UPDATE 2-U.S. trade agency sees negotiating new WTO rules to rein in China as futile

Negotiating new World Trade Organization rules to try to rein in China's "mercantalist" 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."

The report shed little light on any progress made in bilateral talks between the United States and China. The discussions are swiftly approaching a March 2 deadline when the United States has said it will ratchet up tariffs on $200 billion of Chinese goods, lifting them to 25 percent from 10 percent. Some U.S. allies, including Japan, Canada and the European Union, have begun discussions on the first potential changes and modernization of WTO rules since the organization's founding in 1995.

But any WTO rule changes must be agreed on by all of the trade body's 164 member countries, and past efforts have stalled. USTR said it was "highly unlikely" that China would agree to new disciplines targeting changes to its trade practices and economic system. Chinese officials met with U.S. counterparts in Washington last week for two days of discussions to address U.S. concerns over China's trade and business practices. Those include key structural issues on forced technology transfer, industrial subsidies, market access and intellectual property rights.

The talks showed signs of progress, with U.S. President Donald Trump saying he would meet with Chinese President Xi Jinping. The two countries have been engaged in a tit-for-tat tariff battle since the middle of 2018, when Washington slapped duties on Chinese goods. Those were met with retaliation from Beijing. The escalating dispute has cost both countries billions of dollars and roiled global financial markets. The two presidents agreed to a 90-day ceasefire when they met in Buenos Aires in late November. It is less than a month away from that deadline.

'HOLDING CHINA ACCOUNTABLE' USTR 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.

The agency reiterated in its report the broad array of concerns it had over key structural issues in China. Those include China's 2025 plan to boost key domestic sectors and its failure to adhere to the market-oriented principles expected of WTO members, the report said. "China retains its non-market economic structure and its state-led, mercantilist approach to trade, to the detriment of its trading partners," it said.

(Reporting by David Lawder in Washington; Additional reporting by Chris Prentice in New York; Editing by James Dalgleish and Peter Cooney)

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