U.S., China Settle One Of Their Trade Disputes

WASHINGTON (Dow Jones) -- The U.S. and China have settled one of their trade disputes, the United States Trade Representative Susan Schwab announced Thursday.

The agreement ends a seemingly interminable dispute that the U.S. eventually took to the World Trade Organization. It involved alleged Chinese tax breaks for exports and benefits to Chinese companies that use domestic goods in their manufacturing process instead of imports.

"I am very pleased that today we have been able to sign an agreement with China that should lead to full elimination of these prohibited subsidies," Schwab said in a statement.

"As a result of such subsidies, a range of domestically produced goods in the United States, from steel to wood products to information technologies, are denied the opportunity to compete fairly in the United States, in China, and in third country markets," Schwab said.

According to the U.S., 58% of Chinese exports received some form of favorable tax treatment in 2005 and the percentage has been growing over the past two years.

Under the agreement, China has committed to ensure that the subsidies are eliminated by the start of the New Year.

If the U.S. believes that China has not met this commitment, it can re-start WTO proceedings in Geneva.

Schwab could not resist making a jab at Congress, where criticism over the White House China policy has been unrelenting.

"Members [of Congress] with whom I have spoken appreciate the value of results over rhetoric," Schwab said.

But the U.S. Business and Industry Council, a trade group of manufacturers upset with China's trade practices scoffed at suggestions that the agreement was a breakthrough and said Chinese negotiators continue to run circles around the USTR.

In a statement, the USBIC called the agreement "utterly useless" because China had already planned to end the tax-breaks in question due to opposition from domestic Chinese companies.

And the secretiveness of China's government makes it impossible to know for sure whether the companies are receiving other favorable treatment, the group said.

The agreement comes roughly two weeks before top Bush Administration economic officials will travel to Beijing for the twice-per-year policy dialogue.

The U.S. is pressing the Chinese government to end its historic role controlling the economy, especially quick action from the leadership to relax China's control over the foreign exchange value of its currency.

For its part, Chinese leaders want to end U.S. restrictions over Chinese purchases of high-tech equipment and also want to use some of their huge reserves to invest in American companies without opposition from Congress.

The bilateral talks will take place Dec. 12-13 outside Beijing.

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