China Attempts To Placate EU, US Over Car Parts

by Mary Swire, for LawAndTax-News.com, Hong Kong

20 June 2006

Responding to a complaint filed at the WTO by the US and the EU, China said last Thursday that it will further cut import taxes on some cars and auto parts as of July 1.

The Chinese government department of Customs Tariff Commission of the State Council said it had decided to lower the tariffs on cars, SUVs (sports utility vehicles or cross-country vehicles), and mini-buses from 28% to 25%. Import taxes on auto parts, such as auto bodies, medium and low emission gasoline engines, will be reduced to 10% from between 13.8% and 16.4%

The United States and the European Union had filed their complaint against China with the World Trade Organization regarding Chinese tariff policies intended to promote the local production of auto parts in March. Following the complaint, a series of consultations between the sides has been held; but it was not immediately clear if the Chinese move would be sufficient to placate the US or the EU.

The US Trade Representative's website says China has been levying extra taxes on imported auto parts when domestic car makers failed to meet a 70% local content requirement. "Chinas taxes on imported auto parts discourage automobile manufacturers in China from using imported auto parts in the assembly of vehicles," the statement said. "In its WTO accession agreement, China expressly committed to eliminate all local content requirements and to lower and bind its tariffs on auto parts."

For its part, China had claimed that the additional tariffs were aimed at curbing tax evasion by some foreign auto makers who allegedly avoid paying customs duties on whole cars by disassembling them before import and then reassembling them after they enter the country, Xinhua news agency said.

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