In response to the "China's Measures Affecting the Import of Auto Parts" submitted by the European Union, the United States, and Canada in March 2006, the World Trade Organization (WTO) recently issued a preliminary ruling that the Chinese government violated the policy of imposing high tariffs on imported auto parts. With China’s commitment to the WTO, China’s decision to rule against China’s accession to the WTO requires China to immediately terminate this policy in accordance with WTO principles. China suffered the first loss since it joined the WTO in 2001.
According to WTO rules, once a judgment is issued, if China refuses to change the relevant policy, the above countries and regions will have the right to impose sanctions on China. According to the dispute settlement procedure, the parties may also appeal the result of the formal ruling. The WTO’s official report on the matter will be announced in March. China still has an opportunity to appeal. However, Song Wei, director of the International Trade Research Office of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, believes there is little chance of changing the verdict. "So far, no dispute resolution team has made a final decision that is inconsistent with the preliminary ruling."
Summing up experience from failure
The “China's Measures Affecting the Import of Auto Parts†originated from the Measures for the Administration of the Import of Auto Parts that Constitute the Characteristics of Complete Vehicles (hereinafter referred to as “Measuresâ€) that began on April 1, 2005 in China. The "Measures" stipulates that the same tariff (28%) as the entire vehicle should be imposed on parts that equal or exceed 60% of the total vehicle value, instead of the 10% to 14% rate stipulated in China's accession to the WTO agreement.
The European Union, the United States, and Canada allege that the policy made imported parts and components uncompetitive in the eyes of Chinese automakers. Foreign auto parts manufacturers were forced to transfer their production sites to China, causing unemployment in relevant industries in Europe and the United States. However, China stated that this move is intended to prevent the prevention of foreign car fragmentation and to avoid large-scale switch into the Chinese market. China's approach does not discriminate against foreign producers, and it does not exclude their meaning.
The focus of the case is "What are the automotive components that make up the characteristics of the vehicle?" Because, in developed countries, complete vehicles and parts are two completely independent concepts, but in China it is not, the two sides have always disputed the definition of this concept, so that this lawsuit is delayed for two years.
After the WTO ruling of first instance was announced, Zhou Shizhen, the standing director of the WTO Research Association, said in an interview with the media that the ruling was unfair and was a clear favor for the developed countries. Zhou Shijun said that China imposes a 25% tariff on imported vehicles and a 10% tariff on auto parts. The difference is obvious. Many automobile manufacturers import a large number of auto parts and sell them after they are assembled into finished cars in China. In this way, cars assembled from imported parts are cheaper than direct-imported vehicles, and they evade at least 15% tariffs in disguise.
Zhou Shiji believes that China should learn to correctly apply relevant rules and safeguard its own interests under the WTO framework. Taking the above as an example, China should stand firm and never compromise. We impose large tariffs on imported auto parts on the one hand to prevent import tax avoidance, and on the other, we can encourage Chinese companies to innovate independently. If we do not impose restrictions on imported parts, our companies will become pure importers of spare parts, and thus become a pure assembly base for foreign auto manufacturers. This will seriously hinder the independent innovation and development of Chinese auto companies.
"We must have a sense of calm, try to learn lessons from the lessons of failure, learn to better master the rules of the WTO, and participate in international competition with a more positive attitude. And before the final ruling, we have some time to use. It is necessary to vigorously carry out independent innovation during this period,†said Zhou Shiyu.
Limited range of vehicles
From the point of view of reporters, since the localization rate of most joint venture car companies has already exceeded 40%, and the localization rate of some manufacturers' models even exceeds 90%, the WTO ruling will not affect most joint venture car manufacturers. Make a big impact. Some staff members of multinational auto giants and Chinese companies also felt that the initial ruling of the WTO had little impact on the Chinese company's business, because the products produced at the Chinese factories were basically supplied to domestic automakers. Even from China's exports to other overseas markets, imports are basically minimal.
In fact, as early as before China entered the WTO, China's auto industry policy has already begun to require foreign companies of joint venture companies to rapidly increase their localization rates in order to realize the international competitiveness of Chinese auto parts enterprises. Moreover, from the perspective of reducing costs, most automobile manufacturers have begun to cultivate the capabilities of local component manufacturers on a large scale.
Jia Xinguang, a senior analyst in the automotive industry, believes that the impact of this unfavorable ruling is limited to high-end luxury cars such as Mercedes-Benz and BMW. “Because the matching standards of domestic auto parts companies cannot meet the requirements of luxury models, the localization rates of Mercedes-Benz and BMW are currently difficult to reach 40%. Therefore, once the WTO decides that the Chinese government cancels the threshold of localization rate, this is for luxury. The brand is good news," said Jia Xinguang.
Analysts believe that even if affected by the WTO ruling, the Chinese side adjusted the relevant policies and thus reduced the tariffs on some parts and components imports. This will undoubtedly objectively lead to a large number of multinational car manufacturers with joint-venture vehicle companies in China making big purchases. Its domestically-used auto supplier products, and the influx of these products will in a certain stage, greatly impact the existing domestic supplier supporting system; but in the long term, with the domestic auto manufacturers (except Mercedes-Benz, BMW and other high-grade Outside the car manufacturers have increased the localization of local production, coupled with the decline in the domestic car prices dropped again, in order to maintain profitability, to switch to China and increase the localization rate is obviously a shortcut to not bypass.
The development of local companies
In the auto parts field, due to the rapid development of the automotive market, the auto parts industry has also grown. As China's auto parts and components products have gone abroad, parts and components companies and products abroad have begun to flood into China.
To date, at least 70% of the world’s top 100 parts suppliers have carried out business in China. There are nearly 1,200 wholly foreign-owned or joint venture companies that manufacture auto parts in China, and wholly-owned or joint ventures of multinational companies. About 50% of the shares. In contrast, there are more than 5,000 domestic parts and components companies in China, which are small in scale, low in concentration and serious in disorder, resulting in a very low overall industry efficiency.
“From the perspective of the auto parts industry, the WTO ruling has increased the risk that domestic auto parts industry has been affected by imported products. In the coming period, it may be subject to dumping.†.
At the end of last year, the Ministry of Commerce held a conference on the maintenance of industrial safety in key industries. The automobile and parts industries were highly regarded as industries with a large number of foreign capital participation. Guo Wei, a postdoctoral fellow in industrial economics at the China Automotive Technology and Research Center, said that imported parts generally belong to technology-intensive products and have a greater impact on similar products in China, and some products have even reached the point of monopoly. Since the launch of the Industrial Security Early Warning Mechanism in 2002, it has been discovered that there have been yellow warnings for individual component types.
At present, China has not yet launched auto anti-dumping investigations against similar foreign products. However, similar cases have occurred in the upstream and downstream products of automobiles. Companies such as Shanghai Baosteel, Anshan Iron and Steel, and Wuhan Iron and Steel have proposed anti-dumping investigations on cold rolled coils in some countries and regions.
It is understood that trade volume, trade volume, key spare parts, technology-intensive components, and parts and components that do not have similar technologies in China will be included in the scope of industrial safety monitoring. At present, the China Association of Automobile Manufacturers and the Ministry of Commerce have already reached a preliminary agreement to carry out anti-dumping duties for key enterprises of industrial parts, which is expected to be implemented in the industry at the beginning of this year.
Because even if it does not constitute dumping, if it causes substantial damage to the industry, it can also take measures such as safeguards and countervailing measures. These are all trade remedy measures that the parties to the WTO Agreement can adopt. The industry believes that the scope of the expansion of monitoring shows that China's auto parts industry has once again upgraded its early-warning mechanism.
In light of the current situation in which domestic auto parts companies are not competitive in their products, Kuo believes that companies should build a common R&D platform to jointly break through technical bottlenecks and work together to counter the technical blockade of large foreign parts companies. . How to use WTO trade rules to protect themselves and win more growth time under the WTO rules will become a new topic for Chinese auto parts companies.
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