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Monday, May 15, 2006

Tariffs on foreign auto parts in China: EU and America unhappy but big parts makers happy

(By Razib Ahmed)
The economic interest of a country does not always necessarily follow the interest of large companies. When, I read the report of Reuters with the headline, 'Big car parts makers unfazed by China tax row', (http://today.reuters.com/business/newsArticle.aspx?type=ousiv&storyID=2006-05-15T055230Z_01_SHA1064_RTRIDST_0_BUSINESSPRO-AUTOS-CHINA-PARTS-DC.XML) I again realized this matter very well again. The condition is like this. China has now a tariff of nearly 28% 'on parts if they account for 60 percent or more of a vehicle's value.' America and EU are both very unhappy over this matter and they are planning to have a serious fight with China in WTO. Well, this matter has been covered in this blog earlier (http://asianbiz.blogspot.com/2006/04/dispute-on-auto-part-tariff-among.html) and I am quoting from that article:
"First EU filed a complaint followed by the United States. They are saying that by putting higher tariff on imported auto parts China is breaking its resolutions as a member of the WTO. China has imposed higher tariffs on whole vehicles and spare auto parts that make up 60% or more of the value of a final vehicle. In April last year, this figure was 30% for the whole vehicle and 15% for auto parts."

Although EU and America are extremely unhappy with China about this matter, big motor parts maker companies like Delphi Corp. and Visteon Corp. are happy with this matter. They do not see the tariff on foreign auto parts as a threat to their business for two reasons: firstly, they have manufacturing facilities in China and that is why often their products are not subjected to the tariff and then, high tariff keeps smaller companies of USA and Europe out of the Chinese market and thus these big companies do not have to worry about facing competition. The Chinese auto market is growing and as a result, companies like Delphi Corp. and Visteon Corp. are thriving too. The Chinese government is happy to see that these companies have invested in China and have contributed in generating employment.

So, what's next! Can EU and America force China to lower its tariff through WTO?
What do you think?

3 comments:

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the case, the first involving China to reach litigation, will automatically proceed, however, as soon as Washington, Brussels and Ottawa make a further request. This could come at the next meeting of the WTO's dispute settlement body on October 26.The three want China — which joined the WTO in 2001 — to change rules on import tariffs that they say hinder foreign auto makers and car parts suppliers in China, now one of the world's biggest auto markets.