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WTO rules against China in auto parts dispute

The World Trade Organization (WTO) ruled on July 18, 2008 against China over its imported auto parts dispute with the U.S., EU and Canada, largely upholding its interim verdict given in February, saying that Chinese tariffs had violated WTO rules.

The WTO dispute on auto parts was brought by the EU and U.S. against China on March 30, 2006 with Canada also making a complaint on April 13, followed by Argentina, Australia, Brazil, Japan, Mexico and Thailand as third parties. On February 13 this year an expert panel issued an interim report concluding that Chinese measures with regard to the auto parts importation breach the WTO obligations.

China considers auto parts with CBU (completely built units) characteristics as a complete vehicle if they account for 60 percent or more of the value of a final vehicle and will charge a higher tariff on them. Chinese trade officials argued that the tariffs aimed to protect consumer interests by keeping “lawbreakers” from exploiting the differences between tariff rates in importing whole vehicles as spare parts to avoid paying higher taxes.

However, the three complainants had argued that these rules were inconsistent with Chinese commitments on the tariff rate for auto parts and also infringed the national treatment principle enshrined in former GATT Article III for imports of auto parts are subject to internal taxes. The Chinese tax measure would deter automakers from using imported parts to build vehicles in the country, which cost jobs abroad.

The EU has exported auto parts worth approximately three billion euros to China a year, and EU automakers account for about one-fourth of the auto production in China. The international trade body held that the Chinese tariff practice was protectionist and called on China to change its import taxes.

“The panel report leaves no doubt that China’s discriminatory treatment of U.S. auto parts has no place in the WTO system,” said Susan Schwab, the U.S. trade representative to WTO. “We will continue our efforts to ensure that U.S. manufacturers and workers in this and other industries enjoy the benefits of open markets and a level playing field.”

The WTO ruling will bring to an end the global dispute on China’s imported auto parts. This is the first time that the WTO has ruled against China in a trade dispute. Still China has the right to appeal the verdict, though the chance to win back is slim. Analysts believe the row over auto parts has been a hot issue in the U.S., because its automotive industry is gravely hit by fierce foreign competition and an economic slowdown. 

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