EU Requests WTO Consultations With China on Auto Parts Tariffs

The EU has asked China to participate in consultations at the WTO in Geneva on China’s tariff rules on parts for automobiles, which the EU believes are not compatible with China’s WTO obligations. The consultations are a procedural step that will allow all parties to clarify legal issues and seek a constructive solution to the issue.

EU Trade Commissioner Peter Mandelson said: “Consultations will allow us to clarify the legal issues and find a mutually satisfactory solution. It remains my strong preference and intention to seek an amicable solution to this issue.”

The EU first raised the issue of its tariffs on car parts in 2004. The EU requested action to address the problem at the EU-China Joint Trade Committee in October 2005. Although China has recognized the seriousness of the problem for the EU, it has not yet provided sufficient reassurance that the problem is being addressed. WTO consultations would allow all parties to clarify their positions and seek a resolution to the issue.

This is a routine problem in the EU’s wide trade relationship with China. The EU has pursued similar local content cases with India, Canada and Indonesia.

The US will also request consultations with China on this issue today.

The EU believes that Chinese tariff laws for spare auto parts are WTO- incompatible. Chinese rules apply the tariffs for “whole vehicles” to the import of spare parts making up 60% or more of the value of a final vehicle. The EU believes that this may contravene China’s WTO obligations not to impose obligatory “local content” rules: to avoid the “whole car” tariff rates a car- maker has to source 40% or more of the spare parts by value in China. The EU believes it may constitute an internal tax on imported goods — because the tariff is levied on a finished product constructed with imported parts and the same rates are not applied to cars produced with local spare parts.

This can be problematic for EU producers in China who are not able to import parts from their own factories in Europe without unfair tariffs. The EU has about 20-25% of the car production market in China.

China claims that the measures are designed to avoid circumvention (ie, the prevention of the importing whole cars as spare parts to avoid the higher tariff rates for whole cars). However the WTO has found in the past that the objective of measures does not justify their form — and in this case the measures appear to the EU to be WTO-incompatible. At the time of its WTO accession, China committed itself not to treat parts as whole cars.

The request for consultations has been filed with the WTO in Geneva today. China has 10 days to respond to the request and is obligated by WTO rules to enter in consultations in good faith within 30 days. If the issue cannot be resolved in consultations within 60 days then the parties have the option of requesting a WTO panel to hear and rule on the dispute.

The EU and the US are both parties to the request. Other WTO members have the right to request participation in the consultations.

The EU is committed to finding a constructive and amicable solution to this issue.

Source: Delegation of the European Commission to the U.S