Mexico accuses China of breaking world trade rules

Mexico has accused China of breaking World Trade Organization rules by giving tax breaks and other favorable deals to its own clothing and textile businesses, the global trade body said on Monday.

Mexico filed a complaint with the WTO saying Beijing was effectively subsidizing Chinese companies in those sectors by exempting them from income taxes, value-added taxes and municipal taxes, the organization said in a statement.

Other Chinese support that Mexico said broke WTO regulations included cash payments from government agencies and discounts on loans, land rights and electricity prices.

It was Mexico's fourth WTO complaint against China, a competitor in many sectors including clothing and textiles.

China's use of subsidies and its failure to disclose them to the WTO have been the subject of strong criticism, especially from the United States.

The brief WTO statement announcing the latest dispute did not provide details about the size of the alleged Chinese support or its impact on Mexico's trade.

Trade diplomats were not immediately available to comment on the case at the WTO's headquarters in Geneva.

Mexico's textile (CANAINTEX) and clothing industry (CANAIVE) associations, in a joint statement, called Mexico's official complaint "a highly important move."

"The existence of subsidies in China, which violate WTO regulations, give producers from that country an unfair advantage, distort international markets and seriously damage Mexican industry," they said.

Under WTO rules, China has 60 days to resolve the dispute by explaining its actions or changing its behavior. If no deal is reached, Mexico could ask the WTO to rule on the case.

In December 2011, Mexico and China signed off on a series a trade agreements that sought to protect Latin America's second largest economy from cheap Chinese imports.

The treaty - negotiated over a period of seven years - formed part of China's conditions for entering the WTO.

Under terms of the agreement, Mexico placed fixed tariffs of up to 1000 percent on products including textiles, shoes and toys, all vulnerable to being undercut by cheaper Chinese imports. The tariffs gradually decreased to zero by December 2011.

In January 2009, Mexico challenged grants, loans and incentives that Beijing offered Chinese companies. The United States and Guatemala filed identical cases against China at the time, but none progressed to the litigation stage.

In January this year, Mexico, together with the European Union and the United States, won a WTO case againstChina's restrictions on exports of raw materials.

Last month the United States launched a WTO complaint against Chinese car exports. China hit back with its own suit, saying U.S. duties targeting export-promoting subsidies themselves broke WTO rules.