Deal Eliminates Subsidies of Chinese Goods, Helps U.S. Companies, Bush Administration Says

The Bush administration announced Thursday that China has agreed to eliminate improper trade subsidies it was using to the detriment of U.S. and other foreign companies.

The deal, announced in Washington by U.S. Trade Representative Susan Schwab, represented a major breakthrough in the tense trade relations between the two countries. It came after lengthy negotiations that started when the administration filed a case against China on the issue in February before the World Trade Organization, the Geneva-based body that oversees the rules of world trade.

Schwab said China had agreed to eliminate WTO-illegal tax breaks that encouraged Chinese companies to export more to the United States and other countries. She said the Chinese had also agreed to scrap tax and tariff penalties that had penalized U.S. and other foreign countries in trying to sell their goods in China.

"This outcome represents a victory for U.S. manufacturers, producers and their workers," Schwab said in a statement. She said it would eliminate a variety of trade subsidies the Chinese government was using to the detriment of a wide range of U.S. products from steel to information technology.

But Democratic critics of the administration's trade policies said many more Chinese practices must be changed to make a significant impact on a U.S. trade deficit with China that last year reached $233 billion, the largest ever recorded with a single country.

"China's currency doesn't float freely, certain U.S. industries with competitive advantages can't operate freely in China's economy and some of the products it exports are faulty and dangerous," said Sen. Charles Schumer, D-N.Y. "It seems that China has taken a small step on the long road toward playing more fairly in global trade, but only time will tell."

The subsidy case is one of four WTO cases the administration has filed against China in the past two years as it has sought to show Congress it is taking a harder line in economic dealings with China.

Schwab said the negotiated settlement — hammered out by delegations from both countries meeting in Geneva — showed President Bush's trade policies were having results and would be more successful than the retaliatory tariffs some in Congress would like to impose on Chinese products.

"This announcement makes clear that the administration's policy of serious dialogue and resolute enforcement is delivering real results," she said. "It clearly shows the wisdom of this approach over some legislative approaches that would simply impose retaliatory tariffs."

The breakthrough in the subsidy case comes less than two weeks before Treasury Secretary Henry Paulson is to lead a Cabinet-level delegation to China for the third round of the U.S.-China Strategic Economic Dialogue. While Paulson has said the talks offer the best hope of resolving a number of trade disputes with China, congressional critics say few results have been achieved through the first year of discussions.

In the other pending WTO cases, the U.S. has charged that China is failing to crack down on rampant copyright piracy of U.S. products while another case contends China is hampering the sale of American movies, music and books through the use of censorship rules that do not apply to Chinese products.

A fourth U.S. case — filed with the 27-nation European Union — contends China is maintaining a WTO-illegal tax system to block imports of foreign-made auto parts.

Schwab said the U.S. would continue to push forward with the other WTO cases, but she made no predictions that there would be other breakthroughs before the upcoming U.S.-China trade talks.

She said it was difficult to quantify the economic boost U.S. companies would receive from the elimination of the unfair government subsidies, but she said it should be significant given the broad array of manufacturing companies that could qualify for the subsidies.