China ignites car-trade

China is holding out against any meaningful concessions to the EU, US and Canada on tariffs it imposes on imports of car parts. Hopes for a negotiated settlement ahead of the establishment of a World Trade Organization (WTO) dispute settlement panel next week (28 September) are fading fast.

The EU joined the US and Canada last week (15 September) in requesting the establishment of the panel at next week’s meeting of the WTO dispute settlement body. If China blocks the decision, as it is entitled to do in the first instance, the panel would most likely be set up in October.

The three complainants opposed China’s practice of imposing tariffs of 25% on car parts constituting over 50% of fully constructed cars, part of its successful strategy to encourage foreign car companies to bring their manufacturing processes and suppliers to the country. Only last week (15 September) the Italian Prime Minister Romano Prodi while on a visit to China signed a joint venture deal between Fiat subsidiary Iveco and the Nanjing Automotive Corporation that will move auto production to the latter’s factories. Fiat suppliers will also shift production to China. According to complainants, China’s WTO membership commitments include promises not to treat car parts as whole vehicles and to limit duties on most to 10%.

"We challenge the accusation," said one Chinese delegate close to the case. He claimed that a communication issued by the Chinese government two years ago set the condition that tariffs of 25% normally applicable to whole cars would be imposed on any car part making up over half the finished product. According to the delegate, complainants are contesting the legality of the document. "For the Chinese car industry," the stakes are huge," he said, adding that any concession that China was able to offer would be unacceptable to the complainants.

"We’ve made it clear that we’ve always wanted a negotiated solution to this," said European Commission trade spokesperson Peter Power. "It is clear that if China comes up with changes to the regime that satisfy us, then that is how we will seek to resolve it."

Lars Holmqvist, chief executive of CLEPA, the European Association of Automotive Suppliers, said: "I’m expecting to see the EU putting its foot down and demanding equal treatment from both sides. I don’t want to be a protectionist, but if China doesn’t put its barriers down, I see no other option."

The case coincides with yesterday’s announcement (20 September) that the US and China have announced a new ‘strategic economic dialogue’. US Treasury Secretary Henry Paulson was this week meeting officials in Beijing.

China is holding out against any meaningful concessions to the EU, US and Canada on tariffs it imposes on imports of car parts. Hopes for a negotiated settlement ahead of the establishment of a World Trade Organization (WTO) dispute settlement panel next week (28 September) are fading fast.