China Commerce Ministry regrets WTO car parts ruling

China's Ministry of Commerce said on Tuesday that it regrets a decision by the World Trade Organisation that duties it levies on imported car parts broke the terms of its WTO accession.

The decision, announced on Monday, upheld original rulings in July that marked China's first defeat in a WTO dispute since it joined the global trade body in 2001.

China took comfort that the Appellate Body upheld one part of its argument.

"China has noted the Appellate Body's support for China's treatment of import tariffs on completely knocked down (CKD) and semi-knocked down (SKD) kits, correcting the wrong decision made by the previous panel report," Commerce Ministry spokesman Yao Jian said in a statement on its website.

"China welcomes that, while at the same time regretting that the Appellate Court upheld the other decisions by the panel."When China joined the WTO in 2001, it had a maximum tariff of 25 percent on vehicles and 10 percent on auto parts.

But in 2004 and 2005 it started to charge car manufacturers importing parts the 25 percent rate if they did not use a sufficient quantity of components made in China, in a move designed to discourage foreign carmakers from importing vehicles in large parts to circumvent the higher tariff.

The appeal court called on the WTO to recommend China to bring its measures into line with WTO rules. Under WTO procedures the 123-page appeal report will be adopted within 30 days after which China will have to implement its findings.

The dispute seems more political than economic in nature, an analyst said, as most foreign auto makers in the country, from General Motors to Volkswagen AG, have been stepping up local production to cut costs.

"It seems that this car parts row has been highly politicised," said Yi Junfeng, an analyst with Changjiang Securities.

"Few of the foreign auto makers I talked to complained about high tariffs in the first place because locally-made parts in most cases make up more than 80 percent of their models built in China."

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