By Martin Crutsinger
Associated Press
Saturday, February 3, 2007; D03

The Bush administration, under pressure from the Democratic-controlled Congress to do something about America's soaring trade deficit, filed a trade case yesterday 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 local companies 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 C. Schwab said in announcing the case.

The action will trigger a 60-day consultation during which trade negotiators will try to resolve the dispute. If that fails, a WTO hearing panel will be convened to handle it.

A victory by the administration would clear the way for the United States to impose economic sanctions against China if it refuses to change its subsidy program.

Schwab's announcement that a case was being filed came two days after Treasury Secretary Henry M. Paulson Jr. faced stiff questioning before a congressional panel where both Democrats and Republicans accused the administration of doing too little to deal with a swelling trade deficit with China.

An official with China's delegation to the WTO said the Chinese would have no immediate comment on the case.

Democrats in Congress praised the administration's action, saying they hoped it signaled a more aggressive policy toward what they say are unfair Chinese trade practices.

"Forcing China to eliminate its illegal subsidies will keep world markets open to U.S. goods, keeping jobs at home," said Senate Finance Committee Chairman Max Baucus (D-Mont).

"This case represents a step in the right direction, but it must be part of a much more aggressive program to take actions against violations of WTO obligations," said Rep. Sander M. Levin (D-Mich), the head of a House Ways and Means Committee trade panel.

John Engler, a former Michigan governor who heads the National Association of Manufacturers, said he was disappointed that other major trading partners, including Japan and the European Union, refused administration requests to join in filing the case. "We hope that other countries will reconsider joining the case, recognizing it is not fair to have the United States do all the heavy lifting," Engler said.

This is the second WTO case the administration has filed against China in the past year. Last March, it accused China of using a tax system deemed illegal by the WTO to block imports of American and other foreign-made auto parts into China.

Paulson told the Senate Banking Committee on Wednesday that he believed a high-level dialogue that began last December with top Chinese officials offered the best approach to dealing with trade issues.

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 percent, giving Chinese products a huge competitive advantage against American goods.