WTO rules against Chinese trade practices

Source: WTO rules against China over trade

The World Trade Organization ruled against China on a complaint dealing with import duties on car parts from the U.S., the European Union, and Canada. This is the first WTO ruling against China since it joined the organization in 2001. Although China will have the right to appeal, effectively delaying a definite decision until late this year or early 2009, interim rulings are rarely changed.
This ruling comes after the creation of a panel in 2006 to examine a surcharge placed on imported car parts. China imposed the surcharge if the imported car parts made up more than a specified percentage of the finished vehicle. Beijing argued that the surcharge prevented circumvention of the car duty by importing large chunks of vehicles for local assembly, thus allowing importers to avoid the duty paid on a fully assembled imported vehicle. In response, the complaining countries argued that the surcharge was merely a device to discourage imports and foster growth in China’s domestic automobile manufacturing industry. Furthermore, the countries argued that the duties imposed on imported car parts was nearly equal the tariff on imported cars, and therefore exceeded the permitted tariff ceiling as well as violated international trade rules banning discrimination on imports. As a matter of comparison, the duty on completed cars is typically 25%, whereas the duty on imported parts is only 10%.

Questions for Discussion
1. If the ruling is not overturned, is the reduction in surcharges paid on imported car parts likely to have a significant impact on the Chinese domestic automobile manufacturing industry? As a matter of policy, given the international economic slump, and the slow in US automobile manufacturing, is this ruling overly strict?