WTO sets up panel to investigate China tax regime

GENEVA (Reuters) - The World Trade Organisation (WTO) on Friday launched a panel to investigate China's tax regime that the United States and Mexico allege give Chinese businesses an unfair international trading advantage.

China last month exercised its right to turn down the first request for the panel, filed last month, to give more time for consultations on the issue. On the second request to the WTO's Dispute Settlement Body, it was set up automatically.

The United States and Mexico have argued that China's tax refunds, reductions and exemptions discriminate against imported products, or subsidise Chinese exports.

China argues that its tax laws are consistent with WTO rules and says the two complainants misunderstand them.

Although China eliminated one subsidy programme challenged by Mexico and the United States, it also passed a revised income tax law that the two say appears to give new unfair subsidies.

Chinese trade is a highly sensitive issue in the United States, where many many lawmakers blame Beijing's state subsidies and exchange rate policies for the huge U.S. trade deficit with the fast-growing Asian exporter.

In a separate case on Friday, China blocked an initial U.S. request for a WTO panel to investigate China's intellectual property rights protection and enforcement.

Washington says China's failure to crack down on counterfeit goods has helped foster a black market for pirated products that costs U.S. companies billions of dollars a year.

U.S. officials want to see more aggressive prosecution in China of those who pirate copyrighted or trademarked materials, and more stringent rules governing what happens to pirated material once it is seized.