WTO Entry Isn't a Bargain for Automakers

December 5, 2001

Sacramento - Perhaps we're missing something but in the short term, we can't find out what all of the hoopla is about with China's entry to the WTO (World Trade Organization). The country's trade authorities have been promising lower tariffs on vehicles if it is admitted to the WTO, but remember the word "lower" can be relative, and it appears to be in this case.

Last week a group of European Union trade gurus, who were interested in finding out exactly what they would be trading with China in the future and under what terms, uncovered some interesting information.

China has set a tariff schedule on passenger vehicles that is based upon engine size. For those vehicles with engines smaller than three liters, the tariff will drop from 70% to 43.8%. We say, "big whoop!" A 43% tariff sounds like protectionism. Take a Pontiac Sunfire with a 2.2 liter four- cylinder engine that sells for $14,465 at your local Pontiac dealer. At your China Pontiac dealer that same car would cost $20,684. Keep in mind also, there may not be a China Pontiac dealer, at least not a wholly owned American one.

It gets worse if you buy a car with an engine that is greater than three liters capacity. The tariff goes up to 50.7%, but China's trade ministry is making a big deal of it because the current tariff is 80%.

The Chinese government doesn't appear to want European, Japanese or American cars in their country. They want to build up their own industry. These tariffs are supposed to move downward each year to 2006 when they will be limited to 25%, which is still high. In the meantime, China gets five years to build its own auto industry with virtually no competition and with assistance of money and technology from foreign automakers so that in the end it can do a better job of keeping the foreign competition out with unfair high tariffs. Obviously, we don't understand how this works.

Neither does European Union Trade Commissioner Pascal Lamy who in returning from a meeting with Chinese trade officials last week said he presented them with a EU chamber of commerce "position paper" outlining problems facing European businesses in China with recommendations for opening China's market further. The paper is reported to have urged the Chinese government to remove all restrictions on EU banks, to let EU automakers set up their own distribution networks and financing companies. There's no word yet on any response from the Chinese.