Parts makers win trade dispute

WTO rules that China's hefty import tariffs discriminate against U.S. auto suppliers.

David Shepardson / Detroit News Washington Bureau

WASHINGTON -- The World Trade Organization ruled Friday that China violated trade laws by hiking taxes on auto parts imported from the United States, Canada and the European Union -- a decision that could boost struggling U.S. auto parts makers.

Critics of China's policy said it encouraged suppliers to relocate to China, costing jobs in their home markets.

The "report leaves no doubt that China's discriminatory treatment of U.S. auto parts has no place in the WTO system," said U.S. Trade Representative Susan Schwab. "We will not stand idly by when China or any other country adopts regulations or industrial policies that tilt the playing field against American goods or services." Schwab's office said U.S. auto suppliers set up operations in China so automakers could avoid hefty tariffs they had to pay if they used less than 51 percent Chinese-made parts in vehicles built in China. The policy has helped China's auto parts companies, resulting in a steadily rising Chinese auto parts trade surplus.

Bob McKenna, president and CEO of the Motor Equipment Manufacturers Association, a trade group that represents many U.S. auto parts makers, said the WTO's decision would "ensure a more level playing field for our products in China."

The U.S. first objected to the Chinese policy in March 2006, and a hearing panel was formed in October. China has the right to appeal Friday's decision, but an appeal likely would be resolved within six months.

It could take years before the United States would be allowed to impose economic sanctions on Beijing for failing to comply with the ruling. If it opts not to appeal, China has an undefined "reasonable period" to end the tariffs. If it does not, the United States would have to appeal to a separate WTO panel and win a ruling that China had not taken corrective action before it could impose sanctions. The process is designed to convince countries to work out their differences.

The Chinese Embassy in Washington did not return a call seeking comment.

Trade deficit with China up

In 2005, the United States had a $1.6 billion auto parts trade deficit with China. That jumped to $2.2 billion in 2006 and $2.9 billion in '07. In the first five months of 2008, the auto parts deficit is up 15 percent from last year.

The ruling confirms a preliminary finding in February that China was often taxing imported auto parts at the same rate as imported finished vehicles. Experts said the ruling may boost the U.S. export of auto parts, which could protect jobs in the United States.

U.S. auto suppliers have increased their factory output in China in recent years but still ship parts worth about $1 billion to China annually.

Michigan lawmakers praised the WTO's ruling, although U.S. Sen. Debbie Stabenow, D-Lansing, said it did not come soon enough "for many companies across the country and especially in Michigan who have been hurt by China's unfair trade policies."

She noted that six of the country's largest auto suppliers, also struggling amid a steep downturn in the U.S. auto market, have filed for Chapter 11 bankruptcy protection.

U.S. Rep. Mike Rogers, R-Brighton, said the ruling "demonstrates that the U.S. is finally getting serious about fighting back." He accused China of employing unfair tactics to "steal American jobs."

U.S. Rep. Sander Levin, D-Royal Oak, who has argued that the U.S. Trade Representative's office didn't do enough to ensure automotive access to Korea's market in a free trade deal that is still awaiting congressional action, said he was pleased that "the WTO has decided to hold China accountable to its international commitments and declared its unfair barriers to American auto parts unacceptable."

Frank Vargo, head of international economic affairs for the National Association of Manufacturers, said the ruling would aid U.S. auto parts makers because high inflation and a 21 percent increase in the value of China's currency have made production there more expensive, which could encourage more imports. High-tech American components and modules are the most likely to benefit. "This was a ridiculous policy," Vargo said. "China couldn't do this and will have to lower the tariffs."

Before China was admitted to the WTO, access to China's auto market was a key issue.

The three-member WTO panel agreed with the United States, Canada and the 27-member European Union that the higher charges unfairly discriminate against the use of imported parts in assembling vehicles and discourage automobile manufacturers in China from using imported 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 they assemble, 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 exceeds 60 percent, China assesses a 25 percent tax. Typically, China requires American companies to buy 40 percent of their parts from Chinese companies.

Chinese auto market grows

China has the world's fastest-growing major auto market, with 8.8. million vehicles sold in 2007 -- up 22 percent over 2006.

But in the wake of a major earthquake and a decision by China to hike gasoline prices by 20 percent, the rate of growth is expected to dip to around 15 percent this year. Experts predict China could overtake the United States as the world's largest auto market around 2015.