Ventures Dialogue

Currently, exported auto parts to China are assessed a 10 per cent tariff rate, however, if these foreign parts account for 60 per cent or more of the value of a completed vehicle, China then charges an additional 15 per cent, for a total 25 per cent tariff rate.  According to Chinese officials, this is looked upon as if the vehicle was imported completely built.  This tariff practice, which China began in 2004, was the subject of a World Trade Organization (WTO) dispute brought forward by Canada, the European Union and the United States.  It will soon change due to a WTO Appellate Body ruling which upheld a previous settlement that this practice violates China’s WTO obligations. 

The case, which began as a request for consultations back in April 2006 with Canada, and separately the EU and US in a joint request in May 2006, argues that China’s policy is putting foreign companies at an unfair disadvantage.  In September 2006, all three countries banded together to request a WTO panel be assembled.  Japan, Argentina, Australia, Brazil, Thailand, Mexico, and Chinese Taipei later joined as third parties. 

China’s argument was that its 40 per cent local content rule was implemented to prevent tax evasion by those who import whole cars as spare parts to avoid paying the higher tariffs.  This was countered by pointing out that this in effect pushes foreign auto part suppliers to relocate manufacturing to China and more so encourages Chinese car makers not to use foreign auto parts.  This brings the dispute process to a close and also marks the first time China lost a WTO dispute.    

Canadian exports to China totaled $9 billion in 2007 and imports accounted for $38 billion.  Between 2003 and 2007, China imported Canadian auto parts on average of $225 million a year. 

Photo by Cape Cod Cyclist