Canada Calls For WTO Action On Chinese Auto Part Taxes

by Mike Godfrey, Tax-News.com, Washington

18 April 2006

Pressure is mounting on China to cut taxes on the importation of auto components after Canada joined the United States and the European Union as the latest government to accuse China of reneging on its commitments under World Trade Organisation rules.

Canada's International Trade Minister David L. Emerson last week announced that the Government of Canada has officially made a request for WTO consultations on China’s treatment of imported auto parts.

“We are seeking clarification from China on its current auto part import regime, which we believe contravenes a number of the country’s international trade obligations,” said Minister Emerson.

“Our goal is to work toward resolving this issue through dialogue with the Chinese government and through cooperation with our trading partners," he added.

Under measures implemented by China on April 1, 2005, imported auto parts for use in the assembly of complete vehicles are, in some circumstances, being assessed a higher charge that normally applies to whole vehicles, rather than the tariff listed in China’s WTO tariff schedule as applying to parts.

China’s WTO commitments limit its tariffs on imported auto parts to rates that are significantly below China’s tariffs on finished vehicles. However, China recently implemented regulations that impose a tax on imported auto parts equal to the tariff on complete automobiles, (approximately 28%) if the final assembled vehicle fails to meet certain local content requirements.

China's tariff applicable to the importation of just auto parts typically ranges from 10% to 15%.

Canada describes itself as a "significant" supplier of auto parts to China with exports averaging $256 million annually.

Last month, US Trade Representative Rob Portman announced that the United States has requested WTO dispute settlement consultations with China over its supposed unfair treatment of imported auto parts. The US argues that China’s taxes on imported auto parts discourage automobile manufacturers in China from using imported auto parts in the assembly of vehicles.

"As a mature trading partner, China should be held accountable for its actions and be required to live up to its responsibilities," said Portman.

The US and the EU are working in "close coordination" to resolve the dispute. Japan has also made a request for WTO consultations regarding the Chinese taxes.

Consultations are the first step in a WTO dispute. Under WTO rules, parties that do not resolve an issue through consultations may refer the matter to a WTO dispute settlement panel.

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