Long Yongtu: Industrial protection is not conducive to the development of China's auto industry
The second reason I felt deep emotion when China joined the WTO negotiations on automobile trade was because, during the process of entering the WTO—especially in the lead-up to China’s accession—many people believed that the most significant impact would be on two key industries: agriculture and the automobile sector. At the time, there was a widespread concern that China’s auto industry would face severe challenges after joining the WTO and might even disappear entirely. The auto sector had been heavily protected for years through high tariffs, import quotas, and restrictive policies, which, rather than helping, actually hindered its development.
These protectionist measures kept the domestic auto industry lagging behind global standards, as they discouraged foreign investment and limited technological advancement. High tariffs also led to rampant smuggling, with cars and parts being smuggled into the country at an alarming rate. In 1997, the official tariff on Chinese-made vehicles was as high as 180%, but the actual tariff was only around 26% due to smuggling. During negotiations, the U.S. representative pointed out that China's effective tariff was already close to the 25% target we were negotiating, highlighting how unworkable the high tariff system had become.
This situation made it clear that without making significant concessions, China's auto industry would not survive in the long run, and our WTO accession could be jeopardized. Therefore, we had to make major adjustments throughout the negotiation process. We agreed to lower the auto tariff from 180% to 25% and set a timeline for phasing out import quotas. This was a highly contentious issue, and the final agreement included a transitional period for the domestic industry.
The final deal was that by June 2006, China’s auto tariffs would be reduced to 25%. However, the U.S. and other countries pushed for this reduction to happen much earlier, specifically in 2001, right after China’s accession. There was a long debate about whether to meet that deadline or extend it to 2008. It was Deputy Prime Minister Qian Qichen who proposed the compromise of June 2006, showing how difficult and complex these discussions were. No tariff reductions were negotiated in 2005, 2006, or 2007, proving just how intense the debates were over the auto tariff cuts.
Another point of contention was the timing of removing import quotas. Foreign countries wanted restrictions to be lifted immediately upon China’s accession, but we negotiated until January 1, 2005, aligning it with the removal of global textile quotas. This shows the complexity and intensity of the negotiations surrounding the auto industry. Overall, the process of joining the WTO highlighted the immense challenges and strategic decisions involved in opening up China’s economy while protecting its domestic industries during a critical transition period.
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