China set to tax U.S.-made car imports

14 Dec, 2011, 11.10PM IST, Reuters

BEIJING/WASHINGTON: China will impose punitive duties of up to 22 percent on large cars and SUVs exported from the United States, China's Commerce Ministry said on Wednesday, the latest in a series of trade disputes between the world's two largest economies.

The new duties take aim at vehicles including the Cadillac SRX made by General Motors Co, Jeeps from Chrysler Group and the U.S.-made BMW X3, all of which China said were being dumped on the Chinese market and causing "substantial damage to China's domestic industry."

China's action comes at an awkward time for U.S.-China relations, with China's currency and trade policies becoming a focus of criticism for U.S. presidential candidates and as China's growing diplomatic and military influence raises concern in the region and beyond.

The new anti-subsidy and anti-dumping duties, which take effect on Thursday, also come at a time when growth in China's auto market, now the world's largest, is stalling.

The new China tariffs range from a 2-percent levy on BMW X3 models to almost 22 percent on GM vehicles and 15 percent for Chrysler.

"Clearly, the intention was to inflict pain on the Americans above all," said Georges Dieng, a Paris-based analyst with Natixis Securities.

U.S. trade officials said they would discuss a response to China's action with "stakeholders and Congress."

"We are very disappointed in this action by China. The United States has previously indicated that China's ... investigations of imports of automobiles from the United States appeared to have significant problems," U.S. Trade Representative spokeswoman Carol Guthrie said in a statement.

Under the new Chinese tariffs, vehicles imported from the United States that have engine capacity of 2.5 liters or more would be hit with duties ranging from 2.0 percent to 21.5 percent. The duties will be imposed for two years beginning Thursday.

U.S.-China trade tension has been increasing in recent months, particularly in the solar industry, where tit-for-tat investigations into accusations of unfair practices have underscored leaders' warnings of rising protectionism amid gloomy global economic forecasts.

BMW, which makes the X3 sport utility vehicle in South Carolina for global markets, said it did not expect the new tariff to have a "significant impact" on its business in China.

"We are less affected than other manufacturers, and we are not unprepared for the measure," a BMW spokeswoman told Reuters.

GM, the U.S. automaker with the largest presence in China, said it would work with representatives of both the U.S. and Chinese governments to try to find a solution "consistent with a constructive global trade environment."

JP Morgan analyst Himanshu Patel said the China import tariffs would have a "modest impact" on GM, citing data showing that the automaker sold fewer than 32,000 imported vehicles in China last year compared with its overall sales of 2.4 million.

A Chrysler spokeswoman could not immediately be reached. Both GM and Chrysler were rescued by the federal government in 2009. The U.S. Department of Energy has provided subsidized loans to GM and Ford Motor Co. All automakers, including BMW and Daimler, have benefited from local government tax credits and other subsidies to support production in the United States.

Under China's new policy, anti-dumping duties on GM cars stand at 8.9 percent, with the rate for models made by BMW at a plant in the United States at 2.0 percent, the ministry said.

Chrysler will be hit with anti-dumping duties of 8.8 percent, with duties for other unidentified U.S. automakers set at 21.5 percent. Cars made by GM are also subject to a 12.9 percent anti-subsidy duty, while the rate for Chrysler models is 6.2 percent.

In 2009, China eclipsed the United States as the world's largest auto market, but its national car industry remains weak and fragmented, leaving 70 percent of the market to U.S., European, Japanese and South Korean makers.

Sales of passenger cars in China rose more than 30 percent in 2010, but the pace has slowed sharply in 2011 and sales gains are expected to be closer to 5 percent this year.

CHINA: MORE DISPUTES AHEAD

The duties come at a particularly sensitive time for Chrysler, which said in June it wanted to increase Chinese production through its majority shareholder Fiat SpA's joint venture with Guangzhou Automobile Group.

Among European manufacturers, BMW has the most exposure to the new duties because its X-series models are made in the United States for the Chinese market.

Ten years after China joined the World Trade Organization, experts say it is likely to become more deeply enmeshed in trade disputes.

More problems for Beijing at the trade governing body will be partly due to its ever-expanding trade footprint, but also because the moods of many of its trading partners are souring over what they see as state support for strategic industries.

Actions against those trade practices have led to what the U.S. ambassador to the WTO, Michael Punke, last month called an emerging pattern of China's "reflexive resort to trade actions in response to legitimate actions taken by the United States or other trading partners."

U.S. officials have said they are not satisfied with the way China is meeting its obligations in the WTO and would continue to step up its enforcement activity. [ID:nN1E7BC0UT]

China's Trade Minister Chen Deming said China expects trade disputes to increase next year because of economic weakness in the United States and Europe.

"If we look at countries around us, for example Europe and the United States, we're all going to face difficulties brought about by these two areas," he said at a press conference in Geneva.