![handle is hein.crs/crsahki0001 and id is 1 raw text is: Order Code RS20624
July 7, 2000
China's Automobile Industry and WTO Accession
Thomas Lum
Analyst in Asian Affairs
Foreign Affairs, Defense, and Trade Division
Summary
Within the next ten years, China (PRC) is expected to have a significant market for
passenger cars. China's accession to the World Trade Organization (WTO) and
permanent normal trade relations (PNTR) status would promise to open this market to
foreign trade and investment. However, American automobile and parts manufacturers
face several obstacles in their efforts to gain market share in China. First, American
companies in China, such as General Motors and DaimlerChrysler, face stiff competition
from German, Japanese, and Korean producers. Second, although the PRC pledges to
reduce or eliminate tariffs, quotas, and local content requirements and grant foreign car
companies greater distribution and financing rights, Chinese central and local
governments may still find ways to protect domestic companies and facilitate Chinese
production of cars. This report may be updated as warranted.
WTO Provisions
The U.S.-China bilateral WTO agreement and WTO member requirements, if carried
out, would heavily impact the Chinese auto sector. A Chinese investment journal reports
that China's automobile industry would be the sector most affected by WTO membership
since it is currently one of the most protected.' The following changes would apply to the
Chinese auto industry if China enters the WTO and the United States grants China PNTR
status. Upon accession to the WTO, China has agreed to reduce tariffs on imported cars
from 80-100% to 25% and on auto parts from 40-50% to 10% by 2006.2 Import quotas
would be phased out by 2005. According to other WTO rules, discriminatory value-
added taxes would be prohibited and domestic content requirements, now 40% or
1 How WTO Membership Could Affect China's Auto Industry, ChinaOnline, January 5,
2000. [http://www.chinaonline.com]
2 The largest reductions will occur in the first years after accession. The U.S.-China Bilateral
Agreement and the United States, The China Business Review, January-February 2000, p. 21.
Congressional Research Service + The Library of Congress
CRS Report for Congress
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