China says will hit U.S. auto imports with duties

(Reuters) - China will impose punitive duties of up to 22 percent on large cars and SUVs exported from the United States, China's Commerce Ministry said on Wednesday, the latest in a series of trade disputes between the world's two largest economies.

The new duties take aim at vehicle exports valued near $4 billion and come at an awkward time for U.S.-China relations, with China's currency and trade policies becoming a focus of criticism for U.S. presidential candidates.

Vehicles affected by the new duties include the Cadillac Escalade made by General Motors Co, the Jeep Grand Cherokee from Fiat SpA affiliate Chrysler Group LLC and luxury SUVs from Daimler AG's Mercedes and BMW AG.

Chinese officials said the U.S.-built SUVs and luxury sedans were being dumped on the Chinese market and causing "substantial damage to China's domestic industry." Vehicle exports to China had already been subject to a 25 percent tariff and the new tariff will be in addition to that duty.

The decision by Beijing to impose the additional levy comes after China lost a two-year fight over tire exports to the United States in September.

A World Trade Organization ruling favored an Obama administration proposal to sharply increase duties on Chinese tires, rejecting an appeal that the 2009 move was protectionist and would hurt China's tire industry.

"We are very disappointed in this action by China," U.S. Trade Representative spokeswoman Carol Guthrie said.

Four senior lawmakers in the House of Representatives also urged USTR to take action, calling the duties "unjustifiable" and "one more instance of impermissible Chinese retaliation against the United States and other trading partners."

The group included Michigan representatives Dave Camp and Sander Levin, the top Republican and Democrat respectively on the House Ways and Means Committee.

The new duties on American-made large cars and SUVs range from a 2 percent levy on BMW models to 15 percent for Chrysler and almost 22 percent for GM. Ford Motor Co does not export U.S.-built vehicles to China.

"Clearly, the intention was to inflict pain on the Americans above all," said Georges Dieng, a Paris-based analyst with Natixis Securities.

U.S.-China trade tension has been increasing in recent months, particularly in the solar industry, where tit-for-tat investigations into accusations of unfair practices have underscored leaders' warnings of rising protectionism amid gloomy global economic forecasts.

Mercedes builds its M-Class, R-Class and GL-Class SUVs for the U.S. market and export at a factory in Alabama. About 10 percent of that plant's output - or 16,000 vehicles - is shipped to China.

"We hope that we can find a quick solution," said Daimler spokesman Han Tjan.

BMW, which exports the X3, X5 and X6 sport utility vehicle from South Carolina, said it did not expect the new tariff to have a "significant impact" on its business in China. "We are less affected than other manufacturers, and we are not unprepared for the measure," a BMW spokeswoman told Reuters.

BMW sells about 70 percent of the SUVs made in South Carolina to markets outside the United States, said spokesman Kenn Sparks.

CHINA: MORE TRADE ISSUES AHEAD

GM, the U.S. automaker with the largest presence in China, said it would work with representatives of both the U.S. and Chinese governments to try to find a solution "consistent with a constructive global trade environment."

GM expects to sell about 11,000 SUVs and large cars built in the United States to China this year. Those models include the Buick Enclave and the Cadillac CTS and Escalade.

Chrysler said it was reviewing the decision to determine what impact it could have on its business.

Chrysler, controlled by Italy's Fiat, said in June that it was on track to sell 40,000 vehicles in China this year. The Jeep Grand Cherokee went on sale in China this year and Chrysler had been looking to export its 300 model large sedan.

Honda Motor Co Ltd exports Acura TL sedans built in Ohio to China. Those cars would also be subject to an additional 4.4 percent tariff. As of November, Honda had sold 362 TL models in China.

In 2009, China eclipsed the United States as the world's largest auto market, but its national car industry remains weak and fragmented, leaving 70 percent of the market to U.S., European, Japanese and South Korean makers.

Sales of passenger cars in China rose more than 30 percent in 2010, but the pace has slowed sharply in 2011 and sales gains are expected to be closer to 5 percent this year.

U.S. vehicle exports to China were valued at $3.5 billion in 2010 and $4.2 billion through October of this year, according to the U.S. Commerce Department.

Ten years after China joined the World Trade Organization, experts say it is likely to become more deeply enmeshed in trade disputes.

More problems for Beijing at the trade governing body will be partly due to its ever-expanding trade footprint, but also because the moods of many of its trading partners are souring over what they see as state support for strategic industries.

Actions against those trade practices have led to what the U.S. ambassador to the WTO, Michael Punke, last month called an emerging pattern of China's "reflexive resort to trade actions in response to legitimate actions taken by the United States or other trading partners."

U.S. officials have said they are not satisfied with the way China is meeting its obligations in the WTO and would continue to step up enforcement activity.

China's Trade Minister Chen Deming said China expects trade disputes to increase next year because of economic weakness in the United States and Europe.

"If we look at countries around us, for example Europe and the United States, we're all going to face difficulties brought about by these two areas," he said at a press conference in Geneva.

December 14, 2011

Source: Reuters