The reason car parts came first was that the case was particularly strong and the number of people affected was particularly largeat least double the total employed by the more visible brand-name carmakers. Among the commitments made by China in 2001 when it joined the WTO was an agreement to open up to foreign suppliers. But in 2006 it increased the tariff on car parts from 10% to 25% (the same as the rate charged on imported foreign-made vehicles) if the parts comprised more than 60% of the finished cars value.
This made it much harder for foreign firms to compete with Chinas own low-cost suppliers. Imports have since grown at only a fraction of the rate of the domestic industry, and many foreign partsmakers have responded by setting up shop in China. But this means job losses back home, and is bitterly resented in America, Canada and parts of Europe.
Whether the WTO decision will provide much relief is questionable. An appeal seems inevitable. Meanwhile the Chinese industry is growing, and big foreign suppliers feel that they need to establish their own operations in China now in order to remain competitive, rather than wait for a political settlement. The tariffs are expected to go in a few years anyway, once Chinas carmakers start building fancier vehicles that need sophisticated foreign technology, says Rodger Baker of Stratfor.com, a research firm.
The decision will still resonate, however. Within China, it may mean that the bureaucrats in charge of implementing WTO commitments will find it easier to get things done. The WTO decision also draws attention to Chinas increasingly fractious trade relationships, which are the source of a growing number of anti-dumping actions, including one targeting car tyres, which was filed on February 8th. Most importantly, it shows Chinas potential vulnerability before the WTO. Victory in this case will whet the appetite of foreign competitors and their governments to bring more, says Lester Ross, a lawyer at WilmerHale, based in Beijing.
That is because the Chinese government has not just intervened on behalf of partsmakers. It has erected barriers to protect many other industries, for example by imposing elaborate registration and certification requirements for imported food, cosmetics, chemicals and pharmaceuticals. These do not apply to local firms, which is just the kind of preferential treatment that could fall foul of WTO rules.
China was eager to join the WTO on the basis that membership of a large, multilateral organisation would enhance its ability to compete with other big countries. But its odd, state-dominated economy makes it particularly sensitive to verdicts of this kind. This months result may not help the car-parts firms in America, Canada and Europe, but it is good news for foreign firms in other protected industries.
The Economist Newspaper Limited 2008