The WTO made public its first official condemnation of Chinese commercial practices on Friday, releasing a February ruling that sided with the US, the EU and Canada in a dispute over car parts.
The verdict — findings of which were obtained by the Associated Press five months ago — found that China was breaking trade rules by taxing imports of auto parts at the same rate as foreign-made finished cars.
In the sweeping decision, the three-member WTO panel ruled against China on nearly every point of contention with the US, the 27-country EU and Canada.
The panel found that Chinese measures “accord imported auto parts less favorable treatment than like domestic auto parts” or “subject imported auto parts to an internal charge in excess of that applied to like domestic auto parts.”
“The dispute settlement body requests China to bring these inconsistent measures as listed above into conformity with its obligations,” it said.
The three trade powers argued that the tariff was discouraging automakers from using imported car parts for the vehicles they assemble in China. As a result, car parts companies had an incentive to shift production to China, costing Americans, Canadians and Europeans their jobs, they said.
The dispute has likely been closely watched by makers of everything from batteries and brakes to seats and spark plugs on both sides of the Atlantic, including US-based Delphi Corp, a former parts supplier to General Motors, and Robert Bosch GmbH in Germany.
China, which can still appeal, claims the tariffs are intended to stop whole cars being imported in large chunks, allowing companies to avoid the higher tariff rates for finished cars. It argues that all measures are fully consistent with WTO rules and do not discriminate against foreign auto parts.
But the US and the EU say that China promised not to treat parts as whole cars when it joined the WTO in 2001.
“In all major respects, the panel has agreed with the United States that China has acted inconsistently with its WTO commitments,” the Office of the US Trade Representative said in February.
China’s trade boom has caused friction with Europe and the US as their trade deficits with the Asian country have grown.
This dispute, launched in 2006, marked the first time Western allies teamed up to seek a formal WTO investigation of China’s trade practices.
China’s car-making market has grown rapidly and it is now third in auto sales after the US and Japan. However, manufacturers have to source 40 percent of parts by value in China to avoid the tax and foreign makers of parts have only recently started to keep pace with the overall growth in the Chinese market.
The US exported US$840 million in auto parts worth to China in the first nine months of last year, up 38 percent from the same period a year earlier, according to the US Commerce Department.
European carmakers have about 25 percent of the car production market in China. Figures provided in 2006 put its auto parts exports to China at about US$4.75 billion annually.
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