Chinese Law Prof Blog

Editor: Donald C. Clarke
George Washington University Law School

Thursday, July 24, 2008

WTO issues panel report finding against China in auto parts dispute

A few months ago I blogged about the WTO panel's finding against China in the auto parts dispute. The panel report has now been made public. In the "Continuation" section of this post, I'll copy parts of the USTR statement and the Xinhua report describing what the dispute was about.

Here are some relevant documents (HT: Bill Abnett):

From the USTR's press release:

Increasing access to China's auto market was a key issue in China's accession to
the WTO. China imposes an additional charge on imported auto parts whenever the
imported parts are incorporated into a final assembled vehicle that fails to
meet certain local content requirements. The WTO panel agreed with the United
States that these higher charges unfairly discriminate against the use of
imported parts in the assembly process and discourage automobile manufacturers
in China from using imported auto parts in the assembly of vehicles. They also
put pressure on foreign auto parts producers to relocate manufacturing
facilities to China.

In particular, 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 specified thresholds,
the Chinese authorities assess a 25 percent tax on each of the imported parts.

The United States argued, and the WTO panel agreed, that these regulations
impose an internal charge on U.S. auto parts resulting in discrimination against
U.S. auto parts, in violation of WTO rules. The panel found that China is acting
inconsistently with several WTO provisions, including Articles III:2 and III:4
of the General Agreement on Tariffs and Trade 1994 and specific commitments made
by China in its WTO accession agreement.

The United States requested formal WTO consultations with China on March 30,
2006. The WTO established the dispute settlement panel on October 26, 2006, the
first such panel against China. China has the opportunity to appeal today's

From the Xinhua report:

[The panel's verdict] largely upheld U.S., EU, and Canadian complaints that Chinese tax measures on imported auto parts violated WTO rules.

China considers auto parts as a complete vehicle if they account for 60 percent
or more of the value of a final vehicle and charges a higher tariff on them.

Chinese trade officials said the measure is meant to keep "lawbreakers" from
exploiting the differences between tariff rates for importing entire automobiles
and auto parts, and to protect consumer interests.

However, the three complainants argue that the Chinese tax measure deters
auto-makers from using imported parts to build cars in the country, which costs
jobs abroad.

This is the first time that the WTO has ruled against China in a trade dispute.

China still has the right to appeal.

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