China Loses to US in WTO Auto Parts Case

In case you missed it, WTO Dispute Settlement case #339 has gone against China. This case concerns auto parts exports by the US, EU, and Canada to China for which Chinese authorities levied tariffs equivalent to those for complete automobiles. (The tariff rate that is supposed to be applied to auto parts is significantly lower than that for complete vehicles. Also note that the EU was the original complainant against China; the US latched on afterwards.) Reuters has a brief summary here:

The United States has won a preliminary ruling in a World Trade Organization case over Chinese tax policies that restrict imports of foreign auto parts, a U.S. trade official said on Wednesday.

"We can confirm that, in all major respects, the panel has agreed with the United States that China has acted inconsistently with its WTO commitments," the U.S. trade official said in response to press reports on a confidential interim report released in Geneva.

The final report in the case is expected to be made public by the second or third quarter of this year. The case would be China's first loss at the WTO.

The United States and the European Union filed the case in March 2006 and were later joined by Canada. They complained that China's tax treatment of foreign auto imports discouraged Chinese automobile manufacturers from using them...

Once a final report is issued, China would have the opportunity to appeal the decision...

Canadian Trade Minister David Emerson said the ruling, if upheld, would come at a crucial time for the ailing domestic auto parts industry, which needs to expand its "hundreds of millions" worth of exports to China to stay competitive.

"It's a market that's growing and with our companies in such tough shape right now a growing market is critically important to restoring health to our own auto parts industry."

Meanwhile, Max Baucus has hailed this ruling, as you would expect:

Senate Finance Committee Chairman Max Baucus (D-Mont) today welcomed a World Trade Organization (WTO) dispute panel’s initial finding that Chinese auto parts import policies violate WTO rules. The panel found that the Chinese policies discriminate against imported auto parts – from the U.S., for instance – and unfairly favor Chinese auto parts suppliers.

“Vigorous enforcement is the linchpin of our trading system. When we enforce WTO rules, markets open and our workers prosper,” said Baucus. “This decision is a victory for open markets and American workers.”

The auto parts dispute was brought to the WTO by the United States, the European Communities, and Canada in 2006. The three parties contended that China’s taxes on imported auto parts discourage automobile manufacturers in China from using imported auto parts in the assembly of vehicles. These regulations discriminate against imported auto parts in favor of Chinese-manufactured parts. A final panel decision is expected in March, after which China may appeal or comply with the decision.

Can auto parts manufacturers in the US, EU, and Canada ensure their survival by exporting their wares to China, or will Chinese auto parts manufacturers themselves be more than competitive? Stay tuned. This is the second straight victory for the US over China in trade disputes after getting it to back down in the subsidies case (DS 358).