U.S. Charges China With ‘Unfair’ Duties on US-Made Autos

WASHINGTON—China imposed tariffs on more than $3 billion in American-made autos late last year. On July 5, U.S. Trade Representative Ron Kirk announced that the U.S. is taking its case to the World Trade Organization (WTO).

“American auto workers and manufacturers deserve a level playing field and we are taking every step necessary to stand up for them,” Ambassador Kirk said in a statement.

China’s Ministry of Commerce alleged in May 2011 that U.S. automakers were selling vehicles at less than fair value (known as “dumping” in trade parlance). By December, Chinese officials made good on tariff threats and began imposing duties on imports of American-made cars and SUVs with an engine capacity of a half-gallon or more.

While WTO rules allow for duties on imports, it comes with the condition that goods have either been dumped or subsidized, and are causing harm to domestic industry. According to U.S. officials, the vehicles China received didn’t justify the tariffs they imposed.

The anti-dumping and countervailing duties on U.S. auto exports apply “to roughly 92,000 autos and SUVs, worth $3.3 billion in annual U.S. exports,” or more than 80 percent of U.S. auto exports to China, according to MSNBC. The duties imposed on American-made cars raise the cost for Chinese consumers between 2 and 22 percent.

This is the third time that the Obama Administration has challenged China’s misuse of trade remedies, according to the Office of the U.S. Trade Representative (USTR). The preceding challenges were for steel and chicken products.

WTO Dispute Settlement

When negotiations fail, disputes go to the WTO, but the process can take several years. The United States and China will first engage in consultations, but if the matter can’t be resolved in 60 days, the United States may request the establishment of a WTO dispute settlement panel.

According to the USTR, China used improper investigative procedures, did not disclose essential facts, and failed to provide an adequate explanation to support its conclusions. Without further details supporting China’s assertion that the imported vehicles hurt domestic industry, the USTR says the tariffs aren’t justified.

However, this trade dispute is not just about whether WTO rules were followed. There is a larger context behind this case that suggests the Chinese auto tariffs might be an act of retaliation.

The USTR statement says, “Shortly after President Obama decided in September 2009 to impose a safeguard measure against Chinese tire imports, China’s Ministry of Commerce announced that it would initiate anti-dumping and countervailing duty investigations of imports of American-made cars and sport utility vehicles (SUVs).”

Implicit in this statement is that China is retaliating against U.S. actions on Chinese tire imports, although the USTR statement is careful to avoid drawing that conclusion.

Indeed, a similar sequence of events occurred almost identically in 2009. Reid Bolton wrote in the Berkeley Journal of International Law last year that the WTO member countries are constantly invoking Article VI—the WTO’s anti-dumping provision—as both complainant and respondent.

According to Bolton, China announced that it would be conducting an investigation on U.S.-exports just two days after the United States put tariffs on Chinese-made tires under the WTO’s safeguard provision.

“The timing of the announcement was no accident. The anti-dumping investigation was clearly intended to counter the tariffs placed on Chinese products,” wrote Bolton.

Anti-dumping investigations and challenges are commonplace—Bolton says there are more than 200 investigations each year. One of the chief reasons for frequent investigations is because they’re easy to do and require a lot of effort and time for a targeted nation to mount a challenge.

China Gaming the System

China joined the WTO in December 2001, but they weren’t exactly welcomed with open arms. With some reluctance, members agreed to China’s accession despite the fact that China lacked a market-based economy. As a condition for admission, China had to agree to specific requirements.

The US-China Economic and Security Review Commission’s (USCC’s) 2011 annual report to Congress says that WTO members took a calculated risk that China would make the adjustments necessary to conform to WTO standards which are intended to make trade smooth, predictable, and free.

The USCC was established by the U.S. Congress in part to monitor China’s progress in making reforms, but developments haven’t exactly been going according to plan.

“Ten years later, China’s state-directed financial system and industrial policy continue to contribute to trade imbalances, asset bubbles, misallocation of capital, and dangerous inflationary pressures,” states a recent USCC report. “China’s adherence to WTO commitments remain spotty despite the decade that the country’s rulers were given to adjust.”

As China failed to meet requirements, U.S. officials spoke up. The United States filed its first complaint in March 2004, and there have since been a total of 13 cases brought against China before the WTO—seven in the Bush administration and six under Obama.

The USCC report said that trade law scholars have observed a marked change in China’s behavior towards adhering to WTO rules. China was initially “quick to comply with all demands of the WTO’s dispute resolution process,” but has since become highly adept at gaming the system.

“Beijing has become more aggressive about bringing claims against trading partners, appealing decisions that are rendered against its favor, and pushing the envelope of noncompliance,” says the USCC report.

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