Geneva -- The World Trade Organization launched its first formal investigation into allegations of Chinese trade practices Thursday, establishing a panel to examine whether China's tariffs on the import of foreign auto parts break international trade rules.

The complaint was made by the United States, the European Union and Canada, whose first request for a panel was blocked by China in September. Under WTO rules, a panel is established automatically with the second request.

The three trade powers alleged that it is illegal for China to apply a tariff for whole cars to the import of parts that make up 60 percent or more of the value of the finished vehicle.

"These measures discourage auto manufacturers in China from using imported parts in the assembly of new vehicles," US trade negotiator David Shark told the WTO's dispute settlement body, adding that the practice could not be justified under the global trade body's rules.

China argued that the tariffs are intended to stop whole cars being imported in large chunks to avoid higher tariff rates for finished cars.

China's WTO delegation expressed disappointment that the US, EU and Canada had "ignored China's arguments and good faith to resolve this dispute through consultations" and decided to proceed with the panel request, a "unproductive" move.

A previous dispute between Beijing and Washington over a Chinese tax rebate for semiconductor chips was resolved during the consultation phase, meaning a full WTO investigation was avoided.

China said it would defend its position and interests before the panel.

The investigation could last months and even years before a final judgment, but could eventually result in punitive tariffs being imposed on Beijing.

China's auto industry has grown rapidly and it is now second only to the United States. However, manufacturers have to source 40 percent of parts by value in China to avoid the tax.

European carmakers account for between 20 percent and 25 percent of the cars made in China. They value their auto-parts exports to China at about US$4 billion.

The United States exported US$681 million in auto parts to China in 2005, an increase of 6.5 percent over 2004. But during the same time, the market for auto parts in China increased by 16.8 percent and the number of passenger cars sold in the country jumped by 27 percent.

Canada says it exported an average of US$256 million in parts annually from 2003 to 2005.

China's trade boom has caused friction with major European and American partners, and this dispute marks the first time the Western allies have teamed up to seek a formal WTO investigation over China's trade practices.

Earlier this month, the US asked China to provide the WTO with details of all subsidy programs and take action to remove those that are prohibited under global trade rules.