China to Levy New Duties on U.S. Auto Imports

China’s Ministry of Com- merce announced December 14 that China would levy anti-dumping and anti-subsidy duties on sedans and sport-utility vehicles (SUV) with engines of 2.5 liters and above imported from the United States， the latest in a series of trade disputes between the world’s two largest economies.

Effective on December 15， 2011， importers of related vehicles from the U.S. will be required to set aside deposits with Chinese customs ranging from 2 percent to 12.9 percent according to the level of dumping and the level of subsidy U.S. carmakers received from their government， the ministry said in a statement on its website.

U.S. carmakers， including General Motors and Chrysler Group， have received government subsidies and dumped their vehicles into the Chinese market， which has harmed China’s auto industry， the statement said.

The new duties would mainly affect General Motors， which exports Cadillac SUVs and cars to China; Chrysler， which exports Jeeps; BMW， which， though a German company， exports SUVs made in South Carolina; and Daimler， also of Germany， which exports Mercedes SUVs made in Alabama.

The new tariffs China imposed will be an 8.9 percent antidumping duty for GM vehicles， 8.8 percent for Chrysler， 2.7 percent for Daimler， and 2 percent for BMW. The ministry also imposed anti-subsidy duties of 12.9 percent for GM and 6.2 percent for Chrysler.

The duties will expire on Dec. 14， 2013. Currently， China imposes tariffs of 25 percent on imported passenger vehicles.

Comments by the two sides

China’s decision to levy antidumping duties on U.S. auto imports is made “based on laws and facts，” said Shen Danyang， spokesman with the Ministry of Commerce (MOC) during a press conference on December 15.

Investigations into the auto market showed that U.S. auto makers have received government subsidies and dumped their vehicles into the Chinese market， which has substantially harmed China’s auto industry， said Shen.

Imports of these U.S. auto models increased 1.3 times year-on-year from May to October this year， while the prices of these vehicles fell 12.4 percent in October from the May level， which led to the ministry’s decision on the duties， he said.

The measures were taken after China conducted open investigations in accordance with the WTO rules and upon petitions from domestic enterprises， Chinese Commerce Minister Chen Deming told a press conference during the Eighth WTO Ministerial Conference in Geneva on December 15.

The measures were not trade protection moves， Chen said， noting “we have to draw a clear line between trade protectionist measures and normal trade measures.”

If there is different opinion， he added， the best solution is to invite the experts from the WTO to judge and China would respect the WTO rules and its final verdict on this case.

According to statistics from the WTO， China saw a 50-percent decrease in its anti-dumping and antisubsidy measures in 2011 compared with the previous year， while some WTO economies reported a 200-percent increase in such trade remedies and the United States even registered a 400-percent rise， Chen said.

“It’s good to see that China has learnt to better use trade regulations to protect itself and respond to trade challenges，” said Li Zhongzhou， a former official from the Ministry of Commerce and a WTO expert from the EU-China Trade Project.

China’s move drew immediate criticism from President Barack Obama’s administration.

“We are very disappointed in this action by China，” said Carol Guthrie， a spokeswoman for the Office of the United States Trade Representative.“We will be discussing this latest action with both our stakeholders and Congress to determine the best course going forward.”

American officials have previously examined the methodology of China’s two-year-old antidumping and antisubsidy investigation into Americanmade automobiles and have found “significant problems，” said Ms. Guthrie， the United States trade spokeswoman.

Four senior lawmakers in the House of Representatives also urged USTR to take action， calling the duties“unjustifiable” and “one more instance of impermissible Chinese retaliation against the United States and other trading partners.”

Background

The move is the latest in a flurry of legal actions between the US and China， in which each country accused the other of supporting domestic industry with illicit state subsidies and challenged each other’s use of emergency blocks on imports.

The US is taking a case against China to the World Trade Organization， arguing that Beijing’s use of antidumping measures against US poultry exports was illegal under global trade rules. Washington also has a similar WTO case pending against China for blocking steel imports from the US.

China started the process of imposing anti-dumping duties on American poultry and cars in 2009， shortly after the Obama administration imposed a 35-percent anti-dumping tariff on imported tires from China valued at about $1.8 billion， over three years. It will result in cutting China’s tire exports to the US by more than 50 percent， and lead to possibly 100，000 job losses in China’s domestic tire industry.

A recent preliminary decision by the U.S. International Trade Commission concluded that imports of Chinese solar panels had hurt American solar panel manufacturers， moving the U.S. one step closer to imposing antidumping and anti-subsidy duties on Chinese solar panels early next year.

In 2009， China eclipsed the United States as the world’s largest auto market， but its national car industry remains weak and fragmented， leaving 70 percent of the market to U.S.， European， Japanese and South Korean makers.

Sales of passenger cars in China rose more than 30 percent in 2010， but the pace has slowed sharply in 2011 and sales gains are expected to be closer to 5 percent this year.

U.S. vehicle exports to China were valued at $3.5 billion in 2010 and $4.2 billion through October of this year， according to the U.S. Commerce Department.

Beijing has long imposed a hefty import duty – currently set at 25 per cent – on all foreign-made cars， regardless of country of origin.

Faced with that tariff， most foreign automakers have already based production facilities in China for the vast majority of their cars sold to the Chinese market. GM， the foreign sales leader in China， uses Chinese factories to make nearly 99 per cent of its cars sold within China.

Impacts

Analysts said the move by China is unlikely to change the landscape in the country’s booming car market， given the fact that Beijing has long imposed a hefty import duty – currently set at 25 per cent –on all foreign-made cars.

Zhong Shi， an independent auto analyst based in Beijing， said that the duties will not have much impact on US vehicle exports to China. GM Cadillac models do not have a large market share while Chrysler doesn’t do much business in China.

“It’s more of a signal that China is exerting pressure on US trade protectionist moves，” Zhong said.

Bill Russo， a former Chrysler executive who oversaw the company’s operations in China until 2008， is now an industry consultant in Beijing， and says the new duties can’t be intended to help Chinese automakers.

Imported SUVs and cars cost so much more than Chinese models that “people are not shopping these on price，” said Russo. “No local company makes a product even close.”

Carmakers sought to play down the impact on their business， pointing out that the new duties were lower than those in some other overseas markets.

BMW， which makes its X3， X5 and X6 SUVs at a plant in Spartanburg， South Carolina， noted its models would be hit by a modest 2 per cent duty， compared to a 15 per cent penalty for Chrysler and 22 per cent for GM. “We are not counting on a major impact on our business in China，” the Munichbased automaker said.

Ford said it would not be impacted by the tariff changes as it builds all of its Chinese vehicle portfolio locally， except for its Edge model， which it imports from Canada.

GM is a leading producer of automobiles in China， and said in its statement that imports from the U.S. represented “less than half of 1 percent of its domestic production in China.”

On the other hand， Chrysler’s sales in China are exclusively imports. The company was not allocated any factories in China when Daimler dissolved its merger with Chrysler in 2007.

As a result， Chrysler’s sales in China are miniscule — only 13，686 Jeeps， 10，970 Dodges and 284 Chryslers in the first 10 months of this year， according to LMC Automotive， a British consulting firm.

Mercedes builds its MClass， R-Class and GL-Class SUVs for the U.S. market and export at a factory in Alabama. About 10 percent of that plant’s output - or 16，000 vehicles - is shipped to China.

“We hope that we can find a quick solution，” said Daimler spokesman Han Tjan.

China’s Trade Minister Chen Deming said China expects trade disputes to increase next year because of economic weakness in the United States and Europe.

“If we look at countries around us， for example Europe and the United States， we’re all going to face difficulties brought about by these two areas，” he said at a press conference in Geneva.