The WTO has made a ruling that Chinese import surcharges on car parts violate WTO rules. This is the first time that the WTO has ruled against China since the country joined in 2001. China's intention with the policy was clearly to discourage imports of car parts and thereby encourage upstream production of inputs for its auto assembly industries.
So a clear victory for sound economics and the world trade regime? Well, read first the following from the distinguished economist John Sutton (hardly a rabid protectionist):
In the decade prior to WTO entry, both China and India used domestic content restrictions to stimulate development of the component industry, with a view to widening and deepening the benefits accruing from attracting international car-makers. The requirements were stringent, requiring about 70% domestic content within about 3 years, and this led to adverse comment from some of the car-makers who cast doubt on whether this target was feasible or sensible.
Policies of this kind are not always appropriate, or successful; but in the present cases the ‘infant industry’ has been successfully nurtured, and international car-makers show no inclination to turn away from local suppliers following WTO entry.
In other words, policies encouraging domestic content were successful--at least in these two important cases (Sutton speculates that they would have been less successful in smaller economies).
Perhaps such policies have outlived their usefulness and the WTO decision makes economic sense. Perhaps. But what is clear is that there is no room within the WTO procedures for the relevant economic arguments to have played a role. Domestic content preferences are illegal period, regardless of whether they help a country industrialize and grow.