By Guang Hongyan

European auto manufacturing firms have been complaining about China's increasing tariffs on parts imported from EU countries. Some are even threatening to refer the case to the World Trade Organization.

They are actually targeting a circular issued jointly by the Chinese General Administration of Customs, the National Development and Reform Commission, and the ministries of finance and commerce, which emphasized the strengthening of management of imported auto parts that are important components necessary for building complete cars.

The tax rate on this kind of auto part stands at 25 percent.

China's efforts are aimed at preventing international auto giants from turning China into an auto assembly base by shipping parts into the country, which is actually a profiteering act that involves evading tariffs.

Action from Chinese agencies to close loopholes is justified and in the spirit of relevant WTO principles of fairness.

In form, China's levying discriminate tariffs on this kind of auto parts borders on discrimination. But in essence, it is the European Union that first ruined the principle of fairness by turning tariff differences into net profits for European auto makers. This has caused the loss of tariffs on the part of China.

Why should the EU take such a tough stand?

It is better to look at some statistics. From January to October, Japanese-brand automobiles accounted for 26.6 percent of China's auto market, ranking first among foreign manufacturers. A total of 651,000 Japanese-brand autos were sold in China during that period.

In contrast, only 376,000 European-brand automobiles were sold in the country during the same period of time; merely 15.4 percent of the market share.

Japanese-brand cars for the first time exceeded those of German brands.

The EU's tough attitude is actually an expression of its worries over losing ground in the Chinese auto market.

Why have auto makers from Japan and the Republic of Korea (ROK) not complained about the action taken by China concerning increasing tariffs on imported auto parts?

Pending the building of joint-venture automobile plants in China, auto makers from the two Asian countries have moved their whole systems for auto parts manufacturing to China, which means factories are set up locally.

By contrast, European auto makers depend heavily on independent parts suppliers. As a result, their parts exported to China are subject to much higher tariffs.

Therefore, the recent circular will have much less impact on Japanese and ROK manufacturers.

For example, Honda Accord and Fit cars, which are made in Guangzhou, enjoy high localization rates 70 percent and 80 percent respectively.

This is the direct outcome of Honda's heavy investment in making parts locally, which, in turn, translates into high localization rates and larger market share.

The Chinese market management departments are the watchdogs of an extremely large market. It is their responsibility to see that rules and regulations are observed, and that those who invest more enjoy greater returns.

If Japanese and ROK auto makers, who have invested more heavily in auto parts manufacturing than their European counterparts, do not see larger profits, they will have been treated unfairly.

As a matter of fact, European auto makers are lagging behind owing to insufficient investment of technology and capital in the Chinese market.

The Chinese watchdogs have no obligation to protect losers. It is better to understand this before a trade war is launched.

Note: the author works for the State Information Center

(China Daily December 22, 2005)