WTO Finds That China Employed Illegal Protectionist Border Tariffs & Indirect 'Local-Working' Subsidies

WTO rules against China on car parts; Finds in favour of Canada, U.S. and EU


http://www.theglobeandmail.com/servlet/story/LAC.20080214.RCHINA14/TPStory/Business


theglobeandmail.com


STEVEN CHASE


With files from AP


February 14, 2008


OTTAWA -- The World Trade Organization has for the first time ruled against China for breaking global trade law in a precedent-setting case over car part imports that is expected to spur further challenges aimed at forcing Beijing to open its markets.


Yesterday's interim decision by the WTO found in favour of Canada, the United States and the European Union, all of which complained that China is raising unfair barriers to imports of foreign car parts.


China only joined the 151-member WTO in 2001 and while the state-heavy economy faces several challenges to its trade behaviour at the global body, yesterday's ruling is the first decision handed down.


International Trade Minister David Emerson cheered the ruling - which is officially secret until March despite being leaked yesterday - saying the decision may help open up a new market for
Canadian auto parts makers.


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"Hopefully it will bring about change in the practices that China's been applying," he said. "With our companies in such tough shape right now, a growing market is critically important to restoring health to our Canadian auto parts industry."


The WTO ruling is only an interim decision but the global referee's adjudicators have never changed their minds in the final version of their rulings. It could take more than a year for the case to conclude, but when it does, China may be forced to alter its behaviour or face trade sanctions from Ottawa, Washington and Brussels.


The WTO reportedly found that China was breaking agreed-upon global trade rules by taxing imports of car parts at the same higher rate levied on foreign-assembled autos.


"It's rendering it uneconomic for Canadian parts suppliers in this market," Mr. Emerson said of China's tax rate.


Toronto trade lawyer Lawrence Herman with Cassels Brock & Blackwell LLP predicts more WTO challenges of Chinese trade barriers.


Mr. Herman noted China's growing importance as an export destination, particularly for U.S. goods. "I think it's the beginning of many more such cases where the U.S. is taking on China, rightly or wrongly, for not complying with WTO rules," he said. "The huge U.S. trade deficit with China can't be ignored."


U.S. exports to China have more than quadrupled between 1996 and 2006, when they hit $55.2-billion (U.S.). That same year, the U.S. trade deficit with China hit $233-billion.


The three trade powers argued at the WTO that China's tariff was discouraging auto makers from using imported car parts for the vehicles they assemble in China. As a result, car parts firms had an incentive to shift production to China, costing Americans, Canadians and Europeans their jobs, they said.


The ruling will be closely watched by makers of batteries and brakes, seats and spark plugs on both sides of the Atlantic, including U.S.-based Delphi Corp. (General Motors' former parts supplier) and Robert Bosch GmbH in Germany.


China, which can appeal the ruling, claims the tariffs are intended to stop whole cars being imported in large chunks, allowing companies to avoid the higher tariff rates for finished cars. It argues all measures are consistent with WTO rules and do not discriminate against foreign auto parts.


But the U.S. and EU say China promised not to treat parts as whole cars when it joined the WTO in 2001.


[This point is significant in light of the prior 1998 WTO case Indonesia – Certain Measures Affecting the Automobile Industry (WT/DS54,55,59 & 64/R). US and EU allege that two sets of Indonesia measures constitute subsidies that cause ‘serious prejudice’ to their interests within the meaning of SCM Art. 5 (c). They alleged that the effect of the ‘subsidies’ was to displace or impede imports of ‘like’ products from the EC and US into the subsidizing Indonesian market. In other words, the prices of 'like' EC and US autos were significantly undercut by the subsidized national car company, and thus discriminated against in the marketplace.


The first set of measures entailed a ‘grant’ of National Car company status to Indonesian car companies that met specified criteria as to ownership of facilities, use of trademarks and technology. The ‘benefits’ provided were exemption from luxury tax on car National Car sales and exemption from import duties. They were maintainable by meeting increasing local content requirements.


The second set of measures provided that National Cars manufactured in a foreign country by Indonesian nationals and that fulfill (20%) local content requirements shall be treated the same as ‘National Cars’ (exemption from luxury tax and import duties). The 20% local content requirement was deemed satisfied if the overseas car manufacturer ‘counter-purchases’ Indonesian parts and components that account for 25% or more of the cost & freight (C&F) value of the imported cars. Indonesia maintained a duty of 200 percent on imports of finished passenger cars. As a result, almost ALL passenger cars imported into Indonesia including the EC and US models in question were imported as ‘completely knocked down’ (CKD) kits and assembled in Indonesia.


The WTO Appellate Body (AB) did not consider that an unassembled product ipso facto was NOT a ‘like’ product to that product assembled. The AB considered that a tariff classification was a useful tool in ‘like’ product analysis. It noted how the Gen’l Rules for Interpreting Harmonized System stated that any reference in a heading to an article shall include a reference to that article incomplete or unfinished, provided, the incomplete or unfinished article has the essential character of the complete or finished article.


The AB believed that a comparable approach to the relation between assembled and unassembled products made good sense in the context of that dispute. Due to the high Indonesian duties, ‘completely built-up, EC and US producers shipped ‘cars in a box’ to Indonesia. Consequently, they could properly be considered to have characteristics closely resembling those of a completed car. In WTO jurisprudence, the AB employed a ‘Big Accordion’ of ‘likeness’.]

"It will be instructive to see how China responds," U.S. Trade Representative Susan Schwab said in a recent interview with Associated Press. "If, as we hope and expect, China will be found in contravention of its WTO obligations, hopefully that will help those forces within China that have been advocating reform."

Russian Regulatory Roulette: The Raising of Disguised Technical Barriers to Trade??

MOSCOW NEWS


Breaking Barriers

http://mnweekly.rian.ru/business/20080221/55311414.html

21/02/2008


Last Friday, Chairman of the Association of European Businesses, Reiner Hartmann, and a delegation from the AEB, held a meeting with EU Commissioner for Trade, Peter Mandelson on customs, visas, taxation and intellectual property rights issues - the four main concerns identified by European businesses operating in Russia.


Specific challenges regarding customs barriers included customs clearance procedures and different interpretations of customs regulations. A spokesperson from AEB told The Moscow News on Wednesday that "there are numerous documents that need to be provided as well as high custom costs for imports of certain goods, more particularly for cigarettes, chemicals, electronics, machine building equipment and textiles."


Concerning taxation, European businesses said they were concerned about transfer pricing, criticizing the practice of "black listing" certain countries - among others Malta and Cyprus - using the sole criterion of the tax rate applicable in that country.


According to the Draft Law on Transfer Pricing, this rate should not be less than half the tax rate applicable in the Russian Federation, which means it should not amount to less than 12 percent. The AEB stated that "a special clause of information between the countries for tax rate difference shall be introduced. However, there could be possible discrimination between EU member states." The AEB did however welcome President Vladimir Putin's recent announcement that the VAT rate will decrease significantly in coming years, which will benefit European business as well as others.


In the area of Intellectual Property Rights, difficulties abounded. In particular, representatives from pharmaceutical and agrochemical sectors reported experiencing excessive red tape and "extremely protracted and messy procedures for the registration of new products and re-registration of existing products," the AEB said.


Moreover, software manufacturers detailed barriers for importing their products into Russia. The first step entails receiving approval from the Federal Security Service (FSB) to import the software. Following approval, the Ministry of Economy issues a license to the company, but the license remains valid only for that particular shipment.


As a result, software manufacturers currently find themselves repeating the entire application process each time anew. Additional disadvantages are incurred while waiting in line for import approval: the importer must pay a service fee while customs holds the product (which on average takes three weeks), Russian authorities may keep reference samples of items used to conduct tests, and yet another fee is levied for the test analysis from an FSB-recommended lab.


The meeting served as a continuation of AEB and European Com­mission cooperation within the framework of the EU Market Access Strategy, the goal of which consists of ensuring fair trade conditions for European companies doing business not only in Russia, but any third-party state. European businesses operating in Russia will take advantage of this channel for collectively communicating their hardships on a policy level.


In order to address some of these concerns, Commissioner Mandelson emphasized the importance of feedback from European companies in offering concrete cases of discriminatory trade barriers from their experience on the ground.


AEB Chairman Reiner Hartmann indicated AEB intentions to "intensify its participation in [this] process."

By C. Anne Shupe

The Time For Doha Is Now

http://www.merinews.com/catFull.jsp?articleID=129745


2008 is ‘make or break’ for Doha trade talks: World leaders


MeriNews, India

Mineguruji, 27 January 2008,

Amidst fears of a worldwide fiscal depression mounting, trade leaders at the WEF pressed businesses to push their governments to seek a successful conclusion to the Doha Round of trade talks this year or risk rise in new barriers to international business


WITH FEARS of a global economic recession growing, trade leaders at Davos urged businesses to press their governments to seek a successful conclusion to the Doha Round of trade talks in 2008, or risk seeing a rise in new barriers to international commerce.


“If it’s not concluded this year, it won’t be concluded next year - and by 2010 the caravans will have moved on elsewhere,” Peter Mandelson, commissioner, Trade, European Commission, Brussels, told participants at the World Economic Forum Annual Meeting 2008. “Not only will the caravans have moved on in different directions of trade negotiations, but what has already been on the table, which in my view is quite substantial, will have been put into deep freeze.”


After more than six years of stop-start negotiations, the Doha talks between members of the World Trade Organization have ground to a halt. With less than a year before US President George Bush leaves office, time is rapidly running out for reaching an agreement to reduce tariffs, subsidies and promote freer and fairer trade, panelists said.


The plenary session “Threats to the Global Trading System” followed an informal lunch meeting of trade ministers in Davos. Despite important progress on technical issues over the past six months, panelists revealed, the group remains no closer to an agreement and scepticism is high. Concerns persist among developing countries that lower tariffs will unfairly expose poor rural farmers to global competition and jeopardise growth that would be a potential buffer against a global slowdown.


“The content of this Round must deliver to healthy economies in Asia, in Africa, in the Pacific and in Latin America because that’s the goose that’s laying the golden egg,” said Kamal Nath, minister of Commerce and Industry of India.


But the cost of failure is rising, panelists said. Failure in the Doha Round would be likely to increase protectionist pressures around the world and result in a rollback from the progress already made towards freer global trade. Mandelson said the negotiations had become a prisoner to some extent of the American political calendar. Campaigning is already underway for elections to replace Bush next January, and a new president is unlikely to be able to put the Doha Round at the front of the US policy agenda, he said. The new President is likely to want to review any commitments that have already been made.


President Bush remains strongly committed to reaching a trade deal, insisted US representative Susan Schwab, and bipartisan support for a deal in the US Congress means there is still time to ratify a deal if one can be reached, she said.


Pascal Lamy, director general, World Trade Organization (WTO), Geneva, said a failure in the talks could exacerbate the impact of a slowing global economy and heighten geopolitical tensions. Celso Amorim, minister of Foreign Relations of Brazil, echoing these concerns, said failure to reach a deal in 2008 would “give the wrong signals to the global economy. And this will be detrimental to everybody, most of all the developing economies.”


Indeed, continued delays had lost the negotiators’ credibility among voters and companies, said Doris Leuthard, federal councillor of Economic Affairs of the Swiss Confederation. “When we don’t get a result, national protectionism is a big threat,” she said.


While businesses may be frustrated with the lack of progress in the Doha Round, companies still have a great deal to gain from it, Mandelson stressed - and a great deal to lose if a deal is not reached. “There is very significant economic value in binding the existing openness in the global economy,” he said.


Companies, therefore, most overcome their scepticism to push for a successful deal, panelists said. “The capacity of any one of us to deliver such a package through our political systems will depend in large measure on what the private sector is doing and saying, and whether they hold accountable leaders in their countries,” said Schwab.