The United States on Wednesday dragged China to the World Trade Organization (WTO) alleging that the country was illegally providing subsidies towards manufacture of wind power equipment.

Import substitution subsidies are particularly harmful and inherently trade distorting, which is why they are expressly prohibited under WTO rules, said Ron Kirk, US Trade Representative.

Under a programme called Special Fund for Wind Power Manufacturing, China appears to provide subsidies that are prohibited under WTO rules, because the grants awarded under the programme seem to be contingent on Chinese wind power equipment manufacturers using parts and components made in China rather than foreign-made parts and components, said a statement from the Office of US Trade Representative.

According to the statement, the size of individual grants currently available under the Special Fund for Wind Power Manufacturing ranges between $6.7 million and $22.5 million.

Chinese manufacturers of wind turbines and Chinese manufacturers of parts and components for wind turbines can receive multiple grants as the size of the wind turbine models increases.

The USTR estimated that the grants provided under this programme since 2008 could run into several hundred million dollars.

These subsidies effectively operate as a barrier to US exports to China. Opening markets by removing barriers to our exports is a core element of the President's trade strategy,” Kirk said. Our decision today, along with the two other WTO cases that we recently filed against China, underscores our commitment to ensuring a level playing field with China for American workers and businesses.”

Today's action arises out of an investigation the USTR initiated on October 15 in response to a petition filed by United Steelworkers (USW), a trade union.

The investigation addressed allegations relating to a variety of Chinese practices affecting trade and investment in the green technology sector, including not only prohibited subsides but also export restraints, discrimination against foreign companies and imported goods, technology transfer requirements, and domestic subsidies causing serious prejudice to U.S. interests, the statement said.

However, China on Thursday defended its subsidies for wind and solar power saying that they are compliant with the WTO rules. China also said that it will work towards resolving the dispute.

Every country in the world is seeking to develop renewable energy to cope with climate change. China's wind power measures are helping save energy and protect the environment, said the Chinese commerce ministry.

Amid intensifying trade friction between the two countries, the latest allegation by the US accusing China of breaking the world trade rules is the second in less than four months.

In September, the US had filed another two cases against China related to Chinese government’s imposition of duties on US steel exports and discrimination on suppliers of electronic payment services from the U.S.

In April, China imposed duties on American steel and said these were subsidized. But the US contended that Chinese investigation lacked adequate evidence and followed improper procedures.

In case of electronic payment services, the US alleged market access restrictions and discriminatory limitations by China for its suppliers.