WRAPUP 2-Chicken parts join menu of U.S.-China disputes

Fri Feb 5, 2010 2:40pm EST

For more stories on China-U.S. relations, click [ID:nCHINA].

* China to slap duties of 43.1-105.4 pct on chicken parts

* Rising trade and currency tensions

* U.S. poultry sector says disappointed, paragraphs 6-8 (Adds poultry industry group response)

By Lucy Hornby and Roberta Rampton

WASHINGTON/BEIJING, Feb 5 (Reuters) - China said on Friday it will slap heavy anti-dumping duties on U.S. chicken parts, a move likely to aggravate trade ties between two of the world's most important economies at a time of strained political relations.

The Chinese Commerce Ministry's initial investigation showed that U.S. companies had dumped chicken products into the Chinese market, according to the ministry's website (www.mofcom.gov.cn).

The preliminary tariffs were announced a day after Beijing requested a World Trade Organization ruling on European Union duties on shoes made in China in the latest case demonstrating China's use of the WTO to keep markets open to the exports on which it depends.

The United States Trade Representative was muted in its response, saying it would consult with U.S. producers as it analyzed China's move.

"USTR is following the investigation closely, and we will want to ensure that MOFCOM follows the applicable WTO rules," . spokeswoman Carol Guthrie said in a statement.

But the USA Poultry & Egg Export Council said the American poultry industry was "deeply disappointed" by China's move.

The tariff decision disregarded facts provided by producers and "will virtually eliminate U.S. chicken exports to China for the foreseeable future," the lobby group said in a statement.

"We're hopeful that if Chinese officials study our submissions in greater detail, they will conclude that U.S. chicken products were, in fact, not dumped," said USAPEEC President Jim Sumner.

The United States and China are embroiled in a series of economic and political disputes, ranging from the value of the Chinese currency to Internet control, Taiwan and Tibet.

President Barack Obama this week vowed to get tough in dealing with complaints that U.S. exports are disadvantaged by China's artificially cheap yuan, drawing a sharp rebuke from China that its currency was set at "reasonable" levels.

CHINESE PRODUCERS CRY FOUL

The various disputes following placid ties during Obama's first year in office have alarmed the business community.

"The world needs strong U.S.-China economic engagement now, not a ratcheting up of trade tensions," said Michael Barbalas, president of the American Chamber of Commerce in China.

Chicken feet and wing tips, virtually worthless in the U.S. market, are a delicacy in southern China. Many U.S. poultry producers count on the Chinese market to round out their profits.

Chicken feet and wing tips fetch about 2 U.S. cents per pound in the United States, but land in China at about 42 U.S. cents - a figure that Chinese rivals say represents the cost of the freight only.

"Chicken feet and wings are not wanted in the U.S. so they sell them to China, they dump them below cost," said Wang Xiulin, president of the Chinese Poultry Association.

"For over a decade, the U.S. has sent big volumes of chicken to the Chinese market, hurting producers here. Last year, the Chinese poultry industry was really hurting so we asked for this investigation."

Tyson Foods (TSN.N), an active investor and lobbyist in China, got the lowest duty of 43.1 percent. Pilgrim's Pride Corp PPC.N was hit with an 80.5 percent duty. Most other firms, including Sanderson Farms (SAFM.O), face a 64.5 percent duty.

Those that did not appeal the finding would pay duties of 105.4 percent, the ministry said.

China began its investigation of U.S. chicken parts after the U.S. imposed safeguard duties on Chinese-made tires, which China is fighting at the WTO [ID:nLDE60I1H8].

DALAI LAMA ROW LOOMS

The latest flare-up in Sino-U.S. ties comes against a backdrop of disagreements over human rights after Beijing jailed a top dissident and over Internet freedoms after search engine Google Inc (GOOG.O) threatened to pull out of China over censorship and hacking attacks.

U.S. senators have taken up the Google case, backing the search engine with unanimous resolution. a Congressional panel will hold a high-profile hearing on Google on Feb. 10.

China has been warning Obama against meeting the Dalai Lama, reviled by Beijing as a separatist for seeking self-rule for Tibet. The meeting may happen as early as this month.

Beijing is also upset with Washington over a $6.4 billion U.S. weapons package for Taiwan, the self-ruled island that Beijing deems a breakaway province. China has said it will impose unspecified sanctions on U.S. firms selling weapons to the island.

U.S. officials have voiced frustration that the issues roiling ties now were all discussed directly by Obama and Chinese President Hu Jintao just last November in Beijing.

The Eurasia Group said in analysis published on Friday that China's government is reacting to nationalistic pressures at home and to resistance from foreign countries who want more Chinese action in correcting huge global imbalances.

"Beijing's amped up rhetoric was likely driven by domestic insecurities and an external environment that is less conducive to perpetuating its export-led economic model," it said.

Damien Ma, a China analyst at the Eurasia Group in Washington, said there are still many bilateral working relationships that can help defuse U.S.-China tensions.

"Just because there's a lot of issues and a lot of headline risk, doesn't mean these things won't be worked out through back channels," he said. (Additional reporting by Niu Shuping in Beijing; Writing by Paul Eckert; Editing by Eric Walsh)

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