U.S. launches auto case against China, Beijing fires back

CINCINNATI/GENEVA Mon Sep 17, 2012 3:52pm EDT

U.S. President Barack Obama waves as he returns to the White House in Washington September 13, 2012, after campaigning in Colorado. REUTERS/Joshua Roberts

U.S. President Barack Obama waves as he returns to the White House in Washington September 13, 2012, after campaigning in Colorado.

Credit: Reuters/Joshua Roberts

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CINCINNATI/GENEVA (Reuters) - President Barack Obama on Monday said the United States was challenging Chinese auto and auto-parts subsidies that threatened American jobs as he campaigned in Ohio, an auto manufacturing state that could be decisive in the November presidential election.

Beijing fired back with a complaint against U.S. duties on many Chinese exports, in the latest example of trade tension between the world's two largest economies.

U.S. trade officials said their World Trade Organization case goes after Chinese government grants and other subsidies that have helped the Asian giant rise to the fifth-largest auto and auto parts exporter in 2011, from 16th in 2002.

"These are subsidies that directly harm working men and women on the assembly lines in Ohio and Michigan and across the Midwest," Obama told a campaign rally. "We are going to stop it. It is not right, it is against the rules, and we will not let it stand."

Republicans, including presidential nominee Mitt Romney, who has accused Obama of not being tough enough with Beijing, cast the move by the Democratic White House as a blatant effort to sway votes in an election battleground state.

"Campaign-season trade cases may sound good on the stump, but it is too little, too late for American businesses and middle-class families," Romney said in a statement. This was the second time in recent months that Obama has announced a trade action against China while in Ohio.

This year, the United States has also pursued anti-dumping and countervailing duty cases against Chinese-made solar panels and wind turbine towers in response to industry petitions.

The new case follows pleas from U.S. steelworkers and other union groups for action to stop what they said was a flood of unfairly subsidized Chinese auto parts.

It targets cash grants, below-market loan interest rates, preferential tax treatment and other export-contingent subsidies provided to Chinese auto and auto-parts manufacturers in government-designated regions known as "export bases."

Those bases provided at least $1 billion in subsidies to auto and auto-parts exporters in China during the years 2009 through 2011, U.S. officials said.

"China's exports of auto parts went from roughly $7 billion in 2002 to almost $70 billion today," a senior administration official said. "The gist of what we're doing is to make sure China does not distort the global market ... by frankly flooding the world with cheap auto parts."

The United States is a major auto and auto-parts manufacturer, with exports totaling $123 billion last year.

OHIO VERSUS CHINA, ROUND TWO

United Steelworkers President Leo Gerard, whose union represents about 350,000 workers who make tires, windshields, steel, plastic and other products that could be used for autos, hailed the administration's action.

The decision spares the union huge legal fees it would have to spend to individually bring anti-dumping and countervailing duty cases against Chinese auto parts imports, Gerard said.

"Even though we've had some disagreements with the president on trade agreements, there's not been a better friend to working agreements in enforcing those trade agreements in the last 50 years than President Obama," Gerard said.

Steelworkers estimate the $1 billion in Chinese government subsidies targeted in the case fuel about 60 percent of China's auto parts exports, so there might be room for the administration to bring more cases, he said.

U.S. trade officials also said they are taking the next step in a separate case filed in July against Chinese duties on U.S. auto exports by asking the WTO to establish a panel to hear the U.S. complaint.

That case was also announced when Obama was on a campaign swing through Ohio.

White House spokesman Josh Earnest denied any political motivation behind the timing of the administration's latest complaint. "It's clear that this is a long and consistent part of the president's record," he told reporters aboard Air Force One. "These are decisions that are months in the making."

The Obama administration points to eight other cases it has filed against Chinese trade practices at the WTO, as well as Obama's decision in 2009 to curb tire imports from China, a move that Romney has criticized as protectionist.

Meanwhile, Ohio Republican Senator Rob Portman, a Romney ally, criticized Obama for failing to label China a currency manipulator in seven semi-annual Treasury Department reports since he took office in January 2009.

Romney has promised to label China a currency manipulator on his first day in office and to direct the Commerce Department to slap duties on goods from countries with undervalued currencies. The next Treasury Department report is due October 15.

"We need new leadership that is not afraid to name China a currency manipulator," Portman said.

COUNTER-COMPLAINT

China's counter-complaint filed on Monday potentially affects close to 30 products that have been targeted by U.S. duties, a trade official familiar with the case said.

In a brief statement, the WTO said the products included steel, tires, magnets, chemicals, kitchen appliances, wood flooring and wind towers.

In March, the U.S. Congress voted to ensure that Washington could impose duties on subsidized goods from China and Vietnam, a move the White House said was needed to protect American jobs.

That came after a U.S. court ruling struck down the Commerce Department's ability to impose anti-subsidy, or countervailing, duties on Chinese goods on technical grounds.

China's Commerce Ministry hit back against the United States on Monday for targeting China with anti-subsidy duties.

"China hopes that the United States can correct its mistaken policy and appropriately resolve China's concerns through WTO dispute resolution mechanisms and consultations," Commerce Ministry spokesman Shen Danyang said in a statement.

The Commerce Ministry made no mention of the U.S. decision to initiate the auto case against China.

A senior Obama administration official said China's move "was not completely unexpected" and the United States would vigorously contest the case.

The administration's trade enforcement steps could play well politically in the U.S. industrial heartland, including in states such as Ohio that could determine the outcome of the November 6 election.

Obama holds a narrow lead in polls, but the sluggish economy and high unemployment rate have weighed on his re-election bid.

Trade cases can take years to litigate at the WTO, so no decisions are expected before the November election.

(Additional reporting by Michael Martina in Beijing, and Mark Felsenthal, Matt Spetalnick and Doug Palmer in Washington; Writing by Doug Palmer and Tom Miles; Editing by Jeremy Laurence, Tim Ahmann, Eric Beech and Vicki Allen)

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