On 15 September, the US, the EU, and Canada launched a legal challenge against China's tariff treatment of imported auto parts. Claiming that Beijing is violating WTO obligations, the three Members formally requested the WTO to establish a panel to adjudicate the dispute.

"We have tried again and again to find an acceptable negotiated solution to this issue, and without Chinese engagement, we have no alternative but to take this course of action," said EU Trade Commissioner Peter Mandelson.

The three countries allege that China is imposing unfair charges on auto parts imported for the assembly of complete vehicles in the country. Under regulations implemented by China on 1 April 2005, imported auto parts are subject to the higher duties normally applied to finished vehicles -- 25 percent rather than 10 percent -- unless they are destined for vehicles that will meet certain local content requirements.

The three countries claim that the measures unfairly discriminate against imported auto parts, and discourage domestic automobile manufacturers in China from using imported auto parts when assembling vehicles.

"China has demonstrated no willingness to remove its unfair charges," explained US Trade Representative Susan Schwab. "We are committed to providing a level playing field for US exporters to China, and as we have made clear, we will not hesitate to pursue dispute settlement if necessary."

China asserts that its actions are in line with WTO rules and explained that that the regulations were meant to keep 'criminal elements' from exploiting the different tariff rates for whole vehicles and auto parts and to protect consumers.

The dispute was initiated by the US and EU in March when they filed a request for consultations. Canada filed a similar request in April. The Dispute Settlement Body (DSB) will take up the requests on 28 September.

This is the first case formally filed with the WTO against China since it joined in 2001.

ICTSD reporting; "United States Requests WTO Panel in Challenge of China's Treatment of U.S. Auto Parts," USTR Press Release, 15 September 2006; "China criticizes WTO auto parts case" REUTERS, 17 September 2006.