Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



China May Face Another WTO Case For Big Car Tax

China Environmental Law Blog has posted an article entitled "Big Cars Face Big Tax: Fat Cats Unfazed";

China has announced a higher tax on large cars.  China said yesterday it would raise taxes on large passenger vehicles and cut the tax on small cars beginning next month to cut pollution and fuel use. The key characteristics of the proposal are:

  • Cars with engines above 4-liter capacity: 40% tax
  • Cars with engines between 3 and 4 liters: 25% tax (up from 15%)
  • Cars with engines below 1-liter capacity: 1% tax (reduced from 3%)

The China Environmental Law Blog has focussed on the fact that the consumers in China who can purchase big cars will likely continue to buy big cars.

Trade Lwyers Blog asks whether the proposal is consistent with China's WTO obligations.  The automobile companies and WTO Members who have a robust automobile industry (e.g., the European Union, Japan, Korea, the United States, and Canada) who sell vehicles to China may be concerned that the proposed measures discriminate against foreign manufacturers of vehicles. 

The proposed tax measures may breach China's National Treatment obligations.  China produces Cherry vehicles, which are small cars.  Big cars such as Audi's, Mercedes Benz, BMWs, etc. are foreign models produced in China or imported into China.  Someone may wish to consider whether China's proposed measures discriminate against foreign vehicle manufacturers, whether or not the foreign manufacturers have established manufacturing operations in China.

The national treatment principle focuses on laws, regulations, policies, practices and procedures and other measures applicable within the territory of a Party.  Picture a circle – once inside the circle, there cannot be discrimination between the local goods, services, service providers, investors, investments, intellectual property, etc. and those of other contracting Parties to the PTA.  Where a Party agrees to accord national treatment, they must establish a threshold level of treatments for the goods as equal to or better than the level of treatment for domestic goods.

It may be possible that the proposed tax on large vehicles also breaches MNF and GATS obligations, depending on how it is implemented and what are the effects of the proposed measures.

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