WTO condemns China in auto parts dispute

GENEVA (AP) -- The World Trade Organization on Wednesday issued its first official condemnation of Chinese commercial practices, siding with the United States, European Union and Canada in a dispute over car parts.

The WTO found that China was breaking trade rules by taxing imports of auto parts at the same rate as foreign-made finished cars, according to a copy of the ruling's conclusions obtained by The Associated Press.

In the sweeping decision, the three-member WTO panel found against China on nearly every point of contention with the United States, the 27-nation EU and Canada.

Its final message to Beijing: "The dispute settlement body requests China to bring these inconsistent measures as listed above into conformity with its obligations."

The three trade powers argued that the tariff was discouraging automakers from using imported car parts for the vehicles they assemble in China. As a result, car parts companies had an incentive to shift production to China, costing Americans, Canadians and Europeans their jobs, they said.

The ruling, to be officially released in March, will be closely watched by makers of batteries and brakes to seats and spark plugs on both sides of the Atlantic, including U.S.-based Delphi Corp., General Motors' (GM, Fortune 500) former parts supplier, and Robert Bosch GmbH in Germany.

The decision is officially only an "interim ruling." But no panel has ever changed its findings between interim and final decision.

Cheap cars in Asia, expensive gas everywhere

China, which will still be able to appeal, claims the tariffs are intended to stop whole cars being imported in large chunks, allowing companies to avoid the higher tariff rates for finished cars. It argues that all measures are fully consistent with WTO rules and do not discriminate against foreign auto parts.

But the United States and the EU say that China promised not to treat parts as whole cars when it joined the WTO in 2001.

Key officials have said they believe the case has ramifications beyond the auto industry.

"It will be instructive to see how China responds," U.S. Trade Representative Susan Schwab said in a recent interview. "If, as we hope and expect, China will be found in contravention of its WTO obligations, hopefully that will help those forces within China that have been advocating reform."

WTO cases tend to take years before retaliatory sanctions can be authorized. After the ruling is released, Beijing will be given a "reasonable period of time" to make legislative changes. A separate panel would then have to find that Beijing was still breaking the rules.