China's auto parts tariff dispute is the incitement of multinational corporations

As the Chinese celebrated the Lunar New Year, the WTO dispute settlement body delivered an unexpected verdict to China—a preliminary ruling stating that "China's tariff regulations on auto parts violate its WTO commitments." The ruling demands that China immediately revoke this policy in line with WTO principles. This marks the first time since China joined the WTO that it has been found in breach of the organization’s rules, and the timing could not be worse for the Chinese automotive sector. The reporter spoke with Mr. Qiao Liang, a leading expert in the Chinese automotive industry and a former postdoctoral researcher, who is also the standing director of the China WTO Research Association and currently serves as vice president at Beijing Xianglong Asset Management Co., Ltd. regarding this issue. Reporter: Does China truly violate WTO principles? Qiao Liang: Differences in interpretation are inevitable due to varying perspectives and understandings. China has always been one of the most diligent members of the WTO, working hard to align its laws and policies with international standards. However, there may be discrepancies in how certain provisions are interpreted, especially when considering the context of China’s development stage. Reporter: From a macroeconomic perspective, how should we view the conflicts between China and foreign countries over auto parts? Qiao Liang: Conflicts are natural in any competitive environment, driven by differing interests. China’s auto market is growing rapidly, while other markets are shrinking or declining. For example, Japan's car sales are now at levels similar to the 1980s, and the U.S. market is comparable to that of the 1960s. In China, multinational companies face intense competition, and their performance here reflects their global strategies. With only 30 cars per 1,000 people compared to 900 in the U.S., the potential of the Chinese market is clear, making these conflicts normal. As a result, many companies feel frustrated and express their concerns publicly. While the ruling mainly affects high-end segments of the auto industry, its impact on the broader Chinese auto market is limited. Luxury brands like Audi and BMW, which have already localized production, may even benefit from this situation. However, the ruling could affect future high-end commercial vehicles hoping to enter the Chinese market. The core of the dispute lies in China’s tariff policy. It applies the same tariffs—equivalent to those on entire vehicles—to parts valued at 60% or more of the vehicle’s total value, rather than the 10–14% rate specified in China’s WTO accession agreement. Unlike developed countries, which have clear and structured tariff systems, China’s approach remains somewhat ambiguous. Developed nations, which already have mature vehicle manufacturing ecosystems, want to use locally produced parts to reduce costs and avoid customs duties. In contrast, emerging markets like China aim to protect their domestic auto industries by preventing low-value CKD (completely knocked down) imports. The appreciation of the RMB has made it cheaper for joint ventures to import parts, boosting profits and employment in their home countries. This has motivated multinational corporations to push back against China’s policies, prompting some governments to support their claims at the WTO. The formation of an “eight-nation coalition” against China’s auto policy is therefore not surprising. Reporter: Isn’t increasing employment abroad equivalent to reducing domestic jobs? How do you evaluate China’s long-term tariff policy? Qiao Liang: As a large country, China must maintain control over its industrial development. Protection and support of key sectors are entirely reasonable. While the WTO promotes market liberalization, China has sold off too much of its market in recent years. The success of China’s high-speed rail, for instance, shows what can be achieved when the country takes control. By prioritizing Chinese brands, advanced technology, and fair pricing, China has built a world-leading system. In aircraft manufacturing, however, China followed foreign advice, allowing foreign experts to take over, resulting in significant revenue for foreign companies. Similarly, the shipbuilding industry has thrived through self-reliance and innovation. The auto industry should learn from these examples and continue to maintain its current tariff policy on components. Even before the WTO ruling, European manufacturers began complaining about China’s auto part policies. Some joint ventures faced special scrutiny, causing imbalances in investment and returns. This highlights the need for stricter controls on low-tech CKD projects. Ultimately, the focus should shift toward supporting domestic component manufacturers and enhancing innovation. While protecting the market and promoting independent development remain crucial, China must also ensure long-term sustainability and technological leadership. Reporter: On one hand, the national economy must be globalized; on the other, protection is necessary. What are the conditions for determining this balance? Qiao Liang: The original goal of joining the WTO was to absorb global markets rather than be absorbed by them. That’s the core challenge. For China’s auto industry to thrive, it must implement the “Three Sutras”: First, maintaining an independent market. If the market falls into foreign hands, China will lose its bargaining power. Second, pursuing independent development. Self-reliance must not be compromised. Only when Chinese brands dominate domestically and globally can we claim true leadership. Third, fostering independent innovation. Visiting BYD recently, I saw how far Chinese companies have come in new energy vehicles, proving their potential.

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