China Appeals WTO Ruling On Auto Parts

by Mary Swire, Tax-News.com, Hong Kong

15 September 2008

It has emerged that the Chinese government intends to appeal a ruling against the country by the World Trade Organisation (WTO), concerning import tariffs on auto parts.

The WTO confirmed on Monday that it had cancelled a dispute resolution panel meeting scheduled for that day to formally adopt the ruling against China, first issued in July, after receiving word from Beijing that it wants to contest the decision. Under WTO dispute resolution procedures, the panel now has up to 90 days to produce a second report on the case.

The dispute over Chinese import tariffs began after the United States argued that the China’s treatment of US and other imported auto parts is inconsistent with China’s WTO obligations. The matter was referred to the WTO in 2006 by the United States with support from the European Union and Canada.

China imposes an additional charge on imported auto parts whenever the imported parts are incorporated into a final assembled vehicle that fails to meet certain local content requirements. In its initial ruling, the WTO panel agreed with the United States that these higher charges unfairly discriminate against the use of imported parts in the assembly process and discourage automobile manufacturers in China from using imported auto parts in the assembly of vehicles. They also concurred that they put pressure on foreign auto parts producers to relocate manufacturing facilities to China.

Under Chinese rules, if the number or value of imported parts in the assembled vehicle exceeds specified thresholds (currently 40%), the Chinese authorities assess a 25% tax on each of the imported parts.

China argues that this is to prevent companies avoiding tax by importing cars in large chunks, thereby getting round the higher import tariffs for finished cars. However, the United States argued, and the WTO panel agreed, that these regulations impose an internal charge on US auto parts resulting in discrimination against US auto parts, in violation of WTO rules.

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