Ventures Dialogue

In a follow-up to my December 22 post, China and the European Union have agreed that by September 1, 2009 China will take measures to comply with the World Trade Organization’s (WTO) ruling about the extra fees applied to the importation of automobile parts.  The agreement was first reached with the EU, however Canada and the US have settled on agreements as well.

To recap, this issue was brought forward by the EU, US and Canada back in 2006.  The WTO ruled in 2008 that China’s policy auto part importation policy was not in line with its WTO responsibilities.  In addition to a 10 per cent customs duty, China was also imposing a 15 per cent fee on imported car parts when those parts accounted for 60 per cent or more of the price of the complete vehicle, or when specific combinations of imported parts are used to assemble a complete vehicle.  In February, China told the WTO it was taking steps to comply with their ruling and needed a reasonable amount of time to fully comply.  

According to a recent article by the Hong Kong Trade Development Council, as per this agreement, it is within the EU’s right to seek to impose trade sanctions against China, if China does not comply within a reasonable time span and if unsatisfactory compensation was agreed upon with 20 days of the September 1 deadline.  What’s interesting to note is that not only could China’s automobile sector be affected by a breach of conduct, but goods in other sectors as well. 

Auto parts is a significant sector as China is the third largest vehicle market in the world, behind the US and Japan, respectively.  The Chinese market is estimated to be worth $19 billion USD.  Chinese vehicle imports rose by 72 per cent in the first eight months of 2007 to $4.84 billion USD and US automobile exports to China were $840 million USD.  The EU on the other hand exported €3 billion and represented 25 per cent of the automobile production in China in all of 2007. 

Photo by doommeer