The allegations that China is providing a safe haven for product piracy and counterfeiting are to be investigated by the World Trade Organization.
The U.S. complaint over China's enforcement of intellectual property rights is the culmination of years of agitation in Washington and elsewhere over one of the world's biggest sources of illegally copied goods, ranging from DVDs, CDs and designer clothes to sporting goods and medications.
"The United States recognizes that China has made the protection of intellectual property rights a priority and that China has taken active steps to improve ... protection and enforcement," U.S. trade official Dan Hunter told the WTO's dispute settlement body.
But Beijing has not done enough, Hunter said, adding that consultations between the two countries failed to resolve U.S. concerns, making the establishment of a WTO investigative panel necessary.
Beijing heavily criticized Washington earlier this year for starting the case, saying it could damage trade relations between the countries.
The case could have significant ramifications for American industries, from Hollywood to Silicon Valley, in determining how they combat piracy.
Lu Xiankun, a Chinese trade official, said Friday that the U.S. legal action was regrettable and that China would defend its interests before the global commerce body. China strongly opposes U.S. attempts to impose regulations that go beyond what is required by the WTO, Lu told the WTO's dispute body.
The WTO panel's scope will be limited to whether Beijing has taken sufficient action to protect intellectual property rights, but it could ultimately authorize U.S. trade sanctions against China worth billions of dollars annually - the amount the U.S. claims its companies lose because of China's lax enforcement. Such a panel often takes years to reach a final decision.
Hunter declined to repeat U.S. accusations of Chinese wrongdoing. Instead, he referred to a statement to the dispute body last month by U.S. trade lawyer Juan Millan, who said product piracy in China remains "unacceptably high."
"China has set one of its thresholds for prosecution of criminal copyright infringement at 500 infringing copies," Millan said. "We find it difficult to understand, however, why China has chosen to tie the hands of its prosecutors and prevent its authorities from prosecuting a copyright pirate who is caught with only 499 copies of an infringing product."
Millan also complained that China refuses to criminalize piracy of American movies, music, books and software still being blocked from the Chinese market because of censorship review laws.
China blocked the panel's establishment last month, but was prevented under WTO rules from delaying the investigation a second time.
The U.S. government has brought a series of complaints to the global commerce body since last year amid pressure from Congress to do something about America's soaring trade deficits and lost manufacturing jobs, which critics blame in part on unfair trade practices by foreign nations.
The U.S. trade deficit set a record for the fifth consecutive year in 2006 at US$765.3 billion. The imbalance with China grew to US$232.5 billion, the highest ever with a single country.
A WTO panel is currently examining a complaint by the United States and the 27-nation European Union on whether China maintains an illegal tax system to block imports of foreign-made auto parts into China. A first decision in the dispute - which came as a five-year transition period following Beijing's 2001 entry into the WTO ended - is expected late this year or early 2008.
Last month, the global commerce body launched an investigation into U.S. and Mexican allegations that China is providing illegal subsidies for a range of industries. The U.S. also has accused China of hindering sales of American movies, music and books through censorship rules that don't apply to Chinese products.