at a time the nation has lost more than 3 million manufacturing jobs, is becoming a hot issue in the presidential race. Presumptive Democratic nominee John Kerry has charged that the administration's free trade policies have failed to protect American jobs.

The U.S. trade complaint, announced by Trade Representative Robert Zoellick (search), contends that China is violating WTO rules against discriminatory treatment by providing a preferential tax rate for integrated computer circuits produced in China that is much lower than the tax paid by U.S. and other foreign companies.

"U.S. manufacturers of semiconductors and other products have a right to compete on a level playing field with Chinese firms," Zoellick said in announcing the action. "As a WTO member, China must live up to its WTO obligations."

China is a substantial market for U.S. semiconductor producers, with U.S. exports of integrated circuits to China totaling $2.02 billion in 2003. However, the U.S. products were subject to a 17 percent value added tax, costing about $344 million, the United States contended in its trade complaint. China taxes domestic producers at a significantly lower rate by allowing those firms to receive a partial refund of the 17 percent tax, the complaint said.

The U.S. notice will begin a 60-day consultation period in which the two countries can seek to resolve the issue through negotiations. If that fails, then the administration can proceed with a case before a WTO dispute panel.

The administration said it brought the case after repeated efforts to resolve the issue through negotiations have failed.

On Tuesday, the AFL-CIO (search) petitioned the administration to start a trade case against China under U.S. law prohibiting unfair trade practices. The labor federation contends that China is violating WTO rules prohibiting violations of workers' rights. The administration has 45 days to decide whether to take that case.