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WTO to investigate Chinese tire tariffs

According to documents published today, the World Trade Organization is about to get involved in the ongoing US-China tire tariff dispute. The WTO investigation is the result of an appeal filed by China immediately after the Obama administration approved double digit tariffs on Chinese tire exports for the next three years. Since then, trade relations have gotten rocky as China retaliated with tariffs of their own on US products like chicken, industrial acids, and nylon. In return, the US imposed tariffs on steel pipes imported from China, and has begun looking into allegations that China has been selling below cost, or “dumping” products in the US. In short, things are getting ugly.

The WTO will formalize the panel at a meeting tomorrow (January 19, 2010). The three-judge panel will investigate whether the U.S. respected WTO rules in levying the so-called “safeguard” tariffs on Chinese tires. As part of the agreement to join the WTO in 2001, China had agreed to allow other member counties to impose safeguard tariffs on Chinese products if the flow of imports significantly affected domestic factories and employment. The US maintains that this is exactly what is happening with Chinese tires as the domestic auto market struggles amidst a global downturn.

According to trade data, it seems like the US could make a strong case. China gained a 17% market share in the US between 2004 and 2008, as their tire imports rose from $5.1 billion to $9.3 billion. At only $50 a tire, it was growing easy for Chinese products to undercut their domestic American counterparts. Seven US tire plants closed during this time period, and nearly 5,000 positions in the tire industry disappeared.

The WTO’s investigation will continue for 9 months before a judgeship is issued. If the panel finds the US unfairly imposed the tariffs in opposition to WTO agreements, China would be allowed to impose tariffs of their own to recoup their losses. The US could appeal the verdict, meaning that this particular investigation is far from being over.

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