U.S. China auto parts deficit from 1993-2010(U.S. Department of Commerce, Bureau of the Census)

WASHINGTON — Auto industry officials Tuesday urged the federal government to challenge China’s “rampant use of unchecked subsidies,” as three new reports suggest that Chinese violations of international trade agreements could spell trouble for the American automobile industry.

Over the last 10 years, the auto parts trade deficit between the U.S. and China has increased by more than 850 percent, according to an Alliance for American Manufacturing study derived from U.S. International Trade Commission data.  The study said that the deficit was $1.03 billion in 2001 compared with $9.95 billion by the end of 2011.

The reports, released Tuesday, conclude that China’s use of subsidies and off-the-books manufacturing restrictions are potential roadblocks to the automobile industry’s economic recovery.

“Taken together, these three reports show beyond a shadow of a doubt that China’s blatant use of illegal government subsidies and a web of predatory trade practices on a massive scale are undercutting companies in the U.S. auto supply chain,” said Scott Paul, executive director of the Alliance for American Manufacturing, a partnership between the steelworkers’ union and  major manufacturers. “It’s essential that federal action be taken to challenge these abuses before they completely undermine the job recovery underway in the U.S. auto industry.”

“U.S. automakers have enjoyed a strong turnaround since the government aided the restructuring of GM and Chrysler, with U.S.-based automakers’ sales up 29.1 percent since 2009,” according to one of the studies, by the Economic Policy Institute. “However, employment in the auto-parts and tire industry has rebounded at less than half that rate.”

As part of China’s admittance to the World Trade Organization, the country is bound by WTO requirements that prohibit “subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods,” as well as those relating to export performance.

The liberal-leaning Economic Policy Institute and international trade specialists of the law firm Stewart and Stewart found that many Chinese subsidies, which have totaled $27.5 billion over the past 10 years, are in violation of the WTO agreement.

One key example centered around the hybrid Chevrolet Volt. Although domestic hybrids receive a sales tax waiver in China, Chevrolet was told by Chinese officials that the car could not qualify for subsidies unless the company would transfer its engineering to a Chinese joint venture. That’s a violation of the WTO agreement, according to the U.S. manufacturers’ alliance.

“The cornerstone of the WTO system is that once a product is in your country, it is treated the same whether it is domestic or it is an import,” said attorney Terence Stewart, whose firm authored a report on Chinese auto part subsidies.  “China very much wants to dominate electric car manufacturing going forward.  They basically have told foreign auto companies that if you want to play in our market, you have to move your technology and production here.”

“That changes the outcome of the game not based on the competitive nature but based on the iron fist of the government saying you cannot play if you do not [move production].”

Despite these charges, Beijing has vehemently denied all accusations questioning its trade policies.

“Over the past 10 years, China has fully implemented its WTO commitments, and its trade and investment liberalization and facilitation have been significantly increased,” President Hu Jintao told The New York Times last month.  But on Monday, the WTO found that a Chinese restriction of raw materials to foreign countries violated the terms of their agreement and forced China to lift the ban.

In his State of the Union address last week, President Barack Obama announced the creation of a Trade Enforcement Unit to investigate Chinese trading practices and highlighted the importance of challenging China’s tactics.

Sen. Sherrod Brown, D-Ohio, praised the plan, saying, that the U.S. needs “an all hands-on-deck approach –between the U.S. trade representative, the State Department and the Commerce Department. We need to be aggressive, and we need to fight back to save our critical manufacturing jobs.”