WASHINGTON – United States Trade Representative Susan C. Schwab announced today that the United States, the European Union and Canada will be requesting the World Trade Organization (WTO) to establish a dispute settlement panel regarding China’s treatment of U.S. auto parts. China is imposing charges that unfairly discriminate against imported auto parts and discourage automobile manufacturers in China from using imported auto parts in the assembly of vehicles. The United States believes that these charges are inconsistent with China’s WTO obligations.
"Working together with Canada and the EU, we have tried to resolve this issue through consultations as we always prefer to negotiate rather than litigate, but China has demonstrated no willingness to remove its unfair charges," Ambassador Schwab said. "While we remain open to settling this dispute, China’s current stance leaves us no choice but to proceed with our WTO case. We are committed to providing a level playing field for U.S. exporters to China and, as we have made clear, we will not hesitate to pursue dispute settlement if necessary."
The United States initiated the case on March 30, 2006, by requesting formal WTO consultations. The United States will be joined by the European Union and Canada, and both will also request WTO panels today to consider China’s regulations.
Increasing access to China’s auto market was a key issue in China’s accession to the WTO. Although China’s WTO commitments limit its tariff on imported auto parts to a rate that is significantly below China’s tariff on finished vehicles, China’s regulations impose a charge on imported auto parts equal to the tariff on complete automobiles, if the parts are incorporated into a final assembled vehicle that fails to meet certain local content requirements. These higher charges unfairly discriminate against the use of imported parts in the assembly process.
Under China’s regulations governing the importation of auto parts, all vehicle manufacturers in China that use imported parts must register with China’s Customs Administration 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 25 percent) rather than the tariff applicable to auto parts (typically 10 percent).
The regulations encourage auto manufacturers in China to use Chinese parts 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 believes that these regulations impose a charge on U.S. auto parts beyond that allowed by WTO rules and result in discrimination against U.S. auto parts. China appears to be acting inconsistently with several WTO provisions including Article 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, Canada, and the EU held joint consultations with China in Geneva on May 11-12, 2006. Australia, Japan, and Mexico, which also export auto parts to China, participated in the consultations as third parties.
The United States exported $681 million in auto parts to China in 2005, an increase of 6.5 percent over exports in 2004. Over this same period, the market for automotive components in China increased by 16.8 percent, and the number of passenger vehicles sold in China increased by 27 percent. U.S. exports of auto parts to China accounted for 1.4 percent of total U.S. auto parts exports in 2005, representing approximately 10 percent of China’s auto parts imports.