Mumbai: The World Trade Organisation (WTO) has ruled against China in a complaint brought by the United States over its import tariffs on car parts, giving China's its first taste of a legal defeat since joining the WTO seven years ago.
China has a minimum local content requirement of 60 per cent for cars produced locally and levies a tariff on vehicles that fail to comply with this minimum requirement.
The formal verdict, which was on the lines of an interim ruling delivered in February, largely upheld US, EU, and Canadian complaints that Chinese tariff on imported auto parts violated WTO rules.
China said the rules were meant to prevent tax evasion by companies that import whole cars as spare parts. But the aggrieved parties, including the US, Canada and the EU, argued that the measure violated China's WTO accession agreement, which pledged a progressive opening up of Chinese markets.
The US had argued that China unfairly imposed a 25 per cent tariff on imported auto parts that failed to meet China's 'local content' requirement.
China considers auto parts as a complete vehicle if they account for 60 per cent or more of the value of a final vehicle and charges a higher tariff on them.
The complainants argued that the Chinese measure puts pressure on foreign auto parts makers to re-locate to China and discourages car manufacturers in China from using foreign auto parts.
EU exports of car parts to China exceeded $4.75 billion (euro 3 billion), comprising about one per cent of bilateral trade of over euro 300 billion in 2007.
The verdict will help makers of auto parts like batteries, brakes, seats and spark plugs, including US-based Delphi Corporatoon, Germany's Robert Bosch GmbH etc.
China, which can still appeal, claims that all measures are fully consistent with WTO rules and do not discriminate against foreign auto parts.