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Measures Affecting Imports of Automobile Parts

Key Facts
Short Title: China — Auto Parts
Respondent: China
Third Parties: Argentina; Brazil; Mexico; Japan; Australia; Thailand;
Complaintant(s): United States;
Dispute Number: DS340
Link to Dispute Site: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds340_e.htm
Dispute Status: Concluded
Complaint by the United States (WT/DS340).

On 30 March 2006, the European Communities and the United States, and on 13 April 2006, Canada, requested consultations with China regarding China's imposition of measures that adversely affect exports of automobile parts from the European Communities, the United States and Canada to China. The measures include the following: (a) Policy on Development of Automotive Industry (Order No. 8 of the National Development and Reform Commission, 21 May 2004); (b) Measures for the Administration of Importation of Automotive Parts and Components for Complete Vehicles (Decree No. 125), which entered into force on 1 April 2005); and, (c) Rules for Determining Whether Imported Automotive Parts and Components Constitute Complete Vehicles (General Administration of Customs Public Announcement No. 4, which entered into force on 1 April 2005; as well as any amendments, replacements, extensions, implementing measures or other measures related.

The European Communities argues that, under the measures identified, imported automobile parts that are used in the manufacture of vehicles for sale in China are subject to charges equal to the tariffs for complete vehicles, if they are imported in excess of certain thresholds. The European Communities considers that the measures are inconsistent with:

* Articles II:1(a), II:1(b), III:2, III:4, III:5 of the GATT 1994, as well as with the principles c ontained in Article III:1.

* Articles 2.1 and 2.2 of the TRIMs Agreement in conjunction with paragraphs 1(a) and 2(a) of the Illustrative List annexed to the Agreement.

* Article 3 of the SCM Agreement.

* China's obligations under its Access Protocol, in particular Part I, para. 7.3 of the Accession Protocol, and in para. 203 of the Working Party Report on the Accession of China (WP Report) in conjunction with Part I, para. 1.2 of the Accession Protocol, and para. 342 of the WP Report.

The European Communities also considers that China had nullified or impaired the benefits accruing to the European Communities under the Accession Protocol, in particular para. 93 of the WP Report, in conjunction with Part I, para. 1.2 of the Accession Protocol, and para. 342 of the WP Report.

The United States argues that the measures identified appear to penalize manufacturers for using imported auto parts in the manufacture of vehicles for sale in China. In the United States' opinion, although China bound its tariffs for auto parts at rates significantly lower than its tariff bindings for complete vehicles, China would be assessing a charge on imported auto parts equal to the tariff on complete vehicles, if the imported parts are incorporated in a vehicle that contains imported parts in excess of thresholds. The United States considers that these measures are inconsistent with the following provisions:

* Article 2 of the TRIMs Agreement.

* Articles II (including para. 1) and III (including paras. 2, 4 and 5) of the GATT 1994.

* Article 3 (including paras. 1 and 2) of the SCM Agreement.

* The Protocol of Accession (WT/L/432) (including Parts I.1.2 and I.7.3, and paras. 93 and 203 of the Working Party Report).

The United States also considers that China had nullified or impaired the benefits accruing to the United States, directly or indirectly, under the cited agreements.

Canada argues that the measures identified above impose different charges on vehicles manufactured in China depending on the domestic content of the automobile parts used in the manufacture, thus providing domestic manufacturers with an advantage if they use domestic parts. Canada also argues that the measure may also have an impact on foreign investments as they confer an advantage to enterprises, conditioned on the use in vehicle production of domestic instead of imported parts. Canada adds that the charges that may be assessed on automobile parts once a vehicle is complete appear to constitute a charge in excess of those set forth in China's schedule of concessions. China would also be applying the tariff for completed vehicles to completely-knocked down and semi-knocked down kits. The measures also seem to provide subsidies contingent upon export performance and upon the use of domestic over imported goods.

Canada considers that the measures at issue are inconsistent with:

* The Protocol of Accession (WT/L/432) (including Parts I.1.2 and I.7.3, and paras. 93 and 203 of the Working Party Report).

* Articles II (including para. 1) and III (including paras. 2, 4 and 5) of the GATT 1994.

* Article 2 of the TRIMs Agreement.

* Article 2 of the Agreement on Rules of Origin, specifically paras. (b), (c) and (d).

* Article 3 of the SCM Agreement.

Canada considers that, in addition, China's measures may nullify or impair benefits accruing to Canada under the cited agreements.

In dispute WT/DS339, Australia, Canada, Japan, Mexico and the United States requested to join the consultations. China informed the DSB that it had accepted the requests of Australia, Canada, Japan, Mexico and the United States to join the consultations.

In dispute WT/DS340, Australia, Canada, the European Communities, Japan and Mexico requested to join the consultations. China informed the DSB that it had accepted the requests of Australia, Canada, the European Communities, Japan and Mexico to join the consultations.

In dispute WT/DS342, Australia, the European Communities, Japan, Mexico and the United States requested to join the consultations. China informed the DSB that it had accepted the requests of Australia, the European Communities, Japan, Mexico and the United States to join the consultations.

On 15 September 2006, the European Communities, the United States and Canada each requested the establishment of a panel. At its meeting on 28 September 2006, the DSB deferred the establishments of a panel. At its meeting on 26 October 2006, the DSB established a single panel pursuant to Article 9.1 of the DSU. Argentina, Australia, Japan, Mexico and Chinese Taipei reserved their third-party rights. Subsequently, Brazil and Thailand reserved their third-party rights. On 19 January 2007, the European Communities, the United States and Canada requested the Director-General to determine the composition of the Panel. On 29 January 2007, the Director-General composed the Panel.

On 16 July 2007, the Chairman of the Panel informed the DSB that it would not be able to complete its work within six months due to the complexity of the issues presented in this case. The Panel expects to issue its final report to the parties by January 2008. On 24 January 2008, the Chairman of the Panel informed the DSB that due to the complicated issues presented in this case, the Panel now expected to issue its final report to the parties by the end of March 2008.

On 18 July 2008, the Panel reports were circulated to Members.

With respect to the complaint by the European Communities (WT/DS339), the Panel concluded that:

- with respect to imported auto parts in general:

(i) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article III:2, first sentence of the GATT 1994 in that they subject imported auto parts to an internal charge in excess of that applied to like domestic auto parts;

(ii) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article III:4 of the GATT 1994 in that they accord imported auto parts less favourable treatment than like domestic auto parts; and

(iii) Policy Order 8, Decree 125 and Announcement 4 are not justified under Article XX(d) of the GATT 1994 as measures that are necessary to secure compliance with laws or regulations which are not inconsistent with the GATT 1994.

- In the alternative, assuming that the measures fall within the scope of the first sentence of Article II:1(b) of the GATT 1994, with respect to imported auto parts in general:

(i) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article II:1(a) and Article II:1(b), first sentence of the GATT 1994 in that they accord imported auto parts treatment less favourable than that provided for in the appropriate Part of China's Schedule of Concessions; and

(ii) Policy Order 8, Decree 125 and Announcement 4 are not justified under Article XX(d) of the GATT 1994 as measures that are necessary to secure compliance with laws or regulations which are not inconsistent with the GATT 1994.

- with respect to CKD and SKD kits:

(i) Policy Order 8, Decree 125 and Announcement 4 are not inconsistent with Article II:1(b) of the GATT 1994.

With respect to the European Communities' claims that Policy Order 8, Decree 125 and Announcement 4 are inconsistent with the TRIMs Agreement and Article III:5 of the GATT 1994, the Panel decided to exercise judicial economy.

In light of its findings, the Panel recommended that the DSB request China to bring these inconsistent measures as listed above into conformity with its obligations under the GATT 1994.

With respect to the complaint by the United States (WT/DS340), the Panel concluded that:

- with respect to imported auto parts in general:

(i) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article III:2, first sentence of the GATT 1994 in that they subject imported auto parts to an internal charge in excess of that applied to like domestic auto parts;

(ii) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article III:4 of the GATT 1994 in that they accord imported auto parts less favourable treatment than like domestic auto parts; and

(iii) Policy Order 8, Decree 125 and Announcement 4 are not justified under Article XX(d) of the GATT 1994 as measures that are necessary to secure compliance with laws or regulations which are not inconsistent with the GATT 1994.

- In the alternative, assuming that the measures fall within the scope of the first sentence of Article II:1(b) of the GATT 1994, with respect to imported auto parts in general:

(i) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article II:1(a) and Article II:1(b), first sentence of the GATT 1994 in that they accord imported auto parts treatment less favourable than that provided for in the appropriate Part of China's Schedule of Concessions; and

(ii) Policy Order 8, Decree 125 and Announcement 4 are not justified under Article XX(d) of the GATT 1994 as measures that are necessary to secure compliance with laws or regulations which are not inconsistent with the GATT 1994.

- with respect to CKD and SKD kits:

(i) Policy Order 8, Decree 125 and Announcement 4 are not inconsistent with Article II:1(b) of the GATT 1994; and

(ii) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with China's commitment under paragraph 93 of China's Working Party Report, which is an integral part of the WTO Agreement.

With respect to the United States' claims that Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article III:5 of the GATT 1994, TRIMs Agreement and SCM Agreement, the Panel decided to exercise judicial economy.

In light of its findings, the Panel recommended that the DSB request China to bring these inconsistent measures as listed above into conformity with its obligations under the GATT 1994 and the WTO Agreement.

With respect to the complaint by Canada (WT/DS342), the Panel concluded that:

- with respect to imported auto parts in general:

(i) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article III:2, first sentence of the GATT 1994 in that they subject imported auto parts to an internal charge in excess of that applied to like domestic auto parts;

(ii) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article III:4 of the GATT 1994 in that they accord imported auto parts less favourable treatment than like domestic auto parts; and

(iii) Policy Order 8, Decree 125 and Announcement 4 are not justified under Article XX(d) of the GATT 1994 as measures that are necessary to secure compliance with laws or regulations which are not inconsistent with the GATT 1994.

- In the alternative, assuming that the measures fall within the scope of the first sentence of Article II:1(b) of the GATT 1994, with respect to imported auto parts in general:

(i) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article II:1(a) and Article II:1(b), first sentence of the GATT 1994 in that they accord imported auto parts treatment less favourable than that provided for in the appropriate Part of China's Schedule of Concessions; and

(ii) Policy Order 8, Decree 125 and Announcement 4 are not justified under Article XX(d) of the GATT 1994 as measures that are necessary to secure compliance with laws or regulations which are not inconsistent with the GATT 1994.

- with respect to CKD and SKD kits:

(i) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with China's commitment under paragraph 93 of China's Working Party Report, which is an integral part of the WTO Agreement.

With respect to Canada's claims that Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article III:5 of the GATT 1994 and the TRIMs Agreement, the Panel decided to exercise judicial economy.

In light of its findings, the Panel recommended that the DSB request China to bring these inconsistent measures as listed above into conformity with its obligations under the GATT 1994 and the WTO Agreement.

On 15 September 2008, China notified its decision to appeal to the Appellate Body certain issues of law covered in the Panel reports and certain legal interpretations developed by the Panel.

On 15 December 2008, the Appellate Body reports were circulated to Members.

In the appeal of the Panel report relating to the European Communities' claims (WT/DS339) (the "EC Panel Report"), and with respect to Policy Order 8, Decree 125 and Announcement 4 (the "measures at issue"), for the reasons set forth in this Report, the Appellate Body:

- upheld the Panel's finding that the charge imposed under the measures at issue is an internal charge within the meaning of Article III:2 of the GATT 1994, and not an ordinary customs duty within the meaning of Article II:1(b);

- upheld the Panel's finding that with respect to imported auto parts in general, the measures at issue are inconsistent with Article III:2, first sentence, of the GATT 1994 in that they subject imported auto parts to an internal charge that is not applied to like domestic auto parts;

- upheld the Panel's finding that with respect to imported auto parts in general, the measures at issue are inconsistent with Article III:4 of the GATT 1994 in that they accord imported auto parts less favourable treatment than like domestic auto parts; and

- found it unnecessary to rule on the Panel's "alternative" finding that with respect to imported auto parts in general, the measures at issue are inconsistent with Article II:1(a) and (b) of the GATT 1994.

The Appellate Body recommended that the DSB request China to bring its measures, found in this Report, and in the EC Panel Report as upheld by this Report, to be inconsistent with the GATT 1994, into conformity with its obligations under that Agreement.

In the appeal of the Panel report relating to the United States' claims (WT/DS340) (the "US Panel Report"), and with respect to Policy Order 8, Decree 125 and Announcement 4 (the "measures at issue"), for the reasons set forth in this Report, the Appellate Body:

- upheld the Panel's finding that the charge imposed under the measures at issue is an internal charge within the meaning of Article III:2 of the GATT 1994, and not an ordinary customs duty within the meaning of Article II:1(b);

- upheld the Panel's finding that with respect to imported auto parts in general, the measures at issue are inconsistent with Article III:2, first sentence, of the GATT 1994 in that they subject imported auto parts to an internal charge that is not applied to like domestic auto parts;

- upheld the Panel's finding that with respect to imported auto parts in general, the measures at issue are inconsistent with Article III:4 of the GATT 1994 in that they accord imported auto parts less favourable treatment than like domestic auto parts;

- found it unnecessary to rule on the Panel's "alternative" finding that with respect to imported auto parts in general, the measures at issue are inconsistent with Article II:1(a) and (b) of the GATT 1994; and

- found that the Panel erred in construing the measures at issue as imposing a charge on completely knocked down (CKD) and semi-knocked down (SKD) kits imported under Article 2(2) of Decree 125, and consequently reversed the Panel's finding that, with respect to their treatment of imports of CKD and SKD kits, the measures at issue are inconsistent with the commitment in paragraph 93 of China's Accession Working Party Report.

The Appellate Body recommended that the DSB request China to bring its measures, found in this Report, and in the US Panel Report as modified by this Report, to be inconsistent with the GATT 1994, into conformity with its obligations under that Agreement.

In the appeal of the Panel report relating to Canada's claims (WT/DS342) (the "Canada Panel Report"), and with respect to Policy Order 8, Decree 125 and Announcement 4 (the "measures at issue"), the Appellate Body:

- upheld the Panel's finding that the charge imposed under the measures at issue is an internal charge within the meaning of Article III:2 of the GATT 1994, and not an ordinary customs duty within the meaning of Article II:1(b);

- upheld the Panel's finding that with respect to imported auto parts in general, the measures at issue are inconsistent with Article III:2, first sentence, of the GATT 1994 in that they subject imported auto parts to an internal charge that is not applied to like domestic auto parts;

- upheld the Panel's finding that, with respect to imported auto parts in general, the measures at issue are inconsistent with Article III:4 of the GATT 1994 in that they accord imported auto parts less favourable treatment than like domestic auto parts;

- found it unnecessary to rule on the Panel's "alternative" finding that, with respect to imported auto parts in general, the measures at issue are inconsistent with Article II:1(a) and (b) of the GATT 1994; and

- found that the Panel erred in construing the measures at issue as imposing a charge on completely knocked down (CKD) and semi-knocked down (SKD) kits imported under Article 2(2) of Decree 125 and, consequently reverses the Panel's finding that, with respect to their treatment of CKD and SKD kits, the measures at issue are inconsistent with the commitment in paragraph 93 of China's Accession Working Party Report.

The Appellate Body recommended that the DSB request China to bring its measures, found in this Report, and in the Canada Panel Report as modified by this Report, to be inconsistent with the GATT 1994, into conformity with its obligations under that Agreement.

On 12 January 2009, with respect to WT/DS339, the DSB adopted the Appellate Body report and the Panel report, as upheld by the Appellate Body report.

On 12 January 2009, with respect to WT/DS340 and WT/DS342, the DSB adopted the Appellate Body reports and the Panel reports, as modified by the Appellate Body reports.

Panel Proceedings
Brief DateBrief Description
09/10/2007U.S. Comments on China's Response to Additional Panel Question 304 (pdf)
08/31/2007U.S. Answer to Additional Question 304 by the Panel (pdf)
08/09/2007U.S. Comments on China's Responses to the Second Set of Panel Questions and to the Questions of the United States (pdf)
07/26/2007U.S. Answers to the Second Set of Panel Questions (pdf)
07/23/2007Executive Summary of the U.S. Opening Statement at the Second Panel Meeting (pdf)
07/16/2007Questions from the United States to China (pdf)
07/12/2007U.S. Opening Statement at the Second Panel Meeting (pdf)
07/02/2007Executive Summary of the Rebuttal Submission of the United States (pdf)
06/22/2007Attachment to the U.S. Rebuttal Submission: U.S. Comments on Responses of China to the Panel's Questions to the Parties (pdf)
06/22/2007Rebuttal Submission of the United States (pdf)
06/11/2007Response by the United States to the Questions by the Panel to the Parties (pdf)
06/06/2007Executive Summary of the Opening Statement of the United States at the First Panel Meeting (pdf)
05/22/2007Oral Statement of the United States at the First Panel Meeting (pdf)
03/23/2007Executive Summary of the First Written Submission of the United States (pdf)
03/13/2007First Written Submission of the United States (pdf)
Appeal Proceedings
Brief DateBrief Description
10/27/2008U.S. Oral Statement (pdf)
10/10/2008U.S. Appellee Submission