On February 13, 2008, in what US trade authorities would hope is a precedent-setting case, a WTO dispute settlement panel established on January 29, 2007 issued its decision against China, in favour of the joint complaint by the United States, European Communities, and Canada. The complaints brought by the requesting parties alleged that although China had complied with its WTO obligations of lowering auto parts' tariff rates in comparison to whole car imports, several measures implemented by Beijing effectively negated any benefits obtained by the lower tax rate.
At issue were the following Chinese laws and policies: (a) Policy on Development of Automotive Industry (Order No. 8 of the National Development and Reform Commission, 21 May 2004); (b) Measures for the Administration of Importation of Automotive Parts and Components for Complete Vehicles (Decree No. 125), which entered into force on 1 April 2005); and, (c) Rules for Determining Whether Imported Automotive Parts and Components Constitute Complete Vehicles (General Administration of Customs Public Announcement No. 4, which entered into force on 1 April 2005; as well as any amendments, replacements, extensions, implementing measures or other measures related.
[from WTO website,
http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds340_e.htm]
Particularly, China had reduced auto part imports to 10% in comparison to the current rate for complete vehicles, 25%. However, due to the measures set out, should import parts in the completed vehicle exceed certain thresholds, the parts would be taxable at the rate of 25%.
China is currently the world’s third largest consumer of automobiles and due to its increasing wealth and massive population, the ruling, if implemented, should have a significant impact on the industry. Further, there is more general interest in this first ruling against China, in observing Beijing’s response. It is uncertain whether the Chinese government will appeal the ruling, or whether they will take positive steps to comply with its WTO obligations.
As there are four more complaints pending against China, the world's attention will be on its response.
