Bad, Bad China, Says The WTO. Who Cares, Says China
China has a 60 percent local content law for cars. If local content falls below that mark, the car is treated as an import, even if it’s Made in China. That means a 25 percent duty. “Unfair!” said the US, EU and Canada, and filed a complaint with the WTO in March 2006. In July, the WTO ruled that China is wrong. China appealed. The WTO now rejected the appeal, and China has to come into compliance. “WTO’s final ruling marks the first time the country has lost a legal trade dispute since joining the global trade body in 2001,” China Daily regrets. However, the Chinese parts industry’s fear of a flood of cheap imports from the EU and NA is unwarranted, China Daily says: “Analysts say that the effect on the domestic auto industry would be minimal since many multinationals would still prefer using local car parts to imported ones even if the Chinese government lowers the tariff over some auto parts.” According to a report by China Galaxy Securities, most multinational carmakers have already started making more car parts in China to cut costs. Honda and Volkswagen, for instance, make over 80 percent of their components in China. And China doesn’t have to change tomorrow: “China now has a reasonable period of time to bring its measures into compliance with WTO law,” the European Commission said in a statement. “This period of time will be negotiated or determined by arbitration.” Time is on China’s side.
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Or China could do like the US government, and in the face of innumerable rulings that countervailing softwood lumber duties imposed on wood imported from Canada violated the terms of NAFTA, say a big fuck you and keep doing it anyway.
Wait, the Chinese are worried about being underbid? Are you serious?
In general, it actually costs more to build the same car in China than in Japan or the US, because their factories are wildly inefficient, so much that cheap labor can't compensate.