China to End Trade Subsidies, U.S. Says

The Bush administration said yesterday 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 by U.S. Trade Representative Susan C. 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 body that oversees the rules of world trade from its headquarters in Geneva.

Schwab said China had agreed to eliminate 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 taxes that had penalized the United States and other foreign countries 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 the subsidies were being used on products as varied as steel and information technology.

Democratic critics of the administration's trade policies said many more Chinese practices need to be changed to make a significant impact on the U.S. trade deficit with China, which last year reached $233 billion, the largest ever recorded with one 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 E. 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 the administration has filed against China at the WTO in the past two years, as it has sought to show Congress it is taking a harder line in economic dealings with emerging powerhouse.

Schwab said the settlement, reached in negotiations in Geneva, showed President Bush's trade policies were yielding 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 M. Paulson Jr. is to lead a Cabinet-level delegation to China for the third round of the countries' Strategic Economic Dialogue.

In the other pending WTO cases, the U.S. has charged China with failing to crack down on rampant copyright piracy of U.S. products. Another case contends China is hampering the sale of U.S. 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 tax system to block imports of foreign-made auto parts that is in violation of WTO rules.

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.