U.S. targets China in trade filing

In filing its first major complaint of unfair trade practices by accusing China of restricting competitors’ access to raw materials, the Obama administration raised hopes among U.S. manufacturers and unions that it would move aggressively to defend their interests in the global economy.

But whether the complaint filed Tuesday on behalf of U.S. producers of steel, aluminum and chemicals was the harbinger of a broad-based attack or just a symbolic step to fulfill a campaign promise remains an open question.

The complaint, filed with the World Trade Organization by the European Union as well as the U.S., accused China of restricting exports of various materials including zinc and coke, a key component for making steel, by establishing export quotas, duties and other restraints.

Those actions, U.S. trade officials say, have inflated global prices of those products, giving an unfair edge to Chinese manufacturers that use the materials in making such products as cars and aluminum baseball bats.

The export curbs have “really made Chinese steel artificially competitive and hurt a lot of companies in the U.S. and others trying to compete with it,” said Frank Vargo, vice president for international economic affairs at the National Assn. of Manufacturers.

“China’s policies on these raw materials seem to be a giant thumb on the scale in favor of Chinese producers. It’s our job to make sure we remove that thumb from that scale,” U.S. Trade Representative Ron Kirk said in announcing the complaint.

Reiterating a point he made at his confirmation hearing this year, Kirk said that enforcing trade agreements would be a top administration priority. “We believe that trade can be a critical part of our economic and other countries’ economic revival, but if you’re going to do business with the United States, you’re going to have to play by the rules,” he said.

Analysts in the U.S. described the case against China as strong and said it would probably push the Chinese to back away from the export restraints rather than let the dispute go to adjudication before the world trade group.

There was no immediate reaction from the Chinese government about the complaint, but Beijing previously has said trade rules allow it to place restrictions on the materials, which also include magnesium and yellow phosphorus, because they are exhaustible natural resources of the country.

“What the U.S. and Europe are doing is groundless,” Zhou Shijian, an expert on Chinese-U.S. trade relations, told the Global Times, a prominent state-owned Chinese newspaper, after the complaint was filed. “It’s natural for a country to try to protect its resources and environment.”

In a statement last week, however, Chinese officials said they would try to negotiate if the U.S. and the European Union took the dispute to the trade organization. And on Tuesday, the finance ministry said it would drop export taxes on a variety of goods such as metals, rice and other grains.

The filing of the complaint raised the hopes of U.S. business and labor that President Obama would step up the pressure on trading partners.

“The administration said it’s going to make enforcement a big deal, and the speed with which they came around to bring this case means we will see more WTO cases and stronger efforts to enforce our trade agreements than in the past,” Vargo said.

Such an expectation “is fundamentally why we ended up supporting Obama in the primary over Sen. [Hillary] Clinton,” said Gary Hubbard, a spokesman for the United Steelworkers union, which since the Bush administration has been pushing the U.S. to file a complaint on China’s export restrictions.

Obama also talked tough during the presidential campaign about China’s currency policy, saying Beijing was artificially holding down the value of the yuan, but he later backpedaled on the issue.

Nicholas Lardy, an expert on China’s economy at the Peterson Institute for International Economics in Washington, said a more telling indication of the administration’s trade posture with China could come in a dispute over tires. A U.S. panel concluded last week that the sale of low-cost Chinese tires was disrupting the American market. Beijing rejected that assertion, and Obama is expected to decide by September how to respond to the allegations.

Clyde V. Prestowitz, president of the Economic Strategy Institute in Washington and a trade negotiator in the Reagan administration, said Obama might very well get tougher on trade as part of a strategy to correct global imbalances.

“If there’s going to be a rebalancing, that suggests that there’s going to be a change in trade patterns,” he said. “And a change in trade patterns usually generates complaints.”

A wide-ranging confrontation with Beijing over trade could carry serious risks, given the still-troubled state of the economy, analysts said. China not only is the nation’s second-biggest trading partner, after Canada, but it also holds many billions of dollars in U.S. government bonds. If relations turned sour and Beijing decided to unload those securities, the U.S. economy could suffer significant harm.

The Obama administration tried to press the raw-material issue directly with China, as the Bush administration did, but quickly opted to file a complaint when it became clear that would not work, Vargo said.

Kirk said the U.S. decided to act after talks during the last two years failed to lead to the removal of the export restrictions.

Those talks were largely conducted by the Bush administration, which had decided not to file a formal complaint with the WTO, which governs global trade among member nations. Since China joined the WTO in 2001, Washington has filed seven cases against Beijing. China has filed four cases against the U.S.

Ensuring that countries do not impose unfair trade practices, Kirk said, is crucial as the U.S. tries to emerge from a severe recession.

“Now more than ever, trade is essential to keeping America’s economy afloat,” he said.

Kirk cited coke as an example of the effect of China’s trade practices.

In 2008, China was the world’s leading producer of the coal derivative, with 336 million metric tons. But export duties that reached 40% limited China’s annual exports to 12 million metric tons, pushing the world price for coke in August 2008 to $740 a metric ton, Kirk said. In China, the price was $472 a metric ton.

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don.lee@latimes.com

jim.puzzanghera@latimes.com

Times staff writer David Pierson in Beijing and Tommy Yang in The Times’ Beijing bureau contributed to this report.