The Enlightenment from the Loss of "Automobile Parts Case"

In the "China's Measures Affecting the Import of Auto Parts," China ended in losing the lawsuit. The case tells us that even when formulating domestic policies, legislators need to follow the laws of market economy and consider international rules.

In early 2005, after China abolished the management of imported automobile quotas, a few multinational automobile companies used Chinese domestic vehicle tariffs and spare parts tariff rates to be bad, deliberately imported auto parts, and then sold them on the market after being assembled in China to evade imported imports. Vehicle tariffs. In order to regulate the order of import of auto parts, four ministries and commissions such as the General Administration of Customs of the People's Republic of China have promulgated the “Measures for the Administration of the Import of Auto Parts and Components That Constitute the Characteristics of Complete Vehicles” (hereinafter referred to as the Measures). The "Measures" stipulates that the same tariff (25%) shall be imposed on components that equal or exceed 60% of the vehicle's total value, while the tariff rate imposed on China's auto parts imports is only 10%.

The European Union, the United States, and Canada believe that China is suspected of discriminating against foreign taxation on imported auto parts, and is intended to encourage auto makers to use domestic auto parts. The EU and the United States formally submitted a consultation request to China on March 30, 2006. Subsequently, Canada also submitted a request for consultation on April 13. As a result of the negotiation, on October 26, 2006, the WTO Dispute Settlement Body, at the request of the European Union, the United States, and Canada, decided to establish an expert group to hear the case. This case was collectively referred to as the "China's Measures Affecting the Import of Automobile Parts." On July 18, 2008, the WTO Dispute Settlement Expert Group issued a report adjudicating that China's case-related measures violated WTO rules and should be amended. On September 15, China filed an appeal. On December 15, the Appellate Body issued a report supporting the panel’s decision.

The main legal issues involved

First, the provisions concerning national treatment in Article 3.2 and 3.4 of the GATT 1994. The expert group first confirmed that the disputed measure was an internal tax under Article 3.2 of the 1994 GATT instead of the tariff measure prescribed in Article 2.1. The reason was that China's taxation on imported auto parts was an obligation to pay tax after completing the assembly of the whole vehicle. Occurs in the territory of the customs. The Panel of Experts accordingly ruled that the controversial measures apply only to imported auto parts and not to the same domestic parts and components, in violation of the provisions of GATT Article 3.2 on national treatment; and, by adopting this measure, China has used more than specified standards. Imported auto parts automakers impose additional administrative requirements and additional expenses to treat imported auto parts less than the same domestic auto parts, in violation of Article 3.4 of GATT 1994.

Second, with respect to GATT 1994's obligations under articles 2.1 (a) and 2.1 (b) regarding compliance with the schedule. The Group of Experts further analyzed that, even if it was assumed that the disputed measure was identified as a tariff measure, it also violated the provisions of Articles 2.1(a) and 2.1(b) of GATT 1994 concerning the observance of the obligations of the concession table because of the Chinese auto parts A 25% tariff was levied, exceeding the 10% constraint of China's WTO commitments. China proposes that in accordance with the relevant rules of the Harmonized Commodity Names and Coding System, all bulk assembly kits and semi-bulk assembly kits belong to the category of motor vehicles in the tariff classification. Therefore, China's use of the tariff as a whole vehicle does not violate GATT Article 2 on tariffs. Concession commitment rules. This claim has not been supported by the expert group.

Third, the obligations undertaken in paragraph 93 of the "China Working Group Report." Paragraph 93 of the “Report of the China Working Group” stipulates: “With regard to the issue concerning tariffs on auto parts, the representative of China confirmed that the customs tariff numbers have not been established for all bulk assembly kits and semi-bulk assembly kits. If such tariff numbers are set, tariffs are set. Will not exceed 10%." The panel believes that once China decides to implement this measure and accordingly sets up a Tariff Number for all bulk assembly kits and semi-bulk assembly kits, this behavior makes the preconditions for the application of paragraph 93 met and thus violates the commitments. Although the report of the Appellate Body has overturned this conclusion, it cannot change the overall situation.

Formulate policies that respect international rules

We know that any frictions that are solved in accordance with the rules of the game only have superficial fairness, and whether their conclusions are truly fair is always a relative concept that is affected by the competitiveness of the game participants themselves and their ability to grasp the rules.

On March 3, 2009, China reached an agreement with the United States, the European Union, and Canada respectively. Before September 1, 2009, it took measures to comply with the ruling of the litigation body in the WTO. On August 15, 2009, the Ministry of Industry and Information Technology and the National Development and Reform Commission issued a document. Starting from September 1, it will no longer implement the Measures for the Administration of the Import of Auto Parts that Constitute the Characteristics of the Whole Vehicle.

At the same time, as a country’s trade policy, when it comes to such problems in the WTO, policy makers need to revisit it. First, it is necessary to use administrative intervention to forcibly achieve certain goals or results, or should we rely more on the effective allocation of resources in the market to achieve policy objectives. From a long-term point of view, pressure from market competition will inevitably lead to enterprises without the need for policy promotion. To speed up the progress of localization, this is a consideration in the effective allocation of market resources. Therefore, when formulating policies, government departments should strengthen communication with the industrial sector, fully respect and follow the rules of market economy, and minimize unnecessary administrative interventions.

Furthermore, technical research on laws should be strengthened. Only by familiarizing themselves with rules and mastering rules can a party gain the advantage in the game. In this case, the accusation basis and the respondent's enumeration of the basis of the allegation and the reason for the reply reflect the differences in their understanding of the WTO rules. As a member of the WTO, China must fulfill its international commitments so that the policies formulated and the actions it implements conform to the objectives and rules of the WTO multilateral trading system. For example, Article 52 of the "Automotive Development Industrial Policy" states that "the state supports auto manufacturers in their efforts to increase the localized production capacity of automotive products, promote the technological advancement of auto parts enterprises, and develop the automobile manufacturing industry", it is obviously not in line with wording. The provisions of the WTO reflect the roughness of our rulemaking and interpretation techniques. This is one of the reasons that caused China to lose or partially lose its case in the WTO dispute settlement procedure.

In summary, “China's Measures Affecting the Import of Auto Parts and Components” inspired us to: First, we must follow the laws of market economy; Second, we must consider international rules. This may be a particular requirement for China to be an open country and a market economy when formulating policies. Note two issues.

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