UPDATE 1-U.S. trade agency says WTO rule change efforts to rein in China will fail

Negotiating new World Trade Organization rules to try to rein in China's "mercantilist" trade practices would be largely a futile exercise, the Trump administration's trade office said on Monday, vowing to pursue its unilateral approach to protect U.S. workers, farmers and businesses.

In an annual report to Congress on China's WTO compliance, the U.S. Trade Representative's office said it would be "unrealistic to expect success in any negotiation of new WTO rules that would restrict China's current approach to the economy and trade in a meaningful way." Some U.S. allies, including Japan, Canada and the European Union, have begun discussions on the first potential changes and modernizations of WTO rules since the organization's founding in 1995.

But any WTO rule changes must be agreed by all of the trade body's 164 member countries, and past efforts have stalled. USTR said it is "highly unlikely" that China would agree to new disciplines targeting changes to its trade practices and economic system. The agency said the United States intends to "hold China accountable" for adhering to existing WTO rules and "any unfair and market-distorting trade practices that hurt U.S. workers, businesses, farmers or ranchers." "Until China transforms its approach to the economy and trade, the United States will take all appropriate actions to ensure that the costs of China’s non-market economic system are borne by China, not by the United States," USTR said. (Reporting by David Lawder in Washington Editing by James Dalgleish)