China Automobile Association brewing dispute solution parts industry changes

On December 16, the Appellate Body of the World Trade Organization ruled that the Chinese Government’s "Measures for the Administration of Imports of Auto Parts That Constitute the Characteristics of Complete Vehicles" (hereinafter referred to as the "Measures") violated the principle of national treatment of the organization. Thus, this has lasted for three years. The dispute came to an end.

On December 22, a deputy secretary-general of the China Association of Automobile Manufacturers (CIA) stated that "there is no possibility that joint ventures will import large quantities of spare parts to assemble cars in the future." He said that China Automobile Association is studying the next step in response measures. In October, the association established the “Coordination Committee for International Trade in the Automotive Industry” to provide industry recommendations for the Chinese government to negotiate on the settlement of the WTO dispute.

Unlike most of the commenters who believe that the lawsuit has not been seriously affected, a person from the China Automotive Technology and Research Center (CEA) believes that “(the lawsuit loses) will still have a relatively large negative impact. After all, there are 15 points. The tax difference.” In accordance with the “Measures”, auto parts and components that constitute the characteristics of the entire vehicle shall be subject to a 25% tax rate on the whole vehicle, and shall not constitute a feature of the entire vehicle to be subject to a tariff of 10%. China National Petroleum Corporation participates in the formulation of the Measures and is one of the main think tanks for the government to formulate and implement the Measures. The center is also studying measures to deal with the loss.

Some industry analysts have analyzed that due to the low degree of localization of some luxury car manufacturers, after the “measures” are repealed, relevant departments may still seek similar measures from other non-tariff measures. However, it is not easy to find some measures that can protect local parts and components companies and do not violate the WTO rules. Furthermore, restricting the import of foreign parts and components does not necessarily increase the R&D and manufacturing capabilities of local parts and components companies. Therefore, it is necessary to re-examine the ideas of China's development of the auto parts industry.

According to Liu Chang, Automotive Industry Research Department of Beijing Hongrui Xinsi Management Consulting Co., Ltd., the "Measures" won the bid for domestic parts and components companies for three years, but this is far from enough. So far, domestic parts and components companies have still not been able to form R&D and manufacturing capabilities for high-end parts and components. For example, the R&D and manufacturing capabilities of the core components of automotive power systems, including engines, various automotive electronics, and some complex molds.

The "2008 Annual Report on China's Auto Parts Industry" released by the China Automotive Industry Association also describes the worrying situation. The report pointed out that at present, China's domestic auto parts companies have weak competitiveness and low added value of product technology, and most of the product development still stays at the imitation stage, the technical foundation is not solid, and it does not have the ability to develop in tandem with the entire vehicle, and the price is low. The supporting market for parts and components is basically occupied by foreign companies. According to the report, after the WTO accession, China’s lack of restrictions on the proportion of shares in the joint venture company in the auto parts industry was one of the reasons.

The above report pointed out that most of China's domestic parts and components companies are private enterprises that have arisen in these years. They missed the era of introducing technology. In the past, parts and components companies that had introduced technology for the car had some joint ventures with foreign companies in order to obtain new vehicle parts and components technology and funds, and some had gone bankrupt due to various reasons. In the end, the situation in which foreign-funded enterprises controlled the matching market for car parts and components was formed.

In this regard, China Automobile Association has proposed a series of specific ideas for the development of the local components industry. For example, as soon as possible, we will organize backbone component companies, scientific research institutions, and vehicle companies to participate in the joint venture to establish a shared technology platform, focus on the research of key electronic components for electronic control technologies, and strive for the support of the relevant national authorities. This will be an opportunity for the upgrading of commercial vehicles. Reconstruction of new vehicle and component new strategic partnerships.

"The facts show that it is not feasible to develop high-end component R&D and manufacturing capabilities through the 'plugging' approach," said Liu Chang.

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