UPDATE 2-Obama, eyeing China, creates trade enforcement unit

Tue Feb 28, 2012 2:47pm EST

* USTR Kirk to select director of new interagency team

* Unit will draw on resources from across government

* Reports raise alarm on China's industrial policies

* No new trade cases announced on Tuesday

By Doug Palmer

WASHINGTON, Feb 28 (Reuters) - President Barack Obama, following through on a promise to beef up enforcement of trade agreements, on Tuesday signed an executive order creating a new government team to make sure China and others play by the rules.

"American workers are the best workers on Earth, and when the playing field is level, I promise you - America will always win," Obama said in a speech to the United Auto Workers, whose help he will need in hotly contested states like Ohio and Michigan to win re-election in November.

The new interagency unit will "bring the full resources of the federal government to bear to investigate and counter unfair trade practices around the world, including by countries like China," Obama said.

The move comes as Obama has faced criticism from Republican presidential candidate Mitt Romney over his handling of China and as the U.S. trade deficit with the world's second-largest economy has soared to a record $295.5 billion in 2011.

In addition, two new reports on Tuesday raise concerns about state-supported competition from China and call for the United States to take a variety of steps to respond.

Obama first outlined his plan to create a new Interagency Trade Enforcement Unit (ITEC) in his annual State of the Union speech last month to Congress.

He took particular aim at China, which he accused of lavishing subsidies on its companies and not doing enough to stop counterfeiting of American goods.

The White House plans to spend $26 million dollars to hire 50 to 60 people to staff the new team, which will also draw on existing resources at the departments of Agriculture, Homeland Security, Justice, State and Treasury as well as the government's intelligence agencies.

The Obama administration has filed six cases at the World Trade Organization since taking office, or an average of two per year. Five of the cases have been against China.

Former President George W. Bush's administration averaged about three WTO cases per year between 2001 to 2009.

The executive order directs U.S. Trade Representative Ron Kirk to select a director to lead the new unit, with a deputy director chosen by U.S. Commerce Secretary John Bryson.

"In a matter of just 90 days, we will hire leadership and core staff ... and we will put them to work on the toughest cases," Bryson said.

'ENOUGH IS ENOUGH'

Kirk said the new team would focus on "the most commercially significant challenges" that U.S. companies face but did not identify any new cases that the administration could bring against China or other trading partners.

He touted a case against Chinese export restrictions on raw materials the administration has already won at the WTO and said with additional resources the new trade unit will "be better able to shine the spotlight on trade practices that distort markets and inhibit U.S. exports."

Romney, who has struggled recently to hold onto his front-runner status in Republican presidential primaries, has criticized Obama for not doing more to "crack down on China for stealing jobs" and promised to get tough with China over its currency practices if elected president.

The Information Technology & Innovation Foundation, a Washington think tank, in a new report on Tuesday accused China of using currency manipulation, subsidies, tariffs, forced technology transfers, export restrictions, standard setting and other policies to gain an "absolute advantage" for its companies in a wide array of industries.

"While virtually all governments have crafted economic development policies to boost competitive advantage, China has developed the most comprehensive set of policies, with most of them violating the spirit, if not the letter of the law of the WTO," the report said. "It's time to say 'enough is enough.'"

It recommended overcoming the concern many companies have that filing a WTO case will trigger Chinese retaliation "by making it national policy that USTR will bring cases whenever U.S. interests are being hurt through trade rule violations, even if U.S. companies don't want them to proceed."

It also called for a tax credit to help companies pay for WTO cases and urged the United States to "build a global free-trade coalition" with the European Union, Canada, Australia, Japan and others to push back against China.

A second report by the office of Democratic Senator Ron Wyden warned that the United States is "losing the environmental goods economy to China" because of Beijing's aggressive push to promote its wind, solar and other renewable technology sectors.

"The (global trading) system breaks down when the world's participants fail to abide by its rules. That is especially true when the country that appears to be breaking the rules has the world's second-largest economy," Wyden's office said.

Along with tougher enforcement of trade agreements, the United States needs vigorous government polices to support production of environmentally friendly goods, the report said.