WTO Condemns China for First Time

WTO Condemns China for First Time, Sides with U.S., EU, Canada on Auto Parts
(The Canadian Press – Bradley S. Klapper, The Associated Press )

The World Trade Organization issued its first official condemnation of Chinese commercial practices, officials said Wednesday, calling it a victory for the United States, European Union and Canada in a dispute over car parts.

The WTO found that China was breaking trade rules by taxing imports of auto parts at the same rate as foreign-made finished cars, according to trade officials with knowledge of the confidential ruling.

They spoke on condition of anonymity as the decision was still confidential, The Associated Press reports.

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 ruling, to be officially released in March, will be closely watched by makers of batteries and brakes to seats and spark plugs on both sides of the Atlantic, including U.S.-based Delphi Corp., General Motors' former parts supplier, and Robert Bosch GmbH in Germany.

The three-member WTO panel delivered its “interim ruling'' confidentially to the parties on Wednesday. No panel has ever changed its findings between an interim and final decision.

China, which will still be able to 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. It argues that all measures are fully consistent with WTO rules and do not discriminate against foreign auto parts.

But the U.S. and the EU say that China promised not to treat parts as whole cars when it joined the WTO.

Key officials have said they believe the case has ramifications beyond the auto industry.

“It will be instructive to see how China responds,'' U.S. Trade Representative Susan Schwab said in a recent interview. “If, as we hope and expect, China will be found in contravention of its WTO obligations, hopefully that will help those forces within China that have been advocating reform.''

WTO cases tend to take years before retaliatory sanctions can be authorized. After the ruling is released, Beijing will be given a “reasonable period of time'' to make legislative changes. A separate panel would then have to find that Beijing was still breaking the rules.