WTO Cases • Volume 12 • Number 6 • 20th February 2008

Interim WTO ruling goes against china in auto parts dispute

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A WTO dispute panel has issued an interim ruling against China, largely upholding the complaints by the US, the EU and Canada that Beijing was levying inappropriate tariffs on imported auto parts, thus boosting its domestic industry.

At issue are Chinese trade measures which charge a 25 percent tariff on automobile parts if they account for 60 percent or more of the value of the whole vehicle, in comparison to what would otherwise be a 10 percent tariff on the parts.

The US, the EU and Canada complained that these policies discriminated against foreign auto parts, effectively subsidising domestic production, and went against China’s accession-related promise “not to treat parts as whole cars.” The three complainants have also argued that the Chinese tariffs “discourage automakers from using imported parts for the vehicles they assemble in China,” resulting in earnings and job losses as production shifts to China. The complaints date back to spring 2006, although the panel was not created until January 2007 (see BRIDGES Weekly, 5 April 2006).

The panel found that the measures accorded “imported auto parts less favourable treatment than like domestic auto parts” or subjected them “to an internal charge in excess of that applied to like domestic auto parts,” reports the London Free Press.

A US trade official confirmed that “in all major respects, the panel agreed with the United States that China has acted inconsistently with its WTO commitments.”

China’s mission to the WTO said that it “will not make comments on the case until the final ruling is made.” Mei Xinyu, of China’s Trade and Economic Cooperation Institute, affiliated with the commerce ministry, said that Beijing should appeal the ruling.

The final ruling is expected to be released in March. However, it is extremely rare for panels to change their findings between the interim and final decisions.

Chinese experts have defended the tariff measures. Zhao Yumin, also of the Trade and Economic Cooperation Institute said that the differential tariff rates were designed to “prevent tax evasion by companies who import whole cars as spare parts to avoid higher tariff rates.” “Leveling the tariff gap is to publicly encourage auto smuggling,” added Mei Xinyu.

Jia Xinguang, a senior analyst with China Auto Consultation Co. added, “only those foreign high-grade auto manufactures will benefit” from the ruling, even if the interim decision is not changed.

David Emerson, Canada’s trade minister, welcomed the decision as it would help Canada’s “ailing auto parts industry” by giving it greater access to a growing market. Emerson said that the Chinese trade practices “cost the Canadian sector hundreds of millions of dollars” in revenue.

Buzz Hargrove, president of the Canadian Auto Workers Union added, “any decision that recognizes the unfair trade with Asia, including China, [is] good news.” However, Hargrove also said that the problem is not limited to China, but extends to Japan and South Korea as well.

EU Trade Commissioner Peter Mandelson,expressed hope that China “complies fully and puts itself right by the WTO, not only in this question concerning auto parts, but in other respects where it is falling short in its WTO commitments.”

US officials have indicated that the panel’s decision, which is being followed by manufacturers of all sorts of car parts, may have “ramifications beyond auto manufacturing.” Max Baucus, chairman of the US Senate Finance Committee, called the interim ruling a “victory for open markets and American workers.”

Argentina, Australia, Japan, Mexico, Taiwan, Brazil and Thailand were third-parties to the dispute.

The US has turned up the heat on China at the WTO over the past two years, targetting several aspects of Chinese trade policy. They settled one out of court in November 2007, when China agreed to withdraw a series of tax rebates and subsidies that were promoting exports and discouraging imports of steel, wood, and information technology products. Another pending dispute at the WTO involves US allegations that China is tolerating piracy and maintaining trade barriers against books, music, and other copyrighted goods (see BRIDGES Weekly, 18 April 2007).

As trade between the two nations continues to grow – China just surpassed Canada to become the US’ largest source of imports – trade lawyers expect the US to launch more cases against Beijing, in response to rising anxiety from US industry.

ICTSD reporting; “China’s Auto Tariff Policy Not Violating WTO Rules,” XINHUA NEWS AGENCY, 16 February 2008; “WTO Rips Chinese Practices,” LONDON FREE PRESS, 14 February 2008; “WTO’s Interim Ruling Condemns China for the First Time,” ASSOCIATED PRESS, 13 February 2008; “China Studying WTO Interim Ruling on Auto Parts Dispute,” XINHUA NEWS AGENCY, 14 February 2008; “WTO China Ruling Could Save Canada Auto Part Sector: Official,” AGENCE FRANCE-PRESSE, 13 February 2008; “US Wins Auto Parts Case Against China – US Official,” REUTERS, 13 February 2008; “China: WTO’s Ruling Unfair,” CCTV, 18 February 2008; “WTO Defeat for China May Signal More Trade Complaints (Update 1),” BLOOMBERG, 15 February 2008; “US Export Fact Sheet,” US DEPARTMENT OF COMMERCE – INTERNATIONAL TRADE ADMINISTRATION, 11 January 2008.  
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