EU & U.S. accuse China of not Meeting WTO Obligations

European Union and the United States called for WTO bilateral consultations on China's auto parts tariff rules, which they claim are not in accordance with China's WTO obligations.

As a tactic aimed at preventing foreign car manufacturers from importing components for use in Chinese assembly plants, China imposes high tariffs on imported car parts.
Normally, imported car parts are taxed at 10-14 per cent but a completed vehicle would be taxed at 28 per cent.

In order to ascertain that the manufacturers do not take undue advantage of this by importing cars in sections and reassembling them in China, the Chinese have imposed local content rules. These rules stipulate that where imported parts account for 60 per cent or more of the value of a final vehicle, those parts are taxed at a rate equal to the tariff on an imported car.

On the other hand the EU has accused China of poor access to the Chinese market, including rules that require foreign manufacturers to work in joint venture with Chinese partners. It said carmakers have to source 40 percent of the spare parts by value in China to avoid the tax.

Due to these regulations the European carmakers who have between 20 percent and 25 percent of the car production market in China are not able to import parts from their own factories in Europe without unfair tariffs.

The commission said that the EU has pursued similar local content cases with India, Canada and Indonesia as well. The European Commission also said China has not yet provided "sufficient reassurance" that it will deal with the issue. The EU said the U.S. would also seek talks with China on the issue on Thursday.

China has ten days to respond and thirty days before the talks start.