Washington and Beijing on Thursday (27/11/2007) resolved a dispute over government subsidies to Chinese industry, averting a long legal battle at the World Trade Organisation. T he US said the agreement represented a victory for its policy of vigorously pursuing trade disputes with China through a variety of legal avenues.
 
Susan Schwab, US trade representative, said: "The agreement demonstrates that two great trading nations can work together to settle disputes to their mutual benefit . . . This outcome shows that President [George W.] Bush's policy of serious dialogue and resolute enforcement is delivering real results."
 
In February the US, joined by Mexico, launched a WTO case against a range of Chinese government programmes, including tax breaks that it said were, in effect, export subsidies. The case, which covered a variety of industries including steel, wood products and information technology, had the potential to affect hundreds of millions of dollars' worth of trade and tie up the countries in a lengthy legal dispute at the WTO.
 
In Thursday's deal, China agreed to eliminate illegal subsidies by January 1.
 
An official at the Chinese mission in Geneva denied that the agreement represented a total climbdown by Beijing. The official said that some of the subsidies had already been repealed and some were due for repeal under a new income tax law for enterprises. Other subsidies, such as a refund on value-added taxes for Chinese companies buying domestically produced equipment, were not prohibited under WTO rules, the official said.  
 
Brendan McGivern, a lawyer at White & Case in Geneva, said the US had learned that threatening litigation concentrated minds in Beijing and made a negotiated settlement more likely. "Litigation kicks an issue right up the political system and raises its profile in the minds of senior officials," he said.
 
Lawyers say China, which joined the WTO in 2001, appears to have moderated its initial view that WTO litigation was an intrinsically hostile and inflammatory act. The US, with the EU threatening to follow suit, has increased its use of legal tools in its many trade disputes with China, also imposing so-called "countervailing duties" against Chinese imports it considers to be illegally subsidised.
 
Washington suffered a setback in the countervailing duty campaign recently when the independent US International Trade Commission ordered duties on glossy paper from China, Indonesia and South Korea to be lifted, saying the US companies involved had not proved they had been injured by imports.
 
But the US commerce department has indicated its determination to press on with imposing duties against Chinese goods. This week it said it had found preliminary evidence that piping used to make fences, window guards and railings was being subsidised by China by up to 78 per cent.
 
Senior US and Chinese officials are due to meet in China in two weeks' time as part of their regular "strategic economic dialogue", an engagement that Beijing also this week said it would begin with the EU.   Peter Mandelson, EU commissioner, has suggested following the US lead and increasing the range of legal tools Brussels will use against Beijing in disputes.