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China `regrets' WTO action on tariffs

"We have tried again and again to find an acceptable negotiated solution to this issue and without Chinese engagement we have no alternative but to take this course of action."

Peter Mandelson, EU Trade Commissioner

China expressed regret yesterday over joint demands from the EU, the US and Canada seeking a ruling by a WTO panel over Beijing's tariffs on auto parts.

Taking the first formal step toward litigation on Friday, the trio each called on the WTO's dispute settlement body to consider the case after negotiations with China failed to resolve the dispute.

"The Chinese side expresses regret that the EU, the United States and Canada have called for the establishment of an expert group," commerce ministry spokesman Chong Quan (崇泉) said in a statement posted on the ministry's Web site.

"The administrative regulations on the import of automotive parts are aimed at preventing criminals from using the difference in import tariffs on entire cars and on auto parts to escape customs supervision and evade taxes," the statement said.

The three plaintiffs claim that the tariff regime puts their car manufacturers at a disadvantage compared to local Chinese producers when they import spare parts.

Chong said the regulations and the tariff regime were put in place to protect the interests of consumers and insisted that they complied with WTO rules.

"We have tried again and again to find an acceptable negotiated solution to this issue and without Chinese engagement we have no alternative but to take this course of action," EU Trade Commissioner Peter Mandelson said.

The issue marks a new point of trade conflict with Beijing after disputes in recent years over soaring Chinese clothes imports, shoe shipments and China's exchange rate policy.

According to the European Commission, China levies tariffs on specific combinations of imported car parts as though they were "complete vehicles" even when they do not make up a whole car.

China compels Ford Motor Co, Volkswagen AG, Renault SA and other automakers operating in China to buy a certain quantity of their components from local suppliers. Those that don't must pay more than double the standard import duty on their parts.

China imposes an import duty of 25 percent on whole vehicles and only 10 percent on auto parts.

The European Commission says the treatment goes against not only WTO rules forbidding governments to force companies to source products locally but also breaks Beijing's commitments when China joined the free-trade body in 2001.

The WTO request demonstrates concern in the US and EU that China is unfairly trying to aid its domestic producers with subsidies, tax regimes and a weak currency, leading to the nation's record trade surplus.

The case "is part of a larger context of not allowing any backsliding," on China's commitments to the WTO, US Trade Representative Susan Schwab said last Friday.

The lawsuit is the first one involving China that the WTO has been asked to rule on since that country joined the global trade arbiter.

"The EU and US's honeymoon with China at the WTO is over," said Konstantinos Adamantopoulos, a trade attorney with Hammonds law firm in Brussels.

"But if the honeymoon ends, the Chinese may start to flex their muscles" and file complaints of their own, he said.
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