The United States and European Union took action against China on Tuesday for restricting exports of industrial raw materials, intensifying a trade struggle at a delicate time for the global economy.
In the United States the decision to bring the dispute before the World Trade Organization was seen as part of a more muscular trade policy promised by the Obama administration, but it added to tensions at a time when Washington counts on Beijing to keep buying its debt.
Europe and the United States had earlier failed to persuade resource-hungry China to reduce its export tariffs and raise quotas on materials like bauxite, coke and manganese that are used in steel, microchips, planes and other products.
Billions of dollars in trade flows are affected, and China gives its industries an unfair edge, U.S. officials said.
After more than two years of urging China to lift these unfair restrictions, with no result, we are filing at the WTO today, U.S. Trade Representative Ron Kirk told a news conference in Washington.
We are most troubled that this appears to be a conscious policy to create unfair preferences for Chinese industries that use the materials, he said.
As a first step, the United States and the European Commission -- which oversees trade for the 27-nation EU bloc -- formally sought consultations with Beijing at the global trade watchdog. If these talks fail, after 60 days the next step would be to request a WTO panel to hear the complaint.
It is very much hoped that we will not have to proceed to the next stage, Kirk said.
In Brussels, EU Trade Commissioner Catherine Ashton said: The Chinese restrictions on raw materials distort competition and increase global prices, making things even more difficult for our companies in this economic downturn.
I hope that we can find an amicable solution to this issue through the consultation process, she said in a statement.
CHINA LIMITING EXPORTS
The EU and the United States say China restricts exports of raw materials despite a pledge to eliminate export taxes and charges made when it joined the WTO in 2001.
This hurts foreign downstream producers of goods, such as aluminum producers and steelworkers, since the export restraints limit their access to raw materials and raise world market prices for the materials while lowering the prices that domestic Chinese producers have to pay, U.S. officials said.
U.S. officials said the nine materials covered by their case were bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc.
In Ottawa, Canadian officials indicated they had not ruled out joining the case. For the moment, we are closely monitoring developments in this file, said Melisa Leclerc, spokeswoman for Canadian Trade Minister Stockwell Day.
The action could jeopardize already brittle U.S. trade relations with China. It was the first WTO case brought against Beijing by President Barack Obama, who accused the country of unfair trading practices during last year's election campaign.
Trade disputes between Brussels and Beijing are on the rise since the EU's trade deficit with China has ballooned. Brussels has imposed a number of anti-dumping tariffs on imports of Chinese goods ranging from shoes to steel products.
The move against China was welcomed by U.S. steelworkers and manufacturers, both of whom said it could signal a new U.S. seriousness about enforcement of trade rules.
But Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers, said it would be ridiculous to think that the case heralds a trade war between the United States and China.
The WTO is the impartial place you go to resolve trade disputes so you don't have to have a trade war, Vargo said.
The United States has filed seven other cases against China since it joined the WTO; China has brought four cases against Washington.
While I am sure China will say they haven't done anything wrong and will contest the charges before the WTO, China's past record on settling and complying with WTO cases has been pretty good, Vargo said.
(Additional reporting by Louise Egan in Ottawa)
(Editing by David Storey)