Chinese Government Makes Moves Likely To Eliminate Hundreds of Thousands of American Auto Industry Jobs
Report: Chinese Government Makes Moves Likely To Eliminate Hundreds of Thousands of American Auto Industry Jobs
Written By: Terrence P. Stewart, Esq.
Stewart and Stewart
By the end of the decade, market distortions and discriminatory practices by the Chinese government could allow China to seize 50 percent or more of the U.S. auto and auto parts markets– at a cost of hundreds of thousands of American jobs.
That’s the conclusion of a new 251-page report, China’s Support Programs for Automobiles and Auto Parts Under the 12th Five-Year Plan released by Primerus member and international trade law firm Stewart and Stewart.
“China designates new-energy automobiles and their components as one of the seven strategic and emerging industries in which it aims to become a world leader by 2030,” says trade law attorney Terry Stewart, the report’s co-author. “China will reach this goal by growing production of vehicles and parts by 35% per year – a staggering surge backed by a government investment of $1.5 trillion in these industries over the next five years. This comes on the heels of China’s 2009 stimulus of $1.5 billion to develop key automotive parts and technologies,” Stewart said. “Auto parts targeted include batteries, electric motors, electronic control systems, and fuel cells – critical components to the next generation of motor vehicles.”
Chinese auto and parts producers benefit from an array of government policies, including export restraints of key raw materials, domestic content rules, technology transfer requirements, export requirements, and massive domestic and export subsidies, the Stewart and Stewart report shows.
“A number of these policies directly violate China’s WTO commitments,” Stewart said, adding that his firm is part of a coalition working to pressure China to change its policies.
The report says the Chinese government has created:
- Restraints on exports, special alloys, fuel cells, batteries, and electronics, which increase supplies and lower prices for Chinese auto parts producers;
- Requirements that investors in finished auto production in China also produce their engine sets there;
- Subsidies for new purchases of energy-efficient cars of up to $18,000 per vehicle which are funneled through domestic manufacturers so that imported vehicles do not qualify – every one of the car models eligible for the subsidy is produced in China;
- Waivers of sales tax on locally made electric vehicles, likely violating WTO obligations of national treatment;
- Prohibitions on foreign investors producing complete automobiles in China unless done through a joint venture majority-owned by the Chinese partner, a rule recently extended to producers of new-energy vehicle components. The rule gives Chinese partners leverage to force technology transfers, examples of which are documented in the report;
- Discounted export credits and export credit insurance for auto parts exports. Both programs appear to be prohibited export subsidies under WTO rules. One major Chinese auto producer, Chery Auto, for example, received export credits in 2005 and in 2008 equivalent to billions of dollars.
The report explains these policies are already increasing Chinese exports. Today, China exports 25 percent of the automotive parts it produces. Exports are to increase to 30 percent by 2015. The U.S. absorbs nearly one quarter of China’s auto parts exports, and those U.S. imports have grown at a rate of more than 25% per year since 2003.
– Mr. Stewart is the Managing Partner of Stewart and Stewart. His practice focuses on international trade matters (litigation, negotiations, policy) and customs law including trade remedies (anti-dumping, countervailing duty, safeguard matters in the U.S. and abroad including the Special Safeguard against China); helping clients understand and pursue challenges/opportunities within trade negotiations (free trade agreements, the WTO); dispute settlement under international agreements (e.g., NAFTA, WTO); development of legislative options on trade-related issues; evaluation of WTO-consistency of laws, regulations and practices of countries where clients are active.