China Abolishes Contentious Import Taxes On Auto Parts

by Leroy Baker, Tax-News.com, New York

02 September 2009

United States Trade Representative Ron Kirk has welcomed China’s decision to amend a law which imposes tariffs on imported auto parts for use in the manufacture of cars.

According to Kirk, US officials have been informed by the Chinese government that the charges are eliminated as of September 1. The necessary amendments to China's laws are expected to be published shortly.

China's announcement comes after the World Trade Organization (WTO) agreed with the United States and the European Union that these charges were contrary to WTO rules.

Commenting on China’s decision, Kirk stated that: "We are pleased that China has informed us that it is eliminating the additional charges on imported auto parts in response to the WTO ruling. Ending these charges will help ensure a level playing field for the high quality auto parts made in America, and is an important example of the importance of enforcing our international trade agreement rights."

Kirk warned, however, that the US government will be “carefully reviewing” the changes.

The WTO Appellate Body confirmed last December that China had breached its WTO obligations by creating a system for the registration and taxation of imported car parts that promoted the use of domestic components over imported car parts.

Under China’s system of tariffs, introduced as part of the 'New Automobile Policy' in 2004, if imported parts assembled in a specific model exceeded a certain threshold, an additional charge of 15% was imposed on top of the normal 10% customs duty.

The additional charge was easily triggered, either by a specific combination of even a few imported parts, or if the imported parts represented 60% or more of the price of the final vehicle.

In July 2008, a WTO Panel found that this system was in breach of the General Agreement on Tariffs and Trade (GATT) Article III, which does not allow internal fiscal and regulatory measures to discriminate against imported products in favour of domestic products.

The Panel additionally concluded that, even if the charges were to be classified as customs measures rather than internal measures, they would still breach GATT Article II, by imposing a customs duty higher than the one agreed to by China when it joined the WTO.

China appealed the Panel's conclusion before the WTO Appellate Body in September 2008, but the Appellate Body's final report largely confirmed the Panel's conclusions.

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