The WTO trade disputes surrounding China's auto parts have also started a new wave. According to the World Trade Organization's dispute resolution procedures, on August 8th, the DSB (WTO Dispute Settlement Agency) announced the results of its deliberation. China has violated international trade rules in the collection of imported auto parts tax.
According to reports, U.S. trade representative Schwab made it clear that "The WTO will not allow China to adopt discriminatory policies on U.S. auto parts."
The origin of the dispute—an industrial policy called “Administrative Measures for the Import of Auto Parts and Components that Constitute the Characteristics of the Vehicle†(hereinafter referred to as the KD Management Method) (the administrative agencies are the General Administration of Customs, the National Development and Reform Commission, the Ministry of Commerce, and the Ministry of Finance). In February 2005, it was stipulated that if the total amount of imported parts exceeds 60% of the total vehicle cost, the imported parts will be levied according to the import tax rate of the whole vehicle. However, the implementation date was extended from July originally scheduled for July to July 2008.
Since its establishment, this industrial policy has caused continuous disputes. In March 2006, the United States and the European Union believed that China's KD management measures violated WTO regulations and filed a lawsuit with the WTO. In April 2006, Canada joined the litigation camp. In February of this year, the DSB Dispute Settlement Committee released its interim report and said that it basically agreed with the lawsuits of the United States, the European Union and Canada. The Chinese side appealed that this trade dispute entered the WTO trade dispute resolution procedure.
Is China's KD management approach really a “no small bottleneck†for foreign-invested companies that want to open up markets in China? For example, European and American countries have protested and played a role in protecting the Chinese auto industry. Through this dispute that has yet to reach a final conclusion, how should the Chinese auto industry, which already has the world's second-largest market, ponder?
Policy to promote the localization of high-end cars
“The main purpose of China’s implementation of the KD management approach is to strengthen the localization of automotive core components. Each foreign-invested automobile manufacturer has gradually increased its localization procurement ratio in order to reduce the risk of high tariffs imposed and to increase its own cost competitiveness. It can be said that KD's management measures have played a catalytic role in accelerating the localization of foreign-funded manufacturers,†said analyst at FOURIN Consulting.
Although the KD management method has not officially come into effect on the surface, it has already had a practical impact. According to FOURIN's statistics, with the proportion of KD-assembled vehicles produced in 2007, passenger cars accounted for 1.86%, down 4.6% year-on-year. Although the absolute number of KD-assembled vehicles in medium and large commercial vehicles increased, the overall average ratio decreased. 3.3%.
From the actual situation of foreign auto manufacturers, Audi, BMW, Mercedes-Benz, Volvo and other high-end car manufacturers have begun to expand the production scale of high-end cars in China in response to KD management measures. According to FOURIN analysts, the reason is that the production of high-end cars is still small compared to other production models, resulting in an average localization rate of 40% or less. It is expected that the scale of product support will continue to expand in the future. â€
In January 2008, BMW President Alfred Rupp announced that almost all parts and components except engines, some electronic components, and axle brackets can be purchased locally in China. Volvo expects to start production of the extended version of the S80 in 2009. The initial localization rate will reach 40%. Toyota also said that if Lexus' annual sales volume in China reaches 30,000 to 40,000 vehicles, it may consider localization.
The tendency of the sole proprietorship of parts and components companies
When foreign giant companies decide to increase their supporting scale in China, without exception, they first consider promoting international suppliers for themselves to enter the Chinese market. Taking Mercedes as an example, in the foreign high-end brands, Mercedes-Benz's localized production is the latest, but with the C-Class starting production in China, Mercedes-Benz also began to gradually increase the local procurement rate of parts.
According to FOURIN, more than half of Mercedes-Benz’s parts purchased in China come from its original international supplier’s production base in China.
In this context, China's auto parts companies have recently emerged "the tendency of wholly foreign-owned operations." Yan Guangming, a veteran in the automotive industry, told reporters on July 20th: “The recent discovery of some auto parts companies’ foreign equity has reached 60% and 70%, and some of China’s major shareholders have even become small shareholders.â€
Some of the major parts and components companies supporting high-end cars are owned by foreign parties. For example, Tianjin Toyota Synthetic Co., Ltd., which is a subsidiary of Tianjin Toyota, has a 85.9% investment in Toyota Synergy and 9.1% in a Tianjin brake pipe plant; Benecke-Changshun Automotive Interior Materials Co., Ltd., which is a subsidiary of BMW Brilliance and Beijing Benz, has It is a company of the Continental Group.
"The WTO ruling is not aimed at a certain country. In fact, our industrial policy is bound to have certain loopholes." Yan Guangming believes that "more worthy of our consideration is that as the market becomes more internationalized and more competitive, it does not pass a policy. One approach will be able to play a protective role. It has been 30 years since the development of the automotive industry through Sino-foreign joint ventures. We should consider what lessons need to be summarized."
Yan Guangming further analyzed the reporters. At present, the foreign-funded automobile manufacturers increase their supporting systems in China and are expressing a voice: “Leaving the Chinese side, foreign capital can also survive in the Chinese marketâ€. In addition, many joint-venture auto companies are now busy introducing the full range of foreign products into China. Shanghai GM, Shanghai Volkswagen and other joint ventures are all operating imported car sales.
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