United States Prevails in WTO Dispute Challenging China's Duties on U.S. Automobiles

by King & Spalding

Last month, a World Trade Organization (WTO) Panel issued a report favorable to the United States, ruling against Chinese duties on American auto exports. China had imposed tariffs on U.S. cars and SUVs with engine capacities of 2.5 liters or more, claiming that these vehicles were improperly subsidized by the U.S. government during the auto bailout and were dumped, or sold below market value, in China. In ruling against China's imposition of duties, the Panel report pointed to the Chinese investigation's lack of procedural transparency, improper assessment of injury to China's domestic industry, and unsupported computation of duties levied against U.S. companies that were not individually investigated. These WTO-inconsistent duties, imposed in 2011 and ranging from 2 percent to 21.5 percent, affected $5.1 billion in U.S. exports last year. U.S. Trade Representative Michael Froman described the decision as a "significant victory" that "impacts our nation's workers and their families."

China removed the anti-dumping (AD) and anti-subsidy, or countervailing duties (CVD) in December 2013, following the WTO Panel hearing. Ambassador Froman claimed the Chinese decision to remove the duties was a direct result of the WTO litigation, which the United States initiated in 2012, and added that "while we welcome China's decision to lift the duties, we remain deeply concerned by the troubling pattern of China's misuse of antidumping and countervailing duty measures." He emphasized that this case was the third time in the last two years that the United States had successfully challenged Chinese AD/CVD measures at the WTO. The United States previously prevailed in disputes over steel in 2012 and chicken broiler parts in 2013.

China's imposition of the challenged automobile duties was allegedly motivated, at least in part, by other trade remedy actions and WTO disputes. Inside US Trade reported that some analysts considered China's investigation against American automobiles to be a response to President Obama's 2009 decision to impose duties on tires from China. The 2011 imposition of AD/CVD duties was seen by many as retaliation for the American consultations request on AD/CVD duties levied on chicken broiler parts and a domestic U.S. trade remedies case on Chinese solar panels. Obama Administration officials have also characterized the automobile duties as an act of retaliation for the earlier U.S. duties on Chinese tires.

This Panel report comes as Chinese consumers are increasingly turning to foreign automobile producers. The Chinese Association of Automobile Manufacturers stated that sales of Chinese passenger vehicles fell by 0.1 percent during January through April when compared to the same period in 2013. General Motor's sales in China increased by 11.2 percent during the same period, however. May marked the ninth consecutive monthly decline in domestic producers' market share, a trend preceding last December's removal of duties. This change reflects the perception of many Chinese consumers that the quality of foreign automobiles is superior, as well as foreign producers' introduction of more affordable vehicle models into the Chinese market. Meanwhile, the growth rate of China's overall passenger car market has been slowing since 2009.

In addition, the United States is currently involved in a second WTO case against China involving automobiles. The same day that it requested a panel for the AD/CVD case above, the United States also requested WTO consultations over Chinese subsidies to automobile producers located in certain regional "export bases," a designation by the Chinese Government based on meeting export performance requirements. While consultations were held a month later, the case has not yet progressed to the panel stage. A USTR official stated last month that the agency has held numerous meetings with China and is considering further steps.

Kate Benner


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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