Johannesburg — SA's first legal bid to protect itself against unfairly subsidised imports from China has been thwarted, under what appears to have been undue pressure from the Chinese government.

South African manufacturing firms are already squeezed by heavily subsidised imports from China. The situation is set to get worse as the Chinese government increases payments to its manufacturers to keep exports competitive in the global economic downturn.

Chinese state support for industry has been notched up so aggressively that the US has challenged China's subsidy programmes at the World Trade Organisation (WTO) .

SA compromised its ability to probe dumping against China severely in granting that country market economy status two years ago.

Now it has emerged that a South African maker of stainless steel kitchen sinks has hastily withdrawn a countervailing measure application -- brought to counter unfair subsidisation -- apparently because the Chinese government threatened the future success of its operations in China if it pressed on with the application.

The situation leaves local manufacturers vulnerable as China's action undermines SA's trade remedy tools, which means manufacturers have no recourse against unfair competition from Chinese imports.

The application by Franke Kitchen Systems, a subsidiary of the Swiss-based Franke group, was the first countervailing application to be brought against China by a developing country.

International Trade Administration Commission chief commissioner Siyabulela Tsengiwe said China told SA of its displeasure at the application.

A countervailing measure is politically sensitive as it brings under scrutiny a country's industrial policy, and could alert other countries to potentially actionable subsidisation .

China's actions raise questions about its adherence to fair trade obligations as a member of the WTO. However the WTO's hands are tied in the absence of a complaint.

WTO spokesman Keith Rockwell said: "Only members can initiate a case against another member. The WTO, or the DG (director-general Pascal Lamy) has no power of self-initiation.

"As to whether this case means that the Chinese are not in compliance with WTO rules, I don't know, and neither does anyone else because the only way to know for sure is through the dispute-settlement process."

Franke's initial bid was to bring an antidumping application after an import surge saw China's market share climb to 60% from zero three years before .

However, fearing that its dumping complaint would fail, the company also applied for countervailing measures, alleging that the margin of subsidisation for Chinese kitchen sinks was as high as 47,7% of the value of the product.

Franke's consultant, Jan Heukelman, told Business Day the company had a strong case. Franke listed 36 subsidies in 10 subsidy programmes from which Chinese manufacturers benefited, claiming kitchen sinks from China entered SA at below the cost of stainless steel, the raw material from which the sinks are made.

However, at the end of last year Franke suddenly withdrew the application.

Tsengiwe said the withdrawal came after "enterprise to enterprise engagement, facilitated by the Chinese government".

But Business Day has learnt that the Chinese government pressed Franke in Switzerland to withdraw the application to ensure the future of its substantial business interests in China.

Approached for comment, the lawyer of the Franke holding company in Switzerland, Andreas Hauswirth, confirmed the high-level discussions between Franke and Chinese state officials.

However, he said both parties had agreed to keep the content of the talks confidential.

Repeated attempts to get comment from China's trade attache in Pretoria, Wang Jing Bo, were unsuccessful.

Wang also refused to comment on the status of subsidy programmes in China.