China draws complaint at WTO

A rare joint action by EU, U.S. takes Beijing to task over tariffs on auto parts

March 31, 2006|By NEW YORK TIMES NEWS SERVICE

WASHINGTON// — WASHINGTON --The heat on China is not letting up. In a rare coordinated move, the United States and the European Union filed a complaint yesterday with the World Trade Organization, accusing China of imposing discriminatory tariffs on foreign suppliers of auto parts.

The action came 10 days before the beginning of a round of high-level trade talks between the United States and China, and less than three weeks before a visit to Washington by President Hu Jintao of China.

Coming amid heightened concern over China's large and growing trade surpluses, the complaint was seen as part of a broader attempt to address the growing criticism against China's trade policies.

"We're seeing a closer scrutiny of problems and more diligence in using unfair trade laws to counter perceived problems with trade with China," said Jeffrey J. Schott, a senior fellow at the Institute for International Economics here.

The complaint is only the second brought against China since it joined the trade organization in 2001; the United States filed a complaint in 2004 over China's tax treatment of domestic and imported semiconductors.

Now, according to the European Commission, China is requiring that when imported parts make up more than 60 percent of the final value of a locally assembled car, the parts will be charged the tariff that applies to a whole vehicle, which is much higher. This would force carmakers in China to find local sources for more parts.

Over the last few years, American and European manufacturers have flocked to China, where the car market is already one of the biggest in the world and still growing while other markets have stagnated. Many big parts suppliers have followed the manufacturers there.

Still, American auto parts makers export relatively little to China. According to the office of the U.S. trade representative, Rob Portman, auto parts exports to China grew by about 6 percent last year, to $645 million - a small part of the overall market, which was $19 billion in 2004. They make up only a tiny slice of American manufactured exports to China, which grew more than 20 percent last year, to $32.5 billion.

While the American auto parts industry supported the complaint, it hardly seemed exultant. "It's important to have the rules right," said Brian Duggan, director of trade and commercial policy at the Motor and Equipment Manufacturers Association. "China is a hugely important current and future market. We want them to proceed with the case."

The WTO complaint seemed to have a much bigger symbolic impact beyond the world of auto parts. "This is a wonderful thing," said Franklin J. Vargo, vice president for international economic affairs at the National Association of Manufacturers. "It is the first thing the administration has done to show it really means it when it says we have a new trade policy with China."

The action played well on Capitol Hill, where some Democrats and Republicans have ratcheted up attacks against China and its policy of keeping its currency, the yuan, tightly linked to the dollar. That peg, they argue, gives Chinese products an unfair edge over U.S. rivals and contributed to America's $202 billion bilateral trade deficit in 2005.

"I support this action by Ambassador Portman and commend his leadership on securing our rights under our trade agreements," said Sen. Charles E. Grassley. The Iowa Republican introduced a bill two days ago that would require the government to focus more on China's currency policies.

Democratic Sen. Charles E. Schumer of New York, who on Tuesday decided to pull back from submitting a bill that would impose steep tariffs on imports from China if the yuan was not allowed to rise, said:

"The relationship, in an ironic way, is getting better. Instead of glossing over the problems each side is addressing them directly. In the past things were just swept under the rug."

Consultations are the first phase in a WTO dispute. If no settlement is reached in 60 days, the issue can be referred to a dispute settlement panel.

This will not be the last time the United States complains against China at the WTO. It has other potentially bigger complaints. In February, Portman said that if the Chinese did not take additional steps to protect intellectual property rights, "We are prepared to pursue legal options."

The United States won the 2004 semiconductor case when China agreed to end the preferential tax treatment for domestic manufacturers. If the WTO comes to be perceived as the adequate forum to deal with China's perceived unfair trade practices, disputes might become less heated and more routine.

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