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  2. Conclusion 
5.128 For the reasons set forth above and in our wr itten submission, China's defense of its measures 
must fail.  China's unprecedented and far-reaching "anti-circumvention" measures, if upheld, will 
have a chilling effect on international trade.  Par ticularly, the trade in more sophisticated products 
with multiple parts risks being jeopardized.  Acco rdingly, Japan respectfully requests the Panel to 
uphold the claims of the complainants. 
VI. INTERIM REVIEW 
6.1 On 13 February 2008, the Panel submitted its  Interim Reports to the parties.  On 
27 February 2008, the European Communities, the United States, Canada and China submitted written 
requests for review of the Interim Reports.
153  None of the parties requested an interim review 
meeting.  On 5 March 2008, the United States,  Canada and China submitted written comments on 
each others' requests for interim review.  On the same day, the European Communities informed the 
Panel that it fully supports the comments by the United States and Canada on China's interim review 
comments of 27 February 2008 concerning pa ragraph 7.753 of the Interim Reports. 
6.2 In accordance with Article 15.3 of the DSU, th is section of the Panel's reports sets out the 
Panel's response to the arguments made at the interim re view stage, to the extent that an explanation is 
necessary.  The Panel has modified aspects of its re ports in light of the parties' comments where it 
considered these appropriate, as explained below.  The Panel has also made certain technical and 
editorial corrections and revisions to the Interi m Reports for the purposes of clarity and accuracy.  
References to sections, paragraph numbers and footnotes in this Section VI relate to the Interim 
Reports. 
A. SECTION VII.F  OF THE INTERIM REPORTS CONCERNING CKD  AND SKD  KITS  
1. Article II:1(b) of the GATT 1994 
(a) Paragraphs 7.708 and 7.734 – Canada's comments 
6.3 Canada  submitted that it did provide documentary evidence to support its view that China 
has been "treating CKD and SKD kits as parts" by  applying lower tariff rates than for whole motor 
vehicles.  Canada refers to pa ragraphs 67 and 68 of its second writte n submission, in particular to 
Exhibits JE-25, CDA-28, and CDA-32 and the documentary evidence provided in its response to Panel question No. 61(b).  Canada requested that if  this paragraph refers to the submission of the 
complainants regarding tariff treatment of CKD and SKD kits, then the reference to not providing 
documentary evidence be removed, and that a comme nt noting the existence of Canada's evidence be 
included either in paragraph 7.708 or in a footnote. 
6.4 In a similar context as its request in respect of  paragraph 7.708 above,  Canada submitted that 
it disagrees with the Panel's finding in paragraph 7. 734 that it did not provide specific evidence that 
"China 'treated' CKD and SKD kits imports with su bstantially lower tariff rates than complete motor 
vehicles since 1996 and prior to China's accession".  In  addition to Exhibit JE-25, which is addressed 
in footnote 1077 of the Interim Repor ts, Canada pointed to the documen tary evidence referred to in its 
response to Panel question No. 61(b) and statis tical evidence supported with documentation in 
paragraph 68 of its second written submission and requested that the reference to not providing 
                                                     
 
153 Letter of the parties of 27 February 2008.  WT/DS339/R 
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  specific evidence be removed, and that a comment noting the existen ce of that evidence be included 
either in the paragraph or in a footnote. 
6.5 China  objected to Canada's proposed revision to th ese paragraphs.  According to China, the 
only documentary evidence provided by Canada is addressed in footnote 1077 of the Interim Reports.  
In addition, Canada's response to Panel questi on No. 61 contains no documentary evidence. 
6.6 First, regarding the evidence provided in pa ragraphs 67 and 68 of Canada's second written 
submission, the Panel notes that Exhibit CDA-28 provides information on the basis of which Canada 
argues that CKD and SKD kits are not subject to the same tariff rate as motor vehicles, but will be 
subject to a tariff rate depending on the local content rate of the CKD or SKD kit, which is lower than 
the rate for motor vehicles.  As we noted in f ootnote 1077 of the Interim Reports, however, this piece 
of evidence uses the term CKD or SKD kits more in  a general sense without confining its scope to a 
particular collection of auto parts that could be considered as falling within the scope of a CKD or 
SKD kit as defined by the Panel in the Interim Reports.  Specifically, we recall our finding in 
paragraph 7.644 of the Interim Repor ts that, with respect to the extent of auto parts and components 
that need to be contained in a kit so as to constitute  a CKD or SKD kit, the parties generally agree that 
in the automobile industry, the term is understood as referring to "all, or nearly all, of the auto parts 
and components necessary to assemble a complete vehi cle".  Given the ambiguous scope of the term 
"CKD and SKD kits" used in Exhibits CDA-28 and JE-25, we do not consider that these exhibits prove that China "treated" CKD and SKD kits as pa rts by applying lower tariff rates than for motor 
vehicles since 1996 and prior to China's accession to the WTO. 
6.7 Second, based on Exhibit CDA-32, Canada argues th at the value of imports of motor vehicles 
(HS headings 87.02 to 87.05) from Canada in 1999 w as only US$279,000, while imports of auto parts 
from Canada were US$75 million.  Given the amount of  23,000 CKD kits imported to China in 1999, 
Canada argues that these CKD kits  cannot have been classified as motor vehicles, unless they were 
valued at US$12 each.  In contrast to Canada's observation, however, Exhibit CDA-32 shows that the 
sum of imported motor vehicles falling under HS heading 87.02 to 87.05 amounts to more than US$5 million.  Because of the inaccuracy of the data referred to by Canada, we cannot draw any conclusion from this specific evidence on how China classified CKD kits in 1999. 
6.8 Finally, as argued by China, Canada has not pr ovided any documentary evidence in Canada's 
response to Panel question No. 61(b).  In its response, Canada addresses the creation of a tariff 
commitment but does not provide documentary ev idence regarding China's treatment of CDK and 
SKD kits after its accession. 
6.9 The Panel has revised footnote 1077 to clarify the Panel's reasoning in response to Canada's 
comments.  A cross-reference to footnote 1077 has also been made in footnote 1049. 
(b) Paragraph 7.731, 7.733, 7.734, and 7.735 – United States' comments 
6.10 The United States submitted that paragraphs 7.731, 7.7 33, 7.734, and 7. 735, which were 
based on China's response to Panel question No. 254, did not reflect the additional information that 
China subsequently provided in its comments on the complainants' responses to the same question.  
Therefore, the United States suggested that it would be  more accurate if the reports reflected China's 
acknowledgement that China did provide reduced ta riff rates on the importation of certain CKD and 
SKD kits.  The United States also suggested that the United States' position would be more accurately WT/DS339/R 
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  reflected if the reports clarified the United States ' position by stating that "normally" (as opposed to 
always) a lower tariff rate was applied to CKD and SKD kits.
154 
6.11 Canada submitted that it fully supports the comments of the United States. 
6.12 China submitted that it considered that the Pane l accurately characterized the relevant 
evidence concerning China's pre-accession practices in respect of the classification and tariff 
assessment of CKD and SKD kits and thus objected to the United States' suggestion to reflect the 
relevant evidence concerning China's pre-accession pr actices in the reports.  China suggested that to 
the extent that the Panel considered that a res ponse to the United States' comment on paragraph 7.731 
was warranted, an appropriate response would be to expand upon the footnote that is currently at the 
end of this paragraph (footnote 1075).  China di d not make any comment on the second point raised 
by the United States. 
6.13 The Panel  has added, for clarification, the additi onal information that China subsequently 
provided in its comments on the complainants' responses to Panel question No. 254 in the 
accompanying footnotes to paragraphs 7.731, 7.733 , and 7.734 and also made a modification to 
paragraph 7.735 by deleting the last sentence.  Th e Panel has also clarified the United States' position 
by inserting the word "normally" in paragraphs 7.733 and 7.734. 
2. Paragraph 93 of China's Working Party Report  
(a) Admission of Exhibit CDA-48 
6.14 China objected to Canada's submission of Exhibit CDA-48 on the grounds that the Panel 
accepted the evidence in violation of paragraph 13 of the Panel's Working Procedures and requested 
the Panel to strike Exhibit CDA-48 from the record a nd remove any reference to this document in the 
Panel's Final Reports.  China provi ded three reasons for its position that the acceptance of Exhibit 
CDA-48 violates paragraph 13 of the Working Procedures:  (i) according to China, Canada was required to present evidence that China had created  separate tariff lines for CKD and SKD kits no 
later than during the first substantive meeting.  Because Canada submitted Exhibit CDA-48 only in its 
comments on China's response to Panel question No . 254, Canada was required to explain why it was 
previously unable to identify and submit the ev idence and to show good cause for submitting Exhibit 
CDA-48 later than the first substantive meeting;  (ii) further, China submitted that Canada's 
submission of Exhibit CDA-48 is not "factual evidence necessary for purposes of comments on answers provided by others", as required under pa ragraph 13 of the Panel's Working Procedures, 
because the factual issue of whether China had creat ed separate tariff lines for CKD and SKD kits was 
central to Canada's claim under paragraph 93 of the Working Party Report and Canada should have 
identified the issue as part of Canada's affirmative case and presented its argument why ten-digit statistical annotations were relevant to whether China had created separate tariff lines for CKD/SKD 
kits; and (iii) the Panel should have accorded a pe riod of time for other parties to comment on this 
late-filed evidence.  In particular, China should not have been required to make an unsolicited 
intervention, or to comment on this evidence in a la ter submission in which the topic would not have 
been pertinent. 
6.15 Canada  argued that Article 11 of the DSU obliges panels to make an objective assessment of 
the facts of the case.  Citing the statement by the Panel in EC – Selected Customs Matters that a panel 
would not be abiding by its duty in Article 11 of th e DSU if it were to ignore evidence that may have 
a bearing on its findings in a dispute, Canada pointed to the Panel's finding in that case that it was not 
                                                     
 
154 United States' letter of 27 February 2008, para. 6 and footnote 2.  WT/DS339/R 
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  necessary for a panel to determine whether particul ar evidence is, as China alleges, "new factual 
evidence", or whether it is "rebuttal evidence".
155  Canada submitted that what is relevant is that 
Article 12.1 of the DSU and paragraph 13 of the Wo rking Procedures give the Panel the authority to 
admit Exhibit CDA-48.  Accordingly, Canada was of  the view that the Panel properly considered the 
evidence, under its authority pursuant to Article 12.1 of the DSU and paragraph 13 of the Working 
Procedures.  Canada explained that Exhib it CDA-48 was provided as a "comment" on China's 
response Panel to question No. 254, and was necessar y in order to highlight the relevance of the 
evidence that China provid ed in its answer to that question.  Canada argued that Exhibit CDA-48 
therefore meets this requirement under paragr aph 13 of the Panel's Working Procedures and 
Article 11 of the DSU does not permit the Panel to ignore the evidence that has a bearing on the facts 
in the present dispute, much less to strike it from the record as China requests.  China had had the 
opportunity to object to this evidence on procedural grounds but failed to do so. 
6.16 Canada further argued that given that Exhi bit CDA-48 is China's own customs tariff and 
reflects the fact that China classifies CKD and SKD kits under a separate heading from assembled 
vehicles, which China has admitted for the first tim e in its comments on the Interim Reports, China 
has not explained why it did not admit to this fact earlier.156  Canada contended that the failure of 
China to produce that evidence provi des additional reason for the Panel to consider Exhibit CDA-48. 
6.17 Finally, Canada submitted that even if it we re appropriate to exclude Exhibit CDA-48 as 
evidence, based on Exhibits CHI-47 and CHI-48 a nd the admission of China, the Panel still had 
sufficient evidence to find that China created tariff lines within the meaning of paragraph 93 of 
China's Working Party Report. 
6.18 The United States argued that China's comments on Exhibit CDA-48 omitted that it is 
China's own evidence through Exhibits CHI-47 and CHI-48 that shows China classified CKD 
shipments under a separate tariff line for CKD kits and that Canada's Exhibit CDA-48 simply 
confirmed the existence of such tariff lines in China's Customs Tariff for 2005.  The United States 
submitted that contrary to China's assertions, the evidence contained in Exhibits CHI-47 and CHI-48 
and confirmed by Canada's Exhibit CDA-48, is rele vant to an assessment of China's compliance with 
its obligations under paragraph 93 of  China's Working Party Report. 
6.19 First, as regards China's first point that Cana da was required to present evidence that China 
had created separate tariff lines for CKD and SKD kits no later than during the first substantive 
meeting, the Panel notes that paragraph 13 of the Panel's Wo rking Procedures allows the submission 
of factual evidence after the first substantive meeting if this is necessary for the purpose of, inter alia , 
comments to responses to panel questions provided by others.  As an exception to this procedure, the 
submission of factual evidence in other instances th an those listed in paragraph 13 will be granted 
upon a showing of good cause.  As stated by Chin a, Canada submitted Exhibit CDA-48 for the first 
time as part of its comments on China's response to  Panel question No. 254.  Because the submission 
of factual evidence in a party's comments on other parties' responses to a Panel question does not constitute an exception according to paragraph 13 of the Working Procedures, we do not consider that 
                                                     
 
155 Canada's letter of 5 March 2008, para. 4, citing EC – Selected Customs Matters , paras. 7.69-7.70. 
156 Canada's letter of 5 March 2008, para. 8, footnote 8, citing to China's comments on the Interim 
Reports, para. 14.  The Panel notes China's statement in its letter of 27 February 2008: "In its comments on 
China's response to [Panel] question No. 254, and in submitting CDA-48, Canada did not explain why it was 
previously unable to identify and submit as evidence the Customs Import and Export Tariff of the People's 
Republic of China  - a fairly obvious source of evidence, if one has the burden of establishing the creation of 
separate tariff lines for CKD and SKD kits" (page 10, paragraph 18). WT/DS339/R 
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  Canada was required to explain why it was previously unable to identify and submit Exhibit CDA-48 
and to show good cause in introducing this evidence as China argues. 
6.20 Regarding China's second point that Canada's submission of Exhibit CDA-48 was not "factual 
evidence necessary for purposes of comments on res ponses provided by others", as required under 
paragraph 13 of the Panel's Working Procedures, we  do note that the factual issue of whether China 
had created separate tariff lines was central to Ca nada's claim and thus an earlier submission of 
evidence might have been preferable to a submission at a later stage of the panel proceeding.  However, there are no provisions in the DSU or the Panel's Working Procedures that unconditionally 
preclude the Panel from accepting evidence submitted by a party later than during the first substantive 
meeting.  Article 11 of the DSU requires the Pane l to make an objective assessment of the matter 
before it, including an objective assessment of th e facts of the case.  In this context, in Argentina – 
Textiles and Apparel, Argentina argued that the Panel had acted inconsistently with Article 11 of the 
DSU by allowing certain evidence offered by the United States two days before the second 
substantive meeting of the Panel with the parties.  However, the Appellate Body stated that "Article 
11 of the DSU does not establish time limits for the submission of evidence to a panel."
157  Further, 
the Appellate Body noted that "t he Working Procedures in their pr esent form do not constrain panels 
with hard and fast rules on deadlines for submitting evidence."158  In addition, the Appellate Body 
stressed the Panel's wide discretion concerning the acceptance of new evidence by stating that "while 
another panel could well have exercised its discre tion differently, we do not believe that the Panel 
here committed an abuse of discretion amounting to a failure to render an objective assessment of the 
matter as mandated by Article 11 of the DSU."159  In light of this, notwithstanding a general 
preference to receive evidence at an early stage of  the panel proceeding, we confirm our view that 
accepting Canada's evidence that was provided as part  of its comments on China's response to Panel 
question No. 254 was in accordance with paragr aph 13 of the Working Procedures and doing 
otherwise would be in violation of our duty under Article 11 of the DSU. 
6.21 Furthermore, contrary to China's argument , the evidence submitted by Canada through 
Exhibit CDA-48 should be considered "necessary for the purpose of comments on answers" according to paragraph 13 of the Working Procedures.  In th is context, we recall the Panel's reasoning in US – 
Offset Act (Byrd Amendment) , where Canada asked the Panel to accept as evidence a letter which it 
submitted after the first substantive meeting.  The Panel accepted the evidence noting that the 
information contained in the letter was pertinent to the proceedings since it related to an issue which it 
had been asked to consider.
160  In this dispute, China had offered the documentation of two specific 
CKD import entries (Exhibits CHI-47 and CHI-48) in its response to Panel qu estion No. 254 in order 
to illustrate its classification practice respectively pr ior and subsequent to its  accession to the WTO.  
Specifically, Canada responded to China's argument s on classification practice of CKD and SKD kits 
subsequent to China's accession, which were s upported by Exhibit CHI-48, by submitting its own 
piece of evidence (Exhibit CDA-48).  Therefore, it is our view that Canada's submission of additional 
factual evidence should be considered necessary fo r the purpose of its comment on China's response 
as it relates and is pertinent to the arguments made by China.  As we noted above, although an earlier 
submission of the evidence would have been prefe rred, we understand that under Article 3.10 of the 
DSU all Members are expected to engage in the pane l procedures in good faith in an effort to resolve 
the dispute.  Accordingly, in the absence of any c ontrary proof, the Panel exercised its discretion, as 
noted by the Appellate Body in Argentina – Textiles and Apparel161, in accepting evidence provided 
                                                      
157 Appellate Body Report on Argentina – Textiles and Apparel , para. 79. 
158 Appellate Body Report on Argentina – Textiles and Apparel , para. 80. 
159 Appellate Body Report on Argentina – Textiles and Apparel , para. 81. 
160 Panel Report on US – Offset Act (Byrd Amendment) , para. 7.2. 
161 See paragraph 6.20 and footnote 159.  WT/DS339/R 
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  by Canada on the assumption that Canada acted in good faith without the intention to deliberately 
withhold the evidence until the later stage of the proceeding. 
6.22 Finally, the Panel does not find any basis in the DSU or the Panel's Working Procedures for 
China's argument that the Panel should, sua sponte , have accorded a period of time for other parties to 
comment on Exhibit CDA-48 filed by Canada.  Rather , it is at the discretion of the Panel whether it 
will allow, upon request, parties time to respond to  another party's submission.  For example, in 
Argentina – Textiles and Apparel , the Panel accepted certain eviden ce offered by the United States 
two days before the second substan tive meeting and at the same time allowed Argentina two weeks to 
respond to it after Argentina had drawn the Panel's at tention to the difficulties in tracing and verifying 
the submitted documents.  The Panel noted that "[t] he Panel could well have granted Argentina more 
than two weeks to respond to th e additional evidence. However, th ere is no indication in the panel 
record that Argentina explicitly requested from the Panel, at that time or any later time, a longer 
period within which to respond to the additiona l documentary evidence of the United States."
162  In 
the present dispute, it is China, not the Panel, that should have initiated an opportunity to submit 
comments on Exhibit CDA-48.  As noted in footnote 1094 of the Interim Reports, China could have invoked paragraph 13 of the Working Procedures to object to the submission of Exhibit CDA-48 
and/or submitted its comments on the content of the e xhibit.  China, however, chose not to request the 
Panel for time to respond to the evidence subm itted by Canada after receiving it on 9 August 2007. 
6.23 For the foregoing reasons, the Panel concludes that the Panel's acceptance of Exhibit CDA-48 
was proper in light of the Panel's obligation u nder Article 11 of the DSU and in accordance with 
paragraph 13 of the Panel's Working Procedures. 
(b) Panel's analysis of Exhibit CDA-48 in para graphs 7.749-7.753 of the Interim Reports 
6.24 China  requested that the Panel revise its analys is so as to remove any reliance on Exhibit 
CDA-48, or the existence of ten-digit codes for CKD and SKD kits in China's system of customs 
administration.  China submitted two reasons for it s request:  (i) the exhibit relied on by the Panel 
(Exhibit CDA-48) is irrelevant to the question of  whether China has created  separate tariff lines for 
CKD and SKD kits because tariff headings at the ten-digit level (e.g. 8703.2334.90) as indicated in 
Exhibit CDA-48 are not "tariff lines".  According to China, "ten-digit customs codes" are used solely 
for statistical or other customs administration purposes and have no bearing upon the tariff rate to 
which the goods are subject; and (ii) the practice of the complainants in this regard supports China's 
position.  According to China, it is the unanimous prac tice of all parties to this dispute that ten-digit 
codes of this type are not "tariff lines".  In this connection, China referred to the complainants' tariff 
schedules (Canada Customs Tariff, Harmonized Tariff Schedule of the United States, and the Integrated Tariff of the European Communities). 
6.25 With respect to the argument that tariff headi ngs at the ten-digit level are not "tariff lines", 
China also referred to Canada's statement in its response to Panel question No. 61(a) that it did not 
understand China, following its accession, to have creat ed a separate tariff line at the seven- or eight-
digit level for CKD or SKD kits.  China argued that  Canada thus understood th at the relevant question 
was whether China had created separate tariff lines fo r CKD and SKD kits at the seven- or eight-digit 
level and that otherwise it is not clear why Canada  would have referred to separate tariff lines at the 
seven- or eight-digit level.  In China's view, the onl y purpose of this specific clarification in Canada's 
response to the Panel question would be to distingui sh separate tariff lines at the seven- or eight-digit 
level from the existence of statistical annota tions at the ninth- or tenth-digit levels. 
                                                     
 
162 Appellate Body Report on Argentina – Textiles and Apparel , para. 80. WT/DS339/R 
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  6.26 Canada argued that China's claim above was irrelevant to a determination of the proper 
interpretation of paragraph 93 of China's Work ing Party Report.  First, referring to the HS 
Classification Handbook
163, Canada emphasized that there is no di stinction in the HS between tariff 
classification at the eight- or ten-digit level.  Fu rthermore, Canada contended that China's customs 
tariff on its face makes no distinction between items th at are "statistical" and those that are used to 
determine a tariff rate:  all items listed up to the te n-digit level are described together in the column 
"Tariff no.", and have a separate import duty rate listed in Exhibit CDA-48.  Therefore, Canada 
submitted that the Panel was correct to conclude that China has created tariff lines for CKD and SKD 
kits within the meaning of paragraph 93 of China's Working Party Report.   
6.27 Next, regarding China's reference to the co mplainants' practice, Canada submitted that 
China's evidence was not of assist ance in interpreting paragraph 93 of the Working Party Report.  
Canada argued that with respect to the general pr oposition that classification at the ten-digit level was 
exclusively for statistical purposes, the practice of three Members did not meet the test for 
establishing common practice evidencing agreement of the WTO Members.  This is particularly so 
when some Members, such as Indonesia as set fo rth in Canada's written submissions, do make 
distinctions on tariff treatment based on classification differences at the ten-digit level.  Furthermore, 
Canada was of the view that the complainants di d not classify CKD or SKD kits for tariff purposes, 
and their practice was therefore not relevant. 
6.28 The United States submitted that China had not presented any basis for the Panel either to 
delete or to modify the discussion of paragraph 93 contained in the Interim Reports.  The United 
States argued that it did not matter whether China cr eated CKD or SKD lines at eight-digit levels or 
ten-digit levels because regardless of the number of digits China used for the CKD or SKD lines, 
those lines served to establish where CKD and SKD k its fell within China's tariff schedule.  Those 
lines served to clarify that CKD and SKD kits would be classified in the same eight-digit subheadings 
as complete vehicles, and would thus receive the same tariff treatment as complete vehicles.  The 
United States further submitted that to the extent that China was implying that ten-digit tariff lines 
must be statistical, this proposition was not correct .  To the contrary, there is nothing in the HS 
Convention that mandates particular distincti ons between eight-digit and ten-digit lines. 
6.29 The European Communities expressed its support for the comments of Canada and the 
United States in this regard. 
6.30 The Panel notes that China's request regarding the Panel's finding in paragraph 7.753 of the 
Interim Reports is based on two points: (i) "ten-digit  customs codes" are solely  used for statistical or 
other customs administration purposes and have no b earing upon the tariff rate to which the goods are 
subject; and (ii) it is the unanimous practice of all pa rties to this dispute that ten-digit codes of this 
type are not "tariff lines".  We address these two points in turn below. 
(i) Ten-digit customs code – new argument by China 
6.31 As noted above, China argued that ten-digit cu stoms codes are solely used for statistical 
purposes and have no bearing upon the tariff rate whic h the goods are subject to.  First, China has not 
raised this line of argument during the course of the panel proceeding.  In respect of the arguments of 
the United States and Canada concerning China' s commitment under paragraph 93 of the Working 
Party Report, China's position has been that the condition underlying the commitment made in 
paragraph 93 of the Working Party Report has not  occurred because China has not created separate 
                                                      
163 The HS Classification Handbook  was cited in footnote 1092 of the Interim Reports.  WT/DS339/R 
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  tariff lines for CKD and SKD kits, whether through the challenged measures or otherwise.
164  
Furthermore, in its response to Panel question No. 254, China provided an import declaration by 
Shanghai GM in which a CKD kit import was classi fied and assessed at the tariff rate for motor 
vehicles under a ten-digit tariff line (8703.2334.90), which belongs to the eight-digit heading for 
motor vehicles.165  In relying on the ten-digit tariff line indicated in this import declaration form as the 
evidence showing China's classification of CKD kits  as motor vehicles, China neither distinguished 
ten-digit tariff lines from eight-digit tariff lines nor ar gued that ten-digit tariff lines cannot be regarded 
as "tariff lines".  In our view, such an argument should have been raised earlier in the proceeding 
when China put forward its position on the creation of tariff lines. 
6.32 In this regard, the Panel in US – 1916 Act (EC) found that parties are obliged not to withhold 
until the interim review stage arguments that they coul d be legitimately expected to have raised at a 
much earlier stage, noting that the limited function of  the interim review is confirmed by the existence 
of an appeal procedure.  However, the Panel in that case considered it justifiable to address the new 
arguments put forward by one of the parties to the dispute in light of Article 15.3 of the DSU and the 
consequent need to address partie s' arguments as well as the possi bility of appeal.  Accordingly, 
although we are of the view that China's arguments relating to the ten-digit customs codes put forward 
in its request for the interim review should and c ould have been presented during the earlier stage of 
the proceeding, we will follow the Panel's approach in US – 1916 Act (EC) and nevertheless examine 
whether our analysis of China's creation of tariff lines for CKD and SKD kits should be modified 
based on the new arguments advanced by China. 
6.33 We now turn to the substantive aspect of Chin a's argument.  First, as Canada points out, 
China confirms in its request for the interim review that "complete sets of assemblies" refers to CKD 
and SKD kits and that it classifies CKD and SKD kits separately at the ten-digit level as a sub-heading of motor vehicles.
166  China submitted that ten-digit tariff codes are only for statistical 
purposes and cannot constitute a tariff line.  The Unite d States and Canada pointed out that there is no 
distinction or nothing that mandates distinctions in the HS between tariff classification at the eight- or 
ten-digit level.  In this connection, the HS Classification Handbook  simply notes that because very 
often the goods or categories of goods referred to in  the national customs tariff do not coincide with 
the HS categories, further subdivisions of the HS nomenclature have to be introduced at the national 
level.  It does not indicate that only subdivisions at the eight-digit level will constitute tariff lines.  
Furthermore, China's tariff schedule itself does not provide any distinction between items that are 
statistical and those that are used to determine a tariff rate.  We also note China's reference to 
Canada's statement in response to a Panel questi on that Canada did not understand China, following 
its accession, to have created a separate tariff lin e at the seven- or eight-digit level for CKD or SKD 
kits.  In China's view, the only purpose of this speci fic clarification in Canada's response to the Panel 
question would be to distinguish separate tariff lines at the seven- or eight-digit level from the 
existence of statistical annotations at the ninth- or  tenth-digit levels.  Howe ver, we do not consider 
that Canada's reference to tariff lines at the seven- or eight-digit leve l necessarily implies that Canada 
was distinguishing tariff lines at different levels as  China argues.  In particular, in its response, 
Canada was comparing China's customs tariff fo r 1995 in which China had maintained a separate 
tariff line at the eight-digit level for CKD and S KD kits to China's customs tariffs since 1996 from 
which references to CKD and SKD kits are removed.   
                                                      
164 China's first written submission, para. 192; second written submission, paras. 141-142. 
165 This argument by China is reflected in paragraph 7.714 of the Interim Reports. 
166 Canada's letter of 5 March 2008, referring to China's comments on the Interim Reports, para. 14 in 
which China states that "[China] has placed statistical annotations for CKD/SKD kits under its tariff provisions 
for motor vehicles." WT/DS339/R 
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  6.34 As the United States pointed out, regardless of th e number of digits China used for the CKD 
or SKD kit lines, those lines serve to establish wh ere such CKD and SKD kits fall within China's 
tariff schedule.  In other words, those ten-digit lines (e.g. 8703.2334.90) clarify that CKD and SKD 
kits will be classified under the sa me eight-digit subheadings (e.g. 8703.2334) and subject to the same 
tariff rate for complete vehicles.  Finally, the te n-digit tariff lines in China's tariff schedule (Exhibit 
CDA-48) do provide the same tariff rates as those for the eight-digit tariff lines under which the ten-
digit tariff lines fall.  Therefore, the Panel decides to maintain its analysis in paragraphs 7.749-7.753 
of the Interim Reports where the Panel discusse s the evidence contained in Exhibit CDA-48. 
(ii) Complainants' practice – new evidence by China 
6.35 To support its position concerning the ten-digit ta riff codes, China also relies on the practice 
of the complainants in the present dispute.  Alt hough China did not attach any physical documentary 
evidence to its request for the interim review, Chin a refers to each complainant's tariff schedule by 
citing in footnotes relevant website  addresses and direct website links  to relevant documents in pdf 
format for the information used in its comments.  Specifically, China refers to the following evidence, 
which was not produced prior to  its interim review request: 
– Canada's Customs Tariff sets forth that th e term "tariff item" means "a description 
of goods in the List of Tariff Provisions and the rates of customs duty and the accompanying eight-digit number in that List", and Canada Border Services Agency 
provides that the seventh and eighth digits , for Canadian trade purposes, determine 
the customs duty rate, while the ninth and te nth digits additional detail for statistical 
purposes; 
– The Harmonized Tariff Schedule of the United States (the "HTS") provides that 
"the legal provisions" of the HTS include  "headings and subheadings through the 
eight-digit level".  The US International Trade Commission also explains on its web 
site that the structure of the HTS is based on the HS; the 4- and 6-digit HS product 
categories are subdivided into 8-digit unique  U.S. rate lines and 10-digit non-legal 
statistical reporting categories; 
– The European Communities' Combined Nome nclature (the "CN") specifies rates of 
duty under the Common Customs Tariff at th e level of eight-digit "CN subheadings".  
The CN forms a part of the Integrated Ta riff of the European Communities ("Taric"), 
which consists of the eight-digit CN subheadings plus additional Community 
Subdivisions, known as Taric subheadings (i.e. the ninth and tenth digits of the Taric 
code), that are used to implement other Community policies, including the collection 
of statistical information.  The Taric subh eadings never alter the applicable rate of 
duty, which is set forth exclusively at th e level of the eight-digit CN subheadings. 
6.36 In this regard, previous panels and the Appe llate Body refused to consider new evidence 
provided at the interim review stage because in th eir view, the interim review stage is not an 
appropriate time to introduce new evidence.  The Appellate Body in EC – Sardines  states that 
Article 15 of the DSU, which governs the interim re view, permits parties, during that stage of the 
proceedings, to submit comments on the draft report i ssued by the panel and to make requests for the 
panel to review precise aspects of the interim re port.  In the Appellate Body's view this cannot 
properly include an assessment of  new and unanswered evidence.
167  Based on the same reasoning, the 
Appellate Body in EC – Selected Customs Matters  considered that the Panel in that dispute acted 
                                                      
167 Appellate Body Report on EC – Sardines, para. 301.  WT/DS339/R 
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  properly in refusing to take into account the ne w evidence during the interim review, and did not 
thereby act inconsistently with Article 11 of the DSU.
168 
6.37 We are of the view that the approach adopted by panels and the Appella te Body above and the 
principle under Article 15 of the DSU lead us to re ject the evidence newly in troduced by China at the 
interim review stage of the present dispute.  Howeve r, even if we were to assess such new evidence, 
in particular given the absence of any procedural objection from the complainants, we do not consider 
that the practice of the complainants as advanced  by China constitutes subsequent practice based on 
which our analysis regarding China's creation of new tariff line at the ten-digit level must be revised.  
This is because the practice of these three complain ants does not establish a common, consistent, and 
discernible pattern of acts or pronouncements that imply agreement among WTO Members. Furthermore, an example of the practice of Indo nesia, which does make distinctions on tariff 
treatment based on classification differences at the te n-digit level, does not support China's argument 
based on the practice of the three complainants in this dispute. 
(c) Clarification of the term "tariff line" in the context of paragraph 93 of China's Working Party 
Report 
6.38 China requested that the Panel clarify its understandi ng of the term "tariff lines" in the third 
sentence of paragraph 93 of the Working Party Report as reflected in paragraphs  7.753 to 7.758 of the 
Interim Reports.  In addition, China requested th at the Panel clarify footnote 1100 in the Interim 
Reports. 
6.39 The Panel notes that no legal definition of "tariff lines" exists.  However, the conventional 
understanding of this term appears to  be that a tariff line is a horizont al line in a tariff schedule that 
provides a specific heading number, regardless of the number of digits (i.e. be it at the eight-digit or 
ten-digit level) and a specific tariff rate for the product described under that heading.  Furthermore, 
we do not have any basis to conclude that only tariff headings up to the eight-digit level can be 
considered as tariff lines.  The Panel revised para graph 7.750 to reflect its understanding of the term 
"tariff line" in the context of paragraph 93 of China's Working Party Report and also modified footnote 1100 for further clarification. 
B. O
THER REQUESTS FOR REVIEW  
6.40 The European Communities  requested modifications to paragraphs 7.30 (first and fifth 
lines); 7.40 to 7.58; 7.294 (last line); 7.374 (first sentence); 7.646 (third sentence) and 7.761 and 
footnotes 175 (third sentence); 622 and 981 of th e Interim Reports and made some clerical 
observations.  China did not object to any of these requests and observations.  With the exception of 
the European Communities' reque sts regarding paragraph 7.34 (s econd line) and footnotes 622 and 
981, the Panel has accordingly modified the re ports to the extent it deemed necessary. 
6.41 The United States  also requested modifications to para graphs 7.277; 7.668 and 8.7 of the 
Interim Reports and made some clerical observations .  China did not object to any of these requests 
and observations.  The Panel has accordingly modified the reports to the extent it deemed necessary. 
6.42 Canada  also requested modifications to paragraphs 7.85 (second last sentence); 7.357 
(starting with the second sentence); 7.543 (first line) ; 7.602 (second last line); 7.654; 7.655; 7.657; 
7.721 (eighth line and second sentence); and 8.10 and footnote 686 of the Interim Reports and made 
                                                      
168 Appellate Body Report on EC – Selected Customs Matters , para. 259. WT/DS339/R 
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  some clerical observations.  China did not object to any of these requests and observations.  The Panel 
has accordingly modified the reports to the extent it deemed necessary. 
6.43 China  also requested paragraph 4.336 and footnote 606 of the interim reports to be modified 
so as to preserve some confidential information cited therein.  The complainants did not object to this 
request.  The Panel has accordingly modified the reports. 
6.44 As noted above, the Panel has incorporated all other comments by the parties on 
typographical errors in the Interim Reports. 
VII. FINDINGS 
A. P
RELIMINARY MATTERS  
1. Measures at issue 
(a) Identification of the measures at issue 
7.1 The European Communities, the United States a nd Canada have identified Policy Order 8, 
Decree 125 and Announcement 4 as the m easures at issue in this dispute.169  Before examining the 
specific aspects of the measures as contested by th e complainants, the Panel will first describe these 
three measures.    
7.2 In this connection, we recall that our mandate is, inter alia , to make an objective assessment 
of the meaning of the relevant provisions of the m easures that fall within our terms of reference.  
Although we are mindful that the measures are part of the domestic law of China, we will be required to determine the meaning of particular provisions of  the measures if interpretations of such provisions 
are contested by the parties.  Our examinati on in such cases will be for the sole purpose of 
determining the conformity of the measures with  relevant obligations under the WTO covered 
agreements in accordance with the Appellate Body's approach in India – Patents (US) .
170    
(i) Policy Order 8171 
7.3 Policy Order 8, entitled "Policy on Developmen t of the Automotive Industry", went into 
effect on 21 May 2004, at which time the implemen tation of China's "Policy on Automotive Industry 
of 1994"172 ceased.  The NDRC173, at its executive meeting, deliber ated and adopted Policy Order 8, 
which was ultimately reported to and approved by the State Council. 
                                                      
169 As indicated in the Descriptive Part of these Re ports, when discussing China's measures, the Panel 
will refer to the terms used in the common translations of  China's measures, attached as Annex E to the Reports. 
170 Appellate Body Report on India – Patents (US) , paras. 65-68.  See also the Panel Report on EC – 
Trademarks and Geographical Indications (US) , para. 7.55. 
171 China submits that legal instruments similar to Policy Order 8 also exist with respect to other 
industry sectors such as "the Steel Industry Development Policy (8 July 2005)" and "the Cement Industry 
Development Policy (17 October 2006)" (China's responses to Panel question Nos. 11 and 178). 
172 The preamble to China's former Automotive Policy (1994 Policy Order) states: 
 
"The policy is aiming at building China's automotive industry (including motorcycle sector) 
into a pillar industry of the national economy by changing the current scattered investment, small-scale production and backward products in the industry to raise the development 
capacity of the producer as well as upgrade their product quality and technology and  WT/DS339/R 
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  7.4 Policy Order 8 consists of the preamble, thirteen  chapters and two annexes.  The preamble to 
Policy Order 8 sets out, inter alia , China's general objective of promoting its automotive industry to 
make it into a pillar industry of China's national economy by 2010.
174 
7.5 The thirteen chapters comprising Policy Or der 8 are Policy Objectives (I); Development 
Planning (II); Technical Policies (III); Structural Adjustments (IV); Access Management (V); Trademarks and Brands (VI); Product Developm ent (VII); Parts and Related Industries (VIII); 
Distribution Networks (IX); Investment Manage ment (X); Import Management (XI); Vehicle 
Consumption (XII); and Others (XIII).  In add ition, Annex 1 to Policy Order 8 provides "the 
definitions of terminology used in the Policy", an d Annex 2 "contents to be filed for an automotive 
investment project." 
7.6 The Panel notes that various issues ranging from the promotion of China's automotive and 
auto parts industry to product de velopment to trademarks and to import management are covered in 
these thirteen chapters of Policy Order 8.  We w ill refer back to specifi c provisions contained in 
Policy Order 8, as necessary, in the context of our legal analysis.  At this stage, we find it sufficient to 
mention Chapter XI of Policy Order 8 as it provides an explicit link to the implementation measures 
to be introduced by the CGA – namely, Decree 125 and Announcement 4.   
7.7 In this regard, we note China 's argument that Chapter XI is the one chapter of Policy Order 8 
that is relevant to the present dispute – the chap ter concerning the administration and enforcement of 
China's tariff provisions for motor vehicles and moto r vehicle parts – and that only Chapter XI gave 
rise to the customs enforcement procedures embodied in Decree 125 and Announcement 4.
175  China 
also submits that the language in the preamble to Po licy Order 8 is not meaningful or relevant to an 
evaluation of Chapter XI.   
7.8 The complainants  submit that Decree 125 and Announcement 4 implement Policy Order 8 in 
its entirety, not just Chapter XI of Policy Order 8.176 
                                                                                                                                                                     
equipment level in a bit of achieving a reasonab le streamline industrial structure and economic 
scale of production in the industry..." 
 
Further, Article 3 identifies "key parts and components of sedans" as one of the six "key development 
products". Under Article 43, the assembly of motor vehicles through the importation of completely knock-down (CKD) and semi-knock-down (SKD) kits was prohibited.   Article 44 sets out China's policy to provide 
preferential duties on imported automotive parts depending on the rates of localization of the different 
automobile products (Exhibit JE-24).   
Overall, the terms of the 1994 Policy Order, in partic ular those concerning the auto parts industry, have 
some similarities to Policy Order 8 in respect of China's policy objectives. 
173 According to China, the role of the NDRC relati ng to the measures at issue includes: (i) being a 
member of the Leading Panel (Article 6.2 of Decree 125); (ii) marking "Cha racterized as Complete Vehicles" in 
the Public Bulletin (Article 7.4 of Decree 125); and (iii) suspending the relevant vehicle model listing in the 
Public Bulletin in the event that an auto manufacturer violates relevant rules (Article 37 of Decree 125) (China's 
response to Panel question No. 21). 
174 See paragraph 7.306 for the full text of the preamble of Policy Order 8. 
175 China's responses to Panel question Nos. 49 and 178. 
176 European Communities' comments on China's respon se to Panel question No. 178, referring to its 
second written submission, para. 24.   Specifically con cerning Chapter XI, the European Communities argues 
that the measures and in particular Chapter XI of Policy Order 8, which even China admits as motivating 
Decree 125 and Announcement 4, explicitly refer to the ob jective of nurturing the domestic automotive industry 
(European Communities' second written submission, para. 122). WT/DS339/R 
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  7.9 Given that the measures as a whole are as such  subject to the dispute and without specific 
proof that other provisions in Policy Order 8 ar e not in any manner related to Decree 125 and 
Announcement 4, the Panel will not preclude at this stage the possibility of examining other chapters 
and provisions of Policy Order 8 when analysing th e parties' claims and arguments in respect of 
Decree 125 and Announcement 4.  Having said that, for the purpose of understanding the operation of 
the measures, we will focus in th is section on the structure of Chapter XI of Policy Order 8 without 
prejudice to the parties' specific arguments on the objectives and functions of Policy Order 8 as a whole in relation to Decree 125 and Announcement 4. 
7.10 Chapter XI, entitled "Import Management", consis ts of nine provisions (Articles 52-60).  
Article 52 states: 
"The State supports the efforts of vehicle manufacturers to increase their domestic 
production capacity, giving impetus to the technological progress of auto parts manufacturers and to the development of the automotive manufacturing industry." 
7.11 Articles 53 to 59 of Chapter XI address issues relating to the importation of automobiles and 
auto parts as well as the prohibition of the import of used vehicles and used parts.  The final provision 
of Chapter XI, Article 60
177, as China explains, directs the CGA, together with other relevant 
agencies, to draw up the specific management measures for the import of whole vehicles and parts.  China submits that Decree 125 an d Announcement 4 are the specifi c management measures the CGA 
drew up pursuant to Article 60.
178 
7.12 We note that the obligations set out in the provisions of Chapter XI, Policy Order 8, in 
particular Articles 53, 55, 56, and 57, are implemented in specific terms in Decree 125 and Announcement 4.  For example, Article 53 provides, inter alia , that any vehicle manufacturers using 
"imported auto parts characterized as complete vehicles" to produce vehicles should report this factually to the Ministry of Commerce, the CGA and the NDRC.   Specific procedural requirements 
relating to this obligation to report are set forth in  various provisions in D ecree 125, including Articles 
2, 3, 5, 6, 7, and 10.  For example, motor ve hicle manufacturers/importers who produce vehicles with 
imported auto parts are required to conduct a self-eva luation of whether imported auto parts used in a 
particular vehicle model should be characterized as complete vehicles and apply to the CGA for 
verification of such fact. 
179 
(ii) Decree 125 and Announcement 4 
7.13 Decree 125 , entitled "Administrative Rules on Importation of Automobile Parts Characterized 
as Complete Vehicles", was introduced by the CGA,  the NDRC, the Ministry of Finance, and the 
Ministry of Commerce pursuant to Policy Order 8, in particular Article 60 as noted above.  
Decree 125 went into effect on 1 April 2005. 
                                                      
177 Article 60 provides: 
 
"Specific management measures for the import of whole vehicles and parts shall be drawn up by the Customs jointly with other relevant departments, and implemented upon approval by 
the State Council.  Sample vehicles sent from  abroad for testing and vehicles temporarily 
imported to be shown at exhibitions shall be managed in accordance with customs management regulations for the temporary import and export of goods." 
 
178 China's response to Panel question No. 48. 
179 See paragraphs 7.39-7.69 for more detailed description of the administrative requirements under the 
measures.  WT/DS339/R 
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  7.14 Decree 125 consists of seven chapters (thirty- eight articles) and three annexes and provides 
the specific rules applicable to the supervision and administration of auto parts and assemblies
180 that 
are imported to be incorporated for production/assembly181 of automobiles.182  The seven chapters 
comprising Decree 125 are General Provisions (I); Administration of Registration (II); Administration 
of Customs Clearance (III); Criteria for Whether or No t to be Characterized as Complete Vehicles and 
the Verification (IV); Duty Collection Principles a nd Calculation of Duties (V); Legal Liabilities (VI); 
and Miscellaneous (VII).  Decree 125 also includes th ree annexes:  Assembly (System) List (1); 
Scope of Automobile Parts in Assemblies (Systems) (2); and Purchase List of Automobile Parts of 
Registered Vehicle Models (3). 
7.15 Announcement 4 , entitled "Rules on Verification of Impor ted Automobile Parts Characterized 
as Complete Vehicles", was also  introduced by the CGA in order to implement Decree 125 and 
became effective as of 1 April 2005.  As can be  seen from its title, Announcement 4 lays down the 
specific rules on the verification of "imported auto  parts characterized as complete vehicles".  The 
four chapters comprising Announcement 4 are:  Ge neral Provisions (I); Verification Procedure (II); 
Verification Criteria (III); and Supplementary Pr ovisions (IV).  Announcement 4 also includes 8 
annexes.183   
7.16 A number of the provisions of Announcement 4 overlap with those of Decree 125, in 
particular the provisions under Chapter IV ("Criteri a for Whether or Not to be Characterized as 
Complete Vehicles and the Verification") of Decr ee 125.  Announcement 4 also provides additional 
details concerning certain procedures applicable to automobile and auto parts manufacturers 
importing auto parts with respect to the evaluati on of verification process required with respect to 
certain imported auto parts.184 
7.17 In sum, Policy Order 8 provides a legal basis for the introduction of Decree 125 and 
Announcement 4, which set out specific rules relati ng to the charge imposed on imported auto parts 
and the administrative procedures necessary for the imposition of the charge.  According to China, 
there is no legal hierarchy between these measures, at  least not in the sense that one prevails over the 
others in case of conflict between them.185   
7.18 In this regard, China  states that "the [m]easures do not themselves impose any duty, fee, or 
charge, but merely define the circumstances under which China will classify imported merchandise as 
falling under different tariff provisions."186   
7.19 As explained in more detail below187, however, the Panel considers that the measures do 
impose both the charge188 and the administrative procedures attach ed to the charge.  In fact, China 
                                                      
180 See paragraphs 7.88-7.89 below for the description of the product term "assemblies". 
181 See footnotes 191, 212. 
182 See Article 2(1) of Decree 125. 
183 These 8 annexes to Announcement 4 are:  Names and Illustration of the Vehicle Structure and Body 
Parts (1); Table of HS Codes on the Key Parts and Sub- assemblies of Motor Vehicles (2); Application Form for 
Review of Complete Vehicle Character (3); Detailed List of Parts for Verification and Review of Complete Vehicle Character (4); Review Report for Complete Vehi cle Character (5); Applicati on Form for Verification of 
Complete Vehicle Character (6); Docu ment List for Verifying Complete Ve hicle Character (7); and Report on 
Verification of Complete Vehicle Character (8). 
184 See Part D.3 of the Factual Background Section jointly submitted by the complainants (European 
Communities' first written submission, para. 34).  Also see Article 20 of Announcement 4. 
185 China's response to Panel question No. 48. 
186 China's first written submission, para. 44. 
187 See paragraphs 7.20-7.69. WT/DS339/R 
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  itself explained that Decree 125 sets forth the legal obligation of auto parts manufacturers to pay a 
charge on imports of auto parts characterized as complete vehicles and the procedural requirements 
adopted to administer and collect the charge.
189  Although other domestic laws or regulations in China 
may also prove relevant to how the imposition of the charge is operated, the "legal obligation" to pay 
the charge originates in the measures themselves.190 
(b) Effects of the measures at issue:  charge and administrative procedures 
7.20 Article 2 of Chapter I ("General Provisions") of Decree 125 provides: 
"These Rules are applicable to the superv ision and administration of the importation 
of automobile parts characterized as co mplete vehicles, used to produce/assemble191 
vehicles by automobile manufacturers approved by or registered with relevant state 
authorities. …" 
7.21 The complainants claim that the measures have an impact on imported auto parts in two ways:  
first, the measures impose on imported auto parts a charge  equivalent to the tariff rate applicable to 
motor vehicles if such auto parts are characterized  as complete motor vehicles according to the criteria 
set out in the measures; and, second, th e measures impose allegedly burdensome administrative 
procedures192 on automobile manufacturers importing auto pa rts to both determine the applicability of 
the above charge and govern the imposition of  the charge on imported auto parts.   
7.22 China does not dispute the two above-mentioned e ffects of the measures – namely, the charge 
and the administrative procedures, although it does dis pute the complainants' cl aim that the measures 
                                                                                                                                                                     
188 We note, for example, that th e second sentence of Article 28 of Decree 125, as cited below in 
paragraph 7.28, contains mandatory la nguage directing Customs to impose the charge ("... the customs ... shall 
base both the tariff and the import VAT on rates applicable to ...").  See also Article 13(1) of Decree 125 ("... an 
automobile manufacturer ... shall ... pay duties ...");  Ar ticle 28(1) ("... Customs shall ... proceed with ... duty 
collection.");  Article 31(1) of Decr ee 125 ("An automobile manufacturer shall declare duty payment ...");  and 
Article 34 ( "... declaration for duty payment ..."). 
While the term "tariff (duty)" is used in China's m easures, the Panel will use the term "charge", instead 
of "tariff", as the nature of the charge is one of the lega l issues raised by the parties, which will be discussed in 
the subsequent sections.  Thus, the Panel's reference to the term "charge" is without prejudice to the parties' 
arguments as to whether the charge falls within the meaning of Article II or III of the GATT 1994, which is 
considered below in Section VII.B.1, and should be understood to mean the "tariff", as used in the measures, that is imposed on "imported auto parts characterized  as complete vehicles" under China's measures, unless 
specified otherwise. 
189 China's responses to Pa nel question Nos. 48-50. 
190 China has confirmed in many instances throughout th is dispute that the charge is imposed "pursuant 
to Decree 125"  (China's second written submission, para. 110).  Also see, inter alia , China's first written 
submission, para. 47 ("... duties collected pursuant to Decr ee 125 are classified as ordi nary customs duties ...");  
first written submission, para. 48 ("... any duties that Ch ina collects pursuant to this measure are ordinary 
customs duties ...");  response to Panel question No. 79 ("... the challenged measures result in the imposition of 
ordinary customs duties ...");  seco nd written submission, para. 118 ("... customs duties that the CGA collects 
pursuant to Decree 125 ..."). 
191 The complainants note that the Chinese original text contains  the two words "shengchan" and 
"zuzhuang", which are properly translated into "to produce" for "shengchan", and "to assemble" for "zuzhuang".  China considers that the two words ar e used in an interchangeable sense (footnote 1 of the common translation 
of Decree 125).  The Panel's use of the terms "to assemble" and "to produce" in these reports is without 
prejudice to the parties' views on these two terms.  Also see footnote 212 below. 
192 See paragraphs 7.39-7.69 below for the description of the administrative procedures under the 
measures.  WT/DS339/R 
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  are adopted to favour domestic auto parts over importe d auto parts.  China submits that the measures 
are introduced to strictly enforce correct tariff duti es on imported auto parts in order to prevent tariff 
evasion.
193 
7.23 To the extent that the compla inants' claims concern the speci fic obligations arising from the 
charge and the administrative procedures relating to such a charge, the Panel considers it important to 
have at the outset a good understanding of how the measures operate in terms of these two effects of 
the measures.  Having said that, our examination in the following section of how the measures factually operate is without prejudice to the par ties' legal claims and arguments concerning the 
consistency of the measures with China's obliga tions under the WTO covere d agreements, which will 
be analysed in the subsequent sections of these reports.
194 
(i) Charge under the measures 
7.24 In essence, China imposes under the measures a charge equivalent to the amount of the tariff 
rate applicable to complete vehicles (i.e. 25 per cent on average195) on auto parts that are imported by 
automobile manufacturers and used in the produc tion/assembly of complete vehicles, if those 
imported auto parts are characterized as complete vehicles according to the criteria set out in the 
measures.196  If such imported auto parts used in the production/assembly of motor vehicles are "not 
characterized as complete vehicles", the tariff rate  applicable to auto parts (i.e. 10 per cent on 
average197) will be levied pursuant to China's Customs Law and China's Schedule. 
Conditions under which the obliga tion to pay the charge arises  
7.25 As noted above, the obligation to pay the charge under the measures depends on whether 
imported auto parts are determined to be "auto parts characterized as complete vehicles" according to the criteria set out in the measures.  The provisions  of Decree 125 that address procedural aspects of 
the charge are in relevant part:   
7.26 Article 5 of Chapter I ("General Provisions") provides: 
"The reference to 'automobile parts characterized as complete vehicles' in these Rules 
shall mean that the imported automobile pa rts should be characterized as complete 
vehicles at the stage when complete vehicles are assembled .  The reference to 
                                                     
 
193 China's first written submission, para. 24. 
194 For example, our reference to the term " imported  auto parts" in describing how the measures operate 
is based on the common translations of China's measures as provided by the parties and has no bearing on the 
question of when goods are considered "imported" within  the meaning of the WTO covered agreements.  It is 
our understanding for the purpose of this dispute that " imported auto parts" refers to " foreign  auto parts", as 
opposed to domestic auto parts, unless specified otherwise.  
195 See China's Schedule CLII (Exhibit JE-2) for the exact tariff rates applicable to products falling 
under tariff headings 87.02-87.04.  Although the exact tariff rates under these tariff headings, in particular at the 
8 digit level, slightly vary, the parties agree that 25 per ce nt is the average tariff rate applicable to motor vehicles 
at issue in this case.   
196 See, inter alia , Articles 2, 5 and 28 of Decree 125. 
197 China's first written submission, para. 15; Part  D.2 of the factual background section jointly 
submitted by the complainants (European Communities' first written submission, footnote 43 to paragraph 31; United States' first written submission, footnote 43 to paragraph 32; Canada's first written submission, 
footnote 42 to paragraph 30). WT/DS339/R 
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  'automobile parts characterized as assemblies (systems)'
198 shall mean that the 
imported automobile parts should be char acterized as assemblies (systems) at the 
stage when the assemblies (systems ) are assembled." (emphasis added) 
7.27 Article 7 of Chapter II ("Administration of Registration") provides: 
"Automobile manufacturers shall conduct a self-evaluation of whether imported 
automobile parts used in a particular veh icle model should be characterized as 
complete vehicles  in accordance with these Rules, if  the automobile manufacturers 
produce vehicles with imported automobile pa rts for domestic sales.  If, through the 
self-evaluation, an automobile manufacturer  determines that the imported automobile 
parts should be characterized as complete  vehicles, the automobile manufacturer shall 
register the relevant vehicle models with the CGA prior to the importation of such 
automobile parts .  Each vehicle model of the same automobile manufacturer shall be 
registered separately."  (emphasis added) 
7.28 Article 28 of Chapter V ("Duty Collection Principles and Calculation of Duties") provides: 
"After the imported automobile parts have been assembled into complete vehicles, the 
automobile manufacturer shall make a decl aration of duty payable to Customs and 
Customs shall, ... , proceed with classification and duty collection. 
If the Verification Center , after verifications, concludes that the imported automobile 
parts should be characterized as complete vehicles , the customs shall classify them as 
complete vehicles , and shall base both the tariff  and the import VAT on rates 
applicable to complete vehicles .  If the imported automobile parts should not be 
characterized as complete vehicles, the cust oms shall classify them as parts, and shall 
base the tariff and the import VAT on rates applicable to parts." (emphasis added) 
7.29 As shown in the above provisions, to determ ine whether imported auto parts should be 
characterized as complete vehicles, automobile manufacturers are required first to conduct a self-
evaluation in respect of a specific vehicle model for which they plan to use imported auto parts and to 
register such a vehicle model with the NDRC.  Once  the first batch of automobiles for a given vehicle 
model is assembled in China, imported auto parts used for the assembly of that vehicle model are 
classified as complete vehicles and assessed at the tari ff rate applicable to complete vehicles "if the 
Verification Center, after verifications, concludes that the imported automobile parts should be 
characterized as complete vehicles," in accordance with Article 28 of Decree 125.  Various 
administrative procedures in this connection are expl ained in further detail in Section VII.A.1(b)(ii) 
below. 
7.30 Substantively, whether imported auto parts s hould be characterized as complete vehicles is 
determined based on the criteria provided in Article s 21 and 22 of Decree 125:  if imported auto parts 
used in the assembly of a particular vehicle model satisfy any of the criteria indicated in Article 21 of 
Decree 125, which are in turn affected by the app lication of the criteria set out in Article 22 of 
Decree 125, they are characteri zed as complete vehicles. 
                                                      
198 Article 4 of Decree 125 lists eight types of assemblies: the vehicle body (including cabin) assembly, 
the engine assembly, the transmission assembly, the drivin g axle assembly, the driven axle assembly, the frame 
assembly, the steering system, and the braking system.  WT/DS339/R 
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  7.31 In turn, whether imported auto parts used for the assembly of a certain vehicle model meet 
any of the criteria is determined once such auto pa rts are "assembled" into mo tor vehicles in China.  
This means that the charge is imposed on imported au to parts after their assembly into motor vehicles, 
regardless of whether such auto parts are imported together in a single shipment or separately in 
multiple shipments, insofar as th ey are used in assembling a co mmon registered vehicle model.
199  We 
will describe these two aspects (criteria and multiple ship ments) of the substantive criteria used for the 
determination of "auto parts characterized as complete vehicles" in turn below. 
Criteria for determining whether imported auto  parts should be characterized as complete 
vehicles – criteria for determining auto parts char acterized as complete motor vehicles  
7.32 The criteria for deciding whether certain impor ted auto parts are to be characterized as 
complete motor vehicles are provided in Ar ticles 21 and 22 of Chapter IV of Decree 125.200   
Article 21 sets out the thresholds of the importe d auto parts that would make those used to 
produce/assemble a motor vehicle "to be characterized as complete motor vehicles". 
"Imported automobile parts shall be characterized as complete vehicles if one of the 
following applies: 
(1) imports of CKD or SKD kits for the purpose of assembling vehicles; (2) within the scope identified in Article 4 of these Rules: 
(a) imports of a body (including cabin) assembly
201 and an 
engine assembly for the purpose of assembling vehicles; 
(b) imports of a body (including cabin) assembly or an engine 
assembly, plus at least three other assemblies (systems), for the purpose of assembling vehicles; 
(c) imports of at least five assemblies (systems) other than the 
body  (including cabin) and engine assemblies for the purpose of 
assembling vehicles; or 
(3) the total price of imported parts account s for at least 60% of the total price of 
a complete vehicle of that vehicle model.  This criterion shall enter into force on 
July 1, 2006."
202 
                                                      
199 See China's response to Panel question No. 40.  China submits that "[t]he structure of the import 
transactions is not relevant; what matters is whether the imported part and components in a particular vehicle 
model, in their entirety, have the e ssential character of a motor vehicle." 
200 Articles 13 and 14 of Announcement 4 are identical to Articles 21 and 22 of Decree 125.  Also, 
Article 23 of Decree 125 provides: 
 
"An assembly (system) manufactured by a domestic automobile assembly (system) 
manufacturer shall be considered a domestic assembly (system), if the imported automobile 
parts used in the manufacturing of the assembly (system) are not characterized as an assembly 
(system)."  
201 For the term "assembly", see paragraphs 7.88-7.89 below. WT/DS339/R 
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  7.33 Article 22 sets out the criteria according to which imported auto parts used to produce an 
"assembly" (of a motor vehicle) would make such an assembly a "Deemed Imported Assembly".  Under Article 22, therefore, if an "assembly" is produced with imported auto parts above the 
thresholds specified therein, such an assembly it self is considered as imported assembly ("a Deemed 
Imported Assembly").
203 
"Article 22 Imported automobile parts shall be characterized as an assembly 
(system) if one of the following applies: 
(1) imports of a complete set of parts for the purpose of assembling assemblies 
(systems); 
(2) imports of key parts or sub-assemblies for the purpose of assembling 
assemblies (systems), if the quantity of the imported key parts or sub-assemblies reaches or exceeds the specified level as set forth in Annexes 1 and 2
204; or 
                                                                                                                                                                     
202 The entry into force of this third criterion is postponed until 1 July 2008 (CGA Joint Bulletin No. 38 
of 5 July 2005) (Exhibit JE-28).  In response to the Panel's question concerning the postponing of this criterion, 
China has explained that it is primarily because of the administrative complexity of implementing this particular criterion and that once auto manufacturers and customs officials have gained more experience with the 
implementation of Decree 125, and have laid a solid foundation of record-keeping and reporting for the 
administration of the measure, it will be easier for manufacturers and customs authorities to determine and account for the value of imported parts and components (C hina's response to Panel question No. 59).  Further, 
concerning the specific nature of the complexity relating to the implementation of Article 21(3) of Decree 125, 
China submits that the specific difficulty encountered by the customs is how to identify the fair value of the parts (China's response to Panel question No. 170).   
We note that the complainants have challenged the m easures as such and in th eir entirety.  We do not 
consider therefore that the postponement of the applicability  of this criterion in any way affects the scope of the 
measures falling within our terms of reference.  We reca ll that previous panels "have always considered that 
mandatory legislation of a Member, even if not yet in force or not applied, can be challenged by another WTO 
Member" (Panel Report on Turkey – Textiles , para. 9.37, citing GATT Panels on US – Superfund ,  EEC – Parts 
and Components  and  US – Malt Beverages ).  See also the Panel Report on US – Countervailing Measures on 
Certain EC Products (Article 21.5 – EC) , para. 7.37.   
203 As noted in footnote 169, the Panel uses the terms as indicated in the common translations of the 
measures at issue in these reports.  For "an assembly  characterized as imported assembly" in the context of 
Article 22 of Decree 125, however, we will instead use the term "a Deemed Imported Assembly" as suggested 
by Canada in its letter of 4 October 2007. 
204 As of 1 July 2008, lower quantity thresholds will apply to those key parts identified as class A in 
Annex 1 to Decree 125.  If those thresholds are met, the assembly will be characterized as an "imported 
assembly" (Note 5 of Annex I to Decree 125 and Article 19  of Announcement 4).  The entry into force of this 
class A/B distinction was initially foreseen on 1 July 2006, but was postponed until 1 July 2008 (CGA Joint 
Bulletin No. 38 of 5 July 2005) (Exhibit JE-29).  For the same reason explained above at footnote 202, such postponement does not affect the scope of the measures falling within our terms of reference.   
Further, Article 20 of Announcement 4 provides: 
 
"If the imported parts account for more than 60% of the price of the key 
parts or sub-assemblies, such key parts or sub-assemblies shall be deemed as 
imported key parts or sub-assemblies.  Manufacturers shall provide a list of 
price ratios of parts needed. 
 
Key parts or sub-assemblies, in princi ple, shall only be traced back to the 
secondary suppliers of the manuf acturers of complete vehicles. 
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  (3) the total price of imported parts account s for at least 60% of the total price of 
that assembly (system)." 
7.34 Based on the criteria set out in the ab ove provisions, the Verification Centre
205, entrusted by 
the CGA, makes a determination of whether certai n imported auto parts should be characterized as 
complete vehicles and thus should be charged at the tariff rate applicable to complete vehicles after 
vehicles are produced/assembled using such auto parts. 
Criteria for determining whether imported auto parts are characterized as complete vehicles –  
auto parts imported in multiple shipments  
7.35  To apply the thresholds set out in Articles 21 and 22 of Decree 125 to imported auto parts 
used in the assembly of motor vehicles, China' s customs authorities wait until auto manufacturers 
finish the assembly of motor vehicles.  As a result,  auto parts, which might have been imported in 
multiple shipments, meaning imported at various tim es, in various shipments, from various suppliers, 
and/or from various countries, can still be characteri zed as a complete vehicle.  In other words, the 
charge under the measures is assess ed for auto parts assembled into  a particular vehicle model, 
regardless of whether those parts are imported separa tely "in multiple shipments" or together "in a 
single shipment".206 
Charge imposed on auto parts imported by th ird party suppliers – Article 29 of Decree 125  
7.36 As described above, the measures impose the charge on auto parts imported by automobile 
manufacturers .207  Auto part suppliers or auto part ma nufacturers that are not also automobile 
manufacturers are not subject to the obligations un der the measures when they import auto parts.  
Auto part suppliers or manufacturers will pay the duty for imported auto parts at the tariff rates 
applicable to auto parts pursuant to  China's regular customs law and Ch ina's Schedule.  In this regard, 
China submits that in most cases, imported parts that the auto manufacturer purchases from a third-
party supplier in China (either auto part suppliers or  auto part manufacturers) will have completed the 
necessary customs formalities and are no longer subject to customs control.208  Further, the rules for 
                                                                                                                                                                     
Imported parts purchased by domestic suppliers or trading companies shall 
be counted as imported parts." 
 
205 According to Articles 3 and 4 of Announcement 4,  the "Verification Centre" is responsible for, inter 
alia, (i) prior to the importation of subject auto parts,  conducting simplified or on-site reviews of the conclusions 
of self-evaluations to be filed by automobile manufacturer s; and (ii) after the importation of subject auto parts, 
conducting on-site verifications of the registered vehi cle models that have been assembled into complete 
vehicles using such imported auto parts and issuing verification reports (i.e. the verification of whether the auto 
parts concerned should be character ized as complete vehicles).  
The actual verifications under the measures are perfor med by "Special Verifica tion Teams"  formed by 
3 or 5 automobile experts and established by the "Verification Centre".  In case a manufacturer disputes the 
conclusion of a verification, it can still request a re view under the so-called "appraisal meeting", which 
encompasses all interested parties.  This review can resu lt in the determination of a "re-verification", which shall 
be conducted by a new "Verification Team" formed by no more than 1/3 of the original "Special Verification 
Team" (Articles 5 and 12  of Announcement 4). 
206 See also footnote 199. 
207 Article 2(1) of Decree 125 provid es that "[t]hese Rules are appli cable to … automobile parts …, 
used to produce/assemble vehicles by automobile manufacturers …" 
208 China's responses to Panel question Nos. 65, 66, 83, 92, 101.  In this connection, the complainants 
explain the consequence of this requirements as follows: 
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  bonded goods do not apply to auto parts imported by a third party and subsequently sold to the 
automobile manufacturer.  These auto parts are thus in free circulation in China.
209 
7.37 However, if an automobile manufacturer subsequently purchases parts from third party 
suppliers, Article 29 provides: 
"Article 29 If the customs treats the imported automobile parts used by an 
automobile manufacturer as complete vehi cles for the purpose of classification and 
duty collection, and if the supplier of the automobile manufacturer imported some of 
the automobile parts used by the automobile manufacturer and already paid import 
duty and import VAT upon importation, such paid import duty and import VAT shall 
be deducted from the total amounts of import duty and import VAT due from the 
automobile manufacturer, provided that the automobile manufacturer provides relevant proof of payment of import duty and import VAT. ..." 
7.38 In other words, in determining whether imported auto parts used in the assembly of vehicles 
in China should be characterized as comple te vehicles, imported auto parts purchased by 
manufacturers from domestic suppliers or domestic part manufacturers are also counted toward the 
thresholds set out in Articles 21 and 22 of Decree  125.  In such a case, pursuant to Article 29 of 
Decree 125, automobile manufacturer s are liable for the difference between the amount of duty for a 
complete motor vehicle and the amount of duty that was assessed on the imported auto parts at the time of importation, provided that the automobile ma nufacturers can prove that the auto part suppliers 
or auto part manufacturers paid, at the time of impo rtation, the amount of duty owed for the parts at 
the tariff rates applicab le to the auto parts.
210 
(ii) Administrative procedures 
7.39 Now, the Panel will turn to the administra tive procedures required in relation to the 
imposition of the charge at issue.211  These procedures, as indicated in Decree 125 and 
Announcement 4, are explained in chronological order below. 
                                                                                                                                                                     
"As a result of Article 22 of Decree 125 and Article 20 of Announcement 4, the level of 
imported content will have to be tracked down the chain of supply to determine whether 
individual Assemblies and key parts are to be treated as imported for purposes of the 
Measures. Such tracking will be made first at the level of the Assembly to determine if the 
Assembly is Deemed Imported, and subsequently at the level of 'second-tier' suppliers for key 
parts.   
 As a result, parts manufacturers and suppliers that use imported parts have to maintain records 
of the quantity, type and cost of imported parts used in any parts incorporated into a 
manufactured vehicle. They do this in order to  meet their contractual obligations to vehicle 
manufacturers and guarantee to them  that they meet the domestic  content requirements of the 
measures. They may also be required to provide details to Customs about the purpose for 
which the imported product will be used. This information may be provided directly to Customs or indirectly by providing the information to the vehicle manufacturer."  
 
(See Part F.6 of the Factual Background Section provided jointly by the complainants, European 
Communities' first written submission, paras. 63, 64). 
209 China's response to Panel question No. 20(b). 
210 China's first written submission, footnote 20 to para. 46. 
211 The relevant departments of the Chinese government responsible for the administration of these 
procedures include the following:  (1) CGA; (2) NDRC;  (3) the Ministry of Commerce; (4) the Ministry of  WT/DS339/R 
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  Self-evaluation  by the automobile manufacturers who assemble/produce
212 vehicles with 
imported auto parts for domestic sales  
7.40 Under Article 7 of Decree 125 and Article 6 of Announcement 4, automobile manufacturers 
who plan to produce, for domestic sales213, vehicles using imported auto parts are required to conduct 
a self-evaluation of whether imported auto parts used  in a particular vehicle model are characterized 
as complete vehicles in accordance with the rules under Decree 125, including the substantive criteria 
indicated above in paragraphs 7.32-7.33.214 
7.41 If the self-evaluation suggests that the importe d auto parts should not be characterized as 
complete vehicles, the automobile manufacturer sh all request the CGA to conduct a review.  Upon 
such a request, the CGA will designate the Verifi cation Centre to conduct a simplified or on-site 
review of the auto manufacturer's self-evaluation. 
7.42 In this regard, in response to a question from the Panel, China  has stated that even if the 
manufacturer's self-evaluation is positive, su ch conclusion is still subject to review.215   T h e  
European Communities  comments that China's reply is cont rary to the text of Article 7 of 
Decree 125 and Article 6(2) and (3) of Announceme nt 4, according to which review by the 
Verification Centre seems to take place only when  the result of the self-evaluation is negative.  
Canada  also takes note of China's response, which Ca nada submits confirms that the Verification 
Centre reviews determinations of vehicle ma nufacturers under the measur es, whether positive or 
negative.216 
7.43 Article 7 of Decree 125 provides:  
"[I]f the self-evaluation suggests that th e imported automobile parts should not be 
characterized as complete vehicle, the au tomobile manufacturer shall request the 
CGA to conduct a review. ..." 
7.44 Based on the text of Article 7 of Decree 125 and Article 6(2) and (3) of Announcement 4, the 
Panel  agrees with the European Communities' view on the content of the obligation arising under 
Article 7 of Decree 125, namely, review by the Veri fication Centre takes place only when the result of 
                                                                                                                                                                     
Finance; (5) the Leading Panel for the administration of the importation of automobile parts characterized as 
complete vehicles, which is represented by the CGA, th e NDRC, the Ministry of Commerce; and the Ministry of 
Finance; and (6) the Verification Centre.  See China's response to Panel question No. 21.  Also see footnote 191 
above. 
212 The complainants note that the Chinese original text contains the word "shengchan", which is 
properly translated in to "to produce", whereas China considers that this word is used interchangeably with 
"zuzhuang", "to assemble" (footnote 2 of the common translation of Decree 125).  The Panel's use of the terms "to assemble" and "to produce" in these reports is without prejudice to the parties' views on these two terms.  
Also see footnote 191 above. 
213 According to China, automobile manufacturers operating under the processing trade, including those 
located in special customs zone such as "bonded-zone", "export processing zone" or "o ther special zones special 
zones supervised by the customs under Article 30 of Decree 125" are outside the scope of Decree 125 unless 
they sell such motor vehicles into the domestic Chinese market (China's response to Panel question No. 16).  
Such a situation is addressed in Article 30 of Decree 125. 
214 In addition, Article 6(5) of Announcement 4 provides that "[i]f the status of whether imported 
automobile parts can be characterized as complete vehicles changes due to the fact that the composition of such 
parts is altered, the relevant vehicle model shall be registered as a new model."  (See also Article 25 of 
Announcement 4). 
215 China's response to Panel question No. 167. 
216 Canada's response to Panel question No. 304, footnote 15. WT/DS339/R 
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  the self-evaluation is negative.  China appears to  have misunderstood the Panel question concerning 
Article 7 of Decree 125 and uses the word "review" in  a general sense rather than in the context of 
"review" required under Article 7 of  Decree 125.  Further, China's r esponse regarding which the Panel 
sought further confirmation in Panel question No. 167 was related to Panel question No. 5, which 
concerned Articles 17 and 18 of Decr ee 125, provisions on verification by the Verification Centre, not 
review of the automobile manufacturers' self-evaluation results addressed by Article 7 of Decree 125. 
7.45 Further, under Article 7 of Decree 125, the self-evaluation results for the vehicle models 
concerned must be submitted when automobile manufacturers apply to the NDRC to be listed in 
Public Bulletin on On-Road Moto r Vehicle Manufacturers and Products (the " Public Bulletin ") and 
apply to the Ministry of Commerce for an Automatic Importation Licence.
217  If auto parts to be 
imported are not characterized as complete vehicles as  a result of the self-evaluation, the automobile 
manufacturer must also submit the review opinion of the CGA.  
7.46 For those vehicle models assembled with imported auto parts characterized as complete 
vehicles, the NDRC will then mark "Char acterized as Complete Vehicles" in the Public Bulletin and 
the Ministry of Commerce will mark the sa me in the Automatic Importation Licence. 
7.47 In this connection, applications to the NDRC and to the Ministry of Commerce above appear 
to take place in no specific order. 
Registration with the CGA prior to the importa tion of auto parts characterized as complete 
vehicles  
7.48 Article 7 of Decree 125 also requires that, if an automobile manufacturer determines as a 
result of self-evaluation that the imported auto parts contained in a vehicle model should be characterized as complete vehicles, the automobile manufacturer must register the relevant vehicle 
                                                     
 
217 China submits that being listed in the Public Bulletin  is required for automobile manufacturers to 
produce and sell motor vehicles in China and that one of  the regulatory characteristics that is listed in the Public 
Bulletin with respect to a specific vehicle is its customs st atus under Decree 125 (China's response to Panel 
question No. 28). 
Further, according to China, the purpose of establishing the alleged automatic licence system is to 
monitor the importation of motor vehicle products and, if the automobile manufacturer is planning to import 
auto parts which are subject to an automatic import licence requirement, it must apply to the Ministry of 
Commerce for this purpose.  China explains that this process is unrelated to the listing in the Public Bulletin  
(China's response to Panel question No. 28).   
Concerning the import licence system in relation to auto parts imports, see China's responses to Panel 
question Nos. 171, 173 and the comments by the European Communities and Canada on China's response.  In particular, China states in its response to a Panel question, inter alia , that the evaluation and verification process 
does not prevent the auto manufacturer from importing parts and components to assemble a particular vehicle 
model (China's response to Panel question No. 171).   The European Communities argues in its comments on China's response that China's reply is difficult to reconc ile with the text of Article  7(3) of Decree 125, which 
provides: 
 "When an automobile manufacturer applies…to the Ministry of Commerce for an Automatic 
Importation License, it shall submit the self-evaluation results for the vehicle models 
concerned.  If the imported automobile parts are not characterized as complete vehicles, the automobile manufacturer shall also submit the revi ew opinion by the CGA." 
 
Thus, according to the European Communities, to get the import licence allowing the import, the auto 
manufacturer will need to go first through the self-e valuation and the review by Customs when the self-
evaluation has concluded that the imported auto pa rts are not characterized as complete vehicles.  WT/DS339/R 
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  models with the CGA prior to the importation of auto  parts.  If the imported auto parts are determined 
not to constitute "auto parts characterized as comple te vehicles" (after self-evaluation and review by 
the Verification Centre as designated by the CGA), registration with the CGA is unnecessary.
218 
7.49 When registering with the CGA, an auto ma nufacturer must submit the following documents 
pursuant to Article 9 of Decree 125:  
(1) a brief introduction of the manufacturer;  (2) an annual production plan for the vehicle model to be registered;  (3) a classification and price ratio schedule of the auto parts of the vehicle model 
to be registered, the total price of the vehicle model to be registered, and the itemized 
prices of domestic parts and imported parts u sed in the vehicle model to be registered 
(each of the above shall exclude relevant taxes); 
(4) a complete list of the domestic and foreign suppliers that supply the auto 
parts used in the vehicle model to be regi stered, and a list of the auto parts supplied 
by each supplier; and  
(5) evidence that the vehicle model to be  registered has been included in the 
Public Bulletin . 
7.50 Under Article 10 of Decree 125, upon receipt of a registration application, the CGA 
distributes relevant documents to the NDRC, the Mi nistry of Commerce and district customs offices 
in charge of the area where the manufacturer is located for the administration of their respective 
responsibilities.
219  For example, Article 11 of Decree 125 indicates that once a district customs office 
in charge of the area where the manufacturer is  located receives a manufacturer's registration 
documents distributed by the CGA, it examines the re gistration documents, and if the criteria are met, 
registers the auto manufacturer and its vehicle models, and notifies the manufacturer. 
Provision of duty bonds prior to the importation of auto parts  
7.51 After a vehicle model has been registered, an automobile manufacturer, pursuant to Article 12 
of Decree 125, must provide duty bonds commensura te with its importation plans to the district 
customs office prior to the importation of auto pa rts.  The amount of the comprehensive duty bonds 
should not be less than the manufacturer's monthly average of duties payable on the importation of such parts.
220  Third-party auto part suppliers and auto part manufacturers that import auto parts are 
not covered by this requirement, as they are subject to the normal customs process and thus pay the 
customs the import duty for the imported auto parts at the tariff rate applicable to auto parts at the 
time of importation.221 
                                                      
218 "Registered vehicle models" are those that have been listed on the Public Bulletin  published by the 
NDRC (Article 8 of Decree 125). 
219 See China's response to Panel question No. 21 for China's explanation of the respective roles played 
by various Chinese government authorities concerned. 
220 If importation plans are modified or if the number of registered vehicle models is changed, the 
automobile manufacturer must apply for an adjustment of the amount of the comprehensive duty bonds to the district customs office in charge of the area where the manufacturer is located (Article 12 of Decree 125). 
221 China's responses to Panel question Nos. 20(b), 83, 185(a) and (b). WT/DS339/R 
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  7.52 China has explained that the amount of th e comprehensive duty bonds is based on the 
projected amount of duties that the importer will pa y each month, which is, in practice, calculated 
based on the applicable rates for auto  parts (i.e. 10 per cent on average).
222  China explains that such 
calculation is made to minimize the burden on auto manufacturers223 and that, contrary to what the 
complainants submit, there is no necessary concorda nce between a bonding rate and the rate of duty at 
which the imported good will be assessed.224   
Customs clearance  by the auto manufacturers concerned at the time of importation  
7.53 Article 13 of Decree 125 states that auto manufact urers importing auto parts characterized as 
complete vehicles must declare their importation of such auto parts and pay duties to the district 
customs office.  According to Ar ticle 14 of Decree 125, at the time of declaration, the following 
should be submitted:  (1) an importation declar ation form, (2) the Automatic Importation Licence 
marked with "Characterized as Complete Vehicles" , (3) other relevant licence, and (4) accompanying 
documents required by the customs.  Article 13 re fers to the obligation not only to declare the 
importation of auto parts, but also to pay duties.  However, as noted below in paragraphs 7.59-7.65, 
actual payment of the charge under the measures does not occur until the Verification Centre has 
completed the verification after the manufacturers fi nish the assembly of auto parts into complete 
vehicles. 
7.54 Then, under Article 16 of Decree 125, upon entry of auto parts characterized as complete 
vehicles into China's customs territory, the cust oms handles the importation formalities by reference 
to relevant regulations regarding the administration of bonded goods .225  Similarly, Article 27 of 
Decree 125 stipulates that the customs in charge of  the area where the manufac turer is located shall 
administer, by reference to the rules for bonded goods , the imported automobile parts that are 
characterized as complete vehicles, during the peri od from the customs declaration and clearance of 
the goods to the payment of duties. 
7.55 In response to a question from the Panel regard ing the administration of bonded goods and the 
rules for bonded goods referred to in the above me ntioned provisions, China explained during the first 
meeting with the Panel that "bonded goods" in this context means the requirement imposed on 
automobile manufacturers to pay bonds for imported au to parts and does not mean physical control of 
                                                      
222 China's response to Panel question No. 18. 
223 China's response to Panel question No. 18. 
224 China's response to Panel question No. 201.   
225 In response to a question from the Panel what procedural requirements "the administration of 
bonded goods" under Article 16 of Decree 125 entail, China submits that the "the administration of bonded 
goods" may vary from one type of customs matter to another and provides an outline of the procedure relating to 
the administration of bonded goods in a typical scenario (China's response to Panel question No. 19).  China 
also provides the categories of good s that are defined under Article 100  of China's Customs Law as "goods 
remaining under customs control", whic h include "goods in bonded status" or "goods not fulfilling all necessary 
customs requirements". 
We take from China's responses in this connection (Panel question No. 19) as well as in relation to "the 
rules for bonded goods" under Article 27 of Decree 125 (Panel question No. 20(a)) that the procedural 
requirements relating to the administration of bonded goods in a typical scenario as explained in China's 
response to Panel question No. 19 is not applicable to the importation of auto parts under the measures.   
Rather, China explains in its response to Panel question No. 20(a) that the bonding requirements under 
the measures at issue include the elem ents listed in paragraph 7.55 above.  WT/DS339/R 
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  imported auto parts themselves.
226  China further elaborates that the bonding requirements under the 
measures at issue include the following elements:227 
• the registration  of vehicle models for which the imported auto parts have the essential 
character of a motor vehicle; 
 
• a requirement that the auto manuf acturer keep accurate records  of the parts and components 
that it imports in bond, and account for thei r assembly into registered vehicle models; 
 
• the establishment of the Q-account , which connects the auto manufacturer to the relevant 
customs office via the Internet; recording each entry of bonded auto parts for the registered 
vehicle models in the Q-account; and making adjustments to the Q-account as parts and 
components that entered in bond are assembled into registered vehicle models and the 
applicable duties are paid. 
 
Verification  of whether imported auto parts should be characterized as complete vehicles  
7.56 Auto manufacturers must submit a verification application228 to the CGA within 10 days after 
the first batch of vehicles of the registered mode l has been assembled.  Upon receiving a verification 
application, the CGA entrusts the Verification Centre  to conduct verifications.  Pursuant to Articles 17 
and 19 of Decree 125 and Articles 7 and 9 of Announ cement 4, within one month of receiving these 
instructions, the Verification Centre must conduct ve rifications to determine whether imported auto 
parts should be characterized as complete vehicles, i.e. whether the imported auto parts in a given 
relevant vehicle model meet one or more of the thresholds set forth in Article 21 of Decree 125.229 
7.57 In this connection, the Panel notes a clarificati on by China, which has not been disputed by 
the complainants, that the verification process under Article 17 of Decr ee 125 is conducted on a 
                                                      
226 China also submits that Article 27 of Decree 125 does not refer to "the Procedures on Customs 
Control over Bonded Areas (provided by the complainants in Exhibit JE-31)", which is only one of many types of "rules for bonded goods" and that  as is the case in the customs practices of other WTO Members, China's 
"rules for bonded goods" vary from one customs procedure to another, depending on the nature of the procedure 
and the degree of customs control that is required (China's response to Panel question No. 20(a)).   
See also China's response to Panel question No. 19 concerning the administration of bonded goods 
under China's customs law. 
227 China's responses to Pane l question Nos. 19, 20(a). 
228 The documents to be provided are as follows: (1) ap plication form for verifica tion; (2) report of self-
verification; (3) procurement list of parts; (4) document list for verifying "deemed whole vehicles"; and (5) other documents as required (Article 25 of Decree 125 and Article 7 of Announcement 4). 
229 See also China's response to Panel question No. 30 4.  In addition, if a vehicle manufacturer objects 
to the results of the verification, a meeting is held be tween the manufacturer, governme nt officials and technical 
experts to determine whether the Verification Centre must perform a re-verification of the registered model and 
the re-verification must occur within one month of the in struction of the Center to conduct it (Article 12 of 
Announcement 4). 
The complainants argue that a ma nufacturer may incur significant administrative delay in the final 
assessment of a charge as it could take up to 48 days from submission of the application after the first batch of 
vehicles is complete until the verification is actually carried out (Part F.3 of the Factual Background Section submitted jointly by the complainants).  See paragraphs 7.61-7.65 below for a more detailed discussion on this 
issue. 
Article 26 of Announcement 4 stipulates that certain on-site review reports themselves may serve as the 
Verification Report, provided that the manufacturer agrees to and the Leading Panel approves doing so.  At least 
in this circumstance, the alleged delay in the final assessment of a charge may not exist. WT/DS339/R 
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  vehicle model basis.
230  According to China, the manufacture r may request, pursuant to Article 19 of 
Decree 125, verification after the first batch of comp lete vehicles is assembled and the first batch can 
be one vehicle or a small quantity of vehicles, a number that the manufacturer may choose at its 
discretion.  The verification findings based on the firs t batch of vehicles of the registered model will 
then apply to all subsequent importation of au to parts for the same vehicle model until the 
manufacturer can demonstrate, under Article 20, sec ond paragraph of Decree 125, that the imported 
auto parts in that vehicle model no longer have the essential character of a motor vehicle.   
7.58 Also, Article 20, first paragraph of Decree 125 pr ovides that if optional parts are installed on 
a vehicle, the manufacturer must report the options to the Verification Centre and make declarations 
at the time of the actual installation of the optional parts. 
Payment of the charge  by the auto manufacturers concerned  
7.59 Pursuant to Articles 28 and 31 of Decree 125, af ter the imported automobile parts have been 
assembled into complete vehicles, the automobile  manufacturer shall make a declaration of duty 
(charge) payable to the customs office by the te nth working day of each month subsequent to the 
month in which the Verification Centre issues a verification report on whet her imported auto parts 
should be characterized as complete vehicles. 
7.60 At the time of declaration of payment of th e charge, the auto manufacturer must submit the 
following information in accordance with Article 34 of Decree 125:  (1) verification report by the 
Verification Centre; (2) the quantity of the complete  vehicles of relevant vehicle models that were 
assembled by the manufacturer in the last month, exce pt for those models for which the imported auto 
parts should not be characterized as complete vehicles;  (3) the list of imported auto parts used in the 
assembling of complete vehicles of relevant vehicle models in the last month, except for those parts 
that are not characterized as complete vehicles in  the Verification Report; and (4) other documents 
deemed necessary by the customs.  The district cust oms office then classifies such imported auto parts 
as complete motor vehicles and collects an amount of duty equivalent to the tariff rates applicable to 
complete vehicles. 
7.61 In this regard, the parties do not dispute th e overall timeline of the procedures listed above, 
namely, first, the assembly of imported auto parts into the first batch of complete motor vehicles, 
second, verification by the Verification Centre of whet her imported auto parts used in the assembly of 
motor vehicles should be characterized as complete  motor vehicles, third, declaration by auto 
manufacturers for the payment of the amount of duty owed under the measures for imported auto 
parts, and finally, the customs' authorities' classi fication and collection of duties for such imported 
auto parts.231   
                                                      
230 China's responses to Panel question Nos. 167(b)  and 304; the complainants' responses to Panel 
question No. 304.  China submits that the same principle applies to self-evaluation and review by the 
Verification Centre.  The parties, however, dispute the rami fications of this rule.  For example, the United States 
submits that, contrary to what China seems to suggest in its response to Panel question No. 167, an initial 
decision on the first batch of assembled vehicles does not establish certainty on all future imports.  The United 
States considers that in the entire period prior to the i ssuance of the verification report, which can take weeks or 
months, the level of charges to be imposed on imported parts used in the vehicle model is unsettled.  Also, 
according to the United States, a "vehicle model" is not a static concept. 
231 Parties' responses to Panel question No. 304.  In  their response, the complainants provide various 
scenarios under the measures concerning the assembly of motor vehicles using imported auto parts and/or 
domestic auto parts.  WT/DS339/R 
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  7.62 However, the parties do dispute the period of time that each step of the above procedures may 
take. 
Time taken for the administra tive procedures under the measures
 
7.63 In response to a question from the Panel in this regard, China  has stated that it is not possible 
to calculate an average period of time or provid e another form of estimate because China does not 
maintain these statistics.232  China submits that the Verification Ce ntre is to complete the verification 
and issue a verification report within 30 days fro m the receipt of a complete set of documentation 
from the CGA under Article 19 of Decree 125, but the verification of a vehicle model can take longer 
than 30 days in cases where the documentation submitted by the auto manufacturer may give rise to 
further inquiries and on-site reviews, or may requi re the submission of additional documentation.   
7.64 The European Communities  submits that a sample of currently pending applications for 
review and verification under the measures dem onstrates that the completion of the various 
procedures under the measures can take years.233  
7.65 The sample of pending applications for review  and verification, submitted by the European 
Communities, does indicate that among the applicati ons made in 2005, certa in applications dated 
29 September 2005 for review234 by the Verification Centre were still pending as of the research date, 
16 July 2007.235  Also, certain applications filed on 22 A ugust 2006 for verification, not to mention all 
applications made during January-February 2007 show n on this sample table, were not completed as 
of 16 July 2007.   
7.66 Therefore, the evidence on the r ecord shows that the period for review and verification by the 
Verification Centre can take from 30 days to a couple of years. 
                                                      
232 China's response to Panel question No. 171. 
233 The European Communities' response to Panel question No. 171, referring to Exhibit EC-26.  Also 
see footnote 229.  Further, according to the European Communities , the complexity of the measures in itself 
affects the launching of a new model in the Chinese market.  The European Communities argues that the conception and launching of a new model can be delayed by 2-3 years, as automobile manufacturers will have to 
look for domestic suppliers who are able to provide the re quired proportion of domestic parts or assemblies, and 
test their reliability.  Establishing self-verification re port required by Article 7 of Decree 125 may take an 
additional 6 months for a team of 10-15 highly skilled experts.  Even after a manufacturer decides to begin the 
procedures for introducing a new model, it can in reality  take up to one year befo re all the procedures are 
finalized (European Communities' resp onse to Panel question No. 8).   
The United States submits that information on the average period of delay resulting from China's 
measures was not an element of  the United States' prima facie  case on this issue, and the United States does not 
have such information readily available (United States' response to Panel question No. 8). 
Canada  submits that it is not possible to describe, as a general rule, the effect that the measures have 
on the average period necessary to assemble a vehicle.  The overall effect will vary based upon, e.g. the web of 
suppliers and the particular sourcing of parts.  The most significant delay results from a combination of the 
procedural and substantive requirements (Canada's response to Panel question No. 8). 
234 It is not clear on the face of the status of these applications what stage of  the procedures under the 
measures is covered by "review" by the Verification Centre.  As we examined above in paragraph 7.41, the 
Verification Centre conducts a review when the result of a self-evaluation by an automobile manufacturer is 
negative.   We will thus assume that "review" indicated in respect of the status of these pending applications 
refers to the type of review to be conducted by the Ve rification Centre if a negative result is obtained after self-
evaluation by an automobile manufacturer. 
235 "On-Line Administration of Automobile Parts Deemed Whole Vehicles – The leading group office 
of import administration of automobile parts deemed whole vehicles" 
(http://autoadmin.chinaport.gov.cn/autoadmin/search.do) (Exhibit EC-26). WT/DS339/R 
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  (iii) Overall operation of the measures 
7.67 Overall, the measures at issue impose a charge and the administrative procedures necessary to 
impose the charge on imported auto parts used in  the assembly of complete motor vehicles.   
7.68 The charge is imposed on imported auto part s that are characterized as complete motor 
vehicles, which in turn is determined based on the criteria set out in the measures:  if the imported 
auto parts used in the assembly of a vehicle mode l meet one of the categories of the criteria under 
Article 21 of Decree 125, then such auto parts are characterized as complete motor vehicles and thus 
assessed at the tariff rates applicable to  motor vehicles, not auto parts.  
7.69 In this connection, to determine the appli cability of the charge, customs officials wait 
pursuant to Article 28 of Decree 125 until automob ile manufacturers finish assembling auto parts into 
motor vehicles and then the Verification Centre fi nishes its verification of whether the imported auto 
parts used in the assembly of a certain vehicle model should be characterized as complete motor 
vehicles within the meaning of the measures.  This  is because what is pertinent for the purpose of 
imposing the charge under the measures is whether im ported auto parts used for the "assembly" of a 
vehicle model meet the criteria set out in the me asures.  This process is based on the assessment of 
auto parts imported at different times, in different  shipments, from different exporters, and/or from 
different countries.  The parties to the dispute refer to this situation as auto parts imported in "multiple 
shipments".
236 
(c) Exceptions under the measures 
7.70 Decree 125 provides certain exceptions from th e administrative procedures and from the 
application of the substantive criteria under Articl es 21 and 22.  The Panel will first look at the 
exemption provided in Article 2 of Decree 125 from the administrative procedures under the 
measures. 
(i) Exemption of CKD and SKD kits from the admin istrative procedures - Article 2(2) of 
Decree 125 
7.71 Article 2, second paragraph ("Article  2(2)") of Decree 125 provides: 
"[A]utomobile manufacturers importing comp letely knocked-down (CKD) or semi-
knocked-down (SKD) kits may declare such importation to the Customs in charge of 
the area where the manufacturer is located and pay duties, and these Rules shall not apply." 
7.72 China submits that under Article 2(2) of Decr ee 125, an automobile manufacturer declares 
imports of CKD or SKD kits as "auto parts character ized as complete vehicles" and pays the duty at 
the tariff rates applicable to complete vehicles at th e time of importation.  Rega rding the scope of this 
provision, however, we note some evolution in Ch ina's explanation throughout the course of this 
proceeding.  China  initially explained that the importers who opt for  the exemption under this 
provision would be importing CKD or SKD kits in ac cordance with the ordinary provisions of China's 
                                                     
 
236 Article 37 of Chapter VI ("Legal Liabilities") of De cree 125 also refers to "multiple shipments".  
The relevant part of Article 37 reads, "...or if an automobile manufacturer imports automobile parts that should 
be characterized as complete vehicles in multiple shipments without applying for registration with the CGA 
prior to the importation, the NDRC shall tempor arily take relevant vehicle models off the Public Bulletin on On-
Road Motor Vehicle Manufacturers and Products  until such automobile manufacturer corrects its failures" 
(emphasis added).  WT/DS339/R 
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  customs law.
237  China also submitted that since its adoption of the measures, all imports of CKD and 
SKD kits have been made under this provision.238 
7.73 In response to a question from the Panel af ter the second substantive meeting, however, 
China  submits that to import CKD and SKD kits, the importer shall make customs clearance at the 
customs where the auto manufacturer is located  and pay import duties under the normal customs 
procedure for imports.  China explains that ther e are no other customs procedures for the importation 
of CKD and SKD kits but the ordinary customs procedures.239   This is so because there is no doubt 
that the proper classification of imported CKD or SKD kits is that of complete vehicles.240  
7.74 The European Communities  and the United States  argue that Article 2(2) is an optional 
provision.  The European Communities and the Un ited States argue that China's explanation is 
manifestly erroneous on the face of the measure s and in contradiction with China's own initial 
explanation of this provision given in its first writte n submission.  The language of Article 2(2) itself, 
which uses "may" instead of "shall", and that of  Articles 7 and 21(1) of Decree 125 confirm their 
point. 
7.75 In the Panel's  view, the language of Article 2(2) and China's own explanation provided 
earlier in the proceeding of this dispute do not  support China's subsequent position that the 
importation of CKD or SKD kits unde r Article 2(2) is mandatory.  Ar ticle 2(2), on its face, indicates 
that automobile manufacturers importing CKD or SKD kits may declare the kits as such and pay the 
duties.  The use of an auxiliary verb "may" e xpresses only an objective po ssibility, rather than 
command or exhortation connoted by the verbs "sha ll" or "should."  Furthermore, the phrase "... and 
these Rules shall not apply" in Artic le 2(2) indicates that the inap plicability of the measures to CKD 
or SKD imports depends on the importer's decision to exercise the option provided in Article 2(2) of 
Decree 125 and to declare the importation of CKD or S KD kits as such to Customs and pay the duties.  
China itself shared the same understanding and stated  in its first submission: "Article 2 of Decree 125 
states that importers of CKD/SKD kits can declare these imports to the relevant Customs authorities, 
and the provisions of Decree 125 will not appl y.  Thus, the importer of CKD/SKD kits can declare 
these imports as complete vehicles at the time of importation, pay the complete vehicle duty rate, and avoid the bonding and record-keeping requirements of Decree 125."
241 
7.76 Furthermore, the context of Article 2(2), in particular Article 21(1) of Decree 125, also 
confirms our conclusion.  China argues that the ex istence of Article 21(1) does not conflict with 
Article 2(2), but in fact confirms Article 2(2) by reiterating that CKD or SKD kits are always 
classified as complete vehicles.242  According to China, Article 21 de fines the collections of parts and 
                                                      
237 The procedures to be followed by an importer of CKD or SKD kits under China's Customs Law are: 
(1) to apply to the Ministry of Commerce for an auto matic import licence; (2) to declare, at the time of 
importation, the imports of CKD or SKD kits to the customs and provide the relevant import documentation, 
including the declaration form, the automatic import licence, and the certificate of origin; and (3) to pay the 
applicable motor vehicle duty rate for the CKD or SKD kits in accordance with the regular procedures for the 
payment of customs duties, following the classification by the customs of the imported CKD or SKD kits (China's response to Panel question No. 58). 
238 China's response to Panel question No. 15. 
239 China's response to Panel question No. 193. 
240 China's first written submission, para. 195. 
241 China's first submission, para. 38 (emphasis added).  China also st ated, "[M]anufacturers may 
therefore import CKD/SKD kits, pay th e appropriate motor vehicle duties at the time of importation, and bypass 
the procedures established under Decree 125" (China's  first written submission, para. 195) (emphasis added). 
242 China's first submission, footnote 136 to para. 195. WT/DS339/R 
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  components that have the essential character of a motor vehicle, which includes CKD/SKD kits.
243  
However, in our view, if Article 2(2) were to be understood as automatically excluding CKD or SKD 
kits from the measures, it would make Article 21( 1) of Decree 125 inutile, wh ich categorizes CKD or 
SKD kits as auto parts characterized as complete vehicles under the measures.  In other words, it 
would make meaningless the only logical explanation for the raison d'être  of Article 21(1), which is 
to apply the measures to CKD or SK D kits imports if they were to be imported without recourse to the 
exceptional option under Article 2(2).  Article 21 of Decree 125 is a provision setting forth the 
thresholds for auto parts that should be character ized as complete vehicles under the measures and no 
language in this provision shows any other meaning.  
7.77 We therefore consider that Article 2(2) of Decree 125 is a provision that gives auto 
manufacturers an option to have their CKD or SK D kits imports excluded from the "administrative 
procedures" under the measures and to import them  under regular customs procedures and pay the 
duties applicable to motor vehicles at the time of im portation.  This, however, does not affect the fact 
that CKD and SKD kits imports are in principle s ubject to "the charge" under the measures by falling 
within the scope of the substantive criteria provided in Article 21(1) of Decree 125.  Our reference to 
"the measures" in these reports therefore should be  understood as including within its scope CKD and 
SKD kits.244 
7.78 Furthermore, we understand that an exemption provided for CKD and SKD kits in Article2(2) 
of Decree 125 is limited to the administrative procedures under the measures, not the substantive 
criteria under Article 21(1) of Decree 125.  In par ticular, China itself submits, "[M]anufacturers may 
therefore import CKD or SKD kits, pay the appr opriate motor vehicle duties at the time of 
importation, and bypass the procedures  established under Decree 125. ..."245  We note China's 
statement that Article 21(1) of Decree 125 simp ly reiterates that CKD and SKD kits are always 
classified as complete vehicles and that vehicles that are assembled entirely from CKD or SKD kits 
can be imported as complete vehicles, consistent with GIR 2(a), and the challenged measures do not 
apply.  However, we do not find any support in the text of Decree 125 for China's proposition that 
Article 21(1) of Decree 125 exists simply to reitera te the alleged general principle that CKD and SKD 
kits are always classified as complete vehicles.  Th erefore, for the purpose of this dispute, we will 
consider that although importers of CKD or SKD kits can opt in accordance with Article 2(2) of 
Decree 125 to be exempted from "the administrativ e procedures" under the measures, their obligation 
to pay the charge under the measures for CKD and SKD kits arises from Article 21(1) of Decree 125. 
7.79 Next, we will briefly describe a provision under the measures that provides an exception for 
the imported auto parts that have been  substantially processed in China. 
(ii) Imported auto parts that  have been substantially processed in China – Article 24 of 
Decree 125 
7.80 Under Article 24 of Decree 125 (and Articl es 16-18 of Announcement 4), if domestic 
automobile manufacturers or domestic auto parts manufacturers substantially process imported auto 
parts or imported unfinished auto parts to manufacture auto parts, the auto parts manufactured by such 
domestic manufacturers are considered as domestic auto parts. 
                                                      
243 China's response to Panel question No. 193. 
244 To the extent that an importer exercises the op tion provided in Article 2(2) of Decree 125 and 
imports CKD or SKD kits under the regular customs procedures, the parties agree, as we find in paragraph 
7.636, that the treatment of CKD and SKD kits imports under the measures (i.e. imposition of the charge on CKD and SKD kits) falls under the disciplines of Article II, not Article III of the GATT 1994. 
245 China's first written submission , para. 195 (emphasis added).  WT/DS339/R 
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  7.81 The provision excludes assemblies and sub-assemblies
246 from its application, which is 
understood to mean that the substantial processing exception does not apply to the processing of the 
imported assemblies or sub-assemblies themselves, but  applies to imported parts incorporated into 
assemblies and sub-assemblies.247 
2. Products at issue 
(a) Scope of the products at issue 
7.82 The scope of the products at issue in a given case is determined by the measures falling within 
a panel's terms of reference.  In th e present dispute, therefore, the products at issue are those subject to 
Policy Order 8, Decree 125 and Announcement 4.248   
7.83 The text of the measures does not provide any sp ecific categories of auto parts falling within 
the measures.  Article 1 of Decree 125 simply re fers to "automobile pa rts", and Article 21 of 
Decree 125, a provision on the substantive criteria for determining whether certain imports of auto 
parts should be characterized as complete vehicles, refers to, inter alia , "assemblies" and "CKD and 
SKD kits".   
7.84 Based on the parties' arguments in their writte n submissions and their responses to the Panel 
questions, auto parts subject to the measures at issu e can be generally categorized into the following 
four groups of the HS headings at the four-digit level:249  
(1) complete vehicles under tariff headings 87.02, 87.03 and 87.04250; 
(2) the body and the chassis fitted with engine under tariff headings 87.06 and 
87.07; 
(3) parts and accessories of motor vehicles under tariff heading 87.08; and (4) parts and accessories of motor vehicl es under chapters other than chapter 87, 
in particular under tariff headings 84.07, 84.08, 84.09, 84.83, 85.01, 85.03, 85.06, 
85.11, 85.12 and 85.39. 
                                                     
 
246 See paragraphs 7.88-7.89 below for the discussion on "assemblies" and "sub-assemblies". 
247 Further, in response to the Panel's question of whether assemblies and sub-assemblies are not 
excluded in "imported unfinished automobile parts" under Article 24 of Decree 125, China has stated that they 
are excluded from "imported unfini shed automobile parts" and that assemblies and sub-assemblies are not 
susceptible to substantive transformation since they already constitute a finished portion of the motor vehicle and will not undergo further transformation prior to their assembly into the vehicle (China's response to Panel 
question No. 41).  The complainants have not rais ed any issue with this explanation from China. 
248 The United States and Canada also submit that  the products encompasse d in this case are all 
products that are, or could be, subject to the measures at issue (Responses of the United States and Canada to 
Panel question No. 73). 
249 Parties' response to Panel question No. 73.   
250 Article 3 of Decree 125 provides: 
 
"The reference to 'vehicles' in these Rules shall mean the classes M and N vehicles as defined in the Classification of Vehicles and Trailers (National 
Standard of China, GB/T15089-2001).  
'Class M Vehicles' shall mean passenger ve hicles with at least four wheels.  
'Class N Vehicles' shall mean cargo ve hicles with at least four wheels." 
 WT/DS339/R 
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  7.85 The Panel notes in this regard that "the body" and "the chassis fitted with engine" respectively 
under tariff headings 87.06 and 87.07 are referred to  by the complainants as "intermediate products", 
in the sense that they are the products that are more  than basic units of auto parts or accessories falling 
under the tariff headings such as those listed in  (3) and (4) above, but are not complete motor 
vehicles.  Specifically, a chassis fitted with  an engine under 87.06 is composed of, inter alia , the 
individual parts that make up the chassis and the parts that make up the engine.
251  Likewise, the body 
under 87.07 is composed of the individual auto parts that make up the body. 
7.86 In conclusion, the products at issue in this case are all imported auto parts that are potentially 
subject to the measures, and they generally  fall under the four categories listed above. 
(b) Product terms referenced in the measures at issue 
7.87 Aside from the scope of the products at issue,  the Panel notes that certain product terms are 
referred to in China's measures.  We will briefly examine these terms. 
7.88 We recall that the second criterion for the dete rmination on "auto parts characterized as 
complete vehicles" under Article 21 of Decree 125 uses the term "assembly (system) ".  Article 4 of 
Decree 125 in turn provides the list of the eight assemblies: 
"The reference to 'assembly (system)' in  these Rules shall include the vehicle body 
(including cabin) assembly, the engine assembly, the transmission assembly, the driving axle assembly, the driven axle ass embly, the frame assembly, the steering 
system, and the braking system." 
7.89 According to the complainants, "assembly", a key concept in the measures, corresponds 
roughly to major parts of a vehicle.
252  China submits that it is a conve ntion in the automobile industry 
to group these parts into "assemblies", such as  all of the constituent parts that make up the 
"transmission assembly".253   
7.90 Article 22(2) of Decree 125 refers to "key parts or sub-assemblies" when it sets out, 
"[i]mported automobile parts shall be characterized  as an assembly (system) if ... the quantity of the 
imported key parts or sub-assemblies  [for purpose of assembling assemblies (systems)] reaches or 
exceeds the specified level as set forth in Annexes 1 and 2."  In turn, Annex 1 to Decree 125 specifies 
auto parts considered under China's measures as  key parts and sub-assemblies for each assembly 
(system).  For example, a vehicle body – a type of assembly – will consist of key parts and sub-
assemblies such as side panel, door, bonnet, roof box,  or luggage compartment.  Therefore, we 
understand for the purpose of this dispute that th e product terms "key parts" and "sub-assemblies" 
refer to certain units of auto parts constitu ting "assemblies" as defined under the measures. 
7.91 Furthermore, the first group of auto parts char acterized as complete vehicles under Article 21 
of Decree 125 is CKD and SKD kits .254  At the outset, we note that all parties agree that there exists 
no standard definition of what constitutes a CKD or SKD kit, although they generally agree that these 
product terms refer to "auto parts that are either fully or partly unassembled and that are shipped 
                                                      
251 The European Communities' first written submission, paras. 226-230.  See also paragraph 7.583 
below. 
252 Part E.1 of the factual background section submitted jointly by the complainants. 
253 China's response to Panel question No. 63. 
254 As noted in paragraphs 7.71-7.77 above, Article 2(2) of Decree 125 is an optional provision that 
exempts CKD and SKD kit imports from the ad ministrative procedures under the measures.  WT/DS339/R 
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  together for assembly and further processing into a whole vehicle [in an importing country]." 
255  We 
will examine CKD and SKD kits in more detail when  we address the parties' claims and arguments 
pertinent to these products.256 
3. Burden of proof 
7.92 As the Appellate Body explained in US – Wool Shirts and Blouses , the general rule of burden 
of proof is that the burden rests upon the party, whether complaining or defending, who asserts the 
affirmative of a partic ular claim or defence.257  Given this general rule, it is the complainant in a given 
case who initially bears the burden of proof to establish a prima facie  case of inconsistency of a 
measure with a provision of the WTO covered agreem ent, before the burden of showing consistency 
with a provision or defending it under an exceptiona l provision (e.g. Article XX of the GATT 1994) 
shifts to the defending party. 
7.93 In the present case, therefore, it is the complain ants who have the initia l burden of proof to 
establish a prima facie  case of alleged inconsistencies of China's measures with, inter alia , Article III 
of the GATT 1994, or alternatively, Article II of the GATT 1994.  China, then, as a party making an 
affirmative defence of its  measures under Article XX(d) of the GATT 1994, bears the initial burden to 
prove that its measures are justified under this provision. 
7.94 In this connection, a prima facie case is "one which, in the absence of effective refutation by 
the defending party, requires a panel, as a matter of law, to rule in favour of the complaining party presenting the prima facie case".
258  To establish a prima facie  case, the party asserting a particular 
claim must adduce evidence sufficient to raise a presumption that  what is claimed is true, although 
precisely how much and precisely what kind of evidence will be required to establish a presumption that a claim is valid will ne cessarily vary from case to case.
259  
7.95 Bearing in mind the above, we will commence our analysis of the complainants' claims in 
respect of the measures in the order indicated in the following section. 
4. Panel's order of analysis  
7.96 As set out in paragraphs 3.1-3.10  of the Descriptive Part of these Reports, the complainants in 
this dispute have presented their claims in r espect of the measures at issue under the GATT 1994, 
TRIMs Agreement, SCM Agreement and China's Accession Protocol. 
7.97 We note that the parties, with the exception of  the European Communities, have not requested 
the Panel to examine these claims in any specific order. 
                                                      
255 Part C of the factual background section submitted jointly by the complainants.  China submits that 
a CKD kit consists of all, or nearly all, of the parts and components necessary to assemble a complete vehicle, 
and that an SKD kit differs from a CKD kit in the extent of its prior assembly (i.e. unlike a CKD kit, an SKD kit includes significant parts and component s that have already been assembled)  (China's first written submission, 
paras. 35-36).  China also submits that there is no particular relationship between CKD or SKD kits and the 
assemblies referred to in Article 21(2) of Decree 125, other than they all consist of auto parts in various states of assembly (China's response to Panel question No. 63). 
256 See Section VII.F of these reports. 
257 Appellate Body Report on US – Wool Shirts and Blouses , page 14. 
258 Appellate Body Report on EC – Hormones, para. 104. 
259 Appellate Body Report on US – Wool Shirts and Blouses , page 14. WT/DS339/R 
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  7.98 The European Communities , citing the Appellate Body Report on EC  Bananas III , submits 
that the TRIMs Agreement, as "the agreement which is  more specific to the claim before the Panel" 
should be considered first
260, followed by its claims under Article III of the GATT 1994.  The United 
States  and Canada , on the other hand, have presented thei r claims under Article III of the GATT 
1994 first, followed by their claims under the TRIM s Agreement.  The United States and Canada have 
not indicated a particular view on the order of analysis to be followed by the Panel in respect of their claims under Article III of the GATT 1994 and the TRIMs Agreement.
261 
7.99 The Panel  notes that in EC – Bananas III  the Appellate Body enunciated a test to be applied 
in order to decide the Panel's order of analysis where two or more provisions from different covered 
agreements appear  a priori  to apply to the measure in question.  According to the Appellate Body, the 
provision from the agreement that "deals specifically, and in detail" with the measures at issue should 
be analysed first.262  However, regarding the order of analysis between the GATT 1994 and the 
TRIMs Agreement, as a previous panel has pointed out263, WTO jurisprudence is not uniform on the 
question of which one of these two agreements is more specific.264   Furthermore, we do not consider 
that the present case is one in which the relations hip of the various provisions under which the 
complainants base their claims requires us to fo llow a particular mandatory sequence of analysis, 
which, "if not followed, would amount to an error in law."265 
7.100  In light of the foregoing, we will start our analysis with the complainants' claims under 
Article III of the GATT 1994 with respect to imported auto parts in general.  Specifically, we will 
analyse the complainants' clai ms in the following order: 
 – Article III of the GATT 1994; 
                                                      
260 European Communities' first written submission, para. 76 (citing the Appellate Body Report on EC-
Bananas III , paras. 202-204). 
261 See the United States' and Canada's respective responses to Panel question No. 153.  The United 
States, for instance, says that it "consid ers that the order of analysis is within the discretion of the Panel."  Ibid. 
262 Appellate Body Report on EC – Bananas III , para. 204. 
263 See Panel Report on India –  Autos , para. 7.156. 
264 In Canada –  Autos , the Panel analysed the measures at is sue, including a duty exemption accorded 
based on the local content requirements, under the GATT 1994 first on the grounds that:  1) the TRIMs 
Agreement could not be properly char acterised as being more specific than  Article III:4 of the GATT 1994 in 
respect of the claims raised in that case;  2) there was disagreement between the parties  on whether the measures 
under consideration could be considered to be "trade-re lated-investment measures" and on whether they were 
explicitly covered by the Illustrative List.  (Panel Report on Canada –  Autos , paras. 10.63 and 10.91). 
The Panel in India –  Autos  held that as a general matter, even if there was some guiding principle to 
the effect that a specific agreement might appropriately be examined befo re a more general agreement, the 
TRIMs Agreement should not be inherently characterised as more specific than the relevant GATT provisions.  
Thus, the Panel analysed the measures at issue, in cluding the localization requir ements attached to the 
importation of CKD/SKD kits, under the GATT 1994 first.  The Panel concluded that, having found that the "indigenization requirement" was in violation of Article III:4 of the GATT 1994, it was not necessary to 
consider separately whether it was also inconsistent with  Article 2 of the TRIMs Agreement.  (Panel Report on 
India – Autos , paras. 7.156, 7.157, 7.159-7.161 and 7.324, and footnote 377). 
After noting that the TRIMs Agreement is a fully-fl edged agreement in the WTO system, the Panel in 
Indonesia – Autos  considered that this agreement was more specific  than Article III:4 of the GATT 1994 in 
addressing the claims relating to the Indonesian car programme under which tariff and tax benefits were granted contingent upon meeting specified local content requi rements.  Having found that the measures were 
inconsistent with Article 2 of the TRIMs Agreement, the Panel exercised judicial  economy with respect to 
complainants' claims under Article III of the GATT 1994.  This has been the only dispute in which a panel examined the TRIMs Agreemen t first (Panel Report on Indonesia  Autos , paras. 14.61-14.63 and 14.93). 
265 See Appellate Body Report on Canada – Wheat Exports and Grain Imports , para. 109.    WT/DS339/R 
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 – TRIMs Agreement;  
 – Article II of the GATT 1994; and 
  – SCM Agreement.  7.101  Then, we will address the complainants' claims  with respect to the treatment of CKD and 
SKD kits under the measures in the following order; 
 – Article II of the GATT 1994; and 
  – Paragraph 93 of China's Working Party Report.  
B. A
RTICLE  III OF THE GATT  1994 
1. Are the measures consistent with Article III:2, first sentence, of the GATT 1994? 
7.102  The complainants  submit that the measures impose an internal charge in a manner 
inconsistent with Article III:2, first sentence, of the GATT 1994.  China  rejects these arguments, 
claiming instead that the charge imposed under th e measures is an "ordinary customs duty" under 
Article II:1(b), first sentence, of the GATT 1994. 
7.103  Article III:2, first sentence, of the GATT 1994 provides: 
"The products of the territory of any contr acting party imported into the territory of 
any other contracting party shall not be subject , directly or indirectly, to internal taxes 
or other internal charges of any kind in ex cess of those applied, di rectly or indirectly, 
to like domestic products." 
7.104  The Appellate Body in Canada – Periodicals clarified that the analysis of whether a measure 
is inconsistent with the first sentence of Artic le III:2 of the GATT 1994 involves a two-step test: 
"[T]here are two questions which need to be  answered to determine whether there is a 
violation of Article III:2 of the GATT 1994:  (a) whether imported and domestic 
products are like products; and (b) whether the imported products are taxed in excess 
of the domestic products.  If the answers to both questions are affirmative, there is a 
violation of Article III:2, first sentence."266 
7.105  However, before we can proceed w ith the analysis as explained in Canada – Periodicals  we 
must preliminarily determine whether the charge un der the measures indeed falls within the scope of 
Article III:2 of the GATT 1994.  This is because the parties dispute from the outset whether such 
charge is an "internal charge" under Article III:2 of the GATT 1994, as the complainants contend, or 
an "ordinary customs duty" under Article II: 1(b) of the GATT 1994, as China asserts.267  This is 
                                                      
266 Appellate Body Report on Canada – Periodicals , DSR 1997:I, page 468. 
267 We note that the parties agree that the question before us is whether such charge is an "ordinary 
customs duties" under the first sentence  of Article II:1(b) of the GATT 1994, not an "other duty or charge" 
under the second sentence  of this provision.  (See, e.g., European Communities' second written submission, 
para. 36 and footnote 34; United States' second wr itten submission, para. 23; Canada's second written 
submission, para. 27; and China's responses to Panel question Nos. 79 and 88). WT/DS339/R 
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  indeed a crucial question for a charge cannot be at  the same time an "ord inary customs duty" under 
Article II:1(b) of the GATT 1994 and an "internal ta x or other internal charge" under Article III:2 of 
the GATT.
268   Therefore, as panels before us have similarly decided,269 we must first decide which of 
these two provisions is applicable to the charge under the measures.270 
                                                      
268 We see no objection from any of the parties to this dispute in starting our analysis of the claim under 
Article III:2 of the GATT 1994 with this preliminary dete rmination as China and the co mplainants agree that the 
"charges in this dispute are either in ternal ones (as complainants contend), or customs duties (as China asserts)." 
(United States' response to Panel question No. 88; s econd written submission, para. 13 and second oral 
statement, para. 9).  See also Canada's response to Pa nel question No. 103.  China also notices this nuanced 
position of the complainants on the binary character of  Article II and Article III of the GATT 1994 and claims 
that "Canada, at a minimum, appears to accept that a measure or charge th at is validly within the scope of 
Article II cannot be analysed under Article III" (Chi na's response to Panel question No. 179(a) and second 
written submission, para. 123).  Howeve r, China considers that the "threshold question" before the Panel is in 
relation to the nature of the entirety  of the measures, although it also specifically states, only in relation to the 
charge , that "... a customs duty under Article II cannot simultaneously be analysed as an 'internal charge' under 
the disciplines of Article III ..." (China's response to Panel question No. 203).  We also recall that the 
complainants have respectively made alternative claims, inter alia , under Article II:1(a) and (b) of the GATT 
1994, in case the Panel were to find that the charge  under the measures were a border charge (see European 
Communities' first written submission, paras. 210-213;  United States' first written submission, para. 117; and 
Canada's first written submission, para. 132).  We consider that the complainants' focus on the charge  in their 
alternative claims under Article II:1(a) and (b) of the GATT 1994 reinforces our und erstanding that they accept 
that the question whether the charge  under the measures is within the meaning of the first sentence of 
Article II:1(b) or Article III:2 of the GATT 1994 is indeed a binary one. 
269 See GATT Panel Report on EEC – Parts and Components , para. 5.4.  See also the GATT Panel 
Report on Greece – Import Taxes , which stated that the "... principal question arising for determination was 
whether or not the Greek tax was an internal tax or charge on imported products within the meaning of 
paragraph 2 of Article III.  If the finding on this point were affirmative, the Panel considered that it would be 
subject to the provisions of Article III ..." (para. 5).  In the unadopted GATT Panel Report on Canada – Gold 
Coins  the parties themselves agreed to include in the terms of reference of the Panel "the understanding that the 
Panel would provide its views ... on the question of whet her the Ontario provincial sales tax measure on gold 
coins accorded with the provisions of Articles III [or] II of the General Agreement before proceeding to hear 
additional arguments relating to the remaining elements outlined in the terms of reference" (para. 49 – from the 
context of this sentence we understand th at the panel meant "or" instead of "a nd").  See also the Panel Report on 
Argentina – Hides and Leather , para. 11.139.  With regard to our citation of the unadopted GATT Panel Report 
on Canada – Gold Coins  above, we recall the Appellate Body's statement in Argentina – Textiles and Apparel  
that although "unadopted panel Repo rts have no legal status in the GATT or WTO system ... a panel could 
nevertheless find useful guidance in the reasoning [of such Reports] ... that it considered to be relevant" (para. 
43). 
270 In doing so we would be fulfilling our duty under Article 11 of the DSU to determine the 
applicability of the provisions cited by the complainants to the contested measures.  Furthermore, we believe 
that in the present case, answering such a prelimin ary question does not require us to provide positive 
definitions of what constitutes an "internal charge" a nd an "ordinary customs duty" under respectively Article 
III:2 and Article II:1(b) of the GATT 1994 as it would suff ice for us to examine the el ements that differentiate 
these two kind of charges.  We will then apply these el ements to the specific aspects of the charge under the 
measures to determine under which provision it should fall.  We also believe that such preliminary analysis is without prejudice to our separate analysis, below, on wh ether certain aspects of th e measures fall within the 
scope of Article III:4 of the GATT 1994.  We believe however that our finding here on whether the charge is 
within the meaning of Article III:2 or Article II:1(b) of the GATT 1994 may have an impact on that other preliminary analysis.  Finally, as the parties do not di spute that the charge imposed under the measures is not 
covered by the term "all other duties and charges of any kind imposed on or in connection with the importation" 
within the meaning of Article II:1(b), second sentence, of the GATT 1994, we consider that the object of our 
analysis in this section is not to delineate "ordinary cust oms duties" under the first sentence of Article II:1(b) of 
the GATT 1994 from "all other duties and charges of any kind" under the second sentence of this provision.  As  WT/DS339/R 
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  7.106  We will thus begin our preliminary analysis by  recalling how the charge is imposed under the 
measures.
271 
(a) Charge under the measures 
7.107  The Panel  recalls that China, as described a bove in paragraph 7.24, imposes under the 
measures a charge in the amount equivalent to the ta riff rate applicable to motor vehicles (25 per cent 
on average) on auto parts that are imported and u sed by automobile manufacturers for the assembly of 
motor vehicles, if such auto parts are characterized  as complete vehicles based on the thresholds set 
out in the measures.  As we have explained above in Section VII.A.1(b)(i), under the measures, the 
final determination of whether certain auto parts are characterized as complete vehicles and thus 
subject to the charge is made once the auto part s, imported in a single or multiple shipments, are 
assembled into complete vehicles in China. 
7.108  We also recall that Article 29 of Decree 125272 provides that auto parts imported by a third-
party supplier and subsequently purchased by an automobile manufacturer for their assembly into 
motor vehicles in China, will also be counted toward s the thresholds set out in the measures.  China 
has explained that imported auto parts that the auto manufacturer purchases from a third-party 
supplier in China will have completed the necessary customs formalities and are no longer subject to 
customs control.  China further explains that th e rules for bonded goods do not apply to auto parts 
imported by a third-party supplier.  Pursuant to Article 29 of Decree 125, automobile manufacturers 
are then liable in respect of imported auto pa rts purchased from a third-party supplier for the 
difference between a charge equivalent to the amou nt of the tariff rates for motor vehicles and the 
amount of duty for auto parts that would have alr eady been paid by a third-party supplier at the time 
of importation.273 
7.109  Given that China submits that the imposition of the charge on imported auto parts purchased 
from a third-party supplier operates under the measur es in a different manner from the charge on auto 
parts imported by automobile manufacturers, we wi ll first examine whether we must consider the 
charge imposed pursuant to Article 29 of Decree 12 5 separately from the charge imposed in general 
under the measures for the purpose of examining th e complainants' claim under Article III:2 of the 
GATT 1994. 
(i) Arguments of the parties 
7.110  The complainants  argue that the charge under Article 29 of Decree 125 cannot be separated 
from the charge imposed under the other provisions of Decree 125. 
7.111  The European Communities  submits that Article 29 is a ge neral provision that applies to 
automobile manufacturers that purchase automotive pa rts from suppliers.  Article 29 uses the general 
language of the measures on parts "characterized as co mplete vehicles" and is directly connected with 
the overall logic of the measures according to whic h the classification of the imported parts depends 
on their internal use in China.274  Additionally, the fact that cust oms duties and the 15 per cent internal 
                                                                                                                                                                     
analysed in more detail below, the second sentence of Article II:1(b) of the GATT 1994 is only relevant to the 
present case insofar as it confers contex tual support for the interpretation of "on their importation" in the first 
sentence of Article II:1(b) of the GATT 1994. 
271 See also Section VII.A.1(b)(i) above. 
272 The text of Article 29 of Decree 125 is partially cited above at paragraph 7.37. 
273 See China's responses to Panel question Nos. 20, 20(b), 31, 65, 83, 92 and 101. 
274 European Communities' response to Panel questio n No. 101;  second written submission, para. 54;  
second oral statement, para. 21. WT/DS339/R 
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  charges are due by the same  person when the importer is the automobile manufacturer, and can thus 
be hidden under a global 25 per cent charge, cannot affect the legal assessment under Articles II and 
III of the GATT 1994.
275   
7.112  The United States  argues that the number or value of parts imported by third parties can be 
determinative of whether charges are imposed on a ll imported parts used in a domestically produced 
vehicle.  Under Decree 125, if the number or valu e of imported parts in a specific vehicle exceeds the 
designated thresholds, all imported parts in that  vehicle will be assessed a 25 per cent charge.  
Article 29 of Decree 125 allows a manufacturer to deduct  from that charge the value of any customs 
duties that another supplier has paid on one of the parts assembled into the vehicle.  Accordingly, 
there is no "separate charge," only a permissible deduction upon provision of sufficient evidence that 
the payment was made at the border by the third- party supplier.  Similarly, all imported parts, 
regardless of their source, are counted together in determining whether the thresholds in Articles 21 
and 22 of Decree 125 have been met.  Hence, unde r China's analysis, there really is nothing to 
distinguish the charge imposed on parts importe d by third parties and parts imported by the 
manufacturer.  If, as China appears to concede, the charge on third-party parts is an internal charge, 
the charge on the manufacturer's parts must be as well.276 
7.113  Canada  argues that all imported parts (regardless of the importer) are considered collectively 
for purposes of the thresholds under the measures.  As such, the measures are not even applied to 
imported parts in accordance with the express intenti on of the measures to enforce China's Schedule.  
This demonstrates how arbitrary and discriminatory the measures truly are as the volume and value 
thresholds, clear domestic-content requirements in themselves, are applied to products that even 
China admits should be the subject of national treatment.277 
7.114  China , on the one hand, submits that Article 29 of  Decree 125 is "conceptually different" in 
relation to Article II, because the original importe r of these third-party parts and components has, in 
most cases, already completed the customs formaliti es in respect of these imports, and the goods are 
no longer subject to customs control.  On the othe r hand, China submits that the charges collected 
pursuant to Article 29 are nevertheless ordinary cu stoms duties under Article II of the GATT 1994, in 
that they objectively relate to the proper classificati on of the imported parts and components as part of 
a collection of imported parts and components that, in their entirety, have the essential character of a motor vehicle.  Article 29 therefore results in th e application of the motor vehicle duty to imported 
auto parts regardless of who imported them.
278 
(ii) Consideration by the Panel 
7.115  The Panel considers that Article 29 does not administer a charge that is different from the 
charge imposed in general under the measures:  au tomobile manufacturers use auto parts imported by 
a third-party supplier in the same manner as auto parts the manufacturers themselves directly import 
for the assembly of motor vehicles; and auto parts imported either by vehicle manufacturers or by 
third-party suppliers are subject to the same thresholds set out in the measures.279  In the Panel's view, 
                                                      
275 European Communities' comments on China's response to Panel question No. 185(d). 
276 United States' responses to Panel question Nos. 185(e) and 198;  comments on China's response to 
Panel question No. 185(c);  first oral statement, para. 28. 
277 Canada's second written submission, paras. 4-5;  responses to Panel question Nos. 101, 185(e) and 
198. 
278 China's responses to Panel question Nos. 83, 92 and 101; second written submission, para. 186. 
279 We see, for example, nothing in Articles 21 and 22 of Decree 125 (which establish the thresholds 
for determining, respectively, whether auto parts should  be "characterized as complete vehicles" and "deemed 
imported assemblies") distinguishing parts imported under Article 29 from parts imported in general under the  WT/DS339/R 
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  the elements cited by China, such as those described above in paragraph 7.108, in an effort to argue 
that the charge imposed on auto pa rts in the context of Article 29 is conceptually different from the 
charge in general
280, do not change our conclusion that there is only one charge, which is ultimately 
triggered by the application of the thresholds afte r the assembly of the imported parts into complete 
vehicles in China.  For these reasons, we do not cons ider that the charge imposed under Article 29 of 
Decree 125 should be analysed separately from the char ge imposed in general under the measures.  In 
fact, they are the same charge. 
(b) Is the charge an "internal charge" within the meaning of Article III:2 of the GATT 1994? 
(i) Overview of the arguments of the parties 
7.116  The European Communities  argues that the charges are internal, and thus subject to 
Article III of the GATT 1994, because the application of the measures is only triggered by the actual 
manufacturing process taking place inside China by wh ich imported automobile parts are used to 
produce vehicles for domestic sale in China (Artic le 7 of Decree 125).  China's charges are not 
collected at the time or point of importation, but internally after assembly and manufacture, as 
confirmed by the language of Article 28 of D ecree 125.  More specifically, the European 
Communities maintains that the charges under China' s measures are not imposed on the basis of how 
auto parts are presented on importation , but on the basis of how they are used after  importation and, 
in particular, whether they are subsequently assemb led and manufactured in China into vehicles with 
an insufficient level of local content.  The reason  or event  that triggers the charges under the measures 
is not the importation of the parts into China but the assembly, fitting, equipping and manufacture of 
such parts into a complete vehicle after importation.281 
7.117  The United States  also argues that China's measures apply after  importation of the product 
and cannot therefore be considered to impose an ordi nary customs duty.  China's charges are thus not 
imposed at the time of, or as a condition to, the entry of the parts into China, but are rather internal 
charges the application of which turns on the deta ils of the manufacturing operations conducted in 
China.  They are therefore internal  charges.  For the United States, th e internal nature of the measures 
and the charges is confirmed, inter alia , by the following factors:  first, the determination of whether 
imported parts constitute "features of a complete autom obile" is made at the time the parts are used in 
the assembly process rather than at the time the parts enter the territory to which China's Schedule 
relates (Article 5 of Decree 125);282  second, under the measures, a ll of the parts of a completed 
                                                                                                                                                                     
measures.  See paragraphs 7.32 and 7.33 for a descrip tion of these two provisions of Decree 125.  See also 
paragraph 7.37. 
280 As China itself explains, the 10 per cent a third-party supplier pays at the border when importing 
auto parts is simply "deducted" from the final charge liability the manufacturer eventually incurs after these 
parts, together with other parts, domestic and/or imported, are assembled/produced into whole vehicles in China. 
See China's responses to Panel question Nos. 31 and 65. 
281 European Communities' first written submission, para. 139; first oral statement, paras. 25-26;  
second written submission, para. 51;  second oral statement, para. 18;  responses to Panel question Nos. 90, 
90(b) and 181. 
282 In this regard, the United States emphasizes that even if a manufacturer c ould identify that certain 
auto parts are going to be used in a specific vehicle model , given the assembly-line pr ocess, the manufacturer 
would have no idea into which particular vehicle  a particular part is going to be incorporated.  Moreover, within 
a bulk shipment of parts, one cannot identify in advanc e which parts will actually be used in production, as 
opposed to being discarded as defective, damaged in proc essing, or being held in inventory for eventual use as 
replacement parts.  Thus, there is not – and cannot be – a speci fic vehicle identified with  a collection of specific 
parts until that vehicle has actually b een assembled within Chin a.  The Unites States r ecalls that China asserts 
that it can identify parts of a specific model  at the border, but it does not assert that it can identify parts  of a WT/DS339/R 
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  vehicle are combined for the determination of whet her the 25 per cent charge applies, regardless of 
where those parts originate, when or  where they entered the territory of China, or who imported them;  
third, even if a part has been imported by a supplie r, and even if the supplier has already paid customs 
fees and duties, the part is nonetheless grouped togeth er with parts imported by the manufacturer itself 
when making the determination (the refore, identical imported parts included in the same shipment can 
be subject to different charges depending on their in ternal use);  fourth, the 25 per cent charge is 
imposed not on the importer, but on the manufacturer – whether or not the manufacturer is actually 
the importer of the part in question;  and fifth, the official verification is performed by Chinese 
authorities at the manufacturer's site, not at the bo rder (Article 7 of Decree 125).  Finally, also 
relevant is that determinations under the measure s are not made by Chinese Customs through normal 
customs procedures, but by a special administrative body pursuant to measures developed by agencies 
with industrial policy functions.
283  
7.118  Canada  submits that the measures impose charges and administrative requirements on 
imported auto parts based not on the state of the product upon presentation at the border, but upon the 
use of those imported parts in vehicle manufacturing that takes place after importation.  In other words, the liability that applies to imported produc ts under the measures occurs only after the final 
related product, the complete automobile, rolls o ff the assembly line.  As a result, Canada sees 
nothing in the measures to suggest a relationship with the administration and enforcement of valid 
customs liabilities.  For auto parts manufacturers us ing imported parts, the bound tariff rate for parts 
(usually 10 per cent) is paid at the border.  If that  imported auto part is then used in manufacturing a 
vehicle of which the imported content exceeds th e value or quantity thresholds set out in the 
measures, then an additional internal charge (usu ally an additional 15 per cent) is assessed on the 
value of the imported auto part.  If the vehicle ma nufacturer can establish that the tariff was already 
paid by the auto parts manufacturer, the original im porter, then the vehicle manufacturer will receive a 
10 per cent credit, in effect paying an internal charge  of 15 per cent.  If the vehicle manufacturer is not 
able to establish this to the satisf action of Customs, it would then be  subject to a 25 per cent internal 
charge.  This shows that the measures apply to auto  parts only once they are in free circulation in the 
internal Chinese automotive market, and are b ased entirely on their use after importation.
284  
7.119   In sum, the core of the  complainants ' arguments285 under this issue is that the charge on 
imported auto parts resulting from the measures is an internal charge subject to the first sentence of 
Article III:2 of the GATT 1994 because it is triggered by the actual use of these parts in the 
assembling of complete vehicles taking place inside China after importation.  The complainants argue that if the charge were truly an "ordinary customs duty", it would be assessed solely on the status  or 
condition  of these goods at the moment they were presen ted at the border "on their importation" into 
                                                                                                                                                                    
 
specific vehicle.   As a result, concludes the United States, the measures wait until the vehicle has been 
assembled before making the final assessment of charges (United States' response to Panel question No. 176). 
283 United States' first written submission, para. 76-80;  first oral statement, paras. 23-26;  second oral 
statement, paras. 14 and 16-17;  second written submissi on, para. 22 and footnote 13 to para. 22;  responses to 
Panel question Nos. 87, 90 and 186; comments on China's response to Panel question No. 134. 
284 Canada's first written submission, para. 84 and footnote 114 to this paragraph;  response to Panel 
question No. 90(a). 
285 Argentina, Australia, Japan and Mexico, who participated in the Panel's proceeding as third parties 
and submitted written submissions, support the complainants ' view on this issue. (see Argentina's third party 
submission, paras. 8-17; Argentina's oral statement, paras. 2-7; Australia's oral statement, paras. 4-16; Japan's 
third party submission, paras. 4-22; Japan's oral statement, paras. 2-11; and Mexico's third party submission, 
paras. 4-6).  Brazil did not express any views on the proper characterization of the measures at issue but 
highlighted key considerations regarding the differences between Article II and III of the GATT 1994 (see 
Brazil's oral statement, paras. 2-9).  WT/DS339/R 
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  China
286, as required by a proper interpretation of the first sentence of Article II:1(b) of the GATT 
1994, not on their use inside China in the assembly of complete vehicles.  To the complainants, an 
"ordinary customs duty", even if collected after th e time or point of importation, must be assessed 
taking into consideration only the state of the product at the moment of importation.  The stated policy 
purpose of the measures, the description and character ization of the charge under the measures as well 
as the fact that the charge is co llected by the customs authority ar e all irrelevant factors to the 
determination of whether the charge  is an "ordinary customs duty". 
7.120  China , however, submits various arguments in s upport of its defence that the challenged 
measures impose ordinary customs duties under Article II:1(b), first sentence, of the GATT 1994.  
First, because the charges are imposed conditioned upon the entry  of goods into China.  Additionally, 
because these charges are imposed "on their importati on" within the meaning of Article II:1(b), first 
sentence, because they relate to, or fulfil, a condition of liability that attaches at the time of 
importation .287  Further, these charges are ordinary cust oms duties also because they are charges 
China is allowed  to impose by reason of , or as a condition of , the importation of the product, 
irrespective of the precise time and place when and where they are imposed or collected.288  Finally, 
China explains that an important factor in the characterization of the charges as ordinary customs 
duties is that they are imposed by measures that implement and enforce China's Schedule of 
Concessions by giving effect to the provisions of Ch ina's Schedule relating to "motor vehicles."  They 
do so by defining the circumstances under which China will classify imported auto parts and 
assemblies as having the essential character of a complete motor vehicle under these tariff 
provisions.289  This is done irrespective of how importe rs choose to structure such auto part 
importations:  either in a single or in multiple shipments.  It is therefore the importation of parts of registered vehicle models, i.e. those containing imported parts that assembled together have the essential character of a complete vehicle, that trigge rs the imposition of the charge, not their internal 
use.   
7.121  In light of the parties arguments on whether th e charge falls within the scope of the first 
sentence of Article III:2 of the GATT 1994 or the first sentence of Article II:1(b) of the GATT 1994
290, the Panel  considers that it must examine these two provisions in accordance with the 
customary rules of treaty interpretation under the Vienna Convention on the Law of Treaties ("Vienna 
Convention ")291.  In doing so, we will also follow the inte rpretative approach taken by the Panel in 
India – Autos : 
"The Panel feels that it is vital that th e task be approached solely through an 
application of the customary rules of inte rpretation of public international law as 
                                                      
286 Or based on their "snapshot", as Canada calls it (see Canada's response to Panel question No.90(b));  
or based on the goods "as entered" (see Unite d States' second written submission, para. 22). 
287 China's first written submission, para. 67; second written submission, para. 112. 
288 China's first written submission, para. 7;  second written submission, para. 115;  responses to Panel 
question Nos. 87 and 109. 
289 China's first written submission, para. 43;  first oral statement, para. 28. 
290 European Communities' second written submission, para. 36 and footnote 34; United States' second 
written submission, para. 23; Canada's second written su bmission, para. 27; and China's responses to Panel 
question Nos. 79 and 88. 
291 See Article 3.2 of the DSU.  These rules require an interpretation in good  faith in accordance with 
the ordinary meaning to be given to the terms in their context and in the light of the object and purpose of the 
agreement (Article 31 of the Vienna Convention ).  Recourse may be had to supplementary means of 
interpretation in accordance with Article 32 of the Vienna Convention .  See, e.g., the Appe llate Body Report on 
US – Gasoline , DSR 1996:I, page 16-17;  Appellate Body Report on Japan – Alcoholic Beverages II ,  DSR 
1996:I, page 104; and Appellate Body Report on India – Patents (US) , paras. 45-46. WT/DS339/R 
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  required by Article 3.2 of the DSU.  This should occur without any presumption as to 
some preordained or systemic balance betw een the two Articles. The customary rules 
provide sufficient mechanisms to ensure an appropriate outcome that should deal with 
such concerns, as they require considerati on of ordinary meaning in context and in 
the light of object and purpose of the treaty.  In this regard, context includes a reading 
of each Article in relation to other potentia lly relevant provisions and an analysis, 
where necessary, of any differences in terminology. The principle of effectiveness would also apply to prevent reducing any provision to inutility.   
While other provisions in the WTO Agreement may usefully be considered as part of 
the context which informs the meaning of a given provision, the scope of that provision should not be assumed a priori  to vary depending on the mere presence of 
other provisions which may have some releva nce to the situation: the contours of a 
provision should flow from its terms, as r ead in context alongside the other provisions 
of the agreement. The Panel is also mindful  of the fact that different aspects of a 
particular measure may legitimately be c overed by distinct provisions of the WTO 
Agreements."
292 
(ii) Internal taxes or other internal charges with in the meaning of Article III:2 of the GATT 1994 
Arguments of the parties  
7.122  The European Communities  argues that internal charges under Article III:2 of the GATT 
1994 are not imposed on "products on their importation into the territory", but on products already 
"imported into the territory".293 
7.123  The United States  submits that an examination of the language used in Article III:2 involves 
a relationship between products that have been "i mported into the territory" of a Member with 
"internal taxes or other internal charges".  Thus, in contrast to ordinary customs duties under 
Article II, which are based on the product at the time of importation, an internal charge under 
Article III:2 may be associated with the product as it exists after it is impo rted into a Member's 
territory.294  The United States submits that the applicabilit y (or not) of Article III:2 follows from this 
provision's use of the terms "internal charges" and not from any notion (as China contends) that Article II provides "permission" for a violation of Article III.
295  For this reason, China is wrong in 
asserting that customs duties would always constitute "a violation of the non-discrimination principles 
under Article III."  The same type of discriminat ion does not apply to customs duties regularly 
imposed by WTO Members.  That is, the level of charges on other imported products  does not depend 
on how an imported part is used within the Member's territory.296   
7.124  Canada  adds that the Appellate Body and GATT acquis  have made it abundantly clear that 
Article III exists to prevent discrimination against im ported products, by protecting expectations of an 
equal competitive relationship between imported and domestic products.  The protection afforded by 
Article III does not work simply in respect of products  once in the internal market, but also in respect 
of establishing the very point at which na tional treatment must apply.  That point must  be when a 
                                                      
292 Panel Report on India – Autos , paragraphs 7.222 and 7.223.  The complainants agreed with this 
approach in their respective resp onses to Panel question No. 203. 
293 European Communities' second written submission, para. 38. 
294 United States' response to Panel question No. 186. 
295 United States' second oral statement, para. 9. 
296 United States' second oral statement, para. 12.  WT/DS339/R 
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  product is physically presented at the border.  Otherwise, how can the objective of Article III be 
realized when the very scope of the tariff concession s is uncertain, and the border itself can be set as a 
Member sees fit so as to deny national treatment?
297 
7.125  China submits that whether one examines the matter from the standpoint of Article II ("on 
their importation"), or from the standpoint of Article  III ("imported"), it is evident that the delineation 
between Article II and Article III requires some unde rstanding of what it means for products to have 
completed the process of importation .  It is the completion of this process that marks the turning point 
between permissible discrimination under Article  II and impermissible discrimination under 
Article III.  In China's view, imports have been "cleared through customs" once all customs 
formalities are complete and the goods are in free circulation within the customs territory.  In 
particular, China considers that imports have been "cleared through customs" once the national 
customs authorities have completed the administrativ e processes that are n ecessary for the imposition 
and assessment of the specific border charges that a Member is allowed to impose in respect of the 
imports at issue, and the imports are no longer subj ect to customs control.  A Member may not impose 
any charge in connection with the customs clearance process and thereby evade the non-
discrimination disciplines of Article III.  Rather, it must be a charge of a type that the Member is allowed to impose under its Schedule of Concessions  or in accordance with other WTO provisions.
298 
Consideration by the Panel  
7.126  The first sentence of Article III:2 of the GATT 1994 provides: 
"The products of the territory of any contr acting party imported into the territory of 
any other contracting party shall not be subject , directly or indirectly, to internal taxes 
or other internal charges of any kind in ex cess of those applied directly or indirectly, 
to like domestic products." 
7.127  Neither Article III:2 of the GATT 1994 nor an y other WTO covered agreement provides a 
definition of the term "internal taxes or charges".  The Dictionary of Trade Policy Terms  defines 
"internal taxes" as follows: 
"Government charges applied to sale  of goods and services inside a customs 
territory .  Article III of the GATT requires that such charges are levied at the same 
rate for domestic products as for impo rted products.  In other words, national 
treatment is a fundamental obligation in this regard. ..."299 
7.128  This definition of "internal taxes" above illustra tes that the term "internal" seems to indicate 
that the element triggering the obligation to pay th e charge – for example, the sale of the good – takes 
place inside the customs territory. 
7.129  This also appears to be in line with the langua ge of the first sentence of Article III:2 of the 
GATT 1994, which refers to "the products of  the territory of any contracting party imported into the 
territory of any other contracting party".300  In other words, products that have already been imported 
into the customs territory of a Member should not be subject to internal taxes and other internal 
                                                      
297 Canada's second written submission, para. 13. 
298 China's response to Panel question No. 37. 
299 Dictionary of Trade Policy Terms , W. Goode, WTO Fourth Edition, 2003, page 184.  Emphasis 
added. 
300 Emphasis added.  Article III:1 also refers to imported  products. WT/DS339/R 
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  charges in excess of those applied to like domestic  products.  Thus, the imposition of an internal 
charge is not triggered by the act of importing a product into to the territory of any other contracting 
party.
301   
7.130  We also find useful guidance from previous GATT jurisprudence on the question of whether 
a charge is subject to the disciplines of Article s II or III of the GATT 1994.  For example, in the 
GATT Panel Belgium – Family Allowances , the Panel considered that because a levy was "collected 
only on products purchased by pub lic bodies for their own use and not  on imports as such, and that 
the levy was charged, not at the time of importa tion, but when the purchase price was paid by the 
public body" as enough reason to characterize such a levy as an "internal charge" under 
Article III:2.302  In Canada – Gold Coins , an unadopted GATT Panel Report, the panel, faced with the 
question of whether an Ontario provincial sales ta x measure on gold coins was within the scope of 
Articles III or II of the GATT, noted, based on the language of Belgium - Family Allowances , that the 
tax was levied at the time of retail sale of goods within the province, not at the time of importation 
into Canadian territory and thus affected the in ternal retail sale of gold coins rather than the 
importation of Krugerrands  as such.  The panel therefore considered  that the tax was an "internal tax" 
under Article III and not an "import charge" under Article II.303 
7.131  Furthermore, in Argentina – Hides and Leather , the panel found that the pre-payment of the 
Value-Added Tax (VAT) established by the chal lenged measure was an internal measure under 
Article III:2, first sentence, because the measure a pplied to "definitive impor t transactions, but only if 
the products imported were sub sequently re-sold in the internal Argentinean market."304  In other 
words, the measure provided for the pre- payment of the VAT chargeable to an internal  transaction.  
Furthermore, the panel, relying on Ad Note Article III of the GATT 1994, stated that the fact that the 
charge was "collected at the time and point of importation" did not preclude it from qualifying as an 
"internal tax measure".305 
7.132  Consistent with those GATT and WTO panels, we  also consider that an important element 
that would indicate that a charge constitutes an "i nternal tax or other internal charge" within the 
meaning of Article III:2 of the GATT 1994 is whet her the obligation to pay such charge accrues 
because of an internal  factor (e.g., because the product was re-sold  internally or because the product 
was used internally), in the sense that such "internal factor" occurs after the importation  of the 
product of one Member into the territory of another Member. 
7.133  We find contextual support for this reading in Ad Note Article III of the GATT 1994, which 
clarifies that any internal tax or other internal ch arge which applies to an imported product and to the 
like domestic product and is collected in the case of  the imported product at the time or point of 
importation is neverthele ss to be regarded as an internal tax or  other internal charge within the scope 
of Article III.  The Ad Note Article III, therefore, appears to confirm that when  or where  the internal 
charge is collected  is not necessarily the decisive criterion to indicate that it falls within the scope of 
Article III:2 of the GATT 1994.306 
                                                      
301 Obviously, importation is a necessary prerequisite to become an "imported product" and thus to be 
given national treatment on internal taxation.  See also paragraph 7.133, below. 
302 GATT Panel Report on Belgium - Family Allowances , para. 2 (emphasis added). 
303 GATT Panel Report on Canada – Gold Coins  (unadopted), para. 50.  See also footnote 269. 
304 Panel Report on Argentina – Hides and Leather , para. 11.145 (emphasis added, original footnote 
omitted). 
305 Panel Report on Argentina – Hides and Leather , para. 11.145. 
306 See also Panel Report on India – Autos , para. 7.260.  The Panel in India – Autos  stated that "the fact 
that the measure applies only to imported products need no t, in itself, be an obstacle to its falling within the  WT/DS339/R 
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  7.134  However, China submits that the charge under the measures is an ordinary customs duty, not 
an internal charge because it is imposed as a condition of  – that is, by reason of  – the importation of a 
product (auto parts) into China's customs territory and that this charge objectively relates to a duty 
liability that arises by reason of  the importation of the product .  In other words, China is of the view 
that the assessment of the charge based on the as sembly of auto parts into motor vehicles is a 
condition of the importation of such auto parts. 
7.135  Given China's arguments, we will next turn to  the meaning of the term "ordinary customs 
duties" in Article II:1(b), first sentence, of the GATT 1994, before analysing whether the charge under 
the measures falls under either Article II:1(b), fi rst sentence, or Article III:2 of the GATT 1994. 
"Ordinary customs duties" within the meaning of Article II:1(b) of the GATT 1994 
7.136  Article II:1(b) of the GATT 1994 provides: 
"The products described in Part I of the Schedule relating to an y contracting party, 
which are the products of territories of other contracting parties, shall, on their 
importation into the territory  to which the Schedule relates, and subject to the terms, 
conditions or qualifications set forth in that Schedule, be exempt from ordinary 
customs duties in excess of those set forth and provided therein.   Such products shall 
also be exempt from all other duties or charges of any kind  imposed on or in 
connection with the importation  in excess of those imposed on the date of this 
Agreement or those directly and mandator ily required to be imposed thereafter by 
legislation in force in the importing territory on that date." (emphasis added) 
7.137  The Panel  first recalls its statement at paragraph 7.121 above that it would follow the 
interpretative approach taken in India – Autos  in dealing with the preliminary issue as to whether the 
charge under the measure falls within the scope of either Article II:1(b) or III:2 of the GATT 1994.  
We recall in particular our endorsement of that pane l's statement that "[w]hile other provisions in the 
WTO Agreement may usefully be considered as part  of the context which informs the meaning of a 
given provision, the scope of that  provision should not be assumed a priori  to vary depending on the 
mere presence of other provisions which may have some  relevance to the situation: the contours of a 
provision should flow from its terms , as read in context alongside the other provisions of the 
agreement."
307 
7.138  With this statement in mind, we recall our conclusion above at pa ragraph 7.105 that the 
preliminary question before us is whether the charge  under the measures is an "ordinary customs 
                                                                                                                                                                     
purview of Article III.  For example, an internal tax ... conditioning the sale of the imported but not of the like 
domestic product, could nonetheless 'affect' the conditions of the imported product on the market and could be a source of less favourable treatment."  It further observed that "Article III:1 refers to the application of measures 
'to imported or domestic products', which suggests that application to both is not necessary." (Panel Report on 
India – Autos , para. 7.306 and footnote 437;  original footnotes were omitted). 
We concur with the Panel in India – Autos .  We do not consider that the language of Ad Note Article 
III supports the interpretation that any charge not imposed on domestic products would fall ipso facto  outside 
the scope of Article III:2 of the GATT 1994.  Otherw ise, Members could easily escape the application of 
Article III:2 of the GATT 1994 by simply exempting domestic products from a charge that would otherwise be 
internal.   
See also China's response to Panel question No. 88 and the complainants' respective responses to Panel 
question No. 88. 
307 Panel Report on India – Autos , para. 7.223 (emphasis added). WT/DS339/R 
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  duty" under the first sentence  of Article II:1(b) of the GATT 1994 or an "internal charge"
308 under 
Article III:2 of the GATT 1994.  We are of the view therefore that the ordinary meaning of the words "ordinary customs duties" in the firs t sentence of Article II:1(b), read in their context and in light of 
the object and purpose of the GATT 1994, is an im portant element in our preliminary task to 
determine which provision of the GATT 1994 the charge falls under. 
Ordinary meaning of an "ordinary customs duty" 
7.139  The term "ordinary customs duties" is not defined in the WTO covered agreements.  
Regarding the ordinary meaning of "customs duties", we do find some guidance in the following 
definitions: 
"Duties laid down in the Customs tariff to which goods are liable on entering or 
leaving the Customs territory";
309 
"2. (pl.) Duties imposed on imports and exports.  3. ( pl.) The agency or procedure for 
collecting such duties";310 
"charges levied at the border on goods entering or, much less often, leaving the 
country":311  
7.140  The definitions of "customs duties" above seem to indicate that "customs duties" refer to 
"duties or charges" imposed when  goods enter or leave the customs territory and because  of 
importation or exportation.312  "Customs territory" can be defined as follows: 
"The geographical territory upon which a sovereign nation imposes its import and 
export regulations and duties.  Certain territorial possessions and special economic 
zones (such as foreign trade zones) are ofte n considered outside the customs territory 
of a nation."313 
                                                      
308 We consider that the precise categ orization of the charge as an "int ernal tax" or an "other internal 
charge" within the meaning of Article III:2 of the GATT 19 94 is immaterial to the pr esent case.  Therefore, and 
without prejudice to the relevance of distinguishing th ese subsets of charges in other cases, in the present 
proceedings we will simply use "internal charge" in lieu of them. 
309 WCO, Glossary of International Customs Terms , 2006, page 8;  Revised Kyoto Convention , General 
Annex, Chapter 2 and 4. 
310 Black's Law Dictionary , Seventh Edition, 1999, page 390. 
311 Dictionary of Trade Policy Terms , W. Goode, WTO Fourth edition, 2003, page 90. 
312 The Panel in Chile – Price Bands System  elaborated on the dictiona ry meaning of "ordinary", 
including its  French and Spanish versions.  The Panel explained that: 
 
"the dictionary meaning of 'ordinary' is 'occurring in regular custom or practice', 'of common or everyday occurrence, frequent, abundant', 'of the usual kind, not singular or exceptional, 
commonplace, mundane'  ' Propiamente dicho ' has been translated as  'true (something)' or 
'(something) in the strict sense'.  ' Proprement dit ' has been explained as ' au sens exact et 
restreint, au sens propre ' and ' stricto sensu '." (Panel Report on Chile – Price Bands System , 
para. 7.51.  Footnotes omitted). 
 
313 Handbook of the Global Trade Community, Dictionary of International Trade , E. Hinkelman, 
Fourth Edition, 2000, page 59.  WT/DS339/R 
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  7.141  Although WTO/GATT jurisprudence does not provide guidance on the precise definition of 
the term "ordinary customs duties",
314 we nevertheless find useful the following statement of the 
Appellate Body in Chile – Price Bands System on the interpretation of "variable import levies" within 
the meaning of footnote 1 to Article 4.2 of the Agreement on Agriculture :  
"We begin with the interpretation of 'var iable import levies'. In examining the 
ordinary meaning of the term 'variable import levies' as it appears in footnote 1, we note that a 'levy' is a duty, tax, charge, or other exaction usually imposed or raised by legal execution or process. An 'import' levy is, of course, a duty assessed upon 
importation .  A levy is 'variable' when it is ' liable to vary'.  This feature alone, 
however, is not conclusive as to what cons titutes a 'variable import levy' within the 
meaning of footnote 1.  An 'ordinary customs duty' could also fit this description.   A 
Member may, fully in accordance with Article II of the GATT 1994,  exact a duty upon 
importation  and periodically change the rate at which it applies that duty (provided 
the changed rates remain below  the tariff rates bound in the Member's Schedule)."
315  
(original footnotes omitted;  emphasis added) 
7.142  Although the Appellate Body in Chile – Price Band System was not concerned with the 
delineation between "ordinary customs duties" and "i nternal charges", this reasoning indicates that the 
act of importation is an important element316 for the analysis of whethe r a charge falls within the 
scope of Article II:1(b), first sentence, of the GATT 1994. 
7.143  We will now move on to examine the scope of "o rdinary customs duties" in its context, in 
particular, the first sentence of Article II:1(b) of  the GATT 1994, which requires that the products of 
one Member shall, "on their importation" into th e territory of another Member, be exempt from 
ordinary customs duties in excess of those set fort h and provided in the Schedule of the importing 
Member.  In the following section, we will therefor e analyse whether the term "on their importation" 
provides further guidance on the mean ing of "ordinary customs duties". 
"Ordinary customs duties" in the context of the first sentence of Article II:1(b) - "on 
their importation"  
Arguments of the parties 
7.144  The European Communities  disagrees with China's various formulations on the scope of 
Article II:1(b) of the GATT 1994.  Under the first sentence of this provision ordinary customs duties 
can only be imposed on the importation of the product not in connection with  the importation.  These 
various formulations made by Chin a are vague and simply used as an attempt to widen the scope of 
Article II to the detriment of that of Article III of the GATT 1994.  There is nothing in law that 
supports China's position that Article II applies to charges that relate  to a valid customs duty that a 
                                                      
314 In the one occasion a panel has attempted to define "ordinary customs duties", albeit in the context 
of Article 4.2 of the Agreement on Agriculture , it was overruled by the Appellate Body.  In Chile – Price Bands 
System , the panel defined an ordinary customs duty as "referring to a customs duty which is not applied on the 
basis of factors of an exogenous nature" (Panel Report on Chile – Price Band System , para. 7.52).  The 
Appellate Body disagreed with such definition stating that it did not have any basis either on the ordinary 
meaning or the context of Article II:1(b), first sentence, of the GATT 1994 (Appellate Body Report on Chile – 
Prince Bands , paras. 271-278).  The Appellate Body did not however present its own definition of ordinary 
customs duties in lieu of that of the panel. 
315 Appellate Body Report on Chile – Prince Band Systems , para. 232. 
316 As we will discuss below, importation is not the only element to the determination as to whether a 
charge falls within the scope of the first sentence of Article II:1(b) of the GATT 1994. WT/DS339/R 
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  Member is allowed  to impose, or to those that are imposed as a condition of the importation  of the 
product into other Members.
317  Although not defined in the GATT 1994, an "ordinary customs duty", 
within the meaning of Article II:1(b), first sente nce, of the GATT 1994 would be one set out in a 
country's tariff schedule and generally denotes a fina ncial charge in the form of a tax imposed "on 
importation" and the liability to which is created by  the importation.  On the other hand, "other duties 
and charges" within the meaning of Article II:1(b), second sentence, of the GATT 1994 aims 
generally at preventing undermining the prohibitio n of Article II:1(b), first sentence, to impose 
ordinary customs duties in excess of the bindings.318  This different language indicates that "ordinary 
customs duties" cannot  be imposed "in connection with the importation".319 
7.145  The European Communities further submits that the term "on importation" has both a 
temporal  and material  aspect.  The temporal  aspect means that "ordin ary customs duties" are 
generally collected "at the time or point of importation", as suggested by the language of 
Interpretative Note Ad Article III:2 of the GATT 1994.320  However, although the precise time and 
place of the actual payment or collection  of a charge may happen after  importation and is not 
determinative of the nature of the charge as a border charge, the determination of the amount due 
must be done "on importation", i.e. on the basis of the objective characteristics of the product when 
presented for classification at the border.321  The European Communities asserts that China attempts to 
overstretch such temporal  aspect by stating that "on importation" encompasses a "process of 
importation", the same process China contends th e measures provide for, which is only over after all 
customs-related formalities are satis fied and there is no longer any customs control over the imported 
goods.  The European Communities finds, therefore, not  surprising that China asserts that the entire 
administrative procedure under Decree 125 and Announ cement 4 is part of such customs-related 
formalities.322  A s  t o  t h e  material  aspect of the term "on importation", the European Communities 
maintains that it means that a charge is levied "on the importation" if it is due because of the 
importation of the product, but not because of other even ts or criteria, e.g. the amount of local content 
in products into which the imported product is sub sequently assembled.  This is confirmed by the 
difference of scope between the first and second sentences of Article II:1(b) of the GATT 1994.323  
China attempts to extend such material  aspect by suggesting that a charge is levied "on importation" 
when it "bears an objective relationship to the administration and enforcement of a valid customs 
                                                      
317 European Communities' responses to Panel ques tion Nos. 84 and 246;  second written submission, 
para. 45. 
318 European Communities' responses to Panel question Nos. 96(a) and 96(b);  second written 
submission, para. 38. 
319 European Communities' response to Panel question No. 100.  The European Communities also 
recalls that there is also no definition or jurisprudence defining the words "in connection with the importation" 
in Article II:1(b), second sentence, of the GATT 1994.  It argues that the GATT Panel in EEC – Parts and 
Components  simply cited certain factors (e.g. the policy purpose of a charge, the mere description or 
categorization of a charge under domest ic law or the treatment of the goods "as not being in free circulation") 
that were not relevant to provide the required "connection with the importation." (European Communities' 
responses to Panel question Nos. 98 and 189). 
320 European Communities' second written submission, paras. 39-40. 
321 European Communities responses to Panel question Nos. 87, 180 and 186;  observations on the 
letter of the WCO Secretariat of 30 July 2007 (WCO's response to question 18). 
322 European Communities' second written submission, para. 43;  responses to Panel question Nos. 181 
and 183. 
323 European Communities' second written submissi on, paras. 39 and 41.  See a more detailed 
description of the parties' arguments on the relationship between the two paragraphs of Article II:1(b) of the 
GATT 1994, below at paragraphs 7.168 to 7.172.  WT/DS339/R 
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  liability", an overly broad, imprecise and unsuitabl e concept not found in the language of the first 
sentence of Article II:1(b).
324 
7.146  The United States equally  disagrees with China's understanding that the term "on their 
importation" in Article II, first sentence, of the GATT 1994 includes measures that Members are 
allowed  to impose " conditional upon  the importation of a product" or those that are merely " related " 
to importation.  There is no textual or contextu al basis presented by China for such a broad 
interpretation.  In fact, China's use of the expr ession "conditional upon" is so broad that it would seem 
to allow an internal sales tax to be different for domestic products and imported products simply 
because the higher tax on imported products would be "conditional" upon the fact that the product had 
been imported.325  This demonstrates that China's analysis under this issue is essentially backwards: it 
starts with a purported interpretation of its Schedule,  then moves to an analysis of Article II stating 
that if there is any "relation to importation," then Artic le II applies to the exclusion of Article III.  This 
mode of argumentation is based on the false premis e that Article II and China's Schedule give China 
the "right" to define a "customs duty" however Chin a sees fit and to adopt measures inconsistent with 
Article III in order to collect such supposed "custo ms duties".  To the contrary, Article II does not 
provide for any of these "rights" as it imposes oblig ations on Members that choose to impose customs 
duties.  If China were correct that Article II provide d such "rights" to WTO Members then Article III 
could be rendered a nullity through the ruse of defining internal charges as "customs duties".326 
7.147  The United States further argues that it is mindful that the GATT 1994 does not define the 
term "ordinary customs duty" but it understands such term to mean a tax imposed on a good upon its 
importation, and calculated based on the quantity or value of the good at the time of importation.  Ordinary customs duties can be specific, ad valorem  or mixed.  A specific customs duty on a good is 
an amount based on the weight, volume or quantity of that product upon importation.  An ad valorem  
customs duty on a good is an amount based on the value of that good upon importation.  A mixed duty 
is a combination of an ad valorem  duty and a specific duty.  "Other duties or charges" in 
Article II:1(b), second sentence, is intended as a catch-all phrase to prevent the avoidance of a Member's bindings on ordinary customs duti es.  According to paragraph 1 of the Understanding on 
the Interpretation of Article II:1(b)  of the GATT 1994 "in order to ensure transparency of the legal 
rights and obligations deriving from paragraph 1(b) of  Article II, the nature and level of any 'other 
duties or charges' levied on bound tariff items, as referr ed to in that provision, shall be recorded in the 
Schedules of concessions annexed to GATT 1994 agains t the tariff item to which they apply. It is 
understood that such recording does not change the legal character of 'other duties or charges.'"
327 
7.148  For the above reasons, the United States submit s that the imposition of ordinary customs 
duties occurs at the time  of importation of goods into the te rritory to which a Member's Schedule 
relates.328  The reference in Article II:1(b) of the GATT 1994 to "on their importation into the territory 
to which the Schedule relates" connects the imposition of the duties to the goods as they exist at the 
time of importation.  Accordingly, a relationship be tween the charge and the condition of the goods at 
the border, at the time of importation, must be pr esent in order for the charge to be an ordinary 
                                                      
324 European Communities' second written submission, para. 44;  response to Panel question No. 181. 
325 United States' response to Panel question No. 84. 
326 United States' comments on China's responses to Panel question Nos. 179(a), 187, 234 and 243;  
second written submission, paras. 7-8. 
327 United States' responses to Panel question Nos. 96 (a) and 96 (b).  The European Communities and 
Canada also used a description similar to that used by the United States to describe ordinary customs duties and 
other duties and charges under Article II:1(b) of the GATT 1994 (see their respective responses to Panel question Nos. 96 (a) and 96 (b)). 
328 United States' responses to Panel question Nos. 181 and 183. WT/DS339/R 
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  customs duty within the meaning of Article II:1(b).  The United States relies on the findings of the 
Appellate Body in EC – Chicken Cuts  to support its view on the existence of a necessary connection 
between the condition of the good as imported and the cust oms duty, in particular in the part of that 
finding that explained that "in characterizing a product for purposes of tariff classification, it is 
necessary to look exclusively at the 'objective ch aracteristics' of the product in question when 
presented for classification at the border."
329  The United States does not however maintain, nor does 
it believe, that there is disagreement between  the complainants on this point, that the time and place  at 
which a charge is collected  is the determinative consideration in evaluating whether the charge is an 
internal charge or a customs duty.  Although it considers that the time and place of assessment  or 
calculation  of the charge would be relevant in evalua ting whether the charge is an internal or a 
customs duty.330 
7.149  Canada also disagrees with China on the proper interpretation  of Article II:1(b), first 
sentence, of the GATT 1994 as this provision only provides for the imposition of ordinary customs 
duties to products " on their importation" not, as China proposes, " by reason of  the importation", 
"dependent upon  importation" or " conditional upon  importation."331  China's various propositions in 
this regard are just an attempt to infer, without any basis in the text of Article II or in the practice of 
WTO Members, that the application of an ordinary  customs duty is somehow related to the ultimate 
justification for importation, independent of the proper classification of the good as presented  at the 
border.  This cannot be so as the "reason or event"  under the first sentence of Article II:1(b) of the 
GATT 1994 is always the same:  the physical state of products when arriving at the border .  Liability 
for an ordinary customs duty can only arise from that single event at the very beginning of the importation process.
332  The ordinary meaning of "on their importation" in Article II:1(b), read in the 
context of Articles I, III and XI, and as evinced by Member practice, demonstrates such understanding.
333  For example, the reference to "on" in  Article II:1(b) of the GATT 1994 emphasizes 
a single event and the ordinary meaning of "importation", supported in both the Shorter Oxford 
English Dictionary  and the WCO Glossary , refers to the physical act of products being brought across 
the border into a country.  Furthermore, the GATT 1994 generally, GATT acquis , the WTO Appellate 
Body and even the WCO support this interpretati on of "on their importation", and confirm that 
ordinary customs duties may only be imposed on pr oducts based on their state as presented at the 
border.334  Canada  clarifies however that while ordinary customs duties must, as stated above, be 
                                                      
329 United States' response to Panel question No. 186. 
330 United States' response to Panel question No. 180. 
331 Canada's responses to Panel question Nos. 84 and 180.  Canada and the other co-complainants have 
also made the point that the use of the expression "co nditional upon importation", that China borrowed from the 
GATT Panel Report on EEC – Parts and Components , does not have any legal valu e, because, besides the fact 
of not being supported by the text of Article II itself, this  expression was not even used in that GATT panel in a 
legal sense in its findings on the proper interpretation of  that Article.  To them, the GATT panel's use of that 
expression was only a reference to an argument put forw ard by the then EEC, which, in any case, was made in 
the context of the second sentence  of Article II:1(b). See also the responses of the European Communities and 
the United States to Panel question No. 84. 
332 Canada's responses to Panel question Nos. 13(a), 179( b), 181 and 183;  first oral statement, para. 22;  
second written submission, paras. 15 and 39. 
333 Canada's second written submission, para. 17. 
334 Canada's second written submission, paras. 18-23.  In  support of this interpretation, Canada cites the 
GATT panel in Canada – FIRA , which emphasized that Article XI, whic h also contains the expression "on 
importation", shows the intention of the drafters of the GATT to define the concept of "importation" narrowly so 
as to prevent it from covering internal requirements on "imported products".  Canada argues that this link to the 
state of products on physical entry is also supported by the drafting history of Article II and the language of the Interpretative Ad  Note Article III.  Canada recalls that in EEC – Parts and Components , the panel said that in 
characterizing a charge as subject to Article II or Article II I:2 "[t]he relevant fact, according to the text of these  WT/DS339/R 
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  based on the state of goods as presented at the border,  there is some flexibility for the application of 
"other border charges" until a product is ava ilable for internal use within a Member.
335  A s  C h i n a  
alleges that its measures impose "ordinary customs du ties", that flexibility is not relevant to this 
dispute.  Regardless, the measures apply well after the process of importation is complete and must be 
internal measures.336  Finally, even if China had explicitly included in its Schedule a note allowing it 
to impose conditions on the importation of auto part s as an "ordinary customs duty", it could not rely 
on that condition to impose internal charges contra ry to Article III of the GATT 1994 as Panels have 
consistently ruled that Members cannot use condi tions reflected in a Schedule so as to justify 
measures otherwise inconsistent  with their WTO obligations.337 
7.150  Canada also clarifies however that the precise time and place of the collection  of a charge is 
not determinative of whether it falls  within the scope of Article I II or Article II of the GATT 1994.  
The actual payment need not take place at the border, nor even must the amount owing be determined at that point (which could be characterized as th e "calculation" or "assessment" of the charge), 
provided that the duty, as Canada explains above, is  levied in respect of the good as presented at the 
border.  Conversely, a clearly internal char ge (for example, a value-added tax) may be collected  at the 
exact moment that a product enters the country, in accordance with Article II:2(a) and Ad Article III.  
For a charge, what is significant is whether the charge relates to the product as presented at a Member's border.  Any border charge, whether collect ed at the border or at some later time, may only 
relate to the product at that point in time.  If it do es not (i.e., a charge based on end-use), then it must 
be an internal charge.
338 
7.151  China  believes that it is consistent with the c ontext of Article II:1(b), as well as the object 
and purpose of the GATT 1994, to interpret the term "on their importation" to encompass charges that 
Members impose as a condition of  – that is, by reason of  – the importation of a product into its 
customs territory.  Customs authorities may calcu late, assess, and collect a particular charge after  the 
products have physically entered the customs territory, so long as the charge objectively relates to a 
duty liability that arises by reason of the importation of the product .  Such charges, and measures that 
Members adopt to collect such charges, are with in the scope of Article II of the GATT 1994.  
Applying this understanding of the term "on thei r importation", the determ ination of whether a 
particular charge is within the scope  of Article II will depend upon the reason  or event  that triggered 
the imposition of the charge.  China does not pe rceive any substantial disagreement by the 
complainants and third parties on this point as th ey also support the conclusion that a measure or 
                                                                                                                                                                     
provisions, is not the policy purpose attributed to the char ge but rather whether the charge is due on importation 
or at the time or point of importation or whether it is collected internally".  According to Canada, this 
interpretation has been followed consistently.  For example, in EC – Chicken Cuts , both the Appellate Body and 
the panel cited with approval the opinion of the WCO that a proper classification is done on the basis of the 
objective characteristics of the product at the time of importation, and may be based on a visual inspection and 
laboratory analysis.  Canada claims that GIR 2(a), on which China places so much emphasis, supports a reading 
that classification (and thus assessment of duty which follows it) must occur based upon the time of physical 
entry by referring to the state of a product "as presented".  Canada also recalls that the Customs Co-operation 
Council, the predecessor to the WCO, noted that the words "as presented" replaced the words "imported" in GIR 
2(a) "to make it quite clear that the provisions of the Rules concerned applied to a given article in the state in 
which it is presented for Customs clearance. " (Canada's second written submission, paras. 18-23; emphasis in 
the original). 
335 Canada elaborates more on this point as set out below at paragraph 7.170. 
336 Canada's second written submission, para. 32. 
337 Canada's response to Panel question No. 84, citing the GATT Panel Reports on EEC – Imports of 
Beef and US – Sugar . 
338 Canada's responses to Panel question Nos. 11, 87, 90, 90(b) and 180. WT/DS339/R 
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  charge is within the scope of Article II if it relat es to what the United States refers to as "a valid 
customs liability."
339 
7.152  China adds that the characterization of the ch arges that China collects pursuant to Decree 125 
requires an assessment of whether they are charges that China is allowed to impose  by reason of the 
importation of auto parts and components into its cu stoms territory, i.e., "on their importation" into 
China.  If the measures fulfil a "valid customs liab ility", they are measures that are subject to the 
disciplines of Article II of the GATT.  China believ es that this inquiry returns the analysis to the 
interpretation of China's tariff provisions for "motor vehicles", and, in particular, to the question of 
whether China may classify multiple shipments of auto parts and components on the basis of their 
common assembly into a complete article.  An importa nt part of this analysis is the meaning of the 
term "as presented" in GIR 2(a), and the practice of other WTO Members in resolving the relationship 
between complete articles and parts of those ar ticles in the context of customs administration.340  
7.153  China then submits that, for the above reasons, the time or place  at which the charge is 
collected is not determinative;  what matters is wh ether the charge fulfils a duty obligation that arises 
by reason of the importation of the product.341  In fact WTO Members routinely assess border charges 
after  such time or place.  Examples of specific customs practices from so me WTO Members support 
this point as they show that these countries a llow, in certain general circumstances, duty 
(re)determinations and payments after  the importation and entering into  free circulation of the goods.  
For instance, in the United States final classifica tion determinations and duty liability assessments can 
be made up until one year after the merchandise has en tered the US customs territory and been in free 
circulation.  Duties paid "at the time or point of importation" are merely estimated duties.  Additionally, in many (if not most) cases, the merchandise has been sold, consumed, processed, or 
used in the manufacture of other products by the time that customs duties are actually imposed and 
collected.
342  Therefore, and consistent with Article 31(3)(b) of the Vienna Convention , the term "on 
their importation" must be interpreted in the light  of the consistent and widespread practice among 
Members of imposing customs-related measures, and collecting customs duties, after  goods have 
crossed the frontier.343 
Consideration by the Panel 
7.154  The Panel  first notes China's argument344 that the meaning of the word "importation" alone  
would suffice to the inquiry of whether the charge under the measures falls within the scope of Article 
II or III of the GATT 1994.345  In the first sentence of Article II:1(b) of the GATT 1994, however, the 
                                                      
339 China's second written submission, paras. 102-104; response to Panel question No. 54. 
340 China's second written submission, para. 105-106. 
341 China's second written submission, paras. 102-104; response to Panel question No. 54. 
342 China cites examples from customs laws of Australia, Canada, India, the European Communities 
and the United States.  China also says  that many countries also have "mor e specialized circumstances" in which 
duties can be assessed after  the time or point of importation:  (i) goods initially in transit but that subsequently 
enter free circulation; (ii) payment of imports that  fail to adhere to conditions for temporary duty-free 
importation; or (iii) payment of imports that fail to ad here to inward processing and re-export requirements 
(China's first written submission, para. 66).  See also Ch ina's first written submission, paras. 63-65 (including  
footnote 34 to para. 65) and 101. 
343 China's response to Panel question No. 179(a);  China's second written submission, para. 101. 
344 China's responses to Pane l question Nos. 87 and 89. 
345 We are mindful that other panels have identified the words "importation" and "imported" as 
important and relevant to the delineation between border and internal measures  (encompassing fiscal and non-
fiscal aspects).  But the question before us is a narrower one: the categorization of a charge , which is the fiscal  WT/DS339/R 
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  word "importation" is preceded by the preposition "o n" and the pronoun "their", and followed by the 
words "into the territory".  Therefore, we will consider both terms "on their importation", in its 
entirety, and "into the territory" in examini ng the meaning of an "ordinary customs duty". 
7.155  The word "importation" can be defined as:  the "bringing of goods into a country from 
another country";
346  the "action of importing or bringing in something, spec. goods from another 
country";347  and "the act of bringing or causing any goods to be brought into a customs territory".348  
The ordinary meaning of the word thus indicates that "importation" is an action with a locational element as it refers to "[t]he bringing of goods into  a country from another country."  This locational 
element is reinforced, in the context of Article II: 1(b), first sentence, by the reading of "importation" 
together with the words "into the territory".  We  further note that the dictionary definitions of 
"importation" refer to it as an "action" or an "act" in the singular and not to various  "actions" or "acts" 
in the plural.   
7.156  The preposition "on" and the pronoun "their" furt her qualify the word "importation":  "their" 
by indicating which products "importation" refers to (i.e., those "products described in Part I of the 
Schedule relating to any contracting party, which ar e the products of territories of other contracting 
parties ... "); and, "on" by potentially providing either a temporal  or relational  precision to the act it 
modifies.  We therefore attach particular importanc e to the word "on", which, as a preposition, is 
defined in the Shorter Oxford English Dictionary , inter alia as follows: 
"on / preposition.  … II Of time, or action implying time .  6 During, or at some time 
during (a specified day or part of a day) ;  contemporaneously with (an occasion).  
Also (now chiefly US & Austral. ) in or at (any period of time);  dial. & US  used 
redundantly with tomorrow , yesterday .  b Within the space of;  in (a length of time).  
c Exactly at or just coming up to (a specified time),  just before or after in time.  7 On 
the occasion of (an action); immediately after (and because of or in reaction to), as a 
result of."
349 
7.157  The Webster's New Encyclopedic Dictionary , on the other hand, defines "on" inter alia  as 
follows: 
"on / prep  … 4: with respect to <agreed on a price>  5a:  in connection, association, 
or activity with or with regard to < on a committee> < on a tour>  b in a state or 
process of <on fire> <on the increase>  6:  during or at a specified time <every hour 
on the hour> <cash on delivery> …"350 
7.158  We note that some of these meanings carry a precise and strict temporal  connotation, as 
argued by the complainants, others, a more flexible, relational  one, as argued by China.  We are also 
mindful that those are not the only ordinary meanings of the word "on", but we believe they are the ones more closely related to the context of Artic le II:1(b), first sentence, of the GATT 1994.   
                                                                                                                                                                    
 
aspect of the Chinese measures.  Thus, this circumstan ce requires a reading of the word "importation" in its 
proper proximate context, which is the first sentence  of Article II:1(b) of the GATT 1994.   
346 Black's Law Dictionary , Seventh Edition, 1999, page 759. 
347 The Shorter Oxford English Dictionary , 2002 (5th edition), Volume 1, page 1331. 
348 WCO, Glossary of International Customs Terms , 2006, page 16. 
349 The Shorter Oxford English Dictionary , 2002 (5th edition), Volume 2, page 1996. 
350 Webster's New Encyclopedic Dictionary , 2003 ed., page 701. WT/DS339/R 
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  7.159  We have also reviewed the French and Spanish te xts of the first sentence of Article II:1(b) of 
the GATT 1994, which are equally authentic.
351 
7.160  The French text of the first sentence of Article II:1(b) reads: 
"Les produits repris dans la prem ière partie de la liste d'une  partie contractante et qui 
sont les produits du territoire d'autres par ties contractantes ne seront pas soumis, à 
leur importation  sur le territoire auquel se rapporte cette liste et compte tenu des 
conditions ou clauses spéciales qui y sont stipulées, à des droits de douane proprement dits plus élevés que ceux de cette liste." (emphasis added). 
7.161  We note that, unlike the two alternative applicable meanings of "on" in English  we have 
identified above at paragraph 7.158, the dictionary Le Grand Robert de la langue française
352, gives 
only the preposition " à" ("on" in English) a temporal  meaning as follows: 
"À 
TEMPS. 
- 1. Indiquant la situation ponctu elle dans le temps, le moment. 
 [a] Avec un verbe ou un nom d'action. A rriver, venir, rentrer... à l'aube, au 
soir, à la nuit. Ils sont venus à l'époque, au moment, à l'instant où..., au moment dit, prévu, à l'heure dite.  [b] Mod. Avec un nom d'action (ci-d essus) ou un repère temporel. à l'annonce 
de... à ces mots, à ce signal, telle chose se passa." 
 
7.162  The Spanish text of the first sentence of Article II:1(b) reads: 
"Los productos enumerados en la primera part e de la lista relativa a una de las partes 
contratantes, que son productos de los te rritorios de otras partes contratantes, no 
estarán sujetos - al ser
 importados  en el territorio a que se refiera esta lista y teniendo 
en cuenta las condiciones o cláusulas especi ales establecidas en ella- a derechos de 
aduana propiamente dichos que  excedan de los fijados en la lista." (emphasis added). 
7.163  Similarly to the French text, we also conclude that the expression "on their importation" ("- al 
ser importados ") in the Spanish text of the first senten ce of Article II:1(b) points us more in the 
direction of a temporal  meaning than a relational  one.  In reaching such a conclusion we first note 
that the Real Academia Española  states that the construction " al" (which is the contraction of the 
preposition " a" and the article " el") when followed by an infinitive verb , usually amounts to a 
"temporal subordinate clause".353  We further note that in another publication, the Real Academia 
Española  states that the combination of < Al + infinitive> "indicates simultaneity between the time of 
the subordinate event and the time of the main event, and amounts to when  with a finite verb."354  We 
                                                      
351 See the final clause of the WTO Agr eement.  See also the Panel Report on EC – Trademarks and 
Geographical Indications (United States) , para. 7.607. 
352 Le Grand Robert de la langue française  (deuxième édition, 1985, page 3) 
353 See Esbozo de una Nueva Gramática de la Lengua Española (Real Academia Es pañola, 3.16.5, 
page 487). 
354 Unofficial translation.  Gramática Descriptiva de la Lengua Española  (Real Academia Española, 
Vol. II, 48.5.3, page 3187).  The original reads: ".... indica simultaneidad entre el tiempo del evento subordinado 
y el tiempo del evento  principal y equivale a cuando  con verbo finito."  Ibid.  See also the Diccionario de uso 
del Español  (by María Moliner, 1987, Vol. I, page 107), according to which the construction " al" is widely used 
before a verb in the infinitive to express the "momenta neous simultaneity" of the action expressed by this term 
with another action.  WT/DS339/R 
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  are mindful, on the other hand, that there are also pa rticular exceptions to such grammatical rules, in 
which the combination of < Al + infinitive> does not have a temporal connotation.  For such cases, in 
order to verify the temporal value of the construction " al + infinitive", the Real Academia Española  
indicates that this can be confirmed by posing the question "when?"
355 
7.164  Applying the above grammatical rules to the presen t case, we first note that the Spanish text 
of the first sentence of Article II:1(b) contains the phrase " al ser importados " (on their importation ).  
We further note that this phrase contains the construction " al" (resulting from the contraction of the 
preposition " a" and the article " el") together with the infinitive verb " ser" and followed by the 
participle " importado ", which indicates a verbal action in the passive voice.  We therefore believe 
that the use of the phrase " al ser importados " in the Spanish text of the first sentence of 
Article II:1(b) was meant to have a temporal  ordinary meaning.  The "temporal value" of this phrase 
is further confirmed by the fact that it is possible to answer the question when?   In the present case, 
this question should be:  when  shall the products described in the first sentence of Article II:1(b) be 
exempt  from ordinary customs duties in excess of those set  forth in the Part I of the Schedule?  To 
which the answer is:  "on their importation" (" al ser importados "). 
7.165  Under Article 33(3) of the Vienna Convention  "[t]he terms of the treaty are presumed to have 
the same meaning in each authentic text."356  As a consequence, in interpreting these terms we should 
"seek the meaning that gives effect, simultaneously, to  all the terms of the treaty, as they are used in 
each authentic language."357  Following the guidance provided by the Appellate Body in EC – Bed 
Linen (Article 21.5 – India)358, we note that our analysis above reveals that the only "simultaneous" 
ordinary meaning of "on" as used in each auth entic language version of the first sentence of 
                                                      
355 See Gramática Descriptiva de la Lengua Española  (Real Academia Española, Vol. II, 48.5.3, 
page 3187). 
356 Appellate Body Report on US – Countervailing Duty Investigation on DRAMs , footnote 176 to para. 
111. 
357 Appellate Body Report on US – Softwood Lumber IV , para. 59.  The Appellate Body also noted in  
footnote 50 to para. 59 that:  
 
"[I]n discussing the draft article that was later adopted as Article 33(3) of the Vienna Convention , the 
International Law Commission observed that the 'presumption [that the terms of a treaty are intended to 
have the same meaning in each authentic text] requi res that every effort shou ld be made to find a 
common meaning for the texts before preferring one to another' ( Yearbook of the International Law 
Commission (1966), Vol. II, page 225).  With regard to the application of customary rules of 
interpretation in respect of treaties authenticated in more than one language, see also International 
Court of Justice, Merits, Case Concerning Elettronica Sicula S.p.A. (ELSI) (United States v. Italy) 
1989, ICJ Reports, para. 132, where, in interpreting a provision of the Treaty of Friendship, Commerce 
and Navigation between the United States of America and the Italian Republic of 1948, the 
International Court of Justice noted that it was possibl e to interpret the English and Italian versions 'as 
meaning much the same thing', despite a potential divergence in scope. " 
 
358 Referring to Article 33(3) of the Vienna Convention , the Appellate Body in EC – Bed Linen 
(Article 21.5 – India)  found confirmation for the temporal meaning of the English terms being scrutinized: "The 
Spanish terms ('se han cumplido' and 'hayan limitado'), in paragraphs 1 and 4 of Articles 9, have the same 
temporal meaning as the English terms ('have been fulfilled' and 'have limited').  The French terms ('sont remplies' and 'auront limité') can also accommodate this temporal mean ing." (emphasis added). (Appellate Body 
Report on  EC – Bed Linen (Article 21.5 – India) , footnote 153 to para. 123). WT/DS339/R 
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  Article II:1(b) of the GATT 1994 is a strict  temporal  meaning.  We therefore conclude that this is the 
proper ordinary meaning of the word "on".
359 
7.166  With the above conclusion in mind, we consid er that, taken together, the terms "on their 
[products] importation" and "into the territory" in th e first sentence of Articl e II:1(b) suggest that 
"ordinary customs duties" are charges which the ob ligation to pay accrues based on the products as 
they enter the customs territory of another Member.  In particular, the strict temporal element of the word "on", which points to the precise moment of th e action it modifies, indicates that an "ordinary 
customs duty" must be assessed on the basis of a good at the moment of importation. 
7.167  We proceed to the second sentence of Article II:1(b) of the GATT 1994 to examine whether it 
provides any further assistance in understanding the meaning of "ordinary customs duties". 
"Ordinary customs duties" in the context of the second sentence of Article II:1(b) – 
"on or in connection with the importation" 
Arguments of the parties  
7.168  The complainants  and China  disagree on the issue of the relationship between the first and 
second sentences of Article II:1(b) of the GATT 1994 a nd the importance of such relationship to the 
interpretation of what types of charges qualify as ordinary customs duties. 
7.169  The complainants  argue that the expression "in connec tion with", only present in the second 
sentence, provides important context for the interpreta tion of "on importation" in the first sentence, for 
it demonstrates the narrowness of the notion of "on importation".  It s hows that an ordinary customs 
duty can only be imposed "on" the importation of  a product and never "in connection with" such 
importation, for the latter concept is only limited to  the imposition of "all other charges and duties."  
There is therefore a tighter nexus between "ordin ary customs duties" and importation than between 
"all other duties and charges" and importation.  For this reason, in contrast to charges imposed "on 
importation", those imposed "in connection with import ation" can take into account events other than 
the importation as such.  WTO jurisprudence on the meaning of the expression "on importation" in 
Article XI:1 of the GATT 1994 is not automatically tr ansferable to this issu e because the contexts of 
Articles XI:1 and II:1(b) are different.  For example,  unlike Article II:1(b), Article XI:1 does not make 
an express distinction between "on importation" on the one hand and "on or in connection with 
importation" on the other.  Additionally, Article XI:1 is a broad and comprehensive provision that 
                                                     
 
359 We also note that had our analysis on the ordinary meaning of "on" focused only on the English  text 
of the first sentence of Article II:1(b) of the GATT 1994, we would have been presented with the task of choosing one of the two different meanings claimed by the complainants and China,  as described above in 
paragraph 7.158.  In such case we would have similarly proceeded with our inquiry into which of those two 
meanings would be attributable to the word "on" by anal ysing it in its proper context.  This was the approach 
taken by the Appellate Body in US – Gambling , in which it found that the panel erred by not taking due regard 
to the fact that, at least in some contexts, the word being interpreted, "sporting", was indicated in dictionaries as 
meaning "gambling" and "betting".  To the Appellate Body the Panel's finding on the meaning of that word was premature because it "should have taken note that, in the abstract, the range of possible meanings of the word 
'sporting' includes both the meaning claimed by Antigua and the meaning claimed by the United States, and then 
continued its inquiry into which of those meanings was to be attributed to the word as used in the United States' GATS Schedule." (Appellate Body Report on US – Gambling , paras. 166-167).  We understand that in that case 
the choice was between different meanings of the word "sporting" given by different dictionaries , not, as in the 
present case, between different meanings coming fr om the three authentic language versions of an Agreement  
(the GATT 1994).  Regardless, we believe that the same general approach would have applied mutatis mutandis  
here had we been faced with two choices of meaning instead of one,  as stated above.  WT/DS339/R 
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  speaks in terms of "restrictions ... on importation."  If anything, such precedents and the difference in 
context between Articles II:1(b) and XI:1 confirm th e narrowness of the concept of "on importation" 
in Article II:1(b).  Finally, even if arguendo  the question were instead to whether the charges were 
"other duties and charges" within the meaning of  the second sentence of Arti cle II:1(b), the Chinese 
measures would not pass muster as they do not even  provide for charges imposed "in connection with 
the importation."  And even if they did, and the second sentence of Article II:1(b) was applicable, the 
measures would violate such provision because the charges would not have been provided for in China's Schedule.
360 
7.170  Canada  further elaborates on this issue saying that China is "misapplying the logic" of the 
relevant jurisprudence on Article XI:1 of the GA TT 1994 to the context of Article II:1(b) of the 
GATT 1994.361   Article XI:1 applies to the whole  of the importation phase, and to direct and indirect 
import and export restrictions.  Accordingly, it may be appropriate to read into "on importation" the 
phrase "in connection with" in the context of Ar ticle XI, since the latter phrase connotes both a 
general phase of importation and the application of direct and indirect measures to that importation 
phase.  The distinction between the specific act of importation  and the general importation phase  is 
also seen in the different language used in the fi rst and second sentences of Article II:1(b) (i.e., "on or 
in connection with" in Article II:1(b), second sentence, refers to the general importation phase ).  As 
the Appellate Body confirmed in Chile – Price Band System , ordinary customs duties are assessed 
under the first sentence only, and other duties and charges under the second sentence.  "In connection 
with" is used because it encompasses both direct charges and other, indirect "duties and charges" that 
can be applied throughout the process of importation362 that begins when a product first arrives at the 
border.  It encompasses a greater (although still temporally limited) period during the "importation" stage, and during this period these other charges can be assessed.
363  Therefore, given the contextual 
differences between Article XI and Article II:1(b), the expressions "on their importation" and "on the 
importation" cannot be read as synonymous by virtue of containing the word "on".364 
7.171  China  disagrees with the complainants on the u sefulness of comparing the language of the 
first and second sentences of Article II:1(b) in order to define their respective scopes.  China explains 
that while there is considerable ambiguity in this terminology, the most likely explanation for the use 
of the different formulation in Article  II:1(b), second sentence, is that the types  of charges at issue 
("other duties or charges") are more varied in na ture than "ordinary customs duties," the subject 
matter of Article II:1(b), first sentence.   An "ordinary customs duty" is an ad valorem  or specific duty 
that a Member is allowed to impose by reason of the importation of the product.  There is a single 
event that triggers the Member's right to impo se the ordinary customs duty, and the importer's 
obligation to pay it – the importation of the product into the customs territory.  This does not mean 
however that the ordinary customs duty must be collected at the time or place  of importation.  An 
"other duty or charge," by contrast, may have other,  more specific events or conditions that trigger the 
right to impose the charge and the obligation to pa y it.  These events or conditions would be spelled 
out in the Member's Schedule of Concessions.  Beca use these events or conditions are more varied, 
                                                      
360 European Communities' responses to Panel question Nos. 97, 189, 197 and 203;  European 
Communities' comments on China's response to Panel question No. 197;  European Communities' second 
written submission, para. 41;  United States' responses to Panel question Nos. 84, 97-98, 100 and 203;  United 
States' comments to China's response to Panel questio n No. 246;  Canada's response to Panel question No. 203 
and Canada's comments on China's response to Panel question No. 197. 
361 Canada's comments on China's response to Panel question No. 203. 
362 Canada's response to Panel question No. 197. 
363 Canada's second written submission, paras. 27-29. 
364 Canada's comments on China's response to Panel question No. 203. WT/DS339/R 
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  the drafters may have used the "in connection w ith" language in Article II: 1(b), second sentence, to 
reflect this fact.
365 
7.172  After noting the similarity between the expressions  "on their importation" in Article II:1(b) of 
the GATT 1994 and "on the importation" in Article XI:1 of the GATT 1994, China also argues that 
the jurisprudence on the delineation between Article III:4 and XI:1 is highly relevant to the present 
case for two reasons.  First, because it underscore s the importance of the threshold issue in this 
dispute concerning the classification of the challenge d measures in relation to Article II or Article III 
by showing that the scope of Article XI must be inte rpreted in relation to the scope of Article III so as 
to maintain the distinction between these separa te articles of the GATT 1994, and to avoid reducing 
either article to superfluity or inutility.  Moreove r, these provisions must be interpreted to maintain 
what the Appellate Body has referred to as "the distinction normally made in the GATT between 
restrictions affecting the importation of products (i.e. border measures) and restrictions affecting 
imported products (i.e. internal measures)."  This  same rationale is applicable to the delineation 
between Articles II and III, and disregarding it would have the effect of rendering inutile a Member's 
right to impose customs duties in accordance with  its Schedule of Concessions.  Secondly, this 
jurisprudence establishes the interpretation of the term "on."  The Panel report on India – Autos  found 
that "[a]n ordinary meaning of the term ' on', relevant to a description of  the relationship which should 
exist between the measure and the importation of  the product, includes 'with respect to', 'in 
connection, association or activity with or with rega rd to.'"  This supports China's interpretation of the 
term "on their importation" to encompass charges that a Member collects by reason of (or "with 
respect to," or "in connection, association or activ ity with") the importation of a product, without 
regard to the exact point in time or sp ace at which the charge is collected."366 
Consideration by the Panel 
7.173  The Panel  first recalls its provisional finding abov e at paragraph 7.166 that the terms "on 
their [products] importation" and "into the territory" in the first sentence of Article II:1(b) of the 
GATT 1994 suggest that an "ordinary customs duty" is a charge which the obligation to pay accrues based on the product as it enters the customs territo ry of another Member.  We further recall our 
emphasis on the strict temporal element of the word  "on" in that sentence, which indicates that an 
"ordinary customs duty" must be assessed on the basi s of a good at the moment of importation.   
7.174  The second sentence  of Article II:1(b) provides: 
"Such products shall also be exempt from  all other duties or charges of any kind 
imposed on or in connection with the importation  in excess of those imposed on the 
date of this Agreement or those directly  and mandatorily required to be imposed 
thereafter by legislation in force in the importing territory on that date." (emphasis added) 
7.175  We note that Article II:1(b) of the GATT 1994 refers to two sets of charges:  "ordinary 
customs duties", referred to in its first sentence , and "all other duties and charges of any kind", 
referred to in its second sentence .  This indicates that although contai ned in the same sub-paragraph of 
the same article, these charges are governed differently.  This has been confirmed by the Appellate 
Body, which stated that "[o]rdinary customs duties are governed by the  first  sentence of 
                                                     
 
365 China's response to Panel question No. 97.  See al so China's responses to Panel question Nos. 96(a), 
96(b), 100 and 197. 
366 China's response to Panel question No. 203.  WT/DS339/R 
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  Article II:1(b);  they are not relevant to the second  sentence."
367  Likewise, we consider that the use 
of the expression "on their importation" in the first sentence and of the expression "on or in 
connection with the importation" in the second sente nce also suggests a diff erence in the scope of 
"ordinary customs duties" and "other duties or ch arges".  Consequently, any interpretation giving 
these two expressions the same meaning  would risk reducing the intention of the drafters of the 
GATT 1994 to regulate "ordinary customs duties" and "all other duties and charges of any kind"  differently.   
7.176  China points out, albeit in the context of Article XI:1 of the GATT 1994, that previous panels 
interpreted that the preposition "on" as contained in  Article XI:1 meant "with respect to," or "in 
connection, association or activity with".
368  The complainants argue th at the conclusion reached in 
previous panels on the ordinary, contextual a nd purposive meanings of the expression "on ... 
importation" in Article XI:1 of the GATT 1994 cannot be automatically transferred to the 
interpretation of "on their importation" and " on or in connection with the importation" in 
Article II:1(b) of the GATT 1994.   
7.177  We share the complainants' view.  Unlike Article II:1(b) of the GATT 1994 in which 
"ordinary customs duties" and "other duties or charg es" are addressed in two separate sentences – first 
and second sentences of Article II:1(b), Article XI:1  provides Members' obligations in respect of the 
various quantitative restrictions in the same sentence.369  This confirms the need to make the intended 
difference between "ordinary customs duties" and "other duties or charges" in Article II:1(b) 
meaningful.  We find further useful context for our  understanding in this regard in Articles I:1 and 
                                                      
367 Appellate Body Report on Chile – Price Band System , para. 156. 
368 We note that in Dominican Republic – Import and Sale of Cigarettes , the panel said that it was "not 
persuaded that the bond requirement is a restriction 'on the importation' of cigarettes.  Article XI:1 of the GATT 
does not cover any restriction, but only those restrictions that are instituted or maintained by any Member 'on 
the importation' (or exportation) of products" (para. 7.258).  Referring to The New Shorter Oxford English 
Dictionary , the panel continued stating that: 
 
"In the expression 'on the importation' – read in the context of an Article  [Article XI] that is 
entitled 'General Elimination of Quantitative Restri ctions' –, the ordinary meaning of the word 
'on' suggests that it is a preposition denoting a rela tion.  In that sense, the expression 'on the 
importation' would be akin to 'with respect to the importation'." ( Ibid.; footnote omitted) 
 
The panel in Dominican Republic – Import and Sale of Cigarettes  then found confirmation to such 
conclusion in the following statement of the Panel Report on India – Autos : 
 
"An ordinary meaning of the term 'on', relevant to a description of the relationship which should exist between the measure and the impor tation of the product, includes 'with respect 
to', 'in connection, association or activity with  or with regard to'.  In the context of 
Article XI:1, the expression 'r estriction … on importation' may thus be appropriately read as 
meaning a restriction 'with regard to' or 'in connection with' the importation of the product." 
(Ibid;  footnotes omitted, citing the Panel Report on India – Autos , para. 7.257) 
 We note however that in India – Autos  the panel only used the definition of "on" contained in the 
Webster's New Encyclopedic Dictionary  (see footnote 421 to para. 7.257 of the Panel Report on India – Autos ).  
We also note that the Panel in EC – Sugar  (paras. 7.274-7.275) used the same approach in India – Autos  to 
interpret the meaning of "on the export" in Article 9.1(c) of the Agreement on Agriculture  and concluded that "a 
payment 'on export' need not be 'contingent' on export but rather should be 'in connection' with exports." 
(para. 7.275). 
369 That is to say:  prohibitions or restrictions, other than duties, taxes or other charges, made effective 
through quotas, import or export licences or other measures. WT/DS339/R 
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  VIII:1(a) of the GATT 1994.  We first note that these provisions, which also deal with fiscal matters, 
use the expression "on or in connection with importation"
370, not "on importation" alone.  This seems 
to indicate the intended broad scope of these provi sions and hence the choice of a broader language.371  
Had the framers of the GATT considered the term "on importation" as synonymous with the term "in 
connection with importation", irrespective of the cont ext in which these terms are laid out, they would 
have simply used one or the other not both.  The same, we believe, holds true in regard to 
Article II:1(b) of the GATT 1994. 
7.178  Indeed, the language of the first sentence of Article II:1(b) of the GATT 1994 clearly 
indicates that "ordinary customs duties", with in the meaning of that provision, apply only "on" the 
importation of a product, while "other duties and ch arges" are referred as those imposed "on or in 
connection with the importation."  In the present context, interpreting "on" as also meaning "in 
connection with" (or any similar meaning) would ev iscerate such difference.  We are however bound 
by the general rules of interpretation of the Vienna Convention  to "give meaning and effect to all 
terms of the treaty" and we therefore are not "fr ee to adopt a reading that would result in reducing 
whole clauses or paragraphs of a treaty to redundancy or inutility."372  Hence, this contextual analysis 
confirms our conclusion above at paragraph 7.165 that the ordinary meaning of "on" in the first 
sentence of Article II:1(b) of the GATT 1994 contains a strict temporal connotation.373 
Subsequent practice 
7.179  China  argues that there is widespread and c onsistent practice among WTO Members that 
demonstrates that a charge is "on … importation"  of a product if the charge bears an objective 
relationship to the administration and en forcement of a valid customs liability.374  
7.180  In this respect, China refers to the practic e of the United States, indicating that customs 
authorities are not required to make a final cl assification determination and assessment of duty 
liability until one year after the merchandise has ente red the customs territory of the United States.  
Furthermore, China describes practices of other WTO Members that have customs procedures that 
result in the collection of customs duties after the time  of importation.  China refers in particular to 
Australia, Canada, the European Communities, India and New Zealand.375  Additionally, China points 
to many specialized circumstances in other Members in which duties can be assessed after the time or point of importation, including: 
"[t]he payment of duties on imports that en ter in transit but that subsequently enter 
free circulation, the payment of duties on impor ts that fail to adhere to conditions for 
temporary duty-free importation, and the pa yment of duties on imports that fail to 
                                                     
 
370 We also note that Article VIII:4 uses the expre ssion "in connection with" alone, but this provision is 
a corollary of Article VIII:1(a). 
371 For example, Article I:1 of the GATT 1994 applies to "customs duties and charges of any kind " to 
"all rules and formalities" as well as " all matters referred to in paragraphs 2 and 4 of Article III".  
Article VIII:1(a) applies to " all fees and charges of whatever character  (other than import and export duties and 
other taxes within the purview of Article III)." 
372 Appellate Body Report on US – Gasoline , DSR 1996:I, page 21.  See also the Appellate Body 
Reports on:  Japan – Alcoholic Beverages II , DSR 1997:I, page 106;  Canada – Dairy , para. 133;  and US – 
Upland Cotton , para. 549. 
373 Our conclusion would have been the same even if we were instead faced with the task of choosing 
which of the two alternative ordinary meanings of "on" we have identified above at paragraph 7.158 would give 
effect to this term as used in the context of Article II:1(b), first sentence, of the GATT 1994. 
374 China's first written submission, paras. 63-67.  
375 China's first written submission, para. 65.  WT/DS339/R 
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  adhere to inward processing and re-expor t requirements.  These are examples of 
goods that enter the customs territory subject  to a condition, often secured by a bond, 
and that can become subject to a different customs treatment after "the time or point 
of importation" if the imported goods are not used in accordance with the stipulated 
condition."
376 
7.181  The complainants , on the other hand, disagree that there exists subsequent practice in support 
of China's interpretation of Article II:1(b), first sentence, of the GATT 1994.  The  European 
Communities  argues that China's examples are based on the rules in force concerning the post-
clearance recovery of the customs debt that have nothing to do with the ordinary tariff classification 
carried out at the border at the time of importation.   In other words, the imposition and collection of 
customs duties is always made on the basis of the status of goods at the time of importation  or in other 
words as presented at the border .377  The United States  disagrees with China's characterization of US 
practice because the imposition of customs duties in the United States occurs at the time of 
importation of goods that are entered into the Unit ed States.  Duties and liability for their payment 
accrue upon imported merchandise on arrival of the im porting vessel or other means of transport in 
the United States.  Additional duty liability does not accrue based upon the usage of the goods after 
entering the United States.378  Moreover, with respect to the other examples provided by China379, the 
United States indicates these Members permit a final de termination of duty li ability after the goods 
have been imported380, which is, however, fundamentally different from China's measure, which 
changes the level of a charge based on the local content thresholds of an internal manufacturing 
operation.381  Canada  also replies on the specific examples382 provided by China and indicates that all 
of the cited customs authorities follow the practice of examining goods based upon their status at presentation at the border.  Although the duty may be calculated and paid later, liability for customs 
duties is based on this assessment.
 383  
7.182  The Panel starts by recalling that the Appellate Body  has found that to establish "subsequent 
practice" within Article 31(3)(b) of the Vienna Convention , the following two elements must be 
shown: (i) there must be a common, consistent, di scernible pattern of acts or pronouncements; and (ii) 
those acts or pronouncements must imply agreement among WTO Members.384 Applying this 
standard, the Panel fails to observe subsequent practice establishing the agreement of the parties 
regarding China's interpretation of Article II:1(b), first sentence, of the GATT 1994.  The practices of 
other Members described by China are not similar to the Chinese measure and do not support China's 
                                                      
376 China's first written submission, para. 66. 
377 The European Communities understands that the same applies for the customs systems of the United 
States and Canada.  Moreover, the European Communities i ndicates that, even if there was, in the legal system 
of an individual WTO Member, a prac tice of classifying goods based on even ts after importation, such practice 
would not be "widespread and consistent" and would certainly not fulfil the test of Article 31(3)(b) of the 
Vienna Convention .  European Communities' response to Panel question No. 32. 
378 The United States also indicates that the one-year  time frame within which the United States will 
verify the accuracy of the am ount of the estimated duties is not a time  frame within which the United States may 
impose additional customs duties, unless such duties are based upon the condition of the goods at the time of 
their importation.  United States' response to Panel question No. 32 
379 In particular, those from Australia, India and the European Communities. 
380 Such as retaining the right to verify the accuracy of origin, classification, valuation, and other facts 
that may affect the dutiability of goods. 
381 United States' response to Panel question No. 32 
382 Relating to Canada's own practice as well as to the practice in Australia, New Zealand, India and the 
European Communities.  
383 Canada's response to Panel question No. 32 
384 Appellate Body  Report on  US – Gambling , para. 192. WT/DS339/R 
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  interpretation of Article II:1(b), first sentence, of  the GATT 1994.  We have reviewed the examples of 
customs practices from the complainants and othe r Members submitted by China on this issue and 
consider, as the United States and Canada correctly argue
385, that these practices, in fact, reinforce the 
evidence that WTO Members impose ordinary custom s duties based on the state of the products as 
they are presented at the border and that they routinely collect or assess  these duties after the products 
have entered the customs territory of the importing country.  This supports our conclusion above that 
the ordinary meaning of "on their importation" in the first sentence of Article II:1(b) of the GATT 
1994 indicates a strict temporal element . 
7.183  With respect to the "speciali zed circumstances" mentioned by China, these typically apply to 
goods that have not entered and are not intended to enter the internal market of a Member. Duties are 
applied if the goods eventually enter into the intern al market of the Member in question, not if the 
goods are not "used" in accordance with a stipulated c ondition.  Typically in th ese situations products 
are not re-classified and new tariff rates do not apply based on anything that occurs inside the territory 
of the importing Member.  The words China itself uses to describe these circ umstances are prescient:  
China refers to goods "in transit";  goods impor ted on a "temporary" basis; and goods imported for 
"processing and re-export".  None of these concepts imply that the goods are intended for sale or use 
in the internal market.  In our opinion, the ci rcumstances described by China are therefore not 
analogous to the charge under the Chinese measures.  This is even supported by Article 30 of the 
Decree 125386, which, in contrast with the rest of this  measure and similarly to the "specialized 
circumstances" cited by China, indicates that Decree 125 does not apply to auto manufacturers located 
in a bonded zone, in an export-pro cessing zone, or in other special zones supervised by the customs, 
unless  they use imported auto parts to assemble motor vehicles that are sold into the domestic market.   
Conclusion 
7.184  We therefore conclude that the ordinary meani ng of "on their importation" in Article II:1(b), 
first sentence, of the GATT 1994, considered in its context and in light of the object and purpose of 
the GATT 1994, contains a strict and precise temporal element  which cannot be ignored.  This means 
that the obligation to pay ordinary customs duties is linked to the product at the moment it enters the territory of another Member.
387  If the right to impose ordinary customs duties – and the importer's 
obligation to pay it – accrues because of the importati on of the product at the very moment it enters 
the territory of another Member, ordinary customs du ties should necessarily be related to the status of 
the product at that single moment.388  It is at this moment, and this moment only, that the obligation to 
pay such charge accrues.  As stated by the Appellate Body in EC – Poultry , "it is upon entry  of a 
product into the customs territory, but before  the product enters the domestic market, that the 
obligation to pay customs duties ... accrues."389  And it is based on the condition of the good at this 
                                                      
385 Canada's responses to Panel question Nos. 32, 116; United States' response to Panel question 
No. 32. 
386 See footnote 213 to paragraph 7.40 above. 
387 As China acknowledges, "there is a single event that triggers the Member's right to impose the 
ordinary customs duty, and the importer's obligation to pay it – the importation of the product into the customs territory." (China's response to Panel question No. 97). 
388 In this regard, we recall our finding above at paragraph 7.155 that the dictionary definitions of 
"importation" refer to it as an "action" or an "act" in the singular and not to various  "actions" or "acts" in the 
plural. 
389 Appellate Body Report on EC – Poultry , para. 145 (emphasis added).  We note that in this sentence 
the Appellate Body also included "internal charges."  Without evaluating the merits of including "internal charges" within the meaning of this sentence, we consider  that such inclusion does not diminish the importance 
that we attach to this statement as applied to "customs duties".  WT/DS339/R 
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  moment that any contemporaneous or subsequent act  by the importing country to enforce, assess or 
reassess, impose or collect ordinary custom duties should be carried out. 
7.185  This conclusion is in line with our findings above in paragraphs 7.126 to 7.133 on the scope 
of "internal tax or charge" under Article III:2 of the GATT 1994.  In contrast to ordinary customs 
duties, the obligation to pay internal charges does not accrue because of the importation of the product 
at the very moment it enters the territory of a nother Member but because of internal factors (e.g., 
because the product was re-sold internally or because  the product was used internally), which occurs 
once the product has been imported  into the territory of another Member.  The status of the imported  
good, which does not necessarily correspond to its status at the moment of importation , seems to be 
the relevant basis to assess this internal charge.  The distinction between ordinary customs duties and 
internal charges, which is  of "fundamental importance"
390, would be blurred if the obligation to pay an 
ordinary customs duty could accrue ba sed on the status of the product after  importation, rather than on 
its status at the moment of importation  (i.e., "on ... importation").391 
7.186  In this respect, this interpretation serves to guarantee the "security and predictability of the 
reciprocal and mutually advantageous arrangements di rected to the substantial reduction of tariffs and 
other barriers to trade", which is a recogn ized object and purpose of the WTO Agreement.392  Indeed, 
such predictability and security of tariff concessions  would be undermined if ordinary customs duties 
were not based on the product at the time of im portation but on factors that occur internally. 
7.187  In addition, we find support for our view  in the Appellate Body's holding in EC – Chicken  
Cuts that "in characterizing a product for purposes of tariff classification, it is necessary to look 
exclusively at the 'objective characteristics' of the product in question when presented for 
classification at the border".393  We are well aware that this statement relates to the issue of 
classification, not the scope of "ordinary customs duty" per se .  However, we consider that the same 
statement provides some contextual support to the question before us.  The complainants referred to 
this statement of the Appellate Body in the context of the discussion of whether the charge falls within 
the meaning of Article II or III of the GATT394 and China itself emphasized the link between tariff 
classification and this discussion.395 
                                                      
390 See the GATT Panel Report on EEC – Parts and Components , paras. 5.4 and 5.7.   
391 For this reason we disagree w ith China's arguments that it is "the completion of the [process of 
importation] that marks the turning point between permissible discrimination under Article II and impermissible discrimination under Article III", and that "imports have been 'cleared through customs' once all customs 
formalities are complete and the goods are in free circulatio n within the customs territory." (China's response to 
Panel question No. 37).  In our analysis above we did not find any basis in Article II:1(b), first sentence, nor in Article III:2 of the GATT 1994 to support the argument that  it is the completion of the process of importation 
that marks such turning point.  In fact, China's argument seems to be in contradiction with its own explanation 
that the charge collected pursuant to Article 29 of Decree 125 on parts im ported by third-party suppliers, which 
it considers to be in free circulation in China, free of customs formalities and not su bject to customs control, 
nevertheless falls within the scope of II:1(b), first sentence, of the GATT 1994 in that it objectively relates to the 
proper classification of the imported parts and components.  See paragraph 7.114 above. 
392 Appellate Body Report on EC – Chicken Cuts , para. 243. 
393 Appellate Body Report on EC – Chicken Cuts , para. 246. 
394 European Communities' response to Panel question No. 186; Canada's response to Panel question 
No. 187; United States' response to Panel question No. 186. 
395 See, for example, China's res ponse to Panel question No. 37: "This brings China to the tariff 
classification issue at the heart of the present dispute" and "[t]he critical issue in relation to China's obligations 
under Article II and its Schedule of Concessions is whether China is allowed to interpret the term 'motor 
vehicles' in this way, and to establish a customs process to give effect to this interpretation." WT/DS339/R 
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  7.188  This does not mean, however, that we accept China's argument that the HS, including its 
interpretative rules, justify the imposition of the alleged "ordinary customs duties" on auto parts on 
the basis of their final internal assembly into moto r vehicles.  In our view, China has not explained 
why the interpretative rules of another internationa l agreement – the HS – are the determining factor 
for the scope of the treaty term at issue under the WTO Agreements.  More importantly, even if we 
were to base our ruling in the present section of  these Reports on the alleged rights under the HS, 
which we are not, we would be guided by our dut y not to "add to or diminish the rights and 
obligations provided in the covered agreements."
396 
7.189  We find support and confirmation in the findings of the GATT Panel EEC – Parts and 
Components , which rejected the argument by the EEC that  the anti-circumvention duties at issue were 
customs duties within the scope of Article II:1(b)  and not internal taxes or charges falling under 
Article III:2.  The GATT Panel stated: 
"The Panel noted that the anti-circumvention duties are levied, according to 
Article 13:10(a), 'on products that are introduced into the commerce of the 
Community after having been assembled or pr oduced in the Community'.   The duties 
are thus imposed, as the EEC explained befo re the Panel, not on imported parts or 
materials but on the finished products assembled or produced in the EEC.  They are not imposed conditional upon the importation of  a product or at the time or point of 
importation.  ... The relevant fact , according to the text of these provisions, is not the 
policy purpose attributed to the charge but rather  whether the charge is due on 
importation or at the time or point of importation or whether it is collected 
internally ."
397 (emphasis added) 
7.190  We also agree with the Panel in EEC – Parts and Components  that the mere fact that a charge 
is described under domestic law  as an "ordinary customs duty", or that the good is considered by the 
importing country as not being in free circulation  (and consequently under customs control ), or even 
the policy purpose of the charge , are all not decisive factors to its characterization as a "border 
charge" under Article II:1(b) of the GATT 1994 b ecause otherwise Members could determine by 
themselves which of the provisions would apply to th eir charges.  We also consider, for the same 
reason, that the fact that a charge is administered by a customs authority is not determinative of its 
nature.398 
7.191  Furthermore, China submits that for a charge to  be considered an ordinary customs duty under 
Article II:1(b), first sentence, of the GA TT 1994 it does not need to be necessarily imposed , collected 
or assessed at the border nor at the time goods cross the border into the territory of the importing 
country.  We see no controversy on this point among the parties to this dispute.  Indeed, as the 
                                                      
396 Article 3.2 of the DSU.  Further, even if we were to consider China's arguments based on the 
classification rules under the HS, as elaborated under pa rt VII.D.2 of these reports, the tariff term "motor 
vehicles" is not to be interpreted to include auto parts imported in multiple shipments.  China's arguments in this 
connection therefore would not ch ange our interpretation, based on the principles of the Vienna Convention , of 
the scope of the first sentence of Article II:1(b) of the GATT 1994.  In fact, we note that our finding here on the 
meaning of "on their importation" in the first sentence of  Article II:1(b) of the GATT 1994 and our finding in 
Section VII.D.2(a)(ii) on th e meaning of "as presented" in GIR 2(a) s eem not to be in c ontradiction with each 
other. 
397 GATT Panel Report on EEC – Parts and Components , para. 5.5. 
398 See GATT Panel Report on EEC – Parts and Components , paras. 5.6-5.7.  See also the Panel Report 
on US – 1916  (Japan) , paras. 6.53 (and its footnote 464), 6.58 (and its footnote 461),  6.134 (and its 
footnote 504) and 6.152(a) (and its footnote 518).  WT/DS339/R 
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  complainants themselves agree, albeit in varying degrees,
399 we note that in practice, WTO Members' 
customs authorities routinely collect or assess  customs duties after the goods have physically crossed 
the border.  We are mindful that customs practic e in general, and importa tion in particular, can 
frequently be a complex process "during which a number of steps must be completed."400  T h e  
increasing sheer volume of goods that cross the borders of WTO Member countries every day undoubtedly adds to such complexity.  This rea lity, as the complainants themselves recognize, can 
make it in certain cases very difficult for a customs authority to execute and finalize all customs acts, 
including the final assessment, calcu lation and collection of customs duties at the very time and point 
when and where the goods cross the border into the territory of a WTO Member.
401  However, we do 
not agree with the proposition that these typical  customs practices mean that goods cannot be 
considered "imported", and therefore are outside th e protection of the national treatment obligation in 
Article III:2 of the GATT 1994, simply because ther e has been a delay in the final assessment, 
calculation and/or collection of customs duties.  In our view, what is decisive for determining whether 
a charge is an ordinary customs duty is whethe r the charge is imposed on products "on their 
importation into the territory", as we have est ablished above at paragr aphs 7.184 and 7.185. 
7.192  In sum, based on its ordinary meaning and its context, we conclude that "ordinary customs 
duties" within the meaning of the first sentence of  Article II:1(b) refer to duties imposed on goods at 
the moment of their "importation" into the customs territory of an importing Member and must be interpreted more narrowly than "other ch arges and duties" under the second sentence of 
Article II:1(b), which are imposed on goods "on or in connection with importation". 
7.193  We will now examine the terms "internal charges"  and "ordinary customs duties" in the light 
of the object and purpose of the WTO Agreement as  well as the GATT 1994, in general and that of 
Articles II and III of the GATT 1994, in particular. 
                                                     
 
399 European Communities' first written submission, para. 139;  European Communities' first oral 
statement, paras. 25-26;  United States' response to Pane l question No. 87;  Canada's response to Panel question 
No. 87. 
400 Panel Report on Turkey – Rice , para. 7.127.  Additionally, "UNCTAD estimates that the average 
customs transaction involves 20–30 different parties, 40 documents, 200 data elements (30 of which are repeated at least 30 times)  and the re-keying of 60–70% of all data at least once." 
(http://www.wto.org/english/thewto_e/minist_e/min99_e/english/about_e/15facil_e.htm). 
401 Finalizing customs acts in a singl e moment is not necessarily an issue restricted to the question 
presented to us under Article II:1(b) of the GATT 1994.  We note that other covered agreements seem to 
recognize that finalization of certain  customs acts is not necessarily cont emporaneous with the reason that 
triggered that act.  For example, the Agreement on Implementation of Article VII of the GATT 1994 ( Customs 
Valuation Agreement ), refers to possible necessary delays in the "final determination" of the customs value of 
imported goods (Article 13) or the right of customs administrations "to satisfy themselves as to the truth or 
accuracy of any statement, document or  declaration presented for customs va luation purposes" (Article 17).  
Likewise, the SCM Agreement refers to the obligation to "maintain judicial, arbitral or administrative tribunals 
or procedures for the purpose, inter alia , of the prompt review of administrative actions relating to final 
determinations and reviews of determinations" on counte rvailing duties (Article 23).  Finally, the Agreement on 
Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 ( Anti-Dumping Agreement ), 
states inter alia  that the determination of the final liability for payment of anti-dumping duties, when they are 
assessed on a retrospective basis, shall take place as soon as possible, normally within 12 months, and in no case 
more than 18 months, after the date on which a request for a final assessment of the amount of the anti-dumping 
duty has been made (Article 9.3.1). WT/DS339/R 
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  Object and purpose of the WTO Agreement and the GATT 1994 
Arguments of the parties 
7.194  The complainants  express systemic concerns that if the processing and manufacturing of 
products after importation into the territory of  a Member could be generally accepted as an 
intermediate step before tariff classification, the GATT 1994's core national treatment obligations 
under Article III would be rendered a nullity.
402 
7.195  The United States  further argues that it is not the label that a Member applies to its measure 
that determines whether an obligation under a covered agreement applies;  rather it is the substance of 
the measure that matters.  Ot herwise the GATT 1994's core nati onal treatment obligations under 
Article III would be eviscerated.403   
7.196  Canada  submits that by using (selectively and out of context) Members' conducts and the HS 
to classify products inappropriately, China would see the scope of the GATT 1994's national treatment provisions systematically reduced.
404  The Appellate Body has clearly said that the broad 
purpose of Article III is to avoid protectionism in the application of internal taxes and regulatory 
measures.  However, if a Member can extend its consideration of the character of an imported good to some indefinite point after physical importation, in  order to evaluate how or by whom the good is 
used, any Article III test becomes an exercise in relativity.   
7.197  China  argues that customs authorities are permitted under Article II of the GATT 1994 to 
deal with the complex relationship between complete  articles and parts of those articles in a manner 
that is consistent with the HS, and in a manner that  allows customs authorities to give effect to the 
substance of a series of import transactions over their form.
405   In China's view, the only loophole that 
needs closing is the complainants' position that importers can evade higher duties that apply to 
complete articles merely through the manner in which they structure their imports.  This arbitrary, form-over-substance position is the only argument in this proceeding that poses a systemic risk to the 
GATT – that is, to the security and predictability of tariff concessions under Article II.   The concerns 
of Article II and the concerns of Article III are of equal dignity and importance within the GATT 
system.  Just as Article II does not allow Members to take actions that would be  inconsistent with its 
obligations under Article III, Article III does not  prohibit Members from taking actions that are 
consistent with its rights under Article II.
406  Article II countenances a particular type of 
discrimination against imported products – the a pplication of ordinary customs duties to which 
domestic products are not subject.  Members may apply such duties to products from other Members 
"on their importation" into the customs territory , and in accordance with the limits bound in their 
Schedules of Concessions.  Once the products are "im ported" however, they become subject to the 
basic principles of non-discrimination set forth in Article III.407 
                                                      
402 See. e.g., the European Communities' first writte n submission, para. 140;  responses to Panel 
question Nos. 78 and 109. 
403 United States' first written submission, para. 3. 
404 Canada's second written submission, para. 6. 
405 China's response to Panel question No. 38. 
406 China's response to Panel question No. 37. 
407 China's response to Panel question No. 37.  WT/DS339/R 
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  Consideration by the Panel 
7.198  The Panel now examines the terms "internal charges" and "ordinary customs duties" in light 
of the object and purpose of the WTO Agreement and the GATT 1994 in general.
408  As the Appellate 
Body in EC – Chicken Cuts observed, one of the objects and purpose of the GATT 1994 and the 
WTO Agreement in general is "the security and predictability of the reciprocal and mutually 
advantageous arrangements directed to the substa ntial reduction of tariffs and other barriers to 
trade."409  We also recall the Appellate Body's finding that Article 31(1) of the Vienna Convention 
does not necessarily exclude taking into account the object and purpose of a particular treaty term, if 
doing so assists the interpreter in determini ng the treaty's object and purpose on the whole.410 
7.199  In addressing the issue before us, namely what are the elements that distinguish "internal 
charges" under Article III:2 from "ordinary customs du ties" under Article II:1(b), we also find useful 
the following statement by the GATT Panel in EEC – Parts and Components : 
"The distinction between import duties a nd internal charges is of fundamental 
importance because the General Agreement re gulates ordinary customs duties, other 
import charges and internal taxes differe ntly: the imposition of 'ordinary customs 
duties' for the purpose of protection is allowed unless they exceed tariff bindings; all other duties or charges of any kind imposed on or in connection with importation are in principle prohibited in respect of bound items (Article II:1(b)).  By contrast, internal taxes that discriminate against im ported products are prohibited, whether or 
not the items concerned are bound (Article III:2)."
 411 
7.200  That GATT Panel concluded that one of the basic objectives underlying Articles II and III 
was that "discrimination against products from othe r contracting parties should only take the form of 
ordinary customs duties ... and not the form of internal taxes ... ."412  We agree with the GATT Panel 
in EEC – Parts and Components .   
7.201  As the Appellate Body clarified, a basic object and purpose of the GATT 1994, as reflected in 
Article II of the GATT, is "to preserve the value of tariff concessions negotiated by a Member with its trading partners and bound in that Member's Schedule".
413  At the same time, the broad purpose of 
Article III is "to avoid protectionism in the app lication of internal tax and regulatory measures".414  
While serving their own objects and purposes, these two provisions are also interrelated such that the 
disciplines contained in these two provisions aim to  ensure "the security and predictability of the 
reciprocal and mutually advantageous arrangements di rected to the substantial reduction of tariffs and 
                                                      
408 Appellate Body Report on EC – Chicken Cuts , para. 238. 
409 Appellate Body Report on EC – Chicken Cuts , para. 243. 
410 Appellate Body Report on EC – Chicken Cuts , para. 238. 
411 GATT Panel Report on EEC – Parts and Components , paras. 5.4 and 5.7. 
412 GATT Panel Report on EEC – Parts and Components , para. 5.7. 
413 Appellate Body Report on Argentina – Textiles and Apparel , para. 47. 
414Appellate Body Report on Japan – Alcoholic Beverages II , DSR 1996:I, pages 16-17; 109-110 
(original footnotes omitted).  See also Appellate Body Report on US – FSC (Article 21.5 – EC) , para. 204.  The 
GATT Panel in Italy – Agricultural Machinery  also provides insight in the object and purpose of Article III, 
stating that "... the intention of the drafters of the Ag reement was clearly to treat the imported products in the 
same way as the like domestic products once they had been cleared through customs. Otherwise indirect 
protection could be given."  GATT Panel Report on Italy – Agricultural Machinery , para. 11). WT/DS339/R 
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  other barriers to trade."
415  To achieve this overall object and purpose of the WTO Agreement, 
Members are obliged to respect the boundaries betw een Article III and Article II of the GATT 1994.   
7.202  Therefore, the Panel will be guided by this obj ective in applying the elements we considered 
above as distinguishing "ordinary customs duties" fr om "internal charge" to the charge under the 
measures to determine whether it is an "int ernal charge" or "ordinary customs duty". 
Is the charge under the measures an "ordin ary customs duty" within the scope of 
Article II:1(b), first sentence, or an "internal charge" within the meaning of Article III:2? 
7.203  The Panel  recalls the complainants' argument that the charge on imported auto parts resulting 
from the measures is an internal ch arge subject to the first sentence  of Article III:2 of the GATT 1994 
because it is triggered by the actual use of these pa rts in the assembling of motor vehicles inside 
China after importation.  We further recall China's r esponse that this charge is instead an ordinary 
customs duty because it is imposed as a condition of – that is, by reason of – the importation of a 
product (auto part) into China's customs territory and that this charge objectively relates to a duty 
liability that arises by reason of the importation of the product.  China argues that the charge is a valid ordinary customs duty because it implements and en forces China's Schedule of Concessions by giving 
effect to the provisions of China's Schedule relating to "motor vehicles." 
7.204  We have established above, however, if the oblig ation to pay a charge does not accrue based 
on the product at the moment of its importation, it cannot be an "ordinary customs duty" within the 
meaning of Article II:1(b), first sentence of the GA TT 1994:  it is, instead, an "internal charge" under 
Article III:2 of the GATT 1994, which obligation to pay accrues based on internal factors.   
7.205  Under the measures, the obligation to pay the charge
416 accrues internally after auto parts 
enter into the customs territory of China and are assembled/produced into motor vehicles.  In this 
connection, Article 5 of Decree 125 provides: 
"Article 5   The reference to 'automobile parts characterized as complete vehicles' in 
these Rules shall mean that the imported auto mobile parts should be characterized as 
complete vehicles at the stage when complete vehicles are assembled .  The reference 
to 'automobile parts characterized as ass emblies (systems)' shall mean that the 
imported automobile parts should be char acterized as assemblies (systems) at the 
stage when the assemblies (systems ) are assembled" (emphasis added). 
7.206  Furthermore, Article 28 of Decree 125 states that " after  the imported automobile parts have 
been assembled into complete vehicles, the autom obile manufacturer shall make a declaration of duty 
payable to Customs and Customs shall ... pro ceed with classification and duty collection."417 
7.207  Also relevant to the question before us are  (i) the fact that the charge is imposed on 
automobile manufacturers, not importers in general (b e it manufacturers or suppliers); (ii) the fact that 
the charge is determined not based on auto parts as they enter the customs territory of China, but 
                                                      
415 Appellate Body Report on EC – Chicken Cuts , para. 243. 
416 The charge under the measures refer to both that  imposed under Article 29 of Decree 125 and that 
imposed in general under the measures.  As we concluded at paragraph 7.115 above, these charges are no 
different from each other. 
417 Emphasis added.  See paragraph 2.4 in the Descriptive Part of these reports for background 
information on the translation of Article 28 of Decree 125.  See also, more generally on Article 28, parties' 
responses to Panel question No. 304.  WT/DS339/R 
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  instead based on what other parts from other countries and/or other importers are used together with 
the goods concerned in assembling a vehicle model; and (iii) the fact that identical imported parts 
included in the same shipment can be subject to  different charge rates depending on which vehicle 
model they are assembled into.
418 
7.208  Furthermore, we recall China's own explanati on of the charge imposed under Article 29 of 
Decree 125 in respect of parts imported by a third- party supplier, which is, as we have concluded 
above at paragraph 7.115, not different from the ch arge imposed in general under the measures.  As 
we have stated above at paragraph 7.108, China has explained that imported auto parts that the auto 
manufacturer purchases from a third-party supplie r in China will have completed the necessary 
customs formalities and are no longer subject to custom s control and are in free circulation in China.  
China also explained that the rules for bonded goods do not apply to auto parts imported by a third-party supplier.  We recall our conclusion above at  paragraph 7.190 that factors such as "customs 
control" and "free circulation" are not decisive to the characterization of a charge as ordinary customs 
duty.
419  We note that China submits that an Article  29 charge is nevertheless an ordinary customs 
duty because it "objectively relates to the administra tion and enforcement of China's tariff provisions 
for motor vehicles."420  However, we have already establishe d above that this is not the correct 
standard to determine whether a charge falls under Article II:1(b), first sentence, of the GATT 1994.  
As we have stated above at paragraph 7.108, the ch arge under Article 29 is subject to the same set of 
rules as charges in general under the measures in the sense that the applicability of the Article 29 
charge is determined based on the same criteria fo r the essential character determination as set out in 
Articles 21 and 22 of Decree 125. 
7.209  Finally, we do not believe that our conclusion on the internal elements of the charge is 
affected by the fact that, under the measures, auto  manufacturers are required to make a declaration at 
the moment imported auto parts enter China.421  This is because such declaration is not based on the 
status of these parts at that moment but, instead, on their predicted  use internally in the assembly of 
motor vehicles.422  Moreover, the information in the declarati on is not decisive to the determination of 
the rate of the charge because such determinati on is only made, as explaine d above, internally after 
assembly.423  In this respect, China itself acknowledges th at this declaration as well as the bonding 
requirement are simply elements of the custom s procedure and are not decisive on the question 
whether this is an internal charge or an ordinary customs duty.424  With respect to the bonding 
                                                      
418 See paragraph 7.117 above for the Unite d States' arguments in this regard. 
419 However, even if arguendo  these factors would be relevant to re nder the charge in general under the 
measures as an ordinary customs duty, using China's own logic, such factors would not be present in the case of 
the charge under Article 29 of Decree 125. 
420 China's response to Panel question No. 83. 
421 Article 13 Decree 125.  See paragraph 7.53. 
422 A prediction  is made through the self-evaluation and vehicle model registration procedures, as 
examined above in Section VI I.A.1(b)(ii).  China seems to  agree that indeed such a declaration is made on the 
basis of the intention of the manufacturer at the moment of importation (See China's first written submission, 
para. 7).  See also the European Communities' first oral submission, para. 28;  European Communities' second 
written submission, para. 52;  the United States' second oral statement, para. 18; and Canada's second written 
submission, paras. 33-36.  See also Japan's third party oral statement, para. 14. 
423 See China's response to Panel question No. 5, footnote 2. 
424 China's response to Panel question No. 79.  Howe ver, the Panel observes that in other statements, 
China seems to attach considerable relevance to the declaration at the moment of importation to support its 
argumentation on the nature of the measures.  For exampl e, China argues that it "will demonstrate that, contrary 
to complainants’ assertions, the challenged measures impose ordinary customs duties that are conditioned upon the entry of goods into China.  The measures give effect to a declaration that is made at the time of importation , 
based on the demonstrated intention of the auto manufacturer to import and assemble parts and components that WT/DS339/R 
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  requirement on auto parts characterized as complete  vehicles, China indicates that these are required 
to ensure that the auto manufacturer abides by all relevant customs rules and can satisfy the customs 
liability and that these auto parts remain under customs control.
425  However, the Panel observes that 
there is no restriction on the use in the intern al market of these auto parts in bonded status426 and the 
bond requirement thus seems, as indicated by th e complainants, merely a financial guarantee.427  In 
contrast, as the European Communities and Canada correctly argue428, the auto parts which can 
effectively be considered under customs superv ision are those described under the situations 
elaborated in Article 30 of Decree 125 (e.g. in a bo nded zone and export pro cessing zones), which are 
exempt from the measure unless  they are eventually entered into  the internal market of China.429 
7.210  In sum, based on the above elements considered as a whole, in particular the fact that the 
charge under the measures relates to the internal assembly of auto parts into motor vehicles, we 
conclude that the charge is an internal charge w ithin the meaning of Article III:2 of the GATT 1994.   
7.211  Moreover, as mentioned above, the "security and pr edictability of the reciprocal and mutually 
advantageous arrangements directed to the substantia l reduction of tariffs and other barriers to trade ", 
which is a recognized object a nd purpose of the WTO Agreement,430 would be undermined if a charge 
were to be considered as an ordinary customs duty even when the obligation to  pay the charge accrues 
after goods have already entered into the customs terr itory of China and been assembled into complete 
goods of the corresponding kind.  We therefore sh are the systemic concerns expressed by the 
complainants that if the assembly of the products af ter their importation into the customs territory of a 
Member could provide a basis for tariff classifi cation, the tariff classification system would 
undermine the national treatment obligation under Artic le III of the GATT 1994, which is one of the 
core principles of the WTO Agreements.  Such an interpretation would blur the fundamental 
distinction between measures falling within the sc ope of Article III:2 and those falling within the 
scope of Article II:1(b), first sentence, of the GATT 1994. 
(iii) Conclusion 
7.212  We therefore find that the complainants have satisfactorily demonstrated that the charge  
under the measures431 is an internal charge  under Article III:2 of the GATT 1994.   
7.213  We now turn to the complainants' specific clai ms that the charge is inconsistent with 
Article III:2 of the GATT 1994.  In this respect, we  recall our statement above  at paragraph 7.104 that 
the Appellate Body in Canada – Periodicals  clarified that the analysis of whether a measure is 
inconsistent with this provision of the GATT 1994 i nvolves a two-step test:  first, whether imported 
and domestic products are like products  and, second, whether the imported products are taxed in 
                                                                                                                                                                     
have the essential character of a complete motor vehicl e."  (China's first written su bmission, para. 7, emphasis 
added). 
425 China's response to Panel question No. 18. 
426 See China's second written submission, para. 116: "... Decree 125 permits the release of  auto 
parts..." (emphasis added). 
427 European Communities' response to Panel question No. 201; United States' response to Panel 
question No. 201; Canada's second written submission, pa ra. 38; Canada's response to Panel question No. 201. 
428 European Communities' response to Panel question No. 201; Canada's second written submission, 
para. 38; Canada's response to Panel question No. 201.  See also China's response to Panel question No. 16. 
429 See China's response to Panel question No. 16.  See also the last sentence of paragraph 7.183 above. 
430 Appellate Body Report on EC – Chicken Cuts , para. 243. 
431 With exception of the charge levied on the importation of CKD and SKD kits under the optional 
provision of Article 2(2) of Decree 125.  See paragraphs 7.101 and 7.636-7.638.  WT/DS339/R 
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  excess  of the domestic products.  If the answers to both questions are affirmative, there is a violation 
of Article III:2, first sentence, of the GATT 1994.
432  We will now analyse these two questions. 
(c) Are imported auto parts like domestic auto parts? 
(i) Arguments of the parties 
7.214  The complainants433 argue that, where a WTO Member draws an origin-based distinction in 
respect of internal charges, the imported and do mestic products must be like products and a case-by-
case determination of "likeness" between the foreign and domestic products is unnecessary.434  As the 
measures do not distinguish between auto parts b ased on any other criteria than their origin, it 
therefore follows that all imported and domestic parts are like products.435 
7.215  China 's only response is that as the charge under the measures is an ordinary customs duty 
under Article II:1(b) of the GATT 1994, this clai m should fail as Article III:2 of the GATT 1994 is 
inapplicable. 
(ii) Consideration by the Panel 
7.216  We recall our conclusion above in the section of  these reports dealing with the description of 
the measures that the products at issue in this case are all imported auto parts  that are potentially 
subject to the measure.436  Hence, as under the measures origin  is the sole criterion distinguishing the 
imported and domestic parts, it is correct to treat su ch products as like products within the meaning of 
Article III:2 of the GATT 1994.437  Similarly to the panel in US – FSC  (Article 21.5 – EC II) , "we do 
not believe that the mere fact that a good has [C hinese] origin renders it 'unlike' an imported good."438 
7.217  The Panel therefore concludes that the complainants have satisfactorily met their burden of 
proof439 that auto parts of domestic and foreign origin are like products within the meaning of 
Article III:2 of GATT 1994. 
(d) Are imported auto parts subject to internal ta xes and charges in excess of those applied to 
domestic products? 
(i) Arguments of the parties 
7.218  The complainants440 claim that under the measures imported  auto parts are taxed in excess of 
those applied to domestic auto parts because imported auto parts, if they are assembled into vehicles 
and characterized as complete vehi cles, are subject to an internal charge that like domestic products 
                                                      
432 Appellate Body Report on Canada – Periodicals , DSR 1997:I, page 468. 
433 Supported by Argentina (see Argentina's third party submission, para. 42). 
434 European Communities' first written submission,  paras. 164-165; United States' first written 
submission, para. 85; Canada's first written submission, para. 90. 
435 European Communities' first written submission, para. 166;  Canada's first written submission, 
paras. 90-91.  See also Argentina's third party submission, para. 43. 
436 See paragraph 7.86 above. 
437 Panel Report on Canada – Autos , para. 10.74;  Panel Report on India – Autos , paras. 7.174-7.176. 
438 Panel Report on US – FSC  (Article 21.5 – EC II) , para. 8.133. 
439 In Japan – Alcoholic Beverages II , in a finding subsequently not addressed by the Appellate Body, 
the Panel stated that "complainants have the burden of proof to show first  that products are lik e and second, that 
foreign products are taxed in excess of domestic ones." (para. 6.14). 
440 Supported by Argentina (see Argentina's third party submission, para. 44). WT/DS339/R 
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  are not subject to.
441  In this respect, the European Communities and Canada refer to the holding of 
the Appellate Body in Japan – Alcoholic Beverages II clarifying that "even the smallest of 'excess' is 
too much."442 
7.219  As stated above, China  responds that, because the measures are border measures, they do not 
result in the imposition of internal taxes or other in ternal charges within the meaning of Article III:2, 
first sentence, GATT 1994.443 
(ii) Consideration by the Panel 
7.220  We start our analysis by recalling that in Japan – Alcoholic Beverages II , the Appellate Body 
established a strict standard for the term "in excess of" under Article III:2, first sentence: 
"The only remaining issue under Article III:2, first sentence, is whether the taxes on 
imported products are 'in excess of' those on like domestic products.  If so, then the Member that has imposed the tax is not in  compliance with Article III.  Even the 
smallest amount of 'excess' is too much.  'The prohibition of discriminatory taxes in 
Article III:2, first sentence, is not conditional on a 'trade effects test' nor is it qualified 
by a de minimis standard.'"
444 
7.221  With this standard in mind, we recall our conclusion above at paragraph 7.212 that the 
measures impose an internal charge under Article III:2 of the GATT 1994.  We do not believe that the 
question of whether the precise amount of this internal charge is equivalent to an ad valorem  rate of 
25 per cent or only 15 per cent over the imported part  is essential to our findings under this claim as 
any one of these values would undoubtedly be "in ex cess of those applied to domestic products".  In 
fact, as domestic products are not subject to the measures they are also not therefore subject to any charge under the measures at all. 
7.222  The Panel therefore concludes that the complainants have satisfactorily met their burden of 
proving that imported auto parts are subject to an  internal charge in excess of those applied to 
domestic products within the meani ng of Article III:2 of GATT 1994. 
(e) Conclusion 
7.223  We therefore find that the charge under the measures
445 is inconsistent with the first sentence 
of Article III:2 of the GATT 1994.   
                                                      
441 European Communities' first written submission, para. 163;  United States' first written submission, 
para. 84;  Canada's first written submission, para. 92. 
442 European Communities' first written submission, para. 168;  Canada's first written submission, 
para. 92, footnote 125. 
443 See China's first written submission, para. 170. 
444 Appellate Body Report on Japan – Alcoholic Beverages II , page 23.  This finding was followed by 
the Panel on Argentina – Hides and Leather  (See Panel Report on Argentina – Hides and Leather , para. 11.243). 
445 With the exception of the "ordinary customs duties"  levied under Article 2(2) of Decree 125, which 
are addressed under Article II:1 (a) and (b), first sentence, of the GATT 1994 in Part VII.F of these reports, 
below.  WT/DS339/R 
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  2. Are the measures consistent with Article III:2, second sentence, of the GATT 1994? 
(a) Arguments of the parties 
7.224  Should the Panel not find a violation of the first sentence of Article III:2, the European 
Communities  claims, in the alternative, that the measur es would nevertheless be inconsistent with 
Article III:2, second sentence, of the GATT 1994.
446   
7.225  China  responds that the measures are border not in ternal measures.  In any case, they do not 
otherwise apply internal taxes or charges in a manner contrary to the principles set forth in 
Article III:1 of the GATT 1994, as provided in Article III:2, second sentence, of the GATT 1994.447 
(b) Consideration by the Panel 
7.226  We recall our finding above at paragraph 7.223 that the charge under the measures, with the 
exception of those levied under Article 2(2) of Decree 125, is an internal charge that is inconsistent 
with the first sentence of Article III:2 of the GA TT 1994.  As the European Communities only makes 
its claim under the second sentence of Article III:2 in case we do not find a violation in respect of the 
first sentence of this provision, we do not need to make a finding on this claim. 
3. Are the measures consistent with Article III:4 of the GATT 1994?  
7.227  The complainants  argue that the measures are inconsistent with Article III:4 of the GATT 
1994.448  In response, China  again submits that, as border measures,  they do not fall within the scope 
of Article III:4 GATT 1994.449     
7.228  Article III:4 of the GATT 1994 reads as follows in the relevant part: 
"The products of the territory of any contr acting party imported into the territory of 
any other contracting party shall be accord ed treatment no less favourable than that 
accorded to like products of national origin  in respect of all laws, regulations and 
requirements affecting their internal sale, offering for sale, purchase, transportation, 
distribution or use. ..." 
7.229  The Appellate Body has clarified that three elements must be satisfied to establish a violation 
of Article III:4:  (1) the imported and domestic produ cts at issue are "like" products"; (2) the measure 
at issue is a "law, regulation, or requirement aff ecting their internal sale, offering for sale, purchase, 
transportation, distribution, or use"; and (3) th e imported products are accorded "less favourable" 
treatment than that accorded  to like domestic products.450 
7.230  For Article III:4 to apply two things are fi rst required.  First the domestic and imported 
products must be "like".  Second, the law, regulatio n, or requirement must "a ffect" the internal sale, 
offering for sale, purchase, transportation, distributio n, or use of the like products.  Only once those 
                                                      
446 European Communities' first written submission, paras. 172-185.   
447 China's first written submission, para. 170. 
448 Supported by Japan and Mexico (See Japan's third party written submission, paras. 13-14 and 
Mexico's third party written submission, paras. 5-6). 
449 China's first written submission, para. 171. 
450 Appellate Body Report on Korea – Various Measures on Beef , para. 133. WT/DS339/R 
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  two elements are established does the obligati on to afford no less favourable treatment apply.
451  In 
this connection, we note China's argument that  the measures do not fall within the scope of 
Article III:4 because they are "border measures".  Th erefore, we will address the question of whether 
Article III:4 applies to the contested measures by an alysing whether the domestic and imported auto 
parts are "like" and whether the Chinese measures ar e "laws, regulations, and requirements affecting 
the internal sale, offer for sale, purchase, transpor tation, distribution or u se" of the imported auto 
parts.  If found so, we will proceed to determin e whether the contested measures accord "less 
favourable" treatment to imported auto parts than to like domestic auto parts inconsistently with 
China's obligation under Article III:4 of the GATT 1994. 
(a) Are imported auto parts like domestic auto parts? 
(i) Arguments of the parties 
7.231  Similar to their claim under Article III:2, first sentence, of the GATT 1994, the 
complainants452 hold the view that domestic and imported auto parts are like products because origin 
is the only basis for their distin ction under the measures at issue.453  The United States  relies upon the 
finding of the panel in Canada – Wheat Exports , which stated that: 
"Where a difference in treatment betwee n domestic and imported products is based 
exclusively on the products' origin, th e complaining party need not necessarily 
identify specific domestic and imported prod ucts and establish their likeness in terms 
of the traditional criteria – that is, the ph ysical properties, end-uses and consumers' 
taste and habits.  Instead, it is sufficien t for the purposes of satisfying the 'like 
product' requirement, to demonstrate that th ere can or will be domestic and imported 
products that are like."454 
7.232  The United States goes on to argue that, because Ch ina's measures at issue apply an internal 
charge as well as burdensome administrative requirements on vehicle manufacturers solely on an 
origin-based distinction, it follows therefore that foreign and domestic auto parts are "like products" 
within the meaning of Article III:4.455 
7.233  China  responds that as the measures are border measures under Article II:1(b) of the 
GATT 1994, this claim should fail as Article  III:4 of the GATT 1994 is inapplicable. 
                                                      
451 We find support for this conclusion in the Appellate Body Report on US – FSC (Article 21.5 – EC ), 
para. 208, where the Appellate Body stated that "it is, therefore, not any 'laws, regulations and requirements' 
which are covered by Article III:4, but only those which ' affect ' the specific transactions, activities, and uses 
mentioned in that provision.  Thus the word 'affecting'  assist in defining the types of measures that must 
conform to the obligation not to accord 'less favourable tr eatment' to like imported produ cts, which is set out in 
Article III:4." 
452 Argentina, a third party in this case, supports the complainants' view (see Argentina's third party 
submission, para. 47). 
453 European Communities' first written submission,  paras. 145-146; United States' first written 
submission, paras. 91-92;  Canada's first written submission, para. 96. 
454 United States' first written submission, para. 91, citing Panel Report on Canada – Wheat Exports 
and Grain Imports , para. 6.164. 
455 United States' first written submission, para. 92.  WT/DS339/R 
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  (ii) Consideration by the Panel 
7.234  We recall our conclusion above at  paragraph 7.217 that, under the measures, auto parts of 
domestic and foreign origin are like products within  the meaning of Article III:2 of GATT 1994.  We 
also note that the Appellate Body has found that the scope of "like" in Article III:4 is broader than the 
scope of "like" in Article III:2, first sentence, of the GATT 1994.
456  
7.235  Because we have found that, under the measures, imported auto parts and domestic auto parts 
are "like" within the meaning of Article III:2,  first sentence, which has a narrower scope of 
application than the term "like" in Article III:4, we also conclude that auto parts of domestic and 
foreign origin are like within the meaning of Article III:4 of GATT 1994. 
(b) Are the measures a "law, regulation, or require ment" within the meaning of Article III:4? 
(i) Arguments of the parties 
7.236  The European Communities argues that the measures impose very strict procedural and 
administrative rules which apply to all automobile  manufacturers unless a vehicle and all its parts are 
100 per cent of Chinese origin.457  The European Communities also maintains that many aspects of 
the measures apply after the parts are already used  in production and complete  vehicles have been 
made out of them.458  
7.237  Canada  claims that case law shows that this phrase has broad application, including 
obligations that an enterprise is "legally bound to  carry out" and those that an enterprise voluntarily 
accepts in order to obtain an advantage from the gove rnment.  Canada observes that the measures are 
legally binding and, applying the case law, remarks that compliance with them is necessary to obtain 
the advantage of avoiding the additional internal charge  and, therefore, constitute "laws, regulations or 
requirements".459   
7.238  China  responds that as the measures are border measures under Article II:1(b) of the GATT 
1994, this claim should therefore fail as Artic le III:4 of the GATT 1994 is inapplicable.460 
(ii) Consideration by the Panel  
7.239  We note that China does not dispute that the contested measures are "laws, regulations, or 
requirements" within the meaning of Article III:4; it argues, however, that the measures are "border measures".  Previous panels have found that the term  "regulations" is equivalent to "mandatory rules 
applying across-the-board."
461   
                                                      
456 Appellate Body Report on EC – Asbestos , para. 99; see also Appellate Body Report on Japan – 
Alcoholic Beverages II  (finding that the term "like product" evok ed the image of an accordion whose width 
would vary depending on the provision under which the term was being interpreted). 
457 European Communities' first written submission, para. 149. 
458 European Communities' first written submission, para. 151. 
459 Canada's first written submission, paras. 97-98.   
460 The Panel specifically asked China to address th e complainants' arguments in the event the Panel 
were to consider the measures to be subject to Artic le III of the GATT 1994.  Instead of answering these 
questions, China maintained that it did not consider that th e measures at issue were su bject to the disciplines of 
Article III of the GATT 1994 (See China's responses to Panel question Nos. 146, 148). 
461 GATT Panel Report on Canada – FIRA , para. 5.5, which was followed by Panel Report on India – 
Autos , para. 7.181. WT/DS339/R 
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  7.240  However, a measure needs not to be mandatory and apply across-the-board to be subject to 
the obligations contained in Article III:4.
462  Article III:4 also applies to "requirements", a term which 
has been interpreted by previous panels to encomp ass commitments entered into on a voluntary basis 
by individual firms as a condition to obtaining an advantage.463  Examining the term "requirement" in 
the context of Article III:4 of the GATT 1994, the panel in India – Autos  found that this term 
encompasses two distinct situations, (1) obligations wh ich an enterprise is legally bound to carry out; 
and (2) those which an enterprise voluntarily acc epts in order to obtain an advantage from the 
government.464  We find further support for this interpretation in the Panel Report on Canada – Autos , 
where the panel explained: 
"Article III:4 applies not only to mandatory measures but also to conditions that an 
enterprise accepts in order to receive an advantage,465 including in cases where the 
advantage is in the form of a benefit with respect to the conditions of importation of a 
product.466"467 
7.241  The measures at issue impose various administrative procedures on any automobile 
manufacturers who intend to use imported auto pa rts.  These administrative requirements involve 
inter alia  several obligations before, during and after the importation of the auto parts affected by the 
measures, such as self-evaluation, registration of vehicle models with the CGA, placement of duty 
bonds and verifications after assembly and re-verifica tions in case of changes in the combinations or 
value of parts vis-à-vis domestic parts.  Therefore, Policy Or der 8, Decree 125 and Announcement 4 
are "laws or regulations" within the meaning of the Article III:4 of the GATT 1994.   
7.242  In this connection, although the measures are mandatory for all vehicle manufacturers using 
imported parts to assemble motor vehicles, an auto mobile manufacturer can a void the application of 
the administrative procedures if it chooses not to use imported parts at all.  Therefore, if these measures were to be considered "voluntary" they would nevertheless be "requirements" within the 
meaning of Article III:4 of the GATT 1994.   
7.243  Therefore the panel concludes that the measur es are "laws, regulations" in that they are 
mandatory for all vehicle manufacturers using imported parts and, to the extent that they might be 
considered "voluntary", they also constitute require ments within the meaning of Article III:4 of the 
GATT 1994.
468 
(c) Are the measures a law, regulation, or requireme nt "affecting the internal sale, offering for 
sale, purchase, transportation, distribution, or use" of imported auto parts? 
(i) Arguments of the parties 
7.244  The complainants  observe that the term "affecting" is interpreted broadly in GATT and 
WTO case law, going beyond measures which "directly" govern the conditions of sale or purchase, so 
                                                      
462 GATT Panel Report on Canada – FIRA , para. 5.5. 
463 GATT Panel Report on Canada – FIRA, para. 5.4; Panel Report on India - Autos , para. 7.174. 
464 Panel Report on India – Autos , paras. 7.189-7.191. 
465 (footnote original) See e.g. GATT Panel Report on EEC – Parts and Components , para. 5.21. 
466 (footnote original) See, e.g., Appellate Body Report on EC – Bananas III , para. 211. 
467 Panel Report on Canada – Autos , para. 10.73. 
468 See Panel Report on Canada – Autos , para. 10.73, citing GATT Panel Report on EEC – Parts and 
Components , para. 5.21.  WT/DS339/R 
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  as to cover measures which might "adversely modify  the conditions of competition between domestic 
and imported products".
469  
7.245  The European Communities  relies upon the GATT panel report in Italy – Agricultural 
Machinery  for the proposition that Article III:4 covers " not only laws and regulations, which directly 
govern the conditions of sale and purchase but  also any laws or regulations which might adversely 
modify the conditions of competition between the domestic and imported produc ts on the internal 
market ".470   
7.246  The United States  notes that the Appellate Body has expl ained that the term "affecting" in 
Article III:4 of the GATT 1994 should be interpre ted as having a "broad scope of application."471  In 
addition, the panels in EC – Bananas III472 and India – Autos473 both concluded that the word 
"affecting" covered more than me asures which directly regulate or govern the sale of domestic and 
imported like products.  In fact, the term "affecti ng" was broad enough to cover measures that might 
"adversely modify the conditions of compe tition between domestic and imported products."474  Thus, 
in India – Autos , the panel found that a measure "affects" th e internal sale, offering for sale, purchase 
and use of an imported product, because it provided an incentive to purchase local products.475  I n 
Canada – Wheat Exports , the panel found that a Canadian measure "affects" internal distribution of 
like products, because it created a disincentive to accept and distribute imported grain.476 
7.247  With respect to the contested measure, the complainants  argue that Policy Order 8, 
Decree 125 and Announcement 4 work together to create an incentive to purchase domestic auto 
parts.  The United States argues that through the combination of internal charges and burdensome 
administrative recording requirements "China has established a disincentive to purchase, use and 
distribute imported auto parts."477  According to the European Communities , the measures influence 
the decision-making of automobile manufacturers and are "bound to adversely modify the conditions of competition between the domestic and imported products on the internal market."
478  Canada  also 
argues that the measures affect the sale, purchase or  use of imported auto parts because they impose 
obligations adversely modifying the conditions of co mpetition as they impose an internal charge when 
imported parts are used over a specified threshold and an administrative burden when any imported 
                                                      
469 The following GATT/WTO cases are c ited:  Appellate Body Report on US – FSC (Article 21.5) , 
para. 210; Panel Report on Canada - Autos , para. 10.73;  Panel Report on EC – Bananas III , para. 7.175; Panel 
Report on India – Autos , para. 7.196;  GATT Panel Report on EEC – Parts and Components , para. 5.21; GATT 
Panel Report on Italy – Agricultural Machinery , para. 12; and GATT Panel Report on US – Section 337 , 
para. 5.10. 
470 European Communities' first written submi ssion, para. 148, citing GATT Panel Report, Italy – 
Agricultural Machinery , para. 12. 
471 Appellate Body Report on US – FSC (Article 21.5) , para. 210.  See also Panel Report on Canada – 
Autos , para. 10.80; and Panel Report on India – Autos , para. 7.196. 
472 Panel Report on EC – Bananas III , para. 7.175. 
473 Panel Report on India – Autos , para. 7.196. 
474 Panel Report on India – Autos , para. 7.196. 
475 Panel Report on India – Autos , para. 7.197. 
476 Panel Report on Canada – Wheat Exports and Grain Imports , para. 6.267. 
477 United States' first written submission, para. 95. 
478 European Communities' first written submission, paras. 147-151. WT/DS339/R 
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  parts are used.
479  Thus, according to the complainants, the me asures at issue "affect" the internal sale, 
offering for sale, purchase, distribution, or use of imported auto parts.480 
7.248  In response, China  submits that "as border measur es, the challenged measures do not 
constitute laws, regulations and re quirements affecting the internal sale, offering for sale, purchase, 
distribution or use of imported products within the meaning of Article III:4."481 
(ii) Consideration by the Panel 
7.249  In order for a measure to fall within the sc ope of Article III:4 of the GATT 1994 it must not 
only be a "law, regulation, and requirement" but it must also affect  the internal sale, offer for sale, 
purchase, transportation, distribution or use of the imported products.    
7.250  As the Appellate Body in US – FSC (Article 21.5 – EC)  clarified, the phrase "affecting the 
internal sale, offering for sale, purchase, transportati on, distribution or use" defines, and thus limits, 
the types of "laws, regulations, and requirements" th at fall within the scope of Article III:4 of the 
GATT 1994.  In the words of the Appellate Body: 
"the clause in which the word 'affecting' a ppears – 'in respect of all laws, regulations 
and requirements  affecting  their internal sale, offering for sale, purchase, 
transportation, distribution or use' – serv es to define the scope of application of 
Article III:4.  (emphasis added)  Within th is phrase, the word 'affecting' operates as a 
link between identified types of govern ment action ('laws, regulations and 
requirements') and specific transactions, activ ities and uses relating to products in the 
marketplace ('internal sale, offering for sale,  purchase, transportation, distribution or 
use').  It is, therefore, not  any  'laws, regulations and requirements' which are covered 
by Article III:4, but only those which ' affect ' the specific transactions, activities and 
uses mentioned in that provision.  Thus, th e word 'affecting' assists in defining the 
types of measure that must conform to th e obligation not to accord 'less favourable 
treatment' to like imported products, which is set out in Article III:4."482 
7.251  Therefore, only "laws, regula tions and requirements" which affect  "the internal sale offering 
for sale, purchase, transportation, distribution or u se" are subject to the disciplines under Article III:4 
of the GATT.  The Appellate Body has further ex plained that the ordinary meaning of the word 
"affecting" implies that a measure also has "an effect on" and thus indicates a broad scope of application,
483 which is wider in scope than such terms as "regulating" or "governing".484  
Furthermore, the word "affecting" in Article III:4 of  the GATT has been interpreted to cover not only 
laws and regulations which direc tly govern the conditions of sale or purchase but also any laws or 
regulations which might adversely modify the conditions of competition between domestic and 
imported products.   
7.252  In this respect, we concur with the findings of the panel in India – Autos that: 
                                                      
479 Canada's first written submission, para. 99. 
480 See e.g., European Communities' first written subm ission, paras. 149-150; and Canada's first written 
submission, para. 99. 
481 China's first written submission, para. 171. 
482 Appellate Body Report on US – FSC (Article 21.5 – EC) , para. 208. 
483 Appellate Body Report on EC –  Bananas III , para. 220. 
484 Appellate Body Report on EC – Bananas III , footnote 47, para. 220.  See also the Appellate Body 
Report on Canada – Autos , footnote 56, para. 150 (interpreting the word "affecting" in Article I:1 of the GATS).  WT/DS339/R 
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  "[T]he fact that the measure applies only to  imported products need not [be], in itself, 
an obstacle to its falling with in the purview of Article III.
485  For example, an internal 
tax, or a product standard conditioning the sale of the imported but not of the like 
domestic product, could nonetheless 'affect' the conditions of the imported product on 
the market and could be a source of less favourable treatment.  Similarly, the fact that 
a requirement is imposed as  a condition on importation  is not necessarily in itself an 
obstacle to its falling within the scope of Article III:4.486"487  (emphasis added) 
7.253  Article III:4 thus covers all la ws, regulations and requirement s, including those which only 
apply to imported products, that have an effect on "specific transactions, activities and uses relating to 
products in the marketplace  ('internal sale, offering for sale, pur chase, transportation, distribution or 
use')."488  In this regard, we also find the Appellate Body's reasoning in EC – Bananas III  relevant, 
whereby it rejected the claim that th e measure in that case fell outside the scope of Article III:4 of the 
GATT 1994.  The Appellate Body held  in the relevant parts that: 
"At issue in this appeal is not whether any import licensing requirement, as such, is 
within the scope of Article III:4, but whet her the EC procedures and requirements for 
the distribution of import licences for imported ba nanas among eligible operators 
within the European Communities are within the scope of this provision. ... These 
rules go far beyond the mere import licence requirements needed to administer the tariff quota for third-country and non-trad itional ACP bananas or Lomé Convention 
requirements for the importation of bananas. These rules are intended, among other 
things, to cross-subsidize distributors of EC (and ACP) bananas and to ensure that EC banana ripeners obtain a share of the quota rents. As such, these rules affect "the 
internal sale, offering for sale, purchase, ..." within the meaning of Article III:4, and therefore fall within the scope of this provision."
489  
7.254  China holds the view that this reasoning of the Appellate Body in EC – Bananas III  confirms 
that what matters is whether the aspect of the me asures under scrutiny is an element of administrating 
a valid border measure, which is therefore within the sc ope of Article II, or whether this aspect of the 
measure serves instead to affect the intern al sale, distribution or use of the product.490  Given our 
                                                      
485 (footnote original)  Article III:1 refers to the application of measures "to imported or domestic 
products", which suggests that application to both is not necessary. 
486 (footnote original)  Thus, the "advantage" to be obtained could consist in a right to import a product.  
See for instance, the Report of the second GATT panel on EC – Bananas II  as cited and endorsed in EC – 
Bananas III , WT/DS27/R/USA, adopted on 25 September 1997, as modified by the Appellate Body Report, 
para. 4.385 (DSR 1997:II, 943): 
 
"The Panel further noted that previous panels had found consistently that this obligation 
applies to any requirement imposed by a contracting party, including requirements 'which an enterprise voluntarily accepts to obtain an advantage from the gov ernment.'  In the view of the 
Panel, a requirement to purchase a domestic product in order to obtain the right to import a 
product at a lower rate of duty under a tariff quota is therefore a requirement affecting the purchase of a product within the meaning of Article III:4." 
 
487 Panel Report on India – Autos , para. 7.306. 
488 Appellate Body Report on US – FSC (Article 21.5 – EC) , para. 208 (emphasis added).  The word 
"internal" qualifies all the transactions spelled out in Article III:4.  See Appellate Body Report on US – FSC 
(Article 21.5 – EC) , para. 213. 
489 Appellate Body Report on EC – Bananas III , para. 211 (emphasis in the original; footnotes omitted) 
490 China's response to Panel question No. 85. WT/DS339/R 
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  finding above that the charge under the measures is an "internal charge" within the meaning of 
Article III:2 of the GATT 1994,
491 the procedures under the measures do not serve, as China argues, 
to administer a valid border measure.  Our findi ng that the charge applies to imported products 
therefore supports a conclusion that the administrative procedures related to the application of the 
charge likewise "affect" imported products.492   
7.255  Moreover, the complainants argue that the criteria for the determination of the essential 
character of a motor vehicle create an incentive to  purchase domestic auto parts instead of imported 
auto parts and therefore affect the "internal sale, offering for sale, purchase, transportation, 
distribution or use."493  China, on the other hand, holds that the incentive to import auto parts instead 
of motor vehicles (because of the higher tariff rate for motor vehicles) is a characteristic inherent to the Schedule of Concessions that China negotiated.
494   
7.256  However, in the view of the Panel, China seems to misunderstand the claim of the 
complainants.  The complainants do not challenge th e fact that China's tariff structure creates an 
incentive to import auto parts  instead of motor vehicles  but, instead, they challenge the alleged 
incentive created by the criteria under the measures to use domestic auto parts  instead of imported 
auto parts .495  Applying the reasoning develope d by the Appellate Body in US – FSC (Article 21.5 - 
EC) to the present dispute496, any auto manufacturer/importer that seeks to avoid the charge at issue 
must ensure that imported auto parts used in the assembly of a given vehicle model do not meet any of 
the criteria set out in the measures.497  Under the measures, whether imported auto parts meet any of 
the criteria set out in the measures is assessed based on the final assembly of auto parts in China, 
which consequently requires the examination of auto  parts imported in "multiple shipments".  In our 
view, this aspect of the measures inevitably infl uences an automobile manufacturer's choice between 
domestic and imported auto parts and thus aff ects the internal use of imported auto parts.498 
                                                      
491 See paragraph 7.212 above. 
492 Panel Report on Mexico – Taxes on Soft Drinks , para. 8.109. 
493 European Communities' first written submission, para. 150;  United States' first written submission, 
para. 95;  Canada's first written submission, para. 99. 
494 China's response to Panel question No. 275.  China states that "whatever ince ntives or disincentives 
arise from the difference in duty rate s in China’s Schedule of Concessions ar e characteristics that are inherent to 
the Schedule of Concessions that China negotiated.  One function of ordinary customs duties is to regulate 
access to markets.  They do so, in part, through the incentives and disincentives that are created by the 
establishment of duty rates at different levels.  No party di sputes that the higher tariff rate for motor vehicles in 
China’s Schedule of Concessions creates some degree of  incentive to assemble motor vehicles in China from 
auto parts and components, as compared to importing finished motor vehicles." 
495 It is, thus, also not the incentive to use domestic auto parts instead of imported auto parts that results 
from the customs duty inscribed in China's Schedule which is at issue here.  In this respect, we do agree with 
China's statement that "the discrimination inherent in a customs duty that a Member validly imposes is not a 
form of discrimination that is prohibited under Article III" (China's response to Panel question No. 85).  See also footnote 498, below. 
496 Appellate Body Report on US – FSC (Article 21.5 – EC) , para. 212. 
497 See paragraphs 7.32 and 7.33 above, for the relevant criteria under the measures.   
498 If the same criteria were applied to imported auto parts at the moment of importation only, however, 
it would not necessarily influence the automobile manufacturer's choice between domestic and imported auto 
parts in the same way.  In that case, the relevant ques tion would be whether auto parts considered at the time of 
their importation satisfy any of the criteria.  In the Panel's understanding, this is what the United States 
explained in its second oral statement concerning  the difference between China's measures and the 
discrimination inherent in a customs duty: "The same type of discrimination does not apply to customs duties 
regularly imposed by WTO Members.  That is, the level of charges on other imported products  does not depend 
on how an imported part is used within the Member's te rritory." (United States' second  oral statement, para. 12,  WT/DS339/R 
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  7.257  The Panel thus concludes that the admini strative procedures imposed on any auto 
manufacturer using imported auto parts as well as the criteria set out in the measures, combined with the assessment of the charge which is based on th e final assembly internally , create an incentive for 
auto manufacturers to use domestic auto parts instead  of imported auto parts.  The Panel, therefore, 
finds that the measures affect "the internal sale, offering for sale, purchase, transportation, distribution 
or use" of imported auto parts, within the meaning of Article III:4 of the GATT 1994. 
7.258  In conclusion, because the measures apply to im ported auto parts which are "like" domestic 
auto parts and are laws, regulati ons, and requirements affecting the internal sale, offering for sale, 
purchase, transportation, distribution or use of the imported auto parts, we find that Article III:4 of the 
GATT 1994 is applicable to the measures. 
(d) Do the measures accord less favourable treatment to impor ted auto parts than to domestic 
auto parts? 
7.259  As noted above, we have found that the domestic  and imported products are "like" and that 
the measures are laws, regulations, or requirements wh ich "affect" the internal sale, offering for sale, 
purchase, transportation, distribution, or use, of th e relevant products.  The question which remains to 
be answered under this claim is  therefore whether the measures afford imported products "less 
favourable" treatment than the like domestic products.   
(i) Arguments of the parties 
7.260  The European Communities  and Canada
499 cite the Appellate Body report in Korea – 
Various Measures on Beef  to contend that a finding on whether there is "less favourable treatment" 
requires an examination of "whether a measure modifies the conditions of competition  in the relevant 
market to the detriment of imported products."500  They claim that, as GATT case law also has 
clarified, a Member must provide effective equality of opportunitie s for imported products.501   
7.261  Moreover, Canada  and the United States  recall the observation of the Appellate Body in US 
– FSC (Article 21.5) that a measure could still be inconsistent  with Article III:4 even if unfavourable 
treatment did not arise in every instance.502 
7.262  The complainants  then submit that the measures fundamentally modify the conditions of 
competition in the Chinese market to the detr iment of imported auto parts in two ways.503  First, only 
imported parts may become subject to an internal charge in case their input exceeds the level 
                                                                                                                                                                     
emphasis in the original).  Our reasoning in the context of Article III:4 does not rule on the question of whether 
the criteria, if assessed solely on the basis of auto parts imported in a single shipment, would be in violation with 
Article II of the GATT 1994.  We address this question in Section VII.D.3 of these reports. 
499 European Communities' first written submission, para. 152;  Canada's first written submission, 
para. 100. 
500 Emphasis in the original.  Moreov er, "(a) formal difference in tr eatment between imported and like 
domestic products is thus neither necessary, nor sufficient, to show a violation of Article III:4." Appellate Body Report on Korea – Various Measures on Beef , para. 137. 
501 GATT Panel Report on US – Section 337 , para. 5.11, as cited by the European Communities in its 
first written submission, para. 152 and by Canada  in its first written submission, para. 100. 
502 Appellate Body Report on US – FSC (Article 21.5 - EC) , para. 221.  United States' first written 
submission, para. 96;  Canada's first written submission, para. 95. 
503 European Communities' first written submission, paras. 153-157;  United States' first written 
submission, paras. 97-102;  Canada's first written su bmission, paras. 101-102.  Argentina, a third party 
participant, supports the complain ants' view (see Argentina's third party submission, paras. 49-51). WT/DS339/R 
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  specified in the measures.  Consequently, this cr eates an incentive for manufacturers to use domestic 
parts rather than imported parts.  Se cond, only imported parts are subject to administrative 
procedures .  In the words of Canada, "a vehicle manufacturer using any imported auto parts is 
subjected to a burdensome administrative regime."
504  The only way to avoid the administrative 
requirements spelled out in the measures505 is for a vehicle manufacturer to use solely  domestic auto 
parts.506  Moreover, Canada indicates that auto parts manufacturers, while not directly subject to the 
measures, are also affected by their application.507   
7.263  China responds that what the complainants have characterized as a "burdensome 
administrative regime" is the customs process that Ch ina has established to determine whether an auto 
manufacturer imports and assembles a collection of au to parts that, in its entirety, has the essential 
character of a motor vehicle. China does not consid er that the process it has established for this 
purpose is any more "burdensome" than the cust oms processes that Members have adopted to deal 
with other complex issues of customs administra tion, such as inward processing and duty drawback 
regimes.  Article VIII:1(c) of the GATT 1994 expl icitly recognizes that customs processes can be 
complex.  The mere fact that these processes can be  complex does not mean that they are subject to 
the disciplines of Article III.508  
(ii) Consideration by the Panel 
7.264  Before we can examine whether the Chinese m easures afford "less favourable" treatment to 
imported auto parts, we must first recall the standa rd of what qualifies as "less favourable" treatment 
within the meaning of Article III:4 of the GATT 1994. 
7.265  In this regard, the Appellate Body in Korea – Various Measures on Beef states: 
"A formal difference in treatment between  imported and like domestic products is 
thus neither necessary, nor sufficient, to show  a violation of Article III:4.  Whether or 
not imported products are treated 'less fa vourably' than like domestic products should 
be assessed instead by examining whether a measure modifies the conditions of 
competition in the relevant market to the detriment of imported products."509 
7.266  Following the Appellate Body's guidance, we  will examine whether the measures at issue 
modify the conditions of competition in China's mark et to the detriment of imported auto parts. 
7.267  First, as described in Section VII.A.1 above , the measures impose certain administrative 
procedures on automobile manufacturers who use im ported auto parts in the assembly of motor 
                                                      
504 Canada's first written submission, para. 102. 
505 These include, inter alia , performing self-verifications of domestic content; applying for an import 
licence; registering a vehicle model with Customs; and being subject to additional review and verification 
procedures.  See Canada's first written submission, para. 102 .  Further details as well as an example are provided 
by the United States (See United States' first written submission, paras. 100-102). 
506 Canada's first written submission, para. 102. 
507 Canada submits that "[i]n using imported parts, [auto part manufacturers] risk financial penalties 
through contractual terms with downstream manufacturers that wish to avoid the brunt of the additional internal charge" and they have "the risk of being found to violate the Measures or general Customs law if their record-
keeping concerning the use of imported parts is not satisfactory."  (citing Article 36 of Decree 125).  See 
Canada's first written submission, para. 102. 
508 China's response to Panel question 104. 
509 Appellate Body Report on Korea – Various Measures on Beef , para. 137.  WT/DS339/R 
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  vehicles before, during and after imported auto parts enter China.
510  The complainants submit that 
these administrative procedures are burdensome a nd add costs to the assembly operations of 
automobile manufacturers.511   
7.268  In particular, the European Communities argues that the considerable complexity of the 
measures in itself delays the launching of a new model in the Chinese market by two to three years.  Further, according to the Europ ean Communities, establishing the self-verification report required 
under Article 7 of Decree 125 may take an additiona l six months for a team of 10-15 highly skilled 
experts and afterwards, it can take over one year be fore all the procedures are finalized.  The United 
States also explains that to perform a self-evalua tion, a manufacturer must catalogue all the parts of 
each model it manufactures, determine whether, under the measures, the parts are foreign or domestic, and calculate the thresholds for each assembly system and the overall price percentage of imported parts in the model.  Furthermore, as the United St ates submits, if an automobile manufacturer uses 
imported parts imported by a third party supplier, th e manufacturer is required to maintain records 
regarding the actual importer of record, and any evidence of duties and value-added taxes paid.
512  
China has not provided any response to these speci fic arguments by the European Communities and 
the United States.  We also recall our observation a bove in paragraphs 7.65 and 7.66 that the sample 
of pending applications for review  and verification, submitted by the European Communities, shows 
that the period for review and verification by th e Verification Centre can take from 30 days to a 
couple of years. 
7.269  Therefore, in our view, by subjecting imported auto parts to the administrative procedures not 
faced by like domestic products, which could cause a substantial delay throughout the entire assembly 
operations from the launching of a new model to the verification by the Verification Centre, the 
measures modify the conditions of competition in Chin a's market to the detriment of imported auto 
parts. 
7.270  Furthermore, we found above that whether im ported auto parts meet the criteria for the 
essential character determination under the measures is assessed based on the final assembly of auto 
parts, and it inevitably influences an automob ile manufacturer's choice between domestic and 
imported auto parts if it wishes to avoid the administrative procedures at issue.513  In other words, auto 
manufacturers must ensure that imported auto part s used in the assembly of motor vehicles do not 
meet any of the criteria under the measures to avoi d being subject to the administrative procedures 
imposed under the measures.514  In sum, the criteria for the essential character determination set out in 
the measures and the application of the criteria af ter the final assembly of motor vehicles not only 
draw a formal distinction between imported auto pa rts and like domestic auto parts, but this formal 
difference also has a substantive importance in that  it creates a disincentive for auto manufacturers to 
use imported auto parts.515 
                                                      
510 The measure thus creates a formal distinction betwee n imported auto parts and domestic auto parts.  
The administrative procedures do not a pply if an auto manufacturer uses on ly domestic auto parts.  Auto 
manufacturers using at least one imported auto part are however subject to the administrative procedures under 
the measures. 
511 European Communities' response to Panel question No. 8; United States' first written submission, 
paras. 44-66, 99-104; Canada's first written submission, para. 102; Canada's response to Panel question No. 8.  
See also paragraph 7.65 above. 
512 See Articles 9 and 29 of Decree 125. 
513 In this respect, we refer to the elaboration of the specific thresholds in paras. 7.31-7.33. 
514 This applies to both auto parts imported by auto manufacturers themselves and those purchased 
from a third-party supplier. 
515 Appellate Body Report on US – FSC (Article 21.5 - EC) , paras. 217 and 218. WT/DS339/R 
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  7.271  This "careful analysis of the contested measure s and of its implications in the marketplace"
516, 
shows that the administrative procedures as well as the application of the criteria for the essential 
character determination as defined by China base d on the final assembly, accord less favourable 
treatment to imported auto parts than to domestic auto parts.   
(e) Conclusion 
7.272  In light of the foregoing, the Panel finds that China's measures, which fall within the scope of 
Article III:4, are inconsistent with  its obligations under Article III: 4 of the GATT 1994 to afford no 
less favourable treatment to like imported products. 
4. Are the measures consistent with Article III:5 of the GATT 1994? 
(a) Arguments of the parties 
7.273  The complainants  submit that the measures violate Article III:5, first sentence, of the 
GATT 1994.  In the alternative, the European  Communities  and the United States  argue that the 
measures violate Article III:5, second sentence, of the GATT 1994.517 
7.274  China argues in response that the challenged measu res constitute border measures subject to 
Article II of the GATT 1994 and, therefore, do not fa ll within the scope of Article III:5, first and 
second sentences, of the GATT 1994. China does not a dvance any further arguments in response to 
this claim.518 
(b) Consideration by the Panel 
7.275  We note that the complainants have slightly different positions on the necessity of proceeding 
with their claims under Article III:5 of the GATT 1994 in case the Panel finds the measures are 
inconsistent with Article III:2 and III:4 of the GATT 1994.  At least one of the co-complainants left to 
the discretion of the Panel the decision to exerci se judicial economy with respect of its claim under 
Article III:5 of the GATT 1994.519  Indeed, we do not believe that making a finding on the claims 
                                                      
516 Appellate Body Report on US – FSC (Article 21.5 - EC) , para. 215. 
517 European Communities' first written submission,  paras. 186-187; United States' first written 
submission, paras. 3, 110-111, footnote 141; United States' first oral statement, paras. 4, 18-19; United States' second written submission, para. 3; United States' second  oral statement, para. 5; Canada's first written 
submission, paras. 87, 104-115. Canada's second oral statement, paras. 2, 23. 
518 China's first written submission, paras. 42-48, 169- 171, 174. See also China's first oral statement, 
paras. 16-19, 40; China's second written submission, pa ras. 123-124, 127; China's response to Panel question 
No. 85. 
519 The United States  indicates that insofar as the findings of the Panel are sufficient to resolve the 
dispute, it views the exercise of judici al economy in respect of the other claims as a matter to be left to the 
discretion of the Panel.  More specifica lly, it says that "a breach of Article  III:4 would also indicate a breach of 
Article III:5".  The United States made the follo wing statement, statin g that it considers:  
 
"the most essential claims in this dispute as the breach of Article III:4 and/or the TRIMs 
Agreement, because China’s measures impose a local content requirement  that discriminates 
against all imported parts as well as administrative burdens that discourage the use of 
imported auto parts, and Article III:2, because China imposes an internal charge on certain 
imported parts in excess of any charges with no comparable charge on like domestic parts.  
With respect to other claims, the United States understands that questions of judicial economy 
are to be decided at the discretion of the panel, so long as the all [sic] findings are made that  WT/DS339/R 
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  under Article III:5 would "enhance the ability of the DSB to make sufficiently precise 
recommendations and rulings in this dispute."
520  In reaching this conclusion we are guided by the 
following statement of the Appellate Body: 
"Nothing in this provision or in previous GATT practice requires  a panel to examine 
all legal claims made by the complaining party.  Previous GATT 1947 and WTO 
panels have frequently addressed only tho se issues that such panels considered 
necessary for the resolution of the matter be tween the parties, and have declined to 
decide other issues.  Thus, if a panel found  that a measure was inconsistent with a 
particular provision of the GATT 1947, it gene rally did not go on to examine whether 
the measure was also inconsistent with other GATT provisions that a complaining 
party may have argued were  violated. In recent WTO practice, panels likewise have 
refrained from examining each and every cl aim made by the complaining party and 
have made findings only on those claims th at such panels concluded were necessary 
to resolve the particular matter. 
Although a few GATT 1947 and WTO panels  did make broader rulings, by 
considering and deciding issues that were not absolutely necessary to dispose of the 
particular dispute, there is nothing anywhere in the DSU  that requires panels to do 
so."521  
7.276  Therefore, in view of our findings above that China has acted inconsistently with 
Articles III:2 and III:4 of the GATT 1994, and guided by the above statement of the Appellate Body, 
we consider that we have made the findings that are necessary for the resolution of the dispute raised 
by the complainants.  We therefore exercise j udicial economy in respect of the complainants' 
respective claims under Article III:5 of the GATT 1994. 
5. Are the measures justified under Article XX(d) of the GATT 1994? 
7.277  As set forth above, the Panel found that the in ternal charge imposed on imported auto parts 
under the measures was inconsistent with Article III:2 of the GATT 1994 and that the measures were 
also inconsistent with III:4 of the GATT 1994. 
7.278  China  submits that the challenged measures as a whole, or particular aspects of the measures, 
are justified under Article XX(d) of the GATT 1994 if  the measures are found inconsistent with one 
or more provisions of the GATT 1994.522  The complainants argue that the measures are not justified 
under Article XX(d).523  
                                                                                                                                                                     
are necessary for the resolution of the dispute." (United States' response to Panel question 151.  
See also United States' response to Panel question No. 152). 
 
On the other hand, the other two co-complainants, the European Communities  and Canada , are of 
the view that a finding on Article III:4 of the GA TT 1994 would not render a finding on Article III:5 
unnecessary (see their respective respon ses to the Panel question No. 152). 
520 Appellate Body Report on US – Lamb , para. 194. 
521 Appellate Body Report on US – Wool Shirts and Blouses , pages 18-19 (original footnotes omitted). 
522 China's first written submission, para. 202. 
523 European Communities' second written submission, paras. 136-148; European Communities' second 
oral statement, paras. 33-38,  United States' second oral statement, paras. 29-36; Canada's second written 
submission, paras. 75-103; Canada's second oral statement, paras. 34-52.   WT/DS339/R 
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  7.279  Because a Member invoking Article XX(d) as a justification of its measure – China in this 
case – has the initial burden of proof for its affirmative defence
524, the Panel  will examine whether 
China has discharged its burden of proving that th e measures satisfy the requirements of, and thus are 
justified under, Article XX(d). 
7.280  For a measure, otherwise inconsistent with GA TT 1994, to be justified under Article XX, two 
elements must be proved: first, the measure fall s under one or more of the exceptions provided in 
Article XX; and, second, the measure satisfies th e requirements under the chapeau of Article XX.525  
As China claims that the measure s are justified under Article XX(d), we will commence our analysis 
with the first element – whether the measures fall under Article XX(d). 
7.281  Article XX(d) provides: 
"Nothing in this Agreement sh all be construed to prevent the adoption or enforcement 
by any contracting party of measures: 
(d) necessary to secure compliance with laws or regulations which are not 
inconsistent with the provisions of this  Agreement, including those relating to 
customs enforcement, the enforcement of  monopolies operated under paragraph 4 of 
Article II and Article XVII, the protection of  patents, trade marks and copyrights, and 
the prevention of deceptive practices." 
7.282  The Appellate Body clarified in Korea – Various Measures on Beef that two elements must be 
shown in order for a measure to be justified provisionally under paragraph (d) of Article XX: 
"First, the measure must be one designed to 'secure compliance' with laws or 
regulations that are not themselves incons istent with some provision of the GATT 
1994.  Second, the measure must be 'ne cessary' to secure such compliance."526 
7.283  Before commencing our analysis of whether the measures at issue are designed to 'secure 
compliance' with laws or regulations that are not themselves inconsistent with the GATT 1994, the 
Panel observes that, initially, China did not disti nguish its justification of the measures under 
Article XX(d) in respect of the Panel's possible findi ng of the measures' incons istency with Article III 
of the GATT 1994 from that with Article II.  In its written submissions, Ch ina provided a general 
defence under Article XX(d) against the Panel's po ssible findings against the measures "under one or 
more provisions of the GATT 1994".527  The relevant heading (Sec tion IV.G) in China's first 
submission in this regard reads " Any Inconsistency with the GATT 199 4 Is Subject to the General 
Exception Under Article XX(d)", and the relevant  heading (Section VI) in China's second written 
submission reads "The Challenged Measures Would Be Justified Under Article XX(d) If The Panel 
Were To Identify Any Violation of the Covered Agreements" (emphasis added). 
                                                      
524 Appellate Body Report on Korea – Various Measures on Beef , para. 157, also citing Appellate Body 
Reports on US – Gasoline , footnote 98, at 21 and US – Wool Shirts and Blouses , at 335-337 and GATT Panel 
Report on US – Section 337 , footnote 69, para. 5.27. 
525 Appellate Body Report on US – Gasoline , page 21.  The Appellate Body also found that the proper 
sequence of steps is to first assess whether a measure can be provisionally justified as one of the categories 
under paragraphs (a)-(j), and then, to further appraise the same measure under the chapeau of Article XX.  According to the Appellate Body, this sequence of steps in the analysis of a claim of justification under 
Article XX reflects, not inadvertence or random choice,  but rather than fundamental structure and logic of 
Article XX (Appellate Body Report on US – Shrimp, paras. 119-120). 
526 Appellate Body Report on Korea – Various Measures on Beef , para. 157. 
527 China's first written submission, para. 202; China's second written submission, para. 164.  WT/DS339/R 
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  7.284  In a written response to a question from the Pa nel after the second substantive meeting, 
however, China indicated a change in its position and clarified that the Article XX(d) analysis would 
be different depending on whether a viola tion is found under Article III or Article II.
528  C h i n a  
submits that if the challenged measures were to be found inconsistent with Article III, the measures 
could be justified under Article XX(d) on the grounds  that the charge and measures are necessary to 
secure compliance with "a valid interpretation of  China's tariff provisions for motor vehicles".529  
7.285  Specifically, China  submits as follows: 
"[T]he Article XX(d) analysis would be diffe rent in respect of a finding of a violation 
of Article III. …  In these circumstances, the charges and measures could be justified 
under Article XX(d) as charges and measures that are necessary to  secure compliance 
with a valid interpretation of China's tari ff provisions for motor vehicles, i.e. an 
interpretation that encompasses parts and co mponents in multiple shipments that have 
the essential character of a motor vehicle.  That is, the Panel could find that China's 
interpretation of its tariff provisions is not inconsistent with the interpretive rules of 
the Harmonized System, and is not otherwi se inconsistent with the meaning of the 
relevant terms of China's tariff schedule, but that China has adopted impermissible 
'internal' charges and measures as a means of securing compliance with that 
interpretation.   
While China would not agree with the finding of violation of Article III, it would 
seem to be exactly the circumstance in which Article XX(d) would apply.  The 
reference to customs enforcement in Ar ticle XX(d) presupposes that Members may 
need to take actions that are inconsiste nt with its GATT obligations (and thus 
requiring the invocation of a general exception), but that are otherwise necessary to secure compliance with its customs law.  Th e adoption of charges and measures that 
violate the disciplines of Article III, but th at are necessary to secure compliance with 
a customs measure that the Member is a llowed to impose in accordance with its 
Article II commitments, would seem to be the paradigmatic case in which 
Article XX(d) would apply.  If Article XX(d) did not apply in this circumstance, it is 
hard to see when it would ever apply. 
... For the reasons that China has explaine d, China believes that Decree 125 falls 
within the scope of China's rights and obliga tions under Article II.  However, if the 
Panel were to find that one or more aspect of the measure constitutes an impermissible measure or charge within the scope of Article III, China considers that 
any such internal measure or charge is  justified under Article XX(d) to secure 
compliance with duties that China is allowe d to collect by reason of the importation 
of parts and components that have the essential character of a motor vehicle."
530 
                                                      
528 China's response to Panel question No. 282. 
529 China's response to Panel question No. 282. 
530 China's response to Panel question No. 282.  China's statement quoted above in paragraph 7.285 was 
in response to the Panel question whether, and if so, how the Panel's analysis of China's defence under 
Article XX(d) in respect of an Article II violation shou ld be different from that in respect of an Article III 
violation.  
In respect of a possible finding of a violation of Article II, China submits that the measures could still 
be justified under Article XX(d) since Article XX(d) provi des an authority for China to  give effect to China's 
tariff provisions for motor vehicles to the extent that the rules of the HS, when reviewed in the context of 
Article II, do not provide an unambiguous legal basis for China (China's response to Panel question No. 282). WT/DS339/R 
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  7.286  In its comments on China's response above, the European Communities  submits that since 
China's explicit arguments relating to Article XX(d ) are very cursory in both its first and second 
submissions and fall short of satisfying China's obliga tions on the burden of proof, the Panel's analysis 
should stop there.
531  The European Communities further subm its that China has not demonstrated 
that the measures are necessary to secure compliance with its tariff schedule provisions for motor vehicles, and instead, China formulates its hope  that "it would seem to be exactly the circumstance in 
which Article XX(d) would apply", or  "[i]f Article XX(d) did not apply in this circumstance, it is hard 
to see when it would ever apply".
532  The European Communities argu es that such wishful thinking, 
however, cannot replace a proper defence under Article XX(d). 
7.287  As noted by the Panel above in paragraph 7.279, China, as the party putting forward an 
affirmative defence under Article XX(d), bears the burden to prove, based on factual and legal 
arguments supported by specific evidence, how its me asures are justified under Article XX(d).  The 
fact that China has not distinguished its Article XX(d) arguments from the possible violation of one 
provision of the GATT 1994 (i.e. Article III) from that of an entirely different provision of the GATT 
1994 (i.e. Article II) until specifically asked by th e Panel, makes us question from the outset the 
validity of China's defence under Article XX(d).  It is  not for the Panel to advance or presume specific 
arguments or analysis for a claim made by a party to the dispute.533  The burden to prove an 
affirmative claim based on supporting arguments and evidence rests on the party asserting the claim.  
Having said that, we will move on to examine whether China has proved that the measures satisfy the 
first element necessary to justify a measure under Article XX(d). 
(a) What is the law or regulation that the measur es at issue secure compliance with within the 
meaning of Article XX(d)? 
(i) China's interpretation of the tar iff provisions for motor vehicles 
7.288  The Appellate Body stated in Mexico – Soft Drinks  that the term "laws or regulations" within 
the meaning of Article XX(d) refers to rules that form part of the domestic legal system of a WTO 
Member invoking the provision, including rules deri ving from international agreements that have 
been incorporated into the domestic legal system of a WTO Member or have a direct effect according to that WTO Member's legal system.
534   
7.289  To determine whether the measures at issue ar e justified under Article XX(d), the Panel first 
needs to examine whether China has identified a domestic law or regulation that is not itself 
inconsistent with the GATT 1994.  
7.290  In the course of this dispute, China has interc hangeably referred to various items as the law or 
regulation the measures are securing compliance with.  For example, China has made references to 
                                                      
531 European Communities' second oral statement, para. 34. 
532 European Communities' comments on China' s response to Panel question No. 282. 
533 The Appellate Body states in US – Gambling:  "In the context of affirmative defences, then, a 
responding party must invoke a defence and put forward evidence and arguments in support of its assertion that 
the challenged measure satisfies the requirements of the defence.  When a responding party fulfils this 
obligation, a panel may rule on whether the challenged m easure is justified under the relevant defence, relying 
on arguments advanced by the parties or developing its own reasoning.  The same applies to rebuttals.  A panel 
may not take upon itself to rebut the claim (or defence) where the responding party (o r complaining party) itself 
has not done so "  (emphasis added) (Appellate Body Report on US – Gambling , para. 282). 
534 Appellate Body Report on Mexico – Taxes on Soft Drinks , paras. 69, 79.  WT/DS339/R 
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  China's customs laws and regulations
535; China's customs laws, including its tariff provisions for 
motor vehicles536; China's tariff schedule537; the tariff provisions for motor vehicles provided in 
China's tariff schedule538; an allegedly valid interpretation539 of the tariff provisions for motor vehicles 
on the relationship between motor vehicles and part s of motor vehicles as advocated by China; and 
duties540 that China is allowed to collect by reason of the importation of parts and components that 
have the essential character of a motor vehicle.541  In this regard, China was of the view that it did not 
perceive a distinction between its tariff provisi ons for motor vehicles "as such" and its tariff 
provisions for motor vehicles as interpreted in accordance with the rules of the HS.542   
7.291  As noted above in paragraph 7.285, however, China clarified its Article XX(d) arguments 
specifically with respect to the Panel's possible fi nding against the measures under Article III only in 
response to a question from the Panel.   
7.292  In that response, as cited above  in paragraph 7.285, China indicated that the law or regulation 
that the measures at issue secure compliance with is China's alleged "valid in terpretation of its tariff 
provisions for motor vehicles".  According to China,  this valid interpretation encompasses parts and 
components in multiple shipments that have the essen tial character of a motor vehicle.  China argues 
that the charge and the administrative requireme nts under the measures are thus a customs measure 
that the Member is allowed to impose in accordance with its Article II commitments. 
7.293  The European Communities  and Canada  consider that the alleged GATT consistent law or 
regulation in this case is China's Schedule as such, as implemented under China's domestic law.543 
                                                      
535 China's first written submission, paras. 203-204; China's second written submission, paras. 7, 164; 
China's response to Panel question No. 13. 
536 China's first written submission, para. 205; China's response to Panel question No. 84. 
537 China's response to Panel question No. 287. 
538 China's first written submission, paras. 202-204, 207, 212, China's second written submission, paras. 
168-169, 172, 176, 182-183, 186, 187; China's responses to Panel question Nos. 13, 281, 282, 283, 286. 
539 China's responses to Panel question Nos. 9, 282. 
540 China's response to Panel question No. 282;  China's first written submission, para. 205. 
541 China argues that measures ar e necessary to secure compliance with China's customs laws and 
regulations by preventing the importation and assembly of auto parts as a means of circumventing China's tariff 
provisions relating to motor vehicles (China's first written submission, paras. 203-204).  China explains that Article 3 of China's Import/Export Tariff Regulation (Exhibit CHI-32) incorporates China's Schedule of 
Concessions into Chinese law (China's first written subm ission, footnote 140).  China also submits that the 
measures secure compliance with Ch ina's tariff provisions for motor ve hicles by ensuring the effective 
enforcement of China's tariff provisions for motor vehicl es since the measures defi ne and enforce the boundary 
between a motor vehicle and parts of a motor vehicle, without regard to the manner in which the importer 
structures or documents its import transactions (China's  second written submission, paras. 168, 169).  At the 
same time, China also argues that the measures are necessary  to secure compliance with a valid interpretation  of 
China's tariff provisions for motor vehicles, i.e. an interpretation that encompasses parts and components in 
multiple shipments that have the essential character of a motor vehicle (China's responses to Panel question Nos. 9, 282).  In China's view, the measures should be jus tified under Article XX(d) to secure compliance with duties 
that China is allowed to collect by reason of the importation of parts and components that have the essential 
character of a motor vehicle (China's response to Pa nel question No. 282; China's first written submission, 
para. 205).  According to China, China must be able to interpret its tariff provisions for motor vehicles in a 
manner that gives them meaningful eff ect, and to adopt measures to secure  compliance with this interpretation 
(China's second written submission, para. 169).   
542 China's response to Panel question No. 281. 
543 Parties' responses to Panel question No. 281. WT/DS339/R 
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  7.294  The Panel thus notes that the law or regulation th at China claims the measures secure 
compliance with is its interpretation of the tari ff provisions for motor vehicles in China's domestic 
tariff schedule.  While not conceding that the law or  regulation that is "not inconsistent" within the 
meaning of Article XX(d) includes an interpreta tion of certain tariff provisions of a Members' 
Schedule, the complainants submit that even if Chin a's interpretation of its tariff provisions for motor 
vehicles were to be considered as the law or regulation under Article XX(d), China has not proved 
that the measures meet the requirements under Artic le XX(d) because China's interpretation of the 
tariff provisions for motor vehicles is in fact inconsistent with the GATT 1994.
544 
7.295  China's tariff provisions, including those for motor vehicles, are contained in and are thus part 
of China's domestic tariff schedule, which repr oduces China's commitments in China's Schedule of 
Concessions with respect to goods from other Memb er countries.  In turn, China's Schedule of 
Concessions is part of China's Accession Protocol and thus an integral part of the WTO Agreement.545  
In this connection, we recall th e Appellate Body's reasoning in EC – Computer Equipment  that 
common intentions cannot be ascertained on the basis of the subjective and unilaterally determined 
'expectations' of one of the parties to a treaty.546  We thus do not consider that China's interpretation of 
its concessions with respect to motor vehicles ca n form part of China's tariff schedule itself.547  
Finding otherwise would lead to an absurd situa tion where a WTO Member's own interpretation of a 
treaty term is considered as constituting part of such a treaty itself.  This is particularly so in the 
present case where China's interpretation of its tariff provisions for motor vehicles is contested by the 
complainants in their alternative claim under Article II of the GATT 1994. 
7.296  In any event, as set out below in Section VII.D with respect to the complainants' alternative 
claim under Article II of the GATT 1994, we find that  China's interpretation of the tariff provisions 
for motor vehicles is inconsistent  with China's commitment under its Schedule of Concessions and, 
consequently, with China's obligations under Article  II:1(a) and (b) of the GATT 1994.  Accordingly, 
if we were to accept China's position that the law or regulation that the measures secure compliance 
with is China's interpretation of its tariff provision s for motor vehicles, we conclude that China has 
failed to prove that the measures are justified under Article XX(d) because the measures do not secure 
compliance with the law or regulation that is "not inconsistent" with the GATT 1994 within the 
meaning of Article XX(d). 
                                                      
544 European Communities' comments on China's response to Panel question No. 281;  United States' 
second oral statement, paras. 31-32;  United States' response to Panel question No. 280;  Canada's second 
written submission, para. 79. 
545 See paragraph 7.740 below. 
546 See paragraph 7.740 below. 
547 Appellate Body Report on  EC – Computer Equipment , para. 84, also referred to by the Appellate 
Body Report on EC – Chicken Cuts , para. 250. 
Furthermore, we note that under Article IX:1 of th e WTO Agreement, the exclusive authority to adopt 
interpretations of the WTO Agreement and the Multilatera l Trade Agreements is granted to the Ministerial 
Conference and the General Counc il.  Specifically, Article IX:1 of the WTO Agreement provides: 
 
"The Ministerial Conference and the General Co uncil shall have the exclusive authority to 
adopt interpretations of this Agreement and of  the Multilateral Trade Agreements.  In the case 
of an interpretation of a Multilateral Trade Agreement in Annex 1, they shall exercise their 
authority on the basis of a recommendation by the Council overseeing the functioning of that 
Agreement.  The decision to adopt an interpretation shall be taken by a three-fourths majority of the Members..." 
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  (ii) China's tariff schedule 
7.297  Having found that China failed to prove that the law or regulation China's measures seek to 
secure compliance with is not itself inconsistent  with the GATT 1994, the Panel does not need to 
proceed with its examination of the rest of the re quirements under Article XX(d).  However, if the 
Panel were to consider, arguendo , that China's "tariff schedule" is the law or regulation the measures 
secure compliance with, such a law or regulation w ould be "not inconsistent" with the GATT 1994 to 
the extent China's tariff schedule reproduces Chin a's concessions contained in its Schedule as such, 
which is an integral part of the WTO Agreement.
548  Therefore, for the purpose of completeness of our 
analysis, we will proceed to examine whether, if  the law or regulation that the measures secure 
compliance with is China's domestic tariff sche dule, China's measures are justified under Article 
XX(d). 
(b) Are the measures designed to secure compliance with the law or regulation? 
7.298  The Panel recalls the Appellate Body's statement in Mexico – Taxes on Soft Drinks 
concerning the terms "to secure compliance with" under Article XX(d): 
"[T]he terms 'to secure compliance' speak to the types of measures that a WTO 
Member can seek to justify under Article XX(d).  They relate to the design of the 
measures sought to be justified.  There is  no justification under Article XX(d) for a 
measure that is not designed 'to secure compliance' with a Member's laws or 
regulations.  Thus, the terms 'to secure co mpliance' do not expand the scope of the 
terms 'laws or regulations' to encompass th e international obligations of another WTO 
Member.  Rather, the terms 'to secure compliance' circumscribe the scope of Article XX(d)."
549  (original footnote omitted and emphasis added)   
                                                      
548 See paragraph 7.295 above.  China's Schedule of Concessions is incorporated into China's domestic 
law in the form of a tariff schedule pursuant to Artic le 3 of China's Import/Export Tariff Regulation (China's 
first written submission, footnote 140 (E xhibit CHI-32)).  Ar ticle 3 provides: 
 
"Article 3 The State Council formulates th e Import/Export Tariff Code of the People's 
Republic of China (hereinafter referred to as the 'Tariff Code') and the Code of Import Tariff 
on Entrance of Articles of the People's Republic of China (hereinafter referred to as the 'Tariff 
Code for Entrance of Articles') as integral parts of this Regulation, which set forth dutiable items, tariff numbers, and tariff rates" (Exhibit CHI-32) (emphasis in original). 
 
See also Panel Report on EC – Chicken Cuts , paras. 7.5-7.8; GATT Panel Report on EEC – Parts and 
Components , para. 5.13.  The complainants do not dispute that China's tariff schedule is a reproduction of 
China's Schedule of Concessions, and thus, to that extent, not itself inconsistent with the GATT 1994. 
In this regard, we note China's statement that China's tariff provisions for motor vehicles are 
incorporated into the GATT, and are therefore not inconsistent with the GA TT (China's second written 
submission, para. 169).  We do not consider this is a legally and factually correct statement.  China's Schedule 
of Concessions is an integral part of the WTO Agreem ent, and China's Schedule is incorporated into China's 
tariff schedule (domestic nomenclature), not the other way around.  In any event, a Me mber's tariff schedule can 
be assumed to be consistent with the WTO Agreement to  the extent the domestic nom enclature is a reproduction 
of that Member's Schedule of Concessions.  Based on such understanding, we are assuming for the purpose of the present proceeding that China's tariff schedul e is "not inconsistent" with the GATT 1994. 
549 Appellate Body Report on Mexico – Taxes on Soft Drinks , para. 72, also citing its Report on Korea 
– Various Measures on Beef, para. 157.  See also Panel Report on Korea – Various Measures on Beef , 
paras. 655-658.  In particular, the Panel stated: 
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  7.299  The Panel  considers that the Appellate Body's analys is in the statement above shows that the 
requirement "to secure compliance" with the concer ned law or regulation under Article XX(d) can be 
examined in two parts:  (i) whether the challenge d measure is "designed" to secure compliance with 
the law or regulation concerned; and (ii) whether the measure in fact "secures compliance with" the 
law or regulation.  In this connection, we find further support for our understanding of the terms "to 
secure compliance" in the analysis of the Panel in EC – Tariff Preferences  where the Panel 
determined that, to examine whether the measure in  that dispute was designed to achieve the stated 
health objectives under Article XX(b), it needed to consider not only the express provisions of the 
measure, but also the design, architecture and structure of the measure.
550  Although the Panel's 
analysis in EC – Tariff Preferences was made in the context of paragraph (b) ("necessary to protect 
human...life or health") of Article XX, not paragr aph (d) ("necessary to secu re compliance..."), we 
consider that the same type of analysis is also re levant to the question before us, i.e. whether China's 
measures are designed to secure comp liance with China's tariff schedule. 
7.300  We will, therefore, first examine whether th e measures concerned in this case are "designed" 
to secure compliance with the laws or regulations, which are "not inconsistent" with the GATT 1994.  
If so found, we will then turn to the question of  whether the measures in fact "secure compliance" 
with the GATT-consistent  laws or regulations. 
(i) Whether the measures are "designed" to secu re compliance with the law or regulation 
7.301  China argues that the measures implement and en force the provisions of China's tariff 
schedule (incorporating China's Schedule of Concessi ons) relating to imports of  "motor vehicles" by 
preventing the importation and assembly of auto pa rts as a means of circumventing China's tariff 
provisions relating to motor vehicles.551  According to China, the measures achieve this objective by 
establishing an administrative process to ensure th at auto parts having the essential character of a 
complete vehicle are classified for customs purposes as the importation of a motor vehicle, regardless 
of whether the parts enter China in one shipment or in multiple shipments.  China submits that 
Chapter XI of Policy Order 8, the chapter concer ning the administration and enforcement of China's 
                                                                                                                                                                     
"However, despite the troublesome  aspects, the Panel accepts that the dual retail system was 
put in place, at least in part, in order to secu re compliance with the Korean legislation against 
deceptive practices to the exte nt that it serves to preven t acts inconsistent with the Unfair 
Competition Act .  First, the system was established at the time when, ..., acts of 
misrepresentation were widespread in the beef sector.  Second, it must be conceded that the 
dual retail system does appear to reduce the opportunities and thus the temptations for 
butchers to misrepresent foreign beef for dom estic beef, ....  The Panel notes that its 
interpretation of the words "measure ... to secure compliance with laws or regulations" is not 
inconsistent with the approach taken by the panel on EEC – Parts and Components and later 
followed by the panel on Canada - Periodicals ". (Panel Report on Korea – Various Measures 
on Beef , para. 658) (original footnote (footnote 363) omitted). 
 
550 Panel Report on EC – Tariff Preferences , para. 7.200, citing the Appellate Body Report on Japan – 
Alcoholic Beverages II :  the Appellate Body stated that "the aim of a measure may not be easily ascertained, 
nevertheless, its protective application can most often be discerned from the design, the architecture and the 
revealing structure of a measure"  (Appellate Body Reports on Japan – Alcoholic Beverages II , page 29 and 
Argentina – Textiles and Apparel , para. 55).  The Panel also cited the Appellate Body Report on US – Shrimp .  
In US – Shrimp, the Appellate Body stated, "we must examine the relationship between the general structure and 
design of the measure here at stake, …, and the policy goal it purports to serve, that is, the conservation of sea 
turtles" (Appellate Body Report on US – Shrimp , para. 137). 
551 China's first written submission, paras. 203-204.  WT/DS339/R 
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  tariff provisions for motor vehicles and vehicle parts,  gave rise to the customs enforcement procedures 
embodied in Decree 125 and Announcement 4.
552  
7.302  The European Communities  argues that nothing in the m easures indicates that they are 
intended to secure compliance with China's tariff schedule, but rather the actual purpose of the 
measures is "to develop the Chinese automotive i ndustry into a pillar industry of the national 
economy by 2010" as indicated in the preamble of Policy Order 8.553  According to the European 
Communities, China's allegation that the measures ar e designed to secure compliance with its tariff 
schedule is an ex post facto  rationalization by China which is not supported by any evidence.  The 
European Communities points to the fact that Chin a appears to apply its multiple shipments theory 
exclusively in the automobile sector, and only since 2004, which happens to coincide with the 
moment in which China decided to "[n]urture a gr oup of relatively strong auto parts manufacturers" as 
stated in Article 4 of Policy Order 8.554  Furthermore, there is not a single reference, let alone more 
detailed justification in the measures that would ev en remotely point to GIR 2(a) or its language.555  
The European Communities considers that the silence in the measures about GIR 2(a) is because the 
objective of the measures is to nurture the domestic automotive industry, which is not related to GIR 
2(a).556  The measures, in particular Chapter XI of  Policy Order 8, which even China admits as 
motivating Decree 125 and Announcement 4, explic itly refer to the objective of nurturing the 
domestic automobile industry. 
7.303  The United States  submits that although statements of in tent contained in legislation may not 
be determinative because laws are often adopted for more than one reason, the statements of intent 
contained in China's laws are relevant and should be considered by the Panel.557  The United States 
refers the Panel to the statement in China's measures that they are intended to promote the 
development of China's domestic auto parts indus try, and the fact that China's measures make no 
mention of any goal of preventing "tariff evasion" or "tariff circumvention". 
7.304  Canada  also submits that when read collectively, pa rticularly in the light of Policy Order 8, 
the measures are not designed to enforce customs ob ligations by preventing so-called tariff evasion, 
but to promote China's domestic auto parts industry.558  In Canada's view, the measures do not secure 
compliance with China's tariff provisions for motor ve hicles since, first, the purpose of the measures 
is to provide protection and support to the domestic auto parts industry, and, second, the measures are not designed to enforce China's tariff schedule because, on their face, they conflict with it by 
imposing an additional 15 per cent charge on foreign au to parts, which is not listed in China's tariff 
schedule and therefore cannot be applied.
559 
                                                      
552 China's response to Panel question No. 49. 
553 European Communities' second written submission, paras. 99, 144.  The European Communities 
also refers to Articles 3 and 4 of Policy Order 8 and the corresponding provisions in Decree 125 and Announcement 4. 
554 European Communities' second written submission, para. 99. 
555 European Communities' second written submission, para. 121. 
556 European Communities' second written submission, para. 122. 
557 United States' response to Panel question No. 292. 
558 Canada's second written submission, paras. 87, 88, also citing its first written submission, Part D.2 
of the factual background section submitted jointly by th e complainants.  Specifically, to show that the measures 
are designed to promote the Chinese do mestic auto parts industry, Canada refers to the preamble and the policy 
objectives of Policy Order 8, Article 52 (Chapter XI) of Policy Order 8, the preamble and Article 1 of Decree 125 and Article 1 of Announcement 4. 
559 Canada's response to Panel question No. 280. WT/DS339/R 
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  7.305  Following the approach adopted by previous pa nels as well as the Appellate Body as noted 
above, the Panel  will examine the express provisions as well as the design, structure and architecture 
of the measures (i.e. Policy Order 8
560, Decree 125, and Announcement 4) to determine whether the 
measures are designed to enforce China's tariff schedul e.  With respect to Policy Order 8, which is a 
legal instrument that provides the legal basis fo r the introduction of Decree 125 and Announcement 4, 
the complainants argue that its preamble, policy objectives (in particular, Articles 3 and 4) and 
Article 52 show that the measures are designed to protect and promote China's domestic auto parts 
industry.  China, on the other hand, submits that Ch apter XI of the Policy, as the only chapter in the 
Policy relevant to the measures at issue, reveals th e rationale behind the measures, which is to enforce 
China's tariff schedule. 
7.306  First, we note that the title of Policy Order 8 – "the Policy on Development of the Automotive 
Industry" – refers to the development of China' s automotive industry, not enforcement of China's 
tariff provisions for motor vehicles or vehicle part s.  Further, as submitted by the complainants, the 
text of the preamble of Policy Order 8 also shows th at the main reason for introducing the Policy is to 
further develop China's automotive industry.  The preamble of Policy Order 8 provides: 
"The Policy on Development of the Automotive Industry is formulated in order to 
meet the need to continuously improve the socialist market economy system as well 
as the new circumstances for the development of the automotive industry  at home and 
abroad following accession to the World Trade Organization; in order to promote the 
structural adjustment and upgradi ng of the automotive industry , and comprehensively 
improve the international competiti veness of the automotive industry ; and in order to 
satisfy the ever-increasing demand from  consumers for automotive products, and 
foster the healthy development of the automotive industry .  Through the 
implementation of this Policy, our country's automotive industry is to develop into a 
pillar industry of the national economy by 2010 , and to make greater contributions 
toward realizing the objective to comprehe nsively build a fundamentally prosperous 
society." (emphasis added) 
7.307  The preamble thus makes no reference to the need to enforce China's tariff provisions as 
claimed by China. 
7.308  We further observe similar la nguage in the Policy objectives561 as well as other provisions of 
the Policy, including those of Chapter VIII562 addressing China's auto parts industry.  We also recall 
                                                      
560 The Panel recalls its statement above in paragra ph 7.9 that it would refer back to the provisions 
contained in Policy Order 8 as necessary in its legal analysis. 
561 "Article 2. ...By 2010, our country is  to become a major global automotive 
manufacturing country, with automotive products th at are able to satisfy most of the domestic 
market's demand and that have entered the international market in large volumes.  
Article 3. ...In 2010, vehicle manufacturers shall have forged a number of well-known 
brands in automobile, motorcycle and parts products.  
Article 4. Promote structural adjustments and restructuring in the automotive industry, 
... Through market competition, form severa l internationally competitive large vehicle 
manufacturers, and strive to make them into the list of the world's top 500 enterprises by 2010.  
...  Nurture a group of relatively strong auto -parts manufacturers to achieve large-scale 
production such that they are able to participate in the global auto parts supply chain as well as be internationally competitive." 
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  that Article 52 of Chapter XI, which is the ch apter on import management and gives rise to the 
implementation of Decree 125 and Announcement 4,  mentions the development of automobile 
manufacturers and vehicle manufacturers giving impetus to the technological progress of auto parts 
manufacturers. 
7.309  In response to a request from the Panel to expl ain the specific situation leading up to China's 
decision to introduce the measures at issue in 2004, China submits that there was a significant issue 
concerning the evasion of higher tariff rates that apply to motor vehicles, including parts and components that have the essential character of a motor vehicle.
563  China argues that the dramatic 
increase in the value of imported parts and com ponents between 2001 and 2004 , greatly outstripping 
the rate of motor vehicle production in China564, proves the existence of the alleged problems relating 
to circumvention of ordinary customs duties for motor vehicles, particularly since this increase 
occurred at a time when automobile manufacturer s were introducing a large number of new vehicle 
models into the Chinese market.  According to Ch ina, these figures strongly suggest that there were 
issues of tariff classification concerning motor vehicles and parts of motor vehicles that warranted 
examination. 
7.310  We are not convinced, however, that these partic ular statistics showing an increase in auto 
parts imports between 2001-2004 alone can prove th at the alleged problem relating to evasion of 
higher tariff rates applicable to motor vehicles ex isted prior to the introduction of the measures.565  As 
pointed out by the European Communities and Cana da, numerous factors could explain this increase 
                                                                                                                                                                     
562 For example, Chapter VIII of Policy 8 provides: 
 
"Article 30. Auto parts manufacturers should adapt to international industrial development trends and actively participate in product development word done by the 
manufacturers of complete vehicles and assembles.  In the field of key auto parts, systematic 
development capabilities should progressively be formed, while in the field of general autoparts, capabilities for the development and manufacturing of advanced products should be 
formed, so as to meet domestic and foreign market demand and to strive to enter the 
international purchasing system for auto parts.  
Article 31. Formulate specific development plans for parts, give different guidance and 
support depending on the category of auto parts, bring it about that capital in society is 
invested in the filed of auto parts production, impel auto parts manufacturers that have 
comparative advantages to form the capability to specialize, mass-produce and modularize supply.  Auto parts manufacturers capable of supplying several independent manufacturers 
that undertake the production of whole vehicles and of entering the international purchasing 
system for auto parts shall be given priority support by the State with respect to introduction of technology, technological upgrading, financing and merging and restructuring.  
Manufacturers that undertake the production of whole vehicles should progressively procure 
parts from the open market by adopting e-commerce and online purchasing methods. ..."  
563 China's response to Panel question No. 12(a). 
564 China's response to Panel question No. 12(a), re ferring to its first written submission, para. 21.  
China submits that between 2001 and 2004, the value of imported parts and components increased by 300 per 
cent, which is nearly three times the rate of total motor vehicle production in China (China's first written 
submission, para. 21, citing Exhibit CHI-1).  China also refers to the fact that approximately 120 of the 500 or so vehicle models that have completed the evaluation process are assembled from imported parts and 
components having the essential character of a motor vehicle.  According to China, these indicators confirm that 
auto manufacturers were importing motor vehicles in pa rts and assembling them dome stically, thereby evading 
tariff rates applicable to motor vehicles. 
565 Parties' responses to Panel question No. 14(a). WT/DS339/R 
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  in auto parts imports, including factors such as foreign supply, trade regulations, currency rates, 
investment flows, tax policies, and the increased demand for automobiles produced in China, which 
consequently could have increased the demand for au to parts imports.  We share the complainants' 
view that China has not explained why and how th e import data for complete vehicles submitted by 
China, which shows a slowing rate of increase fo r imported motor vehicles in 2003 and 2004, reflects 
China's notion of circumvention, namely that this data reflects auto manufacturers' decision to change 
their business practices to avoid the higher duty rates on motor vehicles.
566   
7.311  Nor has China explained why the increased value of auto parts imports cannot simply be a 
direct consequence of China's commitment to  the lower tariff rates for auto parts.567  In fact, China 
itself acknowledges that the incentive to import auto parts instead of motor vehicles (because of the 
higher tariff rate for motor vehicles) is a character istic that is inherent to China's Schedule of 
Concessions that China negotiated.568   
7.312  Therefore, the language of Policy Order 8, wh ich is a legal authority giving rise to the 
implementing measures at issue (Decree 125 and Announcement 4), as well as the circumstances 
leading up to the introduction of the measures as explained by China cast doubt on China's claim that the measures are "designed" to address the evasion or circumvention of higher tariff rates that apply to motor vehicles under China's tariff schedule. 
7.313  Nonetheless, we note that the remaining provisions  in Chapter XI of Policy Order 8 refer to 
issues relevant to the importation of auto parts, including Articles 55, 56 and 57
569, which are also 
                                                      
566 United States' comments on China's response to Panel question No. 14(b).  The United States 
submits that rather, the data reflects China's own concerted efforts to discourage imports of motor vehicles by 
manufacturing an already restrictive quota regime, while promoting imports of CKD/SKD kits and parts.  In its 
comments on China's argument  that a slowing rate of increase for imported motor vehicles in 2003 and 2004 
was abnormal considering that China's import quotas on motor vehicles were being "substantially loosened" 
during this period, the Untied States contends that China's response is not convincing because China was doing 
everything in its power to limit imports of motor vehicles during the years 2001, 2002 and 2003.  The United States submits that only in 2004 did China begin to lift the barriers that it had put in place to limit vehicle 
imports, and these barriers were only lifted in full by the end of 2004 (with the exception of the high tariff rates 
that are still applicable to motor vehicles). 
567 European Communities' response to Panel question No. 14(a).  The European Communities argues 
that China's Schedule of Concessions or the HS und er Chapters 84 and 87 do not provide for the anti-
circumvention measures argued by China, and hence, there is no need to consider trade statistics provided by 
China.  However, in the European Communities' view, su ch statistics could at most demonstrate that after WTO 
accession, trade has increased in imported parts and compon ents as a direct conseque nce of China's commitment 
to reduce the tariff rate for parts and components to a bound level of 10 per cent or less.  According to the 
European Communities, if the expected effect of a commi tment could serve as a justification for not respecting 
this commitment any longer, this would entirely undermine the legal value of WTO commitments. 
568 China's response to Panel question No. 275. 
569 For example, Articles 55 and 56 of Chapter XI of Policy Order 8 provide: 
 "Article 55. The following part s are characterized as complete vehicles:  the body 
(including driver's cabin) assembly, the engine  assembly, the transmission assembly, the drive 
axle assembly, the non-drive axle assembly, th e frame assembly, the steering system and the 
brake system. 
 
Article 56. Auto parts shall be determined to have the character of a complete assembly in the following cases:  complete assemblies imported in their constituent parts (completely 
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  reflected in Decree 125 and Announcement 4.  Also, Article 54 of Chapter XI states, inter alia , that 
"[c]ustoms duties will be levied strictly in accordan ce with the tariff rates for imported whole vehicles 
and parts, to prevent any loss of customs duties . ..."  Furthermore, Decree 125 and Announcement 4, 
introduced pursuant to Policy Order 8, provide sp ecific rules relating to the importation of auto 
parts.
570  Setting aside whether these rules do secure comp liance with China's tariff schedule, an issue 
the Panel will address next, Decree 125 and Announcem ent 4, except for a general remark in Article 1 
of Decree 125571, do not make any reference to the developm ent or promotion of automobile or auto 
parts industries in China.   
7.314  Taken together, the elements comprising the st ructure of the measures reveal the drafters' 
mixed intentions as regards the purpose of the introducti on of the measures.  This is particularly so in 
light of the tone of the language prevalent througho ut Policy Order 8.  Nevertheless, we do not have 
sufficient evidence to conclude that the measures are not per se  designed to secure compliance with 
China's tariff schedule, namely to prevent the pr oblems relating to circumvention of the tariff 
provisions for motor vehicles, as advanced by China.  Therefore, we will now turn to the question of 
whether the measures do in fact "secure compliance with" China's tariff sched ule within the meaning 
of Article XX(d). 
(ii) Whether the measures "secure compli ance" with the law or regulation 
7.315  In examining whether the measures at issue secure compliance with China's tariff schedule 
within the meaning of Article XX(d), we find an approach adopted by the Panel in Korea – Various 
Measures on Beef  useful.  The Panel in that case, having firs t identified the law or regulation within 
the meaning of Article XX(d), proceeded to determ ine the inconsistent actions under that regulation 
the measure at issue aimed to prevent to analyse whether the subject measure secured compliance 
with that regulation.572  Following the same approach, we first recall our finding above that the law or 
                                                                                                                                                                     
(semi-knocked down).  Whenever imported key pa rts attain or exceed the stipulated quantity 
they shall be characterized as Imported Assemblies." 
 
570 Concerning the legal relationship among the measures, China submits that there is no legal 
hierarchy between Policy Order 8 and Decree 125 and that Policy Order 8 is a broad policy instrument that sets 
forth general goals across a wide array of issues relating to motor vehicles and the automobile industry (China's 
response to Panel question No. 48).  See also Section VII.A.1(a).  China further su bmits that Chapter XI of 
Policy Order 8 addresses the administration and enforcement of China's tariff rates for motor vehicles and vehicles parts.  Article 60 of Policy Order 8 directed the CGA jointly with other relevant departments to 
promulgate the specific administrative rules to give effect to the general principles set forth in Chapter XI, and 
that the CGA did so through the promulgation of Decree 125.  Afterwards, in order to detail the procedures for the verification of evaluation by automobile manufacturers, the CGA formulated Announcement 4 to provide 
further details concerning the verification process. 
571 Article 1 of Decree 125 provides: 
 
"These Rules are formulated in accordance with re levant laws and regulations with a view to 
formalizing and strengthening the administration of the importation of automobile parts, and promoting the healthy development of the automobile industry ."  (emphasis added) 
 
572 Panel Report on Korea – Various Measures on Beef , paras. 655, 658.  Specifically, the Panel 
identified that the practices that Korea considered  deceptive and aimed to prevent through the measure at issue 
in that case were the misrepresenta tion of the origin of beef, i.e. se lling imported beef as domestic beef.  
Whatever is the cause of such fraudulent practices, the Panel acknowledged that selling imported beef as 
domestic beef constitutes misrepresentation as to the origin  of beef contrary to the specific provisions of the 
Unfair Competition Act (i.e. the a lleged GATT-consistent law).   WT/DS339/R 
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  regulation with which China's measures allegedly secure compliance is China's tariff schedule.  
Accordingly, to show that the measures do in fact  "secure compliance with" China's tariff schedule, 
China must first demonstrate specific obligations th at the measures at issue try to enforce and/or 
actions considered inconsistent unde r China's tariff schedule that the me asures at issue aim to prevent. 
7.316  China submits that the challenged measures secure  compliance with China's tariff schedule 
by preventing the importation and assembly of auto  parts as a means of circumventing China's tariff 
provisions relating to motor vehicles.
573  Specifically, China alleges that this so-called 
"circumvention" occurs when manufacturers evad e the higher duty rate for motor vehicles by 
structuring their imports of auto parts and co mponents in multiple shipments so that no single 
shipment has the essential character of a motor vehi cle, even if those parts and components would 
have been classified as a motor vehicle ha d they entered China in a single shipment.574  By structuring 
the importation of auto parts and components in this  manner, auto manufacturers deprive China of the 
revenue and market access benef its that it negotiated when it obt ained a higher bound duty rate for 
motor vehicles as compared to parts and compone nts of motor vehicles.  According to China, 
therefore, the question is whether importers should be able to evade the lin e that customs authorities 
have drawn by importing parts and components in multiple shipments.575  China considers that such 
an action by auto parts importers is contrary to the interpretation of its tariff schedule based on the 
interpretative rules of the HS.  China submits that a Member's ability to adopt measures to interpret its 
tariff schedule in accordance with the rules of HS is co-extensive with those rules since any such 
measure must comport with the requirements of the HS.576 
7.317  On the contrary, the complainants  do not even acknowledge th e existence of "circumvention 
of customs duties" as a concept.  The complainants submit that notions of "tariff arbitrage", "tariff 
evasion" or "tariff circumvention", mentioned during the course of this Panel's proceeding to describe 
the "circumvention" of tariff duties as defined by  China, do not exist in the WTO Agreement. 
7.318  The European Communities submits that China has not even shown that there is in reality a 
problem of tariff evasion that needs to be addressed.577  The European Communities submits that in its 
customs law, the concept of "circumventing a customs duty" does not exist, although there are 
situations in which operators try to avoid paying th e ordinary customs duties, for example, by falsely 
declaring that the goods they are importing co me from a country that has a preferential trade 
                                                                                                                                                                     
The GATT Panel in EEC – Parts and Components also considered that the term "to secure compliance 
with laws or regulations" under Article XX(d) cover measures preventing actions inconsistent with the 
obligations set out in laws or regulations.  In sum, th e Panel in that case concluded that Article XX(d) covers 
only measures related to the enforcement of obligations under laws or obligations consistent with the GATT (GATT Panel Report on EEC – Parts and Components , paras. 5.14, 5.18). 
We also note a similar analytical elemen t in the context of Article XX(b).  In EC – Asbestos , the Panel 
considered it necessary first to determine the existence of  a health risk to address the question of whether the 
policy in respect of the measures for which Article XX(b ) was invoked fell within the range of policies designed 
to protect human, animal or plant life or  health.  The Panel stated that "the use of the word 'protection' implies 
the existence of a risk ". (Panel Report on EC – Asbestos , paras. 8.170, 8.184, also cited in Brazil – Retreaded 
Tyres , para. 7.42).  Likewise, we also consider the te rms "to secure compliance" implies the existence of 
obligations under the law or regulation. 
573 China's first written submission, para. 204. 
574 China's response to Panel question No. 13. Chin a argues that the measures exist as an anti-
circumvention measure for China's tariff schedule (China's first wr itten submission, paras. 207, 210). 
575 China's second written submission, para. 32. 
576 China's response to Panel question No. 9. 
577 European Communities' second written submission, para. 146; response to Panel question No. 280.  WT/DS339/R 
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  agreement with the European Communities and th erefore such goods are subject to zero per cent 
customs duty.
578  
7.319  The United States  submits that it cannot accept the assumption advocated by China that it 
amounts to "circumvention" when automobile manuf acturers use normal channels of trade to source 
bulk shipments of parts for assembly purposes.  There is no legislation or regulation in which the United States sets forth specific criteria and procedures for determining whether an importer is avoiding payment of the correct amount of ordinary customs duty.
579  Nor does the United States 
investigate whether a manufacturer may be arrangi ng multiple shipments in order to obtain lower 
tariff duties, and does not consider such  practice to constitute "circumvention".580  In the United 
States, an importer is not entitled to misrepresent th e condition of the goods when imported in order to 
obtain a lower rate of duty.  In this context, the United States submits that an importer would be 
entitled to obtain the rate of duty applicable to th e parts (and not complete motor vehicles) if auto 
parts that were previously imported together on the same conveyance are now shipped in multiple 
conveyances on multiple dates to multiple ports, presuming that none of the parts so imported 
separately has the essential character of a complete motor vehicle.  
7.320  Canada  submits that China does not explain wh y the so-called tariff evasion (avoiding 
paying one tariff rate in favour of another, by spl itting shipments that otherwise would have arrived at 
the border together and pr operly be classified as motor vehicles into multiple shipments), which is the 
"problem" alleged by China, is a problem and why im porters cannot take advantag e of tariff rates that 
are mutually agreed to by Members.581  Canada argues that there is no legal foundation for the claim 
that tariff arbitrage is improper.  Moreover, Chin a has not even presented a ny evidence that tariff 
evasion actually occurs with any frequency, let alone with any intent.  The measures simply presume that there is tariff avoidance in all instances wh ere imported parts meet the thresholds under the 
measures.
582 
                                                      
578 European Communities' response to Panel question No. 142. 
579 United States' response to Panel question No. 142. 
580 United States' response to Panel question No. 216(d).  The United States' statement was provided in 
response to a Panel question whether the United States believes that it would be proper for customs authorities 
to investigate whether a manufacturer is splitting a CKD shipment  into two or more separate boxes, thereby 
evading the higher tariff rate that woul d apply to the complete article.  The United States emphasizes again that 
under both the WTO Agreement and the HS, a good should be classified in its condition as imported.  
Therefore, assuming that an imported CKD is a complete vehicle unassembled, it would be classified differently than the auto parts included in such kits if such auto pa rts were to be imported separately.  Therefore, when an 
imported auto part is specifically described by a heading of the tariff schedule, it is classifiable under that 
heading notwithstanding that, post importation, the auto part may be used in the assembly of a complete motor vehicle, in accordance with GIR 1.  Any measures that compel  an auto manufacturer to provide proof of the 
post-importation assembly of many different imported parts, in their entirety, into a complete vehicle do not 
retroactively confer to those parts at the time of importation the "essential character" of a motor vehicle. 
581 Canada's second written submission, paras. 93-97;  Canada's response to Panel question No. 237.  
The Panel notes that Canada's argument in this regard is  made in the context of the "necessity" test (specifically, 
the contribution element of the test).  In this respect, the Appellate Body in EC – Hormones stated, "...Panels are 
inhibited from addressing legal claims falling outside their terms of reference.  However, nothing in the DSU 
limits the faculty of a panel freely to use arguments submitted by any of the parties – or to develop its own legal 
reasoning – to support its own findings and conclusions on the matter under its consideration" (Appellate Body Report on EC – Hormones, para. 156).  See also, Appellate Body Report on US – Certain EC Products , 
para. 123. 
582 Canada emphasizes that there is no evidence that evasion of the tariff comm itments is occurring, or 
even that such evasion is improper (Canada's second written submission, paras. 87, 88, also citing its first 
written submission, Part D.2 of the factual background section submitted jointly by the complainants). WT/DS339/R 
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  7.321  In light of the above, the Panel understands that the action alleged by China to be inconsistent 
with China's tariff schedule that the measures aim to prevent is "circumvention" of the tariff 
provisions for motor vehicles.  China has referred to  the following as examples of actions considered 
to be "circumventing" China's tariff provisions for mo tor vehicles: (i) removing parts of the vehicle, 
such as tyres and wiper blades, and declaring  them as auto parts; (ii) importing parts and components 
that have the essential character of a motor vehicle, and documenting  them as "separate" shipments 
even if they arrive on the same ship, at the same  port, on the same day; or (iii) importing parts and 
components that have the essential character of a motor vehicle in multiple shipments and arranging  
imports so that they arrive on different sh ips, at different ports, or on different days.
583  China argues 
that if China has no means of looking past the above  described ploys, importers would never have to 
pay the tariff rates applicable to motor vehicles.584 
7.322  Given these examples of actions and China's position that this circumvention takes place by 
importing auto parts above the thresholds set out in  the measures, with or without an intention to 
avoid higher tariff rates for motor vehicles, and ass embling them into motor vehicles in China, we 
consider that the actions allegedly circumventi ng China's tariff schedule encompass the following 
three types of actions:  (i) importing auto parts for domestic assembly without any intent to avoid or 
evade higher duty rates applicable to motor vehicles;  (ii) importing auto parts for domestic assembly 
with the intent to avoid or evade higher tariff rat es applicable to motor vehicles; and (iii) importing 
"motor vehicles", but breaking them into parts so as not to be subject to higher tariff rates applicable 
to motor vehicles when presented to the customs, and declaring and/or documenting their imports as 
auto parts inconsistently with the actua l content of what is being imported. 
7.323  As noted above, the complainants contest that th e so-called "circumvention" of China's tariff 
provisions for motor vehicles through the above-men tioned types of actions is inconsistent with 
China's tariff schedule.  To establish its claim, th erefore, China must explain why the "circumvention" 
of the tariff provisions for motor vehicles is inconsis tent with the obligations under its tariff schedule, 
and thus needs to be prevented through the measures. 
7.324  First, according to China, the concept of "circu mvention of customs duties" is broad in that 
the intention of an auto parts importer to evade the higher duty rates on motor vehicles is not required to constitute the circumvention of tariff duties.
585  China considers that the importation and assembly 
                                                      
583 China's second written submission, para. 166 (emphasis added). 
584 In this connection, the United States submits that China presents two scenarios in which China 
believes that importers are not entitled to obtain the lower tariff rates for auto parts instead of paying the high 
tariff rates for complete motor vehicles: first, the scenario where importers restructure their importations of parts 
and components, in the sense that parts previously imported together on the same conveyance are now shipped in multiple conveyances on multiple dates to multiple por ts, with none of the parts having the essential character 
of a complete motor vehicle; and second , the scenario where an importer s ubmits paperwork claiming that parts 
imported together are separate shipments, although the contents of the paperwork itself do not turn such a collection of auto parts into multiple importations (United States' response to Panel question No. 237). 
585 In this regard, we note China's argument in the c ontext of tariff classification under Article II that 
the charge imposed under the measures relates back to the condition attached at the time of importation; when the auto manufacturer fulfils its stated intention to import and assemble parts and components that have the 
essential character of a motor vehicle, it will be obliged to pay the applicable duty rate for motor vehicles.  At 
the same time, China argues that the intention of importers to assemble parts and components into the finished article is irrelevant to the classifi cation determination under GIR 2(a) ( China's response to Panel question No. 
108(d)).  Thus, if an importer imports a completely unassembled motor vehicle in a single container with the 
intention of selling the various parts and components as re placement parts, this intention is irrelevant to the 
classification determination and the customs authorities shoul d classify the entry as a complete motor vehicle in 
accordance with GIR 2(a).  We do not c onsider that China's arguments are cohe rent:  if intentio n is in principle  WT/DS339/R 
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  of auto parts and components through multiple shipments undermines the value of the tariff 
concessions that China negotiated, whether the auto manufacturer has an inten tion to evade the higher 
duty rates on motor vehicles or not. 
7.325  If one were to follow China's logic, therefore,  an automobile manufacturer who imports auto 
parts in the normal course of its business operation, without any specific intent to avoid the higher 
tariff rates applicable to motor vehicles, and u ses imported auto parts in the assembly of motor 
vehicles in China would be regarded as circumvent ing China's tariff provision s for motor vehicles.  
China has not demonstrated any legal basis for such a position. 
7.326  The term "circumvention" can be defined as "the action or an act of circumventing 
someone".
586  The word "circumvent" is in turn defined as "1. verb trans. Deceive, outwit, overreach; 
find a way around , evade (a difficulty); .. 3 verb trans Go round; enclose; make the circuit of"".587   
As the European Communities submits, the dictionary definitions of the term "circumvention" appear 
to contemplate both situations where criminal or  fraudulent intent behind the action exists and 
situations where such intent is not necessarily pr esent and where actions amounting to circumvention 
would not be per se illegal.  Although not necessar ily requiring criminal or fraudulent intent, the 
ordinary meaning of the term "circumvent" (i.e . "find a way around" or "go around ") implies the 
presence of a will or intent necessary to avoid a certain  thing or situation.  Thus, to circumvent one 
tariff duty for another as claimed by China, an importer at least needs to have the intent to do so.  In 
light of this, to the extent the action China subm its as inconsistent under its tariff schedule includes 
the importation and assembly of auto parts without any intention to avoid the higher tariff duties 
imposed on motor vehicles, China has not explained wh y and how such an action is inconsistent with 
its tariff schedule. 
7.327  Second, assuming then, arguendo , that some importers do intentionally structure their imports 
so as to avoid the higher tariff rates applicable to  motor vehicles, China has to demonstrate why such 
an action is inconsistent with China's tariff schedule. 
7.328  The United States  argues that an importer would be entitled to obtain the tariff rate 
applicable to parts (and not complete motor vehicles) in such a situation, given that the identity of the 
imported good must be demonstrable by the good in  its condition "as presented" for entry into the 
customs territory, that is, at the time of importation.588   
                                                                                                                                                                     
irrelevant for the purpose of tariff classification under GIR 2(a), the importers' intention to import and assemble 
parts and components into motor vehicles should also be  considered irrelevant under the measures, which China 
argues is related to the correct classification of certain tariff provisions.  China's position is puzzling in that the 
same intention (to import and assemble auto parts) is irrelevant to tariff classification under GIR 2(a), but 
relevant under the measures, which allegedly give effect to China's tariff provisions for motor vehicles, as the 
condition of imposing the tariff rates applicable to motor vehicles.  See also the United States' comments on China's response to Panel question No. 108(d). 
586 Shorter Oxford English Dictionary , 2002 (5th edition), Volume 1, page 414.   
587 Shorter Oxford English Dictionary , 2002 (5th edition), Volume 1, page 414.  The term "circumvent" 
is also defined as "2. To go around; bypass. 3, To avoid or get around by artful manoeuvring" ( The American 
Heritage College Dictionary , Third Edition (1993), page 255).  See also the European Communities' response to 
Panel question No. 13(a). 
588 The United States submits that separate importations of other parts and components with which the 
good will be assembled in the importing country's internal market cannot be considered in the classification of 
the good because there is no assembly of the good and the other parts and components at the time that the good is imported.  Activities occurring after the imported goods have entered the country's customs territory are not a 
basis for classification under the HS (United States' response to Panel question No. 237). WT/DS339/R 
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  7.329  The European Communities  also submits that in the ab sence of any conditions in the 
applicable tariff schedules, importers are entitled to structure their impor ts according to their 
preferences and the priorities of their manufact uring plans and the goods so imported must be 
classified in accordance w ith the objective characteristics of th e product in question when presented 
for classification at the border.
589  The United States and Canada also agree with the European 
Communities:  they would not find circumvention of the customs classification rules if a manufacturer were to order all of individual auto parts from one  company and then separate them into different 
containers and make separate entry of each sh ipment in order to obtain a lower tariff duty.
590   
7.330  Canada  further submits that if vehicle manuf acturers shipped all the parts necessary to 
assemble a vehicle in two or more shipments to avoid paying the tariff rates applicable to motor 
vehicles as asserted by China, it could be character ized neutrally as "tariff arbitrage", or "tariff 
avoidance", or more negatively as "tariff evasion" or "tariff circumvention".591  According to Canada, 
if there were evidence that this were happening, an d if the measures were targeted to address this 
practice, then the legal issue for the present disput e would be whether Article XX(d) is available to 
counter such a practice. 
7.331  China  argues that the complainants' position allo ws form to prevail over substance in the 
classification of parts and components.  If an im porter had complete discretion to structure and 
document its imports as it saw fit, there would be no purpose in defining the circumstances under which customs authorities may classify unassemb led or disassembled parts and components as 
equivalent to the complete article.  Any set of tari ff provisions that established different tariff rates for 
a complete article and the parts and components of that article would be inherently unenforceable, 
because any rational importer would simply organize its containers so as to benefit from whichever 
tariff rate was lower.  The tariff provision with  the higher rate of duty would be automatically 
inutile .
592  
7.332  The Panel  will first examine whether there is any reference in the WTO Agreements to the 
notion of "circumvention" in relation to the situati on where importers intentionally structure their auto 
parts imports so as to use lower tariff rates a pplicable under a Member's schedule.  The term 
"circumvention"593 is defined in the Dictionary of Trade Policy Terms  as follows: 
                                                      
589 European Communities' response to Panel question No. 237, also referring to the Appellate Body's 
statement in EC – Chicken Cuts  that "in characterizing a product for pu rposes of tariff classification, it is 
necessary to look exclusively at th e 'objective characteristics' of the pr oduct in question when presented for 
classification at the border" (Appellate Body Report on EC – Chicken Cuts , para. 246). 
590 Complainants' responses to Panel question Nos. 216(b) and (c).   
591 Canada's response to Panel question No. 229. 
592 Further, China submits that the complainants' pos ition is antithetical to the function that GIR 2(a) 
serves within the HS to distinguish between complete articles and parts of those articles.  Such a form-over-
substance position sharply highlights the complainants' failu re to articulate and substantiate an interpretation of 
GIR 2(a) and the term "as presented".   
593 The European Communities submits that the EC law defines "circumvention" in the context of anti-
dumping duties as follows: "Circumvention shall be defined as a change in the pattern of trade between third 
countries and the Community or between individual companies in the country subject to measures and the 
Community, which stems from a practice, process or work for which there is  insufficient due cause or economic 
justification other than the imposition of the duty, and where there is evidence of injury or that the remedial 
effects of the duty are being undermined in terms of th e prices and/or quantities of the like product, and where 
there is evidence of dumping in relati on to the normal values previously established for the like product, if 
necessary in accordance with the provisions of Article 2." (European Communities' response to Panel question 
No. 13(a), referring to Article 13(1) of Regulation 384/96 as amended by Regulation 461/2004).  See the  WT/DS339/R 
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  "Measures taken by exporters to evade anti-dumping measures or countervailing 
duties .  It can refer also to the evasion of rules of origin , etc.  Circumvention consists 
of disguising the true origin of th e product, sometimes through manufacturing 
operations whose sole purpose is to pr ovide sufficient evidence to meet the 
requirements of an agreement.  These some times fall into the category of screwdriver 
operations.  The Agreement on Agriculture  seeks to prevent circumvention of 
commitments to rein in export s ubsidies.  Circumvention in the textile trade  refers to 
avoiding quotas and other restrictions by a ltering the country of origin of a product. 
[See also anti-circumvention.]"
594 (emphasis added) 
"The avoidance of trade restrains in export  markets, by, for instance, transhipments 
through other states subject to more advant ageous terms of entry.  In the WTO the 
issue of 'anti-circumvention' figures in negotiations and agre ements related to textiles 
and clothing, anti-dumping and agriculture ."595  (emphasis added) 
7.333  Further, "anti-circumvention" is defined in the Dictionary of Trade Policy Terms  as follows: 
"[m]easures by governments to prevent circumvention of measures they have 
imposed, such as definitive anti-dumping duties .  Sometimes firms seek to avoid such 
duties through, for example, assembly of  parts and components either in the 
importing country or in a third country, or by shifting the source of manufacture and export to a third country.  The term as used in the WTO does not refer to cases of 
fraud.   These would be dealt with under normal legal procedures of the countries 
concerned.  The Agreement on Agriculture  contains an anti-circumvention provision.  
It stipulates that export subsidies not listed in the Agreement must not be used to circumvent export subsidy commitments.  Nor must non-commercial transactions be 
used in this way.  [See also anti-dumping measures , carousel effect, dumping and 
screwdriver operations.]"
596 (emphasis added) 
7.334  The definitions of the word "circumvent" in the context of international trade, as observed 
above, show that the notions of "circumvention" and "anti-circumvention" are not contemplated in the 
relation to ordinary customs duties.  In the co ntext of the WTO Agreement, "circumvention" is 
recognized concerning anti-dumping duties, rules of origin, the Agreement on Agriculture  and the 
textile trade.597  Further, it is only in the Agreement on Agriculture  that the notion of "anti-
                                                                                                                                                                     
complainants' responses to Panel question No. 141 for the description of their domestic procedures determining 
circumvention by importers of anti-dumping duties. 
594 WTO, W. Goode, Dictionary of Trade Policy Terms , Fourth Edition, 2003, pages 61-62.  The 
Dictionary defines "screwdriver operations" as follows: "a pejorative term for manufacturing operations 
concerned mainly with the assembly of components.  Th is often involves little or no transfer of technology.  
Screwdriver operations are more likely to be found where there is an adequate supply of comparatively 
inexpensive labour.  They are partly a cause and a result of globalization driv en by the need to  find the most 
efficient production arrangement.   They can also be due to preferential rules of origin which encourages firms to 
establish operations inside free-trade areas to get around market access impediments. …" ( Dictionary of Trade 
Policy Terms , page 303). 
595 Agency for International Trade Information and Cooperation (AITIC), Glossary of Commonly Used 
International Trade Terminology with  Particular Reference to the WTO , 2003, Part International Trade and 
WTO Terms, page 15. 
596 Dictionary of Trade Policy Terms , W. Goode, WTO Fourth edition, 2003, pages 19-20. 
597 The European Communities notes that under WTO law, anti-circumvention measures are explicitly 
contemplated in Article 10 of the Agreement on Agriculture .  In the context of anti-dumping duties, the WT/DS339/R 
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  circumvention" is explicitly recognized:  Article 10 of the Agreement on Agriculture , entitled 
"prevention of circumvention of export subsidy commitments", stipulates that export subsidies not 
listed in the Agreement must not be used to circumvent export subsidy commitments.  The WTO 
Members are also in the process of negotiating an ti-circumvention issues in the context of anti-
dumping duties.
598 
7.335  Moreover, the concepts such as "evasion" and "avoi dance" do not appear to exist in relation to 
customs duties, at least not in a legal context.  In comparison, we observe that such concepts are 
relatively well defined in the context of domestic tax law.  For example, Black's Law Dictionary  
provides the following definitions:  "tax avoidance"  is defined as "the act of taking advantage of 
legally available  tax-planning opportunities in order to minimize one's tax liability"; and "tax 
evasion" is defined as "the wilful attempt to defeat or circumvent the tax law  in order to illegally 
reduce  one's tax liability; tax evasion is punishable by both civil and criminal penalties  – also termed 
as tax fraud ".599 
7.336  Furthermore, in fact, China's tariff schedule e xplicitly provides different tariff rates for motor 
vehicles and auto parts, the first with the higher ta riff rate of 25 per cent on average and the latter with 
the lower tariff rate of 10 per cent on average.  Under this circumstance, any importer, automobile manufacturers in this case, would, in the normal operation of their business, decide to import auto parts and assemble them into motor vehicles, to the extent allowed under their business requirements.  
As noted earlier, China itself has also acknowledged th at the incentive to import auto parts instead of 
motor vehicles (because of the higher tariff rate for mo tor vehicles) is a characteristic that is inherent 
to China's Schedule of Concessions that China negotiated.
600 
7.337  Therefore, to the extent that by the notion of  "circumvention", China is referring to importers' 
decision to import auto parts for domestic assembly rather than importing complete motor vehicles, 
which are subject to higher tariff rates, China h as neither provided evidence showing such practices 
by importers601, nor proved to our satisfaction why such actions are inconsiste nt with importers' 
obligations under China's tariff schedule.  In this regard, we are not saying that specific evidence of 
any steady pattern of import practices accused by China as circumventing its tariff schedule must be shown to prove that such practices are inconsistent  under China's tariff schedule, because, in our view, 
there is nothing that prevents WTO Members from having a "preventive" measure, as opposed to a 
"responsive" measure, against actions consider ed inconsistent under their domestic laws or 
regulations.  In our view, such evidence would be  useful in proving that a certain measure is 
"designed" to secure compliance with the concerned domestic law or regulation.  However, to show 
that the measures at issue "do in fact secure complia nce with" its tariff schedule, which is contested by 
the complainants in this case, Ch ina must at least demonstrate why the types of actions as described 
by China are inconsistent under China's tariff sched ule and thus need to be prevented through the 
measures. 
                                                                                                                                                                    
 
European Communities refers to the Ministerial Decision on Anti-Circumvention adopted by the Trade 
Negotiations Committee  on 15 December 1993 (Europ ean Communities' response to  Panel question No. 13(b)). 
598 See paragraphs 7.498-7.499 for an explanation on the WTO Members' negotiations on 
circumvention of anti-dumping duty measures.   
599 Black's Law Dictionary , Seventh Edition, 1999, pages 1473 and 1474, respectively (emphasis 
added). 
600 China's response to Panel question No. 271.  See also paragraph 7.310 above. 
601 See paragraphs 7.309-7.310 above for the discussion on China's arguments relating to the existence 
of the alleged problems relating to circumvention of ordinary customs duties. 
Also see footnote 572 above for the relevant finding by the Panel on Korea – Various Measures on 
Beef, paras. 655, 658.  WT/DS339/R 
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  7.338  Finally, we now turn to the situation where automobile manufacturers import "motor 
vehicles", but break them into parts before importation so as not to be subject to the higher tariff rates 
applicable to motor vehicles when presented to th e customs, and declare and/or document their 
imports as auto parts inconsistently with th e actual content of what is being imported.
602 
7.339  According to the European Communities , such false declarations can give rise to sanctions 
and penalties, applied at the national level in th e European Communities, and are more related to 
fraud than to circumvention.   
7.340  The United States submits that an importer is not entitled to misrepresent  the condition of the 
goods when imported in order to obtain a lower tariff rate.603  Where there is a suspicion that an 
importer is attempting to avoid the payment of th e proper amount of ordinary customs duties owing 
on imported merchandise by, for example, undervalui ng the goods, providing fraudulent certification 
of eligibility for duty-free treatment under a free trade agreement, or misclassifying goods under an 
incorrect tariff heading with a lower tariff rate, the United States may initiate an audit of its records or 
initiate a criminal investigation.604  The United States submits that depending on the outcome of such 
an investigation, penalties can be imposed or crimin al charges can be filed against the importer.   
7.341  Canada  submits that there is no ev idence to suggest that any co mpanies are or ever have 
sought to obtain a lower tariff rate merely by documenting their imports as "separate" shipments.605  
Furthermore, customs authorities determine appropriate classification of goods based upon their state as they arrive at the border, which includes (but is  not limited to) the declaration.  Canada has no 
procedures for determining whether an ordi nary customs duty is being circumvented.
606   
7.342  The Panel  notes that the European Communities a nd the United States at least acknowledge 
that importers' false declaration or documentation of goods could be consid ered illegal under their 
respective domestic legal systems.  The complainants  contest, however, that these are types of issues 
that are addressed under a Member's tariff schedule itself as China claims.   
7.343  In this connection, China's response to a Pa nel question informs us that, similar to the 
complainants' domestic legal systems as described above, China has provisions within its "regular 
customs laws" that regulate the situation where importers falsely declare imported goods or provide incorrect information.  China submits that the Regulation of the People's Republic of China on the 
Implementation of Customs Administrative Punishment  defines various types of customs violations, 
including the submission of untruthful declarations or actions that violate customs control of goods.
607  
Therefore, this type of actions that China asserts is inconsistent with China's tariff schedule and thus 
needs to be prevented through the measures is already defined in and dealt with by China's 
Implementation of Customs Administrative Punishme nt, a legal instrument separate from China's 
tariff schedule.   
                                                      
602 See paragraph 7.322 above. 
603 United States' response to Panel question No. 237 (emphasis added). 
604 United States' response to Panel question No. 142. 
605 Canada's response to Panel question No. 237. 
606 Canada's response to Panel question No. 142.  Canada explains that the CBSA's furniture 
classification case provided specific guidance relating to furniture purchased as one unit at the retail level and 
shipped separately.  According to Canada, there are no situations where attempts to evade customs duties by 
separate shipments of parts result in those separate shipments being treated separately for purposes of increasing 
duty beyond the applicable tariff commitments in Canada's Schedule of Concessions.  Further, Canada notes 
that there are no inst ances where activities taking place after presentation at the border  are taken into account in 
increasing duty beyond the applicable tariff commitments in Canada's Schedule. 
607 China's response to Panel question No. 30. WT/DS339/R 
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  7.344  Further, as the Dictionary of Trade Policy Terms  explains
608, the notion of circumvention as 
used in the WTO context does not include cases of  fraud, which are rather addressed under normal 
domestic legal procedures of the countries concerned.   
7.345  Therefore, we conclude that China has not demonstrated that a false declaration or 
documentation of goods imported is an action incons istent with the obligations under China's tariff 
schedule that needs to be pr evented through the measures. 
(iii) Conclusion 
7.346  In sum, we conclude that China has not di scharged its burden to prove that the measures 
"secure compliance" with its tariff schedule, becau se China has not explained to our satisfaction how 
the types of actions that China claims amount to "circumvention" of the tariff provisions for motor 
vehicles (i.e. importing and assembling auto parts in  China, with or without any intention to 
avoid/evade the higher tariff duties for motor vehicles ) are inconsistent with the obligations under its 
tariff schedule and hence need to be  prevented through the measures. 
(c) Are China's measures "necessary" to secure  compliance with China's tariff schedule? 
7.347  The Panel has found above that the measures do not secure compliance with China's tariff 
schedule.  Accordingly, the measures cannot be co nsidered as "necessary" to secure compliance with 
China's tariff schedule.609  However, even if the measures we re to have been found to secure 
compliance with China's tariff schedule, we do not  find, for the following reasons, that China has 
proved that the measures are "necessary" to secure compliance with its tariff schedule. 
7.348  We recall the Appellate Body's statement in Korea – Various Measures on Beef ,  with respect 
to the necessity of a measure within the meaning of Article XX(d): 
"[d]etermination of whether a measure, whic h is not 'indispensable', may nevertheless 
be 'necessary' within the contemplation of Article XX(d), involves in every case a process of weighing and balancing a series of factors which prominently include the 
contribution made by the compliance measu re to the enforcement of the law or 
regulation at issue, the importance of the common interests or values protected by that law or regulation, and the accompanyi ng impact of the law or regulation on 
imports or exports."
610  
7.349  We will follow the guidance provided by the Appe llate Body in examining whether China has 
proved the "necessity" of the measures within the meaning of Article XX(d). 
7.350  China  submits that the prevention of tariff circumvention is clearly an important interest to 
WTO Members.611  Relying on the Appellate Body's finding in Dominican Republic – Cigarettes that 
the collection of tax revenues (which would include customs revenues) is an important interest for 
WTO Members, and especially for developing countr y Members, China argues that the enforcement 
                                                      
608 See paragraph 7.333. 
609 The Appellate Body in Mexico – Taxes on Soft Drinks  stated that "[A] measure that is not suitable or 
capable of securing compliance with the relevant laws or  regulations will not meet the 'necessity' requirement" 
(Appellate Body Report on Mexico – Taxes on Soft Drinks , para. 74). 
610 Appellate Body Report on Korea – Various Measures on Beef , para. 164. 
611 China's first written submission, paras. 210-211.  WT/DS339/R 
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  of negotiated tariff concessions, including whatever  effect they have on market access commitments, 
is also an important objective for Members, and especially for developing country Members.
612  
7.351  China contends that in comparison, the measures at issue have little or no restrictive impact 
on international trade:  as their only purpose is to en sure that the correct tariff rates are collected, the 
measures do not materially affect imports of automobil es or auto parts, other than in the respect that 
importers must pay the higher tariff rates for motor vehicles when they import collections of parts having the essential character of a motor vehicle.
613  China argues that the only auto manufacturers 
who are affected are those who assemble moto r vehicles in China from imported parts and 
components that have the essential character of a motor vehicle. 
7.352  China submits that the measures undoubtedly co ntribute to realizing China's legitimate 
interest in ensuring the enforceability of its tariff pr ovisions for motor vehicles.  China argues that the 
measures do so by ensuring that tariff classifica tions are based on the substance of what a 
manufacturer imports and assembles, not the form of the shipments.614 
                                                      
612 China's first written submission, para. 210, citing the Appellate Body Report on Dominican 
Republic – Cigarettes, para. 71; China's second written submission,  para. 171. Regarding the level of 
enforcement China seeks with respect to its tariff schedule, China submits that it seeks to ensure the uniform classification of parts and components that have the essential character of a motor vehicle, without regard to 
whether they enter China in one shipment or in multiple shipments (China's response to Panel question No. 
295). In this regard, the European Communities notes  that China's reference to "uniform" and "proper 
classification" is an attempt to distract from the fact that China has not yet demonstrated the proportionality of 
its measures (European Communities' comments on China's response to Panel question No. 295, referring to its 
second written submission, para. 146). 
According to China, proper classification of import entries is an objective that, by its nature, customs 
authorities seek to achieve in respect of all similar entries. 
613 China's first written submission, para. 213; Chin a's second written submission, para. 175.  To 
support its position, China refers to a news report that major auto manufacturers and auto parts manufacturers 
have noted that the measures have had little or no impact on their operations in China (China's first written 
submission, para. 213; China's second written submission,  para. 175, citing a news report by Reuters, "Fang 
Yan, Big car parts makers unfazed by China tax row , Reuters (15 May 2006)" (Exhibit CHI-33)).  Based on 
import statistics for auto parts from 2004 and 2006, which show that the total value of imported auto parts 
increased by 19.8 per cent, China submits  that the lack of any adverse impact on trade is evidenced most directly 
by this continued rapid growth of the import of auto parts into China (China's response to Panel question No. 
294, referring to the data obtained from  the China Automotive Industry Yearbook). 
614 China argues that the example of a vehicle model X illustrates both the importance of the interests 
furthered by the challenged measures, as well as the contribution that these measures make toward the 
realization of those interests (China's first writte n submission, paras. 211-212; China's second written 
submission, paras. 172-174); also referring to other motor vehicle models that are assembled in China from 
imported parts and components that have the essential char acter of a motor vehicle, a nd that are imported into 
China in multiple shipments (China's first written submission, para. 19; China's response to Panel question No. 116)).  China further submits that in the absen ce of the measures, auto ma nufacturers would evade the 
higher duty rates that apply to motor vehicles because of the manner in which they have structured their imports 
of parts and components for these and other vehicle models.  China also points to a specific circumstance, as referred to by the United States, in which a manufacturer previously imported parts in the form of CKD kits, but 
now imports nearly all of the same parts and compone nts in the form of multiple  shipments, which China 
considers is a situation of "splitting a CKD shipment into  two or more separate boxes" (China's second written 
submission, para. 173.  China refers to its response to Panel question No. 160 in which China provided the 
example of a vehicle model Y:  Acco rding to China, an automobile manu facturer Z previously assembled in 
China almost exclusively from imported CKD kits, but beginning in 2004, the number of CKD kits that the company Z imported for the model Y dropped dramatically, while its imports of auto parts surged.  By 2005, the 
company Z produced 38,600 automobiles of the model Y, and imported only 24 CKD kits for the model Y in WT/DS339/R 
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  7.353  The European Communities submits that China has not demonstrated that its measures 
serve to protect such interests and values as "preve ntion of tariff circumvention", "collection of tax 
revenues" and "enforcement of  negotiated tariff concessions".
615  In the European Communities' view, 
China has not demonstrated there is in reality a pr oblem of tariff circumvention or that its measures 
serve the collection of tax revenues or the enforc ement of negotiated tariff concessions.  Automobile 
manufacturers who import auto parts for their asse mbly into a motor vehicle in China do not 
circumvent any tariffs.  On the contrary, the meas ures disregard the negotiated tariff concessions by 
imposing charges in excess of what is  provided in China's tariff schedule.616  
7.354  The European Communities argues that the adop tion of Policy Order 8 in 2004 was followed 
by a dramatic fall of EC exports of auto parts to Ch ina:  in just a few months, exports dropped to 53 
per cent, and then to as low as 33 per cent of their May 2004 level.  Thereafter, exports of parts began 
to grow slowly and appear to have now stabilized at the level of May 2004617, which, according to the 
European Communities, must be considered ag ainst the booming Chinese demand and production of 
vehicles and the much steadier growth rates of EC  exports observed before May 2004.  The European 
Communities argues that a comparison between EC exports of auto parts and Chinese production of 
motor vehicles suggests that the adoption of Policy Order 8 prompted auto manufacturers to switch as 
quickly as possible to domestic parts suppliers in order to adapt to the local content requirements 
imposed by the measures.618  In comparison, recent industry an alysis suggests that Chinese companies 
are becoming increasingly aggressive and there are growing fears that with government support and 
incentives, foreign companies w ill eventually be sidelined.619 
                                                                                                                                                                     
that year.  China submits that as verified under the prov isions of Decree 125, the company Z continues to import 
seven out of the eight major assemblies for the production of the model Y).  China considers that while this is not the only circumstance in which customs authorities can respond to the evasion of higher duty rates that 
apply to a complete article, it is certainly a circumstance that is addressed by the challenged measures. 
615 European Communities' response to Panel questio n No. 293, also referring to its second written 
submission, para. 146. 
616 The European Communities points ou t that according to the negotiate d tariff concessions laid down 
in China's tariff schedule, imported auto parts should be charged at 10 per cent, and not – as the measures provide – at 25 per cent for the mere  reason that they are ma nufactured into vehicles with imported auto parts 
exceeding the thresholds se t out under the measures. 
617 European Communities' response to Panel question No. 294, referring to the graphics provided in 
Exhibit EC-37: the European Communities submits that the statistics for Chinese production of motor vehicles 
have been obtained from the website of the National Bureau of Statistics of China (http://www.stats.gov.cn/english/statiscaldata/index.htm). 
618 The European Communities submits that this resulted in a reduction of EC auto parts' market share, 
which now seems to have become permanent as evidenced by the steady gap between the two curves.  China submits in its comments on the complainants' responses to Panel question No. 294 that the European 
Communities' claim that the measures have had an impact on its exports of auto parts to China suffers from a 
basic flaw of logic and causation:  Policy Order 8, by itself, did not impose any obligations on auto manufacturers, or have any impact on the classification and assessment of duties on motor vehicles or parts of 
motor vehicles.  Rather, it was not until the adoption of Decree 125 in April 2005 that the measures could have 
had any conceivable impact on sourcing decisions.  China further argues that the European Communities' exports of auto parts to China, however, resumed their upward trend in early 2005, as the European 
Communities' own data illustrate, just as Decree 125 took effect (referring to European Communities' second 
written submission, para. 146).  Since that time, the value of EC auto part exports to China has reached record heights, reaching its highest point as recently as March 2007, according to the European Communities' own 
data.  China submits that this is hardly consistent with the proposition that the challenged measures have had an 
adverse impact on trade. 
619 Referring to an article entitled "Asian Automotiv e Industry Forecast Report , Volume I" by Global 
Insight (August 2006, Exhibit EC-38), in particular the last bullet point in page 3, the European Communities  WT/DS339/R 
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  7.355  The European Communities submits that the measures can only be justified under 
Article XX(d) if they are necessary to secure comp liance with the 25 per cent tariff duty on complete 
vehicles.
620  However, the measures are not suitable to en force China's tariff sche dule since they in the 
overwhelming majority of cases impose a 25 per cent  duty where there is no import of a complete 
vehicle, which is at variance with China's tariff schedule. 
7.356  The United States  argues that the asserted rationale of the measures does not match the scope 
of the measures.621  Instead, the measures sweep broadly to cover all imports of bulk parts for 
manufacturing purposes, not just instances of CKDs sp lit into two separate shipments.  Therefore, in 
the United States' view, the measures are not necessa ry to secure compliance with China's provisions 
for motor vehicles because they are drastically broa der in scope than measures intended to stop such 
types of "evasion" alleged by China. 
7.357  Canada submits that the measures do not protect important common interests or values 
because there is no known concept of "circumven tion" as it applies to ordinary customs duties.622  
According to Canada, even if China could show ev idence of tariff arbitrage, and even if such a 
practice were improper, the vital interest at stake would be some limited amount of revenue that China 
claims it should receive.  China has not, for example,  indicated any safety concerns with foreign auto 
parts, only that those parts are escaping higher duties. 
7.358  According to Canada, the measures are significan tly trade-restricting, in that they do not 
target isolated incidents, but impose blanket cove rage on all imported auto parts based on arbitrary 
thresholds that presume tariff arbitrage in all instances.623  Canada argues that both the internal charge 
and the administrative burden placed on vehicle and pa rts manufacturers that use imported auto parts 
discourage the importation of such parts because vehicle manufacturers cannot risk using imported 
                                                                                                                                                                     
submits that the risks for foreign investors are growing.   Furthermore, the European Communities contends that 
China's choice of reference pe riods (i.e. 2004-2006) in its response to the Panel question No. 294 is vitiated by 
the fact that Policy Order 8 was announced in May 2004, which was followed by a dramatic reduction of EC 
exports of parts to China as shown in Exhibit EC-37 (-60 per cent between May and December 2004) (European 
Communities' comments on China's response to Panel question No. 294). The European Communities argues that the 19.8 per cent growth of imports of parts should be compared with the growth of Chinese production of 
automobiles (i.e. an increase of 46.8 per cent between 2004 and 2006) (European Communities' comments on 
China's response to Panel question No. 294:  the European Communities explains that according to the 
calculations based on data from China's Statistics bureau, China produced 5,186,400 cars in 2004, and 
7,611,500 cars in 2006, which gives an increase of 46.8 per cent, more than double the growth in parts imports.  The European Communities submits that these figures were  obtained by adding the monthly figures contained in 
Exhibit EC-36 ("Percentage in the value of a complete vehicle of combination of imported parts representing 60 
per cent of the value of an assembly").  The European Communities further adds that as explained in the exhibit, data for January and December 2006 ar e not available and were inferred as the average of the values for the 
previous and following months.  Even limiting production of cars in 2006 to the 10 months for which data are 
available (February to November 2006), this would add up to 6,361,300 units, i.e. an  increase of 22.7 per cent 
compared to 2004), which shows that more and more pa rts are sourced from local suppliers.  The European 
Communities submits that a more detailed analysis of the effects of the measures on the basis of monthly data, 
considering the relation between imported parts and Chinese production of cars, shows that Chinese production of cars grew between the announcement of Policy Order 8 and the last comparable figures (March 2007) by 101 
per cent, while EC exports of auto parts grew only by 18 per cent (European Communities' comments on 
China's response to Panel question No. 294, referring to the second graph of Exhibit EC-37). 
620 European Communities' second written submission, para. 146. 
621 United States' response to Panel question No. 293, referring to its response to Panel question 
No. 280. 
622 Canada's second written submission, paras. 98-99. 
623 Canada's second written submission, para. 100; response to Panel question No. 294. WT/DS339/R 
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  parts over the arbitrary thresholds under the meas ures due to the price sensitivity of the Chinese 
market.
624 This factor forces companies to carefully plan to avoid importing parts at levels that 
approach the threshold limit and also requires auto parts manufacturers that import auto parts to sign 
contracts with vehicle manufacturers guarant eeing that only domestic parts are supplied.625 
7.359  Canada argues that the measures make little or  no contribution to the objective of complying 
with China's tariff schedule and China has failed to show that there is even a problem that needs 
enforcing.626  In Canada's view, the problem alleged by China is that importers are evading tariff 
commitments, namely avoiding paying one tariff rate in favour of another, by splitting shipments that 
otherwise would have arrived at th e border together and properly be classified as motor vehicles into 
multiple shipments.  China does not explain why impor ters cannot take advantage of tariff rates that 
are mutually agreed to by Members and that in any event, China has presented no evidence that this is 
happening.  Instead, the measures simply presume that  there is tariff avoidance in all instances where 
imported parts (including those imported by third parties) pass the thresholds under the measures.627  
Canada submits that since there is  no legal foundation to the claim that  tariff arbitrage is improper and 
there is no real evidence that this arbitrage, even if styled as "tarif f evasion", actually occurs with any 
frequency, let alone with any intent, the measures ca nnot contribute to rectifying a problem that does 
not exist. 
7.360  The Panel recognizes that yielding revenues by collecting legitimate tariff duties imposed on 
imported goods is an important interest for WTO Members.  In fact, tariff duties imposed under a 
Member's schedule serve to, inter alia , raise revenues for the importing government.  In our view, the 
importance of a fiscal interest pursued by a Member, such as the interest (revenue collection) pursued 
                                                      
624 Canada submits that to the extent the Panel n eeds to make a factual finding on the trade impact 
brought by the measures, it is an inference that can ea sily be drawn (Canada's response to Panel question No. 
294); Canada also refers to the Appellate Body's statement in Canada – Aircraft  , "[C]learly, in our view, the 
Panel had the legal authority and the discretion to draw inferences from the facts before it…" (Appellate Body 
Report on Canada – Aircraft , para. 203).  With respect to the eff ect on parts manufacturers outside China, 
whose imports are those discriminated against by the measures, Canada notes that the Canadian Auto Parts Manufacturers' Association specifically indicated its concern about the measur es, reflecting the effect they have 
had on trade ( Automotive Parts Manufacturers' Association News, "President's Message: Driving Canada's 
Future", page 2, November 2006 (Exhibit CDA-45)). 
625 Canada also refers to statements by Chinese bu siness people after the entry into force of the 
measures to support its position:  For example, a director of China Automotiv e System, a Chinese-owned 
company and one of the largest auto parts suppliers in Chin a, referred to one of the pillars supporting the growth 
of auto parts production in China being the government policy that requires local content (i.e. the measures), 
noting that "[t]hey really boost the sales for China auto part markers" ("China Automotive Systems, Roth Capital Conference, Presentation Tran script, 21 February 2007 (http://chi na.seekingalpha.com/article/277000) 
(Exhibit CDA-46)," referred to in Canada's response to Panel question No. 294); and, an analyst from Global 
Insight, in a July 2006 article discussing the auto industry  in China, noted that the measures have already had a 
big impact on some luxury brands with low production volumes, citing a stop in production of Cadillacs by GM 
in particular, and stating that other vehicle manufacturers "may follow in its footsteps" ( Assembly Magazine , 
"The Great Race", 1 July 2006 (Exhibit CDA-47), referred to in Canada's response to Panel question No. 294). 
626 Canada's second written submission, paras. 93-97. 
627 Canada's second written submission, para. 93 and foot note 106:  In Canada's view, China is required 
to show, not assume, large-scale evasion of tariffs by importers of auto parts to justify the measures, rather than presume that any time imported parts are shipped separately the purpose is to evade duties (Canada's second 
written submission, para. 95, referring to the company Z and other examples submitted by China in China's first 
written submission and China's responses to Panel question Nos. 12(a), 77 and 160.  Canada submits that these examples simply show general import statistics and refer to the number of cases where parts have been 
characterized as complete ve hicles under the measures).  WT/DS339/R 
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  by China in the present case, must be carefully we ighed against its impact on trade and the degree of 
contribution the measures make to the achievement of that interest. 
7.361  In this regard, logically speaking, given our finding above that China has not proved specific 
actions considered inconsistent under its tariff schedule that n eed to be prevented through the 
measures, the measures cannot be considered as c ontributing to the achievement of the objective 
allegedly pursued by the measures.  However, even  if we were to assume for a moment that the 
measures could be considered as enforcing its tariff provisions for motor vehicles, for example, by 
preventing importers from falsely declaring or documenting their imports
628, the scope of the 
measures is too broad to be viewed as necessary for th e prevention of such an action.  As examined in 
the previous section, the measures encomp ass even a situation where automobile 
manufacturers/importers use imported auto parts for their assembly into motor vehicles in the normal 
course of their business operations without any inten tion to avoid the higher tariff duties imposed on 
motor vehicles, let alone any intention to falsely declare or document the specific content of 
importation.  In our view, this is far more than what is necessary to enforce China's tariff provisions 
for motor vehicles.629   
7.362  The evidence before us also shows that the time necessary for some of the administrative 
procedures required for the imposition of the charge can take up to a couple of years.630  In addition, 
we are also of the view, based on the availabl e evidence on the record, that the measures do not 
necessarily correspond to the commercial realities of the modern automobile and auto parts industries.  
The evidence overall illustrates that the economic rea lity of the automotive industry is that auto parts 
have become more standardized and thus can be interchangeably used among different vehicle 
models.  In particular, by sharing platforms631, parts, and components for various vehicle models, 
automobile manufacturers appear to have increas ed the number of vehicle models produced from 
common parts and components and thereby realize ec onomies of scale.  For example, one approach 
widely adopted by automobile manufacturers is th e platform strategy in which common components 
                                                      
628 We recognize in our finding above that China has not proved that this is an action considered 
inconsistent under China's tariff schedule.  However, if this  were to be considered as an action inconsistent with 
China's tariff schedule, the measures  would seem to prevent such an ac tion, not because the measures are 
designed specifically to prevent such an action, but because the broad scope of the measures happens to 
encompass various types of actions described by China, including importers' false declaration and 
documentation of imported goods.  In this regard, we note a finding by the Panel in Canada – Periodicals 
useful:  "Tariff Code 9958 cannot be regarded as an enforcement measure for Section 19 of the Income Tax Act.  
It is true that if a government bans imports of foreign periodicals with advertisements directed at the domestic market, as does Canada in the present case, the possibility of non-compliance with a tax provision granting tax 
deductions for expenses incurred for advertisements in domestic periodicals will be greatly reduced.  It would 
seem almost impossible for an enterp rise to place an advertisement in a foreign periodical b ecause there would 
be virtually no foreign periodical available in which to place it.  Thus, there would be no way for the enterprise 
legally to claim a tax deduction therefore.  However, that is an incidental effect of a separate measure distinct 
(even though it may share the same policy objective) from the tax provision which is designed to give an incentive for placing advertisements in Ca nadian, as opposed to foreign, periodicals.  ..." (para. 5.10) (original 
footnote omitted). 
629 As Canada submits, the measures do not target isolated incidents, but impose a blanket coverage on 
all imported auto parts based on arbitrary thresholds that presume tariff arbitrage in a ll instances (Canada's 
second written submission para. 100). 
630 The European Communities' responses to Panel question Nos. 8 and 171; Exhibit EC-26.  See 
paragraphs 7.62-7.65 above. 
631 Initially, a platform referred to a shared chassis,  but now refers to a shared set of components 
common to a number of different automobiles, in pa rticular the chassis, the steering mechanisms and 
suspensions ( Wikipedia, the free encyclopedia , "Automobile platform", http://en.wikipedia.org/wiki/Automobile 
platform (Exhibit EC-12)). WT/DS339/R 
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  are shared whenever possible between different vehicles models.
632  Automotive industry reports also 
indicate that platforms can be used with a variety of automobiles in the same family resulting in a 60 
per cent to 70 per cent share of common parts.633  Regarding China's argument that the degree of 
commonality among auto parts and components is very lo w, we agree to the exte nt that evidence also 
shows that the interchangeability of  some auto parts remains limite d because of the specific function 
or performance such parts are used for.634  However, based on the evaluation of the evidence 
presented by the parties, we conclude that not withstanding some variance in the degree of 
interchangeability, auto parts have been sufficiently standardized so that identifying a specific vehicle 
model into which certain auto parts will be inco rporated would prove unnecessarily trade restrictive. 
7.363  Further, the European Communities submits that China has failed to consider less 
burdensome means to secure compliance with its  tariff schedule, although China could have 
employed many reasonably available alternatives, for example, by investigating only individual 
instances of alleged evasion under its customs laws, instead of imposing charges under the measures 
on all imported auto parts that are assembled into vehicles that do not satisfy the thresholds set out 
under the measures.635  China argues that the question of tariff evasion, in the present context, is one 
of ensuring the correct classification of what is  imported, and one important objective of customs 
classification is to achieve the same classification of an article whenever it is imported.636  To achieve 
this uniformity of classification, the same classificat ion results should apply in all like circumstances, 
not only in those cases in which customs authoriti es dedicate the necessary resources to investigate 
specific import entries.  According to China, this is why the measures cannot be limited to "individual 
instances", as the objective of the measures is to ensure the consistent classification of parts and 
components that have the essential character of a motor vehicle, in all cases.637  
                                                      
632 The exhibits before us show that numerous automobile manufacturers have implemented platform 
standardization:  (i) Ford, for example, uses its EUCD platform on which five different current models and five 
future models (Volvo, Ford, Jaguar) are based (Exhibit EC-15); (ii) Ford implements a globally-used engine series in module production for Ford North America, Fo rd Europe, Matsuda and Jagu ar (Exhibit CDA-33); (iii) 
GM and Ford developed jointly a new six-speed automatic transmission for use in models produced by both 
companies (Exhibit CDA-34); and (iv) Volkswagen has used its D platform for large luxury automobiles under the Volkswagen, Audi, and Bentley brands (Exhibit EC-21). 
633 Exhibits EC-24, 25. 
634 China's reference to the lack of interchangeability of strut suspension system for a derivative of the 
VW Passat B6 and for the VW Sagitar refers to the dis tinct performances and sizes of the vehicles (Exhibit 
CHI-46). 
635 European Communities' second written submission, para. 146. 
636 China's second written submission, para. 176; China's response to Panel question No. 296. 
637 China's response to Panel question No. 296. Further, China submits that in the absence of the 
measures, China would have essentially no mechanism for determining whether multiple shipments of parts and 
components are related to each other through their common assembly into a single article.  In other words, there 
is no basis to investigate and determine whether any given shipment of auto parts and components results in the evasion of China's tariff provisions for motor vehicles.  It is this lack of transparency  into the commercial reality 
of what an auto manufacturer is importing that  the challenged measures seek to remedy. 
The European Communities submits in its comments on China's response to Panel question No. 296, 
that "acts of customs evasion, the danger of which China has still not demonstrated, would by their nature be 
individual acts.  Therefore, it would be possible for China to ensure the 'uniform classification' of vehicles and 
parts through individual investigation.  China's reference to the possibly limited resources of its customs authorities cannot justify otherwise disproportionate measur es.  Furthermore, China has not demonstrated why it 
needs a 'mechanism for determining wh ether multiple shipments of parts an d components are related to each 
through their common assembly into a single article'.  In  the view of the EC, a 'mechanism' creating fictions 
such as the ones contained in the measur es is not suitable, necessary or proportionate to further the objective of 
uniform customs classification."  WT/DS339/R 
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  7.364  As the European Communities submits
638, however, China's arguments relating to the 
availability of other WTO-consistent alternative measures are premised on its own definition of the 
actions considered inconsistent unde r its tariff schedule, which China has failed to prove.  To that 
extent, we agree that China has not explained why investigating individual cases as the need arises 
cannot serve as an alternative to the measures, if, as we assumed above, the measures were to be 
considered as securing compliance with China's tari ff schedule in certain limited circumstances.  
Therefore, considered against the trade-restrictiven ess of the measures with respect to imported auto 
parts as well as an alternative measure seemingly av ailable to China, we conclude that China has 
failed to prove that the measures are "necessary" to  secure compliance with China's tariff schedule. 
(d) Conclusion  
7.365  In light of the foregoing, we find that Chin a has not demonstrated that the measures are 
justified under Article XX(d).  Therefore, it is not necessary for the Panel to examine whether the 
measures satisfy the requirements under the chapeau of Article XX. 
C. TRIM S AGREEMENT  
7.366  The complainants  argue that the measures are in violation of Article 2 of the TRIMs 
Agreement, which prohibits the use of trade-relate d investment measures inconsistent with Articles 
III:4 and/or XI:1 of the GATT 1994.639 
7.367  China  responds that because the measures are border measures, they fall outside of the scope 
of Articles III:4 and XI:1 of the GATT 1994 and con sequently also outside the scope of the TRIMs 
Agreement. 
7.368  We recall our findings above at paragraph 7.2 72 that China has acted inconsistently with 
Article III:4 of the GATT 1994.  We consider that these findings are sufficient for the resolution of the dispute brought before us by the complainants.  Consistent with previous panels which have faced 
similar claims, in particular those on Canada – Autos  and India – Autos
640, we also take the view that 
bringing the measures into conformity with China' s obligations pursuant to our findings under Article 
III:4 of GATT 1994 would also remove any incons istency of those measures with the TRIMs 
Agreement.  We therefore exercise judicial economy  in respect of the complainants' claims under the 
TRIMs Agreement. 
D. ARTICLE  II OF THE GATT 1994 
7.369  We found in Section VII.B.1 that China's measure s impose an internal charge inconsistently 
with Article III:2 of the GATT 1994. 
                                                      
638 The European Communities submits that China's position that no other alternatives are available to 
achieve the objective under its tariff schedule is based on  its mistaken belief that a mechanism such as one under 
the measures is necessary for determining whether multi ple shipments of parts and component are related to 
each other through their common assembly into a moto r vehicle (European Communities' comments on China's 
response to Panel question No. 296). 
639 All three complainants have made their claims un der Article 1(a) of the Illustrative List of the 
TRIMs Agreement, and the European Communities and the United States have also made claims under Article 
2(a) of the Illustrative List.  However, the United States clarified in response to a question from the Panel that 
the United States was not pursuing its claim under Article 2( a) of the Illustrative List (United States' response to 
Panel question No. 165). 
640 Panel Report on Canada – Autos , para. 10.91 and Panel Report on India – Autos , para. 7.324. WT/DS339/R 
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  7.370  The complainants have made an alternative claim under Article II of the GATT 1994 in the 
event the Panel finds that the charge under the me asures constitutes an ordinary customs duty.  The 
complainants submit that even if the charge were to be considered as an ordinary customs duty, the 
charge is still in violation of Article II:1(b) because it is imposed in ex cess of the concessions made 
by China under the relevant tariff headings for au to parts of China's Schedule of Concessions.  China 
argues that the charge is an ordinary customs dut y imposed in accordance wi th China's commitments 
under its Schedule of Concessions.   
7.371  In this section, we will examine the complain ants' alternative clai m under Article II with 
respect to the charge imposed under the measures on auto parts imported in multiple shipments for the 
assembly of motor vehicles in China and charact erized as motor vehicles based on the criteria 
provided in the measures.
641   
7.372  For the purpose of this consideration, we w ill first examine the multiple shipment aspect of 
the measures, i.e. whether, under China's Sche dule of Concessions, the tariff provisions for motor 
vehicles include in their scope auto parts imported separately in multiple shipments that are found to 
have the essential character of a motor vehicle b ased on their assembly into a motor vehicle.  Then, 
we will examine whether the criteria set out in  the measures, mainly Articles 21 and 22 of 
Decree 125, for the essential character of a motor vehicle are compatible with China's concessions 
under its Schedule of Concessions.  In this rega rd, the criteria for the essential character 
determination, if applied to importe d auto parts in a single shipment, can be considered as an element 
that would make the charge under the measures fall w ithin the scope of Article II:1(b) of the GATT. 
1. Treatment of auto parts under China's Schedule CLII 
7.373  China's Schedule of Concessions in relevant part provides as follows:642 
                                                      
641 For the same reasons the Panel identified in Canada – Dairy, we note that the following elements 
support our analysis of the complainants' alternative claim: (i) all the complainants made an alternative claim under 
Article II of the GATT 1994; (ii) the complainants and China disagree on wh ether the measures are consistent with 
Article II of the GATT 1994 in the event the charge would fall within the scope of Article II of the GATT 1994; 
(iii) the precise borderline between Articles III:2 a nd II of the GATT 1994 may not always be clear-cut; (iv) if our 
finding under Article III:2 would be reversed, the Appellat e Body could be called upon to examine the claims 
made under Article II, which would require a complex fact ual assessment and the weighing of evidence submitted 
by the parties to this dispute, an exercise which coul d go beyond the jurisdiction of the Appellate Body and make it 
impossible for the DSB to provide recommendations and rulings on all legal claims within the time-frame 
prescribed by the DSU; ( v) if the DSB adopts our findings on Article III, the DSU's declared objectives of 
"prompt settlement" of disputes (Article 3.3 of the DSU), of a "satisfactory settlement of the matter in 
accordance with the rights and obligatio ns under [the DSU] and the covered agreements" (Article 3.4 of the 
DSU), of "a positive solution to a dis pute" (Article 3.7 of the DSU) and of  "effective resolution of disputes to 
the benefit of all Members" (Article 21.1), may be facilitated if the parties would have at their disposal the 
Panel's examination of the matter under Article II of the GATT 1994. 
642 China submits that it is sufficient, for purposes of this proceeding, to assume that the tariff rate 
applicable to motor vehicles is 25 per cent, and that th e tariff rate applicable to parts and assemblies of motor 
vehicles is 10 per cent (China's first written submission, para. 15).  The complainants submit that the final bound 
rate for auto parts is 10 per cent, while it is generally 25 per cent for whole vehicles, and the 25 per cent charge is effectively a payment of the 10 per cent bound parts rate plus an additional 15 per cent.  In certain cases the 
amount may be as much as 12 ½ times more, such as for the HS code 84099991 (parts for engines with an 
output of greater than 180 hp), where the Schedule commits China to a bound rate of 2 per cent, but a 25 per cent charge could be imposed if the measures apply (Part D.1 of the Factual Background Section jointly 
submitted by the complainants; also Exhibit JE-2).  WT/DS339/R 
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   Tariff headings for motor vehicles Bound tariff rates 
87.02 Motor vehicles for the transport of ten or more persons, 
including the driver Final bound rate of 25% 643 
87.03 Motor cars and other motor vehicles principally designed 
for the transport of persons, other than those under 
heading 87.02, including station and racing cars Final bound rate of 25%  
87.04 Motor vehicles for the transport of goods Final bound rates of 6%, 15%, 
20%, 25% 
87.06 Chassis fitted with engines, for the motor vehicles of 
headings Nos. 8701 to 8705  Final bound rates of 10%, 20% 
87.07 Bodies (including cabs), for the motor vehicles of 
headings Nos. 8701 to 8705 Final bound rate of 10% 
87.08 Parts and accessories of the motor vehicles of headings 
Nos. 8701 to 8705 Final bound rates of mostly 
10%644  
84.07 Spark-ignition reciprocating or rotary internal combustion 
piston engines (Reciprocating piston engines of a kind 
used for the propulsion of vehicles of Chapter 87) Final bound rate of 10%645 
84.08 Compression-ignition internal combustion piston engines 
(diesel or semi-diesel engines) (Engines of a kind used for 
the propulsion of vehicles of Chapter 87) Final bound rates of 5%, 5.4%646  
 
7.374  China's Schedule of Concessions, as  summarized in the table above with respect to the most 
relevant tariff headings in this case, provides separ ate tariff headings for motor vehicles, intermediate 
categories (so-called assemblies) of auto parts, and parts and components of motor vehicles: the tariff 
rates applicable to auto parts and components a nd assemblies (10 per cent on average) are lower than 
those applicable to complete motor vehicles (25 per cent on average).  China's Schedule does not 
contain any specific terms or qualifications concerning the tariff headings at issue.  The complainants 
claim that China's measures impose ordinary custom s duties on imported auto parts in excess of those 
set forth in China's Schedule inconsistently with the obligations under Article II:1(a) and (b) of the 
GATT 1994. 
7.375  Article II:1 of the GATT in relevant part provides: 
"(a) Each contracting party shall accord to the commerce of the other contracting 
parties treatment no less favourable than that  provided for in the appropriate Part of 
the appropriate Schedule anne xed to this Agreement. 
(b) The products described in Part I of  the Schedule relating to any contracting 
party, which are the products of territories of other contracting parties, shall, on their 
                                                      
643 In China's Schedule CLII, a final bound tariff rate of 4 per cent is indicated in tariff heading 
9802.1020 (Exhibit JE-2). 
644 A final bound tariff rate of 15 per cent is indicated for tariff heading 8708.6020 and 25 per cent for 
tariff headings 8708.9920 and 8708.9940. 
645 A final bound tariff rate of 8 per cent is indicated for tariff headings 8407.2100 and 8407.2900. 
646 Also, for certain tariff headings and sub-headings, 9-25 per cent are indicated as bound rates at date 
of accession. WT/DS339/R 
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  importation into the territory to which the Sc hedule relates, and subject to the terms, 
conditions or qualifications set forth in that Schedule, be exempt from ordinary 
customs duties in excess of t hose set forth and provided therein.  Such products shall 
also be exempt from all other duties or charges of any kind imposed on or in 
connection with the importation in excess of those imposed on the date of this Agreement or those directly and mandator ily required to be imposed thereafter by 
legislation in force in the importing territory on that date." 
7.376  The ultimate question before us is therefore whether under the measures, imported auto parts 
are subject to an ordinary customs duty in excess of China's concessions contained in the relevant 
tariff headings of China's Schedule so as to vi olate the first sentence of Article II:1(b), and 
consequently Article II:1(a) of the GATT 1994 fo r according less favourable treatment to imported 
auto parts than China's concessions under China's Schedule.
647 
2. Treatment of auto parts under China's measures – multiple shipments  
7.377  Under the measures, auto parts are classified and assessed at the tariff rates applicable to 
motor vehicles once they are assembled into a motor vehicle in China and meet certain thresholds set 
out in the measures, even if such auto parts are imported separately in multiple shipments.648  The  
complainants argue that the measu res are in violation of Article II:1(b) of the GATT 1994 since they 
impose on auto parts imports ordinary customs du ties (25 per cent on average) that exceed China's 
concessions for auto parts (10 per cent on average) unde r its Schedule.  China argues that it must be 
able to interpret the tariff headings for motor vehi cles in a manner that gives them meaningful effect 
and collect duties applicable to motor vehicles.  Auto parts imported in multiple shipments therefore 
must be counted together for the assessment of wh ether they have the essential character of a motor 
vehicle.  The question before us is therefore whether the tariff provisions for motor vehicles of 
China's Schedule of Concessions are interpreted to include auto parts imported separately in multiple 
shipments for domestic assembly, if such parts woul d have the essential character of a motor vehicle 
had they been imported in a single shipment.649 
(a) Interpretation of China's Schedule of Concessions 
7.378  Pursuant to Article 3.2 of the DSU and follow ing the approach adopted by panels and the 
Appellate Body in previous cases650, we will interpret China's Sche dule of Concessions in accordance 
with the interpretive rules under the Vienna Convention . 
(i) Ordinary meaning of the tariff term "motor vehicles"651 
7.379  As examined in Section VII.E concerning the pa rties' claims with respect to CKD and SKD 
kits, the ordinary meaning of "motor vehicles" is  limited in providing guidance on the interpretation 
of the tariff headings at issue:  the dictionary defi nitions of the terms do not indicate whether the tariff 
headings for motor vehicles are interpreted to in clude auto parts and components imported in multiple 
                                                      
647 Also see Panel Report on EC – Chicken Cuts (Brazil) , paras. 7.54, 7.79-7.80, 7.87-7.94.  We agree 
with the interpretative task as framed by the Panel in EC – Chicken Cuts  regarding a Member's commitment 
contained in its Schedule of Concessions and consequently its obligations under Article II:1 of the GATT 1994. 
648 See paragraphs 7.67-7.69 above. 
649 As noted above in paragraph 7.371, we examine th e essential character test under China's measures, 
i.e. Article 21(2) and (3), in Section VII.E below. 
650 See paragraph 7.652 below. 
651 See paragraphs 7.653-7.657 below.  WT/DS339/R 
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  shipments that can be considered as having the essen tial character of a motor vehicle had they been 
imported altogether.  Thus, we turn to the context of the tariff term "motor vehicles". 
(ii) Context
652 for the tariff term "motor vehicles" 
Other terms in the tariff headings for motor ve hicles and other tariff headings in Chapter 87  
7.380  The European Communities  submits that when examined in the context of other terms in the 
tariff headings for motor vehicles (87.02, 87.03 and 87.04)653 as well as other terms under the tariff 
headings such as 87.06, 87.07, 84.07 and 84.08, there is nothing that supports the view that parts or some parts for motor vehicles could be classified  under the relevant headings covering complete 
motor vehicles.
654  The European Communities submits that th ere is a very clear distinction between 
the terms of the headings for complete motor vehi cles, parts thereof and the intermediate categories 
between motor vehicles and parts under Chapter 87 of China's Schedule.655 According to the 
European Communities, there is nothing in the tariff headings for motor vehicles (e.g. 87.02-87.04) or 
headings for parts (87.06-87.08, 84.07-84.09 and 85.03) that would even remotely suggest that auto 
parts for complete motor vehicles should be classifi ed under the tariff headings for motor vehicles.656 
7.381  China  has not provided any direct counter arguments in this regard.  Instead, China submits 
that the context of GIR 2(a) is required in interpre ting the term "motor vehicles" and that Explanatory 
Note (VII) to GIR 2(a) provides further context. 
7.382  The Panel observes that other terms under tariff head ings 87.02, 87.03 and 87.04 describe the 
purpose of vehicles falling under each heading, such as  the transport of "persons" or "goods". Nothing 
in the terms of these headings suggests, however, th at parts of complete motor vehicles are classified 
under the same headings for motor vehicles.  If anyt hing, these terms appear to confine the scope of 
the headings to complete motor vehicles, since part s and components of motor vehicles, by definition, 
cannot perform the functions described under each heading such as transporting persons or goods. 
Harmonized System657 
General Interpretative Rules for the HS :  relationship between GIRs 1 and 2 
7.383  At the outset, we note that China 's position concerning the interpretation of the tariff term 
"motor vehicles" hinges upon the application of GI R 2(a) – namely, that GIR 2(a) allows parts 
imported in multiple shipments and assembled later in to a motor vehicle to be classified as a motor 
vehicle if they have the essential character of a motor vehicle.   
7.384  The complainants  do not dispute the fact that the GIR is one of the rules comprising the HS 
and thus could be in principle relevant to the inte rpretation of China's tariff schedule, but emphasize 
that GIR 2(a) can be relevant only after applying GIR 1.658 
                                                      
652 See paragraphs 7.662-7.667 below. 
653 Although the European Communities has submitted th at other terms in the relevant tariff headings 
are relevant context for the term "motor vehicles", it has not provided specific arguments regarding other terms 
in these headings to support its position that the meaning of motor vehicles as provided in China's concessions does not include anything other than complete motor vehicles. 
654 European Communities' first written submission, para. 250. 
655 European Communities' second written submission, paras. 78-79. 
656 European Communities' second written submission, paras. 81-89. 
657 See paragraphs 7.663-7.667. WT/DS339/R 
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  7.385  GIR 1 provides: 
"The titles of Sections, Chapters and sub-Ch apters are provided for ease of reference 
only: for legal purposes, classification shall be determined according to the terms of 
the headings and any relative Section or Ch apter Notes and provided such headings or 
Notes do not otherwise require, according to the following provisions." 
7.386  The Secretariat of the World Customs Organization ("WCO Secretariat")
659 explains 
that based on the language of GIR 1, all the rules in GIR should be consulted when classifying articles 
in the HS.660  This means that GIR 2 must always be considered, in conjunction with GIR 1, provided 
the headings and legal notes do not otherwise require .  The WCO Secretariat further explains that 
"provided the headings and legal notes do not ot herwise require" means that a heading providing 
specifically for a collection of unassembled parts or an incomplete article would prevail by application of GIR 1 because GIR 2 would not appl y (that is, because such headings or Notes ... 
otherwise require).  The WCO Secretariat consider s that tariff headings 87.06 and 87.07 would be 
examples of such an understanding.   
7.387  Further, according to the WCO Secretariat, this  principle is expounded in Explanatory Note 
(V) to GIR 1: 
"In provision (III)(b), the expression "provi ded such headings or Notes do not 
otherwise require" is intended to make it quite clear that the terms of the headings and 
any relative Section or Chapter Notes are paramount, i.e., they are the first 
consideration in determining classification.  For example, in Chapter 31, the Notes 
provide that certain headings relate only to particular goods.  Consequently those 
                                                                                                                                                                    
 
658 Reponses of the European Communities and Canada to Panel question No. 114; complainants' 
responses to Panel question No. 208.  Canada 's response to the Panel question No. 114 is based on a caveat that 
GIR 2(a) is broadly relevant to the extent it may apply, in certain limited instances, within the HS to interpreting 
China's Schedule and that GIR 2(a) is not context on its own, but can be taken into consideration after applying 
GIR 1.  Canada agrees that Members have the discretion to classify parts which have the essential character of 
the finished good either as parts or as the finished good, in accordance with the rules of the HS, including GIR 
2(a) (Canada's response to Panel question No. 208, also referring to its second written submission, footnote 77).  
The European Communities  submits that the overwhelming majority of tariff classification situations are 
decided on the basis of GIR 1, which is the backbone of the application and interpretation of the HS and hence 
the tariff schedules of most WTO Members such as China.  The European Communities is of the view that there is a clear hierarchy between the rules, and that if the cl assification can be determined according to the terms of 
the headings and any relative Section and Chapter notes, other rules are simply not applicable. The European 
Communities submits that the classification of auto parts can be determined on the basis of the terms of headings.  There is a very clear distinction between the terms of the headings for complete motor vehicles, parts 
thereof and the intermediate categories be tween motor vehicles and parts.  The United States  submits that 
China's measures are directly contrary to GIR 1, in par ticular because China under its  measures classifies auto 
parts as whole vehicles when the HS has headings specific to auto parts (United States second written 
submission, para. 39). 
659 In these reports, our reference to the comments  provided by the WCO means those provided by the 
WCO Secretariat, not the WCO Members.  To that extent , the Panel is not relying on or incorporating the WCO 
Secretariat's comments as the offici al view of the WCO Members.   
660 WCO's letter of 30 July 2007, page 1.  The WCO Secretariat explains that the words "and..., 
according to the following provisions" in GIR 1 requires that all the GIRs be  consulted when classifying articles 
in the HS.  WT/DS339/R 
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  headings cannot be extended to include goods which otherwise might fall there by 
reason of the operation of Rule 2(b)".
661 
7.388  The WCO Secretariat advises that although the application of the GIR is commonly explained 
as sequential, to be precise, when classification is by  GIRs 1 and 6, it does not mean that other GIRs 
have not been consulted.  Rather, it merely means that  application of the text of GIR 1, in particular 
the phrase, "provided such headings or Notes do not  otherwise require," makes GIR 2 inapplicable.662 
7.389  The Panel first notes that the text of GIR 1 indicates that the Contracting Parties to the HS are 
obliged to classify goods in accord ance with the terms of the headi ngs and any relevant Section or 
Chapter Notes and according to the provisions following GIR 1 (i.e. GIRs 2-6), provided the relevant 
tariff headings or Section or Chapter Notes do not otherwise require.  Based on the ordinary meaning 
of GIR 1, we consider that all the rules under the GIR, starting with GIR 1, are relevant for 
classification of goods.  This means, in our view, GIRs 2-6 should not be ignored simply because a good can be classified by applying GIR 1.  Such an  understanding would render the existence of other 
rules under the GIR and the phrase "and provided such headings or Notes do not otherwise require, 
according to the following provisions" inutile. As  commented by the WCO Secretariat and pointed 
out by the complainants, classification should be based , first, on the terms of the headings, relevant 
Section or Chapter Notes pursuant to GIR 1 and provided such headings or Notes do not otherwise 
require, according to the provisions of GIRs 2-6. 
7.390  The tariff headings concerned in the present case (87.02-87.05) do not have language that 
would make GIR 2(a) irrelevant for the classifi cation of auto parts under Chapter 87.  We also 
observe that the Notes to Section XVII to which Chapter 87 belongs do not contain any requirements 
that would restrict the Contracting Parties' reliance on other provisions in the GIR for classification.  
Further, the General Explanatory Notes to Chapter 87 provide that "[a]n incomplete or unfinished 
vehicle is classified as the corresponding complete  or finished vehicle provided it has the essential 
character of the latter (see Interpretative Rule 2(a))...".
663  The explicit reference in the General 
Explanatory Notes to the application of GIR (2)(a) shows that GIR 2(a) is applied, as necessary, for 
the classification of goods under the tariff headings in Chapter 87. 
7.391  Accordingly, we find that both GIR 1 and GIR 2 can constitute part of the context for the 
interpretation of the term "motor vehicles" in  the present case.  We will examine how these 
interpretative rules under the HS are applied to the interpretation of the tariff term "motor vehicle", 
bearing in mind that GIR 2(a) can only be applied in conjunction with GIR 1.664 
Application of GIR 2(a), in conjunction with GIR 1, to the tariff headings for "motor 
vehicles"  
7.392  As we have examined above, the terms of th e tariff headings under Chapter 87 do not suggest 
that the term "motor vehicles" must be interp reted to include auto parts imported in multiple 
                                                      
661 WCO's letter of 30 July 2007, pages 1 and 2. 
662 The WCO Secretariat further comments that a classification opinion promulgated by the HS 
Committee includes a statement of applicable GIRs, and the Committee now includes GIR 1 in every statement 
of applicable GIRs (other Section or Chapter Notes are sometimes also cited). 
663 The General Explanatory Notes to Chapter 87 further provide some examples of incomplete or 
unfinished vehicles that would be classified as the corresponding complete or finished vehicles by applying 
GIR 2(a).  These examples are (A) A motor vehicle, not yet fitted with the wheels or tyres and battery and (B) A 
motor vehicle not equipped with its engine or with its interior fittings. 
664 WCO Secretariat's letter of 20 June 2007, page 3. WT/DS339/R 
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  shipments for domestic assembly.  Nor do the Not es to Section XVII provide any guidance that would 
support such an interpretation.  We now turn to the principle of GIR 2(a). 
7.393  GIR 2(a) provides: 
"Any reference in a heading to an article sha ll be taken to include a reference to that 
article incomplete or unfinished, provided that, as presented , the incomplete or 
unfinished article has the essential character of  the complete or finished article.  It 
shall also be taken to include a reference to that article complete or finished (or 
falling to be classified as complete or finished by virtue of this rule), presented 
unassembled or disassembled." (emphasis added) 
7.394  China submits that the interpretive rules of GIR 2( a) result in a continuum of circumstances 
under which parts and components of an  article will be classified as th e complete article and that there 
is no clear separation between tariff headings for a complete article and tariff headings for the parts 
and components of that article.  Relying on GIR 2( a), China submits that the importation, in multiple 
shipments, of the parts necessary to assemble a co mplete motor vehicle is also the importation of a 
motor vehicle, not the parts of a motor vehicle, provided that the imported parts, when assembled, 
have the essential character of a motor vehicle. 
7.395  In particular, China argues that the term "as pr esented" in GIR 2(a) allows customs authorities 
to base a classification determination upon eviden ce that a shipment of parts and components is 
related to other shipments of parts and compone nts through their common assembly into a single 
article.
665  China is of the view that if the term "as pr esented" were limited to the contents of a single 
shipment, there would be no scope for the HS Contr acting Parties to apply the principles of GIR 2(a) 
to goods assembled from multiple shipments.   
7.396  China considers that the term "as presented" in GIR 2(a) is, on its own, susceptible to 
different interpretations when applied to unassemb led or disassembled articles that are imported in 
multiple shipments.  However, the conclusion th at the term "as presented" does not preclude the 
application of GIR 2(a) to multiple shipments of parts and components arises as a necessary implication of the interpretation of th e HS Committee Decision adopted in 1995.
666  China considers 
that in finding that the situations in paragraph 10 of the HS Committee Decision are applications of 
GIR 2(a) to be determined by each country in acco rdance with its national laws and regulations, the 
HS Committee must have considered that the term  "as presented" does not preclude these applications 
of GIR 2(a).667  The fact that the HS Committee has f ound that members of the HS may apply the 
                                                      
665 China's second written submission, paras. 34, 38, China's response to Panel question No. 110. 
666 China's response to Panel question No. 210(a).  China submits that "both of the circumstances 
referred to in paragraph 10 of the HS Committee Decision necessarily entail an applicati on of GIR 2(a) to 
classify parts and components that arrive in more than one shipment."  The HS Committee decision referred to by China is "Decision of the Harmonized System Committee, HSC 39.235 (HSC/15), Interpretation of General 
Interpretative Rule 2(a) (Annex IJ/7 to Doc. 39.600 E (HSC/16/Nov. 95)" as provided in Exhibit CHI-29.  
Paragraph 10 of this decision states: 
 
"10. The [HS] Committee decided, by 12 votes to none, to include the Nomenclature 
Committee's decision in its Report.  Thus, the Committee decided that the questions of split consignments and the classification of goods assembled from elements originating in or 
arriving from different countries are matters to be settled by each country in accordance with 
its own national regulations."  
667 China's response to Panel question No. 210(a).  WT/DS339/R 
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  principle of GIR 2(a) to goods assembled from multip le shipments can only mean that the term "as 
presented" is not limited to a single shipment. 
7.397  China submits that the HS Committee has interp reted GIR 2(a) specifically as it pertains to 
"the classification of goods assembled from elements originating in or arriving from different 
countries."
668  Given the interpretation adopted by the WC O, "as presented" should therefore be read 
to include "as presented in a customs declaration or  other documentary evidence," or "as presented in 
light of the facts and circumstances surrounding the import transaction".669 
7.398  The European Communities submits that when goods are classified in the HS, it is always 
done on the basis of the objective characteristics of th e product at the time of importation, that is, as 
imported and presented to customs on a shipment-by-shipment basis.670  According to the European 
Communities, the intentions of the importer and differing duty rates are irrelevant.   
7.399  Because there is no ambiguity on where complete vehicles, intermediate products and parts of 
complete vehicles should be classified under Chin a's tariff schedule, the European Communities 
argues that the other rules, in particular GIR 2(a) , on which China bases its entire defence strategy are 
simply not applicable at the level of the tariff headings and without considering a very specific 
shipment as presented to customs at the border.671  Specifically, the European Communities contends 
that GIR 2(a) is of extremely limited relevance for the present case, and recourse to GIR 2(a) can only be relevant in very specific individual cases "as presented" to customs where a given incomplete or unfinished article as presented to customs appears to have the essential character of the complete 
article, and not at the level of China's tariff schedules generally as China submits.
672  Further, the 
General Notes to Chapter 87 contain a specific applica tion of GIR 2(a) in the context of Chapter 87 (a 
"lex specialis "), namely the two examples provided therein.673  The European Communities considers 
China's interpretation of GIR 2(a) concerning multip le shipments and essential character of a motor 
vehicle as an unprecedented reading of GIR 2(a).674 
7.400  Regarding the term "as presented" in GIR 2(a), the European Communities submits that 
China's position amounts to nothing less than tariff classi fication at will and that there is no basis for  
the interpretation advanced by China.675  The European Communities is of  the view that the words "as 
                                                      
668 China's response to Panel question. No. 110. 
669 China's second written submission, para. 41; Chin a's responses to Panel question Nos. 110, 112.  
China submits that the HS Committee Decision falls within the scope of Article 31(3)(a) of the Vienna 
Convention – namely the scope of "any subsequent agreement between the parties regarding the interpretation of 
the treaty or the application of its provisions".  We under stand that this is related to China's view that the WCO 
has adopted the HS Committee's interpretation of GIR 2(a) , including paragraph 10, pursuant to Articles 7 and 8 
of the HS Convention. 
670 European Communities' second written submission, para. 73.  The European Communities submits 
that all parties and third parties to the dispute, except for China, who have submitted their arguments on 
Article II of the GATT 1994 share this  view.  The European Communities also refers to the Appellate Body's 
statement in EC – Chicken Cuts that "[w]e agree with the Pa nel that, in characterizing a product for purposes of 
tariff classification, it is necessary to  look exclusively at the 'objective char acteristics' of the product in question 
when presented for classification at th e border" (Appellate Body Report on EC – Chicken Cuts , para. 246). 
671 European Communities' second written submission, paras. 90, 94. 
672 European Communities' second written submission, para. 94. 
673 European Communities' second written submission, paras. 95, 96; and responses to Panel question 
Nos. 115, 139. 
674 European Communities' second written submission, para. 98. 
675 European Communities' second written submission, paras. 100, 104. WT/DS339/R 
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  presented" mean literally what they say and ar e merely a reflection of the basic principle
676 behind 
customs classification.677  In the European Communities' opi nion, it is clear from the ordinary 
meaning of the words and the reply from the WCO Secretariat that the concept does not and cannot 
cover "several moments" and "several places" , which are necessary preconditions for China's 
position.678  According to the European Communities, Ch ina's interpretation of GIR 2(a) renders the 
good "as presented" to mean, not the good presented to Customs, but the good that will be later 
manufactured in the customs territory  on the basis of elements that are imported at different times, in 
different places and from different countries.679   
7.401  Furthermore, the European Communities argues that the HS Committee Decision referred to 
by China does not support an interpretation that it al lows the Members to apply the principle of GIR 
2(a) to multiple shipments of parts and component s, when the words "mu ltiple shipments" do not 
even appear in the concerned Decision.680  According to the European  Communities, the situations681 
referred to in the Decision are inter-related and concer n trade facilitation issues in the context of some 
very large goods or goods that are otherwise diffi cult to transport and where in some instances the 
manufacture has been completed in two or more different countries and where the shipping of the 
good into its final destination needs to be split into two or more consignments.682 
7.402  The United States  submits that both importers and customs authorities are legally obligated 
to classify imported merchandise pursuant to GIR 2(a) when applicable to importations of incomplete, 
unfinished, unassembled, or disassembled goods.683  Furthermore, for the purposes of GIR 2(a), "as 
presented" refers to the condition of the good at the time of its importation.684  The United States 
interprets the term "as presented"  as explicitly precluding the application of GIR 2(a) to shipments of 
goods that are not imported together.685  As the legal basis for its position, the United States submits 
the following four grounds:  (i) the obligation under the HS Convention to apply GIR 1 and the relevant Section and Chapter Notes, which requir es the Contracting Parties to the HS to base 
classification on the physical condition of the good, and not what processes the good will 
subsequently undergo; (ii) the plain meaning of "as presented"; (iii) the fact that "as presented" 
                                                     
 
676 The European Communities refers to the basic principle of tariff classification that goods are 
classified on the basis of the objectiv e characteristics of the product at the time of importation, as imported and 
presented to Customs on a shipment-by-shipment basis.  The European Communities also emphasizes that the 
Appellate Body has confirmed this (European Communities'  response to Panel question No. 210(b), citing the 
Appellate Body Report on EC – Chicken Cuts , para. 246).  According to the European Communities, the notion 
of multiple shipments of product goes directly against this formulation of the Appellate Body as multiple shipments denotes several products that are presented to customs at different times and at different places. 
677 European Communities' second written submission, paras. 109, 110. 
678 European Communities' response to Panel question No. 210(b). 
679 European Communities' second written submission, para. 111. 
680 European Communities' second written submission, para. 105. 
681 The situations here refer to "split consignments" and "the classification of goods assembled from 
elements originating in or arriving from different countries".  See paragraph 7.425 below for the text of 
paragraph 10 of the HS Committee Decision concerned. 
682 European Communities' second written submission, paras. 105-107, response to Panel question 
No. 138. 
683 United States' response to Panel question No. 224.  The United States submits that in applying 
GIR 2(a), customs officials can see the en tire article at the time of entry and th at if an article is not classifiable 
by GIR 2(a), then GIR 1 requires the separate classification of the components (United States' response to Panel 
question No. 112). 
684 United States' response to Panel question No. 110.  The United States submits that under US 
customs law, it is well settled that classification is based on the condition of goods at the time of importation. 
685 United States' response to Panel question No. 210(b).  WT/DS339/R 
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  replaced "as imported," and is intended to have the same meaning; and (iv) the object and purpose of 
the HS Convention of ensuring consistency of im port and export statistics and of facilitating trade.
686 
7.403  The United States argues that the HS Committee Decision does not address the questions of 
multiple shipments and the phrase "as presented".687  Rather, paragraph 10 of the discussion by the HS 
Committee was about the treatment of split c onsignments and the treatment of goods for origin 
purposes , not about the interpretation or application of GIR 2(a).688   
7.404  The United States also elaborates that as the d ecision was only reflected in the report of the 
Committee and no amendments were made to the E xplanatory Notes nor was a classification adopted, 
paragraph 10 has little weight.  Moreover, the Unite d States submits that the HS Committee Decision 
does not mean that a member customs administration can abrogate the requirements of the GIR by regulation at the domestic level.
689 
7.405  Canada is of the view that GIR 2(a) permits customs authorities to determine whether a 
good, based upon its state as it arrives at the borde r, has the essential character of a finished 
product.690  According to Canada, this involves elements  such as visual inspection, reference to 
documents, and if necessary further testing or an alysis (based upon the state of the good as it passes 
the border).  Canada submits that the term "as pr esented" in GIR 2(a) means that the assessment of 
whether an incomplete or unfinishe d article has the "essential character" of the complete or finished 
article must be made based on the objective characteristics of that article, and solely that article, in the state it is presented to customs officials at the border (i.e. the "snapshot").
691  No consideration is to be 
given to separate consignments arriving at different times, end-use or value of the article, but simply 
to objective characteristics of the product as presented at the border.692 
7.406  Recalling that the interpretative weight to be given to the HS Committee Decision in 
interpreting China's WTO commitments is affected by  its legal nature, its temporal relation to the 
conclusion of China's accession, and the awareness Me mbers had of that statement, Canada submits 
that the HS Committee Decision at issue is irrelevant for the following reasons693:  (i) no reference is 
made to split shipments in the Explanatory Notes to GIR 2(a) and the Nomenclature Committee that 
developed GIR 2(a) specifically c onsidered and rejected the inclusion of the concept of split shipment 
                                                      
686 United States' response to Panel question No. 210(b). 
687 United States' comments on China's response to Panel question No. 110; comments on China's 
response to Panel question No. 210(c). 
688 United States' comments on China's response to Panel question 215(b).  The United States also 
submits that the HS Committee Decision removed the re ference to "simple assembly" from the Explanatory 
Notes to GIR 2(a) and that as an explanatory note can neither expand no r restrict the terms of the HS, US 
Customs believes that the interpretation of GIR 2(a) has been unaffected (United States' response to Panel question No. 112).   
689 United States' comment on China's response to Panel question No. 110, response to Panel question 
No. 210(c). 
690 Canada's responses to Panel question Nos. 139, 224. 
691 Canada's response to Panel question No. 110, also referring to the Appellate Body's statement in EC 
– Chicken Cuts .  Canada submits in the context of the term "on their importation" in Article II:1(b) that "the 
ordinary meaning of 'on their importation' in Article II:1(b ), read in the context of Articles I, III and XI, and as 
evinced by Member practice, demonstrates clearly that ordinary customs duties must be imposed based upon the 
state of a product as presented at the border" (Canada's second written submission, para. 17). 
692 Canada considers that it is unnecessary for the Panel to decide all the precise situations in which the 
term "as presented" in the HS may apply to certain shipments of multiple goods (Canada's response to Panel 
question No. 210(b)).  In Canada's view, that would be a matter for the WCO, not the WTO. 
693 Canada's second written submission, para. 59 and its footnotes (including footnote 67, citing the 
Appellate Body Report on EC – Chicken Cuts, para. 291). WT/DS339/R 
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  in that rule; (ii) the practice on which the comment  was based related specifically to a handful of 
products (principally machinery) imported in separ ate shipments as one product, and did not include 
motor vehicles or their parts; (iii) parts used for the manufacturing process and shipped separately 
were specifically not intended to be covered by GI R 2(a); and (iv) at the time of China's accession, 
there was no established practice among Members to apply this decision to multiple shipments.  
7.407  Concerning the circumstances in which a need fo r customs authorities to apply the principle 
of GIR 2(a) arises, the WCO Secretariat  is of the view that GIR 2(a) should always be applied when 
the following three conditions are met:   
1. the entry under consideration is presente d incomplete, unfinished, unassembled or 
disassembled;  
2. as presented, it has the essential character of  the complete or finished article; and 
3. the heading and Legal Notes of the HS do not otherwise provide for the entry.
694 
7.408  The WCO Secretariat explains that the term "as presented" in GIR 2(a) could be understood 
to mean the moment at which the goods are presente d to Customs or other officials with a view to 
classifying the goods concerned in the customs tariff or in the trade statistics nomenclature.  The WCO Secretariat adds that the HS is silent on "as presented" and the HS Committee has not considered its meaning except in  the context of the issue of split consignments .
695   
7.409  The WCO Secretariat replies that during th e HS Committee discussions at issue, the 
Committee reaffirmed its earlier decision696 that the possible treatment of split consignments  as a 
single entity for purposes of GIR 2(a) was a matter to  be handled exclusively at the discretion of each 
individual administration, taking into account nationa l laws and regulations.  This decision was never 
codified in legal or Explanatory Note texts, a lthough it was informally noted by the Committee from 
time to time.  The WCO Secretariat notes that, based on the Secretariat's experience, national 
regulations and laws appear to differ with respect to the applicability of GIR 2(a) to split 
consignments.  The WCO Secretariat also notes that it would expect that those administrations which 
permit such consolidation of entries would consid er requests for that treatment on a case-by-case 
basis, applying standards set fort h in national laws and regulations. 
7.410  Furthermore, decisions of the HS Committee, including the Explanatory Notes and any 
amendments thereto, are not binding pursuant to Article 3.1(a) of the HS Convention.697  Rather, the 
Contracting Parties to the HS are requested to info rm the Secretariat in case they are not able to 
implement any decision by the HS Committee, and th e Secretariat has not received such a notification 
with respect to the decision at hand.  Regardl ess, the nature of the commitments posed by the 
Explanatory Notes, classification opinions and other advice rendered by the Committee, even when 
                                                      
694 WCO's letter of 30 July 2007, page 2. 
695 The WCO Secretariat is of the view that "split consignments", although not formally defined, is 
widely used to describe a range of trading practice and would be identified with the situation where parts to be 
assembled into a complete article arrive separately in mu ltiple shipments, including those arriving at different 
times, in different ports and fr om different places of origin. 
696 Reported in paragraph 81 of Doc. 11.000, NC/11/Oct. 63. 
697 The WCO Secretariat explains that Article 3 of the HS Convention obligates Contracting Parties to 
use the GIR, Legal Notes and texts of the headings and subheadings in their national nomenclatures, along with 
the relevant numerical codes (WCO's letter of 20 June 2007, page 3).  The WCO Secretariat points out that decisions of the HS Commi ttee, including the Explanatory Notes and any amendments theret o, are not binding 
under Article 3.1(a) of the Convention (WCO's letter of 20 June 2007, page 4).  WT/DS339/R 
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  specifically approved by the Council pursuant to Article  8 of the HS Convention, is in the nature of 
advisory rather than conventional.
698 
"As presented" – ordinary meaning 
7.411  The Panel notes that China h as focused its arguments concerning the interpretation of the 
term "motor vehicles", in particular whether it in cludes in its scope auto parts imported in multiple 
shipments, on the meaning of "as presented"699 in GIR 2(a).  In this regard, the parties do not dispute 
that GIR 2(a) is applied when customs authorities need to determine whether parts and components of 
a complete good, imported and presented in a single shipment, have the essential character of the 
complete good.700  The parties, however, do dispute whethe r GIR 2(a) also applies to parts and 
components imported in multiple shipments , presented to customs officials separately and assembled 
to a complete good in the importing country.  The issue before us is therefore whether the term "as presented" in GIR 2(a) includes, as argued by Chin a, the situation where parts are imported in 
multiple shipments and presented to  customs authorities separately. 
7.412  The plain  meaning of the term "as presented" denotes a temporal meaning, i.e. the moment 
when a good is presented to the customs authority:  the word "as" can be defined as "B. rel. adverb or 
conjunction  III Of time or place. ... 8. At or during the time that; when, while; whenever."
701, and the 
word "present" as "verb. I Make presen t, bring into the presence of.  6. verb trans.  a. Put before the 
eyes of someone; offer to sight or view; show, exhibit, display".702  When these definitions are 
combined, we understand the term "as presented" to mean "when something is offered for the eyes of 
someone, offered to sight or view".  In the absence  of any other modifying words, "as presented" in 
the context of GIR 2(a) thus appears to point to  the moment when goods are offered to customs 
authorities for examination, without necessarily encompassing situations where parts and components of a good are offered at different times for obser vation or examination and later assembled together 
into a complete good. 
                                                     
 
698 WCO Secretariat's letter of 20 June 2007, page 3. 
699 The Panel notes that the term "as presented" appe ars in the first sentence of GIR 2(a), whereas the 
second sentence has the word "presented".  We understand for the purpose of this dispute that the parties' use of 
the term "as presented" in their discussion of GIR 2(a) refers to both "as presented" and "presented" in the first 
and second sentences of GIR 2(a).  The parties agree that "as presented" in the first sentence in GIR 2(a) has the 
same meaning as "presented" referred to in the second se ntence of GIR 2(a) (Parties' responses to Panel question 
No. 218). 
700 Canada submits that "[t]he only feature of  the Measures that could be accepted customs 
classification is the classifi cation of parts as a complete vehicle where those parts, contained in a single 
shipment, have the vast majority of necessary parts, and thus have the essential character of a whole vehicle in 
accordance with GIR 2(a)" (C anada's second written submi ssion, para. 55).  See also the responses of the 
European Communities and the United States to Panel question Nos. 113, 129.   
Furthermore, the Panel notes the cases in which the complainants' customs authorities have also relied 
on the principle of GIR 2(a) in classifying parts and components of a complete good imported in a single shipment:  see China's first written submission, paras. 102-103 and footnote 74, citing Exhibits CHI-19, 20, 21. 
701 Shorter Oxford English Dictionary , 2002 (5th edition), Volume 1, page 126.  The Panel recognizes 
that the word "as" has an extensive list of dictionary meanings.  However, none of the definitions other than the highlighted above seems to make sense when considered in conjunction with "presented" as used in GIR 2(a) for 
the phrase "as presented". 
702 Shorter Oxford English Dictionary , 2002 (5th edition), Volume 2, page 2332. WT/DS339/R 
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  7.413  We also note that, as the United States explains
703, the term "as presented" was a replacement 
for the term "imported" in GIR 2(a) to the CCCN (i.e. a nomenclature preceding the HS) to align it with the French word "présenté" and was intended to cover not only "import" but also "export" trade 
statistics.  Furthermore, in a letter provided by th e Nomenclature Directorate in response to a question 
from one of the signatories to the HS concerning the scope of the term "presented" in the text of 
GIR 2(a), the Director of the CCC  (the immediate precursor to th e WCO) states that the editorial 
amendment of replacing the word "imported" with "p resented" was adopted to make it clear that    
GIR 2(a) applies to a given article in the stat e in which it is presented for customs clearance.
704   
7.414  We consider that if the term "as presented", in the sense of "as imported", was intended to 
broadly cover parts and components imported and presented at different times so long as they would eventually be assembled together into a comp lete good in the importing Member's territory, the 
drafters would not have included the term "as present ed" in the text of GIR 2(a).  In other words, 
given that the ordinary meaning of the term "as presented" denotes a temporal meaning: the moment 
when a good is presented, if the drafters had intende d the scope of the term to be broader than this 
ordinary meaning, they would have either excl uded the term connoting such an obvious temporal 
meaning from the text of GIR 2(a) or been more specific about the scope of the term.  
7.415  Therefore, the ordinary meaning of the term "as presented", considered together with the 
context in which the term was introduced into GIR 2(a) by the CCC, supports the view that its scope 
is limited to the specific moment when goods are pre sented to the customs authority for classification.  
We consider that this interpretation is also in lin e with the basic principle of classification as observed 
by the Appellate Body in EC – Chicken Cuts , i.e. goods must be classified based exclusively on their 
objective characteristics, which refer to their condition as they are presented to customs authorities at the time of importation.
705 
"As presented" – the HS Committee Decision 
7.416  China, however, argues that the interpretation of "as presented" should be read in light of the 
HS Committee Decision 1995 concerning the interpretation of GIR 2(a)706, in particular paragraph 10 
of the Decision.   
7.417  We will commence our analysis with the parties'  contentions on the interpretative weight to 
be given to the HS Committee Decision in the interpretation of China's Schedule of Concessions. 
Interpretive weight to be given  to the HS Committee Decision 
7.418  The complainants  submit that the HS Committee Decision at issue is not binding on the 
contracting parties of the HS and that decisions that do not reflect a consensus of the WCO membership must be accorded less weight in the interpretative hierarchy of the HS, after the GIR, 
Section and Chapter Notes and Explanatory Notes.
707   
                                                      
703 The United States refers to the Decisions of th e Nomenclature Committee in 1979 and a "Letter 
from Nomenclature and Classification Directorate" da ted 2 October 1989 (United States' comment on China's 
response to Panel question No. 110, citing Exhibit US-1, which is also the same document as that provided in 
Exhibit CDA-15). 
704 Exhibit US-1 and Exhibit CDA-15, page 2. 
705 Appellate Body Report on EC – Chicken Cuts, para. 246. 
706 HSC/16/Nov.95, DOC.39.600 (Exhibit CHI-29). 
707 Complainants' responses to Panel question Nos. 110, 111; United States' comment on China's 
response to Panel question No. 110.  WT/DS339/R 
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  7.419  China  is of the view that the Decision is relevant to the Panel's assessment of how the GIR 
affects the interpretation of China's tariff provisions for motor vehicles.
708  China bases its argument, 
first, on the Appellate Body's finding that interp retations of the GIR adopted by the HS Committee 
and the WCO are relevant to a panel's assessment of how the GIR affects the interpretation of a 
Member's Schedule of Concessions and, second, on th e fact that the HS Committee Decision at issue 
was adopted by the HS Committee and, as such, can be deemed to be approved by the WCO if no 
member objects to its adoption under Article 8 of the HS Convention.709 
                                                                                                                                                                     
The European Communities  submits that the HS Committee decided to include the Nomenclature 
Committee's decision relating to "split consignments" into its report, as a completely separate issue from 
"assembly".  However, GIR 2(a) has not been amended in any way pursuant to the discussion in the Committee.  
Thus, the European Communities is of the view that China's submission that the Decision would somehow affect the "as presented" criterion u nder GIR 2(a) in the context of split co nsignments is entirely without merit. 
(European Communities' response to Panel question No. 111).  According to the United States , decisions of this 
committee are considered advice and guides to the interpre tation of the HS and that the US Customs considers 
that these decisions often provide valuable insight into how the HS Committee views certain provisions and that 
Decisions of the [HS Committee] that are merely given in the report should be given little weight (United States' response to Panel question No. 111).  Canada  is also of the view that decisi ons that do not reflect a consensus 
of the WCO membership, including the HS Committee Decisions, must  be accorded less weight in the 
interpretative hierarchy of the HS, af ter the GIR, Section and Chapter Notes and Explanatory Notes.  Canada 
notes however that although Explanatory Notes have less probative value than Chapter Notes, the Appellate 
Body has not indicated that WTO Members, in applying duties under their Schedules, have the discretion to 
ignore the Explanatory Notes (Canada's second written subm ission, para. 42, footnote 36, also referring to its 
response to Panel question No. 111).  Canada points out th at panels or the Appellate Body did not give the same 
weight to the HS Committee Decisions as to the Explan atory Notes in their analysis (Canada's second written 
submission, footnote 36). 
708 China also submits that the nature of the interpretation that the WCO has adopted is not one that 
would "bind" members of the WCO, in the sense that it would compel them to reach a specific classification 
determination on the facts of particular cases.  Rather, the significance of the WCO's interpretation, as pertinent 
to this dispute, is that the term "as presented" does not preclude the application of GIR 2(a) to multiple 
shipments of parts and components, whether or not a particular WCO member chooses to apply GIR 2(a) in this 
manner (China's second written submission, para. 43 and footnote 22). 
709 China's second written submission, para. 43. China first submits that the question of whether the 
decision of the HS Committee is formally binding on the WCO members is not relevant to the present dispute.  
In finding that the application of GIR 2(a) to multiple sh ipments is a matter to be resolved under national laws 
and regulations, the WCO has necessarily interpreted GIR 2(a) as containing no prohibition on this particular 
application of the rules, and has found that this applicatio n of the rule is not otherwise consistent with the HS.  
The fact that the WCO Secretariat has received no notif ication from WCO members co ncerning their inability to 
implement the HS Committee decision simply confirms that this decision has not proven to be particularly 
controversial or detrimental to the operation of the HS (China's response to Panel question No. 210(c)). 
  Article 8 of the HS Convention in relevant parts provides as follows: 
 
"Article 8 
Role of the Council 
... 
 2. The Explanatory Notes, Classification Opinions, other advice on the interpretation of 
the Harmonized System and recommendations to secure uniformity in the interpretation and 
application of the Harmonized System, prepared during a session of the Harmonized System Committee under the provisions of paragraph 1 of Article 7, shall be deemed to be approved 
by the Council, if not later than the end of the second month following the month during 
which that session was closed, no Contracting Party to this Convention has notified the Secretary General that it requests that su ch matter be referred to the Council."  
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  7.420  The Panel notes that the parties do not dispute that the concerned HS Committee Decision is 
not binding on the HS Contracting Parties within the meaning of Article 3.1 of the HS Convention, which is an exclusive provision setting out the obliga tions of the Contracting Parties.  At the same 
time, as pointed out by China and referred to by the WCO Secretariat, materials such as Explanatory 
Notes or other advice prepared as guides to the interp retation of the HS are deemed to be approved by 
the WCO if no Contracting Party to the HS notifies the Secretary General of its request that such 
matter be referred to the Council.
710  Even so, this means, accord ing to the response from the WCO 
Secretariat, that the commitments posed by Expl anatory Notes, Classification Opinions and other 
advice rendered by the Committee, even when specifically approved by the Council pursuant to 
Article 8 of the HS Convention, are advisory  rather than conventional in nature.711  
7.421  Under Article 3.1 of the HS Convention, classification rules binding on the Contracting 
Parties to the HS are the GIR, Section and Chapter Notes, and texts of the headings and subheadings.  
Therefore, other materials such as Explanatory No tes and Classification Opinions and other advice 
from the HS Committee are not binding on the HS Contracting Parties.  In light of this, we agree with 
the complainants that the HS Committee Decision, in  particular parts of the Decision that have not 
been codified into legal texts of the HS or E xplanatory Notes to the HS, do not afford the same 
evidentiary weight as the GIR itself or the HS Commit tee Decisions that have been codified into legal 
texts or Explanatory Notes.712  The Appellate Body also stated in EC – Chicken Cuts  that the Chapter 
                                                                                                                                                                     
Article 7, in turn, provides in relevant part: 
 
"Article 7 
Functions of the Committee 
The Harmonized System Committee, having regard to the provisions of Article 8, shall have the following functions: 
... 
(b) to prepare Explanatory Note s, Classification Opinions or other advice as guides to 
the interpretation of the Harmonized System;" 
 
710 The WCO Secretariat advises that it has not recei ved any such notification.  The United States 
submits that it is not surprising that the WCO Secretar iat has not received notificatio n that a Contracting Party 
has not been able to implement the second "decision", since that second decision is not one that could be 
implemented by the Contracting Parties as it was not a decision but a statement that these matters were not 
within the purview of the HS (United Stat es' response to Panel question No. 210(c)). 
711 WCO Secretariat's letter of 20 June 2007, page 3.  Based on the text of the provisions of the HS 
Convention and the explanation from th e WCO Secretariat, the Panel understands that the Contracting Parties to 
the HS are obliged to respect only the HS legal texts, which consist of the GIR, Legal Notes (Section, Chapter 
and subheading Notes) and texts of the headings and subheadings.  The rest of the materials, such as 
Explanatory Notes, Classification Opinions and other advice rendered by the Committ ee, even when they are 
approved by the Council pursuant to Article 8 of the HS Convention, are advisory rather than conventional. 
712 See footnote 707 for the complainants' statements in this regard.  For example, the Panel observes 
that the part of the HS Committee Decision that GIR 2(a) should imply a certain range of expected assembly 
operations was embodied in Explanatory Note (VII) to GIR 2(a).  In this connection, the WCO Secretariat 
explains that as a result of discussions on GIR 2(a)  in the HS Committee, Explanatory Note (VII), first 
paragraph, was amended to the current text (WCO letter of  20 June 2007, page 5).  On the other hand, paragraph 
10 of the HS Committee Decision was never codified in legal or Explanatory Note texts, although according to 
the WCO Secretariat, the possible treatment of "split co nsignments" as a single entity (the first question) as 
mentioned in paragraph 10 of the HS Committee Decision was informally noted from time to time by the 
Committee.  WT/DS339/R 
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  Notes to the HS, which are binding, may have great er probative value than the Explanatory Notes to 
the HS, which are not binding.
713 
7.422  However, regardless of the exact interpretativ e weight to be given to the HS Committee 
Decision at issue, the Contracting Parties can refer to such a decision at the very least as guidance to 
the interpretation of the HS.  The United States it self has also stated that its national customs 
regulations on split consignments is consistent with paragraph 10  of this HS Committee Decision.714  
If one of the issues included in the same provision of the HS Committee Decision can be consulted by 
the HS Contracting Parties, in our view, it should also  be the case for the other issues contained in that 
provision.  The European Communities and Canada do not contest either that the Decision can serve 
the Contracting Parties at least as guidance on releva nt issues.  We find support for our view in the 
Appellate Body's statement in EC – Chicken Cuts  that the probative value of a Note, either Chapter 
Note or Explanatory Note, will also depend on how relevant it is to the interpretative question at 
issue.715   
7.423  Furthermore, concerning the HS Committee decisi ons, as China argues, the Appellate Body in 
EC – Computer Equipment  states:  "[i]n interpreting the tariff concessions in [the European 
Communities' Schedule in that case], decisions of the WCO may be relevant; and, therefore, they 
should have been examined by the Panel".716  Following the Appellate Body's guidance, the Panel in 
EC – Chicken Cuts considered that decisions of the HS Committee of the WCO, even if not binding, 
could well be a useful source of information on th e subsequent practice of WTO Members, a large 
proportion of whom are signatories to the HS Convention and, thus, are members of the HS 
Committee.717  In light of our considerations above, we will now examine whether the HS Committee 
Decision concerned could provide guidan ce on the interpretation of GIR 2(a). 
The HS Committee Decision718 and the interpretation of "as presented" in 
GIR 2(a) 
7.424  We now turn to the substantive relevance of the HS Committee Decision to the interpretation 
of GIR 2(a) as argued by China.   
7.425  The HS Committee Decision in relevant part provides as follows: 
"9. The Chairman then invited the Co mmittee to rule on whether the present 
Report should include the decision719 previously taken by the Nomenclature 
                                                      
713 Appellate Body Report on EC – Chicken Cuts , para. 224.  The Appellate Body further states in a 
footnote to the same paragraph: 
 
"The probative value of a Note will, however, also depend on how relevant it is to the 
interpretative question at issue; as a result, it cannot be excluded that an Explanatory Note that directly addresses a given interpretative question will more probative than a Chapter Note that 
does not relate specifically to that interpretative question" (footnote 432 to para. 224). 
 
714 United States' response to Panel question No. 224.  Also see footnote 707 above. 
715 See footnote 713 above. 
716 Appellate Body Report on EC – Computer Equipment , para. 90. 
717 Panel Report on EC – Chicken Cuts, para. 7.298. 
718 See footnote 666. 
719 At the request of the Panel, the WCO Secretariat pr ovided a copy of this decision as an attachment 
to its letter of 30 July 2007.  Paragraph 81 of Doc. 11.000 provides: 
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  Committee as set out in paragraph 81 of Doc. 11.000 (NC/11/Oct. 63 – Report) and 
reproduced in paragraph 28 of Doc. 39.235. 
10. The Committee decided, by 12 votes to none, to include the Nomenclature 
Committee's decision in its Report.  Thus, the Committee decided that the questions 
of split consignments
720 and the classification of goods assembled from elements 
originating in or arriving from different countries are matters to be settled by each 
country in accordance with its own national regulations."721 (emphasis added) 
7.426  Paragraph 10 of the HS Committee Decision thus  refers to two specific questions – "split 
consignments" and "the classification of goods assemb led from elements originating in or arriving 
from different countries".  It states that these two questions are matters to be settled by each country in accordance with its ow n national regulations.   
7.427  China  submits that the second question in paragr aph 10, namely "the classification of goods 
assembled from elements originating in or arri ving from different countries," pertains to "as 
presented" in GIR 2(a) and multiple shipments.  Since paragraph 10 provides that this is a matter to be 
                                                                                                                                                                    
 
"It was further agreed that the questions of split consignments and the classification of goods 
assembled from elements originating in or arriving from different countries are matters to be 
settled by each country in accordance with its own national regulations." 
 Doc. 11.000 (NC/11/Oct. 63 – Report) is a Report by the Nomenclature Committee on the issue of 
"articles imported unassembled or disassembled" in connection with the Draft Interpretative Rule on the 
classification of articles imported unassembled or disassembled. 
720 The WCO Secretariat explains that concepts such  as "consignments" and "shipments" do not have 
conventional status in the HS, and ther efore there are no official  interpretation for those concepts (WCO letter of 
30 July 2007, page 5). 
721 The Decision provides in other relevant parts:   
 
"6. Several delegates pointed out that Rule 2(a) was of key importance for the Rules of Origin, since it determined the classification of articles presented unassembled or 
disassembled hence the Explanatory Note to that Rule should be examined in the light of its 
impact on the Rules of Origin.  However, this view was not shared by several other delegates 
who felt that the Rules of Origin had nothing to do with the General Interpretative Rules 
which provided solely for the classification of goods in the Harmonized System. 7. The Chairman drew the Committee's attention to the questions of split consignments 
and the classification of goods assembled from elements originating in, or arriving from, 
different countries. 8. In this Connection, one delegate said that he favoured an international regulation to 
deal with split consignments, whereas other delegates felt that the problem had to be resolved 
in Members' own national regulations, in accordance with the decision taken by the 
Nomenclature Committee when drafting General Interpretative Rule 2(a) and its Explanatory 
Rules. 
 ... 
 
11. Finally, the Committee instructed the Secretariat to undertake an additional study on the interpretation of General Interpretative Ru le 2(a) and to prepar e a corresponding draft 
Explanatory Note, taking account of the comments by delegates in the meeting.  Mr. Kusahara 
pointed out that the legal text of General Interpretative Rule 2(a) was open to different interpretations." 
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  settled by each country, China argues that it is allowe d to apply GIR 2(a) to parts imported in multiple 
shipments.   
7.428  The complainants  contend that this second phrase in pa ragraph 10 concerns rules of origin 
and that China has not proved its claim that it pert ains to the issue of "as presented" in GIR 2(a). 
7.429  The European Communities  submits that the classification of goods assembled from 
elements originating in or arriving from different count ries refers to rules of origin as clarified by the 
WCO Secretariat.
722 
7.430  According to the United States , China's position concerning the phrase "the classification of 
goods assembled from elements originating in or arri ving from different countries" is mere conjecture 
since paragraph 10 of the Decision does not includ e a definition of this phrase and China has not 
identified any other documents that would support its interpretation.  The United States considers that 
the WCO Secretariat's response to a question from the Panel723 supports the United States' view that 
the second phrase724 in paragraph 10 of the Decision is referring to origin and not classification and 
that the question of multiple origin is not addressed by GIR 2(a).725 
7.431  Canada submits that the phrase "the classification of goods assembled from elements 
originating in or arriving from different countri es" in paragraph 10 of the HS Committee Decision 
refers to the situation where a particular shipme nt may have elements of different origin, in 
accordance with particular rules of origin.726 
7.432  The WCO Secretariat responded that "elements originati ng in or arriving from different 
countries", which is the second question mentioned in paragraph 10, encompasses the possibility of 
goods being of (preferential or non- preferential) origin from the country of shipment or from another 
country.  Further, the WCO Secretariat points out that the HS does not direct its Contracting Parties to classify entries differently or alike at the HS leve l on the basis of single origin as opposed to multiple 
origin.  The WCO Secretariat states that it would be inclined to regard the second situation in 
paragraph 10 of the HS Committee Decision rather  as reflecting the HS Committee's view that the 
determination whether multiplicity of origin shall aff ect applicability of GIR 2(a) is a matter left to 
each Contracting Party and that the HS does not  address the applicability of GIR 2(a) to the 
classification of goods of mixed origin.
727 
7.433  The question before the Panel is therefore whether the HS Committee Decision, in particular 
the phrase "the classification of goods assembled from elements originating in or arriving from 
different countries" in paragraph 10, interprets the term "as presented"  in GIR 2(a) and if so, whether 
                                                      
722 European Communities' response to Panel question No. 212. 
723 Panel question No. 11. 
724 Classification of goods assembled from elements originating in or arriving from different countries. 
725 United States' comments on China's re sponse to Panel question No. 210(a). 
726 Canada's response to Panel question No. 212. 
727 WCO's letter of 30 July 2007, pages 3, 4.  The WCO Secretariat is also inclined to regard that "the 
classification of goods assembled from elements originating in or arriving from different countries" refers to the 
classification of a collection of articles based on their susceptibility to further assembly.  The WCO Secretariat 
responds to a Panel question that paragraph 10 of the HS Committee Decision seems to connote that, in the 
Committee's view, whether multiple origin should affect the classification of unassembled or disassembled articles is a matter to be handled exclusively at the discretion of each individual administration, taking into 
account national laws and regulations. WT/DS339/R 
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  it touches upon the question of "multiple sh ipment" in the manner advocated by China.
728  We will 
begin our analysis by considering the two ques tions mentioned in paragraph 10, i.e. "split 
consignments" and "the classifications of goods assemb led from elements originating in or arriving 
from different countries". 
7.434  First, regarding "split consignments ", all parties appear to share the same understanding with 
respect to its meaning and the circumstances under which such a question is addressed:  generally, 
"split consignments" refer to a s ituation where the carrier breaks the consignment of a set of goods 
into multiple consignments (multiple deliveries) fo r reasons such as the need to balance loads (in 
particular in the case of air transport), cost savi ngs in shipment, or the nature of the goods shipped 
(e.g. large or complex machinery that are diffi cult to transport in one single consignment).729  In such 
                                                      
728 China , the United States  and Canada  are of the view that "split consignments" and "the 
classification of goods assembled from elements originating in or arriving from different countries" referred to 
in the second sentence of GIR 2(a) cove r two separate situations, whereas the European Communities  
considers that these ar e inter-related issues concerning split consi gnments (parties' responses to Panel question 
Nos. 138, 212).  
China  submits that this second question is, in the cont ext, distinguished from a "split consignment", in 
that the imported parts and components were not necessar ily part of a single consignment.  China explicitly 
states in its response to a Panel question that paragraph 10 of the HS Committee Decision refers to two different 
circumstances (China's response to Panel question No. 212 , referring to its response to Panel question No. 138).  
According to China, "[t]his is evidence from  the sentence itself, which refers to the questions of 'split 
consignments' and 'the classification of goods assembled from elements originating in or arriving from different 
countries'. ... The plural st ructure of the sentence clearly indicates th at the paragraph refers to two different 
circumstances."  Decree 125 could apply to either circum stance in paragraph 10, although it will generally apply 
to the second circumstance referred to  in paragraph 10 of the HS Commi ttee Decision (China's response to 
Panel question No. 213).  
Despite this apparent gap in the view of the European Communities and the other two complainants 
(United States and Canada) on the relationship of the two situations mentioned in paragraph 10, the Panel  does 
not consider, however, that the European Communitie s understands the second situation in paragraph 10 
differently from the other complainants.  All the complainan ts consider that the second situation concerns "rules 
of origin" and has nothing to do with the classification of goods imported in multiple shipments.  The difference 
lies in the European Communities' view that the two ques tions in paragraph 10 are "inter-related" issues that 
concern trade facilitation and that the second question provides that the classification of "split consignments" as 
the complete product even when some elements arrive from different countries is an option for the importer.  
Regardless of whether these two questions are inter-related as suggested by the European Communities, what is at issue is China's argument that the second situation refers to the multiple shipment situation and the 
complainants' contention against that argument.   
729 Parties' responses to Panel question Nos. 138, 212.   In particular, both China and the United States 
provide the same definition of "consignment":  a consignment refers to a set of goods handed over to the 
custody of a carrier for delivery, whether those goods are packed in one container or in multiple containers.  A 
consignment is split when the carrier breaks the consignm ent into multiple deliveries (e.g. it loads the containers 
making up the consignment onto different vessels).  The European Communities submits that in the context of 
some very large or complex machinery that are difficult to transport in one single consignment the importer may 
wish to declare the product as a single product irrespective of the fact that the elements of th e product are split 
into different consignments and may not be presented to customs precisely at the same time.  According to the 
European Communities, in some instances an element of the product may need to be transported from two or 
more countries or may originate from two countries.  Canada also submits that "split consignments" refers to 
practices allowing importers, at their discretion, to classify certain separate shipments of a single product as one 
item and that this is not an uncommon practice.  WT/DS339/R 
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  a situation, some Members allow, at the importer' s request, goods delivered in multiple consignments 
to be declared as one item.
730 
7.435  Further, we note that the term "consignment" is  defined as "1. The act of consigning goods for 
custody or sale.  2. A quantity of goods delivered by this act, esp. in a single shipment"731; "(shipping) 
Shipment of one or more pieces of property, accepted by a carrier for one shipper at one time, receipted for in one lot, and moving on one bill of lading"
732; and "3.  The action of consigning goods 
for sale etc. or custody."733  Therefore, "consignment" refers to goods delivered in a single shipment 
by the act of consigning them for custody or sale.  In turn, "split" means " adj. 1. That has split or been 
split"734 and " verb. 4 ... b verb intrans. & trans. Divide or separate into parts."735  When these 
definitions are considered together, we understand "s plit consignments" to refe r to a situation where 
goods were originally consigned for delivery in a si ngle shipment, but have been later split into more 
than one shipment. 
7.436  In light of the parties' understanding of th e term "split consignmen ts", relevant customs 
practices of some Members in this regard736, and the ordinary meaning of the term "split 
consignments",  we are of the view that situati ons concerning "split consignments" are distinguished 
from the multiple shipment situation encompassed under the measures, in that the classification of 
split consignments concerns a unique situation wh ere imported parts and components were intended 
to be part of a single consignment, but were then  split into multiple consignments for reasons mainly 
relating to transportation.  In this context, we do not consider that multiple shipments of auto parts 
that are considered as complete vehicles under China's measures are comparable to a "split 
                                                      
730 The United States refers to its customs regulations such as 19 C.F.R. § 141.57, which exist for the 
benefit of importers who in tended their goods to have been accommodate d on a single conveyance for arrival in 
the United States as a single shipment, but which were split after consignment to the carrier (United States' 
response to Panel question No. 224).  
We also note China's reference to the US customs regulations in its written submission (China's first 
written submission, paras. 156-160; Exhibit CHI-28).   The concerne d Judgment of the US Court of 
International Trade (Exhibit CHI-28) explains its understa nding of this regulation as well as the notion of "split 
consignments":  this regulation addresses two scenarios – first, merchandise that importer intended to be shipped on single conveyance, but which was later split by the carrier and shipped on multiple conveyances on the 
initiative of the carrier, and, second, merchandise whose size or nature necessitates that it be shipped in an 
unassembled/disassembled condition on more than one conveyance.  The Judgment provides in relevant part:  
 
"[t]hese so-called 'split shipments' are a routine occurrence, particularly in the context of air-
shipped cargo, due to practice considerations including limited cargo  space, the need for 
proper weight distribution, and the offloading of cargo for safety concerns.  But, while split 
shipments are a straightforward matter of logi stics for carriers, they often created legal 
uncertainty and unpredictability for importers. ... The financial repercussions for an importer 
could be significant where treatment as separate  entries resulted in a different classification 
(and a higher rate of duty) than treatment of th e merchandise as a single entry, as the importer 
had intended.  Sensitive to importers' concer ns, Congress resolved the inconsistency and 
clarified the situation by enacting 19 U.S.C. § 1484(j)(2), providing a framework to help 
ensure that split consignments are consiste ntly classified as importers intend. ..." 
 
731 Black's Law Dictionary , Seventh edition, 1999, page 303. 
732 Handbook of the Global Trade Community, Dictionary of International Trade , E. Hinkelman, 
Fourth Edition, 2000, page 49. 
733 Shorter Oxford English Dictionary , 2002 (5th edition), Volume 1, page 493. 
734 Shorter Oxford English Dictionary , 2002 (5th edition), Volume 2, page 2964. 
735 Shorter Oxford English Dictionary , 2002 (5th edition), Volume 2, pages 2967-2968. 
736 See footnotes 729-730. WT/DS339/R 
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  consignment" situation.
737  "Split consignments" also tend to be  allowed for the benefit of importers 
and considered by customs officials at the specific request of the importer concerned, which is not the 
case for the multiple shipment situ ation covered by the measures.738   
7.437  Concerning the second question mentioned in paragraph 10 of the HS Committee Decision, 
"the classification of goods assembled from elements originating in or arriving from different 
countries ", China considers that this question refers  to "the classification of goods assembled from 
imported parts and components (or 'elements') that  arrive in the custom s territory in multiple 
shipments ".739  The complainants argue that the second qu estion in paragraph 10 refers to rules of 
origin, not multiple shipments in the manner the concept is covered under the measures. 
                                                      
737 The United States submits that the treatment of split consignments mentioned in the HS Committee 
decision does not provide support fo r China's over-reaching measures (Unite d States' response to Panel question 
No. 210(b)).  See China's responses to Panel question Nos. 138 and 212. 
738 The Panel notes the European Communities' view that China's position concerning its understanding 
of "split consignments" and "multiple shipments" has evolved throughout this proceeding (European 
Communities' second written submission, para. 106).  Specifically, the European Communities argues that China initially treated the notions of "split consignments" and "multiple shipments" synonymously (referring to 
paragraph 156 of China's first written submission), but, later in the proceeding, it distinguished one notion from 
the other (referring to China's response to Panel question No. 138). 
Although we recognize the European Communities' point, we do not consider that China necessarily 
has changed its position on "split consignments" and "multiple shipments".  Rather, while acknowledging the 
differences in these two concepts, China made an attemp t to analogize the "multiple shipment" situation covered 
under the measures to the "split consignment" situation addressed by some other Members. 
For example, in the section where the European Communities submits China treats these two notions 
synonymously, China submits that th e types of anti-circumvention prac tices, which, according to China, 
Members adopt to prevent the circumvention of ordina ry customs duties or anti-dumping/countervailing duties 
that apply to complete articles (i.e. in the same sense as China's measures), are not the only circumstances in 
which WTO Members examine the commercial intention of the importer when classifying "multiple shipments" of parts.  China argues that this also occurs in the case of so-called "split shipments" (or "split consignments"), 
where an importer imports in multiple shipments an item (or group of item) that is the subject of a single 
contract, invoice, or transaction.  Also, China s ubmits that the HS Committ ee Decision acknowledges the 
arbitrary classification results that can occur when a set of  related parts and components is broken into multiple 
shipments and that this can occur in the context of "split consignments" or in the context of "multiple shipment" 
(i.e. when a manufacturer imports parts and components in multiple shipments and assembles them 
domestically).  These statements, in our view, show th at China itself acknowledges that "split consignments", 
although also concerning multiple (split) shipments ( albeit in different sense from that used in the measures), 
addresses a situation different from the situations  relating to so-called anti-circumvention practices. 
This becomes more obvious when China refers to the examples of customs regulations of the United 
States and the European Communities concerning "split consignments" (China's first written submission, paras. 156-160; Exhibit CHI-28).  Both regulations of th e United States and the European Communities, in these 
examples, "allow at the request of the importer", not re quire, multiple entries of unassembled or disassembled 
merchandise to be treated as a single en try for customs classification purposes.   
In any event, even if China were intending to treat  these notions synonymously, this would not affect 
our analysis because, as pointed out above, the evidence show s that split consignments are distinguished from 
the multiple shipment situation encompassed by the measures at issue.  Further, China has also clarified its position during the proceedings, as pointed out by the European Communities, and acknowledged that "split 
consignments" in paragraph 10 of the HS Committee Decisi on is not particularly pertinent to the question of 
"multiple shipments" under the measures.   
739 China's response to Panel question No. 138.  In a footnote, China further submits that the reference 
to "different countries" cannot, in the context, mean that the decision of the HS Committee applies only in the 
case of goods assembled from parts and components that arrive from more than one exporting country.  According to China, the number and identity of the exportin g country or countries would only be relevant, if at 
all, for the purpose of applying rules of origin – a matt er that is not within the sc ope of GIR 2(a).  Moreover,  WT/DS339/R 
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  7.438  China's argument is based on the assumption that the phrase " elements originating in or 
arriving from different countries " of the second question in paragraph 10 means " multiple shipments 
of parts and components (elements )".
740  As a legal basis for its argument, China submits that 
paragraph 10 is the result of the recognition by th e CCC and subsequently the HS Committee that the 
arbitrary classification results can occur when a set of related parts and components is broken into multiple shipments, which encompass both the "split consignments"
741 situation as well as the 
situation where a manufacturer imports parts and components in multiple shipments and assembles 
them domestically.742  In particular, China argues that the CCC recognized the existence of this issue 
when it first drafted GIR 2(a) in the early 1960s an d that it was at that time the CCC agreed that the 
application of GIR 2(a) to "split consignments" a nd "multiple shipments" was a matter "to be settled 
by each country in accordance with its own nationa l regulations," an interpretation that the HS 
Committee reaffirmed in the context of the HS Decision in 1995. 
7.439  We do not, however, find any evidence supporting China's claim that wh en drafting GIR 2(a) 
in the 1960s, the CCC recognized that the situat ion where a manufacturer imports parts and 
components in multiple shipments to assemble them  into a complete product poses the same kind of 
classification issue as in the split consignment situat ion.  A document relating to the discussions on 
GIR 2(a) at the Nomenclature Committee of the CCC shows that the question of whether the draft 
Interpretative Rule concerning unassembled and disassembled articles743 should apply to "articles 
imported unassembled or disassembled for industrial assembly " had been discussed at the 
Nomenclature Committee.  The Secretariat of th e CCC concluded, however, in accordance with the 
instructions of the Nomenclature Committee,  that the draft Interpretative Rule should not cover such 
cases.744  In particular, the following observation by th e Secretariat of the CCC provides some useful 
information on historical background with respect to the introduction of GIR 2(a):  
"It is quite obvious that the principle of assimilating unassembled or disassembled 
articles to assembled articles of the co rresponding kind was laid down in certain 
Chapters of the Nomenclature solely in orde r to ensure that if a complete article is 
specified or included in one particular heading it should not be classified in several different headings where, in particular cases, it cannot be imported assembled. 
The only purpose of this principle is to preserve the systematic method of 
classification on which the Nomenclature rests; it hence reflects technological 
considerations only.  There is therefore every justification for its application to 
articles disassembled or unassembled solely by reason of their bulk or weight, or of packing and handling difficulties. 
                                                                                                                                                                    
 
China argues, there is no reason why the classification of goods assembled from parts and components that 
arrive from a single exporting country should be any different than the classification of goods assembled from parts and components that arrive from more than one exporting country. 
740 See China's response to Panel question No. 210(A). 
741 China explains "split consignments" as a situation when a single import transaction is broken into 
"split consignments," usually for reasons of shipping and often without the prior knowledge of the importer 
(China's response to Panel question No. 112). 
742 China's response to Panel question No. 112. 
743 This question appears to correspond to the seco nd sentence of the curren t GIR 2(a) concerning 
goods imported unassembled or disassembled. 
744 Exhibit CDA-19 (Customs Co-operation Council, Nomenclature Committee, 10th Session, Brussels, 
February 26, 1963, Document No. 10.195E, "Articles (Machinery, Appliances, etc.) Imported Unassembled or 
Disassembled", page 3.  See Canada's second written submission, para. 59, footnote 70. WT/DS339/R 
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  However, if the imported goods are parts which are not assembled by the 
manufacturer, although he could easily do so before shipment, the aim is mainly to 
supply the assembly industry in the importing country; such practices involve 
economic considerations, which in the Secretariat's view, cannot be accommodated at 
the technological level of the Nomenclature.  It is for each importing country to take 
such steps as may be felt necessary in the ec onomic field (e.g. in relation to Customs 
duties) to assist its assembly industry."
745 
7.440  This piece of evidence746 informs us how the classification of "unassembled or disassembled" 
goods as the complete good of the corresponding kind b ecame part of GIR 2(a):  at least based on the 
evidence before us, GIR 2(a) was not intended to ap ply to goods (parts and components) imported for 
industrial assembly, which is the multiple shipment situation covered under the measures.  Rather, to 
the extent the rule concerns goods imported unasse mbled or disassembled, GIR 2(a), second sentence 
seems to have been intended to mainly cover the s ituations relating to goods that are difficult to be 
imported assembled.   
7.441  Such an understanding by the Contracting Parties is now reflected in Explanatory Note (V) to 
GIR 2(a), which provides that when the goods are presented unassembled or disassembled, it is 
usually for reasons such as "requirements or conve nience of packing, handling or transport".747  Given 
that this phrase was not included in the main text of  GIR 2(a) and the word "usually" is inserted, we 
also understand that those mentioned in Explanatory Note (V) to GIR 2(a) are not the only 
circumstances under which GIR 2(a), second sentence a pplies.  Nevertheless, the evidence as a whole 
indicates that the drafters of GIR 2(a) did not intend to have the rule applied to the multiple shipment 
situation.748  More importantly, China has not directed us to any evidence showing that the second 
question in paragraph 10 of the HS Committee Decisi on refers to the multiple shipment situation of 
parts and components imported for the assembly of motor vehicles.   
7.442  The WCO Secretariat's opinion also demonstr ates that the second phrase at issue in  
paragraph 10 does not concern the multiple shipment situation.  The WCO Secretariat states that it is 
inclined to regard the reference in paragra ph 10 to "the classification of goods assembled from 
elements originating in or arriving from multiple countries" rather as reflecting the HS Committee's 
                                                      
745 Exhibit CDA-19, pages 2-3.  Based on the text of this document, the Panel understands that the 
situation addressed in that document concerned the situation where tariff rates were lower for complete goods 
than for components of the corresponding complete goods.   
746 In a background document prepared by the WCO Secretariat in 1996 in relation to the discussions 
on the text of the Explanatory Notes to GIR 2(a), in pa rticular the current Explan atory Note (VII), the WCO 
Secretariat points to an observation by  Sweden during the creation of GIR 2( a): "[I]t transpires that this Rule 
was a proposal by Sweden concerning articles which are 'imported unassembled or disassembled for convenience of transport and can be put together by rather simple operations (e.g. screwed together).  If the parts 
are intended for industrial production of the articles in ques tion the parts are, as a rule, classified as such in their 
appropriate headings'" (Doc. 8.333, Observation by Sweden).  Although this was an observation by one Member of the WCO concerning GIR 2(a), it provides information on how GIR 2(a), in particular the part on the 
classification of "unassembled or disassembled" goods, came about.  Even when considered against the limited 
interpretative weight to be given to this type of document, this still goes against the interpretation advocated by China. 
747 The WCO Secretariat mentions that the text of th e Explanatory Notes is merely an explanation of 
historical reasons for articles being shipped unassembled or disassembled (WCO's letter of 30 July 2007). 
748 The Panel also notes a comment by the Secretaria t of the Nomenclature Committee that classifying 
unassembled or disassembled articles with assembled articles of the corresponding kind obliges importers to 
produce all the components of the article in question simultaneously , unless they have the benefit of an 
incomplete articles rule or of national provisions on  split consignments (emphasis added) (Exhibit CDA-19, 
page 3).  WT/DS339/R 
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  view that the determination whether "multiplicity of origin" shall affect the applicability of GIR 2(a) 
is a matter left to each Contracting Party and th at the HS does not address the applicability of GIR 
2(a) to the classification of goods of mixed origin.
749  
7.443  Furthermore, a copy of the document concerning discussions at the CCC in 1962, submitted 
by Canada, includes, inter alia , a note by the Austrian administration and observations of the 
Nomenclature Directorate on that note.750  In that document, the Austrian administration raised the 
question of whether the unassembled or disassembled ar ticles must be consigned by one exporter or at 
least by several exporters in the same country (i.e. whether GIR 2(a) must be confined to goods 
imported unassembled or disassembled from one country, as opposed to different countries).  In this 
regard, the Nomenclature Directorate has noted the following:  
"The main classification criteria used in the Nomenclature are: nature, kind, structure 
or composition and use of the goods.  The origin never affects classification.   
It would hence be against the spirit and the letter of the Nomenclature for the 
Interpretative Rule on the corresponding Explanatory Note to introduce a 
discrimination based on the origin of go ods imported unassembled or disassembled. 
Moreover, it is common practice for "s ub-assemblies" of large plants to be 
despatched directly by their manufactur ers to the country of destination. 
Although this matter lies outside the field of Nomenclature , the Nomenclature 
Directorate considers that such consignmen ts, whether simultaneous or split (insofar 
as the latter are provided for by national regulation), should be eligible for the 
facilities afforded by the draft Interpre tative Rule, provided that all the other 
conditions are met."751 
7.444  The language of this document evinces that th e Nomenclature Directorate considered the 
question of goods imported unassembled or disassembled from different countries to relate to rules of 
origin and thus to be outside the field of nomenclat ure.  In our view, this evidence is unsupportive of 
China's argument that there is no reason to believe  that the HS Committee Decision, which refers to 
"goods assembled from elements originating in or arriving from different countries", is not equally 
relevant to "goods assembled from elemen ts originating in or arriving from a single country" and that 
the number and identity of the countries from which the parts originated would only be relevant, if at 
                                                      
749 The WCO Secretariat further states that in the Secretariat's opinion, "[i]t seems that paragraph 10 of 
the HS Committee decision connotes that, in their view, whether multiple origin should affect the classification of unassembled or disassembled articles is a matter to be handled exclusively at the discretion of each individual 
administration, taking into account national laws and re gulations"  (WCO Secretariat's letter of 30 July 2007, 
page 4). 
750 Exhibit CDA-18 (Customs Co-operation Council, Nomenclature Committee, 9th Session, Brussels, 
July 19, 1962, Document No. 9550E, "Articles (Machinery, Apparatus, etc.) Imported Unassembled or 
Disassembled"), referred to in footnote 69 of Canada's  second written submission.  As Canada notes, the 
Directorate also provides on page 2 that the second paragraph of General Note I on Section XVI of the Geneva 
Nomenclature (machinery – a separate section from motor vehicle in Section XVII) reads that the importation of 
machines  in an unassembled state, even if forwarded in several consignments, shall not affect their 
classification.  Further, Canada points to page 3 where it reads that many countries have similar provisions in 
their national tariffs, and recommended that there simply be a reference to this practice in the Committee's 
Report, Document No. 11.00 NC/11/Oct. 63, which is the report ultimately referred to in paragraph 9 of the HS 
Committee Decision (Exhibit CHI-29) relied on by China. 
751 Exhibit CDA-18, page 4. WT/DS339/R 
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  all, for purposes of applying rules of origin.
752  China goes on to claim that as pointed out in 
paragraph 6 of the HS Committee decision753, the GIR pertains solely to  classification under the HS, 
and has no bearing on rules of origin.  We agree with  China that the HS pertains only to classification, 
not rules of origin.  The evidence shows that the Contracting Parties to the CCC were aware of the 
fact that rules of origin were outside of the field of the nomenclature, and nonetheless decided to 
mention that the question of "the classification of  goods assembled from elements originating in or 
arriving from different countries" concerning rules of origin was an issue to be dealt with by each 
country in accordance with their own national regulations. 
7.445  In conclusion, we do not agree with China's argument that the HS Committee Decision proves 
that the WCO has interpreted the relevant GIR in  a manner that is directly relevant to the 
interpretation of the term "motor vehi cles" in China's Schedule of Concessions.754  Specifically, China 
has not presented sufficient evidence to show that the second situation in paragraph 10 pertains to "as 
presented" in GIR 2(a) so as to allow the applica tion of GIR 2(a) to parts and components imported in 
multiple shipments for assembly. 
7.446  However, even if we were to accept China's argument that the HS Committee Decision should 
be read as giving discretion to the Contracting Par ties to apply "as presented" in GIR 2(a) to goods 
imported in multiple shipments, this is far from saying that China is required to classify auto parts and 
components, imported in multiple shipments and pr esented separately, as a motor vehicle based on 
their assembly into a motor vehicl e.  Unlike GIR 2(a) itself, wh ich China has submitted that the 
Contracting Parties to the HS are required to apply, China does not insist that "as presented" in GIR 
2(a) considered in light of the HS Committee Decision requires the application of the principle of 
GIR 2(a) to the multiple shipment situation.  Ra ther, China considers that a Contracting Party is 
afforded discretion to so classify based on the language of paragraph 10 of the HS Committee 
Decision.  As pointed out by Canada755, we consider that if discretion were afforded to those HS 
Contracting Parties who are also WTO Members, such discretion must be exercised in a manner 
compatible with Members' obligations under the WTO.756   
7.447  Furthermore, China has submitted that the need for customs authorities to apply GIR 2(a) in 
the manner advocated by China arises only in the specific circumstances in which there is a significant 
difference in duty rates between the complete  article and the parts of that article.757  When this need 
arises, China argues, customs authorities must im plement a process to determine whether specific 
importers are importing parts and components in multip le shipments that, in their entirety, have the 
essential character of the complete article that is subject to the higher rate of duty.758   
                                                      
752 China's response to Panel question No. 112 (emphasis added). 
753 See footnote 721 for the text of paragraph 6 of the HS Committee Decision. 
754 See China's response to Panel question No. 112. 
755 Canada submits that a WCO decision that is not adopted in the form of a modification or addition to 
the GIR or included as an Explanatory Note to the GIR, may provide guidance but cannot be determinative of 
how to apply the GIR and that any discretion that might  be afforded to Members on how to classify split 
shipments must naturally be limited so as not to viol ate tariff commitments (Canada' s response to Panel question 
No. 112).  As a result, the Decision should have no bearing on the interpretation of GIR 2(a). 
756 See, for example, Canada's response to Panel question No. 138. 
757 China's responses to Panel question Nos. 38, 238(b) .  According to China, the same need could arise 
in the case of ordinary customs duties or in the case of other types of duties such as anti-dumping or 
countervailing duties. 
758 At the same time, China also ar gues that "challenged measures fall within the scope of measures 
that national customs authorities routinely adopt to ensure  the proper interpretation of their tariff schedules and 
to ensure the proper classifications of imports" (China's response to Panel question No. 13(b)).  WT/DS339/R 
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  7.448  However, as pointed out by Canada, the HS, in cluding its interpretative rules under the GIR, 
is a classification rule and was never designed as a rule to prevent the so-called "circumvention" of duties that China allegedly tries to prevent through the measures.
759  We note that Article 9 of the HS 
Convention states, "the Contracting Parties do not assume by this Convention any obligation in 
relation to rates of Customs duty."760  In this regard, we also recall the statement by the Secretariat of 
the CCC, cited above, that practices involving eco nomic considerations cannot be accommodated at 
the technological level of the nomenclature and must be addressed by each importing country by taking steps necessary in the economic field such as in relation to customs duties.
761  In addition, as 
the European Communities points out, China's view w ould seem to imply that the rule has a different 
meaning in situations where the tariff rate diffe rence is small or where there is no difference.762  We 
do not find support for such a proposition.  Further, for the same reason that the HS is about tariff 
classification, not about economic considerations, we  do not regard the so-called unique classification 
challenges under Chapter 87 of the HS – in the sen se Chapter 87 has tariff headings for complete 
goods, intermediate goods a nd parts – as presenting a fiscal concern where a Member maintains a 
significant difference in duty rates between a complete good and parts of the complete good.763   
7.449  This is not to say, however, that classification is  irrelevant to tariff duties.  As acknowledged 
by the parties, classification of a good into the pr oper tariff heading is an essential first step for 
assessing the appropriate tariff duty on the product.764 However, in light of the evidence discussed 
above, we are not persuaded that an interpreta tive rule on tariff classification under the HS was 
intended to address issues relating to the circumvention of tariff duties.765 
7.450  Finally, we also note China's argument that it would be arbitrary to conclude that the same 
collection of parts and components, used to ass emble the same finished article, would obtain a 
different classification result based solely on whet her the parts and components are contained in one 
shipment or in multiple shipments, because such an interpretation woul d vitiate the rule's resolution of 
the relationship between parts and wholes.766  This argument is, however, once again predicated on 
China's own understanding that GIR 2(a) is a rule resolving the relationship between parts and wholes 
with significant differences in tariff rates, which we ha ve found not to be the case.  To this extent, we 
are equally not persuaded by China's argument.  Furthe r, China considers that even if GIR 2(a) did not 
exist, China (along with other customs authorities) would still need a means of defining and enforcing 
                                                      
759 Canada's responses to Panel question Nos. 186, 225.  Canada  submits that China attempts to turn a 
WTO dispute into a WCO dispute, and also ignores pr oper classification, starti ng with GIR 1, and that 
classification is a prerequisite for a ssessment of duties, but, as the WCO Secretariat points out, "[t]he application 
of customs duties is outside the legal purview of the WCO".   
The European Communities also submits that China confuses the interpretation of a general rule with 
the fiscal consequences of a tariff difference between parts and complete products and that a rule cannot be applied differently just because the consequence of its application may be more significant (European 
Communities' comments on China's response to Panel question No. 238(b)). 
760 The WCO Secretariat considers that Article 9 of the HS  Convention makes it clear that the 
purview of the WCO, its instruments and its Committees does  not extend to tariff-based issues (WCO's letter of 
30 July 2007, page 2.) 
761 See paragraph 7.439 above; Exhibit CDA-19, page 3. 
762 European Communities' second written submission, para. 118. 
763 China's response to Panel question No. 238(b). 
764 Canada's second written submission, para. 44, referring to Exhibit CDA-16 (WCO, HS 
Classification Handbook , Part II, Chapter 4, at page II/27) and its response to Panel question No. 113.  Also see 
paragraph 7.710. 
765 Canada's second written submission,  para. 59, footnote 69; Canada's  response to Panel question No. 
224; Exhibit CDA-18.  Also see paragraphs 7.443-7.444 above for the relevant text of this evidence. 
766 China's response to Panel question No. 110. WT/DS339/R 
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  the boundary between parts and wholes, and this is what the challenged measures do.
767  Otherwise, in 
its view, it would violate the general principle that substance should prevail over form in the 
administration of customs laws.  China has not prov ided, however, any legal or factual basis, apart 
from its arguments relating to GIR 2(a), to suppo rt its position that defining and enforcing the 
boundary between parts and wholes necessitates th e assessment of parts imported separately in 
multiple shipments for domestic assembly in the im porting country for classification of such parts as 
wholes. 
Conclusion  
7.451  In light of the foregoing, the Panel does not find that the context of the term "motor vehicles" 
supports the interpretation that the term "motor vehicles" in China's Schedule includes parts and 
components imported in multiple shipments and as sembled into a motor vehicle in the importing 
country. 
(iii) Object and purpose768 
7.452  China submits that Members may interpret thei r Schedules of Concessions in accordance 
with the rules of the HS, (and consistent w ith the practice of other WTO Members in like 
circumstances) and in a manner that is consistent  with the object and purpose of securing the benefit 
of reciprocal and mutually advantageous tariff concessions.769  China considers that the importation 
and assembly of auto parts components through multi ple shipments undermines the value of the tariff 
concessions that China negotiated, whether the auto manufacturer has an inten tion to evade the higher 
duty rates on motor vehicles or not.770  Referring to the Appellate Body's statements in previous cases, 
China argues that it is consistent with the object  and purpose of the GATT 1994 to interpret the term 
"motor vehicles" in China's Schedule of Concessions in a manner that preserves the value, from both a revenue and market access persp ective, of the higher bound duty rates that it negotiated for motor 
vehicles.
771  Further, in China's view, the effective re solution of the customs relationship between a 
complete article and parts of that article does not pos e a systemic risk either to the security of tariff 
concessions under Article II, or to the national treatme nt disciplines of Article III, since the resolution 
of this issue does not lead to the result that Me mbers may classify articles on the basis of their end-
use, and it does not lead to the result that Members may impose discriminatory measures on imported products merely by characterizing the measures as  border measures under Article II.  China submits 
that its position is simply that Members may inte rpret and enforce their Schedules of Concessions in 
accordance with the rules of the HS, and in accord ance with the principle that tariff arrangements 
should have meaningful effect. 
7.453  The European Communities submits that China's arguments do nothing less than undermine 
the whole system of tariff classification and the object and purpose of the WTO Agreement and the 
GATT 1994, namely "the security and predictability" of the reciprocal and mutually advantageous 
arrangements directed to the substantial reduc tion of tariffs and other barriers of trade.
772  This is 
because the measures classify parts of products as co mplete products in a context where its tariff 
schedules provide for a clear separation between th e products and parts thereof.  The European 
                                                      
767 China's second written submission, paras. 167, 168. 
768 See 7.699 below. 
769 China's response to Panel question No. 38.   
770 China's response to Panel question No. 13. 
771 China's second written submission, paras. 92-93. 
772 European Communities' second written submission, para. 69, also citing the Appellate Body Report 
on EC – Chicken Cuts , para. 243.  WT/DS339/R 
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  Communities further submits that the measures also provide for considerable unpredictability in terms 
of when a part of a product is deemed to be the complete product and subject to a much higher tariff, 
which goes to the very heart of the WTO Agreement and the GATT 1994.  The European 
Communities argues that there seems to be no limit to the flexibility that China needs under the HS 
and that China's interpretation of GIR 2(a), namely  to include the multiple shipment situation as 
envisaged under the measures, is a fundamental and serious attack on the very premise on which 
members' tariff commitment s have been negotiated.
773  The European Communities submits that it 
cannot emphasize more the seriousness of such a position to the multilateral trading system. 
7.454  The United States submits that China ignores the object and purpose of the HS 
Convention.774  According to the United States, two key objects and purposes of the Convention are, 
first, to establish uniform tariff nomenclature ru les for the purpose of comparing trade statistics 
(between exports and imports, and between differe nt parties to the Convention), and, second, to 
facilitate international trade.  The United States argues that China's interpretation of GIR 2(a) is 
totally at odds with these objects and purposes of  the Convention:  first, it will destroy the 
comparability of trade statistics collected by diffe rent members and the comparability between import 
and export statistics; and, second, it will destroy the certainty and predictability of tariff classification 
as well as serve as a serious impediment to tr ade, because under China's measures, goods are not 
classified as imported at the border, but only after goods have been used in manufacturing, and only 
after the manufacturer has completed and verified a complex analysis of the local content of the final 
product. 
7.455  Canada  submits that customs duties are applie d for the purpose of affording domestic 
producers a measure of protection from foreign import competition (although in some countries, particularly developing, they can also represent an important source of revenue).  To ensure 
predictability as to tariff classification and liabili ty, according to Canada, the HS bases the tariff 
classification of goods on their physical description at the time of their importation and admits of only 
one heading (or sub-heading) for each product.
775  Therefore, according to Canada, to countenance 
China's attempt to increase the ta riff on auto parts under the guise of enforcing the customs duty on 
automobiles instead of renegotiating their tariff c oncession on this item under the relevant provisions 
of the WTO would undermine the predictability and value of WTO tariff concessions made by 
Members on parts, more broadly. 
7.456  The Panel  now examines the interpretation of the tr eaty term concerned – i.e. the tariff term 
"motor vehicles" contained in the tariff headings of  China's Schedule of Concessions – in light of the 
object and purpose of the WTO Agreement and the GATT 1994.776 
7.457  One of the objects and purposes of the WTO Agreement, generally, as well as of the GATT 
1994, as clarified by the Appellate Body, is the secu rity and predictability of "the reciprocal and 
                                                      
773 European Communities' second written submission, para. 101. 
774 United States' second written submission, paras. 33-37. 
775 Canada's response to Panel question No. 140.  Canada also submits that China agreed to provide 
Canada with a lower rate for auto parts than motor vehi cles, and cannot use Article XX(d) to justify unilaterally 
altering this commitment and derogating from its Schedu le simply because it is now dissatisfied with this 
commitment (Canada's second written submission, para. 77). 
776 As found by the Panel in EC – Chicken Cuts , we consider that the WTO Agreement and the 
GATT 1994 are also the treaties at issue for the treaty term at issue in this case (i.e. tariff term "motor vehicle" 
in the tariff headings of China's Schedule of Concession)  given that China's Schedule  becomes an integral part 
of the GATT 1994 and the WTO Agreemen t in light of Article II:7 of the GATT 1994 and Article II:2 of the 
WTO Agreement respectively.  See also Panel Report on EC – Chicken Cuts , para. 7.317. WT/DS339/R 
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  mutually advantageous arrangements directed to th e substantial reduction of tariffs and other barriers 
to trade".
777 
7.458  The parties in the present case do not dispute that an object and purpose of the WTO 
Agreement and the GATT 1994 is the security and pred ictability of tariff concessions.  The parties, 
however, disagree whether the security and predictab ility of tariff concessions will be undermined if 
the tariff term "motor vehicles" contained in China's tariff concessions under China's Schedule of 
Concessions is interpreted to include parts and components imported in multiple shipments to be 
assembled into a motor vehicle in China.  
7.459  China argues that it is consistent with th e objective of maintaining the security and 
predictability of tariff concessions to interpret th e term "motor vehicles" in China's Schedule of 
Concessions in a manner that preserves the value, from both a revenue and market access perspective, of the higher bound duty rates that it negotiated for motor vehicles.  On the contrary, the European 
Communities submits that China's interpretation u ndermines the whole system of tariff classification 
and the object and purpose of the treaty, namely "the security and predictability" of the reciprocal and 
mutually advantageous arrangements directed to th e substantial reduction of tariffs and other barriers 
of trade.
778  Canada is also of the view that the interpre tation of the tariff term at issue as advocated by 
China would undermine the predictability and value of WTO tariff concessions made by Members on 
parts, more broadly. 
7.460  First, as noted above, the main purpose and objective of the WTO Agreement and the 
GATT 1994 is to maintain the security and predicta bility of reciprocal market access arrangements 
manifested in tariff concessions.  This, in our view , means that tariff concessions must be interpreted 
to benefit both the importing Member, China, and exporting Members.  Connecting this purpose and 
objective of the treaty at issue to the facts of this case, we consider that Ch ina is entitled to revenues 
from the higher tariff rates applicable to motor vehi cles under the relevant tariff headings of China's 
Schedule, while the exporting countries should be able to export parts and components of motor 
vehicles at the tariff rates applicable to auto parts under the appropriate tariff headings.  Considered in 
this context, an interpretation of the tariff term "motor vehicles" to include auto parts and components 
imported in multiple shipments for assembly into  a motor vehicle in the importing country could 
indeed undermine the objective and purpose of maintaining security and predictability of the 
reciprocal market access arrangements in China's tariff concessions.  This is particularly so given that 
one of the objects and purposes of the WTO Agre ement in general as well as of the GATT 1994 is 
directed to the substantial reduction of tariffs and other barriers to trade , as found by the Appellate 
Body. 
                                                      
777 Appellate Body Report on EC – Chicken Cuts , para. 243, quoting Appellate Body Report on EC – 
Computer Equipment , para. 82.  The Appellate Body also notes that "security and predictability" is also 
mentioned in Article 3.2 of the DSU.  We also note the reference by the Panel in EC – Chicken Cuts to the 
Appellate Body's statement in Argentina – Textiles and Apparel that "a basic object and purpose of the 
GATT 1994, as reflected in Article II, is to preserve the value of tariff concessions negotiated by a Member with 
its trading partners, and bound in that Member's Schedule" (Panel Report on EC – Chicken Cuts , para. 7.319). 
778 European Communities' second written submission, para. 69, also citing the Appellate Body Report 
on EC – Chicken Cuts , para. 243.  WT/DS339/R 
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  7.461  We also consider that the object of the Members' negotiations on trade facilitation
779 shed 
further light on the interpretative issue before us.  The object of the negotiations on trade facilitation is 
"further expedition of the movement, release and clearance of goods".780  In our view, this object can 
be read in consonance with the overall object a nd purpose of reducing barriers to trade under the 
WTO Agreement.  Therefore, any discretion a Member may have on trade-related matters must be exercised in a manner not only consistent with its  obligations under the WTO Agreement, but also 
supportive of the overall objects and purposes of the WTO Agreement, including the negotiations on trade facilitation. 
7.462  For the reasons above, we find that an interpreta tion of the term "motor vehicles" to include 
parts and components imported in multiple shipme nts for assembly into a motor vehicle could 
undermine that very object and purpose of the entire WTO Agreement and the GATT 1994. 
(iv) Subsequent practice
781 
7.463  We now examine, based on China's own practice as well as the practice of other Members 
since China's accession to the WTO, whether China h as proved the existence of a subsequent practice 
that implies agreement among the WTO Members rega rding the interpretation of the tariff headings 
concerned, in particular the application of GIR 2(a) to goods with separate tariff headings for a 
complete good and parts of the complete good. 
China's own practice  
7.464  China submits that prior to the adoption of the measures, China did not have a procedure for 
determining whether multiple shipments of parts an d components were related to each other through 
their common assembly into a specific vehicle model.782  China also submits that it does not have a 
general law or regulation that deals with each ci rcumstance where there is a significant tariff rate 
difference between a complete article and parts of that article.783  In China's view, the fact that China 
has established a customs process to resolve the ta riff classification relationship between parts and 
wholes in one context does not mean that it needs to  establish a similar customs process in other such 
contexts.  Rather, China allocates its customs administration resources based on a variety of 
                                                      
779 The Panel notes that in November 2001, WTO Members agreed to launch negotiations on trade 
facilitation.  The mandate of these negotiations provides that "[n]egotiations shall aim to clarify and improve 
relevant aspects of Articles V, VIII and X of the GATT 1994 with a view to further expediting the movement, 
release and clearance of goods, including goods in transit ".  The Members further agreed, "the negotiations 
shall further aim at provisions for effective cooperation between customs or any other appropriate authorities on 
trade facilitation and customs compliance issues" (Decision adopted by the General Council on 1 August 2004, 
Annex D, para. 1). 
780 The WCO Secretariat commented that the preambl e to the original BTN Convention (15 December 
1950) notes the desirability of "a common basis for the cl assification of goods in customs tariffs" (WCO's letter 
of 30 July 2007, page 2.) 
781 Also see paragraphs 7.702-7.705 in the CKD and SKD kits section. 
782 China's response to Panel question No. 12(b). 
783 China's response to Panel question No. 57, referring to its response to Panel question No. 12(c).  As 
examples of such circumstances where there is a significa nt tariff rate difference between a complete article and 
parts of that article, China provides fans (8414.5110) with  the tariff duty of 21.7 per cent (at the time of 
accession) and parts for a complete fan (8414.9020) with the tariff duty of 21.0 per cent and air conditioners 
(8415.1000) with the tariff duty of 21.0 per cent (at the time  of accession) and parts for a complete air 
conditioner (8415.9010) with the tariff rate of 11.7 per cent. WT/DS339/R 
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  considerations, including the commercial significance of  the products at issue, the volume of imports, 
and the potential revenue loss from misclassification of the imports.
784 
7.465  In this connection, the European Communities submits that the fact that China has adopted 
the measures in 2004 and 2005, which is three and four years after China's accession to the WTO, 
demonstrates that China has interpreted GIR 2(a) differently prior to the adoption of the measures, 
despite its claim that the interpretation it now  advances has been the premise under which it 
negotiated its accession to the WTO.785  Therefore, China's anti-circumvention theory is a mere 
creation ex post facto for the purposes of defending the measure s before the Panel.  The European 
Communities submits that there is not a single refere nce, let alone more detailed justification in the 
measures, that would even remotely point to GIR 2(a) or its language.786 
7.466  Given the absence of any practice relevant to th e interpretation of tariff headings concerned 
before the adoption of th e measures in China, the Panel does not find any examples of subsequent 
practice, insofar as China's own practice is concerne d, that could establish the Members' agreement on 
the interpretation of the tariff headings at issue as advocated by China.  Since its accession to the 
WTO, China has always maintained higher tariff rates for motor vehicl es than those for auto parts in 
its Schedule.787  China informs us, moreover, that no me chanisms or measures comparable to the 
measures at issue existed before the introduction of  the current measures in 2004 and 2005.  Nor has 
China provided any proof that it has been interpreting the tariff h eadings concerned in the same 
manner under the measures as before the adoption of the measures.  Our consideration is further 
supported by the fact that no other tariff headings under China's Schedule that have separate lines for 
a complete good and parts of the complete good are subj ect to the same kind of tariff interpretation at 
issue. 
Other Members' practice – In general  
7.467  China  submits that numerous WTO Members, including all three complainants in this 
proceeding, have maintained, both prior and subse quent to China's accession to the WTO, measures 
that prohibit the use of domestic assembly opera tions as a means of circumventing duties, whether 
they are ordinary customs duties or antidumping/countervailing duties.788  According to China, these 
measures demonstrate a practice among Members of interpreting the term for a complete article to include the importation and assembly of the compone nt parts of that article, when necessary to 
prevent the circumvention of duties.  Further, this subsequent practice implies a level of agreement as 
to how WTO Members may interpret the term for a complete article to include the parts and 
components of that article, and the measures that  Members may adopt to discipline the use of 
domestic assembly operations as a means of circumventing duties on complete articles.  More specifically, China refers to a classification decisi on by Canada on certain furniture import, which 
China considers is  directly comparable to China's measures
789, anti-circumvention measures taken by 
other Members in relation to anti-dumping and coun tervailing duties, and other Members' measures 
concerning split shipments.  China further submits  that other than these examples, China  is not aware 
                                                      
784 China's response to Panel question No. 57. 
785 European Communities' second written submission,  para. 120, referring to  China's responses to 
Panel question Nos. 12(b) and 111. 
786 European Communities' second written submission, para. 121. 
787 See China's response to Panel question No. 2. 
788 China's first written submission, paras. 111, 146-148. 
789 China's response to Panel question No. 238(b).  WT/DS339/R 
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  of any measures adopted by another party to the HS  Convention that are directly comparable to the 
measures at issue in this dispute.
790 
7.468  The European Communities argues that the fact that China is not able to present any 
evidence of comparable measures in other countries necessarily implies that China is not able to 
provide any evidence of international customs practice that could sustain its position.791  T h e  
European Communities submits that in the Europ ean Communities, GIR 2(a) applies only to goods 
presented at the same time and place.  Moreover, th e European Communities is of the view that China 
is mixing correct and incorrect information on cust oms classification together with its position on the 
relevance of anti-dumping measures to the measure s at issue, while anti-dumping measures have 
nothing to do with tariff classification.792 
7.469  The United States  submits that unlike China, it has not  applied the interpretative rules of 
GIR 2(a) to classify multiple shipments of parts and components as having the essential character of the complete article.
793  Instead, the US Customs has found that bulk shipments for inventory 
purposes are not covered by GIR 2(a), as bulk shipments for inventory are not for the convenience of 
packing, handling or transport.  Furthermore, in th e United States, it is not considered a circumvention 
of duty liability when parts of a machine, subject to  a lower rate of duty than the complete machine, 
are separately imported in different shipments into  the United States and entered at their respective 
lower rates of duty for subsequent assembly or manufacture into the final machine.794 
7.470  Canada submits that it has shown clear subsequent practice that WTO Members who are also 
WCO members interpret "as presented" to mean cla ssification based on the objective characteristics 
of a product in a single shipment.795  Canada argues that a single act of one WTO Member cannot 
constitute subsequent practice and that China has not  been able to point to "acts or pronouncements" 
of WTO Members in relation to the interpre tation of the tariff headings concerned.796  Canada 
considers that anti-circumvention measures in th e context of anti-dumping and countervailing duties 
are not legally relevant to measures concerning ordinary customs duties. 
7.471  In sum, to prove the existence of subsequent  practice corresponding to the measures at issue, 
China essentially relies on three types of measures a dopted by other Members:  first, a classification 
decision by the Canadian Border Services Ag ency ("CBSA") on furniture import; second, anti-
circumvention measures imposed by other Member s in relation to anti-dumping and countervailing 
duties; and, third, measures that allow unasse mbled or disassembled entities imported on multiple 
conveyances to be treated as a single entry fo r tariff classification purposes (so-called "split 
consignments" situation).797  The Panel will examine these measures in turn. 
                                                      
790 China's response to Panel question No. 238(b).  At the same time, China submits that given that 
there are 124 Contracting Parties to the HS Convention, it is impossible for China to undertake a comprehensive 
review of all the national laws and regulations of these co untries that are comparable to  the measures at issue.  
Although acknowledging difficulties a party may face in sear ching and producing particular evidence relevant to 
its case, the Panel recalls that the party asserting a claim,  factual or legal, has the burden to prove its claim. 
791 European Communities' comments on China's response to Panel question No. 238(b). 
792 European Communities' response to Panel question No. 116. 
793 United States' response to Panel question No. 116. 
794 United States' response to Panel question No. 116. 
795 Canada's response to Panel question No. 210(b), cross-referring to its response to Panel question 
No. 186.   
796 Canada's response to Panel question No. 116. 
797 In response to a Panel question, China submits that other than the CBSA furniture classification 
decision and the measures taken in relation to  anti-dumping/countervailing duties, China is not aware of any WT/DS339/R 
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  Other Members' practice – Canada's furniture classification decision
 
7.472  The CBSA furniture classification decision referre d to by China concerns Canada's policy in 
relation to the tariff classification of fu rniture imported in a disassembled condition:798  w h e n  t h e  
importer/retailer purchased complete furniture abro ad, and disassembled it into parts for importation 
separately into Canada over a period of time, the CBSA concluded as follows: 
"[I]n order to determine if articles are to be classified as disassembled furniture 
[within the meaning of GIR 2(a)], the co mmercial reality of the transaction between 
the importer and exporter must be considered (i.e. what was actually purchased  by 
the importer - complete furniture or unrelated parts)"799  (emphasis added). 
7.473  The CBSA considered that while certain busin ess operations and practices may require that 
articles be ordered as complete units, but shipped se parately over a period of time for various reasons, 
these shipping practices nonetheless do not change the fact that the goods were ordered as complete 
units and not as parts. 
7.474  China  alleges that the CBSA's furniture tariff classification described above is 
indistinguishable from China's interpreta tion of its own Schedule of Concessions:800 (1) both measures 
apply GIR 2(a) to conclude that the impor tation and assembly of parts can, under certain 
circumstances, be classified as the importation of the complete article; (2) both measures prevent the 
circumvention of the higher duty rate on the comple te article since, in both cases, a tariff schedule 
imposed a higher rate of duty on the complete artic le than on parts of that article; (3) the purpose and 
effect of both measures is to determine the "comme rcial reality" of the underlying import entries; and 
(4) both measures lead to the result that the separat e headings for "parts" of the article encompass the 
importation of (i) replacement parts and (ii) parts that are combined with domestic parts to produce an article that would not be classified as a complete imported article under GIR 2(a).   
7.475  Canada submits that the CBSA furniture decision s hould be distinguished from the measures 
concerned in this dispute in light of, inter alia , the following considerations:
801  (1) the CBSA 
decision covers only complete furniture that is manufactured abroad, but disassembled for importation 
and subject to re-assembly in Ca nada (it does not apply to dom estic furniture manufactured in 
Canada); and (2) to determine what the importer w as in fact importing, Canadian customs officials 
examined the purchase orders and import documentati on in order to ascertain that the imported goods 
were covered under the same purchase order, without any assumption of a violation. 
7.476  The Panel notes, as argued by China, that the CBSA  decision concerns the application of 
GIR 2(a) to goods (parts of a complete good) im ported in multiple shipments.  Also, in both cases, 
tariff rates for complete goods are higher than tho se applicable to parts of the complete goods.  We 
also notice, however, certain differences between the CBSA decision and the measures at issue in 
applying GIR 2(a) to the parts imported in multiple shipments. 
7.477  First, we consider that in the CBSA decision, GIR 2(a) is more narrowly applied than under 
the measures.  As Canada  submits, the CBSA decision covers only complete furniture that is 
                                                                                                                                                                     
measure adopted by another party to the HS Convention that  is directly comparable to  the measures at issue in 
this dispute (China's response to Panel question No. 238(b)). 
798 Canada Border Services Agency, "Tariff Classification of Furniture Imported in Disassembled 
Condition," Memorandum D10-14-38, March 23, 2006 (Exhibit CHI-22). 
799 Exhibit CDA-22, para. 6. 
800 China's first written submission, para. 119. 
801 Canada's response to Panel question No. 124(b) and (c).  WT/DS339/R 
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  completely manufactured abroad, disassembled for importation and then subject to re-assembly in 
Canada.  In the relevant paragraph, the CBSA d ecision indicates that articles imported specifically 
either as "replacement parts" or "to be incorpor ated with domestic components in the manufacture of 
domestic furniture"
802 will be classified in their own right under the appropriate HS headings.  The 
decision therefore does not apply GIR 2(a) to dom estic furniture manufactured in Canada.  In 
comparison, however, the measures at issue do not confine the application of GIR 2(a) to motor vehicles that were manufactured and disassembled abro ad to be subject to re-assembly in China.  
Rather, the measures cover a variety of situations, in cluding auto parts imported to be incorporated in 
the manufacture of domestic motor vehicles. 
7.478  In this connection, what is described as "the  commercial reality" in the CBSA decision, which 
Canadian customs officials considered most pertinen t in applying the principles of GIR 2(a), is also 
distinguishable from the type of considerations under the measures at issu e.  China argues that 
although the decision does not elaborate on this co mmercial reality, its purpose appears to be to 
discern whether the importer's intention  was to import whole furniture in disassembled condition or 
whether its intention was to import unrelated furniture parts.  Read in this lig ht, China argues that this 
is also the case for the measures at issue.  U nder the measures, the commercial reality of the 
underlying import transaction is determined by th e intention of the importer to assemble a motor 
vehicle with imported auto parts above cer tain thresholds set out in the measures.
803  According to 
China, the only difference is that, compared to the CBSA determination which does not elaborate on 
the standard to determine the commercial reality, the measures at issue define the precise thresholds at 
which China will classify multiple import entries as equivalent to the complete article, which makes 
the measures more transparent and predictable.804   
7.479  We do not, however, agree with China's understa nding of the "commercial reality" considered 
by the CBSA in the furniture case.   The CBSA decision indicates th at the commercial reality means 
the actual transaction between the exporter and the buyer (phrased as "what was actually purchased").  
There is no reference in the decision to the importer' s intention in the decision.  To the extent the 
CBSA decision does not determine the commercial rea lity of the underlying import transaction based 
on the intention of the importer to assemble complete  furniture with imported furniture parts, we do 
not consider that the two measures are comparable as China argues.  
7.480  Furthermore, the measures at issue in this di spute purport to prevent the use of domestic 
assembly operations as a means of circumventing duties on complete articles.805  We do not find such 
a purpose in the CBSA decision.  Rather, the decisi on clarifies that it will classify articles that are 
                                                      
802 Regarding "articles imported to be incorporated with domestic components in the manufacture of 
domestic furniture" (paragraph 6 of the decision), which th e decision says will be classified as "parts", Canada 
submits there is no threshold level of domestic content (Canada's response to Panel question No. 124(c)).   
803 However, we also recall China's statement that "C ustoms authorities interpret and enforce their tariff 
schedules in accordance with the rules of the HS, not the intention of the importer to evade applicable duty 
rates" (China's response to Panel question No. 13).   
The Panel finds it difficult to reconcile this statement with China's analogy above between the 
measures at issue and the CBSA decision based on the intention of the importer.  The Panel also does not 
understand why one type of intention should be taken into account in interpreting a tariff provision, while 
another type of intention does not matter. 
804 China's response to Panel question No. 124(a). 
805 China's first written submission, para. 153. WT/DS339/R 
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  imported to be incorporated with domestic com ponents in the manufacture of domestic furniture in 
their own right under the appropriate HS headings.
806 
7.481  Therefore, apart from whether the principle of GIR 2(a) has been correctly applied in the 
CBSA decision, which is outside the scope of this dispute, we do not find that the CBSA decision is 
precisely comparable to the measures at issue in respect  of the application of GIR 2(a).  In any event, 
even if Canada's measure were directly comparable to the measures at issue, this measure alone would 
not amount to "subsequent practice" within the meaning of Article 31(1)(b) of the Vienna Convention , 
which can be established only by a pattern of comm on, consistent, and conc ordant actions by WTO 
Members. 
Other members' practice – Anti-circumvention of anti-dumping and countervailing duties  
Anti-dumping duties and ordinary customs duties  
7.482  China  also argues that practices of Members in preventing the circumvention of anti-
dumping or countervailing duties is applicable to me asures designed to prevent the circumvention of 
ordinary customs duties.807  In China's view, in the anti-dumping and countervailing duty order 
context, it is permissible for a Member to apply an anti-dumping or countervailing measure to imports 
of the parts and components of a complete product, when necessary to prevent circumvention of the 
anti-dumping or countervailing duties that apply to th at complete product.  Therefore, as a matter of 
treaty interpretation, the resolution of this interpreti ve issue should be the same with respect to both 
anti-dumping/countervailing duties and ordinary customs duties. 
7.483  More specifically, in China's view, both customs and anti-dumping duties are "duties" 
governed by Article II of the GATT 1994 and requi re national authorities to determine whether 
imported merchandise is properly classified.  China argues that there are no rules on anti-circumvention in the context of anti-dumping duties e ither and that "whatever the legal basis for the 
imposition of duties, duties are duties once they are validly in place" and they can all be 
circumvented.
808  China submits that the existence of  separate tariff headings for parts and 
components of an article does not dictate the manne r in which a Member may interpret and enforce a 
tariff heading for the complete article.  Accordingl y, China considers that national authorities should 
be able to draw a dividing line between the importati on of the complete article and the importation of 
the parts of that article based on a "reasonable a nd practical approach" as adopted by other Members 
in the context of anti-dumping duties.809  China does not consider that the purpose of anti-dumping 
duties is more relevant than the acknow ledged purpose of ordinary customs duties810, when both can 
be undermined as effectively.  If anything, the extraordinary nature of anti-dumping duties should make it more difficult for Members to extend the scope of these measures to include parts and components of a product.
811 
                                                      
806 Exhibit CHI-22, paragraph 7. Canada's response to Panel question No. 210(b), cross-referring to its 
response to Panel question No. 186.   
807 China's first written submission, paras. 120, 138-145. 
808 China's second writen submission, para. 70. 
809 China is referring to the LNPPs from Germany and Japan case of the US Commerce Department 
(See paragraphs 7.501-7.507 below).  China also re fers to an argument by the United States in EEC – Parts and 
Components , which in China's view, analogizes the circumve ntion of AD/CV duties to the circumvention of 
ordinary customs duties (China's first written submission,  para. 143, citing para. 4.37 of the panel report). 
810 According to China, the purpose of ordinary cust oms duties is to regulate market access for imports 
and generate customs revenues. 
811 China's second written submission, paras. 72-78.  WT/DS339/R 
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  7.484  The European Communities  submits that the antidumping circumvention rules cannot be 
relied upon to establish a subsequent practice releva nt to the interpretation of China's obligations 
under Article II of the GATT 1994 and its Schedule of  Concessions, as this would totally ignore that 
anti-dumping duties and customs duties follow a completely different logic and are rooted in two 
different sets of WTO obligations.
812   
7.485  The European Communities argues that anti- dumping duties are not customs duties under 
Article II of the GATT 1994, but rather as an excep tion to Article II of the GATT 1994 and to the 
MFN principle.  Also, anti-dumping duties may be imposed only after an investigation establishing 
that dumped imports are causi ng injury to domestic industry.813  The European Communities argues 
that anti-dumping duties are subject to detailed obl igations under Article VI of the GATT and the 
Anti-Dumping Agreement and aim at re-establis hing fair trade conditions between the dumped 
imports and the domestic li ke products and protecti ng the domestic industry from the injury caused by 
the dumping.814 
7.486  The United States  submits that China's analogy to Members' anti-dumping practices is 
irrelevant in the absence of any proceeding initiate d by China under the rules of Article VI of the 
GATT 1994 and the Anti-Dumping Agreement, since the rules governing anti-dumping are different 
from Article II of the GATT 1994 rules and thus have no relevance to China's measures.815   
7.487  The United States argues that in respect of anti-dumping duties, the investigating Member is 
not required to impose them on the basis of tariff lin es, and thus, in the anti-dumping context, unlike 
customs duties governed by Article II, tariff lin es and how tariff concessions are set forth in a 
Member's Schedule are not relevant.816  The United States submits that anti-dumping measures are 
authorized only in certain circumstances, i.e. wh ere the investigating Member makes findings of 
dumping, injury and causal link.817  Furthermore, the United States  argues that when anti-dumping 
duties are imposed in the circumvention context, th ey are not applied in the way that China seeks to 
apply the charges under the measures at issue:  th e investigating Member does not impose the same 
anti-dumping duties on the products governed by a circumvention ruling as that imposed on the products that were clearly within the scope of the anti-dumping order from the outset.
818  There is no 
one uniform amount of duty imposed on any of the products within the scope of the anti-dumping order at least under the US system.  Rather, the anti-dumping duties are assessed on the basis of the 
amount of dumping found for particular tran sactions involving particular products.   
7.488  Canada  is also of the view that there is a sep arate regime that govern s application of anti-
dumping duties under the Anti-Dumping Agreement, and anti-dumping duties are measures that do not qualify as either "ordinary customs duties" or "other duties or charges" under Article II of the GATT 1994.
819  Canada submits that anti-dumping duties are fundamentally different from ordinary 
                                                      
812 European Communities' response to Panel question No. 132. 
813 European Communities' response to Panel question No. 132. 
814 European Communities' response to Panel question No. 132. 
815 United States' response to Panel question No. 140. 
816 China agrees that anti-dumping duties are defined by  reference to the scope of the investigation, not 
by reference to its tariff, but this is a distinction without a difference.  Anti-dumping measures and tariff 
provisions both refer to specific products. The United Stat es offers no explanation as to why the resolution of 
the issue, whether a reference to a pr oduct includes a reference to the parts and components if assembled into 
the complete product, should differ si mply because the product to which th e duty applies is described in the 
scope of an anti-dumping measure, instead of in a ta riff line (China, second written submission, para. 79). 
817 United States' responses to Panel question Nos. 67, 140. 
818 United States' response to Panel question No. 140. 
819 Canada's response to Panel question No. 140. WT/DS339/R 
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  customs duties in that anti-dumping duties are tem porarily applied to remedy a situation where 
imports from another Member are being dumped in a Me mber's internal market and are causing injury 
to domestic producers of those like products.
820  In contrast, ordinary customs duties do not correct a 
situation of wrongdoing ("injury"), nor does it relate to  activity within the internal marketplace.  The 
lack of "wrongdoing" and the need to correct such  actions is the reason that the concept of anti-
circumvention measures does not apply to valid and legitimate customs duties, and is only spoken of 
in terms of anti-dumping duties, which by their natu re are designed to combat actions already found to 
be illegal under a Member's domestic law. 
7.489  To support its argument that the rationale behi nd anti-circumvention measures in relation to 
anti-dumping or countervailing duties also extends to  China's interpretation of the tariff headings 
concerned, China starts from the proposition that  there is no difference between anti-dumping duties 
and ordinary customs duties, as both are "duties" regardless of the legal basis for anti-dumping duties 
and ordinary customs duties and as both can be circumvented.  First, the Panel notes that ordinary 
customs duties and anti-dumping are governed by  two different sets of rules under the WTO 
Agreement, namely Article II and Article VI of  the GATT 1994 and the Anti-Dumping Agreement.  
The Anti-Dumping Agreement, in particular, pr ovides detailed rules on the application of anti-
dumping duties, including specific preconditions such as the finding of dumping, injurious effects to the relevant domestic industry and causation between these two factors.   These rules are not in any 
manner related to the interpretation of a Member's Schedule of Concessions.   
7.490  Moreover, the reference to anti-dumping duti es in Article II:2 of the GATT 1994 does not 
mean that anti-dumping duties are also ordinary cust oms duties within the meaning of Article II of the 
GATT 1994.  As pointed out by the complainants, th e types of charges list ed in Article II:2 are 
exceptions to the disciplines under Article II that nothing other than ordinary customs duties as indicated in a Member's Schedule can be im posed on the importation of goods from other 
Members.
821   
7.491  Further, the purpose of ordinary customs duties,  as opposed to that of anti-dumping duties is, 
in our view, also a factor distinguishing customs du ties from the other:  ordinary customs duties are to 
regulate market access for imports and to genera te revenues, as submitted by China, whereas anti-
dumping duties are allowed, as necessary and u pon showing the preconditions set out in the 
Anti-Dumping Agreement, to address the injurious effects caused by illegally dumped imports on the 
importing country's domestic market.  Moreover, ordinary customs duties are imposed on imported 
goods under appropriate tariff headings in a tari ff schedule without any notion of illegal activity 
associated with imports. 
                                                      
820 Canada's response to Panel question No. 140. 
821 The Appellate Body in Chile – Price Band System  stated: 
 
"[w]e observe that Article II:2 of the GATT 199 4 sets out examples of measures that do not 
qualify as either 'ordinary customs duties' or 'oth er duties or charges'.  These measures include 
charges equivalent to internal taxes, anti-dumping and countervailing duties, and fees or other 
charges commensurate with the cost of services  rendered. They too may be based on the value 
and/or volume of imports, and yet Article II:2 distinguishes them from 'ordinary customs 
duties' by providing that '[n]othing in [Artic le II] shall prevent any Member from imposing' 
them 'at any time on the importation of any product'" (Appellate Body Report on Chile – Price 
Band System , para. 276). 
 
Furthermore, this understanding of Article II:2 of the GATT 1994 is also confirmed in reference 
materials, such as Jackson, John, World Trade and the Law of GATT (1969) , page 210 and Bhala, Raj, 
International Trade Law: Theory and Practice  (2001, Second Edition), page 299.  WT/DS339/R 
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  7.492  In light of the above, we do not find that Chin a has proved that there is no difference between 
ordinary customs duties and anti-dumping duties. 
Anti-circumvention measures in respect of anti-dumping duties 
7.493  Furthermore, the complainants submit that the anti-circumvention concept in the context of 
anti-dumping and countervailing duties should not be c onsidered as part of the "subsequent practice" 
for the measure at issue because unlike ordina ry customs duties, Members have recognized 
circumvention in the context of AD duties such as the Ministerial Decision on Anti-Circumvention
822; 
and Article VI GATT and Anti-Dumping Agreement823, and because anti-circumvention measures in 
connection with anti-dumping duties do not change the customs classification. 
7.494  More specifically, the European Communities  submits that anti-circumvention rules on anti-
dumping measures find their legitimacy in Article VI  of the GATT, the Anti-Dumping Agreement and 
the Ministerial Declaration on this issue, and thus enforce and relate to a different set of rights and obligations, which are not relevant to the inte rpretation of the rights and obligations of WTO 
Members under Article II of the GATT 1994.
824  The European Communities further argues that the 
anti-circumvention duty is never applied on products  leaving the assembly factory in the European 
Communities.825  Rather, an investigation is carried out and if it is found that the imports of parts 
constitute circumvention, the anti-dumping duty is extended to the parts.  Also, the European 
Communities' anti-circumvention measures change ne ither the customs classification nor the customs 
duty applicable to the product concerned.826 
7.495  The United States  argues that while the WTO Agreement does not define circumvention, 
Members have traditionally recognized two patterns of trade which they have considered to be 
circumvention, both of which arise in the cont ext of anti-dumping duty measures and countervailing 
duty measures – trade patterns involving (i) marginal alterations to the product itself and (ii) marginal 
alterations in the patterns of shipment and assembly respectively.827  The United States submits that 
most Members recognize that circumvention takes pl ace when such marginal modifications as regards 
merchandise otherwise subject to an anti-dumpi ng or countervailing duty measure are done in a 
manner which undermines the purpose and effectiven ess of trade remedies provided for under the 
WTO Agreement.  Also, according to the United St ates, the concept of circumvention in the anti-
dumping context has also been recognized in a Ministerial D ecision, i.e. the Ministerial Decision on 
Anti-Circumvention , adopted by Members at Marrakesh and forming an integral part of the Final Act 
Embodying the Results of the Uruguay Round Multilateral Trade Negotiations .  The Decision 
acknowledged the problem of circumvention in the trade remedies context and recognized the 
desirability of applying "uniform rules in this area  as soon as possible" to prevent the evasion of anti-
dumping and countervailing measures through circumvention.828  The United States argues that in 
                                                      
822 In addition, Canada also refers to the GATT Panel Report on EEC – Parts and Components .  See 
Canada's response to Panel question No. 13(a). 
823 The European Communities is the only complainant who makes this argument. 
824 European Communities' response to Panel question No. 132. 
825 European Communities' response to Panel question No. 132. 
826 The European Communities explains that applied to the example of anti-dumping measures against 
bicycles from China and the anti-circ umvention measures against imports of major bicycle parts, this would 
mean that the imports of parts would be subject to an anti-dumping duty for bicycles, but the customs duty will remain the one applicable for bicycle parts, as explicitly stated in Article 13(5) of Regulation 384/96 (European 
Communities' response to Panel question No. 132).   
827 United States' response to Panel question No. 140. 
828 The United States submits that "the Decision confirms that the topic of circumvention formed part 
of the negotiations which preceded the Anti-Dumping Agreement and referred this matter to the Committee on WT/DS339/R 
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  contrast, it is not aware of any generally held concept of circumvention under Article II of the 
GATT 1994. 
7.496  Canada  argues that unlike anti-circumvention of anti-dumping duties, which is a notion 
recognized by Canada and many other WTO Members, no parallel concept applies in respect of tariff 
concessions and there exists no generally recognized WTO basis for the application of internal "anti-
circumvention" measures related to tariffs.
829 
7.497  China  considers that the Ministerial Decision on Anti-Circumvention does not, on its face, 
apply to countervailing duties, but Members ha ve, nonetheless, adopted measures to prevent the 
circumvention of countervailing duties.  In additi on, the Decision does not establish rules but simply 
notes the existence of this issue in the anti-dum ping context and refers to the Committee on Anti-
Dumping.  Nothing in the decision implies that th e same problem does not exist in the context of 
countervailing duties or ordinary customs duties .  The evasion of duties is the same for all different 
types of duties.830  Further, there are in fact, no "rules" in  either Article VI of the GATT or the Anti-
Dumping Agreement that legitimize this practice.831 
7.498  The Panel notes that as submitted by the complainants, the notion of anti-circumvention 
measures applied in connection w ith anti-dumping duties is recognized in the Ministerial Decision on 
Anti-Circumvention.  The Decision provides: 
"Decision on Anti-Circumvention 
Ministers, 
 Noting that while the problem of circumvention of anti-dumping duty 
measures formed part of the negotia tions which preceded the Agreement on 
Implementation of Article VI of GATT 1994 , negotiators were unable to agree on 
specific text, 
 Mindful of the desirability of the applicability of uniform rules in this area as 
soon as possible, 
 Decide to refer this matter to the Committee on Anti-Dumping Practices 
established under that Agreement for resolution." 
7.499  As shown in the text of the Decision, WTO Members referred issues relating to 
circumvention of anti-dumping duties to the Committee on Anti-Dumping Practices at the time of the Uruguay Round negotiations.  Since then, WTO Memb ers have continued to discuss the relevant 
issues in accordance with the mandate under the Deci sion and as part of the Doha negotiations.  In 
contrast, we have no evidence or document show ing that comparable recognition or discussion has 
ever taken place in the context of ordinary customs duties or interpretation of Members' Schedules of 
                                                                                                                                                                    
 
Anti-Dumping Practices for resolution.  To fulfil this mandate, the Committee on Anti-Dumping Practices 
established the Informal Group on Anti-Circumvention to examine and resolve which rules should apply 
uniformly to address the problem of circumvention" (United States' response to Panel question No. 140). 
829 Canada's response to Panel question No. 140. 
830 China's second written submission, paras. 80-85.  China also refers to the "unresponsive answer" of 
the United States to Panel question No. 94.  China also not ices differences in view among the complainants.  In 
particular, China cites the statement of the European Communities that the Decision "recognizes that uniform rules on anti-circumvention of anti-dumping measures have not been defined". 
831 China's second written submission, para. 71.  WT/DS339/R 
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  Concessions within the scope of Article II of the GATT 1994.  In the absence of any specific 
indication or legal basis that the Members' discuss ions on the notion of circumvention in relation to 
anti-dumping duties can be also related to ordinary customs duties, we do not find that the 
circumstances surrounding the notion of anti-ci rcumvention of anti-dumping measures can be 
extended to the interpretation of Members' Schedules of Concessions. 
7.500  In this regard, China argues that since "not hing" in the Decision implies that the same 
problem does not exist in the ordinary customs duty context, it should be presumed that it also exists in the ordinary customs duty context.  We are not persuaded by China's argument.  The Decision 
explicitly notes that WTO Members could not agr ee on specific text relating to the problem of 
circumvention of anti-dumping duty measures , which formed part of the negotiations which preceded 
the Agreement on Implementation of Article VI  of GATT 1994, which is an agreement on anti-
dumping duties.  It also expresses the negotiators' "desi rability of the applicability of the uniform rules 
in this area " (in the area of anti-dumping measures) (emphasis added).  We do not find any basis in 
the language of the Decision, which is specifical ly aimed at the negotiators' recognition of the 
circumvention problem with respect to anti- dumping duty measures, for extending the same 
consideration to ordinary customs duties. 
Anti-circumvention measures:  EC bicycle case and US printing press case 
7.501  China  refers to the measures taken by the European Communities and the United States to 
prevent the circumvention of anti-dumping duties through the importation and domestic assembly of 
parts to support its argument that anti-circumve ntion measures in respect of anti-dumping measures 
constitute the subsequent practice for China's measures in the present case.
832  More specifically, 
China takes two specific examples of anti-circum vention measures the European Communities and 
the United States have taken in respect of anti- dumping duties imposed originally on bicycles and 
printing press imports.833  Essentially, China submits that th e European Communities and the United 
States have imposed the same anti-circumvention measu res as the measures at issue, in the sense that 
both types of measure employ the same standards such as a value test (consideration of the value of imported parts used in the assembly of a complete  good); distinguish the importation of individual 
parts per se (i.e. replacement parts) from the importation of parts for the purpose of assembling what 
is, in the essential character, a complete good; and adopt customs procedures to facilitate the tracking 
of imported parts and components - conditions imposed at the time of importation.  China submits that 
the purpose, structure, and operation of th e anti-circumvention measures in both cases are 
indistinguishable from China's measures. 
7.502  The European Communities  submits that the purpose of the rules set out in Article 13(2) of 
that regulation is to act against shipments of parts which are either assembled in the Community or a third country if these shipments of  parts replace the shipment of pr oducts which had previously been 
found dumped and shipped in an assembled form.
834  According to the European Communities, all 
these actions are linked and must take place in the context of an anti-dumping measure on the assembled product with a view to undermining the remedi al effect of these duties.  In comparison, the 
European Communities submits that China's measures are not an action against imports of parts which 
                                                     
 
832 China's first written submission, paras. 120-136.  Specifically, China refers to the EC Council 
Regulation (EC) No. 384/96 (as amended by regulation 461 /2004) and 19 U.S.C. 1677j(a)(1) (Exhibit CHI-26). 
833 Anti-circumvention measure imposed on Bicycle Imports from China under Council Regulation 
(EC) 71/97 (10 January 1997) (Exhibit CHI-24) and anti-circumvention measure imposed on Large Newspaper 
Printing Presses and Components Thereof, Whether Assembled or Unassembled from Germany and Japan by 
the US Commerce Department (Exhibit CHI-25). 
834 European Communities' response to Panel question No. 132. WT/DS339/R 
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  have previously been imported in the form of a ssembled cars, but rather an action against parts as 
such with a view to increasing local content and developing a domestic industry for auto parts and complete vehicles.  The European Communities poi nts out that its regulation is applied against 
importers which intentionally circumvented the anti-dumping duty, and this was found out by an 
investigation.
835  Second, the anti-circumvention duty is never applied on products leaving the 
assembly factory in th e European Communities.836 
7.503  With respect to the US Final Determination on "Large Newspaper Printing Presses and 
Components (LNPPs)"837, the United States argues that unlike automobiles, which are routinely 
imported fully assembled, it is not feasible to im port fully assembled LNPPs.  Further, the United 
States submits that "the value test" was part of a process of the Department of Commerce so that 
importers could demonstrate that their mercha ndise was not subject to the anti-dumping order. 
7.504  In the Panel's understanding, China's argument above  is that since the mechanisms838 of the 
measures at issue and the anti-circumvention m easures imposed by the European Communities and 
the United States are similar, these anti-circumv ention measures are indistinguishable from China's 
measures and therefore establish subsequent practice in respect of China's measures.  In assessing 
China's argument, we first recall our finding above that the recognition of the problem relating to circumvention of anti-dumping duty measures
839 and the rationale underlying anti-dumping duties840 
cannot be in principle extended to the ordinary customs duty context:  unlike anti-dumping duty measures, the notion of, or any prob lems relating to, circumvention in the context of ordinary customs 
duties does not exist; ordinary customs duties are gove rned by an entirely separate set of disciplines 
under the WTO Agreement from anti-dumping duties; and ordinary customs duties are imposed on goods in accordance with appropriate tariff headings in a tariff schedule without any notion of illegal 
activity associated with imports.  Considered agains t this background, we are not of the view that a 
mere similarity in the operative mechanisms between the anti-circumvention measures taken in 
respect of anti-dumping duties as cited by China and China's measures taken in the context of 
ordinary customs duties would make the measures co mparable to the two examples of circumvention 
measures taken by the European Communities and the Untied States in the context of anti-dumping 
measures. 
7.505  Further, we note the European Communities' poi nt that unlike the measures at issue, its anti-
circumvention measure in respect of bicycle part imports from China purports to act against imports 
of parts which had previously been imported and du mped to the EC market in the form of assembled 
bicycles so as to cause an injury to the EC domestic bicycle market.
841  In this light, the purpose of the 
anti-circumvention measures associated with anti-du mping measures cannot be related to the charge 
imposed under China's measures.  Under the measures at issue, the condition triggering the imposition 
of the charge is the importers' intention to asse mble motor vehicles using imported parts above the 
thresholds set out in the measures842, without the need to show the preconditions of the kind attached 
                                                      
835 European Communities' response to Panel question No. 132. 
836 Rather, an investigation is carried out and if it is found that the imports of parts constitute 
circumvention, the antidumping duty is extended to the parts.  See European Communities' response to Panel 
question No. 132. 
837 United States' response to Panel question No. 126. 
838 See paragraph 7.501 for the operative factors under these two anti-circumvention measures that 
China argues are comparable to th ose relating to China's measures. 
839 See paragraphs 7.497-7.499. 
840 See paragraphs 7.489-7.492. 
841 See paragraph 7.502.  European Communities' response to Panel question No. 132. 
842 See China's response to Panel que stion No. 108(d).  China states, inter alia , that the charge imposed 
under the measures relates back to the condition attached at the time of importation; when the auto manufacturer  WT/DS339/R 
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  to the imposition of anti-circumvention measures in  respect of original anti-dumping duties, for 
example, a proof that the subject parts had previ ously been imported in the form of assembled goods 
and found dumped.  If anything, China's tariff schedule itself provides the two different tariff rates for 
motor vehicles and parts thereof, which is a dir ect result of the negotiations between China and WTO 
Members.   
7.506  Finally, to the extent China has maintained a position that the notion of "circumvention" for 
the purpose of this case is a matter of correct tariff classification, China has not explained how anti-circumvention measures in respect of anti-dumping measures, which have no relation with tariff 
classification, are indistinguishable from the measures taken in the context of ordinary customs duties 
allegedly for correct classification.
843 
7.507  Overall, given the noticeable legal and factual differences between anti-dumping duties and 
ordinary customs duties, the Panel finds that anti-circumvention measures imposed in relation to anti-
dumping or countervailing duties cannot be consider ed as constituting subsequent practice for the 
interpretation of tariff headings as suggested by China. 
Other Members' practice – "split shipments" 
7.508  Finally, China also refers to certain regulati ons of other Members that allow multiple entries 
of unassembled or disassembled merchandise to be treated as a single entry for tariff classification purposes (so-called "split shipments" situation).
844  We recall our finding in paragraphs 7.434-7.436 
above that regulations addressing split shipment s are distinguished from the multiple shipment 
situation covered under the measures.  Therefore, we do not consider that the regulations dealing with 
split shipments establish subsequent pr actice for the measures at issue. 
Conclusion  
7.509  For the reasons above, the Panel does not find based on the available evidence before it that 
there exists a "concordant, comm on and consistent" sequence of acts or pronouncements by WTO 
Members that would amount to the subsequent prac tice for the interpretation of the tariff headings 
concerned as advocated by China. 
                                                                                                                                                                     
fulfils its stated intention to import and assemble parts and components that have the essential character of a 
motor vehicle, it will be obliged to pay the applicable duty rate for motor vehicles. 
843 We also note China's argument that the complainants have failed to establish why the practices of 
WTO Members in respect of anti-dumping duties are not relevant to the interpretation of China's Schedule of Concessions, and to a consideration of the types of measures that China may adopt to prevent the evasion of the 
higher duty rate for motor vehicles that it negotiated (China's second written submission, para. 85).  As set out in 
Section VII.A.3, however, the burden of proof rests with the party, be it the complainant or the respondent, who makes an affirmative claim.  As regards the issue of  WTO Members' practices in respect of anti-dumping 
measures, it is China who has put forward an argument th at such practices constitute the subsequent practice for 
the measures at issue.  Therefore, it is China that bear s the burden of proof concerning this particular issue. 
844 China's first written submission, paras. 156-160.   
Also, in response to a Panel question whether national customs authorities, as a common practice, 
make classification determinations after the parts are assembled, the WCO Secretariat indicates that it is aware 
of at "least one Contracting Party who has introduced legal provisions in Section XVI (i.e. Chapters 84 and 85) 
and for headings 86.08, 88.05, 89.05 and 89.07, stipulating that '[t]he provisions of GIR 2(a) are also applicable, 
at the request of the declarant and subject to conditions stipulated by the competent authorities, to [machines] [goods of headings 86.08, 88.05, 89.05 and 89.07] im ported in split consignments'." (WCO's letter of 20 June 
2007, page 5). WT/DS339/R 
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  (v) Supplementary means of interpretation
845 
7.510  We will now examine evidence submitted in rela tion to the circumstances of conclusion of 
China's accession to the WTO, including China' s classification practice prior to its WTO accession, 
that could potentially discern what was, or was not, the common intention of the Members with 
respect to the tariff term "motor vehicles" in Chin a's concessions contained in the tariff headings of 
China's Schedule. 
7.511  China  argues that the interpretation of the term "motor vehicles" that China has implemented 
through the measures is confirmed by recourse to the circumstances surrounding the conclusion of 
China's accession to the WTO, such as the historical background against which the accession was 
negotiated.846  According to China, at the time Chin a negotiated its Schedule of Concessions, many 
WTO Members, including the United States and th e European Communities, had long maintained 
measures to prevent the circumvention of duties.  China submits that these circumstances help discern 
the common understanding of the parties as to the di stinction between complete articles and parts of 
those articles, and the types of measures that Members are allowe d to adopt to delineate the boundary 
between these two categories.847   
7.512  The European Communities  submits that the fact that China has adopted the measures only 
in 2004 and 2005 demonstrates that China has interpre ted GIR 2(a) differently prior to the adoption of 
the measures despite its claim that the interp retation it now advances has been the premise under 
which it negotiated its accession to the WTO.848  The European Communities argues that if China 
already applied such an interpretation at the time of its accession to the WTO, the measures would be 
redundant.849 
7.513  Canada  submits that at the time of China's accession, there was no established practice 
among Members to apply the concerned HS Co mmittee Decision 1995 to multiple shipments. 
7.514  The Panel  will first consider China's own practice at  the time of, or prior to, its accession to 
the WTO in 2001.  China submits that, prior to th e adoption of the measures, China did not have a 
procedure for determining whether multiple shipment s of parts and components were related to each 
other through their common assembly into a specific vehicle model, which is the situation that has 
triggered, according to China, the n eed for the measures at issue in 2004.850  This seems to be the case 
although China has been maintaining, including pr ior to China's accession to the WTO, higher tariff 
rates for motor vehicles than those for parts and components of a motor vehicle.851  Specifically, 
China submits that in 2001, immedi ately prior to China's accession to  the WTO, the average applied 
                                                      
845 See paragraphs 7.722-7.725 below. 
846 China's first written submission, paras. 149-150.  China refers to the Appellate Body's statement in 
EC – Computer Equipment  that the "circumstances of the conclusion " of a treaty includes, "in appropriate cases, 
the examination of the historical b ackground against which the treaty was negotiated" (Appellate Body Report 
on EC – Computer Equipment , para. 86). 
847 China's first written submission, para. 151. 
848 European Communities' second written submission, pa ra. 120, referring to China's response to Panel 
question No. 111. 
849 The European Communities also points out that China must be applying GIR 2(a) differently in 
different contexts given that China does not have sim ilar measures in place in the context of other products 
where applicable tariff rates are different between the complete articles and their parts (European Communities' 
second written submission, para. 120, referring to China's response to Panel question No. 57). 
850 China's response to Panel question No. 12(b). 
851 All the parties to the dispute do not dispute that China has always applied lower tariff rates to auto 
parts than to motor vehicles.  Also See China's response to Panel question No. 2.  WT/DS339/R 
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  tariff rate for "motor vehicles" was 63.6 per cent, a nd the average applied tariff rate for "auto parts" 
was 24.7 per cent.
852   
7.515  In any event, China has not been able to provi de the Panel with evidence showing that China 
had ever classified, prior to its accession to the WTO, multiple imports of auto parts and components 
as a motor vehicle, based on their assembly into a moto r vehicle in China.  Nor has China been able to 
point to classification practices of other WTO Member s that could support China's interpretation of 
the tariff term "motor vehicles".  We note that Ch ina has referred to the so -called anti-circumvention 
measures imposed by other Members such as the Unit ed States and the European Communities in the 
context of anti-dumping duties.  However, for the reasons we explained above, we do not consider 
that the measures imposed in connection with an ti-dumping or countervailing duties are comparable 
to the interpretation of a tariff term in th e concessions contained in China's Schedule. 
7.516  China  also argues that the importance of the inte rpretation of GIR 2(a) adopted by the WCO 
(referring to the HS Committee Decision) is that WT O Members have been aware, since at least 1995, 
that the HS allows Members to classify multiple imports of parts and components in accordance with 
the principle of GIR 2(a).  According to China, ther efore, this is part of the context in which WTO 
Members have negotiated and entered into tariff concessions and in turn also part of the context in 
which China negotiated its Schedule of Concessions with other WTO Members in connection with its 
accession to the WTO.853 
7.517  In addressing China's assertion that WTO Members have been aware, since at least 1995, that 
the HS allows Members to classify multiple imports  of parts and components in accordance with the 
principle of GIR 2(a), the Panel first recalls the Appellate Body's observation regarding the HS in EC 
– Computer Equipment : 
"We are puzzled by the fact that the Panel, in  its effort to interpret the terms of [the 
EC Schedule], did not consider the Harmonized System  and its Explanatory Notes .  
We note that during the Uruguay Round negotiations, both the European 
Communities and the United States were parties to the Harmonized System .  
Furthermore, it appears to be undisputed that the Uruguay Round tariff negotiations 
were held on the basis of the Harmonized System's nomenclature and that requests 
for, and offers of, concessions were normally  made in terms of this nomenclature."854 
7.518  We further note that referring to  its observation cited above in EC – Computer Equipment , the 
Appellate Body in EC – Chicken Cuts  made reference to an observation by the Panel: 
"[T]he Panel also pointed out , and no participant in this proceeding contested, that 
'the [Harmonized System] was used as a basis for the preparation of the Uruguay 
Round GATT schedules. 
... 
The above circumstances confirm that, prio r to, during, as well as after the Uruguay 
Round negotiations, there was broad consen sus among the GATT Contracting Parties 
                                                      
852 China's response to Panel question No. 2. 
853 China's response to Panel question No. 111.  China adds that under Article 31 of the Vienna 
Convention , the decision of the WCO concerning the interpretation of GIR 2(a) is therefore relevant context for 
the interpretation of China's tariff provisions for motor vehicles. 
854 Appellate Body Report on EC – Computer Equipment , para. 89. WT/DS339/R 
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  to use the Harmonized System as the basi s for their WTO Schedules, notably with 
respect to agricultural products. ..." 
855 
7.519  As the Appellate Body observed above, give n that the Uruguay Round tariff negotiations 
were held on the basis of the nomenclature of the HS  and that requests for, and offers of, concessions 
were normally made in terms of this nomenclature , the WTO Members were aware of the content of, 
and their obligations under, the HS at the time of  the Uruguay Round negotiations.  Furthermore, the 
Panel in EC – Chicken Cuts noted that the membership of the HS  was "extremely broad" and included 
the "vast majority of WTO Members".856  In light of this, we consider it reasonable to presume that at 
the time of the Uruguay Round negotiations, the Me mbers recognized the obligations under the HS.  
As regards the obligations under the HS, Article  3(a)(ii) of the HS Convention provides: 
"[I]t shall apply the General Rules for the interpretation of the Harmonized System 
and all the Section, Chapter and Subheading Notes, and shall not modify the scope of 
the Sections, Chapters, headings or su bheadings of the Harmonized System." 
7.520  The Members' obligation under the HS thus incl uded the application of GIR 2(a), which is a 
provision under the GIR.  Then, to prove that the Members understood at the time of the Uruguay Round negotiations that they were allowed to classi fy "multiple imports of parts and components" in 
accordance with GIR 2(a), China must show that GIR 2(a) is interpreted to include "multiple imports 
of parts and components". 
7.521  In this relation, China exclusively relies on pa ragraph 10 of the HS Committee Decision:  that 
the statement in paragraph 10 of the Decision – "the questions of ... the classification of goods 
assembled from elements originating in or arriving from different countries are matters to be settled 
by each country in accordance with its own nationa l regulations" – supports its proposition that the 
Contracting Parties to the HS were allowed to classify parts and components of a complete good imported in multiple shipments under the correspondi ng tariff heading for the complete good.  As 
examined above in Section VII.D.2(a)(ii), however, China has not demonstrated that paragraph 10 of 
the HS Committee Decision addresses the multiple shipme nt situation as advocated by China.  Rather, 
we found that the evidence before us showed that  paragraph 10 of the Decision addressed the question 
of rules of origin.
857  Therefore, we do not consider that the HS Committee Decision should be 
understood as indicating the WTO Members' awareness of the interpretation of GIR 2(a) as advanced 
by China at the time of, or prior to, China's accession to the WTO. 
7.522  The considerations above in re lation to the supplementary means of interpretation confirm our 
preliminary finding that the tariff term "motor ve hicles" in the concessions contained in the tariff 
headings of China's Schedule does not require that  multiple imports of parts and components of a 
motor vehicle be included in its scope, based on th e assembly of those parts and components into a 
motor vehicle in China. 
(b) Conclusion 
7.523  For the reasons above, the Panel concludes that the tariff provisions for motor vehicles 
(87.02-87.05) of Chin a's Schedule of Concessions do not include in their scope auto parts imported in 
multiple shipments based on their assembly into a moto r vehicle.  Accordingly, to the extent the 
measures could be considered as falling within th e scope of Article II of the GATT 1994, China's 
                                                      
855 Appellate Body Report on EC – Chicken Cuts , paras. 196, 199. 
856 Appellate Body Report on EC – Chicken Cuts , paras. 196, 199.   
857 See paragraphs 7.444 above.  WT/DS339/R 
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  measures have the effect of imposing ordinary cust oms duties on imported auto parts in excess of the 
concessions contained in the tariff headings for auto  parts under its Schedule, inconsistently with its 
obligations under Article II:1(a) and (b) of the GATT 1994. 
3. Treatment of auto parts imports under China's measures - essential character test under 
Articles 21 and 22 of Decree 125  
7.524  We recall our consideration above that the thres holds to determine the essential character of a 
motor vehicle, set out in Articles 21 and 22 of De cree 125, could be considered as an element that 
would characterize the charge as ordinary customs duties, provided the thresholds are by themselves 
applied to the classification of auto parts and components imported in a single shipment.  The 
complainants argue that the criteria for the determ ination of the essential character of a motor vehicle 
set out in Articles 21 and 22 of Decree 125, even if they are applied to auto parts imported in a single shipment, are still in violation of Article II of the GATT 1994.  We will thus examine this claim by 
the complainants in this section on the assumption that  these criteria are applied to auto parts imported 
in a single shipment.
858 
(a) "Essential character" test under GIR 2(a) 
(i) Circumstances under which the essential charac ter test under GIR 2(a) is applicable  
7.525  As examined above, those WTO Members who are also contracting parties to the HS are 
obliged under the HS Convention to apply the interp retive rules of the HS, namely the GIR, to the 
classification of goods.  In this connection, we found that in certain classification situations, GIR 2(a) 
needs to be consulted, in conjunction with GIR 1.859   
7.526  Specifically, the HS Contracting Parties are requi red to classify an incomplete or unfinished 
good, imported either unassembled or disassembled , as the corresponding complete good provided the 
incomplete or unfinished good, as presented, has the essential character of the complete or finished 
good.  The parties to the dispute do not dispute that the principle of GIR 2(a) applies when customs 
authorities need to determine whether parts a nd components of a complete good, imported and 
presented in a single shipment, have the essential character of the complete good.  
7.527  Therefore, in this section, we will examine wh ether the criteria provided in Article 21(2) and 
(3) and Article 22 of Decree 125 for the essential charact er of a motor vehicle, if their application is 
limited to a single shipment situation, are comp atible with the principle of GIR 2(a), China's 
concessions in the tariff headings for motor vehicl es of China's Schedule, and consequently with 
Article II:1(a) and (b) of the GATT 1994. 
(ii) Panel's task in respect of the complainants' claim on the essential character test under the 
measures  
7.528  We observe that no definite guidance exists for the assessment of whether the criteria under 
Articles 21 and 22 of Decree 125 provide a valid sta ndard for determining the essential character of a 
motor vehicle under GIR 2(a) and consequently are c onsistent with China's concessions in the tariff 
headings for auto parts. 
                                                      
858 The complainants' claim relating to China's treatment of CKD and SKD kits under Article 21(1) of 
Decree 125 is addressed in S ection VII.E of these reports. 
859 See paragraphs 7.389-7.391 above. WT/DS339/R 
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  7.529  In response to questions from the Panel in th is regard, the WCO Secretariat has commented 
that except for several examples cited in the E xplanatory Notes to certain areas of the HS, the 
Nomenclature and Explanatory Notes are largely silent regarding the meaning of the "essential 
character" of the complete or finished article as it appears in GIR 2(a).
860  Referring to the General 
Explanatory Note to Chapter 87 as a notable example,  the WCO Secretariat states that the question at 
what point a collection of parts can be considered to substantially compose a complete motor vehicle 
is one that must be considered on a case-by-case ba sis.  In this connection, the Committee has not 
formally developed principles, nor has the Co mmittee ruled formally on the classification of 
unassembled sets of parts for motor vehicles of Chapter 87.   
7.530  At the same time, the WCO Secretariat notes that Chapter 87 presents unique classification 
challenges because in addition to  headings describing complete motor vehicles (headings 87.01-
87.05) and a heading for parts and accessories (hea ding 87.08), the Chapter also provides a separate 
heading for motor vehicle chassis fitted with engine s (heading 87.06) and a heading for motor vehicle 
bodies (including cabs) (heading 87.07).  In the view of  the WCO Secretariat, some sets of auto parts 
may be classifiable by application of GIR 2(a) in either heading for complete motor vehicles or headings for intermediate goods (i.e. motor vehi cle chassis fitted with engines under heading 87.06 
and motor vehicle bodies under heading 87.07).
861  Accordingly, the WCO Secretariat considers that 
the treatment of collections of parts of motor vehicles could range from individual classification of 
each part in heading 87.08 or other eo nomine provisions in the Nomenclature (see Note 2 to Section 
XVII)862, through headings 87.06 and 87.07, to head ings 87.01-87.05, although the borderlines among 
these headings have not been tested in the Comm ittee with respect to unassembled sets of parts. 
7.531  Regarding the principles that would affect a deci sion on the application of GIR 2(a) to the 
standards set out in Article 21 of Decree 125, the WCO Secretariat comments that the HS criterion is 
whether the specific collection of parts presented has the essential character of the complete or 
finished article, bearing in mind the existence of headings for intermediate goods (tariff headings 
87.06 and 87.07) in the case of Chapter 87.863  At the same time, the WCO Secretariat points out that 
absent specific guidance from the nomenclature (i .e. legal provisions) or the Committee (i.e. 
interpretation of the nomenclature), it is within th e purview of national customs administrations to 
interpret provisions such as GIR 2(a).864 
                                                      
860 WCO Secretariat's letter of 20 June 2007, page 2.  We also note a reference by the Panel in EC – 
Chicken Cuts to the WCO Secretariat's comments regarding a question on what factors and material are 
considered when deciding the heading under which a product should be classified to which the WCO 
[Secretariat] responded:  "When goods are classified under the HS, this is  always done on the basis of the 
objective characteristics of the product at the time of im portation. ... the factor which determines the essential 
character of a product will vary from one product to anothe r. ... the determination of the essential character of a 
product may be done through a visual inspection of the product including indications on the packing.  Reference 
may also be made to accompanying documents" (Panel Report on EC – Chicken Cuts (Brazil) , para. 7.314). 
861 The WCO Secretariat further adds that heading 87.07 would cover only those sets in which the 
engine is already fitted into the chassis, and such assemb lies that include cabs are classified in the headings for 
complete motor vehicles (WCO's letter of 20 June 2007, page 3, referring to Note 3 to Chapter 87). 
862 Note 2 to Section XVII provides a list of articles ((a ) – (l)) that would not fall within the scope of  
the expressions "parts" and "parts and accessories". 
863 WCO Secretariat's letter of 20 June 2007, page 4. 
864 In this regard, the WCO Secretariat further emphasizes that under the provisions of the HS 
Convention (i.e. Article 10), any dispute between Co ntracting Parties concerning the interpretation or 
application of the HS Convention shall, so far as possible, be settled by negotiation between them.  If it is not possible to settle the dispute, it shall be referred to the HS Committee to consider the dispute and to make 
recommendations for its settlement.  WT/DS339/R 
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  7.532  As noted by the WCO Secretariat, the Genera l Explanatory Notes to Chapter 87 provide two 
examples of incomplete or unfinished vehicles that  are classified as the corresponding complete or 
finished vehicles for having the essential character of the complete or finished vehicles:   
(A) A motor vehicle, not yet fitted with the wheels or tyres and battery; and 
(B) A motor vehicle, not equipped with its engine or with its interior fitting. 
7.533  The European Communities points out that the General Explanatory Notes to Chapter 87, 
which are a particular application of GIR 2(a) in the context of Chapter 87, provide for a tool in exceptional borderline situations to be applied on a case-by-case basis. 
7.534  China considers that the two examples provided in the General Explanatory Notes to Chapter 
87 are just examples which do not define the boundar ies of the application of  the essential character 
test to motor vehicles.
865 
7.535  In our view, although they may not provide an absolute or exhaustive standard for 
determining the essential character of a motor vehi cle given the non-binding nature of the General 
Explanatory Notes under the HS, these two exam ples could be considered as guidance for the 
question before us.866   
7.536  We also recall the unique structure of Chapter 87,  which consists of the tariff headings for not 
only complete motor vehicles and parts and compone nts thereof, but also intermediate goods (87.06-
87.07).  The tariff headings 87.06 and 87.07 provide: 
"87.06 – Chassis fitted with engines, for the motor vehicles of headings 87.01 to 
87.05 
87.07 – Bodies (including cabs), for the motor vehicles of headings 87.01 to 87.05" 
7.537  This means that goods satisfying the descriptions in tariff headings 87.06 and 87.07 must be 
classified under these specific headings pursuan t to the principle of GIR 1 and GIR 2(a) 
(determination whether incomplete or unfinished vehicl es should be classified as complete or finished 
vehicles) will not be applicable.867 
                                                      
865 China considers the first example ("a motor vehicle, not yet fitted with the wheels or tyres and 
battery") to constitute at least an "SKD kit", which could be also be classified simply as a motor vehicle, since 
"wheels, tyres and batteries are all consumable items which are commonly added to the vehicle in the domestic 
market".  According to China, the second example ("a motor vehicle not equipped with its engine or with its 
interior fittings") would likely correspon d to Article 21(2)(b) of Decree 125, as it constitutes a "body ... plus at 
least three other assemblies" (China's response to Panel question No. 117). 
866 See paragraph 7.586 below and footnote 923 for the Appellate Body's reference to Explanatory 
Notes of the HS in examining the meaning of a tariff term. 
867 The WCO  Secretariat comments that these tariff headings would be examples of the situation 
where the conditional clause under GIR 1 – "provided the headings and legal notes do not otherwise require" – 
would apply.  The WCO Secretariat explains that this conditional clau se means that a heading providing 
specifically for a collection of unassemble d parts or an incomplete article would prevail by application of GIR 1 
because GIR 2 would not apply.  The European Communities  submits that the classification of a brake 
cylinder or of a product fulfilling the conditions of heading 87.06 "chassis fitted with engines" would not 
necessitate recourse to GIR 2(a) and the General Explanatory Notes to Chap ter 87 because the classification of 
the product would be clear on the ba sis of the heading (European Commun ities' response to Panel question No. 
211). WT/DS339/R 
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  7.538  Furthermore, we note the WCO Secretariat's comment that the legal text of GIR 2(a) is open 
to different interpretations and that it is the general concept that interpretation of the HS is the right of 
every Contracting Party.
868  The WCO Secretariat further explains that, based on the general concept 
concerning the Contracting Parties' right to interpreta tion of the HS, there could be interpretations that 
differ among different Parties.  Thus, when the HS Committee makes a determination and issues a Classification Opinion, upon request from a Contrac ting Party, for the classification of a specific 
article (or a group of articles presented together),  it is not uncommon for the resulting Classification 
Opinion to be at variance with one or more national classification rulings, BTIs, or other 
administrative or statutory rules.  In such a case, the HS Contracting Parties are expected to seek a 
way to modify their internal instruments so as to permit application of the Classification Opinion, and 
they are obligated to inform the Comm ittee when they are unable to do so. 
7.539  We will bear in mind the above considerations as guidance in examining the criteria set out in 
the measures. 
7.540  Overall, in light of the fact that there are no cl ear criteria that the Contracting Parties to the 
HS are obliged to apply for the essen tial character determination, our task in this connection is not to 
decide what should be the correct criteria for th e essential character of a motor vehicle under Chapter 
87 of China's Schedule.  We consider that the scope  of our review in respect of the complainants' 
claim against China's measures, in particular  the essential character determination, under 
Article II:1(a) and (b) of the GATT 1994 is limited to a very narrow question whether any aspect of 
the criteria set out in the measures will necessarily lead to a violation of China's obligations under its 
Schedule and consequently Article  II:1(a) and (b) of the GATT 1994.
869   
(iii) Preliminary issue:  pre-determined criteria for the essential character test 
7.541  Before commencing our analysis, we will addr ess the European Communities' argument that 
the principle of GIR 2(a) is not applicable at the le vel of the tariff headings and without considering a 
very specific shipment as presented to customs at th e border, and should be considered only on a case-
by-case basis.870   
7.542  The European Communities submits that the other rules and in particular GIR 2(a) on which 
China bases its entire defence strategy are not releva nt in interpreting a Member's schedule generally 
unless one assumes a very specific product or a combin ation of products that are presented to customs 
at the same time.  Recourse to GIR 2(a), which is one of the "following provisions" within the 
meaning of GIR 1, can only be relevant in very  specific individual cases "as presented" to customs, 
and not at the level of China's tariff schedules ge nerally as China insists. The European Communities 
argues that China's systematic treatment under th e measures of imported goods contrary to their 
                                                      
868 WCO Secretariat's letter of 30 July 2007, page 4.   
869 In response to a question from the Panel, China  states that although it is not clear whether a 
measure must be shown to always viol ate the WTO Agreement to prove an "a s such" claim, a party bringing an 
"as such" claim against the measures must identify and prove the specific circumstances in which the measure 
"will necessarily be inconsistent" with the responding Members' WTO obligations (China's response to Panel 
question No. 228).  The European Communities responds that the criteria under Articles 21 and 22 of 
Decree 125 would necessarily lead to incorrect classification .  Canada  submits that the measures "as such" 
violate Article II by always subjecting auto parts to the mo tor vehicle rate if the thresholds are exceeded and that 
it is irrelevant to the analysis of Article II that, in rare instances, a collection of assembled parts large enough to 
constitute an assembled vehicle under Article 21 of Decree 125 may properly be classified as whole vehicles 
under the HS.   
870 European Communities' second written submission, para. 90; European Communities' responses to 
Panel question Nos. 208, 209, 211.  WT/DS339/R 
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  objective characteristics and contrary to the explicit wording of the headings of schedules has nothing 
to do with discretion. 
7.543  China  considers that, notwithstanding their repeated insistence that GIR 2(a) can only be 
applied "in casu" or "on a case-by-case basis", the complainants have not ch allenged the application 
of Decree 125 as it pertains to any specific  combinations of auto parts and components.
871  In fact, the 
complainants, along with Australia, contradict them selves on basic issues of where and how to draw 
the line between motor vehicles and pa rts of motor vehicles under GIR 2(a).872  In this light, China 
considers that the complainants have failed to ma ke a prima facie case that China has misinterpreted 
the term "motor vehicles" in respect of where China has drawn the line between motor vehicles and 
parts of motor vehicles.  Consistent with their own understanding of GIR 2(a), such a claim would 
have to be brought on the facts of a specific ca se or cases, with evidence and arguments concerning 
the proper application of the essential character test  in each instance. The complainants have chosen 
not to do this.873 
7.544  China argues that the fundamental problem with  the complainants' case is that they have 
failed to present evidence and legal arguments suffici ent to identify the specifi c instances in which the 
challenged measures will necessarily result in a mi sapplication of the essential character test. The 
complainants have failed to define the boundaries of  the essential character test as it relates to parts 
and components of motor vehicles under Chapter 87 of  the HS, and to substa ntiate those boundaries 
by reference to evidence and legal arguments. Nor ha ve the complainants demonstrated a consistent 
application of the challenged measures that has resu lted in a misapplication of the essential character 
test to parts and components of motor vehicles. Having failed to meet their burden of proof, the 
complainants have provided the Panel with no basis to  distinguish between those instances, if any, in 
which the measures will necessarily r esult in a misapplication of the essential character test, and those 
instances in which it will not.  Therefore, China subm its that the Panel cannot find that the challenged 
measures, as such are inconsistent with the essential character test under GIR 2(a).874 
7.545  The WCO Secretariat  has responded to a question from the Panel in this regard that there is 
nothing in the HS Convention or policy decisi ons of the HS Committee that would preclude an 
administration from establishing formal criteria for de termining when GIR 2(a) is to be applied.  
Further, it adds that interpretation of the HS is  the right of every Contracting Party, and such 
interpretations could conceivably take the form of advance classification rulings (binding tariff 
information or BTI), individual classification dete rminations upon liquidation of a specific formal 
entry, national court rulings, regulations or statutes.875 
                                                      
871 China's second written submission, para. 26.   
872 China submits that Australia considers that the engine must be present for an incomplete or 
unfinished vehicle to have the essential character of a motor vehicle (Australia's response to Panel question to 
third parties No. 12); the United States and Canada take the position that the engine is not required to establish 
essential character (United States' response to Panel qu estion No. 117(b); Canada's response to Panel question 
No. 117(b)); the European Communities suggests that an  unfinished or incomplete vehicle cannot be missing 
anything "essential for the functioning of the vehicle," which would clearly include the engine and transmission (CHI-43). China considers the European Communities' "ess ential for the functioning" standard inconsistent with 
the United States' position that what matters is whether th e articles are "recognizable" as the machine that they 
will become (CHI-42). 
873 China's second written submission, para. 30; Ch ina's comments on the complainants' responses to 
Panel question No. 233.  See also China's response to Panel question No. 133. 
874 China's response to Panel question No. 206. 
875 WCO Secretariat's letter of 30 July 2007, page 1 (response to question No. 5).  The WCO 
Secretariat further elaborates, "such actions [individual interpretation of the HS by the Contracting Parties] WT/DS339/R 
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  7.546  The Panel considers that the essence of the European Communities' argument in this respect 
is that determining, based on the principle of GIR 2(a), whether a certain set of incomplete or unfinished goods has the essential character of the corresponding complete or finished good can only 
be made by examining a specific shipment as pres ented to customs authorities, and not based on a 
pre-determined set of criteria at the level of ta riff headings.  The Europ ean Communities argues that 
the material conditions set out in Articles 21 and 22 of Decree 125 amount to tariff classification at 
will. 
7.547  However, in response to a question from the Pane l whether a Member has the discretion to set 
forth criteria that it will apply to all shipments of parts of a given product to determine whether they 
have the essential character of the whole, th e European Communities acknowledged that Members 
may adopt instruments and use documents that guid e customs authorities and importers in the context 
of particular kinds of shipments, as long as such  guidance is in accordance with the HS and the 
Members' WTO obligations.
876  The United States has also submitted that a Member may set forth 
criteria that it will apply to all shipments of parts of a given product so long as the criteria set forth are 
consistent with the Member's obligations under the GATT 1994 and other WTO Agreements and – if 
the Member is also a party to the HS Convention – its obligations under the HS Convention.877  
Canada does not take issue either with Members set ting forth guiding criteria to apply to particular 
shipments of goods to determine their classification878, insofar as such criteria are in accordance with 
the rules of the HS and consistent  with a Member's WTO obligations. 
7.548  Further, the WCO Secretariat advises that such  interpretations could conceivably take the 
form of BTIs (advanced classification determinati ons), individual classification determinations upon 
liquidation of a specific formal entry, national cour t rulings, regulations or statutes.  In our view, 
having a pre-determined set of criteria for the essenti al character test based on a particular Member's 
interpretation of the HS is not different from providi ng interpretations in the form of BTIs, individual 
classification determinations, nationa l court rulings or regulations or statutes, insofar as all these 
forms of interpretations have a binding effect on their domestic customs authorities and provide a 
standard to be applied to future cases. 
7.549  In light of the responses from the complainants, we understand that they are not in principle 
objecting to a pre-determined set of criteria for the essential character determination that a Member may have in its domestic legal system, as long as su ch criteria are consistent with the obligations 
under the WTO Agreement and the HS Convention, if the Member is also a Contracting Party to the 
HS.  The WCO Secretariat's comment is also in line with this view.
879  Therefore, we consider that the 
core of the complainants' contention is the consis tency of the substantive criteria for the essential 
                                                                                                                                                                     
could result in interpretations that differ among countrie s.  When a CP requests that the Committee consider the 
classification of a specific article (or group of ar ticles presented together), and the Committee makes a 
determination and issues a Classification Opinion (CO), it is not uncommon for the resulting CO to be at variance with one or more national classification rulings, BTIs, or other administrative or statutory rules.  CPs 
are expected to seek a way to modify their internal instruments so as to permit application of the CO, and they 
are obligated to inform the Committee when they are unable to do so." 
876 European Communities' response to Panel question No. 209. 
877 United States' response to Panel question No. 209. 
878 Canada's response to Panel question No. 209.  Canada submits that this approach is illustrated with 
respect to kit cars in Canada (see Exhibit CHI-17) and other shipments elsewhere (e.g. EC Regulation 
2127/2005, Exhibit CHI-14).  Canada refers to paragraphs 41-51 of its second written submission for its 
argument why the measures, ev en if applied to a single shipment of all parts at the border, do not classify 
imported goods in accordance with the requirements of the HS. 
879 See paragraph 7.545 above.  WT/DS339/R 
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  character of a motor vehicle set out in China' s measures with the obligations under the WTO 
Agreement.  We address this question in this sec tion, immediately following the current discussion. 
7.550  In this connection, we note China's argument th at the complainants have not established their 
prima facie  case that China has misinterpreted the term "motor vehicles" in respect of where China 
has drawn the line between motor vehicles and parts of  motor vehicles.  China considers that such a 
claim would have to be brought on the facts of a sp ecific case or cases, with evidence and arguments 
concerning the proper application of the essential character test in each instance.   
7.551  To support its position, China argues that the complainants have failed to define the 
boundaries of the essential character test as it rela tes to parts and components of motor vehicles under 
Chapter 87, and to substantiate those boundaries by reference to evidence and legal arguments.   
7.552  As set out above, a party advancing an affirmativ e claim, legal or factual, bears the burden to 
prove its case.
880  To establish a prima facie  case for their claim, the complainants therefore have to 
demonstrate, based on factual and legal arguments, how the criteria for the essential character 
determination set out in the measures are inconsiste nt with China's concessions contained in the tariff 
headings for auto parts.  However, in our view, this does not necessarily require the complainants to 
define themselves the boundaries of the essential character  test for the products concerned in this case.  
We recall that establishing a prima facie  case means that if a party asserting a claim adduces evidence 
sufficient to raise a presumption that what is claimed is true, the burd en then shifts to the other party, 
who will fail unless it adduces sufficient evidence to rebut the presumption.881  In this connection, the 
Appellate Body clarified that precisely how mu ch and precisely what kind of evidence will be 
required to establish such a presumption will necessarily  vary from measure to measure, provision to 
provision, and case to case.882   
7.553  For the complainants in the present dispute, one way of proving their claim could be by 
putting forward the "correct" boundaries as China claims.  This might indeed be the best way, if 
possible, to prove their claim, but is not a prerequisite for or the only way of establishing the 
complainants' prima facie  claim concerning the essential character test contained in the measures.  As 
noted by the WCO Secretariat, the Nomenclature a nd Explanatory Notes of the HS are largely silent 
regarding the meaning of the essential character of th e complete or finished article as indicated in  
GIR 2(a) and the legal text of GIR 2(a) is open to different interpretations.  Further, we are informed 
that the HS Committee has not formally developed principles in this rega rd, nor has the Committee 
ruled formally on the classification of unassembled sets of parts for motor vehicles of Chapter 87.883  
Under these circumstances, therefore, it would not be  the appropriate application of the burden of 
proof if the complainants were required to prove their prima facie  case by putting forward what are 
the correct boundaries for the essential character of a motor vehicle. 
7.554  China also argues that the complainants have not  demonstrated a consistent application of the 
challenged measures that has resulted in a misapplic ation of the essential character test to parts and 
components of motor vehicles.  As China itself has noticed, however, the complainants have brought 
a claim on the measures as such, not as applied to specific facts.884  In proving their as such claim, the 
                                                      
880 See Section VII.A.3 above. 
881 See Section VII.A.3 above.  
882 Appellate Body Report on US – Wool Shirts and Blouses, page 14. 
883 See paragraph 7.529 above. 
884 China submits that it considers that the complainants have brought an as such claim against the 
challenged measures and that the European Communities ha s no basis to assert that Decree 125 is inconsistent 
with the essential character test in a ll circumstances to which it might be applied.  China points out that even the 
United States concedes that "there might be a few comb inations" of auto parts under Decree 125 "that could WT/DS339/R 
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  complainants may resort to evidence of the cons istent application of the concerned measures.
885  
However, we do not consider that this is ne cessarily required to establish a prima facie  case for the as 
such claim brought by the complain ants because what the complainants  are required to show in order 
to prove their claim is the incons istency of "norms or rules" underlying China's legislation at issue 
with the WTO Agreement.886 
(b) Essential character test under the measures at issue 
7.555  Articles 21 and 22 of Decree 125 provide:  
"Article 21 Imported automobile parts shall be characterized as complete 
vehicles if one of the following applies: 
(1) imports of CKD or SKD kits for the purpose of assembling vehicles; (2) within the scope identified in Article 4 of these Rules: 
(a) imports of a body (including cabin) assembly
887 and an 
engine assembly for the purpose of assembling vehicles; 
(b) imports of a body (including cabin) assembly or an engine 
assembly, plus at least three other assemblies (systems), for the purpose of assembling vehicles; 
(c) imports of at least five assemblies (systems) other than the 
body  (including cabin) and engine assemblies for the purpose 
of assembling vehicles; or 
(3) the total price of imported parts account s for at least 60% of the total price of 
a complete vehicle of that vehicle model.  This criterion shall enter into force on July 1, 2006. 
                                                                                                                                                                    
 
conceivably properly be classified under the HS as whole vehicles" (China's comments on complainants' 
responses to Panel question No. 233). 
885 As China has provided, the Appellate Body stated: 
 
"[t]he party asserting that another party's municipal law, as such, is inconsistent with relevant 
treaty obligations bears the burden of introducing evidence as to the scope and meaning of such law to substantiate that assertion.  Such evidence will typically be produced in the form 
of the text of the relevant legislation or legal instruments, which may be supported, as 
appropriate, by evidence of the consistent application of such laws ..." (Appellate Body 
Report on US – Carbon Steel , para. 157) (emphasis added). 
 
886 The Appellate Body in Dominican Republic – Import and Sale of Cigarettes stated:  "[w]e observe 
that the Appellate Body has consistently affirmed the right of WTO Members to challenge legislation laying 
down norms or rules 'as such', as well as their right to bring claims against the appli cation of such measures in 
specific instances" (Appellate Body Report on Dominican Republic – Import and Sale of Cigarettes , para. 302). 
In US – 1916 Act , the Appellate Body also states, "Pri or to the entry in to force of the WTO Agreement , 
it was firmly established that Article XXIII:1(a) of the GATT 1947 allowed a Contracting Party to challenge 
legislation as such, independently from the application of  that legislation in specific instances. ..." (Appellate 
Body Report on US – 1916 Act, para. 60). 
887 For the term "assembly", see paragraphs 7.88-7.89.  WT/DS339/R 
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  Article 22 Imported automobile parts sh all be characterized as an assembly 
(system) if one of the following applies: 
(1) imports of a complete set of parts for the purpose of assembling assemblies 
(systems); 
(2) imports of key parts or sub-assemblies for the purpose of assembling 
assemblies (systems), if the quantity of the imported key parts or sub-assemblies reaches or exceeds the specifie d level as set forth in Annexes 1 
and 2
888; or 
(3) the total price of imported parts account s for at least 60% of the total price of 
that assembly (system)." 
7.556  We will examine each criterion in turn. 
(i) Overview of the arguments of the parties 
7.557  The European Communities considers that the ordinary meaning, context and purpose of 
headings 87.01 to 87.05 of China's tariff schedule cl early point to complete motor vehicles, and that 
only in some exceptional situations the General E xplanatory Notes to Chapter 87 of the HS foresee 
that an incomplete or unfinished vehicle may be classified as the corresponding complete or finished 
vehicle (where it has the essential character of the latte r). For a collection of parts to be classifiable as 
a complete vehicle, "the overwhelming majority of  the parts must be present and fitted together".889 
Such a determination has to be made case-by-case  based on the objective characteristics of that 
article, in the state it is presented to customs officials at the border (i.e. the "snapshot").890  The mere 
fact that there may be exceptional individual in stances where a large combination of parts as 
presented to Customs at the border in a single co nsignment would qualify as a complete vehicle 
pursuant to GIR 2(a) of the HS and in the light of  the General Explanatory Note to Chapter 87 cannot 
                                                      
888 As of 1 July 2008, lower quantity thresholds will apply to those key parts identified as class A in 
Annex 1 to Decree 125.  If those thresholds are met, the assembly will be characterized as an "imported 
assembly" (Note 5 of Annex I to Decree 125 and Article 19  of Announcement 4).  The entry into force of this 
class A/B distinction was initially foreseen on 1 July 2006, but was postponed until 1 July 2008 (CGA Joint 
Bulletin No. 38 of 5 July 2005) (Exhibit JE-29). 
Further, Article 20 of Announcement 4 provides:  
"If the imported parts accounts for more than 60% of the price of the key parts or sub-
assemblies, such key parts or sub-assemblies sh all be deemed as imported key parts or sub-
assemblies.  Manufacturers shall provide a list of price ratios of parts needed. 
 
Key parts or sub-assemblies, in principle, shall only be traced back to the secondary suppliers 
of the manufacturers of complete vehicles. 
 
Imported parts purchased by domestic suppliers or trading companies shall be counted as imported parts." 
 
889 European Communities' response to Panel question No. 205. See also the European Communities' 
responses to Panel question Nos. 211, 231 and 250. 
890 European Communities' second written submission, para. 94. WT/DS339/R 
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  exempt the Chinese measures from being, as such, in compatible with Article II, when it has been 
established that their application will necessarily result in WTO violations.
891 
7.558  The United  States  acknowledges that under GIR 2(a) incomplete products may be classified 
as complete ones, if they have their essential charact er.  However, the United States is of the view that 
China ignores GIR 1 (which provides that "classifi cation should be determined according to the terms 
of the headings and any relative section or chapter no tes"), the HS chapter h eadings specific to auto 
parts, and its own schedule of tariff commitments co ntaining detailed descriptions of various parts and 
auto assemblies and sub-assemblies.  The auto parts and auto assemblies imported into China must be 
classified in accordance with the specific tariff headings listed in China's schedule.892 
7.559  The United States is of the view that the criteria set out in Articles 21 and 22 of Decree 125 
are not the types of criteria commonly used as standa rds by customs officials in determining whether 
parts and components of a product should be considered as a complete product.893  The measures lay 
down thresholds that arbitrarily define some collec tion of imported parts as having the character of a 
whole product, and result in the application of duties for whole products to parts.894 
7.560  Canada recognizes that there may be instances when an  article is an incomplete or unfinished 
product on importation, but has all of the essential char acteristics of a complete or finished product. 
WTO Members can make use of GIR 2(a) in classification of individual shipments of products on the basis of the "snapshot" of goods as they arrive at the border.
 895  The "essential characteristics" must 
be assessed based on the objective characteristics of th e product as presented at the border in a single 
shipment. This involves elements such as visual in spection, reference to documents, and if necessary 
further testing or analysis (based upon the state of the good as it passed the border).896  Canada argues 
that the assessment of whether an incomplete or unf inished article has the "essential character" of the 
complete or finished article must  be made based on the objective characteristics of that article, and 
solely that article, in the state it is pr esented to customs officials at the border.897  No consideration is 
                                                      
891 European Communities' second written submission, para. 134. 
892 United States' first oral statement, paras. 36-40; United States' second oral statement, para. 24.  The 
United States submits that under the HS, the GIR and the Section notes, goods are required to be classified in 
their condition as imported under the heading that most accurately describes the good. Following GIR 2(a), 
customs officials must make a determination as to whether components presented together impart the essential 
character of a complete or finished article. If not, then the components are to be individually classified. If 
Decree 125 were considered a valid interpretation of the HS, it would void several headings and subheadings 
that specifically describe automobile assemblies, subass emblies, and parts (United States' responses to Panel 
question Nos. 209, 223, 231). 
893 United States' response to Panel question No. 1. 
894 United States' response to Panel question No. 68. 
895 Canada explains in response to Panel question No. 39:  "the Explanatory Note VII to GIR 2(a) is 
meant to cover situations where all parts arrive at the border in one shipment.  In such situations, all parts that 
are necessary to form the article are classified together if  they have the 'essential character' of that complete or 
finished article as presented.  Any excess parts not require d to form that article contained in that shipment can 
be classified as parts."  In response to Panel question No. 113, Canada adds that "the Explanatory Note VII 
states 'no further working operations' can be considered when determining whether an article, as presented, has the essential character of a complete or unfinished article". 
896 Canada's responses to Panel question Nos. 68, 12 5 and 224. Canada's written version of its oral 
statement at the first meeting with the Panel, paras. 17-20. Canada, in response to Panel question No. 110, also refers to EC – Chicken Cuts , in which "the Appellate Body confirmed that classification must be based on the 
objective characteristics of an article as presented when it quoted the WCO statement that '[w]hen goods are 
classified in the Harmonized System, it is always done on the basis of the objective characteristics of the product 
at the time of importation'." 
897 Canada's response to Panel question No. 110.  WT/DS339/R 
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  to be given to separate consignments arriving at di fferent times, end-use or value of the article, but 
simply to objective characteristics of the product as presented at the border. 
7.561  Canada submits that Canadian customs officials perform assessments on a case-by-case basis 
of those parts presented together at the border, and that they do not base their classification of those 
parts on a formula that is linked to the number of imported assemblies. Canada points out that this is 
particularly the case with vehicles since they consist of a great number of individual parts, including assemblies and sub-assemblies.
898 
7.562  China  considers it important to stress that GIR 2(a) does not provide a licence for national 
customs authorities to classify imports however they  wish. With respect to GIR 2(a), first sentence, 
the article must be "incomplete or unfinished".  With respect to the second sentence of GIR 2(a), the 
unassembled or disassembled parts must be capable of  assembly into the complete article within a 
carefully circumscribed range of assembly opera tions. Thus, customs authorities could not invoke 
GIR 2(a) to classify any collection of parts or ma terials as a complete article that those parts or 
material could conceivably form. By the terms of  Explanatory Note VII to GIR 2(a), the second 
sentence applies only to "articles the components of which are to be assembled either by means of 
fixing devices ... or by riveting or welding, for example, provided only assembly operations are 
involved." In actual practice, there is a fairly na rrow range of products under the HS to which this 
circumstance applies.899 
(ii) Criteria under Article 21(2) of Decree 125 
7.563  Article 21(2) provides the following three categor ies of criteria for the essential character of a 
motor vehicles: 
"(a) imports of a body  (including cabin) assembly and an engine  assembly for the 
purpose of assembling vehicles; 
(b) imports of a body  (including cabin) assembly or an engine  assembly, plus at 
least three other assemblies  (systems), for the purpose of assembling 
vehicles; 
(c) imports of at least five assemblies  (systems) other than the body  (including 
cabin) and engine assemblies for the purpose of assembling vehicles;" (emphasis added) 
7.564  The European Communities  submits that even assuming that the parts would arrive in a 
single shipment, the measures would still fail to meet the "essential character" condition.
900  Under 
Article 21(2) of Decree 125, imported parts will be classified as complete vehicles even though parts 
or assemblies essential for the functioning and character of a vehicle will be missing in the combination of imported parts.  Further, this is all the more so because an assembly need not be 
imported in its entirety or even manufactured in Ch ina from exclusively imported parts to be Deemed 
Imported under Article 22 of Decree 125.  As a r esult, the import of a relatively limited quantity or 
value of parts is sufficient to meet the thresholds  of Article 21(2) of Decree 125 and leads to the 
classification of the imported parts as a complete vehicle.   
                                                     
 
898 Canada's response to Panel question No. 1. 
899 China's response to Panel question No. 68. 
900 European Communities' second written submission, para. 113. WT/DS339/R 
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  7.565  The European Communities points out that although the average number of parts in a 
complete vehicle is in the thousands, under the meas ures, the import of five key parts of the vehicle 
body and six key parts of the engine will be suffi cient to make both assemblies Deemed Imported and 
all imported parts characterized as complete ve hicles for a certain type of vehicle under the 
measures.
901   
7.566  The European Communities further argues th at once the class A/B distinction under 
Article 22 of Decree 125, the entry into force of which is postponed until 1 Ju ly 2008, takes effect, 
imported auto parts will be classified as complete vehicles under much lower thresholds.  For 
example, the imports of one door, one engine hood, one engine block and one cylinder head will be 
sufficient to make the vehicle body and the engine  Deemed Imported Assemblies, and the imported 
parts characterized as complete vehicles.902 
7.567  Regarding Article 21(2)(a) of Decree 125, the European Communities considers that it covers 
the situation whereby the two main assemblies (the  vehicle body and engine ), without being fitted 
together, are imported for the purposes of manufactu ring a complete vehicle.  Such a situation is 
"manifestly far away from the categories foreseen by China's Schedule examined in the light of the 
General Explanatory Notes to Chapter 87 whereby an incomplete or unfinished vehicle may be 
classified as the corresponding complete or finished  vehicle provided it has the essential character of 
the latter". There is no basis in China's Schedules or in the Notes to the HS that would allow imposing a different tariff than specifically indicated under th e relevant China's tariff headings just because the 
engine and the body are imported in order to be  manufactured and fitted together. Instead, these 
products are subject to their own very specific head ings, which provide genera lly for a bound rate of 
duty of less than 10 per cent for bodies and relevant  engines.  The fact that under the measures the 
imported vehicle body and the engine would be charact erized as a complete motor vehicle and subject 
to the 25 per cent duty for complete vehicles under tari ff headings 87.02 to 87.04 is a manifest breach 
of the bound rates of duty of China under its tariff sc hedule and consequently a breach of Article II of 
the GATT 1994.
903 
7.568  With regard to Article 21(2)(b) and (c) of Decree 125, the European Communities points out 
that Chapter 87 of China's Schedule includes headi ngs for intermediate categories between complete 
vehicles and parts thereof, such as 87.06 (Chassis fitted with engines) and 87.07 (Bodies (including 
cabs)).  These two headings deal with situations  where some automotive parts and accessories are 
already fitted together with other such parts creat ing a combination that is destined to be fitted 
together with other parts in order to  build a complete or whole vehicle.904  Partly based on the 
Explanatory Notes to tariff heading 87.06905, the European Communities submits that the product 
                                                      
901 European Communities' second written submission, para. 115, referring to first written submission, 
paras. 40-41; response to Panel question No. 117; Exhibit EC-1. 
902 European Communities' second written submission, para. 115, referring to first written submission, 
paras. 40-41; response to Panel question No. 117, Exhibit EC-2. 
903 European Communities' first written submission, para. 261-266. 
904 European Communities' first written submission, para. 255. 
905 The Explanatory Notes to tariff heading 87.06 provide: 
 
"This heading covers the chassis-frames or the combined chassis-body framework (unibody or 
monocoque construction), for the motor vehicles of  headings 87.01 to 87 .05, fitted with their 
engines and with their transmission and steering gear and axles (with or without wheels). That 
is to say, goods of this heading are motor vehicles without bodies. 
 The chassis classified in this heading may,  however, be fitted with bonnets (hoods), 
windscreens (windshields), mudguards, running-boards and dashboards (whether or not  WT/DS339/R 
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  foreseen under heading 87.06 is clearly in a ve ry advanced stage of manufacture, yet still not 
classifiable as a complete or finished vehicle.  The European Communities considers that "a chassis 
fitted with engines" falls within the scope of Ar ticle 21(2)(b) and (c) of Decree 125, and would be 
considered as a "whole vehicle" and subject to the general 25 per cent duty, instead of a bound duty 
rate between 8 to 20 per cent under tariff heading 87. 06.  This is a manifest breach of the bound rates 
of China under its tariff schedule and conse quently a breach of Article II of the GATT 1994.
906 
7.569  The United States submits that China's interpretation of GIR 2(a) exceeds the discretion a 
Contracting Party has to interpret GIRs as it elimin ates from consideration several headings within the 
HS such as headings 87.06 and 87.07, which deal  with sub-assemblies as well as specific headings 
that name particular goods such as headings 84.04 and 84.08.907 
7.570  The United States argues that the criteria set out in Article 21 of Decree 125 in most cases go 
far beyond what can appropriately be considered to  be parts with the "essential character" of a motor 
vehicle under the HS, including application of the General Explanatory Note to Chapter 87.  There 
might be a few combinations of parts under Article  21 that could conceivably properly be classified 
under the HS as complete vehicles if presented together in one shipment at the border.  For example the body, chassis-frame, transmission, steering system and both axles (which would be one "Main Assembly" and four other "Assemblies" within the meaning of Article 21) might appropriately under 
the HS be classified as a whol e vehicle, based upon the General Explanatory Note example ("a motor 
vehicle not equipped with its engine").  However, th at would require an individual assessment that the 
additional assemblies and other parts were enough to  constitute the "essential character" of a motor 
vehicle.  In the vast majority of cases, howev er, parts characterized as complete vehicles under 
Article 21, even if they were  presented together at  the border, could only be classified as intermediate 
products or parts.
908 
7.571  With regard to Article 21(2)(a) of Decr ee 125, the United States submits that, under 
longstanding classifications by Customs authorities ar ound the world as well as the tariff classification 
experts at the WCO Secretariat, a vehicle body and an engine for a motor vehicle, even if shipped 
together, would have to be separately classified (u nder headings 87.07 and 84.07/84.08). A vehicle 
body nor an engine would ever be  properly considered to have the "essential character" of a motor 
vehicle, nor would the theoretical combined article of vehicle body and an engine.909 
7.572  The United States considers that Article 21(2)(b) of Decree 125 presents the same situation as 
Article 21(2)(a): it defies the longstanding conventio ns and principles of classifying imported articles 
in their condition at the time of importation, as set forth in the GIR and their Explanatory Notes. A 
                                                                                                                                                                     
equipped with instruments). Chassis also remain  classified here whether fitted with tyres, 
carburettors or batteries or other electrical equipment. However, if the article is a complete or 
substantially complete tractor or other vehicle it is not covered by this heading. 
 The heading also excludes: 
 
 (a) Chassis fitted with engines and cabs , whether or not the cab is complete  
 (e.g., without seat) (headings 87.02 to 87.04) (see Note 3 to this Chapter). 
 (b) Chassis not fitted with engines, whether or not equipped with various mechanical 
parts (heading 87.08)"  
906 European Communities' first written submission, paras. 255-260. 
907 United States' comments on China's re sponse to Panel question No. 238(a). 
908 United States' response to Panel question No. 117. 
909 United States' response to Panel question No. 128. WT/DS339/R 
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  vehicle body or an engine combined with any 3 of the other specified assemblies could never be 
properly classified as an article with the essential character of a complete motor vehicle.  For 
example, a vehicle body with brakes, a steering syst em and drive axle, but no engine simply is not a 
motor vehicle.  It is an odd assortment of automotive parts.  The same holds true for any other 
combinations envisioned by subparagraph (2)(b).  Proper classification of any combination of the 
imported assemblies would be according to the individual assembly in its condition at the time of importation, with each assembly separately classified , even if all assemblies were shipped together.
910 
7.573  Concerning Article 21(2)(c) of Decree 125, th e United States submits that classifying the 
specified assemblies without a body or an engine as a complete motor vehicle or more specifically as 
having the "essential character" of a complete motor vehicle takes the well-established principles and conventions of tariff classification even further afie ld. None of these assemb lies, even if impossibly 
classified together as a single article, would ever be  considered to have the "essential character" of a 
complete motor vehicle and, therefore, could never be classified as such.
911 
7.574  Canada notes that Article 21(2) of Decree 125 considers that parts in a vehicle are 
characterized as a complete vehicle if a certain number of assemblies are Deemed Imported (an assessment made separately under Article 22), b ased on three separate thresholds: (a) body and 
engine; (b) body or engine plus three other assemblies (chassis-frame, steering system, transmission, brake system, drive axle, and non-driving axle); and (c ) five or more other assemblies. With regard to 
the first threshold, Canada submits that these should be classified separately (i.e ., the body under 
heading 87.07 and the engine under heading 84.07). Concerning threshold (b), Canada considers that 
if the Main Assembly is the engine, these combina tions could at best constitute a chassis with engine 
of heading 87.06, and then only if the chassis was one of the other assemblies; however, in all other 
combinations, each article should be classified separately ( i.e., the body under heading 87.07, the 
engine under heading 84.07, and the other assemblies under heading 87.08).  With respect to the third 
threshold (c), Canada is of the view that rega rdless of the combinations  each article should be 
classified separately under the appropriate subheading of heading 87.08.
912 
7.575  Canada is of the view that China has not shown subsequent practice of other Members 
supporting its method of classifying parts and motor ve hicles that could be relevant in interpreting 
Article II:1(b) of the GATT 1994. Canada acknow ledges that China has provided some practice 
related to the propositions that (1) when parts are pres ented together in one shipment at the border that 
constitute all, or virtually all, the parts necessar y to assemble a whole product, those parts may be 
classified as that whole product; and that (2) where a shipment includes most of the parts necessary to 
assemble a complete product, on an individual b asis those parts may be classified as that whole 
vehicle product if the parts presented are determined  to constitute the "essential character" of the 
                                                      
910 United States' response to Panel question No. 128. 
911 United States' response to Panel question No. 128. 
912 Canada's responses to Panel question Nos. 117 and 12 8.  Canada refers to a chart that it argues sets 
out the proper application of GIR 1 and the relevant headings to the various combinations of Deemed Imported Assemblies that, under the measures, are sufficient to find parts characteri zed as a complete vehicle (See the 
chart in Canada's second written submission, page 20).  The chart shows that only in a few situations (the 
bottom three lines), even assuming that all the part s in a Deemed Imported Assembly are imported and 
contained in a single shipment, parts characterized as complete vehicles under Article 21(2) could properly be 
classified as whole vehicl es under the HS.  In all other cases, the measures do not follow the HS for 
classification, and as a result the ch arge imposed under the measures, even  if properly characterized as an 
ordinary customs duty, violates Article II of the GATT  1994 (Canada's second written submission, paras. 48-
51).  WT/DS339/R 
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  finished product.
913  However, China has not shown that a WTO Member may deem that parts have 
the essential character of the complete vehicle based on the volume thresholds contained in the measures. Therefore, Canada considers that the only feature of the measures that could be accepted 
customs classification is the classification of parts as a complete vehicle where those parts, contained 
in a single shipment, have the vast majority of n ecessary parts, and thus have the essential character of 
a whole vehicle in accordance with GIR 2(a).
914  The measures classify parts contrary to 
Article II:1(b) of the GATT 1994.915 
7.576  China argues that the different combinations of auto parts and components set forth in 
Article 21 of Decree 125 all result in an incomplete article that is plainly recognizable as a motor 
vehicle and that these combinations therefore ha ve the essential character of a motor vehicle under 
GIR 2(a). 916 
7.577  China submits that there are a variety of f actors that customs authorities consider in 
evaluating whether an incomplete or unfinished artic le has the essential character of a complete or 
finished article.  With respect to machines, such  as motor vehicles, a principal consideration is 
whether the incomplete or unfinished article is recognizable  as that type of machine in its assembled 
condition.917  The essential character test does not require  the presence of every component that is 
"essential" to the use or operation of the machine in its finished form.918 
7.578  Moreover, China is of the view that the fact  that certain assemblies only constitute a certain 
portion of the value of the assembled motor vehicl e does not necessarily mean that those assemblies 
do not, in their entirety, have the essential characte r of a motor vehicle. The ratio of a particular 
assembly to the value of the assembled vehicle will change from one vehicle to another. While a ratio 
of imported parts beyond a certain value level may indicate that those parts have the essential 
character of the complete article, the fact that the ra tio of imported parts is below a certain value is not 
necessarily determinative under the essential character test.  
7.579  The Panel begins its analysis by considering th e view of the European Communities and 
Canada that an auto part combination "a chassis f itted with engines", which is classified under tariff 
heading 87.06 of China's Schedule, would fall within  the scope of Article 21(2)(b) of Decree 125 and 
be subject to the tariff rates applicable to moto r vehicles in violation of Article II of the GATT 
1994.919   
7.580  Article 21(2)(b) of Decree 125 stipulates that the following category of combinations of auto 
parts has the essential character of a motor vehicle: 
"imports of a body (including cabin) assembly or an engine  assembly, plus at least 
three other assemblies  (systems), for the purpose of assembling vehicles" (emphasis 
added) 
                                                      
913 Canada refers to GIR 2(a); China's first written submission, paras. 81-103; Exhibits CHI-14, CHI-16 
to CHI-20 and CHI-43. 
914 Canada points out that such shipments of parts are often labelled CKD or SKD kits. 
915 Canada's second written submission, paras. 52-55. 
916 China's response to Panel question No. 117. 
917 China submits three exhibits drawn from US cu stoms practice where the "recognizable" test was 
used: CHI-42, CHI-43 and CHI-44. 
918 China's response to Panel question No. 117. Chin a refers to Exhibit CHI-14 concerning the EC 
classification determination of incomplete pick-up trucks. 
919 The United States considers that it would fall under Article 21(2)(a) of Decree 125. WT/DS339/R 
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  7.581  Accordingly, one type of the auto parts combinations under this provision could be " engine  
plus at least three other ass emblies (systems)" among the chassis  assembly, the transmission 
assembly, the drive-axle assembly, the non-drive ax le assembly, the steering system and the brake 
system.  Thus, if " a chassis fitted with engines " was imported with at least two other assemblies, fitted 
or not, it would indeed fall within the scope of Article 21(2)(b) of Decree 125 and accordingly be classified as a "motor vehicle".  China does not dispute this.
920 
7.582  We recall an observation above by the WCO Se cretariat that Chapter 87 provides a unique 
challenge in that it has tariff headings 87.06 and 87.07 for intermediate goods which fall in between 
complete motor vehicles and parts and components thereo f.  We are also mindful of the principle that 
GIR 2(a) must be applied in conjunction with GIR 1, which would imply in the case of tariff headings 87.06 and 87.07 that if auto parts imported in a si ngle shipment "as presented" fit the description of 
one of these two headings, they would have to be  classified under either heading in accordance with 
GIR 1.   
7.583  Tariff heading 87.06 and the Explanatory Note to the heading provide: 
"87.06 Chassis fitted with engines, for th e motor vehicles of headings 87.01 to 
87.05. 
This heading covers the chassis-frames or the combined chassis-body framework 
(unibody or monocoque construction), for the motor vehicles of headings 87.01 to 
87.05, fitted with their engines and with th eir transmission and steering gear and axles 
(with or without wheels). That is to say, goods of this heading are motor vehicles 
without bodies. ..." 
7.584  Therefore, the text of tariff heading 87.06, read  in the context of the Explanatory Note to the 
heading, illustrates that a "chassis fitted with e ngines" fitted with the transmission assembly, the 
steering system and the axle assemblies falls within the scope of tariff heading 87.06.  Under 
Article 21(2)(b) of Decree 125, however, the same "c hassis fitted with engines" with the transmission 
assembly, the steering system and the axle assemb lies would be considered as having the essential 
character of a motor vehicle and thus classified under tariff headings for motor vehicles (87.02-87.05) instead of tariff heading 87.06 as required under GIR 1.   This implies that Article 21(2)(b) requires a 
"chassis fitted with engines" with the transmissi on assembly, the steering system and the axle 
assemblies to be always classified as a motor vehicle inconsistently with the terms of tariff heading 
87.06. 
7.585  In this regard, China argues that the Eur opean Communities' position presumes that the 
Explanatory Note to tariff head ing 87.06 is bindi ng on what constitutes the essential character of a 
motor vehicle.  In China's opinion the Explanator y Notes do not form part of the HS and are not 
binding at all.
921 
7.586  The Panel does not consider that the European  Communities' arguments necessarily presume 
that the Explanatory Note to tariff heading 87.06 is binding on what constitutes the essential character 
                                                      
920 See China's response to Panel question No. 131.  China does not specifically respond to a question 
from the Panel to comment on the European Communities' statement in its first written submission that "a chassis fitted with engines", which is classified under ta riff heading 87.06, falls within the scope of Article 
21(2)(b) and (c) of Decree 125.  Ch ina submits that the European Communities' argument is premised on the 
assumption that the Explanatory Note to heading 87.06 is binding as to what constitutes the essential character of a motor vehicle.  This issue is addressed in paragraphs 7.585-7.586 below. 
921 China refers to the Appellate Body Report on  EC – Chicken Cuts , para. 214, n. 416.  WT/DS339/R 
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  of a motor vehicle.  The European Communities has referred to the text of the Explanatory Note to 
87.06 to further support its position that "a chassis f itted with engines" under tariff heading 87.06 falls 
within the scope of Article 21(2)(b) and (c) of Decree 125.
922  Moreover, we recall that in interpreting 
a tariff term at issue, the Appellate Body in EC – Chicken Cuts  also considered, inter alia , whether a 
proposed meaning of the term could be derived from the relevant Explanatory Notes to a HS chapter 
as well as a tariff heading.923  Therefore, based on the terms of tari ff heading 87.06 considered in their 
context and the types of auto pa rts combinations falling within th e scope of Article 21(2)(b), we 
conclude that the application of Article 21(2)(b ) would necessarily lead to a result that "a chassis 
fitted with engines" within the scope of tariff head ing 87.06 is classified as a complete motor vehicle. 
7.587  China also points out that the European Comm unities itself has classified as a complete 
vehicle an incomplete and unassembled vehicle that  was missing substantially more than the "tyres 
and battery" referred to in the example pr ovided in the Chapter Notes to Chapter 87.924  However, a 
classification decision of another Member, whether correct or not under the relevant classification 
rules, would not render justifiable an element of th e measures at issue that is inconsistent with the 
terms of tariff headings 87.06 and consequently China's concessions contained in that heading. 
7.588  In sum, we find that Article 21(2) of Decree 125 has an element that would necessarily lead to 
a result that "a chassis fitted with engines" within  the scope of tariff heading 87.06 is classified as a 
complete motor vehicle and consequently assessing th em at the tariff rate applicable to a motor 
vehicle inconsistently with China' s concessions contained in the tari ff headings of China's Schedule. 
(iii) Criterion for essential character under Article 21(3) of Decree 125 
7.589  Article 21(3) of Decree 125 provides: 
"(3) the total price of imported parts account s for at least 60% of the total price of 
a complete vehicle of that vehicle model.  This criterion shall enter into force on July 1, 2006."
925 
7.590  The European Communities  considers that Article 21(3) of Decree 125 provides for a 
criterion, which cannot even remotely be associat ed with the basic categorisation of products under 
Chapter 87 of China's Schedule and the HS.  This cr iterion does not even attempt to use any technical 
language to disguise the incons istency between the measures a nd China's Schedule and hence 
Article II of the GATT 1994.  A criterion of 60 per cent of the aggregate price of the parts not only 
                                                      
922 European Communities' first written submission, para . 255.  The European Communities states that 
the Explanatory Note to tariff heading 87.06 is particularly interesting , before quoting the actual text of the 
Explanatory Note (emphasis added). 
923 Appellate Body Report on EC – Chicken Cuts , paras. 196, 214, also citing the Panel's reference to 
the relevant finding in this regard in the Appellate Body Report on EC – Computer Equipment , para. 89. 
924 China's response to Panel question No. 131, referring to Exhibit CHI-14. 
925 The entry into force of this third criterion is postponed until 1 July 2008 (CGA Joint Bulletin No. 38 
of 5 July 2005) (Exhibit JE-28).  In response to the Panel's question concerning the postponing of this criterion, China has explained that it is primarily because of the administrative complexity of implementing this particular 
criterion and that once auto manufacturers and customs officials have gained more experience with the 
implementation of Decree 125, and have laid a solid foundation of record-keeping and reporting for the administration of the measure, it will be easier for manufacturers and customs authorities to determine and 
account for the value of imported parts and components (C hina's response to Panel question No. 59).  Further, 
concerning the specific nature of the complexity relating to the implementation of Article 21(3) of Decree 125, China submits that the specific difficulty encountered by the customs is how to identify the fair value of the 
parts (China's response to Panel question No. 170). WT/DS339/R 
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  means that the parts are not necessarily fitted a nd/or equipped together but also means that 
fundamentally important parts may be missing.  The Eu ropean Communities is of the view that this is 
a manifest breach of Article II of the GATT 1994 as the full vehicle duty is imposed on auto parts that 
under China's Schedule are subject to a tariff of 10 per cent or less.
926 
7.591  According to the European Communities, it is clear that the examples of incomplete or 
unfinished vehicles in the General Explanatory Notes to Chapter 87 do not operate on the basis of the aggregate price of the parts, which is an entirely alien concept to customs classification.  As China 
itself admits, the combinations of imported parts th at will make up the 60 per cent threshold will vary 
from one model to another and will also vary depend ing on the respective evolution of the prices of 
auto parts in China and abroad.
927  The European Communities theref ore considers it impossible even 
to begin any reasonable comparison between the exam ples of Chapter 87 of the HS and Article 21(3) 
of Decree 125 because they are based on completely different criteria the latter having nothing to do 
with customs rules.928  The parts should instead be classified  under the applicable headings for the 
specific parts.929 
7.592  The United States  submits that no imported articles are ever properly classified according to 
their value, and that the GIR does not provide for this way of classification.  Classification addresses 
the physical qualities and sometimes the function of th e article without any regard to its value or its 
relative value with respect to the nature or purpose of the finished good.930 
7.593  Canada  submits that there is nothing in any of the HS that suggests that value may be used to 
classify products.931  As a result, the application of Article  21(3) inevitably leads to duties imposed 
based on an incorrect classification, and consequently violates Article II of the GATT 1994.932 
7.594  Canada considers that China has not shown a common and consistent practice that value 
thresholds can be used as a classification tool.933  In Canada's view, the value of imported content is 
properly used only for determining origin of im ported products; not for determining their tariff 
classification.  Canada therefore submits that the 60 per cent threshold category is erroneously applied 
to classification of parts, which in most cases should be classified under heading 87.08.934 
7.595  China submits that the value of parts and components in relation to the value of the finished 
article is one factor that customs authorities rely  upon in applying the essential character test under 
GIR 2(a). 935  The 60 per cent threshold criterion under Artic le 21(3) of Decree 125 reflects this aspect 
of the essential character test.  China considers that  a collection of imported parts and components that 
meets this threshold will necessarily be recognizable  as a motor vehicle, and therefore have the 
essential character of a motor vehicle.936 
                                                      
926 European Communities' first written submission,  paras. 276-277; second written submission, 
para. 116. 
927 European Communities' second written submission, pa ra. 116, referring to China's response to Panel 
question No. 64.  The European Communities also refers to Exhibits EC-5 to EC-11. 
928 European Communities' response to Panel question No. 117. 
929 European Communities' response to Panel question No. 218. 
930 United States' response to Panel question No. 128. 
931 Canada's second written submission, para. 48. 
932 Canada's second written submission, para. 48. 
933 Canada's second written submission, para. 54, footnote 60. 
934 Canada's response to Panel question No. 128. 
935 China's response to Panel question No. 64. 
936 China's response to Panel question No. 102.  WT/DS339/R 
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  7.596  China points out that, although Canada and the Eu ropean Communities insist that the value of 
imported parts and components is never a relevant consideration in applying the essential character 
test, US Customs determinations explicitly refer to value as a factor.
937  China refers to a United 
States tariff classification of incomplete, unasse mbled pistol kits from Austria and a tariff 
classification of an incomplete railway car, in wh ich, according to China, US Customs considered 
value as a relevant fact in determining essential character.938 
"Value" as a criterion for the essential character determination  
7.597  The Panel first turns to the complainants' argument that "value" is not a valid criterion for 
tariff classification.939  The complainants argue that nothing in the HS, including the GIR, and  
Chapter 87 of China's Schedule suggests that value ma y be used to classify products.  We agree that 
no reference to "value" can be found in China's Sc hedule, the HS, the GIR or relevant Explanatory 
Notes.  Although we do not consider that the abse nce of reference to "v alue" as a classification 
criterion in the relevant classification rules proves in  and of itself that value as such cannot constitute 
a criterion for determining the essential character of a complete good, it does cast doubt on the 
reasonableness of "value" as a criterion for the essential character test.940   
7.598  China argues that the value of th e incomplete article in relation to the value of the complete 
article is one of the factors that customs author ities apply in evaluating the essential character of an 
incomplete or unfinished article.  To support its proposition, China points to two US Customs 
classification decisions in which the term "value" is mentioned. 
7.599  First, China addresses a US Customs classificati on decision where "value" was referenced in 
applying the principle of GIR 2(a) to determine the essential character of a pistol.941  We note that the 
US Customs indeed noted that "[t]he nature of the item, its bulk, quantity, or value may be looked to 
in a determination of essential character."  It is not clear, however, whether the US Customs meant to 
imply that all these criteria were relevant altogether or  individually, and how valu e, if at all, would be 
considered in determining the essential character of a complete pistol in that case.  The text of the 
decision does not indicate that the US Customs base d its classification determination on the value of 
the unassembled pistol kits missing one part proposed  to be imported, despite its reference, among 
others, to value in the decision.  Rather, it show s that the decision was based on the fact that the 
unassembled pistol kits, even absent the receiver co mponent, constituted the aggregate of distinctive 
component parts that established its identity as to what it was, a complete or finished pistol. 
                                                      
937 China refers to exhibits CHI-16 and CHI-45 ; the European Communities' responses to Panel 
questions, para. 91; Canada's responses to Panel questions, p. 34. 
938 China's response to Panel question No. 117. 
939 See paragraphs 7.590-7.593 above. 
940 In this context, the Panel takes note of the stat ement made by Australia, a third party participant in 
this dispute, that the value of goo ds has no place in an objective intern ational trading classification system 
(Australia's response to Panel questio n No. 19).  According to  Australia, because "values are subjective and can 
change according to factors such as seasons, fashion, ex change rates and fuel prices", this could lead to 
inconsistent classification of essentially the same goods from different sources. 
Furthermore, we note that Annex 2 to Decree 125 ("Scope of Automobile Parts in Assemblies 
(systems))" provides:  "This Scope of Automobile Parts in Assemblies (systems)  is mainly intended to clarify the 
scope of assemblies and systems for the purpose of veri fying the complete vehicles character.  The scope is 
delimited according to the following principles: (1) functional independence, and (2) distinctive and separate 
assembly phase . ..." (emphasis added). 
941 US Customs and Border Protection, Tariff Classification of Incomplete, Unassembled Pistols from 
Austria , NY M83114, 10 May 2006 (Exhibit CHI-16). WT/DS339/R 
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  7.600  We also note China's reference to another US  Customs classification concerning a series of 
component welded together to form the front runn er car body (consisting of the central box section, to 
which other components are fabricated), i.e. whet her it should be classified as an unfinished railway 
or tramway freight car having the essential character of the finished railway or tramway freight car.
942  
From the language of the decision, however, it is not clear whether, and if so, how value was taken 
into account in deciding that the imported produc t constituted an unfinished railway or tramway 
freight classifiable under the corresponding finished pr oduct.  The value of the imported parts at issue 
(57 per cent) was mentioned as part of the description of the fact of the case:  " It is indicated that the 
imported car body represents 57 per cent of the to tal value of the complete front runner car" 
(emphasis added).  The decision, issued as a form of advanced classification decision upon the request 
of an importer, does not elaborate on the basis for its  conclusion.  Under these circumstances, we do 
not have sufficient information to conclude whether value as such was relied on by the US Customs as 
an independent criterion for the essential char acter determination as under Article 21(3) of 
Decree 125.943   
7.601  Given our considerations above of the US Cu stoms classification decisions cited by China 
and in light of the fact that no reference to "value " as a classification criterion can be found in the text 
of China's Schedule, the HS or its interpretative tools944, it is questionable whether "value" as adopted 
by China for the essential character test under the measu res can be considered consistent with China's 
obligations under its Schedule.   
7.602  In this connection, determining the essential ch aracter based on "the value of the incomplete 
good in relation to the value of the complete good" as embodied  in Article 21(3) of Decree 125 would 
necessitate specific information on "the value of a co mplete good", that of a complete vehicle in this 
dispute.  This means that an importer should know at the time of importation the exact value of the 
complete good into which the subject incomplete arti cle presented for classification will eventually be 
incorporated, with domestic and/or other imported goods, in the importing Member's territory.  This 
would seem to be a difficult, if not impossible, task  for importers.  In  particular, as examined in 
paragraph 7.362 above, the evidence before us indicates that auto parts are more standardized and thus 
can interchangeably be used among different vehi cle models, which makes identifying a specific 
vehicle model into which certain auto parts will be  incorporated unnecessarily trade restrictive.  In 
fact, China itself acknowledges the difficulties assoc iated with the implementation of the value 
criterion under Article 21(3) of Decree 125.  In expl aining the postponement of the entry into force of 
Article 21(3) until 2008, China submits that the reaso n for this delay is the difficulty encountered by 
Customs on how to identify the fair value of the parts.945  Therefore, we conclude that the value 
criterion does not necessarily confine the essential char acter determination to the assessment of auto 
parts imported in a single shipment.946  To that extent, the value criterion under Article 21(3) is 
inconsistent with the principle of GIR 2(a). 
                                                      
942 US Customs, Tariff Classification of Railway Freight Car Body , HQ 081691, 18 January 1989 
(Exhibit CHI-45). 
943 Further, we take note of Canada's view that "value" is a notion usually associated with the rules of 
origin, not tariff classification. 
944 The Panel also observes that the statement by Au stralia, who participated in this proceeding as a 
third party, that Australian customs practice in relation to  the essential character rule  underscores that the value 
of the parts in relation to the value of the completed good is irrelevant (Australia's oral statement, para. 24). 
945 See footnote 925 above and China's response to Panel question No. 170. 
946 See paragraph 7.524 where the Panel stated that it would examine the complainants' claim in this 
section on the assumption that these criteria are applied to auto parts imported in a single shipment.  
Accordingly, to the extent that a certain criterion for th e essential character determination, by its nature, cannot  WT/DS339/R 
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  Criteria for the essential character determination under Article 21(2) and 21(3) of Decree 125
 
7.603  Next, we turn to the European Communities' argument that because the combinations of 
imported parts that will make up the 60 per cent th reshold will vary from one model to another and 
will also vary depending on the respective evolution of the prices of auto parts in China and abroad947, 
it is impossible even to begin any reasonable comparison between the examples of Chapter 87 of the HS and Article 21(3) of Decree 125 because they ar e based on completely different criteria the latter 
having nothing to do with customs rules.  We agr ee that depending on the vehicle model, 60 per cent 
of a motor vehicle in value could mean different comb inations of parts of that motor vehicle.  China 
does not deny this. 
7.604  China however argues that a ratio of imported parts beyond a certain value level may indicate 
that those parts have the essential character of the complete article.
948  According to China, a 
collection of imported parts and components that meets the 60 per cent threshold will necessarily be 
recognizable as a motor vehicle, and therefore have the essential character of a motor vehicle.949  The 
basis for China's position is not clear to us.  This is particularly so in light of China's argument on the 
rationale behind the criterion provided in Article 21( 2) of Decree 125.  China has submitted in respect 
of the criteria under Article 21(2) of Decree 125 that  as regards machines, su ch as motor vehicles, a 
principal consideration for the essential character determination is whether the incomplete or 
unfinished article is recognizable  as that type of machine in its assembled condition .950  C h i n a ' s  
argument in this context implies that whether parts of a motor vehicle are "recognizable" as a 
complete motor vehicle is determined based on the physical appearance of the parts presented for 
classification.  This implication drawn from China's argument finds further support from China's own statement:  "China considers that the different comb inations of auto parts and components set forth in 
Article 21 of Decree 125 all result in  an incomplete article that is plainly recognizable as a motor 
vehicle".
951  We understand that for parts, in particular  machines as emphasized by China itself, to be 
"plainly recognizable" as the corresponding complete good of parts, they must have the physical 
appearance of the complete good. 
7.605  Furthermore, in an effort to explain the con cept "recognizable", China refers to certain US 
Customs classification decisions concerning the essential character of incomplete goods presented.952  
These decisions also illustrate that "recognizable",  relied on as a criterion for the essential character 
determination, refers to the physical appearan ce of a good when presented to customs authorities.  
Based on the consideration of the specific elemen ts or parts of a good (i.e. incomplete backhoe 
excavators, a four-wheel drive motor vehicle missing its engine and transmission, and a centrifuge imported without the motor, valves, and the various  electronic elements and controls) presented for 
                                                                                                                                                                    
 
be applied to auto parts imported in a single shipment, which is the assumption for the Panel's analysis in this 
section, such a criterion is inconsistent with the principle of GIR 2(a). 
947 European Communities' second written submission, pa ra. 116, referring to China's response to Panel 
question No. 64.  The European Communities also refers to Exhibits EC-5-11. 
948 China's response to Panel question No. 64. 
949 China's response to Panel question No. 102 (emphasis added).  Also see paragraph 7.595 above. 
950 China's response to Panel question No. 102.  Also, in response to Panel question No. 117(b), China 
refers to certain US Customs classi fication decisions where the 'recognizable' test was used (Exhibits CHI-42, 
CHI-43 and CHI-44).  See paragraph 7.605 for the Panel's discussion on China's argument relating to these 
decisions. 
951 China's response to Panel question No. 117(b). 
952 China's response to Panel question No. 117(b), referring to Exhibits CHI-42, 43 and 44. WT/DS339/R 
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  classification, the US Customs have decided whethe r such parts were recognizable as the complete 
good of parts and thus had the essential character  of the complete good of the parts presented.
953 
7.606  Considered against this background, we are not convinced by China's argument that a 
collection of imported parts and components th at meets "the 60 per cent threshold" will necessarily be 
recognizable as a motor vehicle.954  As noted earlier, various combinations of auto parts characterized 
as a complete vehicle in accordance with this 60 pe r cent value threshold as set out in Article 21(3) 
would not be necessarily the same types of auto parts combinations falling within the scope of 
Article 21(2) of Decree 125, which China has argued constitute the types of auto parts combinations 
that are recognizable as a complete motor vehicle.  Therefore, given that China has defined the scope 
of auto parts that are "recognizable" as a complete vehicle by setting out the specific physical combinations of auto parts, it logically follows that  any other combination of auto parts that does not 
reach the level of auto parts combination as set out in Article 21(2) are not recognizable as a complete 
vehicle under the measures.  To the extent certain sets of auto parts satisfying the 60 per cent value 
test under Article 21(3) of Decree 125 will not fall w ithin the scope of the auto parts combinations 
specified in Article 21(2) of Decree 125, we do not consider that the 60 per cent value test under 
China's measures provides a valid criterion for the essen tial character determination in respect of auto 
parts. 
7.607  Therefore, we find that the value test contained in Article 21(3) of Decree 125, when 
considered, inter alia , in relation to the criterion employed  under the measures based on specific 
combinations of auto parts (i.e. Article 21(2) of  Decree 125), illustrates the lack of coherency and 
objectivity between different criteria contained in the same measures.  In reaching this conclusion, we 
are not suggesting that a Member cannot have more than one criterion for the essential character test.  
Our view is that if a Member provides for more th an one criterion for the purpose of determining the 
essential character of a complete good, it must ensu re that such criteria are logical, coherent and 
objective.
955 
                                                      
953 For example, in a classification decision concer ning knocked-down backhoe excavators, the US 
Customs reasoned: "In this instance, an incomplete or unfinished backhoe excavator would be classified as an 
excavator, if it has the essential charact er of an excavator.  The incomplete  or unfinished excavator must be 
easily recognizable as an excavator . ..." (emphasis added) (US Customs, Tariff Classification of Knocked-Down 
Backhoe Excavators , HQ086555, 16 April 1990) (Exhibit CHI-42).  Also, in another classification decision, the 
US Customs found by referring to its previous classification ruling, "'For machinery, the nature of the item is 
generally determinative.  For an item to have th e essential character of a machine, it must be recognizable as 
such a machine .' ... Even without the equipment added in the U.S., it [a centrifuge assembly from Italy] is 
recognizable as a centrifuge  hence GIR 2(a) is applicable" (emphasis added) (US Customs, Tariff Classification 
of Centrifuge Assembly from Italy , NY H80093, 4 May 2001) (Exhibit CHI-44). 
954 The Panel also observes that the notion "recognizable" as such is not mentioned in the HS, nor in its 
interpretive notes.  Although we are not ruling on whether "recognizable" as such is a valid criterion for the essential character determination, we note Members could define the scope of the notion "recognizable" in the 
manner that does not correspond to the essential character of  a complete good.  In such a case, the application of 
the notion "recognizable" as a criterion could result in an  arbitrary and artif icial determination on the essential 
character of a complete good. 
955 The Panel considers that by ensuring that such criteria are logical, coherent and objective, Members 
would contribute to promoting the main objective and purpose of the WTO Agreement, namely "security and predictability of the reciprocal and mutually advantageous  arrangements directed to the substantially reduction 
of tariffs and other barriers of trade".  WT/DS339/R 
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  (iv) Criteria for Deemed Imported Assemblies under Article 22 of Decree 125 
7.608  Article 22 of Decree 125 provides: 
"Article 22 Imported automobile parts shall be characterized as an assembly 
(system) if one of the following applies: 
(1) imports of a complete set of parts for the purpose of assembling assemblies 
(systems); 
(2) imports of key parts or sub-assemblies for the purpose of assembling 
assemblies (systems), if the quantity of the imported key parts or sub-assemblies 
reaches or exceeds the specified level as set forth in Annexes 1 and 2
956; or 
(3) the total price of imported parts account s for at least 60% of the total price of 
that assembly (system)." 
7.609  The Panel understands that the criteria set out in Article 22 of Decree 125 are applied to 
determine whether the eight assemblies as defined under the measures should be considered as 
"Deemed Imported Assemblies", which in turn w ill be counted toward the thresholds for the 
determination on the essential character of "mot or vehicles" under Article 21(2) and (3) of 
Decree 125.  To that extent, the application of Article 21 of Decree 125 is dependent on the 
application of Article 22 of Decree 125, in that the criteria under Article 22, which are applied to 
assemblies to determine whether they are "Deemed Imported Assemblies", will eventually affect the final determination under Article 21 of Decree 125 of whether imported auto parts in a given vehicle 
model are "characterized as motor vehicles". 
                                                     
 
956 As of 1 July 2008, lower quantity thresholds will apply to those key parts identified as class A in 
Annex 1 to Decree 125.  If those thresholds are met, the assembly will be characterized as an "imported 
assembly" (Note 5 of Annex I to Decree 125 and Article 19  of Announcement 4).  The entry into force of this 
class A/B distinction was initially foreseen on 1 July 2006, but was postponed until 1 July 2008 (CGA Joint Bulletin No. 38 of 5 July 2005) (Exhibit JE-29). 
Further, Article 20 of Announcement 4 provides: 
 
"If the imported parts accounts for more  than 60% of the price of the key 
parts or sub-assemblies, such key parts or sub-assemblies shall be deemed as imported key parts or sub-assemblies.  Manufacturers shall provide a list of 
price ratios of parts needed. 
 Key parts or sub-assemblies, in princi ple, shall only be traced back to the 
secondary suppliers of the manuf acturers of complete vehicles. 
 Imported parts purchased by domestic suppliers or trading companies shall 
be counted as imported parts." 
 
With respect to the class A/B distinction, which has not yet entered into force, China submits that there 
is nothing arbitrary about the A/B distinction or its deferral. The parts designated under Class A reflect China's 
consideration of which parts, by themselves, impart the e ssential character of the part icular assembly at issue. 
The parts designated under Class B reflect  China's consideration of the other parts of that assembly which, in the 
aggregate, also impart the essential character of the as sembly at issue. Until the A/B distinction takes effect, 
China is classifying assemblies on the basis of the aggregate threshold number of parts for that assembly. With or without the class A/B distinction, China considers th at the designated parts at the designated thresholds 
impart the essential character of that assembly  (China's response to Panel question No. 26). WT/DS339/R 
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  7.610  Therefore, under the measures, the characteriza tion of auto parts as motor vehicles can be 
attributed to the application of two consecutive essential character determinations:  first, 
characterization as an imported "assembly" pursuant to the criteria under Article 22 of Decree 125, 
which is based on the qua ntity of imported key parts or sub-assemb lies (Article 22(2)) or on the value 
of imported auto parts in relation to the valu e of an assembly (Article 22(3)); and second, 
subsequently, characterization as an imported "motor  vehicle" pursuant to the criteria under 21 of 
Decree 125, which is based on the quantity of imported "assemblies" (Article 21(2)) or on the value of 
auto parts in relation to the value of a motor vehicl e (Article 21(3)).  In our view, the criteria for the 
determination of the essential character of "assemblies" under Article 22, which must be applied 
under the measures to reach a final conclusion on whether imported auto parts have the essential 
character of "motor vehicles", hampers the appropria te determination of whether certain auto parts 
have the essential character of a "motor vehicle" in accordance with the principle of GIR 2(a).  This is 
because the application of Article 22 of Decree 125 ma kes it more likely for imported auto parts to be 
characterized as motor vehicles under Article 21 of Decree 125. 
7.611  Furthermore, as we have already found above, th e application of certain aspects of Article 21 
of Decree 125 will necessarily lead to the result that  China violates its concessions contained in the 
tariff headings for auto parts.  Consequently, if Article 21 of Decree 125 is proven inconsistent with 
the principle of GIR 2(a), this would also a fortiori be the case for Article 22 because it applies the 
criteria with the same flaw s that were found in respect of Article  21.  Thus, to the extent the criteria 
under Article 22 of Decree 125 are necessarily connect ed to the same aspects of the criteria under 
Article 21 of Decree 125, we also find that Article 22,  in combination with Article 21, is inconsistent 
with China's obligations under its Schedule. 
(c) Conclusion 
7.612  The Panel finds that the criteria for the essential ch aracter determination under Article 21(2) 
and (3) and Article 22 of Decree 125, to the extent cer tain aspects of the criteria necessarily lead to a 
violation of relevant rules, are in consistent with China's concessions  contained in the tariff headings 
for auto parts of China's Schedule and consequently with China's obligations under Article II:1(a) and 
(b) of the GATT 1994.   
4. China's justification of the measures under Article XX(d) 
7.613  As noted in paragraphs 7.283-7.287 above, Chin a initially did not distinguish its justification 
of the measures under Article XX(d) in respect of  the Panel's possible finding against the measures 
under Article III of the GATT 1994 from that under Article II.   
7.614  In response to a question from the Panel, Ch ina explained how its justification of the 
measures under Article XX(d) would be different de pending on the specific provision under which a 
violation was found.  In relevant part, China has responded as follows: 
"In respect of Article II, the Panel could fi nd, for example, that there is uncertainty 
within the Harmonized System concerni ng the circumstances under which customs 
authorities are allowed to cl assify multiple shipments of parts and components as 
having the essential character of the complete article.  Based on such a finding, the Panel might conclude that the challenged measures are not in accord with China's 
rights and obligations under Article II, as they do not have a clear affirmative 
basis 
within the rules of the Harmonized System. 
...  WT/DS339/R 
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  However, another way of viewing the presen ce of a known and identifiable ambiguity 
within the rules of the Harmonized System, and within international customs practice 
generally, is that China is entitled to rely  upon the general exception in Article XX(d) 
to adopt measures that are necessary to secure compliance with its tariff provisions 
for motor vehicle, and to ensure that those provisions have meaningful effect.  China's 
tariff provisions for motor vehicles reflect th e tariff bindings set forth in its Schedule 
of Concessions, and they are therefore not inconsistent with the GATT 1994.  To the 
extent that the rules of the Harmonized System do not provide an unambiguous legal 
basis for China to give effect to those provisions, this authority could be found in 
Article XX(d).  The rules of the Harmonized System may not clearly provide for every circumstance in which customs author ities need to interpret and enforce their 
tariff schedules to ensure that they ar e undermined through the manner in which 
importers structure and document their imports.  In these circumstances, it is 
consistent with the purpose of Article XX(d ) to ensure that Members are nonetheless 
able to adopt measures that are necessary to secure compliance with their tariff 
provisions. ...
957" 
7.615  China's response above does not provide any explanation how the measures are justified 
under Article XX(d) if the measures were found to be  inconsistent with Artic le II:1(b) of the GATT 
1994.  China makes an assertion without any supporti ng arguments or evidence that it is consistent 
with the purpose of Article XX(d) to ensure that  Members are able to adopt measures that are 
necessary to secure compliance with their tariff provisions.   
7.616  Therefore, the Panel finds that China has faile d to prove that the measures are justified under 
Article XX(d).  Even if China's justification of th e measures under Article XX(d) in respect of their 
Article III violation was given consideration in respect  of the measures' violation of Article II, China 
still has not proved that the measures are justified under Article XX(d) for the same reasons identified 
above under Section VII.B.5. 
E. SUBSIDIES AGREEMENT  
1. Arguments of the parties 
7.617  The United States  argues that China's measures exempt  manufacturers from additional duties 
imposed on imported auto parts if they use domestic au to parts rather than imported auto parts.  The 
United States argues that the measures therefore c onstitute an import substitutio n subsidy in breach of 
Articles 3.1(b) and 3.2 of the SCM Agreement.958   
7.618  The United States argues that the reduction available for using domestic auto parts is a 
subsidy pursuant to Article 1.1 of the SCM Agreem ent.  Specifically, according to the United States, 
China provides a financial contribution within th e meaning of Article 1.1(a)(1)(ii) of the SCM 
Agreement by foregoing revenue otherwise due.  The United States asserts that under China's 
measures, on domestic parts the government forego es the difference between the across-the-board 
25 per cent charge on auto parts and the customs duty (10 per cent or less) applied to imported parts.  
Likewise, on certain imported parts, the government  foregoes the difference between the across-the-
                                                      
957 China's response to Panel question No. 282 (emphasis original). 
958 United States' first written submission, para. 123. WT/DS339/R 
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  board 25 per cent charge and the customs duty (10 per cent or less) when the thresholds for using 
domestic parts in a finished vehicle are satisfied.
959   
7.619  The United States maintains that the "normative benchmark" that should be compared to the 
Chinese measure to determine whether revenue othe rwise due has been foregone is the "revenue 
collected when the 25 per cent charge is applied,  and it is the differential between the revenue 
collected when the 25 per cent charge is applied and the revenue collected when the 10 per cent 
charge is applied that, as a legal matter, re presents the revenue foregone by the Chinese 
government."960  Specifically, the United States argues th at automobile manufacturers that use 
imported parts in quantities that exceed certain thre sholds when assembling complete vehicles pay 25 
per cent on all imported auto parts used in the asse mbly of a complete vehicle, while the Chinese 
government foregoes revenue by only requiring paymen t of 10 per cent on all imported parts used in 
the assembly of a complete vehicle in the case of  automobile manufacturers that use sufficient 
quantities of domestic parts when assembling complete vehicles.961  The United States contends that 
the appropriate normative benchmark is 25 per cent regardless of whether the application of the 
measure is found to be a violation of Article II a nd/or Article III of the GATT 1994 because "it is the 
rate that applies in China, i.e., under Chinese law (a s determined by the Panel as a factual matter), and 
it is Chinese law that determines the benchmark."962 
7.620  The United States also contends that this "finan cial contribution" confers a benefit pursuant to 
Article 1.1(b) of the SCM Agreement, because the au to manufacturer is able to retain the amount of 
money equivalent to the amount of revenue foregone by the government.963 
7.621  The United States further argues that the Chin ese measures are "prohibited" within the 
meaning of Article 3.1(b) of the SCM Agreement b ecause they are contingent, whether solely or as 
one of several other conditions, upon the use of do mestic over imported goods.  As such, the measures 
are deemed to be "specific" within the meaning of Article 2.3 of the SCM Agreement.  The United 
States argues that because China's measures constitute  a subsidy within the meaning of Article 1.1, 
are specific within the meaning of Article 2.3, an d are "prohibited" within the meaning of Article 
3.1(b) they violate Articles 3.1(b) and 3.2 of the SCM Agreement.964 
7.622  The European Communities asserts its claim under Article 3 of the SCM Agreement as a 
claim in the alternative, only in the event that the Panel finds that the measures are border charges 
and, secondly, that China is entitled to accord to the imports of auto parts the treatment it provides for 
vehicles in its schedule, quod non .  In the case that these two conditions were satisfied, the European 
Communities argues that the Measures would, in  any case, be a prohibited subsidy pursuant to 
Articles 3.1(b) and 3.2 of the SCM Agreement.965 
7.623  The European Communities argues that the me asures constitute a financial contribution 
within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.  Under the measures, imported 
auto parts that satisfy the local content requirement s of Article 21 of Decree 125 are charged at a rate 
of generally 10 per cent if they "have been verified  as not being Deemed Whole Vehicles" (see Article 
28 of Decree 125).  The revenue "otherwise due" follows from the normative benchmark provided by 
                                                      
959 United States' first written submission, para. 124. 
960 United States' response to Panel question No. 268. 
961 United States' response to Panel question No. 157(a). 
962 United States' response to Panel question No. 267(a). 
963 United States' first written submission, para. 124. 
964 United States' first written submission, paras. 125-126. 
965 European Communities' first written submission, pa ra. 282; second written submission, para. 149.  WT/DS339/R 
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  the Chinese treatment of imported auto parts that do not satisfy the local content requirements of 
Article 21 of Decree 125. These parts "verified by the Center as Deemed Whole Vehicles" are charged "according to the duty rate for whole vehi cles" (see Article 28 of Decree) which is typically 
25 per cent.  As this 25 per cent rate is explicitl y foreseen for certain imported auto parts in the 
Chinese Measures, it is, in the words of the Appellate Body in US – FSC , no "entitlement in the 
abstract" but a "definitive, normative benchmark".  By charging imported auto parts that satisfy the 
local content requirements "only" with a 10 per cent rate, China has, in the words of United States – 
FSC, "given up an entitlement to raise revenue  that it could 'otherwise' have raised".
966. 
7.624  The European Communities disagre es with China that the 25 per cent rate for parts Deemed 
Whole Vehicles is not an appropriate "normative be nchmark" and that this rate should rather be 
considered as the "revenues due under the cont ested measure".  According to the European 
Communities, China does not provide any reasons for this position and simply maintains that the 25 
per cent and the 10 per cent duty treatment "are not th e same 'fiscal situations' for purposes of making 
a proper comparison".967  As indicated above, the European Communities considers that the 10 per 
cent duty treatment for parts not Deemed Whole Vehicles and the 25 per cent duty treatment for parts Deemed Whole Vehicles are in fact comparable fo r the purposes of Article 1.1(a)(1)(ii) of the SCM 
Agreement.
968 
7.625  The European Communities further argues that the measures confer a benefit within the 
meaning of Article 1.1(b) of the SCM Agreement.  Vehicle manufacturers using imported parts that 
are not Deemed Whole Vehicles are financially "bette r off" than those using imported parts that are 
Deemed Whole Vehicles.969 
7.626  Finally, the European Communities argues that the subsidies which the measures provide are 
contingent upon the use of domestic over imported goods  within the meaning of Article 3.1(b) of the 
SCM Agreement.  In particular, the benefit of th e lower 10 per cent duty rate is only conferred if 
vehicle manufacturers satisfy the local content requ irements of Article 21 of Decree 125 by using 
sufficient domestic parts instead of imported parts in  order to stay below the relevant local content 
thresholds.970 
7.627  China argues that the basic flaw in the reasoni ng of the United States and the European 
Communities is that it does not acknowledge the inde pendent scope and effect of China's separate 
tariff provisions for auto parts and components.   China has adopted measures to prevent the 
importation and assembly of multiple shipments of auto parts as a means of circumventing its tariff 
provisions for motor vehicles.  The fact that China has adopted these measures, however, does not 
mean that it must impose the tariff rates for motor vehicles on all imported auto parts.  On the contrary, China must continue to give effect to its separate tariff provisions for auto parts, and assess 
imported auto parts at those rates when they are not used to circumvent the duties that apply to 
complete vehicles.
971  For this reason, China does not forego re venue when it applies its tariff rates for 
auto parts to non-circumventing imports.  China ar gues that it is not entitled under its Schedule of 
                                                      
966 Appellate Body Report on United States – FSC , para. 90.  European Communities' second written 
submission, para. 150; European Communities' first written submission, paras. 285 to 288.  See also European 
Communities' response to Panel question No. 157(a). 
967 China's response to Panel question No. 159. 
968 European Communities' second written submission, para. 151. 
969 European Communities' second written submission, para. 152; first written submission, paras. 289-
292. 
970 European Communities' second written submission, para. 153; first written submission, paras. 293-
298. 
971 China's first written submission, para. 177. WT/DS339/R 
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  Concessions to collect the 25 per cent tariff rates on non-circumventing imports, and it does not do 
so.
972   
7.628  China recalls the Appellate Body's statement that  "the term 'otherwise due' implies some kind 
of comparison between the revenues due under the c ontested measure and revenues that would be due 
in some other situation."973  The "basis of comparison must be the tax rules applied by the Member in 
question. … What is 'otherwise due', therefore, depends on the rules of taxation that each Member, by its own choice, establishes for itself."
974  The Appellate Body has further observed that "the 
comparison under Article 1.1(a)(1)(ii) of the SCM Agreement must necessarily be between the rules 
of taxation contained in the contested measure and other rules of taxation of the Member in 
question."975  In making these comparisons, "panels must obviously ensure that they identify and 
examine fiscal situations which it is legitimate to compare."976  According to China, the basic problem 
with the arguments of the United States and the Eu ropean Communities is that they have failed to 
"identify and examine fiscal situations which it is legitimate to compare."977 
7.629  China argues that Decree 125 concerns the obligation of auto manufacturers to pay the 
applicable duty rates for motor ve hicles when they import parts and components of motor vehicles 
that, in their entirety, have the essential character of a motor vehi cle under GIR 2(a).  These are the 
"revenues due under the contested measure."  Wh en auto manufacturers import auto parts and 
components that do not have the essential character of  a motor vehicle, China classifies these imports 
under the applicable headings for parts, also in accordance with the rules of  the Harmonized System.  
These are not the same "fiscal situations" for purposes of making a proper comparison.  The 
application of GIR 2(a) to imported parts (whether  one shipment of parts or multiple shipments of 
parts) leads to a different classification depending on  whether the parts have the essential character of 
the complete article.978    
7.630  China asserts that it is therefore not the case,  as the United States and European Communities' 
arguments necessarily presume, that the benchmark rate  of taxation is the duty rate that applies to 
complete motor vehicles.  The benchmark rate of taxation depends on what is imported – parts that 
have the essential character of the complete article, or parts that do not have the essential character of the complete article.  China therefore does not "f orego revenue" when it applies the applicable duty 
rates for parts to imports of parts that do not have the essential character of a motor vehicle.  This is, as China has explained, the "independent scope and effect of China's separate tariff provisions for 
auto parts and components."
979 
7.631  China argues that the proper classification of imports, and the collection of the ordinary 
customs duties that arise under a Member's Schedule of Concessions, cannot result in revenue foregone within the meaning of Article  1.1(a)(1)(ii) of the SCM Agreement.
980  
7.632  China concludes that the complainants have failed to demonstrate a violation of the SCM 
Agreement and that the Panel should reject the United States and European Communities' claims 
under Article 3 of the SCM Agreement.981   
                                                      
972 China's first written submission, para. 178. 
973 Appellate Body Report on US – FSC,  para. 90.   
974 Appellate Body Report on US – FSC , para. 90.   
975 Appellate Body Report on US – FSC (Article 21.5 – EC) , para. 89. 
976 Appellate Body Report on US – FSC (Article 21.5 – EC),  para. 90.   
977 China's response to Panel question No. 159.   
978 China's response to Panel question No. 159. 
979 China's response to Panel question No. 159  citing  China's first written submission, para. 177. 
980 China's second written submission, paras. 156-160; response to Panel question No. 234(b).  WT/DS339/R 
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  2. Consideration by the Panel 
7.633  The United States and the European Communitie s each presented claims that China has 
violated Articles 3.1(b) and 3.2 of the SCM Agreem ent by providing prohibited subsidies.  However, 
the European Communities specified that it was only claiming violations of Articles 3.1(b) and 3.2 of 
the SCM Agreement in the event the Panel found both that the measures impose border charges and 
that China is entitled to accord to the imports of auto parts the treatment it provides for vehicles in its 
schedule, quod non .
982   As noted above, the Panel has not made those two findings.  Therefore, we 
find that the European Communities claim with resp ect to a violation of the SCM Agreement is not 
before us.   
7.634  Concerning the status of the claims of the United States under the same provisions of the 
SCM Agreement, in an answer to a question fro m the Panel the United States indicated that its 
"claims under the SCM Agreement are not stated in the alternative – that is, they do not depend on 
whether or not China's charges are intern al taxes or 'ordin ary customs duties.'"983  The United States 
also indicated in the same response, however, that insofar as the findings of the Panel are sufficient to 
resolve the dispute, it viewed the exercise of judi cial economy in respect of its SCM claims as a 
matter to be left to the discretion of the Panel.984  The United States made a similar statement in 
response to another question from the Panel, stating that it considers:  
"the most essential claims in this disput e as the breach of Article III:4 and/or the 
TRIMs Agreement, because China's measures impose a local content requirement that 
discriminates against all imported parts as well as administrative burdens that 
discourage the use of imported auto parts,  and Article III:2, because China imposes 
an internal charge on certain imported parts in excess of any charges with no comparable charge on like domestic parts.  With respect to other claims, the United States understands that questions of judicial economy are to be decided at the 
discretion of the panel, so long as the all [s ic] findings are made that are necessary for 
the resolution of the dispute."
985   
7.635  In view of these statements by the complaining party, and in vi ew of our findings above that 
China has acted inconsistently with Articles III:2 an d III:4 of GATT 1994, we consider that we have 
made the findings that are necessary for the resoluti on of the dispute raised by the United States.  In 
particular, bringing the measures into conformity with China's obligations pursuant to our findings 
under Articles III:2 and III:4 of GATT 1994 also would remove any inconsistenc y of those measures 
with Articles 3.1(b) and 3.2 of the SCM Agreemen t.  We therefore exercise judicial economy in 
respect of the United States' claims under the SCM Agreement.   
F. CKD  AND SKD  KITS  
1. Complaining parties' claims  
7.636  All the complainants  agree that to the extent the importation of CKD and SKD kits is 
exempted by Article 2(2) of Decree 125 from th e administrative procedures under the measures and 
subject to China's regular customs procedures, incl uding automatic issuance of an import licence, the 
                                                                                                                                                                     
981 China's first written submission, para. 17 8; second written submission, para. 160.  
982 European Communities' first written submission, pa ra. 282; second written submission, para. 149. 
983 United States' response to Panel question No. 156. 
984 United States' response to Panel question No. 156. 
985 United States' response to Panel question No. 151. WT/DS339/R 
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  imposition of the charge on CKD and SKD kits can be  considered as an ordinary "customs duty" and 
thus should be addressed under Article II:1(b), first sentence of the GATT 1994.
986  The complainants 
claim that China's tariff treatment of CKD and S KD kits under the measures is inconsistent with 
China's obligation under Article II:1(a) and (b) of the GATT 1994. 
7.637  In addition to their claim under Article II of the GATT 1994, the United States  and Canada  
submit that China's imposition of the charge on CKD and SKD kits is also inconsistent with China's 
commitment under paragraph 93 of its Working Party Report. 
7.638  The Panel will thus examine first the compla inants' claim under Article II of the GATT 1994 
and then the claim of the United States and Ca nada concerning China's commitment under    
paragraph 93 of the Working Party Report.987 
2. Scope of CKD and SKD kits  
7.639  The Panel  recalls its observation above that there exists no standard definition of what 
constitutes a CKD and an SKD kit.988  The measures at issue in this case,  in particular Article 21(1) of 
Decree 125989, do not define these product terms either.990  The parties, however, generally agree on 
what should constitute a CKD or SKD kit based  on the way these terms are understood in the 
automobile industry. 
7.640  The complainants submit that at the time of  China's accession to the WTO, China did not 
have a separate tariff line for auto parts that were either fully or partly unassembled and that were 
shipped together for assembly and further pr ocessed into a whole ve hicle within China.991  M o r e  
specifically, according to the complainants, CKD kits ("completely knocked-down kits")  are auto 
parts imported together in unassembled condition that provide the necessary parts in order to 
manufacture a whole vehicle.992  CKD kits may include not only parts, but also sub-assemblies and 
assemblies such as engine, transmission, axle assemb lies, chassis and body assemblies.  China in turn 
submits that a CKD kit consists of all, or n early all, of the parts and components necessary to 
assemble a complete vehicle.993 
                                                      
986 Complainants' responses to Panel question Nos. 80, 105, 192; United States' responses to Panel 
question Nos. 184, 192; China's response to Panel ques tion No. 88; China's first written submission, paras. 7 and 
44; China's second written submission, para. 107.  Also see footnote 1102. 
987 The European Communities mentions paragraph 93 of  China's Working Party Report in para. 274 of 
its first submission.  However, the European Commun ities has neither included a specific claim relating to 
paragraph 93 of China's Working Party Report in its re quest for the establishment of a panel nor developed any 
legal and factual arguments in this relation. 
988 See paragraph 7.91. 
989 See paragraphs 7.32 for the description of Article 21 of Decree 125.  Under Article 21(1) of 
Decree 125, auto parts or a set of auto parts that are considered as constituting a CKD or SKD kit will be 
characterized as complete motor vehicl es.  Also see paragraph 7.78 above. 
990 Noting that the HS does not use the terms CKD or SKD kits, nor are the terms in common use in 
customs practice, Canada submits that the terms CKD or SKD kits become relevant in  this dispute only because 
they are used both in the Working Party Report and in  the measures (Canada's response to Panel question 
No. 33). 
991 See Part C of the factual background section submitted jointly by the complainants. 
992 See Part C of the factual background section submitted jointly by the complainants; the 
complainants' responses to Panel question No. 69; Canada's response to Panel question No. 33.   
993 China's first written submission, paras. 35-3 6; China's response to Panel question No. 69.  WT/DS339/R 
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  7.641  The complainants consider that S KD kits ("semi knocked-down kits")
 refer to partially 
assembled combinations of parts that can be used to manufacture a whole vehicle.994  China also 
considers that an SKD kit differs from a CKD kit in the extent of its prior assembly, in that unlike a 
CKD kit, an SKD kit includes significant part s and components that have already been assembled .995  
In other words, the difference between CKD and SKD kits lies in the degree of assembly as CKD kits 
are parts imported together in unassembled condition, whereas SKD kits contain partially assembled 
combinations of parts. 
7.642  In respect of a kit , China submits that it refers to "a set of parts or constituents from which a 
thing may be assembled or made," which is a dictionary definition of the term "kit".996  The European 
Communities considers that "[CKD and SKD] kits consist of all the necessary parts of a whole 
product packaged and imported together."997  The United States also poi nts out that in commercial 
realities, a kit is totally different from the st reams of parts used in manufacturing operations.998 
7.643  Based on the parties' understanding of the terms – CKDs, SKDs and kits – as noted above, the 
scope of "CKD and SKD kits" can be defined in terms of the following three elements: 
(1) extent of auto parts included in a kit; 
(2) package and shipment as a kit; and 
(3) assembly operations in the importing country. 
7.644  First, with respect to the extent of auto parts and components that need to be contained in a kit 
so as to constitute a CKD or SKD k it, the parties generally agree that in the automobile industry, the 
term is understood as referring to "all, or nearly a ll, of the auto parts and components necessary to 
assemble a complete vehicle".  While sharing a simila r view with the other parties that in the language 
of the industry, CKD or SKD kits may denote, inter alia , a combination of parts that make up a 
complete vehicle and the concepts are used in a variety of ways, the European Communities submits 
that in its understanding, CKD and SKD kits under the measures  comprise all the parts necessary to 
make a complete vehicle.999  However, the European Communities does not elaborate on why CKD 
and SKD kits under the measures  consist of "all" the parts, rather than "all or nearly all the parts", 
necessary to assemble a complete vehicle.  In the absence of an explanation from the European 
Communities in this relation and in light of the understanding of the term generally shared by the 
automobile industry as submitted by the parties, we consider that a CKD or SKD kit under the 
measures may be understood as consisti ng of "all or nearly all" the au to parts necessary to assemble a 
complete vehicle.1000  
                                                      
994 Part C of the factual background section submitted jointly by the complainants. 
995 China's first written submission, paras. 35-36; Shorter Oxford English Dictionary , 2002 (5th edition), 
Volume 1, page 1502. 
996 China's first written submission, para. 192. 
997 European Communities' first written submission, para. 267. 
998 United States' second written submission, para. 9. 
999 European Communities' first written submission, para. 267; response to Panel question No. 69.  The 
European Communities states that "[a]lthough the measures do not provide for an exhaustive definition of what a CKD or an SKD kits consists of, it is assumed that such kits consist of all the parts necessary to manufacture a 
vehicle or an 'assembly'. In other words, such kits cons ist of all the necessary parts of a whole product packaged 
and imported together" (European Communitie s' first written subm ission, para. 267). 
1000 China, in particular, in arguing that it does not consider that a CKD or SKD kit must include "all" 
of the parts necessary to assemble a motor vehicle and that there is some ambiguity in how the automobile WT/DS339/R 
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  7.645  Second, all, or nearly all, of the auto parts necessary to assemble a complete vehicle must be 
packaged and shipped altogether in a single shipment  to constitute a CKD or SKD kit.  Given that a 
"kit" is by definition "a set of parts or constituen ts from which a thing may be assembled or made", it 
is reasonable to understand that a CKD or SKD kit is a set of auto parts and components, either 
entirely unassembled or partially assembled, from which a motor vehicle may be assembled or made.
1001  
7.646  Finally, CKD and SKD kits must go through th e assembly process to become a complete 
vehicle since auto parts constituting a CKD or SKD kit are "entirely unassemble d" or "only partially 
assembled".  As the parties submit, the nature a nd degree of the assembly process required for CKD 
and SKD kits to become a complete vehicle will vary  depending on the extent to which the parts and 
components in a CKD or SKD kit would have been already assembled prior to their shipment to the 
importing country.1002  Regardless, the parties agree that the assembly operations for CKD and SKD 
kits may be less complicated than the full manuf acturing of vehicles from individual auto parts.1003  At 
the same time, we consider that  CKD or SKD kits, in particular SKD kits, are distinguished from 
complete motor vehicles because of the degree of  assembly operations required once they are 
imported into the importing country.  For example, if a certain SKD kit containing all or nearly all the 
parts necessary to assemble a motor vehicle is impor ted in a substantially assembled state so as not to 
require any further assembly operations in the importing country (for examples, motor vehicles 
missing only the tyres or the wiper blades)1004, that kit might not fall within the scope of "CKD or 
SKD kits" as such.1005   
7.647  In conclusion, although there is no fixed defi nition for CKD and SKD kits, we will consider 
for the purpose of this dispute that CKD and SKD kits under the measures refer to those that fall 
within the descriptions above.   
                                                                                                                                                                     
industry uses these terms (China's response to Panel question No. 70), refers to the following statements in 
Indonesia – Autos :  the European Communities stated that CKD kits for export to Indonesia included "almost all 
the parts and components necessary for assembling the cars"; and the United States stated that the CKD kits for 
the Ford Escort would have contained all of the individual parts necessary to build a complete Escort, except for locally procured parts and components, such as oil a nd gasoline (China's response to Panel question No. 69, 
referring to the Panel Report on Indonesia – Autos , paras. 8.239 and 8.242 respectively).  China also points to a 
BMW website where it states that "[i]n the CKD process, certain parts and components are packaged as kits in 
precisely defined assembly steps and exported for assembly in the respec tive countries.  These kits are then 
supplemented with locally manufactured parts in the partner countries" (China's response to Panel question 
No. 69). 
1001 As described in Section VII.A.1(b), the measures at issue also cover auto parts imported in multiple 
shipments for the domestic assembly of motor vehicles.  This aspect of the measures is addressed in Section 
VII.D of these reports. 
1002 Parties' responses to Panel question No. 71. 
1003 Parties' responses to Panel question No. 71; European Communities' second written submission, 
paras. 130-132; United States' second wr itten submission, paras. 9-10.  For example, the United States submits 
that "[a]n operation that assembles kits is different than  a full-fledged, automobile manufacturing plant with full 
logistical capabilities to handle bulk shipments of parts (footnote original omitted).  And most auto manufacturing plants are not in the business of assembli ng discrete kits" and that "[a]s a practical commercial 
matter, CKD and SKD kits are an inefficient production method that is limited in use by manufacturers to 
circumstances (1) when they are starting up a new assembly operation in a distant location with no developed supplier base; or (2) when the number of vehicles produced in a distant location is limited to only several 
thousand vehicles annually." 
1004 China refers to these examples in para graph 23 of its second written submission. 
1005 They may still be classified as complete moto r vehicles in accordance with general classification 
rules relied upon by customs authorities, such as GIR 2(a).    WT/DS339/R 
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  3. Is China's treatment of CKD and SKD kit imports under the measures consistent with 
Article II:1(b) of the GATT 1994? 
(a) Treatment of CKD and SKD kits under China's measures  
7.648  There is no separate tariff line for CKD and SKD kits in China's Schedule of Concessions.
1006  
Under Articles 2 and 21(1) of Decree 125 and Ar ticle 13 of Announcement 4, China imposes an 
ordinary customs duty at the tariff rate applicable to complete vehicles (i.e. 25 per cent on average) on 
imports of CKD and SKD kits.1007 
7.649  The complainants  submit that China's treatment of CKD and SKD kits under the measures is 
inconsistent with China's tariff commitment under its  Schedule and consequently with Article II:1(b) 
of the GATT 1994.1008   
7.650  China  argues that it is consistent with China's obligation under its Schedule and 
Article II:1(b) of the GATT 1994 to treat CKD and S KD kit imports as complete vehicles in light of 
the principle of GIR 2(a), which provides that a complete set of parts "presented unassembled or 
disassembled" (e.g., in a kit) is classified as the complete article, not as parts of that article.1009 
7.651  The issue before the Panel is therefore whether imposing the tariff rates applicable to 
complete vehicles on CKD and SKD kits imports is  consistent with China's commitment under its 
Schedule.   
(b) Interpretation of China's Schedule of Concessions 
7.652  Article II:7 of the GATT 1994 provides that the schedules annexed to the GATT 1994 are 
made an integral part of the GATT 1994.  As observed by the Panel in EC – Chicken Cuts , the 
Appellate Body in EC – Computer Equipment clarified that Article II:7 means that the concessions 
provided in such schedules are part of the terms of the treaty, namely the GATT 1994.1010  Paragraph 
1 of Part II of China's Accession Protocol stat es that China's Schedule CLII annexed to China's 
Accession Protocol shall become the Schedule of  Concessions and Commitments annexed to the 
GATT 1994.  Thus, the content of a Member's Schedule of Concessions (i.e. China's Schedule of the 
Concessions in this case) is considered treaty language , which must be interpreted in accordance with 
customary rules of interpretation of public inte rnational law, namely the provisions of the Vienna 
Convention1011 in accordance with Article 3.2 of the DSU. 
                                                      
1006 "China's Schedule of Concessions" means Chin a's Schedule CLII to China's Accession Protocol 
(Exhibit JE-2). 
1007 See paragraphs 7.71-7.77, 7.78. 
1008 European Communities' second written submission, para. 132; the United States' first written 
submission, paras. 118-119; Canada's first written subm ission, paras. 141 and 149-150.  The United States and 
Canada refer to the arguments provided by the European Communities in Section III.D of the European 
Communities' first submission (United States' first written submission, footnote 145 to para. 118). 
1009 China's first written submission, para. 90. 
1010 Appellate Body Report on EC – Computer Equipment,  para. 84; Panel Report on EC – Chicken 
Cuts, para. 7.6. 
1011 Article 31 of the Vienna Convention  provides: 
 
"General rule of interpretation 
1. A treaty shall be interpreted in good faith  in accordance with the ordinary meaning to 
be given to the terms of the treaty in their context and in the light of its object and purpose. WT/DS339/R 
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  (i) Tariff term to be interpreted 
7.653  The European Communities  starts its analysis of the interpretation of the Chinese tariff 
schedule with a reference to the term "whole vehicles" in Article 2 of Decree 125.
1012  Article 2 states 
that the measures apply to the supervision and admi nistration of imported automotive "parts" that are 
deemed "whole vehicles" falling within the sc ope of tariff headings 87.02, 87.03 and 87.04.1013  
According to the European Communities, "motor vehi cles" referred to in these tariff headings can be 
defined as "a road vehicle powered by an intern al-combustion engine" and de notes complete or whole 
vehicles.  Thus, the terms to be interpreted pursuant to the Vienna Convention are " whole (motor) 
vehicle" and " parts of a whole vehicle (as defined in Article 21 of Decree 125)" and a proper analysis 
of China's tariff Schedule requires an examination of the relevant words in all relevant tariff headings 
starting with "parts and accessories" of motor vehicl es, "chassis fitted with engines", and so forth.1014  
7.654  The United States and Canada have not provided any specific view on the tariff term to be 
interpreted in the context of CKD and SKD kits. 
7.655  China  submits that the measures concerned impl ement China's Schedule of Concessions by 
interpreting and giving effect to its tariff provi sions for "motor cars and other motor vehicles 
principally designed for the transport of persons" (i.e. tariff headings 87.02 & 87.03) and "motor 
vehicles principally designed for the transport of goods" (i.e. tariff heading 87.04).1015  The measures 
give effect to these tariff provisions by defining the circumstances under which China will classify the 
importation and assembly of auto parts as equivalent to the importation of a complete motor vehicle.  
Thus, China considers that the interpretative is sue before the Panel is whether the challenged 
measures are based on a valid interpretation of the term "motor vehicles". 
7.656  The Panel observes that the position of the European  Communities is slightly different from 
that of China to the extent that the European Communities submits that  the terms to be interpreted are 
respectively " whole (motor) vehicles" and "auto parts", whereas China submits that the term at issue is 
"motor vehicles".  We consider that the term to be  interpreted is what is contained in the concerned 
tariff heading of China's Schedule of Concessions, not the term in China's measures.  In our view, the 
question of whether the term "motor vehicles" is in terpreted to include in its scope something other 
                                                                                                                                                                     
2. The context for the purpose of the interpretation of a treaty shall comprise, in 
addition to the text, including its preamble and annexes: 
(a) any agreement relating to the treaty which was made between all 
the parties in connection with the conclusion of the treaty; (b) any instrument which was made by one or more parties in 
connection with the conclusion of th e treaty and accepted by the other 
parties as an instrument related to the treaty. 
3. There shall be taken into acco unt, together with the context: 
(a) any subsequent agreement be tween the parties regarding the 
interpretation of the treaty or th e application of its provisions; 
(b) any subsequent practice in the application of the treaty which 
establishes the agreement of the parties regarding its interpretation; 
(c) any relevant rules of international law applicable in the relations between the parties." 
 
1012 European Communities' first written submission, paras. 240-248.   
1013 The European Communities also submits that it is not disputed that the "vehicles" subject to the 
measure at issue are those falling under tariff headings 87.02, 87.03 and 87.04 (Article 3 of Decree 125), under 
all of which "motor vehicles" is the common denominator. 
1014 European Communities' second written submission, footnote 83. 
1015 China's first written submission, paras. 77-78.  WT/DS339/R 
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  than whole (or complete) vehicles (i.e. CKD and SKD k its) is the very issue before us.  Therefore, we 
consider that the tariff term to be interpreted in relation to China's measures concerning CKD and 
SKD kits is "motor vehicles"
1016 as indicated in tariff headings 87.02, 87.03 and 87.04.   
7.657  Other relevant terms such as "auto parts", however, will also be examined as part of the 
context of the term "motor vehicles". 
(ii) Ordinary meaning of the term "motor vehicles" 
7.658  Based on the dictionary definitions1017 of the terms "whole" ("complete, total" or "something 
not divided into parts; not broken up or cut into pi eces; entire") and "part" ("portion or division of a 
whole", which is the opposite of "w hole" or "complete", and "any of the manufactured objects that are 
assembled together to make a machine or in strument, especially a motor vehicle"), the European 
Communities  argues that there is no logical or sema ntic basis for considering or deeming an 
automotive part as a complete or whole vehicle since a part of a vehicle by definition is a part or a 
portion or division of a whole or complete vehicle.  Therefore, the classification (or "deeming") of 
auto parts as complete vehicles, when there are separ ate tariff lines for parts and whole vehicles, is not 
only a manifest error but a contradiction in terms of  the basis of the ordinary meaning of these terms. 
7.659  China disagrees with the European Communities on whether "a 'motor vehicle' denotes 
complete or whole vehicles".1018  China does not consider that there is a clear separation between 
complete vehicles and the parts and components th ereof.  According to China, the European 
Communities reaches its "clear separation" principl e in this case because it ignores the critical context 
provided by GIR 2(a), which establishes that there is never a clear separation between a complete 
article and the parts and components of that article.  China argues that the ordinary meaning analysis 
is limited in this case and dictionary definitions  of the term "motor vehicle" do not inform an 
understanding of where to draw the line between motor vehicles and parts of motor vehicles.1019 
7.660  The tariff headings for motor vehicl es under China's Schedule are as follows: 
87.02 " Motor vehicles for the transport of ten or more persons, including the driver" 
87.03 " Motor cars and other motor vehicles principally designed for the transport of 
persons, other than those under heading 87.02, including station and racing cars" 
87.04 " Motor vehicles for the transport of goods" 
7.661  All these three tariff headings have the term "motor cars and/or motor vehicles" in their 
heading descriptions.  "Motor car or motor vehicle"
1020 can in turn be defined as follows: 
• Motor Car :  a. (usually) four-wheeled road vehicle pow ered by an IC engine and designed for 
passengers.1021 
                                                      
1016 References to "motor vehicles" in these re ports also include the term "motor cars". 
1017 The European Communities relies on the definitions of these terms as provided in the Shorter 
Oxford English Dictionary , 2002 (5th edition), Volumes 1 and 2. 
1018 China's first written submission, paras. 79-80. 
1019 China's first written submission, para. 83. 
1020 Motor is defined as "(a) electric motor (b) engine (c) motor car" ( Dictionary of Automobile 
Engineering , Peter Collin Publishing, 1997, page 156).   
1021 Dictionary of Automobile Engineering , Peter Collin Publishing, 1997, page 156.   WT/DS339/R 
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• Motor Vehicle :  Any automotive vehicle that does not run on rails; usually with rubber tyres; 
such as cars, trucks, lorries and motorcycles.
1022 
 
• Vehicle :  (5) A means of conveyance, usu. with wh eels, for transporting people, goods, etc; a 
car, cart, truck, carriage, sledge, etc.  b. Any means of carriage or transport; a receptacle in which something is placed in order to be moved.
1023 
 
• Car:  (6) A. usu. four-wheeled motorized vehicl e for use on roads, able to carry a small 
number of people; an automobile.1024 
 
• Motor :  (3) a. A machine for producing motive power  from some other form of energy, esp. 
electrical energy; an engine, esp. that of a vehicle. b. A motor car, a motor vehicle.1025 
 These definitions show that "motor vehicle (or car)"  is a "vehicle (or car)", which is powered by 
engine and runs on roads, and not on rails.  Although the ordinary meaning of "motor vehicle" seems 
to indicate a complete vehicle in that it refers to a means of transporting people or goods, the Panel 
considers it necessary to move on to examine the term  "motor vehicles" in its context and in the light 
of its object and purpose.  
(iii) Context for the tariff term "motor vehicles" 
What constitutes context for interpreti ng the tariff term "motor vehicles"?
 
7.662  The Appellate Body stated that the context of th e term concerned in the relevant tariff heading 
consists of the immediate, as well as the broader, co ntext of that term:  the immediate context is the 
other terms of the product description contained in the tariff heading at issue and the broader context 
includes the other tariff headings in the relevant chapter of the member's schedule, as well as other 
WTO Member Schedules.1026   
7.663  The Appellate Body also conf irmed the Panel's finding in EC – Chicken Cuts that the 
Harmonized System1027 is "context" under Article 31(2)(a) of the Vienna Convention for the purposes 
of interpreting the WTO agreements, of which [a Member 's schedule] is an integral part and thus that 
the HS is relevant for interpreting tariff commitments in the WTO Member's Schedules.1028  
Specifically, the Appellate Body states: 
"The above circumstances confirm that, prior to, during, as well as after the Uruguay 
Round negotiations, there was broad consen sus among the GATT Contracting Parties 
to use the Harmonized System as the basis fo r their WTO Schedules, notably with 
respect to agricultural products . In our view, this consensus constitutes an 'agreement' 
                                                      
1022 Dictionary of Automobile Engineering , Peter Collin Publishing, 1997, page 156. 
1023 Shorter Oxford English Dictionary , 2002 (5th edition), Volume 2, page 3512. 
1024 Shorter Oxford English Dictionary , 2002 (5th edition), Volume 1, page 342. 
1025 Shorter Oxford English Dictionary , 2002 (5th edition), Volume 1, page 1841.  Definitions of "motor 
car" and "motor vehicle" are not provided in Shorter Oxford English Dictionary . 
1026 Appellate Body Report on EC – Chicken Cuts , para. 193. 
1027 Article 1(a) of the HS Convention provides th at the HS is comprised of the headings and 
subheadings of the HS and their re lated numerical codes, the Section, Chapter and heading notes and the 
General Rules. 
1028 Appellate Body Report on EC – Chicken Cuts , para. 199.  WT/DS339/R 
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  between WTO Members 'relating to' the WTO Agreement  that was 'made in 
connection with the conclusion of' that  Agreement, within the meaning of 
Article 31(2)(a) of the Vienna Convention . As such, this agreement is 'context' under 
Article 31(2)(a) for the purpose of int erpreting the WTO agreements , of which the EC 
Schedule is an integral part.  In this light , we consider that the Harmonized System is 
relevant for purposes of interpreting tariff commitments in the WTO Members' Schedules."
1029 (emphasis added) 
7.664  In this regard, the United States high lights that what was at issue in EC – Chicken Cuts was  
agricultural products and a Schedule of Concessions  negotiated during the Ur uguay Round.  Although 
acknowledging the relevance of the HS for the inte rpretation of China's Schedule in this case, the 
United States submits that the HS should be examined  in this case as part of "supplementary means of 
interpretation" under Article 32 of the Vienna Convention rather than as context under Article 31(2)(a) 
of the Vienna Convention .  This is because, according to the United States, this dispute, unlike  EC – 
Chicken Cuts , does not concern agricultural products and al so because the dispute does not involve a 
schedule negotiated during the Uruguay Round.   
7.665  However, we do not consider that the Appellate Body's finding in EC – Chicken Cuts  is 
necessarily limited to agricultural products or Schedules of Concessions negotiated during the 
Uruguay Round.  While the United States only highlights two elements in the Appellate Body's reasoning which refer to agricultural products, the A ppellate Body also noted several other general 
elements in support of its conclusion that the HS  is relevant "context" within the meaning of 
Article 31 of the Vienna Convention .
1030  For example, the Appellate Body noted "the close link" 
between the HS and several WTO Agreements1031, which was "particularly true" for agricultural 
products but not necessarily limited thereto.1032  The Appellate Body also cited its finding in EC – 
Computer Equipment , a case not concerning agricultural products , where the HS was used as a basis 
for the preparation of the Uruguay Round negotiations.1033 
7.666  Further, the Appellate Body noted that not only prior to and during but also "after" the 
Uruguay Round negotiations, there was broad consen sus among the GATT Contracting Parties to use 
the HS as the basis for their WTO Schedules, although notably with respect to agricultural products.  
At the time of China's accession to the WTO in 2001, China was already a contracting party to the 
                                                      
1029 Appellate Body Report on EC – Chicken Cuts , para. 199.  (footnote original:  "In view of this 
conclusion, we do not find it necessary to determine whether the Harmonized System could constitute a 'relevant rule of international law', with in the meaning of Article 31(3)(c) of the Vienna Convention .") 
1030 The Appellate Body referred to the following elements considered by the Panel in EC – Chicken 
Cuts:  the membership of the HS is extremely broad;  th e HS was used as a basis for the preparation of the 
Uruguay Round GATT schedules (e.g. EC – Computer Equipment ); Decision by the Contracting Parties setting 
out guidelines and "special procedures" to facilitate wide adoption of the HS; Decision by the Contracting 
Parties on Procedures to Implemen t Changes in the Harmonized System; the reference in a number of WTO 
Agreements that resulted from the Uruguay Round negotiations to the Harmonized System (Appellate Body 
Report on EC – Chicken Cuts , paras. 196-197). 
1031 In its reasoning, the Appellate Body also re ferred to other WTO Agreements such as the  Agreement 
on Rules of Origin  (Article 9), the  Agreement on Subsidies and Countervailing Duties  (Article 27) and the 
Agreement on Textiles and Clothing  (Article 2 and the Annex thereto).  This  shows, in the view of the Appellate 
Body, that "the close link between th e Harmonized System and the WTO Agreem ents (...) is also clear."  The 
Appellate Body considered that this close link between the HS and the WTO Agreements was "particularly true 
for agricultural products", but in our view, the Appellate  Body did not limit its consideration to agricultural 
products  (Appellate Body Report on EC – Chicken Cuts , paras. 197-198). 
1032 Appellate Body Report on EC – Chicken Cuts , para. 198. 
1033 Also see footnote 1030 above. WT/DS339/R 
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  HS.
1034   This fact is indicated in the section on ordinary customs duties of the Working Party Report 
on China's accession to the WTO.1035   
7.667  The Appellate Body's holding in EC – Chicken Cuts  could thus be read to support that the HS 
is relevant "context" within the meaning of Article 31(2)(a) of the Vienna Convention to intepret 
China's Schedule rather than a supplementary means of interpretation.  More over, the United States' 
argument  that "China had not presented a basis for finding that there was a comparable 'agreement' 
(like the one during the Uruguay Round on agri cultural products) among WTO Members concerning 
China's tariff negotiations on industrial goods" seems to contradict its own statement that "China's 
schedule is plainly based on the Harmonized System nomenclature."1036  In any event, as the United 
States clarifies, deciding where in the Vienna Convention the HS should fall under would have 
systemic implications rather than practical implications in this case. 
7.668  Therefore, the Panel will proceed to examine the context of the term "motor vehicles" to 
determine whether CKD and SKD kits are classified as complete vehicles. 
Other terms in the tariff headings for motor ve hicles and other tariff headings in Chapter 87  
7.669  Other tariff terms in tariff headings 87.02, 87.03 and 87.04 describe the purpose of vehicles 
falling under each heading, such as the transport of  persons or goods.  Although a CKD or SKD kit 
would consist of all or nearly all auto parts n ecessary to assemble a motor vehicle, it would not be 
                                                      
1034 China became a contracting party to the HS in 1992. 
1035 Paragraph 89 of China's Working Party Report provides: 
 
"B. IMPORT REGULATION 
Ordinary Customs Duties 
… 
89. The representative of China sa id that China had adopted the 
Harmonized Commodity Description and Coding System ("HS") as from 1 
January 1992 and joined the International Convention on the Harmonized Commodity Description and Coding System in the same year.  There were 
21 sections, 97 chapters and 7062 eight-digit tariff headings based on the 
six-digit HS '96 version in the Customs Tariff for the year 2000.  Tariff rates 
were fixed by the State Council.  Partial adjustment to the duty rates was 
subject to deliberation and final deci sion by the State Council Tariff 
Commission.  The simple average of Ch ina's import duties in 2000 was 16.4 
per cent.  Among the 7062 tariff headings, tariff rates for 525 headings were 
below 5 per cent, 1488 were between 5 per cent (inclusive) and 3027 were above 15 per cent.  Information on tariff rates for specific products and 
import statistical data for recent years had been provided to the Working 
Party."  (Report of the Working Party on the Accession of China (WT/ACC/CHN/49, 1 October 2001) 
 
Canada also submits that "China is a signatory to the Harmonized System Convention (Exhibit JE-35). 
Approximately 200 countries and Customs or Economic Unions, including Canada and China, base their 
domestic tariff classification on the Harmonized System nomenclature (World Customs Organization, Fact 
Sheet, 'The Harmonized System: The Language of Interna tional Trade' (Exhibit JE-36)). The tariff commitments 
in China’s Schedule are based on China’s customs tariff, which replicates the Harmon ized System up to the six-
digit subheading level (It is common that all domestic tari ff schedules differ after the six-digit level because the 
Harmonized System only classifies up to the six-dig it subheading level)" (Canada's first written submission, 
para. 139). 
1036 United States' second written submission, paras. 30-31.  WT/DS339/R 
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  capable of fulfilling the purposes descr ibed in the headings until the auto  parts included in the kit were 
assembled into a motor vehicle in the importing country.  
7.670  The terms in the tariff headings for auto part s (e.g. tariff headings 87.06-87.08, 84.07-84.09 
and 85.03)
1037 do not provide guidance either on whether CKD or SKD kits should be classified as 
complete motor vehicles.  Based on the scope of CKD and SKD kits defined above, however, we note 
that a CKD and SKD kit consists of a set of auto parts, which is much more complete and ready for 
the assembly of motor vehicles, than individual uni ts of auto parts falling under tariff headings for 
auto parts, including tariff headings 87.06 (" chassis fitted with engines") and 87.07 ("bodies 
(including cabs)") that cover the so-called 'intermediate products'. 
7.671  Therefore, we do not find that other terms in  the tariff headings concerned (87.02, 87.03, 
87.04) and the terms in the tariff headings for auto  parts provide useful information on whether the 
term "motor vehicles" is interpreted to  include in its scope CKD and SKD kits. 
Other Members' Schedules  
7.672  Canada has provided examples of other WTO Me mbers' Schedules under which a CKD kit is 
classified under the tariff headings for motor vehicles.   For example, a CKD kit is classified under the 
tariff headings for motor vehicles, such as tariff heading 8703.2110 in Malaysia's Schedule of Concessions
1038, tariff heading 8703.2110.11 in In donesia's Schedule of Concessions1039, and tariff 
heading 8703.2131 in Vietnam' s Schedule of Concessions.1040  Also, the Schedule of Concessions of 
the East African Community shows that "Unassemb led and Disassembled" auto parts are classified 
under, for example, tariff heading 8702.2010, which is a tariff heading for motor vehicles.1041 
7.673  Overall, the evidence before us shows that in the Schedules of some WTO Members, CKD 
and SKD kits are classified as complete vehicles. 
Harmonized System  
General Explanatory Notes for Chapter 87 and GIR 2(a) 
7.674  The European Communities  submits that under Chapter 87 of the HS, "fitting" and 
"equipping" are important criteria of tariff classificat ion as illustrated in the General Notes for Chapter 
87.1042  Since nothing or very little is fitted or e quipped in a CKD kit, parts composing a CKD kit 
remain parts until they are fitted and processed together as a complete vehicle.1043  Further, as for a 
SKD  kit, the degree of fitting or equipping is not  sufficient to make such  SKD kits sufficiently 
similar to a complete vehicle in order to have  "the essential character" of a finished vehicle.1044 
                                                      
1037 See paragraph 7.660. 
1038 Exhibit CDA-23. 
1039 Exhibit CDA-24. 
1040 Exhibit CDA-26. 
1041 Exhibit CDA-27. 
1042 The European Communities also argues that "fitting" and "equipping" are also decisive notions for 
classification under tariff headings 87.06 and 87.07 of the HS (European Communities' first written submission, 
para. 268).   
1043 European Communities' first written submission, para. 270. 
1044 European Communities' first written submission, paras. 272-273.  The European Communities 
acknowledges at the same time that the situation may be slightly more complex with regard to SKD kits than 
CKD kits.  Regardless, the European Communities argues that "even if engines and bodies, which themselves WT/DS339/R 
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  7.675  We note that the United States and Canada  acknowledge that CKD and SKD kits could be 
classified as complete vehicles to the extent that a CKD or SKD kit can be considered as having the 
essential character of a complete vehicle pursuant to the principle of GIR 2(a).
1045   
7.676  China , on the other hand, argues that the European Communities' assertion in respect of CKD 
kits that even a complete set of parts remain parts until they are fitted and processed together as a 
complete vehicle is wrong under the second sentence of GIR 2(a).1046  China also adds that it is 
surprised by the European Communities' positio n given that the European Communities has 
recognized in Indonesia – Autos  that CKD kits for automobiles ar e classified as complete vehicles 
under GIR 2(a).1047  China submits that the European Comm unities also errs in arguing based on its 
selective quotation of the General Explanatory No tes to Chapter 87 that there are only very 
exceptional situations in which an incomplete or unfinished vehicle can be classified as a complete 
vehicle.  On the contrary, the two motor vehi cle-related examples provided in the General 
Explanatory Notes to Chapter 87 are merely exam ples of how GIR 2(a) can be applied to motor 
vehicles.1048 
7.677  The Panel  will begin its analysis by considering the language of the General Explanatory 
Notes to Chapter 87 and GIR 2(a).  The General Explanatory Notes to Chapter 87 provide:  
"An incomplete or unfinished vehicle is classified as the corresponding complete or 
finished vehicle provided it has the essential character of the latter (see Interpretative 
Rule 2(a)), as for example, 
(A) A motor vehicle, not yet fitted with the wheels or tyres and battery. 
(B) A motor vehicle not equipped with its engines or with its interior fittings. This Chapter also covers parts and accesso ries which are identifiable as being suitable 
for use solely or principally with the vehicles included therein, subject to the 
provisions of the Notes to Section XVII ( see the General Explanatory Note to the 
Section)."
1049 
7.678  The General Explanatory Notes to Chapter 87 th erefore make a reference to GIR 2(a) and 
provide two examples of incomplete or unfinished vehicles that are classified as complete vehicles in accordance with the principle of GIR 2(a).   
                                                                                                                                                                    
 
consist of parts falling as such under tariff line 87.08, would be packaged together with all the other necessary 
parts for manufacturing a complete vehicle, the engines, bodies and other parts would remain subject to their specific tariff lines and thus not classifiable as complete vehicles" (European Communities' first written 
submission, para. 273). 
1045 United States and Canada's responses to Panel question No. 205. 
1046 China's first written submission, para. 90. 
1047 China explains that in Indonesia – Autos , the European Communities invoked GIR 2(a) to explain 
why CKD kits for automobiles must be considered "like" assembled complete vehicles for purposes of a like product analysis under the SCM Agreement  (para. 91 of  China's first written submission).  More specifically, in 
that case, the European Communities submitted that "the mere fact that those CKD kits benefit from a lower 
import duty rate does not necessarily mean  that they are not classi fied within the same HS six-digit code as CBU 
cars.  If it was confirmed that the CKD kits exported from the EC are classified by Indonesia as parts and 
components, rather than as passenger  cars, the necessary implication woul d be that Indonesia does not follow 
General Interpretative Rule 2(a)" (Panel Report on Indonesia – Autos , para. 8.236).   
1048 China's first written submission, para. 92. 
1049 Exhibit JE-37.  WT/DS339/R 
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  7.679  In turn, GIR 2(a) provides: 
"Any reference in a heading to an article sha ll be taken to include a reference to that 
article incomplete or unfinished, provide d that, as presented, the incomplete or 
unfinished article has the essential character of  the complete or finished article.  It 
shall also be taken to include a reference to that article complete or finished (or 
falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled." 
7.680  We understand that the text of GIR 2(a) sugg ests the following three situations where goods 
are classified under the tariff headings for complete goods: 
(a) "incomplete or unfinished product" presen ted "assembled", provided that, as 
presented, the incomplete or unfinished pr oduct has the essential character of the 
complete or finished product;  
(b) "complete or finished" product presented "unassembled or disassembled"; and 
(c) "incomplete or unfinished product" presented "unassembled or disassembled", 
provided that, as presented, the incomplete  or unfinished product has the essential 
character of the complete or finished product. 
7.681  In our view, the two examples provided in the General Explanatory Notes to Chapter 87 could 
be considered as falling within the first situa tion foreseen under GIR 2(a) above since "a motor 
vehicle not yet fitted with the wheels or tyres and ba ttery" and "a motor vehicle not equipped with its 
engines or with its interior fittings", presented a ssembled to the customs authorities, constitute the 
category of "incomplete or unfinished vehicles" that have the essential character of a complete vehicle. 
7.682  As we noted in paragraphs 7.639-7.647, CKD or SKD kits refer to a collection of auto parts 
that are packaged into a kit and shipped together in a single shipment for the assembly into a motor 
vehicle in the importing country.  These sets of auto  parts are imported completely unassembled in the 
case of CKD kits and partially assembled in the case of SKD kits.  Given that a CKD and SKD kit by definition refers to all or nearly all auto pa rts and components necessary to assemble a complete 
vehicle, the extent of auto parts comprising such a ki t meets, if not exceeds, th at of the incomplete or 
unfinished motor vehicles provided as examples in th e General Explanatory No tes to Chapter 87 (i.e. 
a motor vehicle not yet fitted with the wheels or tyres and battery and a motor vehicle not equipped 
with its engines or with its interior fittings).  Fu rther, as GIR 2(a) provides that an incomplete or 
unfinished article presented "unassembled or disassembl ed" is also classified as the complete good 
(under the third situation above in paragraph 7.680)
1050, the fact that CKD and SKD kits are presented 
unassembled, namely without fixing and equipping as argued by the European Communities, does not 
                                                      
1050 In response to a question from the Panel whether a collection of auto parts in the form of CKD or 
SKD kits as provided in Article 21(1) of Decree 125 could be considered as having "the essential character of 
the complete or finished vehicle" in terms of GIR 2(a), the WCO  Secretariat comments that the HS Committee 
agreed that the HS should not impose a requirement that the subsequent assembly of the parts be "simple".  For that reason, the HS does not limit th e scope of GIR 2(a) to sets of parts for which the required assembly 
operation falls below a certain level of complexity.  The WCO Secretariat further mentions that absent guidance 
from the nomenclature (i.e. legal provisions) or the Committee (i.e. interpretation of the nomenclature), it is within the purview of national customs administrations to interpret these provisions (WCO's letter of 20 June, 
page 4). WT/DS339/R 
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  necessarily make such kits falling outside the scope of GIR 2(a).
1051  As China submits and we noted 
above, the two examples provided in the General E xplanatory Notes for Chapter 87 illustrate how the 
first sentence of GIR 2(a) operates, namely an "incomplete or unfinished" vehicle presented 
"assembled" is classified as th e corresponding complete or finished vehicle provided it has the 
essential character of the latter.  We do not find in  the text of these two examples that "fixing and 
equipping" are important criteria of tariff classi fication as the European Communities submits.  
Explanatory Note (VII) to GIR 2(a) 
7.683  The European Communities further claims that Articles 2 and 21(1) of Decree 125 and 
Article 13(a) of Announcement 4 are as such in violation of Article II of the GATT 1994 because they 
require China's customs authorities to "always an d automatically" classify CKD and SKD kits as 
complete vehicles and hence subject them to the higher duty.1052  The European Communities submits 
that China's measures are inconsistent with the pr inciple of GIR 2(a) since China classifies CKD and 
SKD kits as complete vehicles even when their assembly into complete vehicles includes working 
operations such as painting and curing of the body, which are not assembly operations.1053  On that 
basis, the European Communities argues that since the manufacturing processes to make a complete 
vehicle using CKD or SKD kits in China usually re quires further working operations in the form of 
painting and curing of the body, which exceed th e boundary of assembly operations within the 
meaning of Explanatory Note (VII) to GIR 2(a), it is inconsistent to always and automatically classify 
such CKD and SKD kits as complete vehicles.  Ac cording to the European Communities, different 
kits intended to become complete vehicles may n eed different further working operations depending 
on the level of high technology electronics in the fi nal vehicle and thus the classification of a kit must 
always be made on a case-by-case basis and not generally as China does unless the member's schedule provides for tariff lines for different kind of kits.
1054 
7.684  China , on the other hand, argues that whatever its state of prior assembly, both CKD and 
SKD kits are assembled by means of the types of  assembly operations specified in Explanatory 
Note (VII) to GIR 2(a).1055  According to China, no party has di sputed that CKD and SKD kits can be 
assembled into a complete vehicle by means of th e assembly methods detailed in Explanatory Note 
VII and this is supported by the fact that nati onal customs authorities routinely classify CKD and 
SKD kits for motor vehicles as "motor vehicles" in accordance with GIR 2(a).1056  China submits that 
the word "working" in "working operations" in Expl anatory Note VII to GIR 2(a) should be presumed 
to mean "making, manufacture, construction; the ma nner or style in which something is made," and 
that if the components must be subjected to an additional "working operation" (i.e. a manufacturing 
                                                      
1051 In response to Panel question No. 218, the European Communities submits that "as presented" and 
"presented unassembled or disassembled" in the first and second sentences of GIR 2(a) denote the same meaning in time and that the second  sentence of GIR 2(a) addresses the question of assembly.  The European 
Communities further elaborates that the two sentences of GIR 2(a) have separate Explanatory Notes that guide 
their interpretation.  According to the European Communities, Chapter 87 contains a lex specialis  in the form of 
an Explanatory Note under GIR 2(a), and under this lex specialis , the conditions of GIR 2(a) are clearly more 
likely fulfilled in an individual case if the goods are pres ented in an advanced stage of assembly since the notion 
of "fitting" is used in the examples.  In sum, the European Communities' arguments relating to "fixing and 
equipping" appear to be based on the Explanatory Notes to the second sentence of GIR 2(a), which are 
addressed in the following section. 
1052 European Communities' second written submission, para. 132. 
1053 European Communities' second written submission, para. 130, referring to China's response to 
Panel question No. 71. 
1054 European Communities' response to Panel question No. 47. 
1055 China's response to Panel question No. 71. 
1056 China's response to Panel question No. 62.  WT/DS339/R 
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  operation) before they can be assembled into the complete article, then the components cannot be 
classified as the complete article in accordance with GIR 2(a).
1057  
7.685  The Panel  notes that the European Communities' claim in this respect concerns two different, 
but related, issues.  First, the European Comm unities submits that China's measures are as such 
inconsistent because they always and automatically  classify CKD and SKD kits as complete vehicles 
even though there are situations where certain CKD and SKD kits should not be classified as 
complete vehicles.  Second, most CKD and SKD ki ts imported into China go through the types of 
operations that exceed the scope of assembly ope rations because they involve painting and curing of 
the body.  We will consider these two issues in turn. 
7.686  First, regarding whether China's measures are as  such inconsistent because they always and 
automatically classify CKD and SKD kits as complete  vehicles even though there are situations where 
certain CKD and SKD kits should not be classified as complete vehicles, the European Communities, 
as the party asserting a claim, bears the burden to prove that under the measures, China's customs 
authorities "always and automatically" classify CKD and SKD kits imports as complete vehicles even 
though certain shipments of CKD and SKD kits do not qualify to be classified as complete vehicles.  In order to show that the measures are as such in violation of China's WTO obligations with respect to 
CKD and SKD kits, the European Communities must  demonstrate the mandatory nature of the 
measures at issue – i.e. under the measures, Ch ina's customs authorities have no discretion to 
determine whether certain shipments of auto part s and components constitute CKD and SKD kits and 
thus should be classified as complete vehicles.  The European Communities ha s not proved that is the 
case.  
7.687  As examined above, the measures do not provide  any standard definition for CKD and SKD 
kits.  However, we were able to define the scope of CKD and SKD kits based on the general 
understanding of these product terms in the automobile industry.   
7.688  Under Article 21(1) of Decree 125, China's customs authorities must classify auto parts 
presented for classification, once categorized as a "C KD and SKD kits", as motor vehicles.  This 
means that China's customs authorities must first de termine whether a given shipment of auto parts 
and components presented for classification fits the scope of a CKD or SKD kit.  Once the customs 
authorities decide, based on the content of each ship ment, that the auto parts presented constitute a 
CKD or SKD kit, then they must classify th e parts as motor vehicles under the measures.   
7.689  In this connection, the European Communities argues that China's customs authorities do not 
have discretion in making an initial decision whether a certain shipment of auto parts and components 
fits the scope of a CKD or SKD kit.  We do not fi nd any support for such a position.  Rather, what 
makes the measures at issue mandatory  in respect of CKD and SKD kits is the fact that once the auto 
parts presented for classification are determined to constitute a CKD or SKD kit, the customs 
authorities must classify them as complete vehicles w ithout any discretion.  This question, which is 
before us, is distinguished from the question whethe r China's customs authoritie s' decision in a given 
case that a shipment of auto parts constitutes a CKD or  SKD kit is consistent with China's obligations.  
The latter concerns whether the measures, "as app lied" to a specific situation, are consistent. 
7.690  Second, the European Communities submits a fa ctual claim that most CKD and SKD kits 
imported into China go through the operation processes that exceed the scope of  assembly operations 
indicated in Explanatory Note (VII) to GIR 2(a).  The European Communities' claim is based on 
                                                     
 
1057 China's response to Panel question No. 62. WT/DS339/R 
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  China's response that the assembly operations of CKD and SKD kits involve, inter alia , painting and 
curing of the body.   
7.691  Explanatory Note (VII) to GIR 2(a) provides: 
"For the purposes of this Rule, 'articles presented unassembled or disassembled' 
means articles the components of which are to be assembled either by means of fixing 
devices (screws, nuts, bolts, etc.) or by riveting or welding , for example, provided 
only assembly operations are involved. 
No account is to be taken in that regard of the complexity of the assembly method.  
However, the components shall not be subjected to any further working operation for 
completion into the finished state."  (emphasis added) 
7.692  We first note that the text of Explanatory Note  (VII) to GIR 2(a) provides some examples, not 
an exhaustive list, of the qualifying assembly pr ocesses under GIR 2(a).  While agreeing that the 
processes such as fixing with screws, nuts and bolts, riveting and welding are within the scope of 
assembly processes, the European Communities conte nds that painting and curing of the body are not 
assembly operations within the meaning of GIR 2(a).   
7.693  With respect to a question from the Panel concerning the kind of manufacturing processes 
involved to make a complete vehicle using CKD and SKD kits, the parties were generally of the view 
that it is difficult to give a general answer as th e level of fitting and equipping will vary depending on 
the circumstances and the content of the kit.
1058  In other words, the more assembled auto parts are 
prior to their importation, the less operations w ill be required in their assembly into a complete 
vehicle.  The parties also seem to agree that a lthough the manufacturing of a complete vehicle using 
CKD or SKD kits may not be considerably diffe rent from the general manufacturing process, the 
assembly operations using CKD or SKD kits will be  less complicated than those using parts in 
general.  In particular, we find the observation by  the United States relevant in this regard.  The 
United States submits: 
"An operation that assembles kits is different than a full-fledged, automobile 
manufacturing plant with full logistical capabilities to handle bulk shipments of parts (footnote omitted).  And most auto manufacturing plants are not in the business of assembling discrete kits" and that "[a]s a practical commercial matter, CKD and SKD kits are an inefficient production method that is limited in use by manufacturers to 
circumstances (1) when they are starting up a new assembly operation in a distant 
location with no developed supplier base; or (2) when the number of vehicles 
produced in a distant location is limited to only several thousand vehicles annually." 
7.694  We further note the complainants' view on how the assembly processes required for CKD and 
SKD kits are different from those for regular auto parts.  For example, the European Communities 
states in its response to a Panel question that CKD and SKD kits are imported because sometimes 
there is no manufacturing capacity in the country of destination and essentially the necessary investment is yet to be made for building up cars from bulk shipment of parts.  According to the European Communities, to move to imports of parts in bulk, it is necessary to have in the place of 
destination the assembly and manufacturing plants to gether with a sufficiently developed informatics 
system and people able to manage thousands of parts to be used in different models.
1059  Canada also 
                                                      
1058 Parties' responses to Panel question No. 70. 
1059 European Communities' response to Panel question No. 255.  WT/DS339/R 
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  considers that a vehicle manufacturer does not need  a full, dedicated assembly line to assembly CKD 
kits into a complete vehicle.
1060 
7.695  Further, China's explanation1061 of the automobile assembly process relates to the general 
automobile assembly process, and is not necessarily limited to the assembly of CKD and SKD kits.1062  
In any event, we have not been presented with evidence supporting the view that painting and curing 
the body are assembly operations.  Therefore, we are not in the position to pronounce ourselves that 
painting and curing of the body are processes necessary for the assembly of CKD or SKD kits imported into China. 
7.696  In this regard, our finding above is for the so le purpose of the present dispute based on the 
evidence before us.  Therefore, we are not determini ng whether, and if so, how the principle of      
GIR 2(a) should be applied to a certain shipme nt of CKD or SKD kits based on the assembly 
operations that such kits would require in the importing country. 
7.697  In these circumstances, the Panel finds that the context of the term "motor vehicles", in 
particular GIR 2(a), suggests that CKD and SKD kits could in principle be classified as complete 
vehicles.   
(iv) Object and purpose 
7.698  We now consider whether interpreting the tariff te rm "motor vehicles" to include in its scope 
CKD and SKD kits would undermine the object and purpose of the treaties concerned, namely the 
WTO Agreement and the GATT 1994.   
7.699  In this connection, the Appellate Body in EC – Chicken Cuts has provided clarification on the 
scope of the object and purpose of the WTO Ag reement and the GATT 1994 within the meaning of 
Article 31(1) of the Vienna Convention .  The Appellate Body considered that although the starting 
point for ascertaining "object and purpose" is the tr eaty itself in its entirety, Article 31(1) of the 
Vienna Convention  does not necessarily exclude taking into account the object and purpose of a 
particular treaty term (a tariff term contained in a tariff heading of the European Counities' Schedule 
of Concessions in that case), if doing so assists the interpreter in determining the treaty's object and 
purpose on the whole.
1063  At the same time, the Appellate Body cautioned against interpreting WTO 
                                                      
1060 Canada's response to Panel question No. 255. 
1061 China's response to Panel question No. 71. 
1062 In response to a question from the Panel on the difference, if any, between "manufacturing" and 
"assembling" with respect to CKD and SKD kits, China subm its that the scope of GIR 2(a), second sentence, is 
defined by the reference to the types of assembly operations specified in Explanatory Note (VII) to GIR 2(a) and 
that the relevant consideration, in respect of the scope of GIR 2(a), is whether the unassembled parts and 
components can be assembled into the complete article by means of the specified assembly operations (China's response to Panel question No. 62).  China also submits that no party has disputed that CKD and SKD kits can 
be assembled into a complete motor vehicle by means of the assembly methods detailed in Explanatory         
Note (VII) to GIR 2(a).  According to China, this c onclusion follows from the fact that national customs 
authorities routinely classify CKD and SKD kits as  motor vehicles in accordance with GIR 2(a). 
1063 Appellate Body Report on EC – Chicken Cuts , para. 238, referring to Sir Ian Sinclair, The Vienna 
Convention on the Law of Treaties , 2nd edition (Manchester University Press, 1984), pages 130-135, which was 
referenced in the Panel Report on the same dispute (Panel  Report, footnote 153 to para. 7.105).  Thus, according 
to the Appellate Body, to the extent that one can speak of the "object and purpose of a treaty provision", it will 
be informed by, and will be in consonance with, the object  and purpose of the entire treaty of which it is but a 
component (Appellate Body Report on EC – Chicken Cuts , para. 238, referring to the Appellate Body Report on 
Argentina – Textiles and Apparel, where the Appellate Body states that "a basic object and purpose of the WT/DS339/R 
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  law in the light of the purported "object and purpose" of specific provisions, paragraphs or 
subparagraphs of the WTO agreemen ts, or tariff headings in Schedules, in isolation from the object 
and purpose of the treaty on the whole.
1064  In particular, the Appellate Body shared the Panel's view 
that "one Member's unilateral object and purpo se for the conclusion of a tariff commitment cannot 
form the basis" for an interpretation of that comm itment, because interpretation in the light of Articles 
31 and 32 of the Vienna Convention  must focus on ascertaining the common intention of the 
parties.1065 
7.700  One of the objects and purposes of the WTO Agreement and the GATT 1994 is the security 
and predictability of the reciprocal and mutua lly advantageous arrangements directed to the 
substantial reduction of tariffs and other barriers to trade.  When considered against its context as 
examined above, including some other Members' sc hedules, the tariff term "motor vehicles" would 
seem to be interpreted to include in its scope  CKD and SKD kits imports.  The complainants 
themselves have not denied that certain collections of  auto parts, which would fall within the scope of 
CKD and SKD kits, imported and presented to cust oms together in a single shipment could be 
classified as complete vehicles.  Therefore, inte rpreting "motor vehicles" to include CKD and SKD 
kits would not seem to undermine the security and predictability of the reciprocal and mutually 
advantageous arrangements between the Members.   Although we are mindful that the overall 
objective of the WTO Agreement and the GATT 1994 is directed to the "substantial reduction of 
tariffs and other barriers to trade", tariff commitments reflected in a Member's Schedule are the 
"reciprocal and mutually advantageous arrangement s", which include a committing Member's interest 
in how specific commitments are arranged in its Schedule.   
7.701  We now continue with our analysis of the term "motor vehicles" in light of other 
interpretative tools under Article 31 of the Vienna Convention . 
(v) Subsequent practice 
7.702  Article 31(3)(b) of the Vienna Convention states: 
"3. There shall be taken into account, together with the context: (b) any subsequent practice in the appli cation of the treaty which establishes the 
agreement of the parties regarding its interpretation." 
7.703  As the Appellate Body observed in EC – Chicken Cuts, "'subsequent practice' in the 
application of a treaty may be an important el ement in treaty interpretation because 'it constitutes 
objective evidence of the understanding of the parties as to the meaning of the treaty'."
1066  In light of 
                                                                                                                                                                     
GATT 1994 [was] reflected in Article II" (Appellate Body Report on Argentina – Textiles and Apparel , 
para. 47)).   
1064 Appellate Body Report on EC – Chicken Cuts , para. 239. 
1065 Appellate Body Report on EC – Chicken Cuts , para. 239, referring to the Appellate Body Report on 
EC – Computer Equipment , para. 84; and Sinclair,  pages 130-131, as referred to in the Panel Report on EC – 
Chicken Cuts (footnote 536 to para. 7.236).  In EC – Chicken Cuts , the European Communities argued that the 
notion of "long-term preservation" characterizes the four processes mentioned in heading 02.10, that is, "salted", 
"in brine", "dried", and "smoked".  In conclusion, the Appellate Body did not find an error with respect to the Panel's finding that an interpretation of the term "salted" in the tariff commitment under heading 02.10 of the EC 
Schedule, as including the criterion of long-term preservation, "could undermine the object and purpose of 
security and predictability", which underlie both the WTO Agreement and the GATT 1994. 
1066 Appellate Body Report on Chicken Cuts , para. 255, citing Yearbook of the International Law 
Commission (1966), Vol. II, page 219, para. (6).  WT/DS339/R 
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  this principle, the Appellate Body in that case clarified various issues arising from a treaty 
interpreter's examination of  "subsequent practice".   
7.704  First, regarding the question of "what" may qualif y as practice, the Appellate Body stated that 
although not each and every party must have engaged in a particular practice for it to qualify as a 
"common" and "concordant" practice, it would be difficult to establish a "concordant, common and 
discernible pattern" on the basis of acts or pronouncements of one, or very few parties to a 
multilateral treaty , such as the WTO Agreement.
1067  The Appellate Body further found that if only 
some of WTO Members have actually engaged in a certain practice, that circumstance may reduce the 
availability of such "acts and pronouncements" for purposes of determining the existence of 
"subsequent practice" within the meaning of Article 31(3)(b). 
7.705  Furthermore, in addressing the question of "whose practice" is relevant to establish agreement 
on the interpretation of the relevant provision, the Appellate Body found in EC – Chicken Cuts that 
although the issue in that dispute concerned the scope of a tariff commitment contained in the WTO 
Schedule specific to the European Communities, the relevant headings are common to all WTO 
Members and thus exclusive reliance on the impor ting Member's classification practice as constituting 
subsequent practice cannot be justified.1068 
7.706  Accordingly, on the basis of the guidance pr ovided as above by the A ppellate Body on the 
assessment of subsequent practice for interpreting a treaty provision (China's commitments under its 
Schedule), the Panel will consider how China has been classifying CKD and SKD kits since its 
accession to the WTO as well as how the complainants and other WTO Members have been 
classifying such kits.   
China's practice since its accession to the WTO  
7.707  The complainants  submit that China has been treating CKD and SKD kits as parts by 
applying the lower tariff rates applicable  to parts since its accession to the WTO.1069  T h e  
                                                      
1067 Appellate Body Report on EC – Chicken Cuts, para. 259. 
1068 Appellate Body Report on EC – Chicken Cuts , paras. 259-260, 265-266.  The Appellate Body 
states in the relevant part of its report on EC – Computer Equipment : 
 
"[t]he fact that Members' Schedules are an in tegral part of the GATT 1994 indicates that, 
while each Schedule represents the tariff commitments made by one Member, they represent a 
common agreement among all Members" (emphasis in original, para. 109). 
 
"The purpose of treaty interpretation is to establish the common intention of the parties to the 
treaty.  To establish this intention, the prior practice of only one of the parties may be relevant, 
but it is clearly of more limited value than the practice of all par ties. ..." (emphasis in original, 
para. 93).  
The Appellate Body also clarified the question of "what product range" is relevant for purposes of 
establishing "subsequent practice".  The Appellate Body viewed that the relevant product range included the 
"entire" range of the products classifiable under the tariff heading concerned in that case as well as other 
relevant alternative tariff headings , and not only the classification practice relating to the subset of such 
products covered by the measures challenged in that dispute (Appellate Body Report on EC - Chicken Cuts , 
paras. 267-270). 
1069 Complainants' responses to Panel question No. 254.  See also footnote 1101. WT/DS339/R 
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  complainants, however, have not been able to provide documentary evidence to support such a 
practice by China.
1070 
7.708  On the contrary, China argues that it has classified CKD and SKD kits as motor vehicles and 
assessed CKD and SKD kits at the applicable duty rates for motor vehicles both prior and subsequent 
to its accession to the WTO.1071  To support its position, China provi des an import declaration form in 
which a CKD kit import by Shanghai GM in 2004 w as classified as motor vehicles and assessed the 
duty rate applicable for motor vehicles.1072 
7.709  The Panel first notes a subtle difference in the terms used by the parties in their respective 
arguments:  the complainants refer to how China has been treating CKD and SKD kits, whereas 
China submits that it has always classified CKD and SKD kits as motor vehicles and assessed them at 
the applicable duty rates for motor vehicles. 
7.710  In response to a question from the Panel whether tariff treatment is always linked to tariff 
classification, the complainants submit that tariff classification is normally1073, generally1074, or 
always1075 related to tariff treatment.   
7.711  China submits that tariff treatment – i.e. the a pplicable duty rate – is always linked to tariff 
classification.  According to China, tariff classi fication of a good precedes the determination of the 
duty rate that applies since it is impossible to determine the correct rate of duty without first 
determining the classification of the good.1076 
7.712  We also understand that interpreting a Member's Schedule of Concessions in order to 
determine the Member's tariff commitment contai ned in a tariff heading is linked to tariff 
classification because the Member's Schedule is structur ed in the form of nomenclature, which in turn 
is governed by classification rules.  In respect of  the complainants' claim under Article II of the GATT 
1994 on China's tariff treatment of CKD a nd SKD kits under the measures, we must interpret China's 
Schedule to determine China's tariff commitment with  respect to such kits.  This requires us to 
examine first whether CKD and SKD kits are classified as motor vehicles under China's Schedule. 
7.713  Turning now to China's practi ce since its accession to the WTO, we are not presented with 
evidence showing that China has been classifying CKD and SKD kits as parts.  The only evidence of 
China's classification practice in this regard is the import declaration form submitted by one importer 
– Shanghai GM – as presented by China.1077  According to this declaration form, a CKD kit imported 
by Shanghai GM was classified as a motor vehi cle under tariff heading 8703.2334.90, which is a 
subheading at the ten digit level under tariff headi ng 87.03 for "motor cars and other motor vehicles 
principally designed for the transport of persons (o ther than those of head ing No. 87.02), including 
station wagons and racing cars".  Under these circ umstances, we do not have sufficient evidence to 
conclude that China has been classifying CKD and SKD kits as parts since its accession to the WTO, 
as argued by the complainants. 
                                                      
1070 Complainants' responses to Panel question No. 254.  
1071 China's response to Panel question No. 254. 
1072 China's response to Panel question No. 254, referring to Exhibit CHI-48. 
1073 European Communities' response to Panel question No. 259(d). 
1074 United States' response to Panel question No. 259(d). 
1075 Canada's response to Panel question No. 259(d). 
1076 China's response to Panel question No. 258. 
1077 Exhibit CHI-48.  WT/DS339/R 
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  Complainants' practice since China's accession to the WTO
 
7.714  All the complainants submit that they do not use the terms or have a tariff line for "CKD and 
SKD kits" in their Schedules.1078  Rather, classification of goods is conducted in the condition of 
goods as imported on a case-by-case basis.   
7.715  Specifically, the European Communities  considers that an SKD kit would appear more 
likely to fulfil the conditions to be classifiable as a complete vehicle as the parts would be presented 
to the customs with a certain degree of "fitting and eq uipping" and that a CKD kit that consists of all 
the parts necessary to assemble a complete vehicle may in some circumstances be classified as the 
complete vehicle provided that no working ope ration beyond assembly for completion into the 
complete vehicle is necessary in accordance w ith Explanatory Note (VII) to GIR 2(a).   
7.716  The United States  submits that to the extent the Unite d States understands the terms "CKD or 
SKD kits" as defined by China under Decree 125, it classifies merchandise in its condition as 
imported.  If a group of components are entered together that may form an assembly, it would be 
classified under the heading that d escribe that assembly.  If a group of components do not constitute 
an assembly, they are individually classified.  
7.717  Canada  submits that what is relevant for tariff cl assification is the application of GIR 2(a) 
and that certain collection of parts may only properl y be described as CKD or SKD kits where all or 
nearly all of the parts necessary to construct a whol e vehicle are presented to customs together in one 
shipment.1079  Canada further argues that China's custom s officials have the discretion either to 
classify CKD or SKD kits as parts, or to classify them at the six-digit level as a whole vehicle.1080 
7.718  China submits that consistent with GIR 2(a), cu stoms authorities routinely classify CKD kits 
(for autos and other articles) as the complete article.1081  China refers to instances where the 
complainants have classified CKD and SKD kits as complete vehicles by application of GIR 2(a): Canada Border Services Agency cl assified unassembled kits consisting of all the parts necessary to 
assemble a complete motor vehicle as a complete motor vehicle
1082; and the European Communities 
classified, through its Binding Tariff Information (B TI), completely disassembled Bentley Mark VI 
sports car as a motor vehicle.1083  
7.719  The Panel thus notes that the evidence provided by Ch ina shows that the complainants have 
also classified CKD and SKD kits as complete motor vehicles.  In fact, the complainants themselves 
do not deny that a collection of auto parts constitu ting all or nearly all th e parts necessary to assemble 
a motor vehicle could be classified as a motor vehicl e in accordance with the principle of GIR 2(a), if 
they are imported and presented to custom s together in a single shipment.   
                                                      
1078 Complainants' responses to Panel question No. 47. 
1079 Canada's response to Panel question No. 33. 
1080 Canada submits that if China classifies CKD or  SKD kits at the six-digit level as a complete 
vehicle, there should be a further classification at the seven- or eight-digit level to show that it is a whole vehicle 
in unassembled form, and therefore subject to a 10 per cent duty. 
1081 China's first written submission, para. 90, footnote 65.  China also refers to a classification decision 
by the United States in which the US Customs and Border Protection classified unassembled pistol kits missing 
one part as complete pistols based on the principle of GIR 2(a) (NY M83114, Tariff classification of incomplete, 
unassembled pistols from Austria  (10 May 2006) (CHI-16)). 
1082 Memorandum D10-14-45, Tariff Classification of Kit Cars  (9 March 2007) (Exhibit CHI-17). 
1083 BTI GB115951081 (16 November 2006) (Exhibit CHI-18). WT/DS339/R 
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  Other WTO Members' practice since China's accession to the WTO
 
7.720  As the Panel  observed above in paragraphs 7.672, so me WTO Members have separate tariff 
lines for CKD and SKD kits under the tariff headings for motor vehicles in their Schedules.  Canada 
points out that these countries, except for Australia and the Philippines1084, charge lower tariff rates 
for CKD and SKD kits imports than for complete motor vehicles.1085  In our view, however, charging 
lower tariff rates for CKD and SKD kits than for motor vehicles does not change the fact that these 
Members classify  them under the tariff headings for motor vehicles.  Specific tariff commitments 
contained in the tariff headings of these Member s' Schedules are the results of the specific 
negotiations between the subject Member and other Me mbers.  Overall, the evidence indicates that at 
least some other WTO Members, such as Malaysia , Indonesia, Vietnam, the East African Community, 
Australia and the Philippines, classify CKD and S KD kits as "motor vehicles", and that the tariff 
treatment these Members accord to CKD and SKD kits may vary. 
7.721  In conclusion, the Panel finds, based on the available ev idence before it, that the 
classification practices of at least some WTO Members show that CKD and SKD kits are classified as 
motor vehicles.1086   
(vi) Supplementary means of interpretation 
7.722  Article 32 of the Vienna Convention states: 
"Supplementary means of interpretation 
Recourse may be had to supplementary me ans of interpretation, including the 
preparatory work of the treaty and the circumstances of its conclusion, in order to 
confirm the meaning resulting from the applica tion of Article 31, or to determine the 
meaning when the interpretation according to Article 31: 
(a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable." 
7.723  In EC – Chicken Cuts , the Appellate Body stated that the purpose of its analysis under 
Article 32 in that case was to ascertain whethe r WTO Members have agreed on the criterion 
                                                     
 
1084 Australia and the Philippines impose tariffs on CKD and SKD kits at largely the same rate as that 
for assembled vehicles (Canada's response to Panel question No. 256). 
1085 Canada's response to Panel question No. 256. 
1086 The Panel is aware of the Appellate Body's finding that previous panel reports are not "subsequent 
practice" within the meaning of Article 31(3)(b) of the Vienna Convention .  Nonetheless, we note that the Panel 
in Indonesia – Autos found that CKD kits are "like" assembled complete cars in the context of the Subsidies 
Agreement. The Panel stated: "We do no t consider that an unassembled product ipso facto is not a like product 
to that product assembled.  Recalling the view of the Appellate Body that tariff classification may be a useful 
tool in like product analysis ( Alcoholic Beverages (1996), op. cit., Appellate Body Report, page 21 (original 
footnote 743)), we note that, under the General Rules for the Interpretation of the Harmonized System: 'Any 
reference in a heading to an article shall be taken to include a reference to that article complete or unfinished, 
provided that, as presented, the incomplete or unassembled  article has the essential ch aracter of the complete or 
unfinished article.' We think that a comparable approach to the relation between assembled and unassembled 
products makes good sense in the context of this dispute.  It appears that, in order to avoid paying 200 per cent 
duties on CBU passenger cars, EC and US car producers ship to Indonesia virtually complete CKD kits that are effectively 'cars in a box.'  Accordingly, we believe that they can prop erly be considered to have characteristics 
closely resembling those of a completed car" (Panel Report on Indonesia – Autos , para. 14.197).  WT/DS339/R 
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  ("preservation") for the term "salted" advanced by the European Communities with respect to the 
tariff commitment under the tariff heading of the EC Schedule at issue (i.e. tariff heading 02.10).   
7.724  Following the same logic, the purpose of the Pane l's analysis under Article 32 is to confirm 
whether WTO Members have agreed on including CKD and SKD kits in the scope of China's tariff 
commitment under the tariff headings for motor vehicles of China's Schedule. 
7.725  Regarding the scope of supplementary means of  interpretation to which an interpreter may 
have recourse under Article 32, the Appellate Body stated that Article 32 does not define it 
exhaustively and thus that an interpreter has a certain flexibility in considering relevant supplementary 
means in a given case so as to assist in ascerta ining the common intentions of the parties.
1087  More 
specifically, regarding the question of what types of  events, or acts, and other instruments may be 
taken into account as circumstances of conclusion under Article 32, the Appellate Body considered 
that customs classification practice prior to the conclusion of a treaty could form part of the circumstances of the conclusion of a treaty, and that  in this connection, even documents published, 
events occurring, or practice followed subsequent  to the conclusion of a treaty could give an 
indication of what were, and what were not, the "comm on intentions of the parties" at the time of the 
conclusion.
1088 
7.726  Therefore, we will examine China's classificati on practice for CKD and SKD kits prior to as 
well as at the time of its accession to the WTO as part of the circumstances of the conclusion of China's accession to the WTO.  
7.727  The European Communities  submits that prior to joining the WTO, China imposed 
substantially lower tariff rates on CKDs and SKDs than on imported whole vehicles
1089 and that at the 
time it joined the WTO, China did not have a separate ta riff line for auto parts that were either fully or 
partly unassembled and were shipped together for assembly and further processing into a whole vehicle within China.  The European Commun ities notes that China committed to a Schedule of 
Concessions that, by 1 July 2006, imposed a bound tariff rate on most auto parts at 10 per cent or 
lower, and on most vehicles at 25 per cent.  Furt hermore, according to the European Communities, 
China agreed that if it did introduce a separate tari ff line for CKD and SKD kits, the tariff rate would 
be no more than 10 per cent.
1090 
                                                      
1087 Appellate Body Report on EC – Chicken Cuts , para. 283.  More specifically, the Appellate Body 
recalled its statement in a previous cas e that the "circumstances of [the] conclusion" of a treaty includes, "in 
appropriate cases, the examination of  the historical background against which the treaty was negotiated" 
(Appellate Body Report on  EC – Chicken Cuts , para. 284, citing its report on EC – Computer Equipment, 
para. 86).  Further, the Appellate Body clarified that an "event, act or instrument" may be relevant as 
supplementary means of interpretation not only if it has actua lly influenced a specific aspect of the treaty text in 
the sense of a relationship of cause an d effect, but also if it helps discern what the common intentions of the 
parties were at the time of the conclusion with respect to  the treaty or specific provision.  Thus, it found that not 
only "multilateral" sources, but also "unilateral" acts, instruments, or statement of individual negotiating parties may be useful in ascertaining "the reality of the situatio n which the parties wished to regulated by means of the 
treaty" and, ultimately, for discerning the common in tentions of the parties (Appellate Body Report on  EC – 
Chicken Cuts , para. 289). 
1088 Appellate Body Report on EC – Chicken Cuts , paras. 304-305. 
1089 The European Communities refers to this fact in Exhibit JE-25, page 189. 
1090 European Communities' first written submission, pa ra. 274.  The European Communities refers to 
paragraphs 93 and 342 of China's Working Party Report (Exhibit JE-26), and Part I:1.2 of the Accession 
Protocol (Exhibit JE-1). WT/DS339/R 
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  7.728  The United States  submits that China did maintain separate tariff lines for CKD and SKD 
kits from 1992 to 1995.  According to the United States, these tariff lines were the same as the 
scheduled tariff rates applicable to motor vehicles.
1091  However, instead of applying these rates, 
China negotiated the applicable tariff rates for CKD and SKD kits with an individual auto 
manufacturer, which resulted in the tariff rates fo r CKD and SKD kits substantially below those for 
motor vehicles for certain auto manufacturers.1092   After 1995, China elimin ated the tariff lines for 
CKD and SKD kits, but still did not apply the tariff rates applicable to motor vehicles for CKD and 
SKD kits and continued to apply tariff rates for CK D and SKD kits (and parts) that were negotiated 
between an individual auto manufacturer and the Chinese authorities, as it did in the period from 1992 
to 1995.  In the view of the United States, China continued these tariff practices through the time of China's accession to the WTO and post-accession un til China began to implement the measures at 
issue in this dispute.
1093  
7.729  Canada  submits that in China's 1995 Customs Tari ff, parts to manufacture certain vehicles 
could be classified as unassembled (i.e. CKD), which would result in the payment of lower duties than 
for an assembled vehicle.1094  According to Canada, starting in 1996, references to CKDs were 
removed from China's customs tariff, and China's ev idence on how CKD kits were treated after this 
point is contradictory.  China asserts without evid ence either that CKD and SKD kits were prohibited 
from importation, or that they were classified as  whole vehicles.  However, Canada argues that 
                                                      
1091 United States' comments on China's response to Panel question No. 2, referring to Exhibit CHI-30. 
1092 United States' comments on China's response to Panel question No. 3.  The United States submits 
that the key factors in the negotiation were the amount of the auto manufacturer's investment in China and the 
extent to which the auto ma nufacturer used local content in the assemb ly of its vehicles, both at the time of 
negotiation and under the auto manufacturer's future plan s. According to the United States, "normally, an auto 
manufacturer with a larger amount of investment and a larger percentage of local content would be able to 
negotiate a lower tariff rate than would an auto manufacturer with a smaller amount of investment and a smaller 
percentage of local content. Particularly for the auto  manufacturers that the Ch inese authorities viewed as 
committed to China based on these factors, the negotiate d tariff rates for CKDs and SKDs were substantially 
below the tariff rates for motor vehicles. In addition, the Chinese authorities would normally apply the same 
negotiated tariff rates for parts, as the negotiated tariff ra tes were often also below the tariff rates for parts set 
forth in China's tariff schedule." 
1093 United States' comments on Chin a's responses to Panel question Nos. 2, 254, also referring to 
Exhibit JE-25, page 189; Response to Panel question No. 254.  The United States considers that China's tariff 
practices relating to CKD an d SKD kits (and parts) during the peri od from 1992 until China's accession to the 
WTO at the end of 2001 help to explain why paragr aph 93 of the Working Part y Report accompan ying China's 
Protocol of Accession reads the way it does [Paragraph 93 of the Working Party Report: "In response to 
questions about the tariff treatment for kits for motor vehicles, the representative of China confirmed that China 
had no tariff lines for completely knocked-down kits for motor vehicles. If China created such tariff lines, the tariff rates would be no more than 10 per cent."]: "When negotiating this provision in the years leading up to 
China's WTO accession, WTO Members, including the Unite d States, knew that China had separate tariff lines 
for CKD and SKD kits that scheduled tariff rates that were the same as those for motor vehicles from 1992 to 1995, and that China eliminat ed these tariff lines effec tive 1 January, 1996. WTO Me mbers also knew that the 
Chinese authorities had nevertheless been applying substantially lower tariffs for CKD and SKD kits (and parts) 
than for motor vehicles, both when China had separate tariff lines for CKD and SKD kits and when it did not. In negotiating paragraph 93, therefore, WTO Members wanted to ensure that China would continue to treat CKD 
and SKD kits essentially as parts for tariff purposes after acceding to  the WTO and that China would be unable 
to re-establish separate tariff lines for CKDs and SKDs, at higher rates,  if its policy focus changed as its 
domestic auto industry evolved." 
1094 Canada refers to Exhibit CHI-30, subheadings 8704.1010 and 8704.1020.  WT/DS339/R 
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  evidence shows that parts imported into China as CKDs and SKDs were not charged the whole 
vehicle rate, but were classified as parts.
1095 
7.730  China  submits that in 2001, immediately prio r to its accession to th e WTO, the average 
applied tariff rate for "motor vehicles" was 63.6 per cent and the average applied  tariff rate for "auto 
parts" was 24.7 per cent.  According to China, there were no separate tariff lines for "CKD and SKD 
kits" in China's Tariff Code and CKD and SKD kits were classified as complete vehicles according to 
GIR 2(a) and were assessed at the tariff rates id entical to those applicable to the corresponding 
complete vehicle model.  In 2002, right af ter China's accession to the WTO, the average bound tariff 
rate for "motor vehicles" was 49.4 per cent, and the average bound  tariff rate for "auto parts" was 20.4 
per cent.  There were no separate tariff lines fo r "CKD and SKD kits" in China's Tariff Code, and 
these were classified as motor vehi cles in accordance with GIR 2(a).1096  China has classified CKD 
and SKD kits as motor vehicles and assessed CKD and SKD kits at the applicable tariff rates for motor vehicles both prior
1097 and subsequent to its accession to the WTO.1098 
7.731  The Panel  notes from the parties' arguments as well  as the evidence before us that China 
maintained separate tariff lines for CKD and SKD kits in its Schedule from 1991 to 1995 under the 
tariff headings for motor vehicles.  The complainants  do not dispute this fact, but argue that China still 
charged lower tariff rates for CKD and SKD kits than for motor vehicles. 
7.732  For the period from 1996 to 2001 (China's accessi on to the WTO), all th e parties agree that 
separate tariff lines for CKD and SKD kits ceased to exist in China's Schedule.  In fact we find 
language in the text of 1994 China's Automobile Policy Order that prohibits CKD and SKD kits 
imports.1099  Regardless of the prohibition of CKD and SKD kits imports, China does not deny that 
such kits were still imported.  The complainants  and China however dispute how China in fact 
"treated" CKD and SKD kits during this period:  th e complainants submit that regardless of whether 
China maintained separate tariff lines for CKD and S KD kits in its Schedule, China normally applied 
                                                      
1095 Canada refers to China's first written submission, paras. 40, 184; the factual background section 
jointly submitted by the complainants; Canada's first written submission, footnote 36; Canada's response to 
Panel question No. 61(a). 
1096 China's response to Panel question No. 2. The average applied  tariff rate for "motor vehicle" was 
42.2%, and the average tariff rate for "auto parts" was 18.1% in 2002. 
1097 China explains, however, that prior to  its accession to the WTO, China: 
 
"… maintained policies that allowed a limited number of auto manufacturers to obtain temporary reductions in the duty rates for motor vehicles  that would ordinarily apply to the 
importation of CKD/SKD kits.  These reduced rates for a limited number of auto 
manufacturers were not the rates for parts, and were not based on a classification of CKD/SKD kits as parts.  After the expiration of these reductions in the applicable duty rate, 
these manufacturers would revert to paying the applicable motor vehicle  rate for CKD/SKD 
imports, in accordance with the ordinary classification of CKD/SKD kits. …" (China's comments on complainants' responses to Panel question No. 254). 
 
1098 China's response to Panel question No. 254. In support of its submission, China puts forward two 
specific CKD import entries: one from  2001, before China acceded to th e WTO (CHI-47), and one from 2004, 
after China had joined the WTO (Exhibit CHI-48). 
1099 Article 43 of China's 1994 Polic y Order (Exhibit JE-24) provides: 
 
"Article 43 An automobile enterprise shall not engage in assembly through import of 
semi-knocked-downs (SKD) or completely knock-downs (CKD)".  
Also see footnote 172 and paragraph 7.3 above. WT/DS339/R 
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  tariff rates substantially lower than those for comp lete motor vehicles to CKD and SKD kits based on 
the negotiations China reached with individual au tomobile manufacturers in China, whereas China 
submits that it always classified CKD and SKD kits imports as complete motor vehicles and applied 
the corresponding tariff rates to CKD and SKD kits.
1100   
7.733  The complainants' argument is therefore that  China normally "treated" CKD and SKD kits 
imports with substantially lower tariff rates than  complete motor vehicles since 1996 and prior to 
China's accession to the WTO.  However, the compla inants have not been able to provide specific 
evidence that can support their position, not to mention any evidence indicating how China 
"classified" CKD and SKD kits during this period.1101 
7.734  On the other hand, China has provided us with a copy of an import declaration form showing 
that a CKD kit import was "classified" as and assessed at the tariff rate for a complete motor vehicle 
prior to its WTO accession.   
7.735  In sum, the evidence before us (i.e. China's tariff schedule from 1991 to 1995 and an import 
declaration form classifying a CKD kit as a motor vehicle prior to China's accession) demonstrates 
that prior to and at the time of China's accession to  the WTO, China classified CKD or SKD kits as 
motor vehicles.  Therefore, in our view, China's classification practice in respect of CKD or SKD kits prior to and at the time of China's accession conf irms our conclusion above that CKD and SKD kits 
could fall within the scope of China's commitment unde r the tariff headings for motor vehicles of its 
Schedule of Concessions. 
                                                     
 
1100 See, however, footnote 1097 ab ove, containing China's explanati on that prior to its accession to the 
WTO China "allowed a limited number of auto manufacturers to obtain temporary reductions in the duty rates 
for motor vehicles  that would ordinarily apply to the importation of CKD/SKD kits." 
1101 In this regard, we note that the complainants re fer to two articles – one on "Market and Institutional 
Regulation in Chinese Industrialization, 1978-94" (Exhib it JE-25) and another on "Different Strategies of 
Localization in the Chinese Auto Industry:  The Cases of Shanghai Volkswagen and Tianjin Daihatsu" (Exhibit 
CDA-28) – to support their position that China has been  treating CKD and SKD kits imports with lower tariff 
rates than complete motor vehicles.  In our view, howev er, these articles do not define the term "CKD or SKD 
kits" and use the term more in a general sense without ne cessarily confining its scope to a particular collection 
of auto parts that could be considered as falling within the scope of a CKD or SKD kit as discussed in this 
dispute.  According to these articles, imported parts could be considered as constituting CKD or SKD kits even if the final assembled vehicle would consist of 40 per cent of domestic parts and 60 per cent of imported parts.  
However, we recall our finding above in paragraph 7.644 that the term CKD and SKD kit is understood as 
referring to "all, or nearly all, of the auto parts and components necessary to assemble a complete vehicle".  For 
this reason, it is not clear to us whether these articles are referring to imported CKD and SKD kits as defined in 
these reports. 
We also have taken note of Canada's argument based on the import statistics for motor vehicles from 
Canada (Exhibit CDA-32) that CKD kits imports from Canada could not have been classified as motor vehicles 
unless they were valued at US$12 each, because 23,000  CKD kits were imported to China in 1999 when the 
value of imports of motor vehicles (HS headings 87.02 to 87.05) from Canada in 1999 was only US$279,000.  However, Exhibit CDA-32 shows that the sum of imported motor vehicles falling under HS heading 87.02 to 
87.05 amounts to more than US$5 million.  Due to the inaccuracy of the data referred to by Canada, we cannot 
draw any conclusion from this specific eviden ce on how China classified CKD kits in 1999. 
Finally, Canada has not provided any documentary evidence regarding China's treatment of CKD and 
SKD kits after its accession in its re sponse to Panel qu estion No. 61(b). 
At the same time, we note China's explanation that prior to its accession to the WTO China "allowed a 
limited number of auto manufacturers to obtain temporary reductions in the duty rates for motor vehicles  that 
would ordinarily apply to the importation of CKD/SKD kits" (see footnote 1097 above).  WT/DS339/R 
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  (c) Conclusion 
7.736  For the reasons set forth above, the Panel considers that the term "motor vehicles" under 
relevant tariff headings of 87.02, 87.03 and 87. 04 does not preclude CKD and SKD kits from its scope 
under China's Schedule.  Therefore, we find that the complainants have not proved that China's tariff 
treatment of CKD and SKD kits under Article  2(2) of Decree 125 and Article 13(a) of 
Announcement 4 is inconsistent with China's ob ligation under Article II:1(b) of the GATT 1994. 
4. Is China's treatment of CKD and SKD kit imports under the measures consistent with 
China's commitment under paragraph 93 of China's Working Party Report? 
7.737  As noted above in paragraph 7.648, under th e measures, China accords CKD and SKD kits 
the tariff rate applicable to motor vehicles (i.e. 25 per cent on average). 
7.738  The United States and Canada  submit that China's tariff treatment of CKD and SKD kits 
under the measures is inconsistent with its commi tment under paragraph 93 of  China's Working Party 
Report.
1102 
7.739  China argues that it has not violated its commitment under paragraph 93 of the Working 
Party Report since the condition underlying China's commitment under paragraph 93 has not occurred. 
7.740  All parties agree that China's commitments unde r its Working Party Report are enforceable in 
WTO dispute settlement proceedings.
1103  The Accession Protocol is an integral part of the WTO 
Agreement pursuant to Part I, Article 1.2 of the A ccession Protocol.  In turn, paragraph 342 of China's 
Working Party Report incorporates China's commitm ents under its Working Party Report, including 
paragraph 93, into the Accession Protocol.  Therefore, China's commitment in paragraph 93 of the Working Party Report is also an integral part of the WTO Agreement.
1104   
7.741  Accordingly, the Panel will interpret China' s commitment under paragraph 93 of the Working 
Party Report in accordance with th e interpretative rules of the Vienna Convention to determine 
whether China has acted inconsistently with commi tments under paragraph 93 of the Working Party 
Report. 
(a) What is China's commitment under paragraph 93 of the Working Party Report? 
7.742  Paragraph 93 of the Working Party Report provides: 
"Certain members of the Working Party ex pressed particular concerns about tariff 
treatment in the auto sector .  In response to questions about the tariff treatment for 
kits for motor vehicles, the representative of  China confirmed that China had no tariff 
                                                      
1102 While referring to paragraph 93 of China's Working Party Report in support of its argument under 
Article II:1 of the GATT 1994 in respect of CKD and SKD kits, the European Communities has not made a separate claim under paragraph 93 of the Working Party Report.  (European Communities' first written 
submission, para. 274).  Also, see the European Communities' request for the establishment of a panel 
(WT/DS339/8).  See also footnote 987 above. 
1103 Parties' responses to Panel question No. 154. 
1104 United States' first written submission, paras. 119 , 120; Canada's first written submission, paras. 
75-77, 149. China cons iders it appropriate for dispute settlement pane ls to take into acco unt the context of a 
commitment made in a working party report, and to ex ercise special care in inte rpreting these commitments 
(China's first written submission, para. 189). WT/DS339/R 
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  lines for completely knocked-down kits for motor vehicles or semi-knocked down 
kits for motor vehicles.  If China created su ch tariff lines, the tariff rates would be no 
more than 10 per cent .  The Working Party took note of this commitment." (emphasis 
added) 
7.743  Under paragraph 93 of China's Working Party Re port, therefore, China is committed to the 
application of the "tariff rates" of no more than 10 per cent to CKD and SKD kits, if China creates 
separate tariff lines for such kits.  In other words, China's commitment is conditioned upon the 
creation of separate tariff lines for CKD and SKD k its, which did not exist at the time of China's 
accession to the WTO.  To determine whether Chin a has violated its commitment under paragraph 93, 
we will first consider whether the condition un derlying China's commitment under paragraph 93 has 
been satisfied. 
(b) Has China created tariff lines for CKD and SKD kits? 
7.744  All the parties have initially agreed that China has not created separate tariff lines for CKD 
and SKD kits in its Schedule in the sense that Chin a has not formally created separate tariff lines by 
amending its Schedules.1105   
7.745  The United States and Canada  have nevertheless claimed that China has created a tariff line 
for CKD and SKD kits by introducing the measures at issue.  According to the United States and 
Canada, the measures do in effect specify a tariff line for CKD and SKD kits that imposes a 25 per 
cent customs duty and thus they have de facto created a tariff line for CKD and SKD kits.1106   
7.746  China submits that a Member cannot create a new tariff line de facto and that the process of 
creating a new tariff line involves amending the Member's Schedule to include the new tariff line.1107  
Specifically, China has explained that under China's domestic law, the Ministry of Finance issues a 
revised tariff schedule each year, which reflects China's Schedule of Concessions.1108  If China were 
to introduce a new tariff line, it would include the new tariff line in the next tariff schedule issued by 
the Ministry of Finance.  The Chinese Finance Minist ry has not issued any revised tariff schedule with 
a new tariff line for CKD and SKD kits.  China ar gues that, by its ordinary meaning, paragraph 93 
contains a premise and a conditional commitment: na mely at the time of accession, China did not 
                                                      
1105 Parties' response to Panel question No. 61(a).  Specifically, regarding whether China has created 
tariff lines for CKD and SKD kits, the parties have provided the following responses:  China has responded, 
"No.  China has not created separate tariff lines for CKD and SKD kits"; the European Communities has 
responded, "No, the European Communities is not aware of any formal tariff line created by China for CKD and 
SKD kits. ..."; the United States has responded, "the United States is not aware of any tariff lines in China's 
tariff schedule for CKD or SKD kits. ... "; and Canada  has responded, "China does not have a formal tariff line 
for either CKDs or SKDs.  However, in its customs tariff for 1995, China did have separate tariff lines 
differentiating between certain whole vehicles and CKDs at the eight-digit level, while other descriptions of a 
particular tariff line included the term  'CKD' in their description. ..." 
1106 United States' first written submission, para. 121; Canada's first written submission, para. 150.  The 
United States submits that to the extent that the charges imposed by the measures are considered to be tariffs, 
the measures would in effect specify a tariff line for CK Ds and SKDs that imposes a 25 per cent tariff, rather 
than a 10 per cent tariff as required under the Working Party Report.  Canada submits that the Working Party 
Report makes it clear that China committed to charging no more than 10 per cent for parts imported as CKD kits 
and SKD kits. Since 10 per cent is the tariff rate for the vast majority of parts, whereas the rate for whole vehicles is 25 per cent, the necessary interpretation is that China would continue to  treat CKD and SKD kits as 
parts, charging no more than 10 per cent. China’s failure to do so violates its obligations under the WTO 
Agreement.  
1107 China's responses to Panel question Nos. 137 and 259(b). 
1108 China's response to Panel question No. 259.  WT/DS339/R 
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  maintain separate tariff lines for CKD and SKD kits, and that if China were to create separate tariff 
lines for CKD and SKD kits after accession, the tari ff rates would be no more than 10 per cent.  On 
the basis of this interpretation, China argues that since it has not created separate tariff lines for CKD 
and SKD kits, whether through the challenged meas ures or otherwise, the condition underlying the 
commitment made in paragraph 93 of the Working Party Report has not occurred.
1109 
7.747  In its comments on China's response to a Panel question after the second substantive meeting, 
however, Canada  submits that China has, for the first time, provided evidence of its classification and 
duty assessment of CKD kits in response to a qu estion from the Panel and that this evidence 
establishes that China in fact created se parate tariff lines for CKD and SKD kits:1110  China's own 
evidence from December 2004 (Exhibit CHI-48) shows that the shipment in question was classified 
under a separate tariff line (8703.2334.90) – "CKD for Buick 2800cc cars".  Introducing tariff lines at the "national level" (i.e. beyond the six-digit le vel) is precisely how WTO Members create separate 
tariff lines for unassembled vehicles.  Therefore,  according to Canada, paragraph 93 of China's 
Working Party Report requires China to apply a 10 pe r cent duty rate for those tariff lines.  Moreover, 
Canada submits that to confirm that China's in troduction of tariff lines for CKD kits was not limited 
to 2800cc cars, Canada has obtained a copy of China's Customs Tariff for 2005, which shows that 10-digit tariff lines ending in ".90" are generally  for CKD and SKD kits (or "complete sets of 
assemblies", as they are d escribed in the tariff).
1111 
7.748  First, the Panel  notes that the condition giving rise to China's obligation in paragraph 93 is 
the "creation" of tariff lines, not modification of a Member's Schedule of Concessions.1112  T o  
determine whether China has created tariff lines for CKD and SKD kits, we will begin our analysis by 
describing tariff lines in Members' Schedules. 
7.749  The majority of the WTO Members, including China, are also contracting parties to the HS 
Convention.1113  In this context, although no legal definition of "tariff lines" appears to exist in the HS 
Convention, those Members who are HS contracting parties are required to r espect the HS codes at 
the six-digit level in accordance with Article 3 of the HS Convention.1114  Member countries are 
                                                      
1109 China further submits that the complainants' e ffort to establish China's pre-accession practice of 
classifying CKD and SKD kits as part s and assessing these entries at the tariff rates for parts is fundamentally 
irrelevant – in no event is it possible to interpret paragraph 93 as committing China to continue something that it 
was already doing, and in no event is it possible to read the express conditionality of the commitment out of 
paragraph 93 (China's comments on the complainants' responses to Panel question No. 254).  China argues that 
as irrelevant as it is, the complainants have not, in  fact, presented any evidence of this alleged practice. 
1110 Canada's comments on China's response to Panel question No. 254. 
1111 Canada's comments on China's response to Panel question No. 254, referring to "Customs Import 
and Export Tariff of the People's Republic of China, 2005, Economic Science Publishing House" (Exhibit CDA-48). 
1112 Modification of a Member's Schedule is addressed in Article XXVIII of the GATT 1994.  
Article XXVIII:1 provides: 
 
"1. On the first day of each three-year period, ... a contracting party ... may, by 
negotiation and agreement with any contractin g party with which such concession was 
initially negotiated and with any other contracting party determined by the CONTRACTING 
PARTIES to have a principal supplying interest ..., and subject to consultation with any other 
contracting party determined by the CONTRACTING PARTIES to have a Substantive interest in such concession, modify or with draw a concession included in the appropriate 
schedule annexed to this Agreement." 
 
1113 See paragraph 7.665 above. 
1114 Article 3(1)(a) of the HS Convention provides: WT/DS339/R 
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  however allowed to create their own headings and subheadings beyond the six-digit level.  Canada 
also submits that it is common customs practice to  have separate tariff lines beyond the six-digit 
level.
1115  In addition, according to the HS Classifica tion Handbook, further su bdivisions of the HS 
nomenclature have to be introduced at the nati onal level since the goods or categories of goods 
referred to in the national Customs tariff of ten do not coincide with the HS categories.1116  Therefore, 
for the purpose of our analysis of China's commit ment under pargraph 93 of China's Working Party 
Report, we understand "a tariff line" to mean a horizontal line in a tariff schedule that provides a 
specific heading number, regardless of the number of digits (i.e. be it at the eight-digit or ten-digit 
level), and a specific tariff rate for the product described under that heading.  
7.750  As noted above, all the parties do not dispute that China did not have separate tariff lines for 
CKD and SKD kits in its Schedule of Concessions at the time of accession to the WTO.1117  Canada 
has however presented a copy of China's Customs Import and Export Tariff for 2005 in which separate tariff headings at the ten-digit level are included for "complete sets of assemblies" for motor 
vehicles.
1118  For example, under tariff heading 87.03 ("Motor cars and other motor vehicles 
                                                                                                                                                                     
 
"(a) Each Contracting Party u ndertakes, except as provided in subparagraph (c) of this 
paragraph, that from the date on which this Convention enters into force in respect of it, its 
Customs tariff and statistical nomenclatures shall be in co nformity with the Harmonized 
System.  It thus undertakes that, in respect of  its Customs tariff and statistical nomenclatures: 
 
(i)  it shall use all the headings and subheadings of the Harmonized System without addition or modification, together with their related numerical codes; 
 
(ii) it shall apply the General Rules for the interpretation of the Harmonized System and all the Section, Chapter and Subh eading Notes, and shall not modify the scope of the Sections, 
Chapters, headings or subheadings of the Harmonized System; and 
 (iii) it shall follow the numerical sequence of the Harmonized System". 
 
1115 Canada's second written submission, para. 67. 
1116 Exhibit CDA 16 ( HS Classification Handbook , Part II, Chapter 4, page II/27).  Canada's second 
written submission, para. 67, footnote 79; Canada's response to Panel question No. 259(d).  Also see Panel 
Report on EC – Chicken Cuts , para. 7.11. 
1117 A copy of China's Schedule of Concessions, submitted as attachment to the complainants' first 
written submissions (Exhibit JE-2), confirms the absence of separate tariff lines for CKD and SKD kits at the 
time of China's accession to the WTO. 
1118 Exhibit CDA-48 (Customs Import and Export Tariff  of the People's Republic of China, 2005, 
Economic Science Publishing House) (Canada's comments on China's response to Panel question No. 254, footnote 135).  After the second substantive meeting, the Panel sent out a second set of written questions to the 
parties.  The parties submitted their responses to this sec ond set of questions on 26 July 2007, and were given an 
opportunity to provide their comments on each others' responses to Panel questions by 9 August 2007 in 
accordance with the Panel's timetable in this dispute.  It is in its comments on China's response to Panel question 
No. 254 that Canada submitted a copy of Customs Import and Export Tariff of the People's Republic of China, 
2005 published by the Economic Science Publishing House, as Exhibit CDA-48.  Afterwards, the Panel posed one additional question to the parties (Panel question No. 304) on 6 August 2007.  The parties provided their 
responses to this additional question by 31 August 2007 and their comments on each others' responses by 10 
September 2007.  China has not provided the Panel with any comments on the status or content of Exhibit    CDA-48 since Canada provided a copy of Exhibit CDA-48 on 9 August 2007. 
The Panel further notes that paragraph 13 of the Panel's working procedures provides: 
 "The parties shall submit all factual evidence to the Panel no later than during the first 
substantive meeting, except with respect to  factual evidence necessary for purposes of  WT/DS339/R 
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  principally designed for the transport of persons"), ther e are tariff headings at the ten-digit level such 
as 8703.2130.90 and 8703. 2334.90 with the description code indicating "complete sets of assemblies".  
Considering that the same tariff heading 8703.2334.90,  which is shown in the import declaration form 
mentioned in the following paragraph, is describ ed as "CKD for Buick 2800cc cars", we consider it 
reasonable to understand that the description "complet e sets of assemblies" in China's Customs Import 
and Export Tariff for 2005 refers to CKD and SKD kits. 
7.751  We also recall China's acknowledgment that it has been classifying CKD and SKD kits as 
complete vehicles since the entry into force of the m easures.  This is evinced by an import declaration 
form submitted by an automobile manufacturer in China, in which the shipment was classified under 
the tariff line 8703.2334.90 as "CKD for Buick 2800cc cars".
1119 
7.752  In light of the available evidence above, ther efore, we consider that China has created 
separate tariff lines for CKD and SKD kits in its tari ff schedule at the ten-digit level and thus has met 
the condition under paragraph 93. 
7.753  Furthermore, even setting aside the evidence s howing China's creation of tariff lines for CKD 
and SKD kits, the United States and, initially,  Canada also argued that China's measures de facto 
created tariff lines for CKD and SKD kits.  What the co mplainants argue in this context is that China 
has "in fact" created tariff lines for CKD and SKD kits, which did not exist at the time of China's 
accession to the WTO, by implementing the measures at issue.   
7.754  As examined in paragraph 7.648 above, CKD a nd SKD kits are classified as motor vehicles 
under China's measures, namely Article 21(1) of Decree 125, which consequentially leads to the 
imposition on such kits of the tariff rates applicable to motor vehicles.1120 In this respect, the question 
is therefore whether a tariff line can be deemed created when a Member introduces a measure through 
which it effectively classifies a good under a specific tariff line and applies a tariff rate under that 
tariff line, which deviates from the commitment it made at the time of accession.   
7.755  We consider that the answer is positive, as unde r the measures, China mandates its customs to 
classify CKD and SKD kits under tariff lines for motor vehicles.  Specifically, Article 21(1) of Decree 125 provides that imports of CKD or SKD k its for the purpose of assembling vehicles must be 
characterized as complete vehicles.  In turn, under the measures, "auto parts characterized as complete 
vehicles" are subject to the tariff rates for motor vehicles.
1121  Moreover, China has itself explained 
that an automobile manufacturer who declares imports of CKD or SKD kits as auto parts 
characterized as complete vehicles under Article 2(2) of Decree 125 pays the duty at the tariff rates 
                                                                                                                                                                     
rebuttals, answers to questions or comments on answers provided by others.  Exceptions to 
this procedure will be granted upon a showing of  good cause.  In such cases, the other parties 
shall be accorded a period of time  for comment, as appropriate." 
 Therefore, it would seem that China could have invoked this provision to provide its comment, if any 
or necessary, on the status and/or content of this evid ence (a copy of Customs Import and Export Tariff of the 
People's Republic of China, 2005) submitted by Canada.  In any event, in the absence of any contention by China on this evidence submitted by Canada, we see no reason to question the validity of the content of this 
evidence. 
1119 Exhibit CHI-48. 
1120 China's comments on the complainants' responses to Panel question No. 259(b).  China points to 
Canada's statement that it does not believe that there is a legal concept of de facto creating a new tariff line 
(Canada's response to Panel question No. 259(b)). 
1121 Article 28 of Decree 125 pr ovides that the customs shall classify  "imported auto parts characterized 
as complete vehicles" as motor vehicles and base the tariff on rates applicable to complete vehicles. WT/DS339/R 
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  applicable to complete vehicles at the time of importation.
1122  We also recall China's statement that 
the legal obligation of auto manufacturers to pay the applicable customs duties on imports of auto 
parts that have the essential character of a motor vehicle is set forth in Decree 125.1123  Therefore, we 
are of the view that under the circumstances surrounding the measures at issue in this dispute, a tariff 
line for CKD and SKD kits can be deemed created  through the measures since China effectively 
classifies such a kit under specific tariff lines and app lies the tariff rates applicable under such tariff 
lines under the measures. 
7.756  In this connection, we note China's argument that it has not created tariff lines for CKD and 
SKD kits because it has not amended  its Schedule as required under China's domestic law to create 
new tariff lines.  What is at issue in the presen t dispute is however China's commitment under the 
WTO Agreement, not whether China has satisfied  its domestic procedures for creating new tariff 
lines.  As China submits, satisfaction of the cond ition underlying the commitment in paragraph 93 
rests with China as it is up to China to decide whether it wants to create tariff lines for CKD and SKD 
kits, which did not exist at the time of accession.  However, once China has decided to initiate an 
action by enacting the measures at issue in 2004 and 2005 (3-4 years later from its accession to the 
WTO in 2001), through which it systematically giv es CKD and SKD kits imports certain tariff lines, 
that very action, in our view, effectively creat es tariff lines for CKD and SKD kits.  Interpreting 
otherwise would render meaningless China's commit ment contained in para graph 93 of China's 
Working Party Report since China will always be able to resort to its domestic legal system to argue 
that it has never amended its Sche dule and thus no tariff lines have been created.  Given that the 
manner in which to create new tariff lines is some thing entirely within the discretion of China under 
its domestic legal system, we consider that the subs tantive effect of China's measures must be taken 
into account in assessing the realization of th e condition underlying China's commitment in 
paragraph 93.  Therefore, we are not persua ded by China's argument in this respect. 
7.757  In light of the foregoing, therefore, we find that by creating separate tariff lines for CKD and 
SKD kits in its tariff schedule and by enacting the measures at issue, China has fulfilled the condition 
underlying China's obligation in paragraph 93 to appl y no more than 10 per cent of tariff rates to CKD 
and SKD kits.1124   
(c) Conclusion 
7.758  For the reasons set forth above, the Panel finds that China has viol ated its commitment under 
paragraph 93 of China's Working Party Report, wh ich is an integral part of the WTO Agreement1125, 
that it will apply tariff rates of no more than 10 pe r cent to CKD and SKD kits if China creates tariff 
lines for CKD and SKD kits.   
                                                      
1122 China has also stated that sin ce its adoption of the measures, all imports of CKD and SKD kits have 
been made under Article 2(2) of Decree 125.  Also s ee paragraph 7.72 above and China's response to Panel 
question No. 15. 
1123 China's response to Panel question No. 48. 
1124 In this connection, we recognize that whether separate tariff lines for CKD and SKD kits can be 
deemed created through the introduction of the measures within the meaning of paragraph 93 is a separate 
question from how China classifies CKD and SKD kits (i.e. either as "motor vehicles" or as "auto parts").  As 
we noted earlier, China's commitment concerned is the tariff treatment of no more than 10 per cent for CKD and SKD kits if China creates tariff lines for such k its, regardless of how China classified such kits. 
1125 See paragraph 7.740.  WT/DS339/R 
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  G. O
THER CLAIMS  
7.759  In this section, the Panel addresses the remaining claims brought by the complaining parties. 
1. European Communities (DS339) 
7.760  The European Communities claims that China has acted inconsistently with its obligations 
under the WTO Agreement, as set out in Part I, pa ragraphs 1.2, 7.2 and 7.3 of China's Accession 
Protocol, by introducing measures that are incons istent with Article III of the GATT 1994 and the 
TRIMs Agreement.  Having found that the measures concerned in this disput e are inconsistent with 
Article III:2 and III:4  of the GATT 1994 and having exercised judicial economy with respect to the 
European Communities' claim under the TRIMs Agre ement, the Panel does not consider it necessary 
to rule on the European Communities' claims concerning China's obligations under the Accession 
Protocol. 
2. United States (DS340) 
7.761  The United States claims in its request for the est ablishment of a panel that to the extent that 
the measures impose a charge on the importation of au to parts, China has acted  inconsistently with 
Article XI:1 of the GATT 1994.  However, in respon se to a question from the Panel, the United States 
has clarified that it does not pursue this claim in this proceeding.1126 
7.762  The United States also claims th at China has acted inconsistently with its obligations under 
the WTO Agreement, as set out in Part I, paragrap hs 1.2, 7.2 and 7.3 of China's Accession Protocol, 
by introducing measures that cannot be justifie d under Article III of the GATT 1994 and the TRIMs 
Agreement.  Having found that the measures are in consistent with Article III:2 and III:4 of the 
GATT 1994 and having exercised judicial economy w ith respect to the Unite d States' claim under the 
TRIMs Agreement, the Panel does not find it n ecessary to rule on the United States' claims 
concerning China's obligations under the Accession Protocol. 
3. Canada (DS342) 
7.763  Canada claims that China has acted inconsistently  with Part I, paragraphs 1.2, 7.2 and 7.3 of 
China's Accession Protocol, through measures incons istent with Article III of the GATT 1994 and the 
TRIMs Agreement.  Having found that the measures concerned in this disput e are inconsistent with 
Article III:2 and III:4 of the GATT 1994 and having exercised judicial economy with respect to 
Canada's claim under the TRIMs Agreement, the Panel does not consider it necessary to rule on 
Canada's claims under China's Accession Protocol. 
7.764  Furthermore, given that the Panel has found w ith respect to CKD and SKD kits that the 
measures are inconsistent with China's obligations  under paragraph 93 of the Working Party Report, it 
is not necessary for the Panel to examine Canada's  conditional claim that the measures constitute a 
non-violation nullification and impairment un der Article XXIII:1(b) of the GATT 1994. 
VIII.  CONCLUSIONS AND RECOMMENDATIONS 
8.1 The Panel recalls the United States' request pur suant to paragraph 18 of the Panel's Working 
Procedures that the Panel issue its findings in the form of a single document containing three separate 
reports with common sections on th e Panel's conclusions and recommendations for each complaining 
                                                      
1126 United States' response to Panel question No. 165. WT/DS339/R 
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  party.
1127  The European Communities and Canada we re in agreement with the Untied States' 
request.1128  In accordance with the requ ests by the complaining parties, we therefore provide three 
separate sets of conclusions and recommendations. 
A. COMPLAINT BY THE EUROPEAN COMMUNITIES (DS339):   CONCLUSIONS AND 
RECOMMENDATIONS OF THE PANEL  
(a) With respect to imported auto parts in general, the Panel concludes: 
(i) Policy Order 8, Decree 125 and Ann ouncement 4 are inconsistent with 
Article III:2, first sentence of the GAT T 1994 in that they subject imported 
auto parts to an internal charge in exces s of that applied to like domestic auto 
parts; 
(ii) Policy Order 8, Decree 125 and Ann ouncement 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. 
(b) 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, the Panel concludes: 
(i) Policy Order 8, Decree 125 and Ann ouncement 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 measur es that are necessary to secure 
compliance with laws or regulations which are not inconsistent with the 
GATT 1994. 
(c) with respect to CKD and SKD kits, the Panel concludes: 
(i) Policy Order 8, Decree 125 and Announc ement 4 are not inconsistent with 
Article II:1(b) of the GATT 1994. 
8.2 With respect to the European  Communities' claims that Policy Order 8, Decree 125 and 
Announcement 4 are inconsistent with the TRIMs Ag reement and Article III:5 of the GATT 1994, the 
Panel has decided to exercise judicial economy. 
                                                     
 
1127 See Section II.D above.   
1128 European Communities' comments on the draft descriptive part of the Panel Report (4 October 
2007); Canada's comments on the draft descriptive part of the Panel Report (4 October 2007).  WT/DS339/R 
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  8.3 Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations 
assumed under a covered agreement, the action is considered prima facie to constitute a case of 
nullification or impairment.  The Panel concludes that , to the extent that the measures listed above are 
inconsistent with the GATT 1994, they have nullified or impaired benefits accruing to the European 
Communities under those agreements. 
8.4 Accordingly, the Panel recommends that the Di spute Settlement Body request China to bring 
these inconsistent measures as listed above into conformity with its obligations under the GATT 1994. 
B. C
OMPLAINT BY THE UNITED STATES (DS340):   CONCLUSIONS AND RECOMMENDATIONS OF 
THE PANEL  
(a) With respect to imported auto parts in general, the Panel concludes: 
(i) Policy Order 8, Decree 125 and Ann ouncement 4 are inconsistent with 
Article III:2, first sentence of the GAT T 1994 in that they subject imported 
auto parts to an internal charge in exces s of that applied to like domestic auto 
parts; 
(ii) Policy Order 8, Decree 125 and Ann ouncement 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. 
(b) 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, the Panel concludes: 
(i) Policy Order 8, Decree 125 and Ann ouncement 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 measur es that are necessary to secure 
compliance with laws or regulations which are not inconsistent with the 
GATT 1994. 
(c) with respect to CKD and SKD kits, the Panel concludes: 
(i) Policy Order 8, Decree 125 and Announc ement 4 are not inconsistent with 
Article II:1(b) of the GATT 1994; and WT/DS339/R 
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  (ii) Policy Order 8, Decree 125 and Ann ouncement 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.
1129 
8.5 With respect to the United St ates' claims that Policy Order 8, Decree 125 and Announcement 
4 are inconsistent with Article III:5 of the GA TT 1994, TRIMs Agreement and SCM Agreement, the 
Panel has decided to exercise judicial economy. 
8.6 Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations 
assumed under a covered agreement, the action is considered prima facie to constitute a case of 
nullification or impairment.  The Panel concludes that , to the extent that the measures listed above are 
inconsistent with the GATT 1994 and China's comm itment under its Working Party Report, they have 
nullified or impaired benefits accruing to  the United States under those agreements. 
8.7 Accordingly, the Panel recommends that the Di spute Settlement Body request China to bring 
these inconsistent measures as listed above into conformity with its obligations under the GATT 1994 
and the WTO Agreement.1130 
C. COMPLAINT BY CANADA (DS342):   CONCLUSIONS AND RECOMMENDATIONS OF THE PANEL  
(a) With respect to imported auto parts in general, the Panel concludes: 
(i) Policy Order 8, Decree 125 and Ann ouncement 4 are inconsistent with 
Article III:2, first sentence of the GAT T 1994 in that they subject imported 
auto parts to an internal charge in exces s of that applied to like domestic auto 
parts; 
(ii) Policy Order 8, Decree 125 and Ann ouncement 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 part; 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. 
(b) 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, the Panel concludes: 
(i) Policy Order 8, Decree 125 and Ann ouncement 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 measur es that are necessary to secure 
                                                     
 
1129 See paragraphs 7.740 and 7.758 above. 
1130 See paragraphs 7.740 and 7.758 above.  WT/DS339/R 
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  compliance with laws or regulations which are not inconsistent with the 
GATT 1994. 
(c) with respect to CKD and SKD kits, the Panel concludes: 
(i) Policy Order 8, Decree 125 and Ann ouncement 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.
1131 
8.8 With respect to Canada's cl aims that Policy Order 8, D ecree 125 and Announcement 4 are 
inconsistent with Article III:5 of the GATT 1994 an d the TRIMs Agreement, the Panel has decided to 
exercise judicial economy. 
8.9 Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations 
assumed under a covered agreement, the action is considered prima facie to constitute a case of 
nullification or impairment.  The Panel concludes that , to the extent that the measures listed above are 
inconsistent with the GATT 1994 and China's comm itment under its Working Party Report, they have 
nullified or impaired benefits accruing to Canada under those agreements. 
8.10 Accordingly, the Panel recommends that the Di spute Settlement Body request China to bring 
these inconsistent measures as listed above into conformity with its obligations under the GATT 1994 
and the WTO Agreement.1132 
__________ 
  
                                                     
 
1131 See paragraphs 7.740 and 7.758 above. 
1132 See paragraphs 7.740 and 7.758 above.