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WTO rules that country's import tariffs adversely impact US, Canadian and EU auto parts suppliers

WASHINGTON, DC – 08/11/08 – The World Trade Organization (WTO) has ruled that China violated trade laws by hiking import tariffs on auto parts imported from the US.

The "report leaves no doubt that China's discriminatory treatment of US auto parts has no place in the WTO system," said US Trade Representative (USTR) Susan Schwab.

"We will not stand idly by when China or any other country adopts regulations or industrial policies that tilt the playing field against American goods or services,” she said.

Schwab's office said US auto suppliers set up operations in China so automakers could avoid hefty tariffs they had to pay if they used less than 51% Chinese-made parts in vehicles built in China.

The policy has helped China's auto parts companies, resulting in a steadily rising Chinese auto parts trade surplus, the USTR charged.

The three-member WTO panel, in effect, agreed with the US, Canada and the 27-member European Union that the higher charges “unfairly discriminate against the use of imported parts in assembling vehicles and discourage automobile manufacturers in China from using imported auto parts.”

The decision is expected to boost the fortunes of US, Canadian, and European Union auto parts makers that have been struggling to penetrate the burgeoning Chinese market. The manufacturers had long felt that China's policy had encouraged suppliers to relocate to China, costing jobs in their home markets.

The US first objected to the Chinese policy in March 2006, and a hearing panel was formed in October. China has the right to appeal the WTO decision, but an appeal likely would be resolved within six months.

It could take years before the US would be allowed to impose economic sanctions on Beijing for failing to comply with the ruling. If it opts not to appeal, China has an undefined "reasonable period" to end the tariffs.

If it does not, Washington would have to appeal to a separate WTO panel and win a ruling that China had not taken corrective action before it could impose sanctions.

The ruling confirms a preliminary finding in February that China was often taxing imported auto parts at the same rate as imported finished vehicles.

Experts said the ruling may “significantly boost” the US export of auto parts.

US auto suppliers have increased their factory output in China in recent years but still ship parts worth about $1 billion to China annually.

Before China was admitted to the WTO, access to China's auto market was a key issue. All vehicle manufacturers in China that use imported parts must register with China's Customs Administration and provide specific information about each vehicle they assemble, including a list of the imported and domestic parts to be used, and the value and supplier of each part.

If the number or value of imported parts in the assembled vehicle exceeds percent tax.

China has the world's fastest-growing major auto market, with 8.8. million vehicles sold in 2007 – up 22% over 2006.

But in the wake of a major earthquake and a decision by China to hike gasoline prices by 20 %, the rate of growth is expected to dip to around 15% this year with some analysts predicting China could overtake the US as the world's largest auto market around 2015.

China has sought to improve its reputation in the US recently; last month it said it would import thousands of vehicles and parts valued at more than $2 billion from Detroit's Big Three auto makers.

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