China is preparing to launch a trade investigation into whether US carmakers are being unfairly subsidised by the US government, according to people familiar with the matter.
The move comes at a time of heightened trade tensions between the two countries after the US imposed duties on Chinese tyres last month. Many warned this would prompt Beijing to retaliate.
Few vehicles are actually exported from the US to China, but the move would have symbolic power by turning the tables on Washington.
US labour groups have long accused Beijing of unfairly subsidising its exporters. However, through a "countervailing duties" investigation, China would assess whether the US was open to the same charge. The investigation could lead to import duties.
General Motors and Chrysler have received about $60bn in government bail-out funds, though Ford has received nothing.
Washington has also provided substantial aid to US and foreign carmakers, as well as parts suppliers, to encourage investment in "green" technology.
The wildly popular "cash-for-clunkers" sales incentive scheme this summer was also a boon for both US and foreign manufacturers.
The US exports about 30,000 vehicles to China, according to the American Automotive Policy Council, of which the Big Three -- GM, Chrysler and Ford -- account for 7,000 to 9,000.
China has already told the US that it has received a petition for an investigation, which people familiar with the matter said it would formally launch on Wednesday. Before that, the two countries will negotiate. Top US government officials are already in China for trade talks this week, and Barack Obama, US president, is due to visit the country next month.
China had notified the US it had received anti-dumping and countervailing duty petitions on cars, a spokeswoman for the United States Trade Representative said.
World Trade Organisation rules require China to invite the US to consult on the countervailing duty petition before initiating any investigation in an effort to find a resolution to the concerns. The countries expect to consult over coming days.
Stephen Collins, president of the American Automotive Policy Council -- the trade council for the Big Three -- said he was told about the investigation on Tuesday. "The US government called me yesterday and asked me to arrange a meeting of the three companies immediately," he said.
China has received an anti-dumping petition as well, which asks for investigation into whether US car exports are being sold at unfairly low pries.
Elliot Feldman, head of international trade at Baker & Hostetler, the law firm, said his firm warned the USTR last January that the approach the US was taking towards China and other countries over subsidies was dangerous in the light of the US's own support for carmakers, banks and financial institutions.
"We warned that other countries could apply to the United States the same principles the United States was applying to them," he said. "Apparently we have arrived."
Additional reporting by Bernard Simon in Toronto
© The Financial Times Limited 2009
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