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Adam Boltik, Melissa Brown, Peter Cassell

Adam Boltik, Melissa Brown, Peter Cassell. Measures Affecting Imports of Automobile Parts to China. DS342. Image source: http://media.canada.com/b17a5268-e809-4db2-a84b-06fc4c00d03e/78103117_autoparts.jpg. DS342 History and Context.

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Adam Boltik, Melissa Brown, Peter Cassell

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  1. Adam Boltik, Melissa Brown, Peter Cassell Measures Affecting Imports of Automobile Parts to China DS342 Image source: http://media.canada.com/b17a5268-e809-4db2-a84b-06fc4c00d03e/78103117_autoparts.jpg

  2. DS342 History and Context March 30, 2006: The European Communities and the United States requested consultations with China April 13, 2006: Canada joined Their complaint: “China’s imposition of measures that adversely affect exports of automobile parts” from the parties involved Specifically, the tariffs China places on imports of auto parts DS342

  3. DS342 History and context • Whole cars entering China: 25% tariff • Car parts entering China: 10% tariff • Policy on Development of Automotive Industry, Order No. 8 of the National Development and Reform Commission • Auto manufacturers in China that use imported parts must register each vehicle with Chinese Customs Administration • If number or value of imported parts >60%: 25% tariff • If two adjoining auto parts and at least two parts of engine: 25% tariff

  4. DS342 History and context • Parties’ Allegations: • Tariffs exceed maximum allowed for in China’s schedule of commitments • Tariffs violate National Treatment policy • Tariffs serve as a subsidy for using domestic auto parts rather than imported parts • Protectionist policy: Requires auto manufacturers in China to use Chinese auto parts to avoid administrative and financial costs

  5. DS342 History and context • September 15, 2006: After failed consultations, the US, EC and Canada requested the establishment of a panel • October 26, 2006: DSB established a single panel pursuant to Article 9.1 of DSU • The first time a panel and investigation has been initiated against China • January 19, 2007: Director- General to determine composition of panel • January 29, 2007: Director-General composed the panel

  6. DS342 History and context • The case’s complexity delayed the final decision • July 16, 2007: Chairman of the Panel announces that it can’t complete the work within six months • January 24, 2008: Chairman of the Panel announces again that it won’t have final report until the end of March 2008 • July 18, 2008: The Panel’s final reports were circulated to Members (almost 18 months after Panel was composed) • No other information was provided about why the Panel’s verdict was delayed for so long

  7. DS342 History and context • Conclusions of Canada’s complaint (WT/DS342) • China’s actions were inconsistent with WTO obligations • Panel recommended that the DSB request China to bring the inconsistent measures into conformity with its obligations under the GATT 1994 an WTO Agreement • Panel also found China’s actions to be inconsistent with the United States and European Communities’ complaints • September 15, 2008: China appealed • December 15, 2008: Appellate Body reports were circulated to Members

  8. The Main WTO Issue • The National Treatment Principle • Imported and locally produced goods must be treated equally once the goods have entered the market • Article III, paragraphs 2, 4 and 5 of GATT 1994: • III.2: “The products…imported…shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied…to like domestic products.”

  9. The Main WTO ISSUE • Article III, paragraphs 2, 4 and 5 of GATT 1994: • III.4: “The products…imported…shall be accorded treatment no less favourable than that accorded to like products of national origin….” • III.5: “No contracting party shall establish…any internal quantitative regulation relating to the mixture, processing or use of products in specified amounts…which requires…that any specified amount…of any product…must be supplied from domestic sources.

  10. The Main WTO Issue • The Panel found that China’s measures were inconsistent with: • Article III.2: “…they subject imported auto parts to an internal charge in excess of that applied to like domestic auto parts.” • Article III.4: “…they accord imported auto parts less favourable treatment than like domestic auto parts.” • Article III.5: The Panel decided to exercise judicial economy

  11. Parties of the Case: DS342 Canada v. China Third Parties: Argentina, Australia, Brazil, Japan, Mexico, Chinese Taipei, Thailand Similar to Disputes by the United States and the European Communities

  12. Relative charges Made Source: Chinese University of Political Science http://www.cuplfil.com/english/show.php?ArticleID=11

  13. Canada’s position • In DS342, Canada believed that China violated the following WTO agreements: • Articles II:1(a), II:1(b), III:2, III:4, III:5 of the GATT 1994, Principles of Article III:1. • Articles 2.1 and 2.2 of the TRIMs Agreement and part of the annex to the agreement. • Article 3 of the SCM Agreement. • China's obligations under its Accession Protocol

  14. Canada’s position • Canada Argues: • Places different charges on imported and domestically produced auto parts, penalizing those who import parts • Impacts on foreign investments as they confer an advantage to enterprises who import • Tariff goes against China’s schedule of concessions.  • Tariff would apply to completed vehicles and have the same applicability to “completely knocked down vehicles” and “semi-knocked down kits” • Provides subsidies contingent upon export performance and use of domestic parts

  15. China’s defense • Chinese Economic Reasons: • Decree 125 was a normal customs duty • Looking to localize the auto industry • Prevent loss of revenue from imports or tax evasion • Chinese Political Reasons: • Gain experience in WTO dispute panels • Delay implementation to increase customs revenue and test tax policies

  16. Problems with China’s defense Source: Chinese University of Political Science http://www.cuplfil.com/english/show.php?ArticleID=11

  17. Developments from ds342 • Major loss for China at the WTO – first time as an unwilling respondent • China Appealed in 2008 • China effectively lost the appeal • Chinese Government Removed Tariff benefiting: • Auto parts exporters to China • Consumers of automobiles in China (lower costs sans tariffs)

  18. Resolving the Trade Issues • As of 1 September, 2009, China reduces tariff on imported auto parts. • Same tariff rate applied to all imported auto parts regardless of content of final manufactured product. Image Source: http://nimg.sulekha.com/Business/original700/china-wto-auto-parts-2009-8-28-3-10-7.jpg

  19. China – Auto Parts and the Global Trading System Source: UN Comtrade Database. http://comtrade.un.org

  20. China – Auto Parts and the Global Trading System • Auto parts not major commodity in global goods trade. • US $260,521 million (total global exports in auto parts) • US $12,858,334 million (total global exports, all goods) • Policy more a demonstration of newer trade barriers and protectionist policies.

  21. Global Implications • Demonstrates “honeymoon” with China as new WTO member is over. • Welcomed as an example of “rule of law” in international trade, as it applies to new WTO members.

  22. sources • “Chinese Measures Affecting Imports of Automobile Parts,” (January 2007), Faculty of International Law, CUPL http://www.cuplfil.com/english/show.php?ArticleID=11. • “Chinese Measures Affecting Imports of Automobile Parts,” http://www.wto.org/english/tratop_E/dispu_e/cases_e/ds342_e.htm#facts. • “China appeals WTO ruling on auto imports measure,” (September 2008), http://english.people.com.cn/90001/90778/90858/90863/6499703.html • “Third Party Statement of Australia,” (May 2007),http://www.dfat.gov.au/trade/negotiations/disputes/WT-DS339_340_342_oral_statement.html • UN Comtrade Database. http://comtrade.un.org • “Auto Parts Industry is Driving China to its First WTO Dispute,” (December 1, 2006), http://www.blakes.com/english/view.asp?ID=38

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