xcel
05-31-2006, 09:54 PM
When developments look unfavorable, China reserves the option to change the rules. (http://www.detnews.com/apps/pbcs.dll/article?AID=/20060531/AUTO02/605310301/1148/AUTO01)
Detroit News -Michael Dunne - May 31, 2006
http://www.cleanmpg.com/photos/data/501/Chinese_flag.jpg
You never hear China declaring admiration for free markets. The leadership is more comfortable with managed competition.
"We will always balance our rights [as members] against our obligations," said former President Jiang Zemin when China entered the WTO in 2001.
Translation: When developments look unfavorable, China reserves the option to change the rules.
Officials in Beijing did just that earlier this year when they declared higher taxes on automotive parts imports. This action has prompted the U.S. and the EU to file a complaint with the WTO.
Why the abrupt move to higher taxes on car parts? And what is behind the strong reaction by the foreign carmakers?
Before joining the WTO, China ruled that cars built in the country had to have 40 percent made-in-China content. Upon WTO ascendancy, China agreed to do away with the local content rules. The country also signed on to a schedule of reduced import taxes for both cars and parts.
In 2006, import tariffs on cars came down to 25 percent. Taxes on imported parts have fallen to even lower levels - 3 to 17 percent - depending on their level of technical complexity.
Because of this tax differential, global car companies found that they could export a full set of car parts (called "knocked-down kits") to China more cheaply than complete cars. With local content rules gone, carmakers were now free to build and sell cars in China that consisted of up to 100 percent foreign parts content.
Several foreign automakers began doing just that. Look under the hood of the locally assembled Toyota Crown or Audi A6 or Cadillac CTS, and you will be hard-pressed to find much made in China.
Officials in Beijing see this as nothing more than taking advantage of a loophole. China, they feel, is not yet ready for direct global competition. They have counter-punched by adding a new wrinkle to the tax policy: If cars assembled in China consist of too many imported parts, they will be treated as complete car imports and subject to the higher taxes.
China's blunt message: If you want to sell cars in the world's most promising market, you better manufacture the parts here too.
Global car companies are not inclined to kowtow to Beijing -- at least not yet. They point out that China agreed to dismantle local content and to lower taxes. Foreign companies also remind China that European, American and Asian makers have already invested billions of dollars into China's auto industry.
In principle, the foreign car companies are right. The WTO should direct China to honor its trade obligations. But reality is seldom so simple.
China has two key points working in its favor:
First, the EU last year unilaterally increased tariffs on textiles from China. So, there is precedent for making up rules as you go along.
Second, and more important, is the Middle Kingdom's negotiating power. China's trading "rights" will increasingly carry a little more weight than its "obligations."
Farewell, free markets.
Detroit News -Michael Dunne - May 31, 2006
http://www.cleanmpg.com/photos/data/501/Chinese_flag.jpg
You never hear China declaring admiration for free markets. The leadership is more comfortable with managed competition.
"We will always balance our rights [as members] against our obligations," said former President Jiang Zemin when China entered the WTO in 2001.
Translation: When developments look unfavorable, China reserves the option to change the rules.
Officials in Beijing did just that earlier this year when they declared higher taxes on automotive parts imports. This action has prompted the U.S. and the EU to file a complaint with the WTO.
Why the abrupt move to higher taxes on car parts? And what is behind the strong reaction by the foreign carmakers?
Before joining the WTO, China ruled that cars built in the country had to have 40 percent made-in-China content. Upon WTO ascendancy, China agreed to do away with the local content rules. The country also signed on to a schedule of reduced import taxes for both cars and parts.
In 2006, import tariffs on cars came down to 25 percent. Taxes on imported parts have fallen to even lower levels - 3 to 17 percent - depending on their level of technical complexity.
Because of this tax differential, global car companies found that they could export a full set of car parts (called "knocked-down kits") to China more cheaply than complete cars. With local content rules gone, carmakers were now free to build and sell cars in China that consisted of up to 100 percent foreign parts content.
Several foreign automakers began doing just that. Look under the hood of the locally assembled Toyota Crown or Audi A6 or Cadillac CTS, and you will be hard-pressed to find much made in China.
Officials in Beijing see this as nothing more than taking advantage of a loophole. China, they feel, is not yet ready for direct global competition. They have counter-punched by adding a new wrinkle to the tax policy: If cars assembled in China consist of too many imported parts, they will be treated as complete car imports and subject to the higher taxes.
China's blunt message: If you want to sell cars in the world's most promising market, you better manufacture the parts here too.
Global car companies are not inclined to kowtow to Beijing -- at least not yet. They point out that China agreed to dismantle local content and to lower taxes. Foreign companies also remind China that European, American and Asian makers have already invested billions of dollars into China's auto industry.
In principle, the foreign car companies are right. The WTO should direct China to honor its trade obligations. But reality is seldom so simple.
China has two key points working in its favor:
First, the EU last year unilaterally increased tariffs on textiles from China. So, there is precedent for making up rules as you go along.
Second, and more important, is the Middle Kingdom's negotiating power. China's trading "rights" will increasingly carry a little more weight than its "obligations."
Farewell, free markets.