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China faces WTO complaint over foreign-made auto parts

WASHINGTON—U.S. Trade Representative Susan Schwab announced a trade action Friday that's designed to force China to open its fast-growing market to American-made auto parts.

In a conference call early Friday, Schwab said the United States, European Union and Canada together were lodging a complaint at the Geneva-based World Trade Organization about China's treatment of foreign-made auto parts.

It's the first high-profile trade complaint against China since the Office of the U.S. Trade Representative conducted a top-to-bottom review of bilateral trade earlier this year. It signals that the United States may begin taking a tougher stance on China, whose rapid economic growth is sending shock waves across the global economy.

With November congressional elections approaching, Schwab's help for the American auto industry carries political overtones in battleground states such as Ohio, Indiana and Michigan. Her announcement came as Ford—the world's third-largest carmaker—sought to cut another 10,000 jobs in the United States, Canada and Mexico by the end of 2008.

It also came days before Treasury Secretary Henry Paulson arrives in Beijing for meetings next week and as the Senate weighs trade sanctions against China for failing to liberalize its currency regime.

Her move sent China a good cop-bad cop message from the Bush administration, since Paulson, a former head of banking giant Goldman Sachs & Co., on Wednesday used his first speech on the international economy to call for patience with China. He said relations were "truly generational" and shouldn't suffer because of current disputes.

Schwab said her action had nothing to do with Paulson's trip, and she focused on defending U.S. jobs.

"In the U.S. alone, 700,000 workers produce over $200 billion in auto parts," Schwab said, noting that about a quarter of those products are exported. It's "not appropriate for our exports to be barred from that market, particularly in view of Chinese commitments to the WTO."

World trade in auto parts exceeded $445 billion last year. U.S. makers exported about $700 million in auto parts to China last year, a fraction of the $55 billion in total American exports of auto parts. U.S. companies complain that the figure is low because China is trying to force them to manufacture in China.

"What they're doing in essence is, if a car produced in China has too many imported parts, then we're going to duty (tax) those parts the same as if it was a whole imported car," said Frank Vargo, the vice president-international affairs for the National Association of Manufacturers.

If a Chinese-made vehicle has more than a certain amount of imported auto parts, China levies a 25 percent duty on the imported parts to favor domestic producers.

"We negotiated a 10 percent rate, and that's what our companies deserve," Vargo said.

The dispute is really about China moving up the value chain, shifting from simple assembly and low-tech production to the kind of high-tech manufacturing done in the United States, Mexico and Canada.

U.S. companies complain that they're being strong-armed into manufacturing in China. For example, auto industry data suggest that about 60 percent of the auto-parts manufacturing in China is done through joint ventures with foreign firms.

"This is the tip of the iceberg. It's unfortunate that we're not bringing 10 of these cases instead of one," said Peter Morici, a business professor at the University of Maryland.

Some want the Bush administration to get tougher on China.

"Taking them to the WTO is being a little more than a doormat, but I don't think this signals a particularly new aggressive policy," said Clyde Prestowitz, a former Reagan administration trade official and the author of "Three Billion New Capitalists," a book that warns of an economic power shift to Asia.

Paulson signaled Wednesday that the administration will treat the rising Asian power as an equal and expects it to begin behaving like a developed—not a developing—nation.

"China deserves recognition for what it has become, but at the same time China must be more than a beneficiary of open markets," Paulson said. "As a global economic leader, China should accept its responsibility as a steward of the international system of open trade and investment."

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(c) 2006, McClatchy-Tribune Information Services.

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