China Programme • Volume 12 • Number 28 • 4th September 2008
WTO Rules against China in Auto Parts Dispute
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China lost its first ever WTO dispute on 18 July, when a panel on the WTO compliance of its auto part tariffs found in favour of the complainants - Canada, the EU and the US.
Central to the dispute was a 25-percent tariff on certain imported auto parts that China introduced in 2005. China had previously bound its tariffs on car parts at 10 percent, but claimed that the extra duty was necessary in cases where the imported parts are incorporated into a final assembled vehicle that fails to meet local requirements.
Vehicle manufacturers in China that use imported parts must register with China’s Customs Administration and provide a list of all imported and domestic parts to be used in each vehicle produced. If the number or the value of imported parts in the assembled vehicles surpasses specific thresholds, Chinese authorities impose a 25-percent tax on each of the imported parts - a figure that equals the duty China applies on imported automobiles but exceeds its 10-percent tariff ceiling on auto parts.
China had contended that the higher tariff was necessary to prevent tax evasion by companies that import whole cars as spare parts to avoid the higher tariffs applicable to entire automobiles.
However, the three complainants in the case maintained that these higher charges unfairly discriminate against the use of foreign auto parts and effectively subsidise domestic production. The parties argued that the tariff not only discouraged auto manufactures in China from using the imported parts, but also that the higher tariff put pressure on foreign auto parts producers to relocate manufacturing facilities to China.
The panel agreed that the tariff was in violation of WTO rules and China’s scheduled tariff commitments. China had promised as part of its 2001 WTO accession agreement to increase access to the automobile market and not to treat parts as whole cars. The panel further ruled that the tariff breached the GATT’s national treatment principle and the Agreement on Trade-Related Investment Measures. China has until mid-October to appeal the ruling.
More recently, the US filed a complaint on 13 August, asking China to defend the legality of its tax, subsidy and export regulations for farm products such as pork and wheat. China will have a chance to respond at a WTO meeting on 17 to 18 September when the country’s informal ‘transitional review’ will take place.
ICTSD reporting; “US questions China at WTO over pork, farm taxes,” THE ASSOCIATED PRESS, 26 August, 2008; “China finds a way to cut car imports without offending the WTO,” THE ECONOMIST, 21 August, 2008; “China auto parts tariffs ruled illegal,” THE CALTRADE REPORT, 11 August, 2008.
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