In recent developments, the United States and the European Union have filed a lawsuit against China at the World Trade Organization (WTO), accusing it of implementing an unfair "local content ratio" through a complex tariff system. According to them, this policy is designed to compel European automakers to source Chinese-made parts, thereby undermining fair competition. This legal action is in response to China’s "Administrative Measures for the Import of Auto Parts That Constitute the Characteristics of Complete Vehicles," commonly referred to as the "Measures." The core of the "Measures" lies in defining what constitutes an imported vehicle versus a domestically produced one. Specifically, if the combined value of imported parts exceeds 60% of the total vehicle price, the vehicle is classified as an imported one. Conversely, if 40% or more of the components are made in China, it is considered a domestic car. This approach aims to prevent automakers from circumventing higher tariffs by importing vehicles as spare parts rather than complete units. China had previously committed, upon joining the WTO, to reduce tariffs on complete vehicles and auto parts to 25% and 10%, respectively, and to abandon any mandatory localization requirements. However, the "Measures" are not about imposing new restrictions but rather about clarifying the definitions of what qualifies as an imported vehicle. This clarification is essential to ensure transparency and prevent tariff evasion. Defining what constitutes an imported product is a fundamental right of any sovereign nation. If China were to relinquish this right, it could lead to significant consequences. From a single industry perspective, automakers might exploit vague legal loopholes by disassembling vehicles and importing parts separately, resulting in substantial tariff losses for China. On a broader scale, abandoning such definitions would create confusion across all sectors, potentially undermining the effectiveness of China’s customs system. Some of the trade tensions stem from certain manufacturers seeking to assemble vehicles in China rather than investing in long-term production and development. These companies may not have established local supply chains for parts, leading them to feel they are at a disadvantage. Additionally, some long-standing foreign firms find their high-end models unable to meet the "Made in China" standards outlined in the Measures. However, the Chinese government has consistently supported the establishment of local component manufacturing systems and has treated all companies fairly. To ease trade tensions, China delayed the implementation of the "Measures" for two years. Despite this, the EU and the U.S. continue to challenge the policy at the WTO, citing unfair competition. In reality, abandoning the definition of "Made in China" would be unjust to multinational companies that have already invested in localizing their supply chains. From a broader perspective, China's automotive industry has evolved significantly over the past two decades of reform and opening up. It now boasts a relatively complete manufacturing system. The next step is to build a self-reliant automotive industry and position it as a key pillar of the national economy. As the world’s second-largest economy, China’s market is growing rapidly, and its economic size dictates its role in the global market. As a major country, China must maintain an independent economic system. Therefore, the pursuit of self-development and independent growth has become a central part of national policy. In this context, will the Chinese government yield to external pressure and give up its right to define "Made in China"? The answer remains to be seen.

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