China ‘Outwits’ the WTO by Raising Taxes on Large Displacement Engines

For a while now, the US, Canada and the European Union have been fighting China over Beijing’s unfair tax treatment for imported foreign car parts. According to the Chinese law, imported new cars are subject to a 25% tariff while foreign parts are supposed to be taxed at a lower 10% rate. But in early 2005, China decided to enforce a 25% tariff on all imported car parts that made up for more than 60% of any vehicle.

The US, Canada and the European Union complained that Beijing broke the World Trade Organization’s (WTO) rules and started a legal battle. In February 2008, the WTO issued a preliminary ruling against China and in July 2008, the case was closed in favor of the US, Canada and the European Union. Mind you, this was the first time the WTO officially sided against China in its seven years as a WTO member. -Continued

Now, just a month after the WTO’s ruling China’s government announced that it will impose a new “green tax” from September 1st penalizing cars with large displacement engines in order to cut fuel consumption and improve air quality. Coincidently, most of those vehicles are imported…

According to China’s Ministry of Finance, the sales tax for cars with engine capacities over than 4.1 liters will double to 40% whilst cars powered with engines between 3 and 4.1 liters will be taxed at 25%, up from 15%. The tariffs on cars with engines that are 1 liter or less will drop from 3% to 1% while taxes on other cars will remain as is. And guess who makes most of the cars with smaller engines - yep, it’s the Chinese automakers!