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U.S.-China Dispute Settlement:
Auto Part Imports into China
Jay
Eric
Andrew
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Factors in the U.S.

After the 2006 Congressional elections, which gave control of
Congress to the Democrats, the U.S. shifted from dealing with
global trade issues from negotiation to litigation through the
WTO.

This reflected a general shift away from support of globalization
between both Republican and Democrats.

The U.S. auto industry is powerful and employs a lot of
workers.

The EU, Canada also had strong interest in this issue.
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Factors in China
China

The Communist Party needs job growth to maintain domestic tranquility
and thus their power.

China has tariffs on auto imports to allow their domestic industries to
grow. After their ascension to the WTO, tariffs were reduced to 25% for
complete autos and 10% for auto parts.

China considers auto parts as a complete vehicle if they account for 60%
or more of the value of a final vehicle and charges the 25% tariff on them
as if it were a complete auto.

Chinese trade officials said the measure is meant to keep "lawbreakers"
from exploiting the differences between tariff rates for importing entire
automobiles and auto parts, and to protect consumer interests.
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Increasing vehicle production in China
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Auto Industry growth
 Most growth in the auto sector will be in developing
countries especially India and China.
 Therefore China’s tariff scheme for auto parts can
dramatically effect global supply chains as companies position
themselves to take advantage of this growth.
 Auto manufacturers and suppliers in other countries are
against this scheme.
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Case Background

March 2006, the U.S. and EU request consultations w/ China, later followed by Canada,
concerning what was believed to be an improper tariff schedule on auto parts (CKD & SKD).

This was the first case to be litigated against China in the WTO.

China refuted the Claims, stating that their 25% tariff rate on CKD and SKD auto parts was
consistent with their accession protocol.

China claimed CKDs and SKDs represented completed vehicles; this definition is debatable.
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Complaint & Relevant Agreements
 GATT ‘94: Art. II, III, IV, & XI
 TRIMS: Art. II
National Treatment
“…should not be applied to
 SCM: Art. III
imported or domestic products so as
to afford protection to domestic
production.”
 China Accession Protocol,
Accession Protocol
“China shall eliminate and cease to
Paragraph 93; China appealed
these claims
enforce trade and foreign exchange
balancing requirements, local
content and export or performance
requirements made effective
through laws, regulations or other
measures.”
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Panel Findings

July 2008; 1st DSB ruling against
China.

Panel ruled in favor of US, Canada,
and the European Community on all
complaints.



Cited Judicial Economy regarding
Article III: 5, TRIMS & SCM Agreement
charges.
Article III:2.
Article III: 4.

Treatment of CKD & SKD kits:
Inconsistent with Paragraph 93 of
China’s Working Party Report.
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Treating as complete vehicles 25% v.
10% tariff.
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Appellate Body Findings
 December 2008.
 Upheld all Panel rulings except…
 Reversed Findings regarding CKD & SKD kits.
 Chinese Measures are compliant with paragraph 93 of China’s
Accession Working Party Report.
 Auto manufactures have, “the option to declare imports of CKD
and SKD kits upon importation and remove themselves from the
charge.”
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Compliance
 Almost 3.5 years later, China came into compliance after ruling
against their tariffs.
 Showcased China’s willingness to comply with the Dispute
Settlement process
 This means that there was still pressure being put on non-
Chinese part producers to move to China
 Finally, the SKD and CKD kits were brought back to the tariff rate
of 10% for auto parts, waiting till exact end date to implement.
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Impact on Future U.S.-China Trade (cont)
 Disputes are not over.
 Recently the Obama administration opened another case against
China for tariffs on imported U.S. autos that falls hard on Chrysler and
GM models.
 U.S. “dumping” American cars onto China?
 China says bailout of U.S. automakers GM and Chrysler in 2009
amounts to an unfair advantage in the global marketplace, akin to
subsidies that are forbidden by WTO rules.
 Some question the timing of the WTO case because the election is so
close.
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Observations
State wide economic policy
 The Communist Party has
strong reasons for wanting
to create employment and
rising standards of living in
China.
 Encouraging domestic
manufacturing through
subsidies and tariffs is a
means to that end.
Auto Sector policy
 The tariff rate of 25% on SKD
and CKD kits was a
deliberate attempt to
encourage auto
manufacturers to source
more parts from China.
 This policy was designed to
alter global supply chains
which would have an impact
on non-Chinese suppliers.
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 http://www.nytimes.com/2012/09/18/business/glo
bal/us-files-wto-case-against-china-overcars.html?pagewanted=all&_r=0
 http://sciie.ucsc.edu/14AIEC/Swenson_ChinaCarPar
ts_October2011.pdf
 http://abcnews.go.com/blogs/politics/2012/07/oba
ma-challenges-china-at-wto-over-auto-tariffs/