Criticism of auto tariff unjustifiable Guang HongyanChina Daily Updated: 2005-12-22 06:43
European auto manufacturing firms have been complaining about China's
increasing tariffs on parts imported from EU countries. Some are even
threatening to refer the case to the World Trade Organization.
They are actually targeting a circular issued jointly by the Chinese General
Administration of Customs, the National Development and Reform Commission, and
the ministries of finance and commerce, which emphasized the strengthening of
management of imported auto parts that are important components necessary for
building complete cars.
The tax rate on this kind of auto part stands at 25 per cent.
China's efforts are aimed at preventing international auto giants from
turning China into an auto assembly base by shipping parts into the country,
which is actually a profiteering act that involves evading tariffs.
Action from Chinese agencies to close loopholes is justified and in the
spirit of relevant WTO principles of fairness.
In form, China's levying discriminate tariffs on this kind of auto parts
borders on discrimination. But in essence, it is the European Union that first
ruined the principle of fairness by turning tariff differences into net profits
for European auto makers. This has caused the loss of tariffs on the part of
China.
Why should the EU take such a tough stand?
It is better to look at some statistics. From January to October,
Japanese-brand automobiles accounted for 26.6 per cent of China's auto market,
ranking first among foreign manufacturers. A total of 651,000 Japanese-brand
autos were sold in China during that period.
In contrast, only 376,000 European-brand automobiles were sold in the country
during the same period of time; merely 15.4 per cent of the market share.
Japanese-brand cars for the first time exceeded those of German brands.
The EU's tough attitude is actually an expression of its worries over losing
ground in the Chinese auto market.
Why have auto makers from Japan and the Republic of Korea (ROK) not
complained about the action taken by China concerning increasing tariffs on
imported auto parts?
Pending the building of joint-venture automobile plants in China, auto makers
from the two Asian countries have moved their whole systems for auto parts
manufacturing to China, which means factories are set up locally.
By contrast, European auto makers depend heavily on independent parts
suppliers. As a result, their parts exported to China are subject to much higher
tariffs.
Therefore, the recent circular will have much less impact on Japanese and ROK
manufacturers.
For example, Honda Accord and Fit cars, which are made in Guangzhou, enjoy
high localization rates 70 per cent and 80 per cent respectively.
This is the direct outcome of Honda's heavy investment in making parts
locally, which, in turn, translates into high localization rates and larger
market share.
The Chinese market management departments are the watchdogs of an extremely
large market. It is their responsibility to see that rules and regulations are
observed, and that those who invest more enjoy greater returns.
If Japanese and ROK auto makers, who have invested more heavily in auto parts
manufacturing than their European counterparts, do not see larger profits, they
will have been treated unfairly.
As a matter of fact, European auto makers are lagging behind owing to
insufficient investment of technology and capital in the Chinese market.
The Chinese watchdogs have no obligation to protect losers. It is better to
understand this before a trade war is launched.
The author works for the State Information
Centre
(China Daily 12/22/2005 page4)
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