China compels foreign carmakers such as Ford Motor Co. and Volkswagen AG to buy at least 40% of their parts from local suppliers or pay almost double the import duty applied to assembled vehicles, the complaint says, according to the officials, who declined to be identified. The filing of the case signals that efforts to resolve the dispute failed. The three countries lodged a preliminary complaint on Mar. 31.

The complaint, only the second lodged against China since it joined the Geneva-based WTO in 2001 and the first to reach litigation, further strains ties with the U.S. and EU as the Asian economy’s trade surplus widened to a record $14.6 billion in July. U.S. lawmakers are pressing China, the world’s third- biggest market for automobiles, to let its artificially weak currency gain, slowing exports.

Today’s request for arbitration will be discussed at a meeting of WTO ambassadors in Geneva on Sept. 28, when China has the right to block the complaint, the officials said. The Chinese government can’t block a second request, which may follow next month, kicking off a legal process that may last more than 18 months.

European Producers

European carmakers such as DaimlerChrysler AG and Renault SA produced as much as a quarter of all the cars made in China in 2004, EU export statistics show. The 25-nation bloc shipped 1.6 billion euros ($2 billion) worth of vehicle parts, including pieces for buses and tractors, to China in 2004.

China’s imports for U.S.-made auto components climbed 13% to $558 million last year, the country’s commerce ministry said in February.

In April 2005, China began a system of levying tariffs on auto parts based on the amount of imports in the complete vehicle. If the cars are made up of 60% or less in imports, the parts face a maximum duty of 14%. If the car has more than that, then the parts face – retroactively – a duty of about 28%, the tariff of a complete vehicle.

In August, China delayed fully implementing the raise in tariffs for two years, postponing a cost hike for foreign makers. Still, starting July 1, 2008, vehicles using more than 60% imported components will be liable to a tax of up to 25 percent.

WTO Commitment

That violates a pledge that China made in 2001 to cut its import duties on auto parts and scrap rules that force foreign producers to buy Chinese parts, the U.S., Canada and EU argue.

China imported 60% more vehicles in the first seven months of 2006 as the government reduced tariffs, the country’s General Administration of Customs said Aug. 28. Some 127,000 vehicles worth a total of $4.17 billion – 76% more than a year earlier – were imported through July, the agency said.

The U.S. filed the only other WTO complaint against China. That dispute, involving China’s tax rebate on semiconductors, was settled during compulsory consultations in July 2004. A second quarrel was resolved the day the U.S. was scheduled to lodge its complaint.