The government late last month abruptly resumed a policy requiring domestic vehicle assemblers to increase their proportion of local auto parts, a policy mainly targeting Chinese imports that has raised concerns about how strictly the measure would be enforced. Since Taiwan’s entry into the WTO in 2002, it had entirely scrapped rules requiring local automakers to use a certain proportion of domestically made parts, as well as gradually slashing tariffs on imported vehicles from 30 percent to 17.5 percent.
To prevent Chinese auto parts from entering Taiwan in a piecemeal fashion, the Ministry of Economic Affairs on July 30 stipulated that local automakers must increase their share of locally made parts to 20 percent during the first year of the policy, rising to 25 percent in the second year and 35 percent in the third year. Those contravening the policy would be barred from importing critical auto parts, including engines, steering devices, axles and chassis. The new rules take effect this month.
While domestically made parts are relatively pricey given inflationary pressure, the ministry said the purpose of the policy is to protect local auto parts manufacturers and avoid the foundation of the nation’s auto industry being undermined by unfair competition from abroad, given that the domestic auto market is relatively small. The measures also came after some legislators voiced concerns that Taipei-based China Motor Corp took advantage of less expensive Chinese parts to assemble MG brand electric vehicles (EVs), hampering market competition. About 95 percent of MG vehicles built in Taiwan use Chinese components, the ministry said. MG, originally a British brand, was acquired by China’s state-owned SAIC Motor Corp in 2005.
As Chinese vehicles are prohibited from being imported into Taiwan, China Motor adopts the so-called complete knock-down approach, in which a vehicle is delivered in parts and assembled at the destination, to circumvent the ban. MG’s electric hatchback, the MG4, entered the market in the middle of June, with an attractive price of NT$990,000, attracting strong local interest. To comply with the government’s new car assembly rules, MG on Friday said it would halt delivery of the MG4 model at the end of this month. The company said it would strive to bolster cooperation with local auto supply chains to satisfy demand. The new rules would also spoil China Motor’s efforts to introduce the G50 Plus, from Maxus, another SAIC subsidiary.
Kuozui Motors Ltd, which assembles Toyota vehicles in Taiwan, said the ministry’s rules would not affect its production, given its long history of using local auto parts. Kuozui is a joint venture between Hotai Motor Co and Toyota Motor Corp.
The ministry defended its new rules to fend off rising competition from Chinese automakers, pointing to similar policies in the US and the EU. The US raised import tariffs on Chinese EVs to 100 percent, as China has subsidized its EV industry, leading to unfair competition, the ministry said. The concern is that a cap on foreign auto parts is considered an old-fashioned method to protect local suppliers and could face complaints that it contravenes free-trade rules. As a developed country, Taiwan should consider carefully its policies to defend local industries from foreign competition.
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