U.S. wins auto parts case against China: official

WASHINGTON (Reuters) - The United States has won a preliminary ruling in a World Trade Organization case over Chinese tax policies that restrict imports of foreign auto parts, a U.S. trade official said on Wednesday.

"We can confirm that, in all major respects, the panel has agreed with the United States that China has acted inconsistently with its WTO commitments," the U.S. trade official said in response to press reports on a confidential interim report released in Geneva.

The final report in the case is expected to be made public by the second or third quarter of this year. The case would be China's first loss at the WTO.

The United States and the European Union filed the case in March 2006 and were later joined by Canada. They complained that China's tax treatment of foreign auto imports discouraged Chinese automobile manufacturers from using them.

China's WTO commitments require it to set a much lower tariff on imported auto parts than it does on finished vehicles, the U.S. Trade Representative's office said at the time it filed the case.

But in fact, China taxes imported auto parts equal to the tariff on complete automobiles if the finished vehicles made from the parts fail to meet certain local content requirements, USTR said.

Once a final report is issued, China would have the opportunity to appeal the decision.

Ultimately, the United States, EU and Canada could be given the right to impose sanctions on China if the WTO were to issue a final ruling in their favor and Beijing refuses to change its auto parts tariff policy.

Senate Finance Committee Chairman Max Baucus, a Democrat, called the preliminary decision a "victory for open markets and American workers."

"Vigorous enforcement is the linchpin of our trading system. When we enforce WTO rules, markets open and our workers prosper," he said in a statement.

Canadian Trade Minister David Emerson said the ruling, if upheld, would come at a crucial time for the ailing domestic auto parts industry, which needs to expand its "hundreds of millions" worth of exports to China to stay competitive.

"It's a market that's growing and with our companies in such tough shape right now a growing market is critically important to restoring health to our own auto parts industry."

(Additional reporting by Louise Egan in Ottawa; editing by Xavier Briand and Janet Guttsman)