China suffered its first legal defeat since joining the World Trade Organization seven years ago, after the global trade body ruled against Beijing’s import tariffs for car parts.

A WTO dispute panel confirmed an interim judgment made in February, which upheld complaints by the U.S., European Union and Canada that China was violating fair trade rules by discriminating against imported parts. Responding to the verdict, Peter Power, EU trade spokesman, said: “We hope that China will act swiftly to remove any discrimination and create a level playing field in the automotive sector in China.”
And Susan Schwab, U.S. trade representative, added: “The panel report leaves no doubt that China’s discriminatory treatment of U.S. auto parts has no place in the WTO system.”
China is expected to appeal against the panel’s verdict, postponing any definitive decision until later this year. However, if the appeal goes against it, Beijing will have to remove the offending measures or face swinging trade sanctions.
In 2006 the panel began investigating China’s surcharge on imported car parts, imposed if they made up more than a specified portion of a finished vehicle.
The three complainants said the surcharge, equivalent to the tariff on imports of complete cars, exceeded China’s permitted tariff ceiling for car parts and broke WTO rules. The duty on complete cars is typically 25 percent, compared to about 10 percent for car parts.
Beijing claimed the surcharge was necessary to prevent circumvention of the car duty by importing large chunks of vehicles for local assembly.
However, the U.S., EU and Canada argued it was a protectionist device which was designed to discourage imports, build up China’s domestic motor manufacturing industry and force foreign part-makers to relocate manufacturing to China. China’s $19b (€12b, £9.5b) vehicle market is the world’s third largest after the US and Japan. Chinese manufacturers such as Chery have been increasing both domestic and export sales, ahead of joint ventures between major American and European companies, such as General Motors and Volkswagen, though these still dominate the market.
Beijing currently has three other cases outstanding against it. The U.S. has challenged China’s enforcement of intellectual property rules and alleged discrimination against U.S. films, music and books.
And last month Canada joined the U.S. and the EU in a complaint over Chinese restrictions on foreign financial news agencies.
However, China has also made us of the WTO’s dispute settlement system, joining several other countries in a bringing a complaint about U.S. steel import curbs in 2002, and filing a complaint against U.S. duties on treated paper last year.