The Tariff of Parts and Components is the Incitement of Transnational Corporations——An Interview with Standing Director of China WTO Research Association Qiao Liang

Just as the Chinese celebrated Lunar New Year, the WTO dispute settlement team gave China a special gift - a preliminary ruling that: "China's tariff regulations on auto parts are in violation of China's WTO commitments." China must immediately terminate this policy in accordance with WTO principles. This is the first time since China’s accession to the WTO that it has been ruled to violate the rules of the WTO, and this unfortunate incident has just fallen on the head of the Chinese auto industry. The reporter interviewed Mr. Qiao Liang, the first post-doctoral researcher in China who studied the automotive industry, and the standing director of the China WTO Research Association and the current vice president of Beijing Xianglong Asset Management CO., Ltd. on this issue.
Reporter: Does China really violate the principles of the WTO?
Qiao Liang: Because of the different characters, the expressions are different and the understanding is different. China is the most diligent and paranoid student in the WTO. China has done a lot of work in laws and regulations, the government's accession to the WTO and many other aspects. There may be differences in the understanding of the background for the provisions.
Reporter: From a macroeconomic point of view, how should we understand and look at the conflicts that have arisen between Chinese and foreign auto spare parts?
Qiao Liang: Conflict, NO matter what background it is, is normal, because there is a struggle for interests.
Only China is currently developing rapidly in the global auto market. Other markets are shrinking or production is being reduced. Today, sales in Japan are only equivalent to the level of the 1980s, and the United States is only equivalent to the size of the market in the 1960s. In the Chinese auto market, the competition of multinational companies is fierce. Their performance in the Chinese market is a global performance. From the perspective of the ownership of thousands of people, the United States has 900 cars and China has only 30 cars. So everyone has seen the potential of the Chinese market and the conflicts of interest are normal. Therefore, all of them are very embarrassed and many are emotionally vented.
To be fair, the actual significance and impact of this ruling are mainly concentrated in the high-end areas of the automotive industry, and have little impact on the overall environment of the entire Chinese auto market. In addition to luxury cars (such as Audi and BMW) that have already achieved localization, they have a positive impact on the future of high-end commercial vehicle products that still hope to land in China.
It should be noted that the key focus of the case is that China imposes the same tariffs on vehicles with components equal to or exceeding 60% of the total vehicle value as the entire vehicle, instead of the 10% to 14% tax rate stipulated in China’s WTO accession agreement. The difference between the auto market in China and developed countries is that China has a vague tariff policy on vehicles and auto parts, while the developed countries are clearly divided.
The cause of the dispute lies in the fact that developed countries already have complete vehicle companies with mature parts and components supporting systems, and they hope to use more locally produced parts and components to quickly build up in an immature market in order to achieve cost reduction and reasonably avoid customs duties. However, for emerging markets such as China, which have a strong desire to develop autonomous vehicles and component systems, they hope to prevent CKDs that do not have much added value from entering the market.
The appreciation of the renminbi allows joint ventures to buy more parts and components with less money. For transnational corporations, this can increase the profits and employment opportunities of supporting companies in their home countries. Why not? This gave MNCs a strong will to stop the implementation of relevant Chinese policies. As a result, some governments are willing to come forward to “give an argument” to these multinational companies on the WTO. It is not surprising that the formation of the “eight-nation coalition” against China’s auto industry policy is not surprising.
Reporter: Yes, increasing employment abroad is equal to reducing domestic employment opportunities. From a long-term development perspective, how do you evaluate China's future tariff policies?
Qiao Liang: As a country, especially a big country, it must have control over the large-scale development of its industry. It is normal to protect or support the development of the industry. The Chinese government has transferred the Chinese market, the WTO is market imperialism, and the value of the market can be maximized, but the Chinese auto market has been sold off. Now it may be a return. China High Speed ​​Rail is a successful case. Now that only China has repaired high-speed railways in the world, it has always insisted on negotiating with multinational corporations. The first to use Chinese brands, the second to use the latest technology, and the third reasonable price, otherwise do not do business. The Chinese market is so big, how successful is the EMU now. In the aircraft manufacturing industry, we listened to the advice of other countries and let the old experts who fly the plane retire and return home, led by multinational corporations. Every U.S. aircraft now earns us 20 million U.S. dollars. Another example is China's shipbuilding industry, which is completely autonomous and open, the system is perfect, the brand is self-reliant, and we already have the ability to build ships of the highest class. I think that the success of the shipbuilding industry is something that our country should be very proud of. The auto industry should learn from it. Therefore, the current tariff policy on parts and components should be maintained for a long time.
In fact, as early as April 1, 2005, when the “Measures for the Administration of Imports of Auto Parts That Constitute the Characteristics of Complete Vehicles” was just announced, major European manufacturers began to complain to their governments, hoping to increase pressure on China through the government. To achieve the goal. For this reason, some of the joint venture companies that have already landed have suffered "special treatment" in the Chinese market, which has caused the inconsistency of the investment and output ratio of European luxury car companies in China. This shows that in response to the outcome of the losing case, the main countermeasures in China are strict checks and approvals on joint venture projects, preventing the CKD assembly mode without much technical content.
It should be said that this is only a threshold-type, "blocking" response. After the WTO's final ruling, the development of China's auto industry should put more wisdom on the "sparse"-oriented aspect, that is, policy guidance to prevent transnational corporations from impacting and infiltrating components, and how to better To cultivate and improve the overall innovation capability and sustainable development capacity of domestic independent component companies. While supporting the development of self-owned brand vehicle companies in China, there should also be specific policy ideas for supporting local auto parts enterprises.
Reporter: On the one hand, the national economy must be globalized. On the other hand, we must protect ourselves. This is a policy orientation that is both contradictory and uniform. What are the prerequisites for determining the policy orientation?
Qiao Liang: The original intention of joining the WTO was to digest the world with me instead of being digested by the world. This is the core issue.
The development of China's auto industry must implement the new "Three Sutras" and first, the independent market. The Chinese government does not control the market. Once the circulation channels fall into the hands of multinational corporations, China will lose the final weight of negotiations with foreign investors. Second, it will develop independently. Self-determination must not be relaxed. Only when the self-owned brand cars have taken a dominant position in the domestic market and can establish a foothold in the world market can we confidently say that China’s automobile industry has already taken the lead in the world and has become a leader in the world. The real car power; third, independent innovation. Not long ago, I went to Shenzhen and visited BYD. Its high level of development in new energy vehicles shows that Chinese companies are very hopeful.

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