Trade Petition Targets China’s Auto Market

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Times Staff Writer

Three of the world’s most powerful economies Friday formally accused China of raising import taxes on car parts to protect its domestic automakers from foreign competition.

Their petition to the World Trade Organization marks the first time that the U.S., Europe and Canada have teamed up to take on China on a trade issue. It reflects the frustration these nations share about their growing trade deficits with the Middle Kingdom -- and about Beijing’s unwillingness to open up lucrative sectors of its economy to foreign competition.

“China’s current stance leaves us no choice but to proceed with our WTO case,” U.S. Trade Representative Susan C. Schwab said at a news conference in Washington.


With sales slowing back home, carmakers are scrambling to get a bigger share of China’s sizzling auto market, which expanded nearly 50% in the first half of this year, according to the China Assn. of Auto Manufacturers.

Last year, auto sales in China topped 5.9 million units, according to the state-run People’s Daily newspaper, making the country the world’s second-largest auto market, surpassed only by the U.S.

European companies have dominated auto manufacturing and sales in China, but a joint venture between General Motors Corp. and a Shanghai company grabbed the sales lead from Volkswagen this year.

For the Bush administration, the trade petition is designed to rebut criticism that it has been too weak on China and to defuse efforts in Congress to force China to revalue its currency, trade experts said. U.S. auto manufacturers and others say China’s currency is artificially weak, giving its exporters an unfair advantage in global markets.

Labor unions, a key constituency of the Democratic Party, are expected to make America’s $202-billion trade deficit with China an issue in the congressional elections in the fall. Republicans are battling to keep a number of seats in states that have been hit hard by the loss of manufacturing jobs to low-cost imports.

“I would be surprised if the Democrats didn’t try to make the most of that issue in this election,” said Greg Mastel, a former congressional staffer and chief international trade advisor at law firm Miller & Chevalier.


The complaint puts pressure on China less than a week before Treasury Secretary Henry M. Paulson Jr. makes his first trip to Beijing, where he is expected to press officials on the auto parts spat and other issues.

Friday’s action also represents an attempt by the U.S. government and auto executives to force China to the bargaining table before the auto issue becomes so politicized that it threatens trade relations, said Grant Aldonas, a former top Commerce Department official and managing director of Split Rock International, a Washington consulting firm.

If the trade organization accepts the request from the three governments to establish a dispute settlement panel, it will launch an investigation into the allegations. If the U.S., Europe and Canada win their case, the Chinese government will be forced to revise its auto parts policy or face trade penalties.

“Rather than waiting, which I think people did with the Japanese, there is a real instinct on the part of the auto companies to go after this,” Aldonas said.

The Chinese Embassy in Washington did not respond Friday to a request for comment.

China’s trading partners have grown increasingly frustrated by Beijing’s efforts to protect key industries such as auto manufacturing, banking and energy development by creating new obstacles to foreign firms, said Sijin Cheng, a China analyst with Eurasia Group, a political risk consulting firm.

“We have seen a lot more overt and covert attempts by China to change the rules of the game,” she said. “This is not going to go away.”


Opening up China’s auto market was a key issue in the contentious negotiations that resulted in that country’s acceptance into the world trade group in 2001.

Under the organization’s rules, countries cannot treat foreign products differently from domestic goods. The U.S. claims that China is breaking those rules by imposing a 25% tariff on a car’s imported parts if they make up 60% or more of the value of the final vehicle. The regular tariff on auto parts averages 10%, according to the U.S. Trade Representative’s Office.

U.S. auto executives say the policy encourages Chinese companies to use Chinese-made parts and increases pressure on foreign firms to relocate manufacturing facilities to China.

The Trade Representative’s Office said the Chinese auto parts market grew 17% in 2005, while U.S. exports to that country increased just 6.5%. In 2005, China accounted for $681 million, or 1.4%, of all U.S. auto parts exports.