EU Continues Talks With China Over Auto Part Tariffs

by Ulrika Lomas, Tax-News.com, Brussels

13 July 2006

The European Union is continuing talks with the Chinese government concerning its imposition of tariffs on imported automobile components.

According to a report by Dow Jones Newswires, Heinz Zourek, director general of enterprise and industry at the European Commission, has stated that Europe is not interested in pursuing litigation against Beijing but is keen to resolve the issue through discussions.

Following a complaint from both the EU and the United States, 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, would be reduced to 10% from between 13.8% and 16.4%.

The EU and US had lodged a complaint with the World Trade Organisation in March arguing that the tariffs breached trade rules.

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.

However, last month, European Trade Commissioner Peter Mandelson declared that talks with China over the issue were complete and that there would now be a "period of reflection" by the Chinese, in addition to further formal discussions.

China's automobile industry has grown rapidly in recent years, and the country is now the second largest producer of vehicles after the United States. Last year, China's domestic car production totalled 5.7 million units. European Union-based car makers in joint ventures with Chinese manufacturers produced about 27% of this total.

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