The WTO has today circulated and made public the WTO panel report in the case brought by the EU, US and Canada against China's taxes on imported car parts.   The panel found against the Chinese system of registration, monitoring and taxation of imported car parts that results in the imposition of higher charges when manufacturers in China do not use a sufficient quantity of parts made in China.   In these situations, imported car parts face an additional tax of 15%, on top of the 10% customs duty normally levied on auto parts.  The panel found that the higher charges, which have forced car manufacturers to source car parts in China, violate basic WTO principles.

EU Spokesperson for Trade Peter Power said:  "Rules that discriminate against imported products have no place in the WTO system. We hope that China will act swiftly to remove any discrimination and create a level playing field in the automotive sector in China."

The system in question is part of China’s "New Automobile Policy", which was adopted in 2004.  If imported parts for a specific model exceed a certain threshold, an additional charge of 15% is imposed on top of the normal 10% customs duty. The additional charge is easily triggered, either by a specific combination of a few imported parts or if the imported parts represent 60% or more of the price of the complete vehicle (see attached fact sheet).

The panel decided that China's rules are contrary to WTO rules and China's WTO commitments.  The system was found to be in breach of GATT Article III, which says that internal fiscal and regulatory measures cannot discriminate against imported products in favour of domestic products. The Panel also concluded that, even if the charges were to be classified as customs measures rather than internal measures, they would still breach GATT Article II by imposing a customs duty higher than the one agreed to by China when it joined the WTO. 

WTO rules now foresee the possibility of appealing the report to the WTO Appellate Body, which can be done between 20 and 60 days after circulation of the report.

Background
The EU requested WTO consultations with China on this issue in March 2006, after repeatedly having expressed its interest in a negotiated settlement. The US and Canada joined the EU as co-complainants. The WTO panel was established in October 2006, and it issued its confidential interim report in February 2008. If the report is not appealed, it will be adopted by the WTO Dispute Settlement Body, and China will have to bring its laws into compliance with its WTO obligations. (For more details on the procedure see: http://ec.europa.eu:8082/trade/issues/respectrules/dispute/pr150906_pp_en.htm )

In 2007, EU exports of car parts to China exceeded 3 billion euros.  Total trade in goods between the EU and China was in excess of 300 billion euros in 2007. 

For more information see the attached FACT SHEET <<Carparts factsheet July08.pdf>> .

For all EC submissions to the WTO panel see: http://trade.ec.europa.eu/wtodispute/show.cfm?id=290&code=1

For more information on EU-China trade, see http://ec.europa.eu/trade/issues/bilateral/countries/china/index_en.htm

For more information: Peter POWER +32 498 980348 or Michael JENNINGS +32 498 986880