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Chinese Government to Study WTO Automotive Component Ruling
19 Feb 08
Following the World Trade Organization's preliminary ruling against China regarding imported vehicle components, the country's government is now preparing to study the report before the final decision is made in March.
Global Insight Perspective | | Significance | The Chinese government is to study the preliminary WTO ruling made against it last week in preparation for the final hearing that will take place in March. | Implications | The ruling is unlikely to make a huge difference to component suppliers located in the mature regions that are contesting the tariffs as firms have already begun to relocate some manufacturing to China, and it is likely that rival low-cost countries will benefit more from the decision. | Outlook | The ruling is likely to have an influence over future cases brought before the WTO, to the benefit of industries under pressure from Chinese regulations. |
Following a hearing in front of a panel of World Trade Organization (WTO) officials last week, the Chinese government has said that it will study an interim preliminary ruling made against it with regards to import duties attached to vehicle components brought into the country. Under the present system, China imposes a 60% duty on components made outside the country if a vehicle does not have more than 40% of its parts by value sourced from local suppliers, a level that is on a par with completely built-up (CBU) vehicles. The case against the duty is being led by the United States, and is supported by its neighbour Canada and the 27 member states of the European Union (EU), which argue that China had agreed not to treat automotive components in the same way as whole vehicles on its entry into the WTO in 2001. China has previously claimed, however, that the tariffs were imposed so that parts could not be shipped and built up to whole units in order to avoid paying duties. It has also said that the measures are fully within the WTO rules and do not discriminate against components from overseas. Outlook and Implications In the event, however, it is unlikely that the case brought by the United States, Canada, and the EU will have any far-reaching implications for the automotive component industry in these regions, despite Canadian Trade Minister David Emerson telling Agence France-Presse (AFP)that the ruling would be "helpful for the Canadian auto parts industry" and could even restore the health of the industry. Emerson added that Canada's North America-centric auto parts industry could also begin to "develop strategies for the modern global marketplace and start to expand their exports into rapidly growing markets like China". However, many businesses based in Canada, such as Magna and Linamar, have already reacted to the growth in China and invested in the country in an attempt to capitalise on this. The same is true across the border in the United States, where financially constrained part-makers such as Delphi and Visteon have deemed China important enough to make continued investments there despite troubles at home. By shifting production to China, they can also take advantage of the lower labour costs—they would not be able to compete with these based in mature markets. With this in mind, the elimination of trade barriers is most likely to benefit other emerging markets, such as India and countries in the Association of Southeast Asian Nations (ASEAN) region, which have been itching to break into the Chinese market, although any challenge by China to the WTO ruling may single these countries out for continued import duties. With the global economy seemingly slowing down and the trade deficit between developed nations and China continuing to widen, the ruling is more likely to prove crucial for other industries. Confirmation of the ruling would mark the first time since China entered the WTO that a complaint against it had been upheld, and although the decision is still in the preliminary stages before the final ruling in March, a decision made at this point has never been reversed. The ruling could clear the way for more countries to make complaints over protectionism on the part of China within the WTO framework, and it may even set a precedent for future cases brought by trade and regional bodies.
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