Pressed by US, China pledges to stop trade subsidies

Nov 29, 2007, 19:58 GMT

Washington - Under US pressure, China pledged Thursday to end by January 1 a wide range of subsidies that its trade partners say make Chinese industrial exports unfairly cheap and restrict Chinese imports.

The accord by Chinese and US officials, announced in Washington, aims to settle a dispute over allegedly illegal subsidies that has heightened trade tensions over Chinese exports and spurred calls by US lawmakers for punitive measures against China.

'While many challenges still remain, today's news is concrete and welcome,' US Trade Representative Susan Schwab said.

Most of the subsidies are tax breaks for so-called foreign- invested companies, which includes firms with even a small amount of foreign investment and are available to all industries, the US said.

US trade officials believe that a large amount of China's exports benefit from the 'pervasive' subsidies, including steel, wood products and information technology.

The agreement also covers subsidies designed to favour made-in- China industrial goods over foreign imports in the Chinese market, Schwab said.

She said she could not put a figure on the economic benefit for US companies, but said it should be 'very substantial.' Schwab called it a victory for US workers and manufacturers, who have been losing jobs to China.

The deal, aimed at settling a complaint by the US and Mexico before the World Trade Organization, came ahead of a December 12-13 meeting of Chinese and US economic policymakers near Beijing, a US- launched initiative known as the Strategic Economic Dialogue.

Thursday's deal 'demonstrates that our two nations can work together to resolve major differences' and that China is loosening elements of state control over the economy, Schwab told reporters.

But she added a note of caution about China's approach to subsidies - one of several areas of trade friction with the US, which is China's biggest overseas market.

'I would like to think it's a signal that the trend is changing. I don't know for sure,' she said.

Three other US complaints against Chinese practices are pending before the WTO, the Geneva-based rule-making body of world trade.