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China auto tariff policy not violating WTO rules

Source xinhua 2008-02-18

Leading industry experts have defended China's auto imports tariff policy in the wake of a ruling by the World Trade Organization (WTO) which says the policy breaks its rules.

China considers car parts as a whole vehicle if they account for 60 percent or more of the value of a whole vehicle, and charges a 15 percent higher tariff on them.

Zhao Yumin, a research fellow with the Trade and Economic Cooperation Institute of the Ministry of Commerce (MOC), told Xinhua News Agency on Friday that the tax measure is aimed to prevent tax evasion by companies who import whole cars as spare parts to avoid higher tariff rates.

"China has completely kept promises the country made when it joined the WTO by remarkably slashing the import tariff," Zhao said.

Mei Xinyu, an analyst with the Institute echoed Zhao's sentiment, adding that "leveling the tariff gap is to publicly encourage auto smuggling."

The WTO panel, however, largely upheld the complaints filed by the United States, European Union and Canada that China improperly taxed imported car parts at the same rate as finished vehicles, sources close to the case said on Wednesday.

They argued that the Chinese tax measure, which defied its WTO obligations, deterred auto-makers from using imported parts to build cars in the country and cost jobs abroad.

It was the first time that China suffered a defeat at the international trade body. But the decision is only an interim ruling and China still has the right to appeal.

After informed of the interim result, the Chinese mission to the world trade body said in a statement issued late Thursday that "China is carefully studying the report and is preparing to submit its opinions to the WTO panel.

"China respects the dispute settlement procedures of the WTO and will not make comments on the case until the final ruling is made," the statement also said.

Mei said China should appeal, "even if the result is not what we wish. However, no panel has changed its findings between an interim and final decision in WTO history. But it does not mean China cannot make it happen."

"The root of disputes is high-grade auto parts imports, as the domestic low-grade auto parts manufacturers can serve the market," Zhao said.

China's growing appetite for high-grade autos has attracted foreign auto parts producers. They want to get the cake without transferring the technology, he added. Lowering the import duty will be the only way to take more from the market, he said.

Many foreign manufacturers pressured their governments to influence the WTO to clear the obstacle; the Shanghai-based China Business News quoted an anonymous MOC official as saying Friday.

According to the latest customs figures, China imported US$10.6 billion worth of auto parts last year, up 17.8 percent year on year.

Meanwhile, the country's auto parts manufacture industry marked an industrial output of 670 billion yuan (about US$93.1 billion), statistics from China Association of Automobile Manufacturers showed.

Market analysts believe that even if the panel's final decision, which is expected next month, backs up the interim decision, not much influence would be felt by the domestic auto industry in the long term.

"Only those foreign high-grade auto manufacturers will benefit," said Jia Xinguang, a senior analyst with China Auto Consultation Co. Ltd..