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U.S. vs. China: WTO Auto parts Case Study

U.S. vs. China: WTO Auto parts Case Study. DS 340.                       Overview.

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U.S. vs. China: WTO Auto parts Case Study

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  1. U.S. vs. China:WTO Auto parts Case Study DS 340

  2.                       Overview     The United States (along with the European Communities and Canada in separate but related cases) were contesting a 25% charge by China on imported auto parts. They felt that this violated various aspects of the GATT, as well as the Accession agreement between China and the WTO.     In 2006, the US moved for consultations at the WTO over the matter.  When this failed, a panel was convened to hear the case.     In 2008, the panel ruled for the complainant, a decision that was upheld on appeal.  China then moved to repeal the charge in accordance with the ruling.

  3. What's the main issue? U.S. auto parts received unfair treatment entering Chinese Market

  4. Final Determination and Appellant Ruling • July 2008 Dispute Settlement Body ruled in favor of the US, Canada, and European Communities stating the China's increased tariff on auto parts imports was inconsistent with the international trade body's rules • China appealed, but WTO's appeal body upheld the decision in December.  • The United States asked China to honor its WTO obligation and remove the tariff increase. • This case represents the first legal defeat, of China, since joining the WTO in 2001.

  5. Reasoning The Appellate Body upheld the Panel's findings because it found that the measure's imposed by China violated GATT Articles II and III • characterization of the charge as an "internal charge (Art III:2) rather that as an "ordinary customs duty", and was imposed on imported auto parts only, not domestically produced parts. • imported parts were given less favorable treatment that domestic parts (Art III:4) • inconsistent with Art II:1(a) and (b) because the tariff rate for motor vehicles, 25%, was in excess of the applicable tariff rate for auto parts, 10%

  6. *   U.S. exports of automotive parts in 2010 were $58.1 billion, an increase of 36.2 percent from 2009 levels. *  Exports to Canada and Mexico accounted for 74.3 percent of the total U.S. automotive parts exports in 2010, reaffirming the importance of the NAFTA. *  U.S. exports to China increased 36.4 percent in 2010, from $937 million in 2009, to $1.5 billion in 2010.       U.S. Auto parts Exports Update 

  7. *U.S. imports of automotive parts were $90.9 billion in 2010, an increase of 44.3 percent from 2009 levels. * Automotive parts imports from China have grown significantly in recent years. In 2000, the United States imported $1.6 billion in automotive parts. By 2007, these imports grew to $8.6 billion. Imports from China reached $10 billion in 2010.  billion           U.S. Auto Parts Imports

  8.   U.S.-China Auto parts Trade Deficit  * The U.S.-China auto parts trade deficit had grown six-fold from only $1.5 billion in 2001 to almost $8.8 billion in 2010. The 2009 global recession allowed the U.S. trade deficit with China to drop 20.3 percent in 2009 to $6.5 billion *    The total 2010 U.S. trade deficit in automotive parts significantly increased 61.3 percent to $32.8 billion, from $ 20.3 billion in 2009.

  9. U.S.-China Auto Parts Case &                              Competitiveness of U.S. business

  10. U.S. victory was certainly a positive for U.S. Trade and auto parts industry, but by itself has and will not address the major structural/competitiveness challenges the industry faces-domestically & internationally:  1. U.S. economy remains weak. Automotive parts suppliers had experienced heavy debt and overcapacity aggravated by production cuts by automakers, especially the Detroit 3 (Ford Motor Company [Ford], General Motors [GM], and Chrysler). 2. over 50 suppliers filed for Chapter 11 protection in 2009 and up to 200 suppliers were liquidated. The number of bankruptcies in the automotive parts industry leveled off in 2010, but the next couple years will remain difficult for some suppliers.  3. The entire automotive industry suffered as a result of the global economic recession in 2009. As vehicle production and sales declined, parts production and sales concurrently decreased because most parts are destined for new vehicle production. 4.Pressure was further exacerbated by global competition in the parts industry. As Japanese, German, and Korean-based vehicle manufacturers gained shares of the U.S. market, they maintained relationships with their traditional supplier base. 

  11.        Demand for U.S. Auto Parts  Automotive parts consumption is linked to the demand for new vehicles, since roughly 70 percent of U.S. automotive parts production is for Original Equipment (OE) products. The remaining 30 percent is for repair and modification (aftermarket). If vehicle production goes down, automotive parts production and sales follow.

  12. Importance of U.S.-China Auto parts Case & Increased Exports to China: American Jobs

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