As the Chinese celebrated the Lunar New Year, the WTO dispute settlement team delivered an unexpected "gift" to China—a preliminary ruling stating that "China's tariff regulations on auto parts violate its WTO commitments." This means China must immediately revise or eliminate the policy in line with WTO rules. This is the first time since China joined the WTO that it has been found in breach of the organization’s principles, and the timing couldn’t have been worse for the Chinese automotive sector.
In response to this development, the reporter spoke with Mr. Qiao Liang, a renowned expert in the automotive industry and vice president of Beijing Xianglong Asset Management Co., Ltd. He also serves as a standing director of the China WTO Research Association and is the first post-doctoral researcher in China to focus on the automotive field.
Reporter: Does China truly violate WTO principles?
Qiao Liang: The interpretation of WTO rules can vary depending on cultural and legal backgrounds. China has always been diligent in aligning its laws and regulations with WTO requirements. However, differences in understanding the context of certain provisions may exist. We've made great efforts in many areas, including our accession process, but there could be gaps in how some rules are interpreted.
Reporter: From a macroeconomic perspective, how should we view the conflicts between Chinese and foreign auto parts?
Qiao Liang: Conflicts are natural in any competitive environment. With China’s rapid growth in the global auto market, while other markets are shrinking—Japan’s sales are at 1980s levels and the U.S. is at 1960s levels—competition among multinational companies in China is fierce. Their performance here reflects their global strategy. When you compare car ownership per capita (900 in the U.S. vs. just 30 in China), it's clear that the Chinese market holds immense potential. As a result, interest conflicts are inevitable, and this often leads to frustration among stakeholders.
The impact of the ruling is primarily felt in the high-end segment of the automotive industry. For luxury brands like Audi and BMW that have already localized production, the ruling could actually help them expand further in China. However, the broader Chinese auto market remains largely unaffected.
The core issue lies in the fact that China applies the same tariffs to vehicles with components worth 60% or more of the total value as it does to complete vehicles, which contradicts the 10–14% rate outlined in China’s WTO accession agreement. In contrast, developed countries have clearer, more structured tariff policies for vehicles and parts.
The root of the dispute stems from the desire of developed nations to use locally produced parts to reduce costs and avoid tariffs in emerging markets like China. However, China aims to protect its own auto industry by preventing low-value CKD (completely knocked down) imports that offer little added value.
With the appreciation of the RMB, joint ventures can now purchase more parts for less, boosting profits and employment in their home countries. This gives multinational corporations a strong incentive to oppose China’s policies, leading some governments to support their arguments in the WTO. Hence, the formation of the “eight-nation coalition†against China’s auto policy is not surprising.
Reporter: Isn’t increasing employment abroad equivalent to reducing domestic jobs? How do you evaluate China’s future tariff policies in the long run?
Qiao Liang: As a major country, China must maintain control over its industrial development. Protecting and supporting key industries is normal. The WTO is often seen as a form of “market imperialism,†where the value of the market is maximized—but in China’s case, the market was initially too open. Now, there’s a shift back toward strategic control.
Take China’s high-speed rail as an example. It’s a success story where China insisted on using Chinese brands, the latest technology, and reasonable pricing when negotiating with foreign firms. The EMU (Electric Multiple Unit) is now a global success. Similarly, in aircraft manufacturing, China once followed foreign advice and allowed foreign experts to take control, which led to high profits for foreign companies. But in shipbuilding, China has achieved full autonomy, with a strong brand, advanced systems, and the ability to build top-tier ships.
The auto industry should learn from these examples. Therefore, maintaining the current tariff policy on auto parts is essential for long-term development.
In fact, even before the recent ruling, European manufacturers began complaining after the 2005 policy was introduced, urging their governments to pressure China. Some joint ventures faced “special treatment†in the Chinese market, causing imbalances in investment returns. This shows that China’s response has been to tighten oversight on joint venture projects and prevent low-value CKD assembly.
This is a defensive move, but the real challenge lies in focusing on “sparse-oriented†development—guiding policies to prevent foreign component infiltration and enhance the innovation and sustainability of local auto parts companies.
Reporter: On one hand, the national economy must be globalized; on the other, we need protection. This seems contradictory, yet it’s a unified policy. What are the conditions for determining such a policy?
Qiao Liang: The original intention of joining the WTO was to “digest the world†rather than be “digested by it.†That’s the core issue.
For China’s auto industry to succeed, it must implement the “Three Sutrasâ€: First, an independent market. The government should not let foreign corporations control the market, as that would weaken China’s bargaining power. Second, independent development. Self-reliance must be maintained. Only when Chinese brands dominate domestically and globally can we claim to be a true global leader. Third, independent innovation. I recently visited BYD in Shenzhen, and their progress in new energy vehicles shows that Chinese companies have strong potential.
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