China has a legitimate right to impose higher tariff rates on imported whole vehicles, said Ministry of Commerce spokesman Chong Quan on Friday.

WTO panel to probe China's auto parts imports

He also expressed regret over the request from the European Union, the United States and Canada to set up a World Trade Organization (WTO) dispute settlement panel concerning the import of auto parts.

A man stands in a car dealership in Shanghai in this March 10, 2006 file photo. The WTO decided on Thursday to set up a panel to investigate into the complaints of the US and EU on China's import duties on auto parts. [Reuters]

China's regulations on the import of auto parts aim to prevent tax evasion by companies who import whole cars in separate parts and reassemble them to avoid higher tariffs, said Chong.

He said the regulations, designed to crack down on illegal assembly, protect the interest of customers and comply with WTO rules.

The regulations also comply with the commitments China made to the WTO when it was admitted to the world trade body, he said.

China has shown "great sincerity" in clarifying the facts and its views during consultations with the EU, the United States and Canada, said Chong.

Since China joined the WTO in 2001, the spokesman said, the country has opened a number of different sectors and taken measures to lower or abolish tariffs and offer greater market access to other WTO member nations.

The tariffs for imported whole vehicles were reduced from 80 percent in 2001 to the current 25 percent, and tariffs on auto parts dropped from 30 percent to 10 percent, Chong added.

He emphasized that China has also abolished its quota and licensing systems.

"Taken together, these facts show China is serious in implementing its obligations to WTO and observing WTO rules," he concluded.

Under Chinese rules, the tariffs for "whole vehicles" also apply to the import of spare parts that make up 60 percent or more of the value of a finished vehicle.

To avoid "whole car" tariff rates, a car-maker has to source 40 percent or more of its spare parts by value from China.

In a complaint filed at the WTO at the end of March, the European Union and the United States claimed that China was imposing a discriminatory tariff regime on foreign car parts. Canada joined them several days later.

The two sides held negotiations on this issue, but the three powers requested that the WTO to establish the panel after the talks failed to make any progress.

"These measures discourage auto manufacturers in China from using imported parts in the assembly of new vehicles," US trade negotiator David Shark told the WTO's dispute settlement body, claiming that the practice could not be justified under the global trade body's rules.

But commerce ministry spokesman Chong said China had showed great sincerity in seeking to resolve the issue through negotiations with the three economies.

This is China's first WTO dispute to reach the panel stage. A case brought by the United States against China's duties on semi-conductors was solved through consultations. Such a WTO investigation could last for years before a final judgment is reached.

Several countries, such as Australia, Japan, Mexico and Argentina, have signed up to the auto parts panel as interested third parties.

Overseas automakers have invested heavily in China to set up vehicle parts joint ventures.

China imported vehicles and spare parts worth US$13.6 billion last year.

The European Commission argues that this may contravene China's WTO obligations not to impose obligatory "local content" rules.