China will now have to amend its tariff policies on car parts or face the possibility of punitive trade sanctions after the World Trade Organization rejected its appeal of a dispute panel's ruling in July on import tariffs.

But analysts say that the effect on the domestic auto industry would be minimal since many multinationals would still prefer using local car parts to imported ones even if the Chinese government lowers the tariff over some auto parts as per the ruling.

WTO's final ruling marks the first time the country has lost a legal trade dispute since joining the global trade body in 2001.

"Many international assemblers have already localized car parts manufacturing, and changing the tariffs won't make any major difference," said Zhong Shi, an independent auto analyst.

Zhong said in the long term, the tariff on whole cars and car parts would be further lowered even without the verdict with the development of the industry in China and the rise of home brands.

"China now has a reasonable period of time to bring its measures into compliance with WTO law," the European Commission said in a statement.

"This period of time will be negotiated or determined by arbitration. After which, if China has not remedied the breach of WTO law, the EC may adopt trade sanctions."

Yao Jian, spokesman for the Ministry of Commerce, said yesterday that China regrets that the WTO retained the earlier decision.

According to a report by China Galaxy Securities, most multinational carmakers have already started making more car parts in China to cut costs. Honda and Volkswagen, for instance, make over 80 percent of their components in China.

Jack Perkowski, CEO of ASIMCO Technologies Ltd, one of China's major auto parts makers, said the ruling would not make a big difference to China's auto parts industry because of the country's price competitiveness.

"For foreign carmakers, localization of auto parts in China brings down prices of vehicles and helps them make bigger profits," said Perkowski in a previous interview with China Daily.

Under the current regulation, Beijing taxes imported auto parts at the same rate as completed automobiles if more than 60 percent of parts of the finished vehicles are imported. Tariff on the whole car is 28 percent, while that on auto parts ranges from 10 to 14 percent.

The rules, adopted in 2005, aim to prevent tax evasion by companies that import whole cars as spare parts to avoid higher tariff rates, officials from the Ministry of Commerce have said.

The US, EU and Canada filed the case to the WTO in March 2006, complaining that China's taxes on imports of foreign auto parts discouraged Chinese carmakers from using them.

(China Daily December 17, 2008)