USTR - United States Files WTO Case Against China Over Treatment of U.S. Auto Parts
                 
The Office of the United States Trade Representative

United States Files WTO Case Against China Over Treatment of U.S. Auto Parts
03/30/2006

WASHINGTON – U.S. Trade Representative Rob Portman announced that the United States requested WTO dispute settlement consultations with China today due to its unfair treatment of U.S. auto parts.

"As a mature trading partner, China should be held accountable for its actions and be required to live up to its responsibilities," Portman said.

"China’s regulations on imported auto parts appear to violate its WTO obligations. While the United States has raised this issue repeatedly and sought repeal of these measures, the problem has not yet been resolved," Portman added. "We hope the filing of our request for consultations will lead to a speedy resolution of this issue."

The U.S. is joined in this WTO action by the European Union. The United States and the EU will continue their close coordination in seeking to resolve this dispute with China.

"As noted in our top-to-bottom review of U.S.-China trade policy, we will not hesitate to pursue our legal options when negotiations are not productive. As also indicated in the review, we seek to enhance cooperation with our trading partners in promoting China’s accountability and reform. Today’s actions are consistent with these commitments," Portman added.

China’s taxes on imported auto parts discourage automobile manufacturers in China from using imported auto parts in the assembly of vehicles. China’s WTO commitments limit its tariffs on imported auto parts to rates that are significantly below China’s tariffs on finished vehicles. However, China recently implemented regulations that impose a tax on imported auto parts equal to the tariff on complete automobiles, if the final assembled vehicle fails to meet certain local content requirements. Effectively, China’s regulations discriminate against U.S. and third country auto parts in favor of Chinese-manufactured parts.

Increasing access to China’s auto market was a key issue in China’s accession to the WTO. In its WTO accession agreement, China expressly committed to eliminate all local content requirements and to lower and bind its tariffs on auto parts. China’s new regulations, however, appear to contradict these obligations.

China’s auto market has grown rapidly in recent years, becoming the world’s second largest auto market, behind only the United States.


Background

Under China’s regulations governing the importation of auto parts, all vehicle manufacturers in China that use imported parts must register with China customs and provide specific information about each vehicle it assembles, including a list of the imported and domestic parts to be used, and the value and supplier of each part. If the number or value of imported parts in the assembled vehicle exceed specified thresholds, the regulations assess each of the imported parts a charge equal to the tariff on complete automobiles (typically 28%) rather than the tariff applicable to auto parts (typically 10-14%).

The regulations appear designed to encourage manufacturers in China to increase the amount and value of Chinese parts they use in the assembly process – at the expense of parts from the United States and elsewhere. The regulations also provide an incentive for auto parts producers to relocate manufacturing facilities to China.

The United States maintains these regulations impose a tax on U.S. auto parts beyond that allowed by WTO rules, and result in discrimination against U.S. auto parts. As such, China appears to be acting inconsistently with several WTO provisions including Articles II and III of the General Agreement on Tariffs and Trade 1994 and Article 2 of the Agreement on Trade-Related Investment Measures, as well as specific commitments made by China in its WTO accession agreement.

The United States brought the only previous WTO case against China. That dispute, involving China’s tax rebate on semiconductors, was resolved during the consultation phase. A second dispute, involving China’s antidumping duties on kraft linerboard, was resolved on the day the United States was to initiate the dispute, following notice to China that the dispute would be filed.

Consultations are the first step in a WTO dispute. Under WTO rules, parties that do not resolve an issue through consultations may refer the matter to a WTO dispute settlement panel.

USTR issued its top-to-bottom review of U.S.-China trade policy on February 14, 2006 in a report entitled, "U.S. - China Trade Relations: Entering a New Phase of Greater Accountability and Enforcement." The report can be found at www.ustr.gov <http://www.ustr.gov/> .

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