China appeals on WTO ruling of auto parts tariffs

15 Sep 2008


China has appealed against its first legal defeat at the World Trade Organisation on a ruling on unfair use of tariffs on foreign car parts in a case filed by the United States, European Union and Canada in 2006.

The WTO's three-member panel had ruled on 18 July in favour of the US, EU and Canada, which argued that Beijing was breaking trade rules by taxing imports of auto parts at the same rate as foreign-made finished cars, in violation of China's WTO accession agreement, which pledged a progressive opening up of Chinese markets.

In order to get round its pledge under the terms of its accession to the WTO of lowering its import tariffs on foreign-made auto parts to 10 per cent from a high of 16.4 per cent and to reduce the rate on imported passenger cars to 25 per cent from 28 per cent, Beijing introduced a local regulation wherein a surcharge of 25 per cent was levied if at least 60 per cent of Chinese parts were not used in cars manufactured locally.

At the WTO, China defended its local regulation as a way to deter foreign automakers from shipping vehicles into China in large quantities in order to obtain the low 10-per cent tariff rate for parts import.

The US, European Union and Canada argued that the tariff imposed by China hindered automakers from using imported car parts for the vehicles they assemble in China. Car parts companies would then be forced to shift production to China, thereby causing massive loss of jobs in their home country.

Most of the cases filed at the WTO take years before any retaliatory sanctions can be applied. If China does lose the appeal then it will be given sufficient time to amend their laws which will be scrutinised by a separate panel at WTO to determine whether China had complied or was still breaking the rules. The appeals procedure can last up to 90 days.

This trade dispute, launched in 2006, became the first time Western countries joined together to launch a case against China at the WTO.

Canada's Trade Minister David Emerson told reporters that Canadian auto parts companies suffered hundreds of millions of dollars in lost revenue because of the unfair trade practice engaged by the Chinese.

Trade Representative Susan Schwab said at the time, "I am extremely pleased with the issuance of a very strong report by the WTO panel.''

''Enforcing trade agreements so that problems are solved -- whether through dialogue or, if need be, litigation -- is a critical part of the US trade agenda. The panel report leaves no doubt that China's discriminatory treatment of US auto parts has no place in the WTO system," she added.

As China's economy booms with exports all round the globe so do complaints at the WTO against it.

The US was firming itself to file a case at the DSB over tax breaks given to Chinese computer chip makers, which was finally settled without WTO arbitration by negotiation.

Chinese restrictions on foreign financial news agencies working in the country was also one of the cases filed the US and EU.Its record on protecting intellectual property rights is one among the several complaints filed by the US against China at the WTO.

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