China, US battle over auto parts

By Cong Mu Source:Global Times Published: 2012-9-21 23:30:03

The US government filed a complaint against China with the World Trade Organization (WTO) on Monday, alleging that China has provided illegal subsidies to its automobile and automobile-parts exporters, in 12 designated export bases, according to a press release on the WTO's website.

The US claimed that the subsidies came in the form of "grants, loans, forgone government revenue, the provision of goods and services and other incentives contingent upon export performance," the press release said.

Illegal subsidies were worth $1 billion between 2009 and 2011, Reuters reported Tuesday, citing unnamed US officials.

Meanwhile, China also filed a dispute against the US anti-dumping and countervailing measures on 24 categories of products worth $7.2 billion, including off-the-road (OTR) tires, with the WTO on Monday, according to a statement by the Chinese Ministry of Commerce.

"The US complaint continues from the case of Chinese OTR tire exports to the US last year," Zeng Zhiling, director of LMC Automotive Asia Pacific Forecasting, told the Global Times.

 "After the US imposed extra safeguard duties on the imports of the Chinese tires, China implemented special tariffs, up to 21.5 percent, on imports of more than 90,000 US-made vehicles," Zeng said.

China slapped "duties on US auto exports in December 2011 on roughly 92,000   autos and SUVs, worth 20.8 billion yuan ($3.3 billion) in annual US exports," Reuters reported.

"The trade duties cover more than 80 percent of US auto exports to China," Reuters reported.

"I think the [Obama] administration, and the filing, is looking at some very specific policies, many of which are at the municipal level [in China]," James Chao, director of the Asia-Pacific division of IHS Automotive Consulting, told the Global Times.

 "The US was unhappy with China over its duties on car exports last year, and, it is retaliating," Zeng said.

China's wheel exports

Zeng said Chinese exporters mainly produced low-end auto parts, such as tires, wheels and brake pads, which are labor- and energy-intensive to make.

China's wheel exports climbed to one-fourth of the world's total in 2010, after surpassing Germany to become the world's largest wheel exporter in 2005, according to industry information website in March.

There are nearly 700 to 900 active aluminum wheel hub export manufacturers in China, concentrated in Zhejiang, Guangdong and Jiangsu Provinces, according to a research report summary by Beijing-based business intelligence provider ResearchInChina in July.

The major export markets for these manufacturers in 2011 were the US, Russia, Germany and the United Arab Emirates, and the exports to the US alone made up half of the total, buoyed up by a strong recovery in the US pickup, light truck and heavy truck sectors, the research said.

Qinhuangdao-based CITIC Dicastal Wheel Manufacturing, the world's second-largest aluminum wheel maker after the UK's Ronal Light Alloy Wheels, recorded $412 million in export revenues in 2011 for the first time, up 41.2 percent year-on-year, reported, citing customs figures.

Last year was also a record year for Chinese wheel exporters in general. In 2011, the country's wheel exports reached $4.4 billion, breaking through $4 billion for the first time, according to ResearchInChina.

Aluminum wheel exports rose by 24.8 percent to $3.7 billion, and steel wheel exports increased by 40 percent to $696 million, it said.

China's huge exports aroused strong discontent from US companies. The US has initiated anti-dumping probes on Chinese steel wheel hubs, and will do so on aluminum wheel hubs as well, the report predicted in July. It is "just a matter of time."

The European Commission has already announced a 20.6 percent anti-dumping duty on all aluminum wheels imported from China based on a preliminary investigation, and the final decision is pending this month, auto industry website reported in June.

The European investigation involves more than 40 aluminum wheel companies in China, and if China loses the case, then up to 50,000 workers would lose their jobs, Li Xiaoqing, secretary-general of the wheel committee of the China Association of Automobile Manufacturers, was quoted as saying.

New hatred, old foes

Experts say the situation is not optimistic in the US, either.

"Because this year is also an election year in the US, US politicians have to make real their commitment to the voters, and I expect the trade war [between China and the US] will be quite serious," Zeng said.

US President Barack Obama announced Monday the filing against China with the WTO during his campaign tour in Ohio, a politically important swing state that relies heavily on the auto industry, Reuters reported.

"The move allows Obama to take a stand on China and advance the interests of a major job-providing industry in a state that could tip the balance in a close election. His opponent, Mitt Romney, has attacked Obama for what he says is an overly cautious approach to pressuring China into observing international norms for trade, foreign exchange, and patents and trademarks," Reuters reported.

In addition to launching the subsidies case, Obama is taking the next formal step in the WTO to protest the Chinese special duties on US car exports to China, the report said.

Opportunities from crisis

Enthused by the record growth in aluminum wheel exports in 2011, Chinese manufacturers are building up more capacity.

There are at least 50 aluminum wheel hub projects under construction across China, including major ones in Beijing, Shanghai, and Jiangsu, Jiangxi and Shanxi provinces, ResearchInChina said in its report. The new annual capacity will approach 100 million units by the end of 2013.

The research firm forecast a "severe overcapacity" when the new projects are completed, because the current global market for aluminum wheels is less than 300 units.

In addition to an upcoming US investigation into Chinese auto parts, Chinese companies are facing a "dangerous situation," Zeng said.

However, it may not be a bad thing if the US wins the WTO case against China, Zeng noted.

"Despite the large auto market in China, you rarely see domestic brands in the Chinese auto parts market, because they are all doing low-end contractual work for the US [and other foreign automakers]."

Now the situation may force some Chinese companies, which are just as competent as the foreign players, to upgrade and put some marketing and advertising effort into establishing their own names in China, he said.

Tire makers, after losing their case in the US, have been pioneers on this front, notably Chaoyang Tire and Wanli Tire, he said.


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