WT/DS339/R/Add.1 
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  ANNEX A-2 
 
RESPONSES AND COMMENTS OF PARTIES TO QUESTIONS FROM THE PANEL 
FOLLOWING THE SECOND SUBSTANTIVE MEETING  
 
 A. M
EASURES AT ISSUE  
167. ( China )Following up on China's response to Panel question No. 5, 
 
(a) China states in the second paragraph of  its response that "[t]he manufacturer's 
determination, whatever the result , is subject to review and verification under Chapter IV of 
Decree 125 (Articles 17-18)." (emphasis added)  Please clarify whether even if the 
manufacturer's determination based on self-evaluation  is positive, i.e. that auto parts imported 
should be characterized as complete vehicles, su ch a determination is still subject to review by 
the Verification Center under Article 7 of Decree 127;  Response of China 
1. China confirms that even if the manufacturer's self-evaluation is positive, such conclusion is 
still subject to review.  This is because the manufacturer's understanding of whether the imported 
parts in that vehicle model should be characterized  as having the essential character of a motor vehicle 
may differ from what is contemplated by Decree 125.   It is possible that the verification result would 
demonstrate that the vehicle model does not meet one or more of the thresholds set forth in Decree 125, even if the self-evaluation suggested a positive result.  This has happened in several 
cases. 
Comments by the European Communities on China's response to question 167(a) 
2. China's reply is contrary to the clear text of Article 7 of Decree 125 and Article 6 (2) and (3) 
of Announcement 4.  Article 7(2) of decree 125 clearly states  
"If
 the self-evaluation suggests that the imported automobile parts should not be 
characterized as complete vehicles, the automobile manufacturer shall request the CGA to conduct a review" (emphasis added).  
3. Article 7(3) further provides 
"When an automobile manufacturer applies to the NDRC to be listed on the Public 
Bulleting on On-Road Motor Vehicle Manufact urers and Products and applies to the 
Ministry of Commerce for an Automatic Importation License, it shall submit the self-evaluation results for the vehicle models fo r the vehicle models concerned. If the 
imported automobile parts are not characterised as complete vehicles,  the automobile 
manufacturer shall also  submit the review opinion by the CGA" (emphasis added).  
4. Article 6, paragraphs 2 and 3 of Announcement 4 also make a clear distinction between the 
obligations of the manufacturer depending on the results of the self-evaluation.  
5. These provisions would have no meaning if the review is necessary in all cases. China's reply 
demonstrates the arbitrary manner in which it describ es the content of the measures to the Panel.   WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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  (b) In the last paragraph of its response to Panel question No. 5, China states that "the 
effect of this system is that the determination of whether imported auto parts should be classified as a motor vehicle is made prior to the importation of the parts, based on the self-
evaluation and verification process described above." (emphasis added)  Please clarify whether 
the "verification process" referred to in this pa ragraph is review process by the Verification 
Center under Article 7 of Decree 125 or verifica tion conducted by the Center after importation 
of auto parts under Article 17 of Decree 125. 
Response of China 
 6. In order to respond to this question, China has to emphasize that the review and verification 
process is conducted on a vehicle model  basis.  Article 19 of Decree 125 makes clear that the 
manufacturer may request verification after the firs t batch of complete vehicles is assembled.  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 will conc lude, on a per model basis, whether the imported 
auto parts in that vehicle model, in their entirety,  have the essential character of a complete vehicle. 
7. The verification finding applies to all subseque nt importation of auto parts for the same 
vehicle model until the manufacturer can demonstr ate, under Article 20.2 of Decree 125, that the 
imported parts and components in that vehicle model no longer have the essential character of a motor 
vehicle.  There is no additional verification process that occurs after each  entry of auto parts for that 
vehicle model.  Nor is there an additional verifi cation process that occurs after each assembly of a 
motor vehicle of that vehicle model type.  Th e evaluation and verification process results in a prior  
determination of whether the auto manufacturer imports parts and components that have the essential 
character of a motor vehicle in order to assemble a specific vehicle model.   
Comments by the European Communities on China's response to question 167(b) 
8. China does not reply to the question.  It is cl ear on the face of the measures that there is a 
verification process after
 the production of a new vehicle model has been completed.  This is laid 
down in detail in Article 19 of Decree 125 and Article 7 of Announcement 4.  This verification 
process is an obligation  under the measures, not an option as Ch ina's use of the word 'may' suggests. 
China's reply is contrary to the clear wording of the measures (see Article 19 of Decree 125: "An 
automobile manufacturer shall  submit a verification application to the CGA within 10 days after the 
first batch of vehicles of the registered vehi cle model are produced/assembled …"; Article 7 of 
Announcement 4: "The automobile manufacturer shall  apply for verification to the Office within 10 
working days after the vehicles of a to-be-registered registered new model are produced/assembled…" (emphasis added)). 
Comments by the United States on China's response to question 167(b) 
9. In its response to part (b), China states that "[t]he evaluation and verification process results 
in a prior  determination of whether the auto manufacture r imports parts and components that have the 
essential character of a motor vehicle in order to assemble a specific vehicle model."  China implies 
that its answer uses the term "prior" to mean "prior to  the entry of the part into  China's territory."  To 
the contrary, however – and based on the plain text  of China's own measures – no determination is 
final until the imported parts are either used in manuf acturing, or (if not used in manufacturing within 
one year) the imported part is assessed a charge at a 10 per cent parts rate at the end of the one-year 
period following importation.   WT/DS339/R/Add.1 
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  10. First, verification is made, as China concedes in its answer, after  the first batch of complete 
vehicles is assembled.  So, clearly a number of pa rts have to be imported be fore verification – China 
cannot verify the assembled vehicle unless the parts are in the vehicle.  Secondly, it is not simply the 
first batch of vehicles that is affected – as Chin a states in its response to Panel question No. 171 – 
China (remarkably) doesn't even know how long the verifications take, but acknowledges that the 
verifications can take longer than 90 days.  Unless China is blocking  importati ons, parts will likely be 
flowing into China during that period. 
11. This information should also be viewed in light of Article 20 of Decree 125.  The second 
paragraph of that article notes that there may be a change in a vehicle's status under that measure 
during the course of production, thus necessitating a "r e-verification" of the base model.  Similarly, 
the last paragraph of Article 6 of Annoucement No . 4 provides that "If the percentage make-up of 
imported parts changes, such that the imported pa rts used in the vehicle model become Deemed 
Whole Vehicles, or are no longer a Deemed Whol e Vehicle, the changed vehicle model should be 
registered as a new vehicle model."  During this shift and re-verification, presumably, parts will 
continue to enter China.   
12. The first paragraph of Article 20 points to anothe r factor – the inclusion of optional parts into 
the base model.  The manufacturer has to report to the local Customs office when optional parts are 
fitted in , which will also require a re-verification. 
13. Then there are also parts that may be damage d, replaced in the assembly process by other 
(better-designed) parts prior to assembly, or otherwise not included into a new vehicle.  The second 
paragraph of Article 29 provides that when importe d parts are not used in the production of whole 
vehicles for one year, the manufacturer shall make a declaration to Customs for payment of duties – 
apparently at the parts rate.  Accordingly, it is no t until production of a new vehicle that the charge on 
a part is actually fixed.   
168. ( China )  China has explained throughout the proceedings that the determination under 
the measures of whether certain imported auto parts should be characterized as complete vehicles, i.e. an assessment of how to  classify imported auto parts, is not made after the assembly 
of imported auto parts into a complete vehicle, but  made prior to the importation of such parts.  
For example, China has stated in paragraph 13 of its second oral statement that "[t]he classification of motor vehicles under Decree 125 is based on the declaration by the importer 
that a shipment of parts and components is one of a series of shipments of parts and 
components that can be assembled into a single  article that has the essential character of a 
motor vehicle.  China considers that classifica tion based upon documentary evidence, including 
the customs declaration, is consistent with a proper interpretation of the term 'as presented' 
under GIR 2(a)."  
 If that is the case, what is the rationale for the verification process under Chapter IV of 
Decree 125?  In other wo rds, under the measures at  issue, why are auto 
manufacturers/importers required to wait until th e assembly of auto parts into a complete 
vehicle for further verification? 
Response of China 
 14. In response to question 167(b), China has expl ained that the self-evaluation and verification 
results in a prior determination of the essential char acter test.  It is important to understand that 
verification is conducted on a per-model basis.  The verification finding will apply to all subsequent  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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  importation of auto parts of the same vehicle mode l until the manufacturer can demonstrate that the 
underlying facts in respect of that vehicle model have changed. 
15. Chapter IV, and Article 19 in particular, con cerns the timing and basis on which this prior 
determination is made.  As described in Article  19, the manufacturer is to submit a verification 
application within 10 days after the first batch of th e to-be-registered vehicle model is assembled.  As 
discussed in response to question 167(b), this could be a single example of the vehicle model to be verified.  The reason that Decree 125 requires verification based on an actual example of the motor vehicle model in question (as opposed to conducting the verification on the basis of paperwork) is that 
motor vehicles are complex products.  It is theref ore prudent, and facilitates the verification process, 
to examine an actual example of the motor vehicle model.   
16. As emphasised in response to question 167(b), there is no additional verification process that 
occurs after the assembly of each  motor vehicle of that vehicle model type.   
Comments by the European Communiti es on China's response to question 168 
17. In its reply China admits that the final determ ination is made after manufacture of concrete 
vehicles.  The fact that this determination is thereafter applied
 in a standardised manner to all 
imported parts that the manufacturer is forced to identify as being part of a given vehicle model is 
irrelevant for the legal assessment of the measures.  The fact that each vehicle does not need to go 
through all the procedures in order for all imported parts in that individual vehicle being charged the 
25 % duty is simply a rule that facilitates the practical administration of the measures. 
18. Further, as China itself admits, this verification w ill need to be revised if there is a change in 
the production leading to a modification of the stat us of the imported auto parts under the measures. 
The classification of the imported auto parts will thus be determined by what actually happened 
during the production and more precisely by the balance of local and imported auto parts used in that 
production. If a modification leads to imported parts becoming characterised as complete vehicles, the 
auto manufacturers is under the obligation to go through the process of self evaluation, registration 
and review (Article 6(5) of A nnouncement 4).  Failure to do so would expose the auto manufacturer 
to sanctions (Article 36 of Decree 125). Conversel y, if imported parts are not characterised as 
complete vehicles anymore, the auto manufacturer w ill have to apply for and go through verification 
by Customs to avoid having to pay the 25% duty (Article 20(2) of Decree 125). 
19. This also means that auto ma nufacturers using imported parts w ill have to constantly monitor 
the process of production, and face administrativ e hurdles whenever the production cannot go as 
initially planned.  This takes away the flexibilit y needed in the production process to adapt to the 
evolutions of the market or accide nts in production (parts broken) and seriously penalises the use of 
imported auto parts. 
Comments by the United States on China's response to question 168 
20. The United States respectfully refers the panel back to its comments on China's response to 
Panel question No. 167.  The United States also notes  that China acknowledges in its response to this 
question that the verification is based on the assem bled vehicle, not on documentation or the condition 
of parts at the time of importation.   
169. ( China )  In relation to your response to Panel question No. 43, could China please clarify 
whether its response is the same when "a uto part manufacturers", not automobile 
manufacturers, import such key components or sub-assemblies. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-180 
  
  Response of China 
 
21. Article 2.1 of Decree 125 provides that the measure only applies to certain auto 
manufacturers.  Therefore, auto part manufacturers are not within the reach of the regulation.  As a 
result, when an auto part manufacturer imports  the key components or sub-assemblies, they are 
assessed at the corresponding parts rates. 
22. This is exactly why Article 29 is necessary.  Decree 125, without Article 29, would create an 
incentive for auto manufacturers to  relocate their importation throug h their suppliers in order to 
circumvent the measure. 
170. ( China )  In response to Panel question No. 59, China states that it has deferred the 
application of Article 21(3) of Decree 125 primarily  because of the administrative complexity of 
implementing this particular criterion.  Plea se elaborate on the specific nature of such 
complexity relating to the implementation of Ar ticle 21(3), including administrative complexity 
relating to the implementation of Article 21(2). 
Response of China 
 
23. The specific difficulty encountered by the custom s is how to identify the fair value of the 
parts.  First, it is normal for a manufacturer to impor t many types of auto parts from a single exporter.  
In these circumstances, it is possi ble for the manufacturer and the exporter to manipulate prices 
among different types of auto parts, without affecti ng their overall interest in the transaction.  Second, 
the companies that export auto parts are often affilia ted with the auto manufacturer in China.  As in 
any affiliated-party transaction, it can be difficu lt to identify fair value in these situations. 
24. The implementation of Article 21(2) is relativ ely easy by comparison to Article 21(3), as 
Article 21(2) is based on the physical attribut es of the motor vehicle model in question.   
Comments by the European Communiti es on China's response to question 170 
25. China's reply demonstrates very concretely how  Article 21(3) of Decree 125 is unrelated to 
the "objective characteristics of the product in que stion", which is the standard set out by the 
Appellate Body for the purposes of tariff classification ( EC - Chicken Cuts , paragraph 246).  
Article 21(3) of Decree 125 is an explicit local c ontent requirement. In its reply China makes entirely 
unsubstantiated assertions of "manipulation of prices".  The whole context of China's reply is at odds 
with the fact that parts manufacturers are highly specialised and fragmented. China has previously 
explicitly acknowledged this fact ( see China's reply to question 3 of the Panel and the EC's reply to 
question 3 of the Panel). 
26. China's reply also demonstrates the burden and legal uncertainty imposed by the measures on 
the use of imported auto parts in the production of vehicles, as it is equally difficult for manufacturers 
to accurately foresee how imported auto parts will be  valued.  It is worth stressing that this 60% 
threshold concept also applies at lower level and is  already in force.  Thus, an assembly (or system) 
will be characterised as imported if the price of its imported parts accounts for at least 60% of its total 
price (Article 22(3) of Decree 125 and Article 24 of  Announcement 4).  A key part will also be 
deemed as imported if imported parts account for more  than 60% of its price (Note 2 in Annex 1 to 
Decree 125).  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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  Comments by the United States on China's response to question 170 
27. China's response is puzzling in that China casually denies that  the measures impose any real 
administrative burden on the use of imported auto parts
1, and then in its respons e to this question and 
Panel question No. 59, it indicates that the "adminis trative complexity" relating to the implementation 
of Article 21(3) necessitates a two-year delay.  
28. China's attempts to attribute the administrative complexity to "enforcement" issues are not 
convincing.  The first problem China postulates is that the manufacturer and exporter may manipulate 
prices among different types of imported parts.  Even if true, that fact would be irrelevant since the 
overall 60% threshold refers to the aggregate valu e of all imported parts –  shifting prices between 
imports of the same model would not affect the aggregate total.   
29. Next, China states that companies that export auto parts are often "affiliated" with auto 
manufacturers in China.  China, however, provides no evidence of the existence or extent of this 
assertion, which is limited to a great extent by the fact that foreign participation in Chinese 
automakers is limited to a minority share.2  In any event, transactions between affiliates present a 
common issue in customs valuation and would not pr esent any unique problems in this context.   
30. Finally, China asserts that implementation of Article 21(2) is "relatively easy" as it is based 
on the physical attributes of the motor vehicle.  Im plementation of Article 21(2) is far from "easy" for 
either the auto manufacturer or the Customs administ rator.  First, the manufacturer must account for 
the origin of all "key parts" in the vehicles, which, as explained in the US comments on China's 
response to Panel question No. 167, requires tracki ng many streams of different types of parts 
obtained from various sources.  In addition, pursuan t to Article 20 of Order No. 4, the manufacturer 
must trace parts obtained from local supplie rs back through the second tier suppliers ( i.e., suppliers 
two steps up the supply chain).  And finally, the manufacturer must be able to verify whether under Article 24 of Decree 125 and Article 18 of Order No . 4, "substantial processing" by one of the 
suppliers has resulted in the parts being deemed as "domestic."  These are not simple tasks for the 
manufacturer or the administrative authority.   
171. ( China )  Please explain how long each step of the procedural requirements under the 
measures at issue takes on average.  Please al so provide any supporting evidence for your 
answer. 
Response of China 
 31. Unfortunately, China does not maintain these statis tics, so it is not possible to calculate an 
average period of time or provide another form of est imate.  As set forth in Article 19 of Decree 125, 
auto manufacturers are to request a verification with in 10 days after the assembly of the first batch of 
the vehicle model that is to be verified.  Afte r receiving a complete set of documentation from the 
Customs General Administration, the Verification Cent er is to complete the verification and issue a 
verification report within 30 days.  In some cases, the documentation submitted by the auto 
manufacturer may give rise to further inquiries and on- site reviews, or may require the submission of 
additional documentation.  In these cases, the verifi cation of a vehicle model can take longer than 30 
days. 
                                                     
 
1 See e.g . paragraph 175 of China's rebuttal submission and its response to Panel question No. 275.   
2 Article 48 of the Policy on Development of the Automotive Industry (JE-18).   WT/DS339/R/Add.1 
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  32. It is important to note that the evaluation and verification process does not prevent the auto 
manufacturer from importing parts and components to assemble a particular vehicle model.   
Comments by the European Communiti es on China's response to question 171 
33. China's reply completely ignores the fact that the applications for review and verification 
under the various procedural stages of the measures are publicly available on the website concerning 
the measures < http://autoadmin.chinaport.gov.cn
>.  A sample of currently  pending applications has 
been provided as Exhibit EC - 26.  This demonstrates that the completion of the various procedures under the measures can take years, during which the auto manufacturer will have no certainty on the 
charge that will apply to the imported auto part s and therefore of the economic viability of its 
investment as the 15% additional charge would simply make the vehicle uncompetitive (see first 
written submission of the European Communities, para graphs 16, 68 to 74).  China's reply that it 
"does not maintain these statistics" and that "it is no t possible to calculate an average period of time or 
provide another form of estimate" is simply not tenable because China clearly possesses detailed 
information on the different stages of the procedur es.  Presumably China attempts to direct attention 
away from concrete proof of the fact that the measures make imported parts less attractive. 
34. China's reply that "the evaluation and ve rification process does not prevent the auto 
manufacturer from importing parts and components to assemble a particular vehicle model" is also difficult to reconcile with the text of Article 7(3) of Decree 125:  
"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 au tomobile parts are not characterized as 
complete vehicles, the automobile manufact urer shall also submit the review opinion 
by the CGA".  
35. Clearly, to get the import licence allowing the import, the auto manufacturer will need to go 
first through the self-evaluation and the review by  Customs when the self-evaluation has concluded 
that the imported auto parts are not characterised as complete vehicles. 
172. ( China )  Let's assume that an automobile manufacturer/importer of auto parts is willing 
to pay for its imports of auto parts the tariff rate applicable for complete motor vehicles in 
accordance with the Chinese government's policy.   Can such manufacturer/importer import 
auto parts without going through the proce dural requirements under the measures concerned? 
Response of China 
 
36. No.  The hypothesis of this question is that the manufacturer would import parts and 
components for a vehicle model that is not a registered vehicle model under Decree 125, but would nonetheless declare the parts and components as elemen ts of an imported motor vehicle and pay the 
25 per cent rate of duty applicable to motor vehicles.   Setting aside the implausibility of this scenario, 
this practice would create certain problems relating to  customs administration.  Most importantly, if 
the parts and components are not related to a registered vehicle model, there would be no documentary basis to ensure the correct classificat ion of the parts and components.  This is why 
Decree 125 requires an evaluation and verification of  each vehicle model that is assembled using 
imported parts and components.  WT/DS339/R/Add.1 
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 Page A-183 
  
  Comments by the European Communiti es on China's response to question 172 
37. China's reply demonstrates why the procedures are not related to customs administration and 
enforcement of the 25% duty on complete vehicl es allegedly being circumvented by multiple 
shipments of auto parts.  If su ch was the purpose of the measures, there would be no reason to impose 
them in the scenario envisaged by the Panel.  
38. The question of the Panel and reply of China perfectly illustrates the claims and arguments 
made by the European Communities under the TRIMs Agreement  and Article III of the GATT 1994.  
As soon as an auto manufacturer uses imported auto  parts in its production process, the measures will 
impose a host of administrative burdens, and the ulti mate threat of having to bear a 15% additional 
charge sometimes several years after starting the whole procedure.  The only way for an auto 
manufacturer to escape the measures, and regain le gal certainty and flexibility in the production 
process is to use exclusively lo cal auto parts (see first written submission of the European 
Communities, paragraphs 114, 126, 147 – 158). 
173. ( China )  In respect of the import license necessary  for the importation of auto parts in 
China, 
(a) Is an import license issued automatically upon application by importers or are there any 
conditions attached to the issuance of such licen se?  Please explain the procedural requirements 
that automobile manufacturers/importers need to sati sfy to order to obtain an import license for 
the importation of auto parts; 
Response of China 
 
39. An import license is automatically issued upon ap plication by importers to the Ministry of 
Commerce.  No substantive condition is attached to  the issuance of such a license.  Article 7 of 
Decree 125 requires the importer to submit the self-eva luation results for the vehicle model as part of 
the documentation submitted with the license application.   
Comments by the European Communities on China's response to question 173(a) 
40. Before the allegedly "automatic" import licence can be granted, the automobile manufacturer 
is obliged to carry out the self-verification for eseen in Article 7 of Decree 125 and Article 6 of 
Announcement 4. If the conclusion of the self-verificati on is that the model is not "characterised as 
complete vehicles" i.e. that it contains sufficien t local content (Articles 21 and 22 of Decree 125), the 
manufacturer is obliged to provide also the review  report from customs (Article 7(3) of Decree 125). 
41. China's reply makes it clear that the import li cence is far from automatic as the manufacturer 
is obliged to go through cumbersome and lengthy procedures before the licence is granted (see the 
response of the European Communities to question 8 of  the Panel). Indeed, China's reply is inherently 
contradictory because China states on the one hand that no substantive conditions are attached while 
in the next sentence China acknowledges that th e self-assessment is necessary (China ignores the 
review report required under Article 7(3) of Decr ee 125) before the import licence can be granted. 
(b) Can such auto manufacturers/importers import  auto parts without an import license? 
Response of China 
 
42. It depends.  Not all auto parts require an automatic import license. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
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  Comments by the European Communities on China's response to question 173(b) 
43. In its reply "it depends" China makes a general assertion without  providing any justification 
or argument.  Moreover, this reply seems to be inconsistent with China's reply to question 172, 
according to which Decree 125 must be complied with in all
 cases. 
Comments by Canada on China's response to question 173 
44. China claims that an import li cence is automatically issued upon application by importers to 
the Ministry of Commerce.  It also claims that no substantive conditions are attached to the issuance 
of a licence. Canada considers this answer to be inaccurate. 
45. The import licence contemplated in Article 7 of Decree 125 is not automatically issued upon 
request. An importer must first examine, and declare to  customs, the source of all parts used in vehicle 
manufacture, and that must occur prior to importation .  And if an importer's examination results in a 
declaration that the parts used in a vehicle are not  deemed to be whole vehicles, then the importer's 
examination must undergo further review by cu stoms.  A simple request for a licence is not sufficient 
without this declaration; therefore, the grant of a licence is clearly conditiona l and not automatic.  See 
also Canada's comments on China's response to Question 219.    
174. ( China )  What documents are auto manufacturers required to provide at the border to 
import auto parts into China? 
Response of China 
 
46. In respect of auto parts and components for registered vehicle models, this question is 
answered by Article 14 of Decree 125.  As set fort h therein, the importer must submit to customs (1) 
an import declaration form; (2) the automatic import license market with "Characterized as Complete 
Vehicles"; (3) any other licenses required in respect of  that import entry; and (4) the other documents 
that are normally required by the Customs (which are detailed in response to question 249 below).   
175. ( China )  At the second substantive meeting, China st ated that it lists imported auto parts 
originating in different countries that are char acterized as complete vehicles under China's 
measures as complete vehicles in its import statistics.  Does any importation document 
submitted by automobile manufacturers/importers of auto parts that are characterized as 
complete vehicles under China's measures show th e countries of origin of those parts?  How 
does China determine the country of origin for the "complete article" when it is assembled from 
parts and components from various countries of or igin?  Do China's import statistics match the 
export statistics recorded by exporting countries in respect of such auto parts? 
Response of China 
 
47. As China stated at the second substantive meeting, the classification and statistics under 
Chinese customs practice are consistent with each othe r.  Thus, an entry of parts for a registered 
vehicle model is recorded as a motor vehicle in Ch ina's customs statistics.  Of course, the Chinese 
customs authorities reconcile these statistics to ensu re that they reflect the number of registered 
vehicle models that are actually imported (and not the number of shipments  of parts and components 
for registered vehicle models).  This problem of reconciliation arises in any circumstance in which 
customs authorities classify multiple shipments of parts and components as the complete article (for 
example, under national split shipment or multiple conveyance rules).  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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 Page A-185 
  
  48. China understands that this is a question about how to record the country of origin of a motor 
vehicle, when it is imported in an unassembled fo rm.  This is, in no sense, a question that is 
implicated uniquely by the challenged measures.  A typical and similar situation is the importation of 
CKD kits.  Many parts within a CKD kit can co me from different countries.  For instance, BMW 
maintains a global logistics centre in Germany.  Pa rts produced in other countries are shipped to this 
logistics centre, from which the parts are assembled  into a CKD kit and shipped to a BMW assembly 
facility.  In this scenario, a quite similar country-of- origin "problem" arises.  The fact that the CKD kit 
was shipped from a German logistics centre does not  mean that all parts in the CKD kit have a 
German country of origin, or even that the CKD kit,  in its entirety, has a German country of origin.  
The country of origin of individual parts is not a decisive factor in determining the country of origin of the CKD kit.  This must be determined based upon the general character of the entire  group of the 
parts that make up the CKD kit.   
49. In the majority of cases, the determination of the country of origin for a motor vehicle in 
unassembled form does not pose a significant challenge to customs authorities.  The country of origin 
of a product is normally determined by application of  a set of multi-tier rules, which may include the 
alteration of tariff classification, the ad valorem  percentage of parts from different origins, the 
existence of a substantial manufacturing or processing step, and so on.  In most cases, the rule of 
origin of motor vehicles that are registered unde r Decree 125 is determined by reference to the ad 
valorem  percentage of parts from different origins, bu t each case is determined on its own facts.   
50. With regard to the question of whether the import statistics of China will match the export 
statistics of other countries, in most cases the fi gures will match, but there are always exceptions.  
Again, this is not a question that is uniquely im plicated by the challenged measures.  Take, for 
example, a Chinese manufacturer that sells goods through a Hong Kong trading company to a US importer, under circumstances in which the Chinese manufacturer does not know the destination of 
the goods.  The export statistics of China would record Hong Kong as the destination and the United 
States would not appear in this entry.  However, in the US import statistics, the country of origin of the goods would be recorded as China.  Th ere would no way to match these two records. 
51. A similar disjunction in import/export statis tics can occur when the exporting country 
classifies the exported good differently than the importing country.  For example, the exporting 
country may consider that the goods fall under one HS  heading, while the importing country considers 
that they fall under another HS heading.  In this circumstance, the exporting country's export statistics 
for the good in question will not match the impor ting country's import statistics for the good in 
question.  This problem is not unique to motor ve hicles or parts and components of motor vehicles.  
Major trading partners (such as the United States a nd Canada) have establis hed regular consultative 
processes among customs authorities to reconcile these ki nds of technical issues in customs statistics.   
Comments by the European Communiti es on China's response to question 175 
52. China states in its answer to the above ques tion that tariff classification under its customs 
practice and import statistics are c onsistent with each other. China is therefore admitting that if it 
misclassifies certain goods, as it is the case here with au to parts, its import statistics will be influenced 
by such misclassification of goods.  This is also pr oved by China's admission that "[t]hus, an entry of 
parts for a registered vehicle model is recorded as a motor vehicle in China's customs statistics.  Of 
course, the Chinese customs authorities reconcile these st atistics to ensure that they reflect the number 
of registered vehicle models that are actually im ported (and not the number of shipments of parts and 
components for registered vehicle models)."  In ot her words, China explicitly states that entries of 
parts subject to the measures at issu e are registered as if they were a complete vehicle.  China's fatal 
mistakes in the tariff classification of such goods ar e therefore transposed into its statistical system. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-186 
  
  This runs directly against the object and purpose of the Harmonised System, which is precisely to 
harmonize classification of goods and thus allow co mparison of trade statistics: a good leaves a 
country as a brake, is registered as an export of a brake, but on import into China becomes an import 
of a complete vehicle and is registered as such. 
53. Concerning the issue of origin, the European Communities can agree on the suggested general 
principles that the country of origin of a product is  normally determined by application of a set of 
multi-tier rules, which may include the alteration of tariff classification, the ad valorem  percentage 
from different origins incorporated into a product,  the existence of substantial manufacturing etc. 
However, China fails the mention that such legal a nd factual tests to determine the origin of a good 
must be applied on a product-by-product basis and to products as presented at the border for customs 
clearance.  The origin of the auto parts must theref ore be determined individually and not on the basis 
of what China incorrectly considers being a comp lete vehicle after manufacture. China's incorrect 
characterization of the goods at issue as "complete ve hicles" also triggers the incorrect application of 
rules of origin to auto parts. 
Comments by the United States on China's response to question 175 
54. China claims that "the classification and statistics under Chinese customs practice are 
consistent with each other.  Thus, an entry of pa rts for a registered vehicle model is recorded as a 
motor vehicle in China's customs statistics.  Of  course, the Chinese customs authorities reconcile 
these statistics to ensure that they reflect the numbe r of registered vehicle models that are actually 
imported (and not the number of shipments  of parts and components for registered vehicle models)."  
This answer is non-responsive – it means nothing other than an assertion that China's import statistics 
are consistent with themselves.   
55. China entirely ignores the a fundamental objects and purposes of the HS Convention (the 
agreement upon which China has based its entire defen se): namely, to ensure the consistency between 
import, export, and production statistics, and to ensure  the collection of meaningful trade statistics for 
the purpose of trade negotiations.  The reason China i gnores this key point is clear:  China's measures 
destroy the utility of China's import statistics on auto  parts, and makes those statistics incompatible 
with both other countries export statistics, and with China's own export statistics.  In particular, by 
classifying imported auto parts from various c ountries as "complete vehicles," China no longer 
collects any meaningful statistics on auto part imports.   
56. China's response uses the example of a CKD k it to discuss how to "record the country of 
origin of a motor vehicle, when it is imported in an unassembled form."  But this example only serves 
to highlight the incompatibility of China's me asures with the objects and purposes of the HS 
Convention.  If a country exports to China a legitimate
 CKD kit, and assuming that GIR 2 applied to 
that kit, the export statistics would show the expor t of a vehicle, and China's import statistics would 
show the import of a vehicle.3  Nothing here is problematic under the HS Convention's goal of 
ensuring the usefulness and consistency of statistics.   
57. The issue the Panel raises in this question is not addressed by China.  If Country A exports 
1000 gasoline engines to China and Country B expo rts 1000 chassis to China, Country A will include 
1000 gasoline engines in its export statistics and Country B will include 1000 chassis in its export 
                                                      
3 If the importing and/or exporting country had more detailed statistical breakouts, the statistics could 
also indicate whether the imported article was a CKD kit or a vehicle.  Thus, if China wanted separately to track 
imports of kits and imports of assembled vehicles, it would be free to do so consistent with its HS Convention 
obligations.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-187 
  
  statistics.  However, it is clear from China's response that it neither reflects the importation of engines  
from Country A nor the importation of chassis from Country B.  If, for example, China determines 
that Country B is the country of origin of the "m otor vehicle" and it does not record the number of 
shipments of parts in its "reconciled" statisti cs, then presumably China records no importation 
whatsoever from Country A.  It is completely im plausible that import and export statistics will match 
in these circumstances.  It is also worth notin g that China acknowledges in its response to Panel 
question No. 213 that parts will most commonly enter China in this fashion, i.e., through multiple 
importations.  
176. The European Communities stated durin g the second substantive meeting that the 
economic reality of the automotive industry has resu lted in the standardization of parts, such as 
tyres and navigation systems, which, as a conseque nce, fit in various vehicles models and that 
"the identification of imported parts that belong to a given specific model is an entirely fictitious 
condition imposed under the measures." (Europ ean Communities' second oral statement, 
paragraph 7-8)  On the other hand, China has be en of the view that automobile manufacturers 
know exactly, inter alia , what auto parts and auto parts from which auto part manufacturers 
are going to be used for a specific vehicle model. 
(a) ( China and other complainants )  Do you agree with the European Communities' view? 
Response of China 
 
58. No.   
Response of Canada (WT/DS342) 
 
59. Canada agrees with the European Communities. Ensuring the availability of parts in standard 
formats – standardization or "commonization" of pa rts – is a major cost-reduction strategy for vehicle 
manufacturers. This allows these manufacturers to r ealize economies of scale at a global rather than 
regional level. At the same time, it allows parts manufacturers to de al with now-globalized supply and 
production chains. Vehicle manufacturers have incorporated steadily increasing proportions of auto parts used in different models, and across vehicle platforms. For example:   
60. Ford implemented platform standardization and a globally-used engine series in module 
production for Ford North America, Ford Europe, Matsuda and Jaguar.
4  
61. DaimlerChrysler uses the same standardized platform to produce the Chrysler 300/300C, 
Dodge Magnum and Dodge  Charger in Canada. 
62. GM and Ford developed jointly a new six-speed  automatic transmission, for use in models 
produced by both companies.5 
63. A transmission system for a hybrid vehicle, jointly developed by GM, DaimlerChrysler and 
BMW, is widely used in different vehicles, buses, trucks and cars.6 
                                                      
4 Koichi Shimokawa, "Reorganization of the Global Automobile Industry and Structural Change of the 
Automobile Component Industry" (Massachusetts Ins titute of Technology, International Motor Vehicle 
Program, issued June 20, 2002), online: http://imvp.mit.edu/papers/99/shimokawa.pdf   (Exhibit CDA-33). 
5 General Motors Press Release, "New Hydra-Matic 6T70 Six-Spee d Automatic Delivers Performance 
and Fuel Economy" (August 25, 2005), online: http://media.gm.com/servlet/GatewayServlet?target=h ttp://image.emerald.gm.com/gmnews/viewmonthlyrelease
detail.do?domain=3&docid=17537  (Exhibit CDA-34). WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-188 
  
  (b) ( All parties )  Please provide evidence supporting your respective views on the 
commercial reality of the automotive industry. 
Response of China 
 64. China could not identify a documentary source that discusses the interchangeability of auto 
parts and components in general te rms.  Part of the problem is that "interchangeability" in the 
automobile industry has different meanings in di fferent contexts.  Interchangeability of parts and 
components is much lower between models pr oduced by different auto manufacturers.   
65. A specific example illustrates the low de gree of commonality among auto parts and 
components, even between vehicle models produced  by the same auto manufacturer.  CHI-46 shows 
the strut suspension systems for a derivative of the VW  Passat B6 and for the VW Sagitar.  Both of 
these systems are a type of Macpherson Strut Susp ension.  Though these two suspension systems look 
similar, the major parts, as shown in the illustrations, are not interchangeable with each other.  As this 
example shows, parts and components for different ve hicle models are usually different in terms of 
shape, material, and structure, even  when they form part of assemblies that are fundamentally similar 
in design.   
Response of the European Communities (WT/DS339) 
 
66. This question is closely linked with question 217 a). The economic reality of the automotive 
industry is well illustrated by the notion of an "automobile platform", which is a shared set of 
components common to a number of different vehicle models including from different auto manufacturers. Exhibits EC – 12 to 25 demonstrate how the industry is increasingly using such platforms in order to cut costs, speed development time and increase flexibility to adapt to the changes 
in the market. A platform can be stretched, made  wider and taller, and can  accommodate a range of 
engines and transmissions. An increasing number of  vehicles share the same platform though they 
appear on the outside to be unique. This allows to share expensive key components such as engines, 
instrument panels or suspension parts between differ ent models and thus to obtain volumes that make 
it possible to be competitive and profitable. 
67. This demonstrates how entirely artificial the Ch inese measures are in requiring that each part 
be identified in advance as belonging to a specific  vehicle model. In today's real world of the 
automotive industry a large part of parts are not onl y common between different vehicle models of the 
same manufacturer but even be tween different manufacturers. 
Response of the United States (WT/DS340) 
 
68. The United States agrees with the EC view.  Th e present commercial reality in the automotive 
industry is a trend toward the standardization of vehicle platforms (the basic structural components 
underpinning a vehicle) and the sharing of parts a nd components across vehicles.  The trend is a result 
of the continuous cost and competitive pressures w ithin the industry and is also common among many 
other manufacturing industries.  By sharing platforms, parts, and components, manufacturers save money by not having to engineer, manufacture, a nd purchase specialized parts for every model they 
make, enabling them to increase the number of mode ls produced off of common platforms; reduce the 
                                                                                                                                                                    
 
6 BMW, DaimlerChrysler, General Motors Pre ss Release, "Global Allia nce for Hybrid Drive 
Development: Cooperation between BMW, DaimlerChr ysler and GM" (September 7, 2005), online: 
http://media.gm.com/servlet/GatewayServlet?target=h ttp://image.emerald.gm.com/newspublisher/support_file/0
9-07-2005/2007/en.doc  (Exhibit CDA-35).  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-189 
  
  time it takes to bring out new models; and reduce service and warranty costs by using parts common 
to many vehicles. 
69. Many manufacturers design and build multiple models based on a single platform which 
includes many shared components.  "Because it is mo re expensive to produce and market a number of 
small-volume vehicles rather than one big seller, car  manufacturers have to adopt a variety of cost-
cutting strategies to survive.  One approach is th e so-called 'platform' strategy, in which common 
components are shared wherever possible between different models."
7  Many models may share 
components, including vehicles that do not appear very similar, such as passenger cars and sport 
utility vehicles or trucks.  "What counts now is th e flexibility to make different sorts of vehicles, 
especially on the same production line.  Many of the SUV-type vehicles share parts with cars."  
Manufacturers adjust production based on demand for particular models.   
70. A specific example of parts that are common a nd interchangeable with different models is 
tires.  Exhibit US-6 shows the same original e quipment manufacturer tires used on three different 
models.  In general, tires of the same dimensi ons are interchangeable with tires on any model with 
similar dimensions.   
71. Additionally, the parts used in a particular m odel will change over time  as improved or lower 
cost parts become available, or a defect is detected in a part.  Thus the specific parts used in a vehicle 
model is constantly evolving.   
72. It is also important to note that even if a manuf acturer could identify that certain auto parts are 
going to be used in a specific vehicle model , given the assembly-line process, 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 identif y in advance which parts will actually be used in 
production, as opposed to being discarded as defectiv e, damaged in processing, or being held in 
inventory for eventual use as replacement parts.  Thus, there is not – and cannot be – a specific 
vehicle identified with a collection of specific pa rts until that vehicle has actually been assembled 
within China.  (The United States notes that alt hough China asserts that it can identify parts of a 
specific model  at the border, China does not assert th at it can identify parts of a specific vehicle. )  As a 
result, the measures wait until the vehicle has been assembled before making the final assessment of 
charges.  See  Articles 5 and 28 of Decree 125.   
Response of Canada (WT/DS342) 
 
73. Canada understands the Panel's qu estion to relate to the general description of the automotive 
industry in China as set out in Section A of the co mplainants' joint background (paragraphs 8-19 in 
Canada's first written submission), which includes exte nsive exhibits setting out the complexity of the 
market, and the fact that most auto parts manuf acturers in China are independent and produce for 
various vehicle manufacturers. See, for example: 
• Exhibit JE-4, at pages 19-22, listing a numbe r of parts suppliers and some of their 
customers; 
• Exhibit JE-5, describing vehicle manufacturers in China, including, at pages 19-25, the 
major Chinese vehicle manufacturers and thei r different joint ventures with separate 
independent foreign vehicle manufacturers, and, at pages 30-34, lists of various 
independent foreign parts manufact urers' operations in China; 
                                                      
7"Wave goodbye to the family car," The Economist , 11 January 2001 (Exhibit US-5). WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-190 
  
  • Exhibit JE-14, at page 11, providing  the case study of ASIMCO, a successful 
independent foreign parts company in China. 
• Exhibit JE-21 at page 17, which shows a ch art illustrating joint ventures in vehicle 
manufacturing, showing that foreign vehicle manufacturers do not dominate their 
Chinese partners (e.g ., SAIC and First Auto Works both have joint ventures with GM 
and VW). Pages 3-4 show various auto part s companies broken down by region, together 
with their market capitalization. For exam ple, Aisin Seiki in Japan has a market 
capitalization listed at US$4.5 billion, Brem bo at US$536 million, and Magna at US$7.7 
billion; and 
• Exhibit JE-23, at pages 25-30, listing various  parts manufacturers and their locations in 
China and, at page 25, noting the broad cu stomer base of BorgWarner in China (FAW, 
Dongfeng, Shanghai-VW, FAW-VW, Shangha i-GM, Changan Ford, Beijing Jeep and 
Cherry).  
74. In the event that it may assist the Panel furthe r, Canada has in addition prepared Exhibit 
CDA-36.
8 That exhibit contains numerous citations, primarily links to the websites of individual auto 
parts manufacturers, with a particular focus on the manufacturers of brake parts. Those links provide 
an indication of the variety of parts manufacturer s involved in the manufacturing process, and support 
the material cited above in establishing a number  of key propositions relating to the commercial 
reality of the automotive industry, both in Ch ina and abroad. Notably, these are as follows: 
• most parts suppliers have many customers – c ontrary to China's suggestion that they are 
controlled by particular vehicle manufacturers, they rarely rely on a particular company 
for the majority of their sales; 
 
• there are complex ownership relationships between foreign and domestic companies for 
particular facilities in China. Foreign parts manufacturers and vehicle manufacturers do not dominate the market – many Chinese owned companies compete with a variety of foreign manufacturers; and 
 
• most parts suppliers are legally independent  of the major vehicle manufacturers, and, 
where vehicle manufacturers have an ownership interest in a particular auto parts 
production facility in China, it is most often a joint venture with local Chinese vehicle 
manufacturers. 
 
Comments by the European Communities on China's response to question 176(b) 
75. In its reply, China compares the suspension of two different Volkswagen models (VW Passat 
and VW Sagitar) to illustrate the low degree of commonality among auto parts and components used 
by the same manufacturer.  The EC notes that the susp ension has a function which is strictly related to 
the performance and the size of the vehicle, and th at therefore it is perfectly normal that a model 
weighting 2270 kilos with a maximum speed of 246 km/h (such as the top version of the Passat) has a 
different suspension than a model weighting 1870 ki los with a maximum speed of 194 km/h (such as 
the lower version of the Sagitar, which is also known as "Jetta") (Exhibit EC-39). 
76. The vehicle models used in China's example belong to different mode l ranges. A relevant 
comparison would have been between models of the same range.  The Sagitar/Jetta, for example, is 
                                                     
 
8 Auto Parts Suppliers – Internet links (Exhibit CDA-36).  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-191 
  
  developed on the same platform
9 and shares a great number of parts and components with several 
other models, ranging from the light van VW Caddy, to the family car VW Golf, to the roadster Audi 
TT (Exhibit EC-40). Moreover, even though the Passat and the Sagitar/Jetta belong to different model 
ranges, they still share parts and components.  For ex ample, several versions of these two models have 
the same engine (Exhibit EC-39, third and sixth page).  
Comments by the United States on China's response to question 176 
77. China asserts a low degree of commonality among parts between vehicles of the same 
manufacturer.  The measures provide a particular mean ing of "vehicle models".  Article 25 of Order 
No. 4 provides, "If additional configurations to the original vehicle model cause the imported parts 
used in the new configuration to become Deemed Whole Vehicles, the additionally configured model 
should be registered with the Leading Group O ffice as a new vehicle model."  Thus additional 
features like a more powerful engine, a sport coupe (as opposed to a regular coupe), or the inclusion 
of special comfort or safety features could result in the creation of a different "model".  In such 
circumstances there would be especially high co mmonality of parts within the two "models".  
Comments by China on Complainants' responses to question 176 
78. In response to this question and question 217, the complainants submit extensive 
documentation about the use of common vehicle plat forms in the automobile industry, none of which 
directly responds to the question – does an auto manufacturer import parts and components with the knowledge that it will use those parts and component s to assemble a specific vehicle model?  The 
complainants have sought to describe a world in which auto manufacturers import various parts and 
components, and only then decide what kinds of car s they will assemble, and in what amounts.  This 
notion is entirely antithetical to modern systems of supply chain management, which seek to minimize 
the costs of maintaining inventory by ensuring the delivery of specific parts as they are needed to 
assemble a specific quantity of a specific product.   
79. [ ], widely recognized as the world's most effici ent producer of automobiles, was a pioneer in 
the application of just-in-time supply chain management.  As [ ] describes: 
"Just-in-Time" means making only "what is needed, when it is needed, and in the 
amount needed."  To efficiently produce a large number of products such as automobiles, which are comprised of some  30,000 parts, it is necessary to create a 
detailed production plan that includes parts procurement, for example.  Supplying 
"what is needed, when it is needed, a nd in the amount needed" according to the 
production plan can eliminate waste, incons istencies, and unreasonable requirements, 
resulting in improved productivity."
10 
80. Thus, [ ] has "a detailed production plan" of what it is going to assemble (e.g.,  so many [ ] at a 
specific assembly facility), and it then arranges for th e delivery of parts that are required to fulfill that 
production plan, as they are needed, in the amounts th at they are needed.  The parts arrive at the 
assembly facility with a pre-determ ined relationship to the production of a particular vehicle model 
for which that part is required.  It is this pre-dete rmined relationship that allows the auto manufacturer 
to know that a particular shipment of parts and components is related to the production of a specific 
vehicle model. 
                                                      
9 Reference is made to the EC reply to question 176 and to exhibits EC-12 to EC-25 for an illustration 
of this concept. 
10 See CHI-49.   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-192 
  
  81. For these reasons, the complainants' effort to de pict some degree of commonality of parts and 
components among different vehicle models misses the relevant point – even if a part is common to 
two or more vehicle models, the auto manufacturer is aware that a particular shipment of that part is 
associated with the assembly of a sp ecific vehicle model.  It is not a "fiction," as the EC claims, for 
the auto manufacturer to associate a specific impor t entry of parts with the production of a specific 
vehicle model; the manufacturer would be aware of this association even in the absence of the challenged measures.   
82. Even so, the complainants have not , in fact, established that there is a high degree of 
commonality of parts and components among different  vehicle models.  By emphasizing the use of 
common platforms  by an auto manufacturer, the complain ants have sought to leave the impression 
that all platforms have common parts.   But, as the EC itself notes, "a platform can be stretched, made 
wider and taller, and can accommodate a range of engines and transmissions."
11  As the auto 
manufacturer makes these types of adjustments to th e platform for a specific vehicle model, many of 
the parts used in the assembly of that model will change, even in relation to other vehicle models 
assembled on the same platform.  As further evid ence of the commonality of parts among different 
vehicle models, the United States provides the specific example of tires – parts of a motor vehicle that 
are sold as after-market products, and that are meant to be replaced periodically by the owner of vehicle.  This is hardly evidence of a high de gree of commonality among auto parts and components. 
83. An example drawn from [ ]'s assembly operations in China illustrates the very low degree of 
commonality of parts and components among different vehicle models.  [ ] assembles the [ ] and the 
[ ] at the same assembly facility in China.  As shown in CHI-50,  these cars, while not built on the 
same platform, are similar types of passenger sedans.   Of the thousands of parts that make up these 
two vehicles, they have exactly five in common.  These parts are as follows:
12 
PARTS  NUMBER PER VEHICLE  
Tire wrench 1 
Engine label 1 
Starter relay 1 
A specific type of screw 4 
A specific type of screw 33 
 
84. As this example shows, auto parts have a low degree of commonality, even between two 
vehicle models assembled by the same auto manuf acturer at the same facility.  This further 
underscores the fact that the manufacturer is fully aware of the relationship between an import entry 
of specific parts and components and the assembly of a specific vehicle model.   
177. ( China )  Canada states in paragraph 31 of its second oral statement that 
"[d]ocumentary evidence in context is only one aspect of this assessment.  Yet China 
oversimplifies 'as presented' by claiming that 'a customs declaration or other documentary 
evidence' is sufficient for classifi cation purposes.  China would treat it as the sole determinant."  
Does China agree with Canada's statement?  If not, why not? 
                                                      
11 EC answers after second meeting at para. 1.   
12 This information is compiled from data that [ ] provided to the Customs General Administration in 
connection with the evaluation process under Decree 125.  China is submitting this information as confidential 
information in accordance with the overall confid entiality of this submission, as established by Article 18.2 of 
the DSU and paragraph 2 of the Work ing Procedures for the Panel.    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-193 
  
  Response of China 
 
85. China does not agree with this statement, a nd does not understand the basis for Canada's 
assertion.  As China has explained, the customs decl aration establishes that a particular shipment of 
auto parts and components is one of a series of sh ipments that, in their entirety, have the essential 
character of a motor vehicle.  China considers that th e fact that a particular shipment is one of a series 
of related shipments is part of the "context" in which auto parts and components are presented to the 
customs authorities.  While Canada acknowledges the relevance of documentary evidence as an 
element of the classification determination, it provides no basis for its (implicit) assertion that 
Decree 125 makes an improper use of documentary ev idence.  Moreover, as Canada itself explained 
during the second substantive meeting of the Panel, the factors that will be relevant in making a 
classification determination will vary from one circ umstance to another.  Canada does not explain 
why a particular weighting and balancing of these fa ctors is prescribed by the rules of the Harmonized 
System in any given circumstance, or in the circumstances addressed by the challenged measures. 
Comments by the European Communiti es on China's response to question 177 
86. It is clear e.g. under paragraph 41 of China's rebuttal submission that China puts significant 
emphasis on the customs declaration, which under the measures obliges the importer to identify the 
model for which the imported part is intended.  This is circular. In the absence of the measures vehicle 
manufacturers would not identify with certainty whethe r a given imported part will be used in a given 
vehicle model. They would import parts in bulk on th e basis of estimated needs in different models be 
it for manufacture, repair or spare parts.  As st ated in paragraph 12 of the EC's second written 
submission, it is paradoxically the contested measur es that create the fiction of different vehicle 
models consisting of entirely differe nt parts.  In any event, the requirement to identify the intended 
internal use in China is a demonstration that  the measures fall under Article III of the GATT 1994. 
Comments by the United States on China's response to question 177 
87. China's response asserts that "the fact that a particular shipment is one of a series of related 
shipments is part of the 'context' in which auto  parts and components are presented to the customs 
authorities."  China takes an extremely loose appro ach to how the shipments are "related"; presumably 
all that is necessary is that one shipment contains a part or component that could eventually end up 
being assembled into the same vehicle model as a part in the other shipment.  The measures do not 
examine or consider who the importer or the exporte r is, when the shipment was sent or when it 
arrives, where the shipment originates or where it arri ves, or how the parts are shipped.  The "context" 
of the measures is not concerned with "importation"  or activities "related to importation", but rather 
the measures are focused on the amount of local cont ent used in a vehicle as sembled in China.   
88. In this regard, Article 5 of Decree 125 provides that "'Deemed Whole Vehicles' . . . refers to 
imported parts used by an automobile manufact urer that are already Deemed Whole Vehicles when 
the vehicle is being assembled. "  Under Article 7 of Decree 125 (and Article 4 of Order No. 4), 
verification is conducted "o n-site" at the manufacturing facility.  Verification pursuant to Article 19 of 
Decree 125 examines the first batch of assembled vehicles .  Moreover, vehicles will continue  to be 
assembled – under great uncertainty – until such time  as China actually issues the results of the 
verification.  Article 20 of Decree 125 requir es reporting regarding optional parts "when optional 
imported parts are fitted on," and provides for re-ver ification "during the course of production."  And 
Article 28 of Decree 125 requires manufacturers to decl are items to Customs "after the imported parts 
are assembled and manufactured into whole vehicl es" at which point Customs will proceed with 
categorization and duty collection.   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-194 
  
  89. The measures focus on assembly and the proportion of local and imported content in the final 
vehicle.  That is the "context" provided by the measures.   
178. ( China )  In response to Panel question No. 11, China states that it had adopted broad 
policy instruments of the same nature of the au to parts measures in other industry sectors, but 
it did not specifically name them or provide them.  Could China please indicate such policy 
instruments in other industry sectors. 
Response of China 
 90. Question 11 asked whether China had adopted lega l instruments similar to the Policy on the 
Development of the Auto Industry in relation to other industry sectors.  These are not necessarily "of 
the same nature" as the "auto parts measures."  The measures at issue in the present dispute relate to 
only one chapter of the Policy on the Developm ent of the Auto Industry, concerning the 
implementation and enforcement of customs laws.  W ith respect to broad policy instruments in other 
industry sectors, the National Development and Reform Commission (NDRC) has issued several 
Industry Development Policies, including, for ex ample, the Steel Industry Development Policy 
(8 July 2005) and the Cement Industr y Development Policy (17 October 2006). 
Comments by the European Communiti es on China's response to question 178 
91. To the knowledge of the European Communities, the broad policy instruments cited by China 
in its reply to question 178 do not provide any measures similar to those imposed by China on imports 
of auto parts (Automotive Policy Order 2004 an d its implementing measures, i.e. Decree 125 and 
Announcement 4). 
92. The European Communities emph asises again that Decree 125 and Announcement 4 do not 
implement only one chapter of the Automotive Polic y Order 2004, but the whole of it (see e.g. the 
second written submission of the European Communities, paragraph 24). 
Comments by the United States on China's response to question 178 
93. Given China's response, it appears that China does not have any policy instruments in other 
industry sectors which, in relevant respects, are of  the same nature as the auto parts measures.  
B. L
EGAL NATURE OF THE MEASURES  
179. China claims that parties have reached s ubstantial agreement on the principles that are 
relevant to determining whether a particular measure or charge is subject to the disciplines of 
Article II or to the disciplines of Article II I of the GATT (China, second written submission, 
paragraphs 4 and 100): 
(a) ( China ) What are exactly these principles?  Please explain how are they are found 
within the meaning of the applicable GATT provisions? 
Response of China 
 94. As China has explained throughout these proceedi ngs, a measure or charge is within the scope 
of Article II:1(b), first sentence, if it imposes an "ordinary customs duty" on the goods of another 
Member "on their importation" into the customs terri tory.  China does not understand any party in this 
proceeding (including any third party)  to have taken the position that the term "on their importation"  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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 Page A-195 
  
  is defined by the point in time or space at which a charge is collected.  That is, China does not 
understand any party to have  taken the position that a measure must  be imposed, and a charge must be 
collected, when goods physically cross the frontier in order for that measure or charge to fall within 
the scope of Article II:1(b), first sentence.  Under modern systems of customs administration, customs 
duties are not "tolls" that are collected as a prec ondition to the movement of goods off the dock.  On 
the contrary, the parties have  acknowledged that customs authorities impose customs-related 
measures, and collect ordinary customs duties, after the point in time and space at which goods have 
crossed the frontier. 
95. Consistent with Article 31(3)(b) of the Vienna  Convention, the term "on their importation" 
must be interpreted in the light of the cons istent and widespread practice among Members of 
imposing customs-related measures, and collecting customs duties, after goods have crossed the 
frontier.  As China documented in  paragraph 103 of its second written submission, the interpretations 
offered by the parties to this dispute (again, including the third parties) all point to the reason  or event  
that triggered the imposition of the measure or char ge as the determinative c onsideration in evaluating 
whether the measure or charge is within the scope of Article II:1(b).
13  Canada states, for example, 
that "[i]n assessing the characterization of a charge, one must consider why, as well as how or when, 
the charge is assessed."14  At the meeting of the Panel with the third parties, Brazil referred to this as 
the "event or events that trigger the application of the measures at issue."15 
96. Consistent with these explanations, and consis tent with the practice of WTO Members, a 
measure or charge is imposed on goo ds "on their importation" into a Member's customs territory if the 
measure or charge is triggered by, or arises by r eason of, the importation of goods into the Member's 
customs territory.  A Member may impose a customs -related measure or collect an ordinary customs 
duty after goods physically cross the frontier, prov ided that the measure or charge relates to a 
condition or liability that arose by reason of the entry of the goods into the Member's customs 
territory.   
97. For the reasons that China has explained, Chin a considers that if a measure or charge is 
determined to fall within the scope of Article II:1( b), the same measure or charge cannot be evaluated 
under Article III of the GATT.  The complainants' respective positions on the binary character of 
Article II and Article III are not entirely clear.  Canada, at a minimum, appears to accept that a measure or charge that is validly within the sc ope of Article II cannot be analyzed under Article III.
16  
Thus, there appears to be less scope of agreemen t among the parties concerning the factors that are 
relevant in determining whether a measure or charge  is subject to the disciplines of Article III.   
Comments by the European Communities on China's response to question 179(a) 
98. China's reply to question 179 (a) of the Panel is  illustrative of the tactics it has chosen for 
these Panel proceedings. First China tries to find agreement between the Parties that "on importation" 
is not "defined by the point in time or space at which a charge is collected " (emphasis added).  Then 
China 'innocently' paraphrases this alleged 'agreeme nt' to meaning that "China does not understand 
any party to have taken the position that a measure must be imposed, and a charge must be collected , 
when goods physically cross the frontier …. " (emphasi s added). "Collecting" has all of a sudden been 
extended to "imposition and collecting".  A couple of sentences later these 'pri nciples' are extended to 
                                                      
13 China rebuttal submission at para. 103.   
14 Canada answers at p. 19 (emphasis added).   
15 Written responses by Brazil to the Panel's questions to the third parties at p. 6.   
16 See China rebuttal submission at para. 123.   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-196 
  
  "customs related measures" and th e "reason or event that triggered the imposition of the measures or 
charge". 
99. China paraphrases alleged "agreements" in order to widen such "agreements" almost ad 
eternum  to fit its own arguments.  The European Co mmunities has set out a detailed analysis of the 
factors relevant in the analysis of the respectiv e scope of application of Articles II and III of the 
GATT 1994 in paragraphs 35 to 49 of its second written submission. 
Comments by the United States on China's response to question 179(a) 
100. In the first paragraph of its response, China atte mpts to conflate two distinct concepts, when a 
charge is "imposed" and when it is "collected."  The United States has previously provided comments 
on these different concepts in its responses to Panel question Nos. 32, 87, and 180.  Similarly, the 
United States has addressed China's assertions rega rding the relevance of the "reason" for the 
imposition of a change in its response to this qu estion and to Panel question Nos. 181 and 183.   
101. Finally, China seems to use the following method to determine whether a charge falls within 
the scope of Article II or Article III:  completely  disregard Article III, see if the measure could 
arguably fit within the definition of a customs duty, and then conclude that Article II applies to the 
exclusion of Article III.  That does not follow the type of approach or reasoning employed by 
previous panels examining this or similar issues.  See e.g. Belgium – Family Allowances , BISD 1S/59, 
EEC –Parts and Components , BISD 37S/132, paragraphs 5.4-5.8, India – Autos , WT/DS146, 175/R, 
paragraphs 7.217 et. seq., and  EC – Asbestos , WT/DS135/R, paragraphs 8.83-8.100.  Rather, each 
charge must be examined based on its particular fa cts and circumstances, taking into account the text 
of both Article II and Article III, in context, and in light of the object and purpose of the WTO Agreement.   
(b) ( Complainants ) Do you agree with China?  Please comment? 
Response of the European Communities (WT/DS339) 
 102. The European Communities does not agree with China. The European Communities 
considers that the Chinese measures fall within the scope of the TRIMs Agreement  and Article III of 
the GATT 1994 and therefore it cannot agree with the various unclear formulations China has offered 
in support of its claim that the measures should be  examined exclusively under Article II of the GATT 
1994. The clear substantive criteria for this conclusi on have been set out in the submissions of the 
European Communities, most recently in paragra phs 17 to 20 of its second oral statement and 
paragraphs 35 to 56 of its rebuttal submission. 
Response of the United States (WT/DS340) 
 
103. In paragraph 4 of its rebuttal submission, China asserts that "the parties now appear to agree 
on certain basic principles concerning the characterization of a charge in relation to the rights and 
obligations of a Member under Article II and Artic le II of the GATT 1994" and that "the issue is 
whether the charge is one that a Member is allo wed to impose by reason of the importation of the 
product, or, alternatively whether the charge relate s to the status of a product after it has been 
imported."   
104. The United States does not agree that the parties have reached agreement on these 
"principles".  First, customs duties must be based  on the condition of the article as imported, while 
China's measures impose charges based on whether th e article is used in domestic production and on  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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 Page A-197 
  
  the domestic content of the complete vehicle produced within China.  Second, the issue is not whether 
the charge is one that a Member is allowed  to impose, as Article II and Article III do not grant 
permission but rather provide restrictions on Members' measures.  The fact that a measure is or is not 
consistent with one obligation does not necessarily de termine whether the measure is consistent with a 
different obligation.  A determination of whether a particular measure or charge is subject to the 
disciplines of Article II or Article III requires an analys is of the language of those Articles, an analysis 
China largely avoids.   
Response of Canada (WT/DS342) 
 
105. Canada does not agree that there is substantial agreement with China on the principles 
relevant to determining whether GATT Article II a pplies, and in particular under what circumstances 
ordinary customs duties may be charged under Article II:1(b), first sentence.  Canada's position is that 
ordinary customs duties must be assessed based upon the state of the goods as presented at the border, 
which China's measures do not do.  The legal founda tion for this argument is set out in detail in 
Section II.B of Canada's second written submission. 
180. ( Complainants )  China claims that the parties agree that the time and place at which a 
charge is collected  is not the determinative consideration in evaluating whether that charge is 
subject to the disciplines of Article II or Article III (China, second written submission, paragraph 4).  Do you agree, given the compla inants' respective responses to question No. 87 see 
to indicate that Canada disagrees with the European Communities' and the United States' 
position on this point?  Would you have a different position on the relevance of the time and place if it would to refer instead to the calculation  and assessment  of the charge? 
Response of the European Communities (WT/DS339) 
 
106. The European Communities does not see any substantive difference in the positions of the 
complainants on this issue. The European Communities is of the view  that the precise time and place 
of the actual collection of a charge is not determin ative in characterising the charge or the measure 
that imposes the charge. In other words, the actual collection or payment of an ordinary customs duty 
may occur after importation but the determination of  the amount due must be made on importation i.e. 
on the basis of the objective characteristics of th e product when presented for classification at the 
border (see Appellate Body report in EC – Chicken Cuts , paragraph 246). The European Communities 
prefers the word determination instead of the word s "calculation and assessment" of the charge used 
in the question from the Panel although these notions could be considered in this context to be 
synonymous.  
Response of the United States (WT/DS340) 
 107. The United States does not believe that there is a disagreement between the complainants on 
this point.  The United States does not maintain that the time and place at which a charge is collected 
is the determinative consideration in evaluating whether th e charge is an internal charge or a customs 
duty.  The United States does maintain, however, that this issue may be relevant to the 
characterization of the charge.  The United States co nsiders that the time and place of assessment or 
calculation of the charge would also be relevant in evaluating whether the charge is an internal or a 
customs duty. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-198 
  
  Response of Canada (WT/DS342) 
 
108. Canada does not consider that there is any disagreement between the complainants on this 
point.  As set out in more detail in answer to Qu estion 87, and Section II.B of Canada's second written 
submission, ordinary customs duties must be impos ed based upon the state of the product as it arrives 
at the border.  The actual payment need not take place at the border, nor even must the amount owing 
be determined at that point (which could be char acterized as the "calculation" or "assessment" of the 
charge), provided that the duty is levied  in respect of the good as presented.   
109. Canada does not agree with China's character ization of the issue, in its second written 
submission at paragraph 4, as being "whether the char ge is one that a Member is allowed to impose by 
reason of the importation of the product". Article II:1( b), first sentence, only allows the imposition of 
ordinary customs duties to products "on their importa tion", not "by reason of the importation".  This is 
discussed in detail in Canada's second written submission, in Section II.B. 
181. ( Complainants )  China submits that it does not perceive any substantial disagreement on 
the understanding that the term "on their importation" under Article II of the GATT means that the characterization of a given charge under that provision will depend upon the reason or 
event  that triggers its imposition.  (China's second written submission, paragraph 103).  Do you 
agree?  Please explain. 
Response of the European Communities (WT/DS339) 
 110. There is a fundamental disagreement between  China and the European Communities on the 
interpretation of the notion "on importation" unde r Article II of the GATT 1994. China attempts to 
link the contested measures with Article II in various artificial ways.  
111. It is self-evident that the "reason or event"  under Article II of the GATT that triggers the 
imposition of an ordinary customs duty is the impor tation of the good into the customs territory of a 
Member. However, the reason or event that trigge rs the imposition of the charges under the measures 
is not the importation of the good into the custom s territory of China but the assembly, fitting, 
equipping and manufacture of the imported parts into a complete vehicle after importation in 
combination with an insufficient proportion (in valu e or amount) of domestic parts. Article II does not 
allow that ordinary customs duties may be imposed as long as they somehow "depend upon" 
importation.  
112. China uses several very different notions in its  attempt to define "on importation" and "the 
reason or event that triggers its imposition" is only one of many
17. In particular China attempts to 
extend the material scope of "on importation" sugges ting that "a charge is 'on … importation' of a 
product (…) if the charge bears an objective relationship to the administration and enforcement of a 
valid customs liability ".18 The European Communities reiterates that Article II:1(b), first sentence 
does not contain any language that would allow the unprecedented extension of its scope in the way 
China suggests.19 This criterion proposed by China is overly broad, lacks precision and is, therefore, 
not suitable to distinguish internal charges and ordinary customs duties imposed "on importation". 
113. As set out by the European Communities in  its second written submission the term "on 
importation" has a temporal and a material aspect (see paragraphs 39 to 49). China overstretches the 
                                                      
17 See second written submission of the European Communities, paras, 37 to 49. 
18 See first written submission of China, para. 67 (emphasis added). 
19 See the response by the European Communities to Question 90 from the Panel.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-199 
  
  temporal side of "on importation" by referring to  a "process of importation", which is not complete 
before "all of the customs formalities required in co nnection with the importation of those goods have 
been satisfied, and the goods are no longer subject to customs control".
20 Not surprisingly, China 
maintains that the entire administrative procedure under Decree 125 and Announcement 4 is part of a 
customs procedure which is not finished before  charges are imposed pursuant to Article 28 of 
Decree 125.21 China's position entirely ignores the panel report in EEC – Parts and Components , 
which rejected the question of goods being in free ci rculation as a relevant criterion in determining 
whether a measure falls under Article II of the GATT. 
114. Furthermore, these procedures can take months and even years to be completed and require 
collecting and submitting information that has nothi ng to do with what is necessary for the purposes 
of classifying goods under the Chinese schedule and clearing the goods through customs (such as the 
annual production plan for the vehicle model or the list of domestic and foreign suppliers under 
Article 9 of Decree 125). Exhibit EC – 26 demonstr ates that many applications made in 2005 and 
2006 and most if not all applications made in 2007 under the procedures of the measures (see 
Chapter 2 of Announcement 4 for details) are still  pending before the Chinese authorities. Such 
extremely lengthy and cumbersome procedures have nothing to do with normal customs procedures as 
applied in the rest of the world including in the EC, US and Canada.  
Response of the United States (WT/DS340) 
 
115. The United States does not agree that the term " on their importation into the territory to which 
the Schedule relates" means that the characteriz ation of a charge under Article II depends on the 
alleged reason or event that purpor tedly triggers the charge.  The "reason" that a customs duty is 
assessed may be "because an item is imported".  But an internal tax (for purposes of Article III:2) may 
likewise be imposed "because an item is imported".  Thus that factor is not determinative.   
116. Article II:1(b) provides that, on the importation of a product into the territory of a Member, 
the Member may not impose ordinary customs duties in  excess of those set forth and provided in its 
Schedule.  The imposition of ordinary customs duties thus occurs at the time of importation of goods 
into the territory to which a Member's Schedule relates.   
117. As the United States has emphasized, China imposes a 25% charge on imported auto parts 
only if  (1) the part is actually used in the manufacture of a vehicle and (2) the amount of imported 
content in that vehicle exceeds the thresholds set out in China's measures.  A charge which is assessed 
based on the level of local content contained in an internally manufactured product can not be 
considered to be a charge on "importation."   
Response of Canada (WT/DS342) 
 118. Canada does not agree. This is an attempt to in fer, without any justification in the text of 
Article II, that the application of a border charge is somehow related to the ultimate justification for 
importation, independent of the proper classifica tion of the good as presented at the border. The 
reason or event that triggers a charge is the physical act of importation. 
                                                     
 
20 See the response by China to Question 87 from the Panel. 
21 See the response by China to Question 135 from th e Panel ("China has explained that Decree 125 is a 
customs procedure to ensure the correct tariff classification of multiple shipments of parts and components that 
are related to each other thr ough their common assembly into a particular vehicle model."). WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-200 
  
  119. China attempts, incorrectly, to read the phr ase "impose as a condition of" into "on or in 
connection with", found in the second, legally distin ct sentence of GATT Article II:1(b). China then 
argues that its interpretation is linked to the term " on their importation" found in the first sentence. As 
noted in paragraph 27 of Canada's second oral stat ement, there is a clear and important distinction 
between these terms.
 Under Article II:1(b), first sentence, the reason or event does not change. Canada 
has made clear in Section II.B of its second written s ubmission that the "reason or event" is always the 
same under Article II:1(b), first sentence, as or dinary customs duties may only be imposed on 
products based upon their physical state when arriving  at the border. Liability for a duty can only flow 
from that single event.  
120. There is no basis in Article II, or in the pr actice of WTO Members, for a suggestion that 
ordinary customs duties may be imposed generally  as long as they somehow "depend upon" the fact 
of importation. As the panel in EEC –Parts and Components  held, neither the policy purpose nor the 
domestic description or characterization of a charge is relevant to the assessment of whether the 
charge is internal.22 That is directly applicable to this case, where the dependence of the internal 
charges upon importation is only linked to the fact that the parts were at one time imported. 
182. ( China )  Canada claims that China concedes that if the imported content in a 
manufactured vehicle changes after  importation, imported parts may be found to be a Deemed 
Imported Vehicle when the vehicle model was not self-assessed as such (resulting in higher 
charge).  Canada then concludes that "sel f-assessment is therefore nothing more than a 
mechanism for the administration of an internal charge, whether or not at the border." 
(Canada, second written submission, paragra ph 36).  Do you agree? Please explain. 
Response of China 
 
121. Canada's statement is incorrect.  As explained in response to questions 167 and 168 above, the 
classification of auto parts and components is based  on the results of the verification report and the 
declaration that the manufacturer provides to custom s authorities when the auto parts enter China.   
122. If the classification of a previously registered vehicle model changes between the entry of the 
parts into China and the time at which the custom s duties are due, China allows the manufacturer to 
pay duty on any such parts on the basis of the revised classification of the vehicle model.  This is an 
accommodation to the manufacturer, in that it recognizes the right of the manufacturer to submit a 
revised evaluation of the vehicle model and to obtai n a verification of that revised evaluation.  In 
practice, this accommodation would ap ply, if at all, to a limited number of import entries.  Because 
customs duties are due on a monthly basis (as specifi ed in Article 31 of Decree 125), there will be a 
limited number of auto parts and components for whic h the manufacturer has not yet paid duty at the 
time that the Verification Center issues a report c oncluding that the vehicle model no longer has the 
essential character of an imported motor vehicle.  It is only in respect of parts and components that 
fall within this narrow window that the manufactur er is allowed to pay the lower rates of duty 
applicable to parts.   
Comments by the European Communiti es on China's response to question 182 
123. As the charges are "due" because of assembly and manufacture of parts into a complete 
vehicle in combination with an insufficient numbe r or proportion of local parts the charges are 
manifestly internal (Article 28 of Decree 125).  The fact that China facilitates the payment or 
collection of the charges by applying the results of  the verification procedures under the measures in a 
                                                      
22 EEC – Parts and Components , GATT Panel Report, at p. 50.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-201 
  
  standardised way after the first batch of vehicles has been manufactured is irrelevant under the legal 
assessment of the measures.  
124. Furthermore, China's assertion in its reply that "the classification of auto parts and 
components is based on the results of the verificati on report and the declaration that the manufacturer 
provides to customs authorities when the auto parts enter China" is counterfactual on the face of the 
measures (see above comments on China's reply to qu estion 168).  In addition, China's explanation 
that, in most cases, the 25% duty on complete ve hicles will have anyway been paid before the 
verification report concludes that parts are no l onger characterised as complete vehicles can only 
mean that the measures impose a 25% charge (a llegedly to enforce the 25% Customs duty on 
complete vehicles) on imported auto parts, whic h even by China's standards, do not qualify as 
complete vehicles. 
Comments by the United States on China's response to question 182 
125. The United States again emphasizes that if the level of imported content in a manufactured 
vehicle changes after some or all of the parts used  in that vehicle have been imported, the imported 
parts may be found to be a Deemed Imported Vehi cle – even if the vehicle model was not self-
assessed as such.  This occurs through the operation of Article 20 of Decree 125
23 and the last 
paragraph of Article 6 of Order No. 4.24       
126. The structure of the measures establishes that fi nal categorization of an imported part occurs 
after assembly, rather than at the border.  If the pa rts were categorized at the border, there would be 
no reason to impose a payment bond on all parts, a nd delay payment of the charge.  The whole 
structure of the measures is centered around the actual assembly of the vehicle.   
127. Finally, China's response indicates that a ch ange may occur as an "accommodation to the 
manufacturer," as if the delayed determination is a benefit to the importer.  The change actually may 
also result in the manufacturer being re quired to pay the additional charges.  See Article 6 of Order 
No. 4.   
183. ( Complainants )  For China the nature of a charge depends on whether it is one that a 
Member is allowed to impose (a) by reason of th e importation of the product, or, alternatively, 
(b) whether the charge relates to the status of  a product after it has been imported. (China, 
second written submission, paragraphs 4 and 112).  Do you agree? Please explain.  
Response of the European Communities (WT/DS339) 
 128. It would seem to the European Communities th at the distinction made by China between 
'whether the charge is one that a Member is allo wed to impose (a) by reason of the importation of the 
product, or, alternatively, (b) whether the charge re lates to the status of a product after it has been 
imported' is nothing but a reformulation of th e words "on importation" and "internal" without 
providing any additional substantive arguments. 
                                                     
 
23 "If during the course of production,  there is a change to the Deemed Whole Vehicle status of an item, 
the automobile manufacturer may apply to Customs for re-verification of the basic-model vehicle.  Customs, pursuant to the new verification report issued by the Center, will determine the duty-paid price for calculating 
duties." 
24 "If the percentage make-up of imported parts changes, such that the imported parts used in the 
vehicle model become Deemed Whole Vehicles, or are no  longer a Deemed whole Vehicle, the changed vehicle 
model should be registered as a new vehicle model."   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-202 
  
  129. Members are naturally allowed to impose ordi nary customs duties in  accordance with their 
schedules "on importation" in accordance with Article II:1 (b), first sentence. In contrast, Members are not allowed to impose ordinary customs duties after importation or even in connection with 
importation. As set out in paragraphs 39 to 49 of  the European Communities' rebuttal submission, "on 
importation" has a temporal and a material aspect. With the words "by reason of the importation of the product" China appears to entirely ignore the tempor al aspect of the notion wh ile at the same time 
blurring its material aspect. 
130. It is not very clear what China attempts to ach ieve with its reference to "whether the charge 
relates to the status of a product after it has been imported". In particular, the words "the status of a 
product" are most unclear. In any event, the Europ ean Communities considers that it has demonstrated 
that the charges are imposed after the products have  been imported thus making the charges internal. 
Response of the United States (WT/DS340) 
 
131. As stated in the response to question No. 181, the United States does not agree that a charge 
imposed "by reason of the importation of a product" is necessarily an ordinary customs duty.  Any 
internal charge imposed on an imported product b ecause it is an imported product may be considered 
imposed "by reason of the importation of the product."  Thus that criterion does not provide a useful distinction between an internal charge and a customs duty.   
132. It is also not clear what China means by stating "whether the charge relates to the status of a 
product after it has been imported."  A product c ould have any of a number of differing "statuses" 
after being imported depending on the measures at issu e (for example, whether it is an input for VAT 
purposes, a luxury good for a luxury tax, or is treated differently because it was imported).  
Response of Canada (WT/DS342) 
 133. Canada does not agree. See respon ses to Questions 180 and 181, above. 
184. (United States)  In its response to question No. 106 the United States, unlike the other two 
co-complainants,  takes the position that although charges levied under Article 2(2) of Decree 125 would be in principle "ordinary customs duti es," the Panel should nevertheless address the 
claims under Articles III:4, III:5 of the GATT a nd the TRIMS Agreement in regard to such 
charges.  Please, explain the legal basis for you r position given that under Article 2(2) of 
Decree 125 no other provision of the measures apply to such importations. 
Response of the United States (WT/DS340) 
 
134. Under the second paragraph of Article 2 of Decr ee 125, if the importer so elects, Decree 125 
does not otherwise apply to CKDs and SKDs impor ted by auto manufacturers, and the manufacturer 
conducts clearance procedures and pay 25 per cent duties at their local Customs office.  The original 
US response to Panel question No. 106 misinterpreted that question; the United States in fact agrees 
with Canada and the European Communities that in  the scenario where the importer uses Article 2 of 
Decree 125 for CKDs and SKDs, issues under Articles III:4 and III:5 of the GATT and Article 2 of the TRIMs Agreement are not involved.   
 (European Communities and Canada)   Please, confirm that the European Communities 
and Canada do not take the same position as th e United States on the need to address the claims 
under Articles III:4, III:5 of the GATT and the TRIMS Agreement in regard to charges under  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-203 
  
  Article 2(2) of Decree 125.  If confirmed, please explain in detail why you do not take such a 
position. 
Response of the European Communities (WT/DS339) 
 135. Provided the normal customs procedures are a pplied under Article 2(2) of Decree 125, the 
European Communities considers that it would be su fficient for the Panel to decide whether it is in 
accordance with Article II of the GATT 1994 to appl y the duty on complete vehicles to such kits 
generally and in all cases. As the European Commun ities has demonstrated in its various submissions 
(most recently see paragraphs 130 to 132 of the second written submission), such standard treatment 
is inconsistent with Ar ticle II of the GATT 1994. 
Response of Canada (WT/DS342) 
 
136. Canada does not consider that there is an y fundamental disagreement between the co-
complainants. As Canada noted in response to Ques tion 33, CKDs or SKDs that contain virtually all 
the parts for a vehicle in a single shipment can appropr iately be classified as whole vehicles at the six-
digit level. However, the fundamental point, as set out in detail in Sections  II.E and F of Canada's 
second written submission, is that the appropriate duty  rate for such vehicles is 10% irrespective of 
classification. This is characterized properly as a question of the proper application of China's 
Schedule, Article II:1(b) first sentence, and paragr aph 93 of the Working Party Report. Of course, the 
fact that an ordinary customs duty is not subject to scrutiny under Article III:2 does not mean that 
such charges are exempt from scrutiny under GATT Article III:4 or Article 2 of the TRIMs 
Agreement . See, for example, Canada – Autos
25 and Indonesia – Autos .26  
137. However, where Article 2(2) of Decree 125 is  applied to exempt imported parts from the 
administrative burdens of the measures, and wher e ordinary customs duties are charged based upon 
the state of those imported parts as they arrive together in China (i.e ., if it properly applies to the 
narrow definition of CKD or SKD), then it is not necessary to examine this very specific (and very limited) instance of the application of the measures under Articles III:4 and III:5, and the TRIMs 
Agreement .  
185. China submits that there is a "conceptu al difference" between charges under Article 29 
of Decree 125 and other charges under the measu res.  More specifically, China refers to various 
aspects related to the former that differentiates it from the latter, inter alia :  importation by 
supplier not manufacturer, payment of applicable  charge by supplier and difference paid later 
by manufacturer (deduction from applicable char ge);  such supplier would have completed the 
"necessary customs formalities;"  such imported auto parts wo uld no longer be subject to 
"customs control";  "rules for bonded goods" would not apply in these circumstances;  and 
such imported auto parts would theref ore be in "free circulation in China. 
(a) (China ) Does the "duty bond" placed in acco rdance with Article 12 of Decree 125 by a 
manufacturer assembling auto parts that have  been imported by the manufacturer itself 
guarantee the payment of the customs duties for th e importation of parts imported by suppliers 
that are ultimately included in a vehicle model that is a "deemed whole vehicle"?  Please explain.   
                                                     
 
25 Canada – Autos , Panel Report, at paras. 10.73, 10.90. 
26 Indonesia – Autos , Panel Report, at paras. 14.65, 14.91. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-204 
  
  Response of China 
 
138. The duty bond only covers parts imported by the auto manufacturer itself.  Parts imported by 
third-party suppliers go through the regular normal customs process and pay the import duty to the 
customs. 
Comments by the European Communities on China's response to question 185(a) 
139. China's reply acknowledges that the procedures under the measures are not part of "the 
regular normal customs process".  
(b) (China)  In the above example, if the "duty bond" also covers the supplier importation of 
auto parts, how can this be reconciled  with China's statement that "suppliers would have 
completed the necessary customs fo rmalities" and that these parts will be in "free circulation"?  
Please explain. 
Response of China 
 140. See the answer to 185(a) above. 
Comments by the European Communities on China's response to question 185(b) 
141. See comment on China's reply to question 185 (a). 
(c) (China) Please further elaborate your statement that the application of Article 29 of 
Decree 129 is "conceptually different" and that it  presents a "different set of issues in relation 
to the characterization of the measure under Article II."  What is then the key factor that sill 
makes these charges fall under Article II of the GATT despite such "conceptual differences" 
and a "different set of issues"?   
Response of China 
 
142. As discussed in paragraph 186 of China's s econd written submission, China considers that 
charges collected pursuant to Article 29 could be c onsidered ordinary customs duties under Article II, 
in that they relate to the proper classification of a specific collection of imported parts and components that, in their entirety, have the essential character of a motor vehicle.  
Comments by the European Communities on China's response to question 185(c) 
143. China does not answer the question and simply re peats the "mantra" it has chosen to use in 
these proceedings. 
(d) (China) In its response to question No. 83, Ch ina said that "in most cases" under 
Article 29 of Decree 125 suppliers would have completed customs procedures and goods would therefore be in free circulation.  What a re the cases in which suppliers would not have 
completed the customs procedures? 
Response of China 
 
144. The issue is largely one of timing.  If a s upplier were to import parts and components and 
send them directly to the auto manufacturer (as might be the case under modern systems of supply  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-205 
  
  chain management), it is possible that the supplier would not yet have paid the applicable customs 
duties under normal customs procedures.  This is be cause the importer is not always required to pay 
the applicable customs duties at the time the goods cro ss the frontier.  When the parts are sent directly 
to the auto manufacturer, the importer is still responsib le for the payment of the applicable auto parts 
duties.   
Comments by the European Communities on China's response to question 185(d) 
145. China's reply must presumably be understood as m eaning that the reference to "in most cases" 
in its reply to question 25 is irrelevant. In any case, China's reply clearly establis hes that auto parts are 
first subject to a charge of 10% which corresponds to the customs duty on parts paid by the importer
27 
(i.e. the supplier in the case envisaged by Article  29 of Decree 125), and after an additional 15% 
charge due by the auto manufacturer because of the assembly and manufacture of the imported part into a complete vehicle with  insufficient local content, i.e. an internal charge. The measures function 
on the same basis for auto parts imported directly  by the auto manufacturers. The fact that the 
Customs duty and the 15% internal measure are due by the same person, and can thus be hidden under 
a global 25% charge cannot affect the legal ass essment under Articles II and III of the GATT 1994. 
(e) (Complainants)  Do you agree with China that despite these differences, Article 29 still 
involves "border charges" under Article II of the GATT?  Please explain. 
 
Response of the European Communities (WT/DS339) 
 146. The European Communities is of the view that  with the exception of Article 2(2) of 
Decree 125, the measures are subject to Article 2 of the TRIMs Agreement and Article III, paragraphs 2, 4 and 5 of the GATT 1994. All the st atements made by China in this connection, only 
short of openly admitting a violation of the TR IMs Agreement and Article III of the GATT 1994, 
demonstrate that it does not attempt to defend Ar ticle 29 of Decree 125 even under Article II of the 
GATT 1994. Therefore the European Communities do es not agree with China that Article 29 of 
Decree 125 involves "border charges" and doubts whet her China itself is genuinely maintaining such 
a position. 
Response of the United States (WT/DS340) 
 
147. The United States maintains that all charges im posed by Decree 125 are internal charges in 
breach of Article III:2 of the GATT.  There are no "separate" charges imposed by Article 29 of Decree 125.  Under Decree 125, if the number or value of imported parts in a specific vehicle exceed the designated thresholds, all imported parts in that  vehicle will be assessed a 25% 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 assembl ed into the vehicle.  Accordingly there is no 
"separate charge," only a permissible deduction upon provision of sufficient ev idence.  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.   Parts imported by suppliers and sold on the 
domestic market to auto manufacturers are an inte gral part of Decree 125 – the only distinction 
between those parts and parts importe d by the manufacturer itself is the possible  deduction of customs 
duty paid by the parts supplier.   
                                                     
 
27 See last sentence of China's reply: "When the part s are sent directly to th e auto manufacturer, the 
importer is still responsible for the payment of the applicable auto parts duties;" WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-206 
  
  Response of Canada (WT/DS342) 
 
148. No, Canada does not agree that Article 29 of Decree 125 could involve "border charges". 
Further, all charges that have been imposed unde r the measures are internal  charges (other than 
charges on CKDs/SKDs, as discussed in respons e to Question 184). As Canada sets out in 
paragraph 4 of its second written submission, the e ffect of China's admission in response to Question 
83 must be that charges under Article 29 ar e internal, and subject to Article III.  
Comments by the United States on China's response to question 185(c) 
149. China's response to part (c) of the question s hows the extremes to which it is distorting the 
concept of an "ordinary customs duty".  It argues th at its charge under Article 29 – which is imposed 
(1) on a manufacturer that did not import the goods; and (2) after all customs formalities have been completed and all customs duties have been paid – could nevertheless be considered ordinary customs 
duties under Article II.  This flies in the face of logic and the plain text of the GATT 1994, and serves 
to highlight the untenable nature of China's asserti ons regarding the proper interpretation of "ordinary 
customs duties" under Article II. 
186. (Complainants)  Is the "status" or "presentation" of the good at the border the most 
important element in characterizing a measure as a border or internal measure?  Please, 
explain, indicating the legal basis of your respon se, including linking, if possible, the term "as 
presented" with the language of Article II:1(b), first sentence, of the GATT. 
Response of the European Communities (WT/DS339) 
 
150. It is not possible to say whether the "status" or "presentation" of the good at the border is 
generally the most important element in characterizing a measure as a border or internal measure as the importance of a given criterion may depend on the context of each case and the Measure that is 
under examination. However, a Measure that does not determine the good according to its objective 
characteristics as presented for classification at the bor der but rather allows the determination of the 
good to be made much later in time after manufac ture of that good into a different product falls 
outside the scope of Article II:1 (b) first sentence of the GATT 1994. 
Response of the United States (WT/DS340) 
 
151. Article II:1(b) provides that products "shall, on their importation into the territory to which 
the Schedule relates. . . be exempt from ordinary  customs duties in excess of those set forth and 
provided therein."  The Article's use of "on their im portation 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 between the charge and the condition of the goods at the border, at the 
time of importation, must be present in order for the charge to be an ordinary customs duty covered by 
Article II:1(b).   
152. The United States further notes that the findings of the Appellate Body in EC – Chicken Cuts  
support the necessary connection between the c ondition of the good as imported and the customs 
duty.  In a dispute involving ordinary custom s duties under Article II:1(b), the Appellate Body 
explained that "in characterizing a product for purp oses 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." ( EC – Chicken Cuts , paragraph 246).    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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 Page A-207 
  
  153. Also important in characterizing the measure is  an examination of the language used in 
Article III:2.  Article III:2 involves a relationship between products which have  been "imported 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 article at the time of importation, an 
internal charge under Article III:2 ma y be associated with the article as it exists after it is imported 
into the Member's territory.   
154. Key factors that support the finding of China's charges to be internal charges include:  
− the level of the charge depends on details of manufacturing operati ons that take place 
within China, after  importation; 
− the level of the charge cannot be dete rmined until this manufacturing process is 
complete;  
− ·the charge is imposed on manufacturers, not importers;   
− ·the level of the charge is not determined based on the individual importer's shipment or 
operations but instead may depend on what other parts from other countries and other 
importers are used by the manufacturer;   
− ·identical imported parts included in the same shipment can be subject to different 
charges depending on their internal use; and   
− ·the charge is imposed based on the level of  local content in the assembled vehicle.   
 In short, the operation of the measures revolv es around what occurs within China rather than 
at the border.   
Response of Canada (WT/DS342) 
 
155. Canada considers that the issue in interpreti ng GATT Article II:1(b), first sentence, is not 
what elements are necessary in characterizing a measure as a border measure, but on what basis 
ordinary customs duties may be charged. In that regard, as Canada set out in Section II.B of its 
Second written submission (including making reference to the term " as presented" in paragraph 23), 
ordinary customs duties under Article II:1(b), first sentence, can only be levied based upon the rates 
set out in a Member's Schedule. These rates are based upon the proper classification of an imported product in its state as it arrives at the border.  
156. This is consistent with the difference in language between th e first and second sentence of 
Article II:1(b), namely "on their importation" compar ed with "on or in connection with importation". 
China has attempted to make "as presented" the key in terpretative issue, when, at most, it is an aid to 
inform an interpretation of Article II:1(b), first sen tence. Canada notes that the language in Article II 
existed before the GIRs came into effect, and it is the former which is at issue in this dispute in 
respect of Article II. Despite China's assertion that  the complainants offer no interpretation of "as 
presented", Canada has shown that the practice of WTO Members is to classify goods based on their WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-208 
  
  state in a single shipment as presented at the border.
28 Canada has also explained that GIR 2(a) is 
simply a classification rule and was never designed as a rule to prevent circumvention.  
157. As Canada set out in its sec ond written submission in Section II.B.2, other charges under 
Article II may be applied during a longer (but al so limited) period of importation, although such 
charges are not at issue in this dispute. Indicia of when the process of importation ends (and thus when such charges may no longer be imposed) are pr ovided by Canada in para graph 31 of its Second 
written submission.   
(China ) Does China agree?  Please respond in detail,  in particular in light of China's 
statement in its second written submission, paragraphs 107-110, where China seems that 
it does not reject the relevance of the "status"  of the good at the border as an important 
element in characterizing a measure. 
Response of China 
 158. China perceives two closely-related respects in which the notion of the "status" or 
"presentation" of goods at the border is potentially relevant to the present dispute.  In China's view, 
the term "as presented" is principally relevant to  the present dispute in so far as it relates to the 
application of GIR 2(a) to multiple shipments of pa rts and components that are related to each other 
through their common assembly into a finished motor vehicle.  This is a classification  issue within the 
Harmonized System, and relates to whether the ch allenged measures result in a proper classification 
of auto parts and components that have the essential  character of a motor vehicle.  Seen in this 
context, the term "as presented" relates to the inte rpretation and application of China's tariff schedule. 
159. The complainants appear to have used the term "as presented" in a somewhat broader context, 
to refer more generally to whether a particular measure or charge is imposed on goods "on their 
importation" into a Member's customs territory within the meaning of Article II:1(b).  Canada, for 
example, states that "[f]or a charge, what is signi ficant is whether the charge relates to the product as 
presented  at a Member's border.  Any border charge, wh ether collected at the border or at some later 
time, may only relate to the product at that point in time."
29  The EC makes the same point.30  Thus, 
the complainants appear to be using the term "as pr esented" to interpret the scope of Article II:1(b). 
160. China does not perceive a significant substantiv e difference between these two applications of 
the term "as presented."  In both instances, the interpretiv e inquiry leads to same question:  What are 
the factors that are relevant in determining the ma nner in which goods are "presented"?  That is, what 
factors can customs authorities properly take into account in evaluating the condition or status of 
goods at the border?  As China discussed in para graphs 107 to 110 of its second written submission, 
one of the factors that is relevant in determining the condition or status of goods at the border is the 
documentation that accompanies the entr y, including the customs declaration.  This is consistent with 
the WCO's statement to the panel in EC – Chicken Cuts  that, in applying the essential character test, 
"[r]eference can … be made to accompanying documents."   
161. China considers that much of the present dispute,  at this juncture, concerns the factors that 
customs authorities may properly take into account in evaluating the condition or status of goods at 
                                                      
28 See generally Canada's second written submission, pa ra. 23, in particular fn. 20. See also Canada's 
response to Question 32, para. 3, where the practices of  Australia, India, and New Zealand are discussed. See 
further US rule 19 C.F.R. § 141.1 (Exhibit CDA-37) , discussed in answer to Question 210, below. 
29 Canada Answers at p. 19 (emphasis added).   
30 See China Rebuttal Submission at para. 107.    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-209 
  
  the border.  Whether it is viewed as a classification issue under GIR 2(a), or whether it is viewed as a 
question of the scope of the term "on their importa tion," the question before the Panel is whether the 
complainants have established a specific interpretation of the term "as presented" with which the 
challenged measures are inconsistent.  As discussed  in response to question 228 below, China does 
not believe that the complainants have  established such an interpretation. 
162. More generally, the fact that the parties have u sed the term "as presented" to refer to both the 
classification issue under GIR 2(a) and the scope of Ar ticle II:1(b), first sentence, simply underscores 
the inseparability of the two issues.  As China has explained, if the challenged measures result in a 
correct classification of auto parts and component s that have the essential character of a motor 
vehicle, the measures collect a valid customs duty on auto parts and components "on their 
importation" into the customs territory of China.  If  the classification is correct, then it is a customs 
duty that China is allowed to impose in accordan ce with its Schedule of Concessions.  Such customs 
duties are within the scope of China's rights and obligations under Article II:1(b). 
Comments by the European Communiti es on China's response to question 186 
163. In its reply China ignores the clear jurisprudence of the Appellate Body according to which 
"in characterizing a product for purposes of tariff cl assification, it is necessary to look exclusively
 at 
the 'objective characteristics' of the product in question when presented for classification at the 
border" ( EC – Chicken Cuts , at paragraph 246, emphasis added).  The European Communities has 
repeatedly pointed to this clear standard set out  by the Appellate Body.  The European Communities 
refers inter alia to its second written submission, paragraphs  67 to 132 (in particular paragraph 73). 
Comments by the United States on China's response to question 186 
164. China's response essentially repeats arguments it ha s made elsewhere.  The United States will 
merely comment here on China's assertion that th e complainants have the burden of establishing a 
specific interpretation of the term "as presented."  Even assuming that the char ges at issue are customs 
duties, and the United States maintains that they are no t, GIR 2(a) is not an element of the prima facie 
case of the breach of China's tariff commitment on auto  parts.  Rather, it is China that has introduced 
this language from outside the WTO Agreement in an attempt to argue that its WTO commitments 
allow for such tariff treatment.  
187. ( United States ) Why does the United States consider "as presented" in GIR 2(a) is 
irrelevant to decide whether the measure is a border or internal measure?  The United States 
submits in paragraphs 13 and 16 of its second written submission that GIR 2(a) "is not  relevant 
to the consideration of China's obligations under GATT Article III, or to the question of 
whether China's additional charges on imported pa rts are to be considered either as 'ordinary 
customs duties' under Article II:1(b), or as internal charges under Article III:2?"   
Response of the United States (WT/DS340) 
 
165. The United States considers GIR 2(a) as irrele vant to deciding whether the measure imposes 
internal charges or customs duties.    That question turns on the app lication of the text of the GATT 
1994 (particularly the text of Articles II and III) to the facts and circumstances in this dispute.  And, to 
be clear, this question does not turn on the cont ent of China's schedule of tariff commitments.31  A 
                                                      
31 As the United States has explained, the United States does hold the view that the HS Convention and 
GIR 2 can be used as a supplementary means of interpre tation for China's schedule, since China's schedule is 
based on the HS nomenclature.   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-210 
  
  Member's tariff schedule establishes tariff bindings, it does not and cannot redefine the meaning of 
"ordinary customs duties" in Article II.   
166. As the United States has explained, it sees no b asis under customary rules of interpretation of 
public international law, as reflected in the Vienna Convention , for the HS Convention to serve as 
context for interpreting Articles II and II I of the GATT 1994.  Accordingly, and a fortiori , the United 
States sees no basis under customary rules of interpreta tion of public international law, as reflected in 
the Vienna Convention , for considering an interpretive rule adopted under the HS Convention as 
context for interpreting Articles II and III of the GATT 1994.  
167. Furthermore, GIR 2(a) deals with the proper classification of items under the HS 
nomenclature.  Tariff classification is only relevant  in the interpretation of China's schedule of tariff 
commitments.  If a charge is an internal charge, then tariff classification and China's tariff schedule is 
irrelevant.  China's assertions regarding the app licability of GIR 2(a) are entirely circular.  China 
starts with the presumption that the charges are ordinary customs duties under Article II of the GATT 
and then draws on GIR 2(a) for support of its position.  There is no basis for this presumption.  
(Canada)  Do you agree with the United States? Please explain the legal basis for your 
position, in particular in light of Canada's argument in paragraph 23 of its second written submission, which seems to contradi ct the Unites States', and Canada's second 
oral statement (paragraph 13), which seems to be in agreement with the United States' above mentioned statement. 
Response of Canada (WT/DS342) 
 
168. Canada agrees with the United States that GIR 2(a) is not relevant to consideration of 
Article III, including whether the measures impose in ternal charges under Article III:2. Paragraph 23 
of Canada's second written submissi on and paragraph 13 of  Canada's second oral statement are not 
inconsistent with one another. Both point to the same conclusion that GIR 2(a) is only relevant for 
classification purposes under Article II, but does not speak to the appropriate customs duties to be 
applied under that Article or the delin eation between Article II and Article III.
32  In addition, 
paragraph 13 of Canada's second oral statement complements paragraph 23, as it notes that the 
context for the operation of the GIRs must be taken into account.  That is, Rule 1 is sufficient to 
resolve most classification issues respecting auto pa rts (which requires China to classify first under 
appropriate headings, including 87.06).   
169. Canada sets out in paragr aphs 18-22 of its second written submission why the point for 
charging ordinary customs duties under Article II:1(b) must be based upon the state of a product as it arrives at the border. This is exactly the same pe riod of time contemplated for classification in the 
Harmonized System, as indicated by the practice of WTO Members,
33 and the term "as presented" in 
GIR 2(a), which was specifically included to clarif y that it applies based upon the state of a product as 
it arrives at the border and is presented to the customs authority of a WTO Member. That 
interpretation is consistent with the view of the WCO Secretariat in answer to Question 1, which notes 
that the term "as presented" refers to "the mo ment at which the goods are presented to Customs".34 
This is further supported by the Appellate Body, which in EC –  Chicken Cuts  noted with approval the 
                                                      
32 Also see paras. 41-51 of Canada's second writte n submission, which point out that GIR 2(a) is 
relevant simply as part of the Harmonized System for international standards of classification. 
33 See fn 28, above. 
34 See also Exhibit CDA-15, cited in Canada 's second written submission at para. 23.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-211 
  
  statement by the WCO Secretariat that classification is done based on the essential characteristics of 
the product as it arrives at the border.
35 
170. Therefore, given the correct meaning of "as presented", GIR 1 and 2(a) are only relevant as 
context to classify products under Article II, but ar e not relevant to delineate between Articles II and 
III. However, even if (contrary to Canada's submissions and the express statement by the WCO 
Secretariat and the Appellate Body) the Harmonized System allows classification of a product based upon its state after manufacturing, that would be a question for the WCO, not the WTO. As the United States rightly pointed out during the second hearing,  China's membership in the WCO cannot give it 
greater latitude in applying Article II:1(b) than  WTO Members who are not also members of the 
WCO. 
171. See also Canada's answer to Question 225 rega rding paragraph 13 of Canada's second oral 
statement. 
(European Communities and China ) Do you agree with the United States? Please explain 
the legal basis for your position. 
 
Response of the European Communities (WT/DS339) 
 
172. The European Communities understands that the Unite d States is pointing to the fact that the 
determination of the applicable charges is made afte r the parts have been used in the manufacture of 
the vehicle. The European Communities is of the view that GIR 2(a) is not relevant in a context where 
the determination of the charge is made after importation. Therefore, the European Communities 
shares the position of the United States. The impositi on of the 25 % charge on parts after manufacture 
into complete vehicles and therefore after the parts have been presented to customs at the border falls 
under Article III of the GATT 1994 and is inconsis tent with Article III:2 of the GATT 1994 as no 
such internal charge is imposed on domestic like products. 
Response of China 
 
173. China does not agree with the US position.  As China discusses in detail in response to 
questions 186 and 234, a charge is within the scope of Article II:1(b), first sentence, if it fulfils an 
ordinary customs duty that a Member is allowed to collect in accordance with its Schedule of 
Concessions.  In the context of the present dispute,  the relevance of the term "as presented" in 
GIR 2(a) pertains to whether the challenged measure s collect the ordinary cust oms duties that China is 
allowed to collect in relation to the entry of auto parts and components that have the essential 
character of a motor vehicle.  This question is di rectly relevant to whether the measures collect an 
ordinary customs duty within the scope of Chin a's rights and obligations under Article II.   
Comments by the United States on China's response to question 187 
174. China's response states that "a charge is within th e scope of Article II:1(b), first sentence, if it 
fulfils an ordinary customs duty that a Member is allo wed to collect in accordance with its Schedule of 
Concessions." (Emphasis added.)  Again, China is attempting to expand on the text of the GATT.  
There is no mention, or concept, in the GATT of "ful filling" an ordinary customs duty.  A charge is or 
is not a customs duty.  And nothing in Article II: 1(b) "allows" a Member to depart from other GATT 
obligations.  
                                                     
 
35 EC –  Chicken Cuts , Appellate Body Report, at para. 246. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-212 
  
  188. ( Canada) Paragraph 17 of Canada's second oral statement states that under the 
measures, two otherwise-identical imported goods are given two different tariffs rates solely on 
the basis of their end use.  Can Canada please explain how applying two different tariffs to the 
same goods is an internal measure within the meaning of Article III. 
Response of Canada (WT/DS342) 
 
175. Paragraph 17 of Canada's second or al statement discusses "China's approach".  Canada does 
not accept that the measures in fact impose tariff rat es as properly contemplated in Article II. In 
paragraph 17, Canada describes the systemic legal eff ect that would arise in respect of the application 
of Article III if China's argument on this point we re accepted. Canada made the referenced statement 
to highlight the absurdity that would ensue under an Article III "likeness" analysis if two completely 
different tariff classifications can be given to two id entical goods solely based on their end-use, when 
both are identical to a domestic equivalent. The Appellate Body has made it clear in Japan – 
Alcoholic Beverages II  and EC – Asbestos that tariff classification is one factor used to assess 
"likeness" under Article III.
36  Yet this criterion would become co mpletely useless if a Member could 
classify or re-classify a product once already in  the internal market based on its end-use.  
176. Returning to the example cited in Canada's  second oral statement, two imported brake 
cylinders that are in all ways identical to a third,  domestic unit may be "classified" differently under 
the measures (and thus have different tariffs) because  of their end-use (see the examples on the chart 
on pages 26-27 of Canada's first written submission).  Under China's approach it is not possible to say 
to which imported brake cylinder the domestic cylin der should be compared in the case of a possible 
violation of Article III; tariff classification could effectively become the single factor for determining likeness.  The value and certainty of Article III are th ereby diminished.  It is this point that Canada 
raises in paragraph 17. 
189. (All Parties)   Is there a limit to what can legally be considered to be part of the 
"importation" process?  If so, what is it and what is the legal basis for your response? 
Response of China 
 
177. China considers that the elements of any impor tation process must bear a relationship to the 
implementation and enforcement of valid customs concerns, such as the collection of ordinary 
customs duties.  There are two principal legal bases for this understanding.   
178. First, as China noted in response to question 55 from the Panel, the Kyoto Convention  defines 
the term "Customs formalities" as "all the operati ons which must be carried out by the persons 
concerned and by the Customs in order to comply with the Customs law ."  The scope and content of a 
Member's customs law is disciplined, in part, by its WTO commitments.  As China has explained, a 
Member may not include any provision within its customs law and seek to enforce that provision as 
part of the importation process.  Rather, the question in each instance is whether the provision at issue is one that is consistent with the rights and obligations of the Member under Article II, i.e ., whether it 
is a valid  customs concern.  To the extent that it is , a Member may adopt customs formalities as part 
of the importation process to implement and enforce that provision.   
179. This conclusion is further supported by the Appellate Body's findings in EC – Bananas III.   
As China explained in response to question 85, EC – Bananas III  supports the conclusion that the 
                                                     
 
36 Japan – Alcoholic Beverages II , Appellate Body Report, at pp. 20-22; EC – Asbestos , Appellate 
Body Report, at para. 85.  WT/DS339/R/Add.1 
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  elements of an importation process must be germane to the enforcement of a measure or charge that 
the Member is allowed to maintain or impose by reason of the importation of the product.  Thus, the 
limitation on the elements of the importation process is defined by reference to the types of charges 
and measures that the Member is allowed to mainta in on the importation of the goods at issue.   
Response of the European Communities (WT/DS339) 
 
180. The European Communities emphasises that "im portation process" is not a term used in 
Article II:1(a), first sentence of the GATT 1994. If im portation in reality involves several steps, which 
may be described as a "process"", any such "impor tation process" finds its limits in the "broad 
purpose of Article III of avoiding prot ectionism" (Appellate Body Report in Japan – Alcoholic 
Beverages II , p. 16). Otherwise Members would be at liberty to extend the process of importation well 
beyond the border and the scope of Article II, whic h effectively would render Article III meaningless. 
181. The "importation process" must be confined to  those procedures genuinely necessary to clear 
the products through the customs. The importation fo rmalities must be in place and applied in good 
faith. If the alleged importation process does not de termine the product i.e. determine its objective 
characteristics when presented to customs at the bor der in accordance with the jurisprudence of the 
Appellate Body
37, the procedures that extend beyond this purpose and relate to the internal use of the 
imported goods become necessarily procedures that affect the internal sale, offering for sale, 
purchase, transportation, distribution or use of  the imported product within the meaning of 
Article III:4 of the GATT 1994. As pointed out by the panel in EEC – Parts and Components  the fact 
that a Member treats imported parts as not being "in free circulation" cannot support the conclusion 
that duties are levied "in connection with importation" within the meaning of Article II:1 (b) of the GATT. This reasoning must apply a fortiori  in the context where a Member claims that the duties are 
levied "on importation", which is a narrower concep t than "in connection with importation". The mere 
description or categorization of a charge or a procedure under the domestic law of a Member cannot 
be relevant for determining the issue of whether th e Measure is subject to Article III or II of the 
GATT 1994 (see paragraph 5.7. of the panel report in EEC – Parts and Components ). 
Response of the United States (WT/DS340) 
 
182. Yes.  First of all, "importation" must be interp reted consistently with the ordinary meaning of 
that term.  Please see the US response to question No. 19 1 in this regard.  In addition, if no limits were 
placed on what may constitute "importation," the distinction between Articles II and III would be 
eviscerated. 
Response of Canada (WT/DS342) 
 183. Canada submits that ordinary customs duties must crystallize based upon the status of goods 
the moment they enter the territory of a Member , although procedures relating to determining that 
liability (e.g., testing, va luation, administrative review of classification) may occur later. For more 
detail, see Canada's second written su bmission, Section II. B generally and in particular  paragraphs 27 
to 32 regarding the "process" of importation that a pplies for certain charges (b ut not ordinary customs 
duties). Canada would in particular like to draw th e Panel's attention to paragraph 31, which indicates 
when the process of importation is over. 
                                                     
 
37 EC - Chicken Cuts , at paragraph 246. WT/DS339/R/Add.1 
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  Comments by the European Communiti es on China's response to question 189 
184. Since the European Communities is of the view  that the measures breach Article 2 of the 
TRIMs Agremeent  and Article III of the GATT, it is clear that the European Communities disagrees 
with China's apparent position that the measures ar e genuinely necessary to clear the products through 
the customs. The European Communities has also explained in its reply to question 189 why the 
measures have nothing to do with normal customs procedures (see paragraph 9) and China itself acknowledges in its reply to question 185 (a) that th e measures are not part of the regular and normal 
customs process. 
190. ( United States )  Please clarify whether it is the Unites States' position that the 
Article III:2 "internal charge" is the 15 per cent additional charge paid once the auto parts imported under the measures have been assembled into a complete vehicle? 
Response of the United States (WT/DS340) 
 
185. As a legal matter, the United States consider s that the entire charge imposed by China's 
measures is an internal charge subject to Article III:2.  The internal charge is the 25% charge on 
imported parts, as indicated in paragraph 83 of th e first US submission.  As a practical matter, 
however, if the measures at issue were to disa ppear, China could collect a 10% duty (generally 
speaking) on the parts under its general customs procedures, so that as an economic matter the 
additional charge on parts imposed by the measures amounts to 15%.  
191. ( United States ) The United States, in paragraph 19 of its second oral statement, says that 
the only sensible way to view "imported" is with its normal meaning, that is "the time when the 
product enters the Member's customs territory."  Can the United States please explain how it 
has determined that this is the ordinary meaning of the word "imported". 
Response of the United States (WT/DS340) 
 186. The ordinary meaning of "imported" or "impor tation" refers to the movement of a product 
from outside a territory to inside that territory.  The New Shorter Oxford English Dictionary defines 
"import" as "bring or introduce from an external source or from one use etc. to another; spec. bring in 
(goods etc.) from another country."  Similarly Merriam-Webster's Collegiate Dictionary defines 
"import" as "to bring from a foreign or external source; esp: to bring (as merchandise) into a place or 
country from another country."   And Blacks's Law Dictionary defines "importation" as "the act of 
bringing goods and merchandise into a country from a foreign country." (Exhibit US-7)  
187. It is also important to note that the langua ge in Article II:1(b) of the GATT refers to 
"importation into the territory to which the Schedule relates" (emphasis added), also linking 
importation directly to the concept of territory.   
188. China also recognizes the common meaning of "imported."  In its response to Panel question 
No. 37, China states:   
A basic feature of the customs process that Ch ina has adopted to give effect to this 
interpretation of the term "motor vehicles" is to defer the completion of customs formalities in respect of parts that are declared as parts of registered vehicle models until the auto manufacturer has imported and assembled all of the imported  parts and 
components that it will use to assemble that vehicle model.  Until this process is 
complete, the imported  parts and components are subject to a customs bond and  WT/DS339/R/Add.1 
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  remain under customs control in accordance with the customs laws of China.  
(emphasis added).   
 Thus while asserting that a part is not "impor ted" until all customs formalities are completed, 
China nonetheless acknowledges the ordinary meaning of imported as "bringing into the country." 
 
192. (Complainants)  In their response to question No. 105, the complainants state that 
charges under Article 2(2) of Decree 125 appear  to be "ordinary customs duties."  In its 
response to that question and question No. 106  the European Communities conditions such 
characterization to a certain understanding of ho w charges under Article 2(2) of Decree 125 are 
assessed.  Would China's response to question No. 58 fulfil such conditions?  If not, why not? 
Response of the European Communities (WT/DS339) 
 
189. Provided none of the procedures of the measures apply and provided the import licence is 
genuinely automatic, the procedural elements in Chin a's reply to question 58 of the Panel would fulfil 
the procedural conditions set out in the reply of  the European Communities to questions 105 and 106. 
However, if the "automatic import license" is the one required by Chapter III of Decree 125 (Articles 13 to 16 thereof) and if the self-verification is always required even in situations foreseen by 
Article 2(2) of Decree 125, the importation of CKD/SKD kits would not be subject to ordinary 
provisions of the Customs Law of the People's Republic of China. 
190. As regards the substantive elements in Ch ina's reply to question 58, the European 
Communities does not agree that CKD/SKD kits can au tomatically be classified as motor vehicles.  In 
this respect reference should be made e.g. to para graphs 130 to 132 of the rebuttal submission of the 
European Communities. 
Response of the United States (WT/DS340) 
 191. In its response to question No. 106, the Europ ean Communities conditions its characterization 
on two factors: (a) that only normal general customs procedures are applied; and (b) that the CKD or SKD kit consists of all the parts necessary to assemble a vehicle presented to customs at the same 
time and in a single consignment.  China's response to  question No. 58 would seem to satisfy the first 
of these conditions.  China's respon se also seems to indicate that the entire kit would be imported 
simultaneously in a single shipment.  If so, that would satisfy the second condition.  Whether the kit 
was properly classified as a whole vehicle would still need to be assessed on a case-by-case basis, 
including an assessment of whether only assembly ( as opposed to other operations) were required to 
produce a complete vehicle from the kit. 
Response of Canada (WT/DS342) 
 
192. China's response to Question 58 is consistent with Canada's understanding, discussed in more 
detail in response to Question 184, that Article 2( 2) of Decree 125 applies ordinary customs duties to 
"true" CKDs/SKDs. 
193. (China)  In its response to question No. 15 China clarifies that all imports of CKD and 
SKD kits into China kits have been made under Ar ticle 2(2) of Decree 125.  As a matter of law, 
if a manufacturer or supplier opts not to import CKD and SKD kits under of Art. 2(2) of 
Decree 125, would it have to follow the same re gular procedures applicable to the importation 
of other auto parts?  Please, explain in detail? WT/DS339/R/Add.1 
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Page A-216 
  
  Response of China 
 
193. Article 2(2) of Decree 125 states that to im port CKD and SKD kits, th e importer shall make 
customs clearance at the Customs wh ere the auto manufacturer is located and pay import duties. This 
requirement is to reiterate the normal customs proc edure for imports.  There are no other procedures 
for the importation of CKD/SKD kits.  Article 21 defi nes the collections of parts and components that 
have the essential character of a motor vehicle,  which includes CKD/SKD kits.  However, CKD/SKD 
kits are imported as motor vehicles under the or dinary customs procedures for imports.   
Comments by the European Communiti es on China's response to question 193 
194. China's reply is manifestly erroneous on the face of the measures and in contradiction with the 
first explanations provided by Ch ina on Article 2(2) of Decree 125.
38  Article 2(2) of Decree 125 
provides for an option  for the importer, not an obligation. The word "shall" is simply not used in the 
provision.  It states very clearly "may ". Article 7 of Decree 125 applies to all auto manufacturers 
importing auto parts to produce and assemble comple te vehicles, and Article 21(1) further clarifies 
that the measures apply to imports of CKD and SKD kits, unless the option under Article 2(2) of 
Decree 125 has been exercised. 
Comments by the United States on China's response to question 193 
195. China's response states that an importer of CKD and SKD kits "sha ll" follow the normal 
customs procedures when importing those kits – i. e. shall not follow the special rules created by 
Decree 125 and Order No. 4.  The actual text of Ar ticle 2(2) of Decree 125, however, provides that 
the importer "may" conduct customs clearance through the normal procedures.  Thus, on the face of the measures, the selection of import method is optional.   
194. ( European Communities ) In its response to question No. 83 China recalls its citation of 
the EC Anti-dumping anti-circumvention measure in its first written submission 
(paragraph 125) to make the point that Article 29 serves the same purpose as the "end-user 
controls" under that EC measure, which aims at importations through suppliers.  Please, comment on such statement and its relevance to this present case. 
Response of the European Communities (WT/DS339) 
 
196. The example quoted by China concerning bicycle parts is not at all an end use control under 
the customs law of the European Co mmunities. On the contrary, the system at issue was set up in the 
framework of the anti-circumvention measures agai nst bicycle parts in the anti-dumping field. The 
exemption certificates apply for the future and ar e linked to a specific and well identified importer. 
Once an importer is exempt under the described anti-circumvention certificate system it can import 
parts without paying the duty on bicycles (i.e. it is  exempt from anti-circumvention measure) up to the 
time such exemption certificate is withdrawn. In ot her words, once such a cer tificate is issued, the 
                                                     
 
38 See first written submission of China, paragraph 38: "Because there is no doubt as to the proper tariff 
classification of CKD/SKD kits, imports of CKD/SKD k its are exempt from the provisions of Decree 125. 
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 wi ll not apply. Thus, the importer of CKD/SKD kits can 
declare these imports as complete vehi cles at the time of importation, pa y the complete vehicle duty rate, and 
avoid the bonding and record-keeping requirements of Decree 125"; paragraph 195: "Article 2 of Decree 125 
exists precisely because there is no doubt as to the prop er tariff classification of imported CKD/SKD kits – they 
are classified as complete vehicl es. Manufacturers may therefore impor t CKD/SKD kits, pay the appropriate 
motor vehicle duties at the time of importation, and bypass the procedures established under Decree 125."  WT/DS339/R/Add.1 
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 Page A-217 
  
  imports of parts are no longer subject to any furthe r control. In contrast, end-use requirements are by 
definition linked to the importation of a good only and have no link to a specific and well identified 
importer. In other words, they apply to all importers importing the goods at issue.  
197. The European Communities strongly opposes the argument that anti-circumvention measures 
in the field of anti-dumping can be equated to ordinary tariff classification matters for the reasons already set forth in previous submissions to the Pa nel (see in particular replies to questions  86 and 
132 of the Panel). 
195. ( Complainants ) Do the complainants agree with the concepts and definitions used by 
China in relation to "customs clearance", in particular its use of the Kyoto Convention  and the 
WCO Glossary of International Customs Terms ? (see China's response to Panel question No. 55).  
Should the Panel take into consideration these defi nitions as well as other definitions from the 
Kyoto Convention  and the WCO Glossary  ? 
Response of the European Communities (WT/DS339) 
 198. The Appellate Body in EC - Chicken Cuts  stated that the HS Nomenclature should be taken 
into consideration as context while examining the classification of goods in the WTO's schedule of a 
WTO Member, but it never stated that other internati onal Conventions related to customs law, such as 
the Kyoto Convention , or non-binding instruments, such as th e WCO's glossary, are context within the 
meaning of Article 31 of the Vienna  Convention on the Law of Treaties. 
199. By combining and misinterpreting the provisions  of the Kyoto Convention, which aims at 
building up minimum standards concerning the si mplification and harmonization of customs 
procedures, with the so-called "WCO glossary" Ch ina tries to give the wrong impression that the 
process of importation can be delayed in time forever at the entire discretion of each WTO member. In other words China's theory would unduly expa nd the scope of Article II GATT 1994 by rendering 
Article III meaningless. 
200. This being said, the WCO Glossary and in turn General Annex to Chapter 2 of the Revised 
Kyoto Convention simply defines customs clearance as "The accomplishment of the Customs 
formalities necessary to allow goods to enter home use,  to be exported or to be placed under, another 
Customs procedure" while Specific Annex B to the Revised Kyoto Convention states that "clearance 
for home use means the Customs procedure which provides that imported goods enter into free 
circulation in the Customs territory upon the paym ent of any import duties and taxes chargeable and 
the accomplishment of all the necessary Customs formalities". 
201. It must also be stressed that the d esign and structure of Chapter 3 of the Revised Kyoto 
Convention  concerning "Clearance and other customs formalities" aims at speeding up the 
importation process at the border level and there is no thing in it that supports China's view about the 
existence of an almost never ending process of importation and clearance.  Indeed, Article 3.30 of the 
chapter reads as follows: "3.30. Standard Checking the Goods declaration shall be effected at the 
same time or as soon as possible after the Goods declaration is registered." 
Response of the United States (WT/DS340) 
 
202. The definition of  "customs cleara nce" is not relevant to any issue in this dispute, nor is the 
term "customs clearance" even used in any of the WTO provisions at issue in this dispute.  
Accordingly, the Panel has no need to consider these de finitions that China has presented to the Panel.   WT/DS339/R/Add.1 
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Page A-218 
  
  203. While the collection of customs duties may not  occur until after goods have been imported 
into the customs territory, the tariff classificati on and its corresponding duties must not be based upon 
a change in the condition of the auto part that o ccurred after its importation.  In the United States' 
rebuttal to China's response to Panel question No. 55, the United States explained that the relevant 
consideration in this case is whether China's measu res enforce the collection of a customs duty under 
China's tariff schedule for which an auto part w as liable when it entered the customs territory of 
China.   
204. The United States also notes that the General Annex of the Revised Kyoto Convention 
(CHI-38) contains certain "Definitions" of customs terms.  Chapter 1 of the General Annex contains 
standards that articulate the general principles for th e interpretation of the General Annex.  The first 
standard provides that "[t]he Definitions … in this Annex shall apply to customs procedures and 
practices specified in this Annex and, insofar as a pplicable, to procedures and practices in the Specific 
Annexes."  Therefore, the definition of "clearance " as set forth in the Definitions to the General 
Annex of the Revised Kyoto Convention is limited in scope to the pr ovisions of the General Annex 
and this instrument does not represent itself as setti ng forth categorical meanings of customs terms. 
205. The WCO's Glossary of International Customs Terms (CHI-39) is a publication made 
available to inform the public by the WCO, but it has no formal status under the HS Convention.  The Glossary often defines terms by reference to the Revised Kyoto Convention , but this approach does 
not render the Glossary as an authoritative tool in interpreting the Convention. 
Response of Canada (WT/DS342) 
 
206. Canada does not take issue with the definitions of "customs clearance" used by China to the 
extent that they support the conclusion that "cus toms formalities are routinely concluded after the 
goods have been released into the customs territory ." However, as noted in Canada's second written 
submission at paragraphs 25 and 26, th at term is not useful for interpreting the application of ordinary 
customs duties under Article II:1(b), first sentence. Further, the Kyoto Convention  definitions do not 
support China's measures for several reasons, set out below. 
207. As China points out in footnote 12 to its response to Question 55, the Kyoto Convention 
entered into force in 2006, thus, unlike the Harmonized System Convention , it cannot form context for 
the negotiation of China's Schedule. China refers to  it as evidence of customs "practice", but practice 
cannot be based upon a general permissive statem ent. Practice must be based on what customs 
authorities actually do, yet China has shown no evidence of practice, much less common and 
consistent practice, similar to its measures. 
208. It is noteworthy that China did not include the whole text of the treaty.
39 While China uses the 
definition of "customs clearance" to support a tr ade-restricting customs process, the object and 
purpose of that treaty is rather to streamline and si mplify customs procedures. This is set out in the 
Preamble's reference to trade promotion: 
ENDEAVOURING to eliminate divergence between the Customs procedures and 
practices of Contracting Parties that can hamper international trade and other 
international exchanges, 
                                                      
39 International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto 
Convention ), as amended by the Protocol of Amendment, adopted June 1999, entered into force February 3, 
2006 (Exhibit CDA-38).  WT/DS339/R/Add.1 
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 Page A-219 
  
  DESIRING to contribute effectively to the development of such trade and exchanges 
by simplifying and harmonizing Customs procedures and practices and by fostering international co-operation.  
209. Further, China's measures do not comply with requirements of the treaty in other material 
aspects, such as General Annex Chapter 3 (Cl earance and Other Customs Formalities) which 
provides: 
Examination of the goods (a) Time required for examination of goods 
3.33. Standard 
When the Customs decide that goods declar ed shall be examined, this examination 
shall take place as soon as possible after the Goods declaration has been registered.
40 
 This is inconsistent with the measures, which provide for verification, not after declaration, 
but before and after manufacturing in China. 
 
210. Finally, China cites and relies (in Exhibit CHI-38) on Specific Annex B – Chapter 1 for the 
definitions of "clearance for home use" and "goods in  free circulation". But, as set out in Articles 5, 
8(3), 8(4) and 9(2) of the Kyoto Convention , those specific annexes are subject to separate acceptance 
by parties to the Kyoto Convention , and bind only those that have accepted them. Most Members, 
including China, have not accepted Specific A nnex B1. China has only accepted two Annexes – D1 
and G1.41 
196. ( All parties ) Is "importation" different from the "process of importation"?  Please 
explain. 
Response of China 
 
211. China is not aware of any relevant provision of a covered agreement that refers to the 
"process of importation," and thus is uncertain as to the intention of this qu estion.  As China has 
explained in response to several questions from the Panel, including question 167 above, the term 
"importation" in Article II:1(b), firs t sentence, is not defined by refe rence to the point in time or space 
at which a charge is collected.  Charges may be collected after the point at which goods physically 
cross the border, so long as the charge is one that the Member is allowed to collect by reason of the 
importation of the product at issue.  This fact nec essarily contemplates that there can, and often will 
be, an importation process that extends beyond the point  at which the goods cross the frontier.  As 
China explained in response to question 55 from the Panel, the entire structure of the Kyoto 
Convention  supports this conclusion.  However, for the reasons that China set forth in response to 
question 189 above, the existence of such a process does not, by itself, alter a Member's substantive 
rights and obligations under Article II – any such pr ocess must give effect to a condition or charge 
that the Member is allowed to maintain or im pose by reason of the importation of the product. 
                                                      
40 Kyoto Convention , General Annex, Chapter 3, "Clearance and Other Customs Formalities", at p. 4 
(Exhibit CDA-38). 
41 Kyoto Convention , Position as Regards Ratifications and Accessions, Document PG0137E1a, 
25 July 2006 (Exhibit CDA-39). WT/DS339/R/Add.1 
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Page A-220 
  
  Response of the European Communities (WT/DS339) 
 
212. The European Communities would like to stress th at Article II, paragraph 1(b), first sentence 
of the GATT 1994 refers to ordinary customs duties imposed "on importation". The "process of 
importation" is not a term used in this provision. China clearly refers to the "process of importation" 
in order to extend the scope of Article II:1 and rend er Article III meaningless. In this respect the 
European Communities refers to its second written submission, paragraphs 42 and 43. 
Response of the United States (WT/DS340) 
 213. Article II of the GATT uses the term "importation", while Article III refers to "imported" 
goods.  The United States is not aware of the use of  the term "process of importation" in the GATT.  
Accordingly, the definition of the phrase "process of im portation" is not relevant to any issue in this 
dispute.  
Response of Canada (WT/DS342) 
 
214. Yes, with respect to the imposition of ordinary customs duties under Article II:1(b), first 
sentence, compared with other charges imposed under Article II in  general. See Canada's second 
written submission, Section II.B for a discussion of the terms "on their importation" in the first sentence of Article II:1(b) in contrast with the broader period (which can be characterized as the 
"process of importation") relating to other charges governed by Article II. 
Comments by the European Communiti es on China's response to question 196 
215. China's reply is illustrative of its tactics in these proceedings.  It is China itself that has 
introduced the notion of "process of importation" in its reply to question 37 of the Panel.  Now China 
claims ignorance of the concept although in its repl y to question 37 China stated that "it is the 
completion of this process that marks the turnin g point between permissible discrimination under 
Article II and impermissible discrimination under Ar ticle III".  China's reply to question 196 provides 
a completely different position.  It is difficult to keep track of the ever changing position of China in 
this regard.  In substance the European Comm unities refers to its reply to question 196. 
197. ( All parties ) Given the statements of the parties in their respective responses and 
rebuttals, should the Panel be primarily guid ed by the language of Article II:1(b), first sentence , 
regarding the nature of the measures issue?  To what extent can the language of the second 
sentence  of Article II:1(b), in particular its additional term "in connection with," define the 
scope of the first sentence? 
Response of China 
 
216. As China explained in response to question 97 from the Panel, the use of the term "in 
connection with" in Article II:1(b), second sentence, most likely reflects the broader variety of duties 
or charges that are encompassed by the term "other  duties or charges," and the broader variety of 
events or conditions that could trigger the impor ter's obligation to pay them.  Because of this 
difference in subject matter, China does not consider  that the term "in connection with" in the second 
sentence can be used to define the scope of  the first sentence of Article II:1(b).    WT/DS339/R/Add.1 
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 Page A-221 
  
  Response of the European Communities (WT/DS339) 
 
217. "In connection with" in the second sentence of Ar ticle II:1 (b) provides important context for 
the interpretation of the notion "on importation" in  the first sentence of Article II:1 (b) of the 
GATT 1994.  It demonstrates the narrowness of th e notion of "on importation", which cannot be 
extended to any charge or procedure which is a pplied only "in connection with" importation but not 
"on" importation (see e.g. the second written submission of the European Communities, paragraphs 44 to 46). In any event, the European Communities is of the view that the procedures and 
the charges imposed under the measu res (with the exception of Article 2(2) of Decree 125) are not 
even connected with importation but are rather internal. 
Response of the United States (WT/DS340) 
 
218. The language of the second sentence of Article II: 1(b) provides context for the meaning of the 
language used in the first sentence.  The first sentence of Article II:1(b) links the imposition of 
"ordinary customs duties" with "on their importati on into the territory."  The second sentence uses a 
more expansive set of terms - "all other duties or  charges of any kind" and "imposed on or in 
connection with the importation."  The second sentence is thus a broader "catch-all" provision, while 
the first sentence focuses on a particular charge imposed at a particular point.   
Response of Canada (WT/DS342) 
 
219. As set out in Canada's second written submissi on, Section II.B, the relevant language for 
interpreting ordinary customs duties is Article II: 1(b), first sentence. The second sentence is only 
applicable to the separate question of "other duties and charges". Th e Appellate Body's analysis in 
Chile – Price Band System  confirms that ordinary customs duties are assessed under the first sentence 
only, and other duties and charges by the second.
42 As explained in Canada's second written 
submission at paragraphs 28-29 a nd the response to Question 186, above , "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 importation. 
Comments by the European Communiti es on China's response to question 197 
220. As stated by the European Communities in its reply to question 197, "in connection with" in 
the second sentence of Article II:1 (b) provides im portant context for the interpretation of the 
narrower notion "on importation" in the first se ntence.  The European Communities therefore 
disagrees with the reply of China.  
198. ( Complainants ) Is the European Communities' position  against "splitting the measures", 
in particular in relation to Article 29 of Decree 125, in contradiction with the position of the 
other co-complainants (compare the complainan t's respective responses to question No. 101)? 
Response of the European Communities (WT/DS339) 
 
221. The European Communities understands  that this question is directed mainly at Canada and 
the United States.  However, the European Co mmunities does not see any difference between the 
complainants on this issue on which the European Communities has perhaps only been more explicit 
than Canada and the United States.  All co-compl ainants accept that charges under Article 2(2) of 
Decree 125, i.e . in circumstances where the measures would not apply, could be examined under 
                                                      
42 See Chile – Price Band System , Appellate Body Report, e.g ., at paras. 151-157, 281-285. WT/DS339/R/Add.1 
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Page A-222 
  
  Article II of the GATT 1994 (US responses to qu estion 101, para. 68, Canada's responses to 
question 101, para. 1) while all other charges under the measures are internal charges. 
Response of the United States (WT/DS340) 
 222. No.  As indicated in the response to question No. 185, the United States does not consider that 
Article 29 of Decree 125 can be split from the rest of the measures.   
Response of Canada (WT/DS342) 
 223. There is no contradiction between the positi ons of the complainants on this point. 
224. With respect to Article 29 of Decree 125, Cana da agrees with the European Communities that 
it is not possible to separate those aspects of the measures from the aspects that relate to imports of 
parts directly by vehicle manufacturers. This is so notably because all imported parts (regardless of 
importer) are considered collectively for purposes of the thresholds under the measures. In any event, 
Canada reiterates its conclusion, stated in respon se to Question 101, that charges under the measures 
are internal (other than charges on CKDs/SKD s, as discussed in response to Question 184). 
199. ( China )  China submits that "the delineation between Article II and Article III requires 
some understanding 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." (China's response to Panel questio n No. 37)  If one were to follow China's 
reasoning: 
(a) Would this mean that it is up to each WTO Member to determine how long the 
importation process takes within its internal sy stem depending on its own national objectives 
and purposes? 
Response of China 
 
225. No.  As China explained in response to questi on 189, the permissible limits of the importation 
process are defined by reference to the types of me asures or charges that a Member is allowed to 
maintain or impose in respect of the importati on of goods, in accordance with its rights and 
obligations under Article II.  China further explaine d in response to that question that Members can 
maintain customs procedures that are germane to the implementation and enforcement of these rights 
and obligations.   
226. This does not mean that a Member can "determine how long the importation process takes 
within its internal system depending on its ow n national objectives and purposes."  China has 
consistently explained that it is not its position that a Member may defer the "process of importation" 
as long as it chooses, and impose whatever discriminatory measure or charge it wishes as part of that 
process.
43  Rather, the question is whether the process gi ves effect to a measure or charge that the 
Member is allowed to maintain or collect in  accordance with its rights and obligations under 
Article II.  These parameters are defined by the righ ts and obligations that the Member has negotiated 
with other WTO Members under Article II, not its "national objectives and purposes."   
                                                      
43 See, e.g., China rebuttal submission at para. 119; China Answers at 31; China Answers at p. 35; 
China Answers at p. 105.  WT/DS339/R/Add.1 
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  Comments by the European Communities on China's response to question 199(a) 
227. China's reply is essentially the same as to qu estion 189.  It is clear that the European 
Communities disagrees with China's apparent positio n that the measures are genuinely necessary to 
clear the products through the customs.  China itself acknowledges in its reply to question 185 (a) that 
the measures are not part of the regular and normal customs process.  As Exhibit EC – 26 
demonstrates, the various procedures under the measur es can take years before they are completed.  
This is a prime example of how a Member attempts to bring a discriminatory measure under the scope 
of Article II through labelling internal procedures as customs procedures. 
(b) If yes, would the determination of whether a measure falls within the scope of Article II 
or Article III depend on each Member's own definition of "importation" and/or domestic regulations on "the completion of the process of importation"?  Please explain. 
 Response of China 
 228. Please see the response above to question 199(a).   
Comments by the United States on China's response to question 199 
229. As the United States stated in its response to Panel question No. 196, the United States is not 
aware of the use of the term "process of importa tion" in the GATT.  China's response to Panel 
question No. 196 confirms that understanding.  In s hort, "the permissible li mits of the importation 
process" that China refers to is not useful in in terpreting the meaning of Article II of the GATT.  
200. ( Complainants )  Do you agree with China's statement that "[i]t is simply not the case (...) 
that "physical segregation" in "sealed containers ," (...) is a necessary element of a bonding 
procedure, either under Chinese law or under int ernational customs practice.  Nor is it a 
necessary element for goods to remain under customs control.  Physical segregation is simply 
one form of customs control procedure, ordinarily  used in the case of entry into special areas 
such as free trade zones." (Chi na's second written submission, footnote 84 to paragraph 117).  
Please explain. 
Response of the European Communities (WT/DS339) 
 
230. Physical segregation in sealed containers or other means of transport is the most common 
feature and a standard pre-requisite of the cust oms procedure that China refers to as "bonding 
procedure" both in the law of th e European Communities and in international customs practice. Under 
EC law this is provided for by Article 357 (1) of Commission Regulation (EEC) No 2454/93 of 
2 July 1993 laying down provisions for the implem entation of Council Regulation (EEC) No 2913/92 
establishing the Community Customs Code (Official Journal L 253, 11.10.1993, p. 1–766). 
231. The documents and the guarantee or security deposit do not amount to a genuine bonding 
procedure as the goods do not remain in the physical c ontrol of the customs and are used internally in 
China in the manufacture of vehicles.  The elements  China is referring to as a "bonding procedure" 
constitute simply an attempt to create a fiction of ongoing customs procedures. 
Response of the United States (WT/DS340) 
 
232. China's argument is an attempt to obfuscate the distinction between two very different 
customs concepts.  One customs concept is the requi rement that goods be entered under some sort of WT/DS339/R/Add.1 
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Page A-224 
  
  financial guarantee or bond, to ensure the collecti on of revenue upon the final assessment of duties.  
The second concept is a customs regime under whic h goods are maintained under customs control, 
such as in a "bonded warehouse," so that the g oods are limited in how and where they may be 
transported or used.  China's measures are of the first type – a financial guarantee that provides no 
restrictions on how the goods may be used within Ch ina.  But, China – in order to attempt to support 
its argument that its measures do not impose internal charges --would like the Panel to believe that its 
measures are of the second type (involving customs cont rol on the use of the goods.)  But this simply 
is not true .   
233. As the United States indicated in its response to Panel question No. 17, the bond referred to 
by China in Article 12 of Decree 125 is simply a fi nancial guarantee, and does not involve any control 
by Chinese customs on the disposition of the part after it is imported into China.  
234. China's statement is an attempted refutation of  Canada's answer to Panel question No. 17.  
Canada's reference to the "physical segregation" of  goods has been taken out of context by China.  
Canada did not assert that parts imported into Chin a must be physically segregated in order to be 
bonded.  Canada's key point was that the auto part s imported by China and subject to Decree 125 "are 
not restricted from entering the internal market" by means of physical segregation in a bonded facility, 
such as a warehouse or free trade zone.  Whether the goods enter the customs territory "in bond" 
(meaning with a "financial guarantee" for the paymen t of duties owed) does not affect the condition of 
the goods upon importation for classification purposes.  
Response of Canada (WT/DS342) 
 
235. Canada agrees that "physical segregation" is , as described, "simply one form of customs 
control procedure" and, thus, goods do not necessarily ha ve to be in "sealed containers" at some point 
in a bonding procedure.  However, as Canada describe d in paragraphs 33, 34, 37 and 38 of its second 
written submission, goods must remain under the physical control of customs, and thus not available 
for internal use within a Member.  This control is  exercised both as part of the process of importation 
generally (i.e ., longer than the "snapshot" on which ordina ry customs duties must be assessed, as 
Canada notes in Section II.B.2 of its second written s ubmission) and to maintain control over some or 
all of the imported product in order to assess the good (in its state as it arrived at the border) for purposes of applying ordinary customs duties (e.g ., for testing).  
236. The documentary and financial requirements (aki n to a "security deposit") under the measures 
that China refers to as "bonding" are not of the sam e nature, and do not relate to any of the accepted 
criteria listed in paragraph 31 of Canada's second wr itten submission. The mere fact that an importer 
posts security and files documentation in relation to  an imported product does not prevent that product 
from being available for use internally in China. If such requirements were able to accomplish that 
effect, the protection of Article III:2 against internal charges could be entirely circumvented, as a 
Member could deem a product under its contro l and subject to Article II in perpetuity. 
201. ( Complainants )  Please indicate, supporting your resp onse with evidence, the reasons 
why the complainants believe auto parts impo rted by manufacturers under the measures (i.e., 
not those imported by suppliers unde r Article 29 of Decree 125), are de facto  not
 under Customs 
control (see, e.g., European Communities' first written submission, paragraph 54). 
Response of the European Communities (WT/DS339) 
 
237. It is not possible to provide documented ev idence of the negative. However, China has 
acknowledged that in reality the a lleged bonding status of the goods is  limited to providing a financial  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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 Page A-225 
  
  guarantee and the customs officials do not, as a matter of fact, follow and control each and every 
single auto part after they have been imported to Ch ina. The actual collection of the charges is due on 
the imported parts that the manufacturer used in th e previous month to produce the relevant vehicle 
model (Article 31 of Decree 125). This demons trates that the bonding requirements under the 
measures are a fiction. This follows also a contrario  from Article 30 of Decree 125 (see also China's 
reply to questions 16, 18 and 19 of the Panel), which is the only instance where the goods are 
genuinely under customs supervision. The European Communities would like to point out in particular that in its reply to question 19 of th e Panel, China attempts to use the procedures under 
Article 30 of Decree to demonstrate the extent of the general customs supervision under the measures. 
As China itself recognises that Article 30 of Decree 125 is not relevant unde r the present proceedings, 
it cannot use the genuine bonding requirements th ere under to defend the other elements of the 
measures. 
Response of the United States (WT/DS340) 
 238. The United States indicated in its answer to Panel question No. 17 that the United States 
understands that China has clarified that the bond requirement is simply a financial guarantee, and 
does not involve any control by th e Chinese Customs on the disposition of the part.  In that context, 
the absence of control by the Chin ese Customs on the disposition of the auto part means that the auto 
part enters the internal market whereupon its condition may be modified through subsequent 
assembly.  China has not asserted that its Customs authorities retain any physical control over the 
goods once they are imported into the territory of Chin a.  To the contrary, in footnote 14 of its first 
written submission China states that the "bond" require ment is limited to a financial guarantee (at the 
10% ad valorem rate) and in pa ragraph 116 of its second written subm ission China confirms that the 
parts are released to the importer.  Furthermore,  China has not cited to, and cannot cite to, any 
provision of Decree 125 that imposes any sort of customs control on the use of imported parts under 
the measure.  (In other words, Decree 125 does not prevent the importer from selling the imported parts to other parties, nor does it  prevent or limit any possible use or disposition of the part.)  Accordingly, imported auto parts are used freely at  the manufacturing sites of vehicle and auto parts 
manufacturers with no restrictions.  Indeed the "financial guarantee" is only necessary because the 
merchandise has entered commerce without any other control.  
Response of Canada (WT/DS342) 
 
239. The issue relating to "customs control" is whether the financial and documentary 
requirements under the measures result in imported pr oducts being unavailable for internal use in 
China. But imported auto parts covered by the measur es are available for intern al use. They are used 
in the same way as domestic parts and imported parts not subject to the measures (such as those 
bought from third parties, which China concedes in response to Questions 20(a) and 83, and in paragraph 116 of its second written submission are not "bonded"). As  Canada noted in paragraph 38 
of its second written submission, the only importe d auto parts under customs control are those 
excluded from coverage by Ar ticle 30 of Decree 125. 
202. ( China )  Canada submits that "[w]hen an auto  part arrives at China's border, the 
charge that crystallizes on it at that time, 'o n importation', is a charge based upon the proper 
classification of that part as it physically exis ts at that point in time – generally 10%.  China 
implicitly recognizes this by imposing a bond  based on the 10% parts rate."  (Canada's second 
written submission, paragraph 33 – footnote omitted).  Does China agree?  Please explain. WT/DS339/R/Add.1 
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Page A-226 
  
  Response of China 
 
240. China disagrees.  There is no necessary concordan ce between a bonding rate and the rate of 
duty at which the article will be assessed, and Canada has not demonstrated otherwise. 
Comments by the European Communiti es on China's response to question 202 
241. The European Communities fully agrees with the position of Canada as expressed in the 
question. Canada has made a valid prima facie  argument, which China, in its response, cannot simply 
shrug off by alleging that the burden of proof is still with Canada.  It is for China to rebut a prima 
facie  argument with something more concrete than a mere assertion. 
203. ( All parties )  To what extent is the GATT and WTO jurisprudence on the delineation 
between Articles XI and III:4 of the GATT relevant to address the issue of the delineation between Articles II and III of the GATT and, in particular, the nature of the measures before 
the Panel?  Please explain, in particular in light of, inter alia , Canada – FIRA  (GATT Panel 
Report, L/5504 - 30S/140, paragraph 5.14), India – Autos  (Panel Report, WT/DS146, 175/R, 
paragraphs 7.217, 7.221-7.224 and 7.257-7.262, incl uding footnote 410 to paragraph 7.221, citing 
Panel and Appellate Body Reports in Korea – Various Measures on Beef ),  EC – Asbestos (Panel 
Report, WT/DS135/R, paragraphs 8.94-8.95), and Dominican Republic – Import and Sale of 
Cigarettes  (Panel Report, WT/DS302/R, paragraphs 7.258-7.260). 
Response of China 
 242. China considers that this jurisprudence is hi ghly relevant, and underscores the importance of 
the threshold issue in this dispute concerning the classification of the challenged measures in relation 
to Article II or Article III. 
243. As a preliminary matter, it is important to note the textual similarity between Article II:1(b) 
and Article XI:1.  Article II:1(b) applies, in rele vant part, to the goods of another Member "on their 
importation" into the customs territory.  Article XI:1 applies to restrictions, inter alia,  "on the 
importation" of goods from another Member.  The di fference between "their" and "the" is simply one 
of style and conformity with the structure of the respective sentences; there is no substantive 
difference between the scope of these two provisions.   
244. The jurisprudence to which the question refers makes two importa nt points, as relevant to the 
present dispute.  The first is that the scope of Article  XI must be interpreted in relation to the scope of 
Article III so as to maintain the distinction between  these separate articles of the GATT, and to avoid 
reducing either article to superfluity or inutility.
44  Moreover, 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 th e importation of products (i.e. bor der measures) and restrictions 
affecting imported products  (i.e. internal measures)."45  The panel in India – Autos  considered that it is 
only in the context of state trading enterprises th at there has been a "blurring of the traditional 
distinction between measures affecting importe d products and measures affecting importation …"46 
245. This distinction is equally relevant in the re lationship between Article II and Article III.  As 
China has explained throughout these proceedings, a di scriminatory charge that a Member is allowed 
                                                      
44 See, e.g.,  Canada – FIRA  at para. 5.14.   
45 India – Autos (Panel) at para. 7.221 n. 410, quoting Korea – Various Measures on Beef at para. 766.   
46 India – Autos (Panel) at para. 7.221.    WT/DS339/R/Add.1 
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  to collect on goods "on their importation" into its customs territory – i.e., a customs duty under 
Article II – cannot simultaneously be analyzed as  an "internal charge" under the disciplines of 
Article III.
47  This would have the effect of rendering inutile a Member's right to impose customs 
duties in accordance with its Schedule of Concessions .  It is precisely for this reason that an 
evaluation of a measure or charge in relation to Article II must include an assessment of whether the 
measure or charge is one that the Member is allo wed to maintain or impose in respect of imported 
products under Article II.  Such a charge or measure  is not subject to the disciplines of Article III. 
246. The second important point that this jurispruden ce establishes is the interpretation of the term 
"on."  The Panel in 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, a ssociation or activity with or with regard to.'"48  
This supports China's interpretati on 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 activity with") 
the importation of a product, without regard to the exact point in time or space at which the charge is 
collected.   
Response of the European Communities (WT/DS339) 
 
247. The specific paragraphs identified in the jurisp rudence referred to in the question address the 
respective scopes of Article XI and III:4 of the GA TT although other aspects such as the relevance of 
the Ad Article III have also been touched upon.  
248. The European Communities shares the broad thrust of the analysis in paragraphs 7.221 to 
7.224 in India – Autos  in which the panel considered 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 a 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" (paragraph 7.223).  This means that the wording in Article XI must be understood 
independently in the context of that pr ovision as is the case with Article II. 
249. As regards the notion "on importation"  in Article XI:1 the panel in India – Autos  considered 
that the ordinary meaning of the term "on" (releva nt 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 regard to". 
250. The context of Article II:1(b) is different and points out to a more narrow interpretation of the 
notion "on importation" because the second sentence of Article II:1(b) explicitly distinguishes 
between the notions of "on" importation and "in c onnection with" importation. In this respect the 
jurisprudence relating to the delineation between Arti cles XI and III:4 is helpful in demonstrating the 
narrowness of the notion of "on importation"  in Article II:1(b) of the GATT 1994. 
251. This case law addresses another important issue, namely the relevance of the text of Note Ad 
Article III. It is important not to  be guided by the text of the Ad Article to the detriment of the clear 
text of Article III itself. The Ad Article III addresses the specific issue where an internal tax or other 
internal charge, or any law, regulation or require ment which in fact applies to an imported product 
and to the like domestic product and is collected or enforced in the case of the imported product at the 
                                                     
 
47 See, e.g.,  China rebuttal submission at para. 124.   
48 India – Autos  at para. 7.257.   WT/DS339/R/Add.1 
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Page A-228 
  
  time or point of importation, is nevertheless to be re garded as an internal tax or other internal charge, 
or a law, regulation or requirement of the kind referred to in paragraph 1 of Article III, and is 
accordingly subject to the provisions of Article III. This is a clarification of a specific situation. 
252. It is clear on the face of the text of Article III itself that internal taxes and other internal 
charges, and laws, regulations and requirements affecting the internal  sale etc. should not be applied 
to imported or
 domestic products so as to fa vour domestic like products. In other words and as already 
stated by the European Communities in its reply to question 88 from the Panel, the language of 
Article III does not require that a charge, law, or regulation must apply to both domestic and imported 
products to be considered internal under Article I II of the GATT 1994. If the scope of Article III was 
limited to situations where internal charges, laws, regulations or requirements are applied to both domestic and imported goods, it would render the most blatant discriminations outside the scope of 
Article III. In such a case a Member would be allowe d to impose an additional internal charge or an 
additional internal procedure only on imported pro ducts. This is the situation with the Chinese 
measures. 
Response of the United States (WT/DS340) 
 
253. The United States has discussed the relations hip between Articles II and III of the GATT 
1994 in paragraphs 75-80 of its fi rst written submission and in its r esponse to Panel question No. 37.  
Other provisions of the GATT 1994 may usefully be c onsidered as part of the context which informs 
the meaning of Articles II and III and their relations hip to one another.  The meaning of those two 
articles, however, must be interpreted based on their ordinary meaning, read in context alongside the 
other provisions of the agreement, and in light of the agreement's object and purpose.
49   
254. The panel and Appellate Body reports referred to in this question provide guidance in the 
analysis of the relationship between Articles XI  and III:4 of the GATT 1994.  There are some 
important differences between Article XI and Article II that affect each article's interrelationship with 
Article III.  First, Article XI speaks in terms of  "restrictions . . . on importation" and extends to a 
broad range of limitations that may be imposed upon the importation of goods.  (See the US response 
to question No. 279).  In contrast, the first sentenc e of Article II:1(b) relates to the imposition of a 
specific type of charge, ordinary customs duties.  The phrase "on importation" may have a narrower scope when it is referring to a specific charge as opposed to restrictions in genera l.  This interpretation 
is bolstered by the language in the second senten ce of Article II:1(b) which contrasts the phrase 
"imposed on or in connection with the importation"  with the use of "on their importation into the 
territory" in the first sentence.  That contrast is not present in Article XI.  Accordingly, the guidance 
provided by the panels in India – Autos and and  Dominican Republic – Import and Sale of Cigarettes  
regarding the term "on importation" in Article XI 
50 is not transferrable to the meaning of "on 
importation" in Article II.   
                                                      
49 See India – Autos  at para. 7.223, "While other provisions of the WTO Agreement may usefully be 
considered as part of the context wh ich 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."   
50 India – Autos at para. 7.257 and Dominican Republic – Import and Sale of Cigarettes  at paragraph 
7.258.    WT/DS339/R/Add.1 
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 Page A-229 
  
  Response of Canada (WT/DS342) 
 
255. The various provisions of the WTO Agreement  may provide context for the interpretation of, 
among others, Articles II and III. It follows that the jurisprudence, in respect of the delineation 
between Articles XI and III:4, may be relevant fo r providing context for u nderstanding the process of 
importation. In particular, Article XI (together with Articles I and III) is relevant to confirm that there 
is an "importation" stage after which both Article  II and Article XI are no longer applicable. For 
example, the panel in Canada – FIRA confirmed that there is a separate, narrow "importation" stage, 
after which Article XI no longer applies – this is necessary to ensure that Article III requirements are 
not rendered superfluous. The same logi c equally applies to Article II. 
256. Canada sets out in Sections II.B.1 and II.B. 2 of its second written submission the proper 
interpretation of when ordinary customs duties ma y be imposed pursuant to Article II:1(b), first 
sentence. There is a discrete point in time when a product enters a customs territory when liability for 
ordinary customs duties crystallizes. There is th en a longer general "importation" phase when any 
charge other than ordinary customs duties under Artic le II can apply. Similarly, under Article XI, the 
importation phase is a distinct concept that extends th e discipline of the Article to the wide range of 
possible restrictions or limitations that may be  applied in the context of the importation (or 
exportation) process.  
257. However, while Article XI is useful in unders tanding the general concept of the process of 
importation, the precise meaning of the words in Artic le XI must be read in the context of that 
provision, and may not be precisely the same as the same words in the context of another Article.
51 
Article XI relates to qualitative impediments to importa tion or exportation in ge neral terms. There is a 
notable difference between Article II and Article XI, in that Article II:1(b) contemplates two separate 
periods of time ("on their importation" in the firs t sentence, and "on or in connection with" in the 
second sentence), whereas Article XI applies genera lly to prohibit protectionism in the importation 
stage as a whole throughout both periods. This is an alogous to the distinct analysis of likeness that 
occurs under Articles III:2 and III:4, where both th e concept of likeness in the first sentence of 
Article III:2, and the concept of "directly compe titive and substitutable" in the second sentence, are 
both imputed into the concept of likeness in Article III:4.52 
258. This was considered in both India – Autos and Dominican Republic – Import and Sale of 
Cigarettes . That consideration must be considered not on ly in the distinct context of Article XI, but 
also in the context of the measures at issue in those cases. For example, in India – Autos  the analysis 
related to a "trade balancing" requirement. That  requirement prohibited importation of CKDs by a 
manufacturer if an equivalent value of automob iles was not also exported. While the measure in 
question in effect prohibited imports unless certain conditions were met, it was not applied "at the 
point of importation" because it was applied th rough agreements with vehicle manufacturers.53 There 
was no question that the measures at issue limited imports;54 the issue was with respect to the 
relationship in time between physical importation and the time of conclusion of those agreements.55  
                                                      
51 India – Autos , Panel Report, at para. 7.223. 
52 See, e.g ., EC – Asbestos , Appellate Body Report, at paras. 99-101.  Similarly, in Dominican Republic 
– Import and Sale of Cigarettes  the Panel found at paragraph 7.258 that  "in the context of Article XI" it may be 
appropriate to read into "on importation" th e phrase "in connection with".  See also India – Autos , Panel Report, 
para. 7.257. 
53 India – Autos , Panel Report, at paras. 2.1-2.5. 
54 India – Autos , Panel Report, at para. 7.278. 
55 Footnote 410 in India – Autos , specifically referenced in this question, relates to the special 
disciplines applicable to state ente rprises where Article XVII apply.  This situation does not apply here. WT/DS339/R/Add.1 
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  259. With respect to paragraphs 8.94 and 8.95 of the Panel Report in EC – Asbestos , the only 
relevance would be to re-affirm that Article III can have broad application and apply at the border. As 
stated in Canada's response to Question 88, if a charge or law had to apply to both domestic and 
imported products, this would have the absurd r esult of allowing measures to violate the national 
treatment principle so long as they do not apply to domestic products.  The statement in paragraph 8.95 is also relevant to support Canada's answer to Qu estion 273, that Article III:4 can 
apply to customs procedures that are more bur densome than necessary (i.e., as was found in US – 
Section 337 Tariff Act ). 
Comments by the European Communiti es on China's response to question 203 
260. This case law does not address the relationshi p between Article II and III of the GATT 1994 
as China appears to suggest.  As the European Comm unities stated in its reply to question 203 of the 
Panel, this case law highlights the important difference
 in the context of the notion "on importation" 
under Article II:1 (b) and Article XI of the GATT 1 994 respectively.  China's reply entirely ignores 
this fundamentally important context, which demo nstrates that the notion of "on importation" is 
narrower under Article II:1(b) than under Article XI. 
Comments by Canada on China's response to question 203 
261. Canada would like to emphasize that the Pa nel's attention to the cited paragraphs 
demonstrates how China ignores the specific c ontext of importation under GATT Article II and 
interprets individual words in a mechanistic fashion.    
262. China does this by misapplying the logic of the panel in Dominican Republic – Import and 
Sale of Cigarettes . GATT Article XI:1 applies to the whole  of the importation phase, and to direct and 
indirect import and export restrictions.  Accord ingly, it may be appropriate to read into "on 
importation" the phrase "in connection with" in the context of Article XI, since the latter phrase 
connotes both a general phase of importation and the a pplication of direct and indirect measures to 
that importation phase.56  The distinction between the specifi c act of importation and the general 
importation phase is also seen in the different la nguage used in the first and second sentences of 
Article II:1(b) (i.e., "on or in connection with" in II:1(b), second sentence, refers to the general 
importation phase).  
263. A perfunctory reading of individual words does not satisfy the requirement of the interpreter 
to consider the language of a treaty provision in co ntext, and the light of its object and purpose, yet 
this is precisely what China proposes the Panel s hould do. 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".   
204. ( All parties ) If the Panel were to take into consideration the Panel Report in EEC – Parts 
and Components , should the Panel also take into account  the clarifications made by Mr. Groser, 
member of the Panel, at the GATT Council Meeting of 3 April 1990 (C/M/240, pages 21-23) on 
the scope and content of the report? 
                                                      
56 As the panel noted in Dominican Republic – Import and Sale of Cigarettes , Panel Report, at 
para. 7.258.  WT/DS339/R/Add.1 
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  Response of China 
 
264. China does not consider that the remarks of  Mr. Groser before the GATT Council Meeting 
materially alter the parties' unde rstanding of the panel report in EEC – Parts and Components,  or its 
relevance to the present dispute.   
265. As China explained in its first written submissi on, the principal relevance of the panel report 
in EEC – Parts and Components  is to highlight the important differences between the measures at 
issue in that dispute and the measures that the EC s ubsequently adopted to bring itself into conformity 
with its GATT obligations.
57  For the reasons that China explai ned, the measures at issue in the 
present dispute do not share the flaw  that the panel identified in EEC – Parts and Components,  in that 
the measures do not impose duties on parts and component s after they have entered free circulation in 
China.  Rather, like the revised EC measures, the assessment of dut y liability is based on the prior 
investigation of whether parts and components for a specific vehicle model should be classified as the 
complete article, and the declaration that the importer makes to customs authorities when the goods 
enter the customs territory.   
Response of the European Communities (WT/DS339) 
 
266. As a matter of principle the European Communiti es does not believe that statements made by 
one member of the panel should be taken into account for the purposes of interpreting an adopted 
panel report. It appears also that the discussion was pa rticularly prompted by preliminary points raised 
by the losing party i.e. the European Communities, which, as stated on p. 24 of the document, had not yet finalized its position. Subsequently the Europ ean Communities accepted to adopt the report. The 
European Communities does not see anything particular ly relevant for the present Panel proceedings 
in the observations of Mr Groser. In any event, it would seem systemically important not to give 
weight to ad hoc  observations made outside the scope of the standard panel proceedings. 
Response of the United States (WT/DS340) 
 
267. The Panel Report in EEC – Parts and Components should stand on its ow n and should not be 
considered to be altered by the subsequent comments of a member of that panel.  Mr. Groser noted 
this himself as the GATT Council Meeting minutes pr ovide:  "He stressed, however, that the Panel 
had completed its work with the circulation of the report and that the Panel's findings should be 
considered by the Council as they were set out in the report.  Nothing which he would say at the present meeting was, therefore, meant to add to, or detract from, the Panel's findings in L/6657." 
(C/M/240, page 21).   
Response of Canada (WT/DS342) 
 
268. The scope and content of the report must be dete rmined on the basis of the report itself, and 
not subsequent commentary. Canada notes that Mr. Groser's comments (on p. 21) were preceded by 
the caveat  that they were not "meant to add to, or detract from, the panel's findings" in EEC – Parts 
and Components . 
Comments by the European Communiti es on China's response to question 204 
269. The European Communities agrees wi th China that the remarks of Mr Groser are not relevant 
to the present dispute. 
                                                     
 
57 See China first written submission at paras. 54-61.   WT/DS339/R/Add.1 
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  270. China's other remarks in its reply are outside th e scope of the question. In this respect it is 
sufficient to refer to EC's reply to question 132 of the Panel. The European Communities is also 
puzzled by China's assertion that "the measures at issue in the present dispute do not share the flaw 
that the Panel identified in EEC – Parts and Components , in that the measures do not impose duties 
on parts and components after they have entered free circulation in China".  Under the EC measures 
condemned in EEC – Parts and Components , the parts were not considered in free circulation before 
being assembled and leaving the assembly or production plant 
58.  Thus, the EC measures – just like 
China claims for its measures – did not "impose duties on parts and components after they have 
entered free circulation in [the EC]".  The panel in EEC – Parts and Components  explicitly rejected  
the argument presented by the EEC based on the status of the goods as not being in free circulation (see paragraph 5.7 of the panel report). China's reference to EEC – Parts and Components is therefore 
erroneous. 
Comments by the United States on China's response to question 204 
271. In its response, China expands upon its argument  in paragraphs 54-61 of its first written 
submission to state that "the measures at issue in  the present dispute do not share the flaw that the 
panel identified in  EEC – Parts and Components , in that the measures do not impose duties on parts 
and components after they have entered free circulati on in China."  China did not in fact argue in its 
first submission that the EEC measures imposed du ties on parts and components after they "entered 
free circulation."  That was probably because the EEC  measure at issue expressly provided that the 
parts could only be considered to be in free circulation "insofar as they will not be used in an 
assembly or production operation...."
59  Thus under EEC law, the parts were not "in free circulation."  
That was of course a legal fiction, as is th e case with respect to China's measures.   
C. GENERAL INTERPRETATIVE RULE 2(A) 
205. ( Complainants )   In paragraphs 17 and 29 of its second written submission, China argues 
that the complainants' position is that China' s tariff rates for motor ve hicles apply only when 
the importer imports a completely finished moto r vehicle, fully assembled, with absolutely no 
parts missing based on the complainants' argu ment that paragraph 93 of the Working Party 
Report committed China not to apply GIR 2(a) to classify CKD or SKD kits as motor vehicles.  
Further, China states in footnote 5 that the United States believes that China is not allowed to apply GIR 2(a) under any circumstance.   
(a) Do you agree with China's statement ab ove?  If not, why not?  Under what 
circumstances, would China be allowed to apply GIR 2(a)?   
Response of the European Communities (WT/DS339) 
 
272. As set out by the European Communities in its first written submission, the ordinary meaning, 
context and object and purpose of headings 87.01 to 87.05 (and in particular headings 87.02 to 87.04) 
of China's tariff schedule clearly point to complete  motor vehicles. As further set out in its first 
written submission (in particular pa ragraphs 251 to 253), there are so me exceptional situations where 
the general explanatory note to Chapter 87 of the Ha rmonized System foresees that an incomplete or 
unfinished vehicle may be classified as the corresponding complete or finished vehicle provided it has the essential character of the latter. The explanator y note provides as examples "a motor vehicle, not 
yet fitted with the wheels or tyres and battery" and "a motor vehicle not equipped with its engine or 
                                                     
 
58 See EEC – Parts and Components , paras 2.5, 2.6, 3.8, 3.22  to 3.26, 3.35 and 5.5. 
59 EEC – Parts and Components , BISD 37S/132 at para. 2.5.    WT/DS339/R/Add.1 
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  with its interior fittings". In all cases where a la rge collection of automotive parts is presented to 
customs, the classification must be made on a case by case basis. In the light of the explanatory note 
to chapter 87, the overwhelming majority of the part s must be present and fitted together in order for 
the collection of parts to be classifiable as a co mplete vehicle. As the European Communities has 
acknowledged in its reply to question 118 of the Panel, it is prepared to accept that an SKD kit or even 
a CKD kit consisting of all parts necessary to make a complete vehicle could be classified as the complete vehicle provided only assembly operati ons are involved. Howeve r, China's reply to 
question 71 demonstrates that CKD and SKD kits ar e often subject to "further working operation for 
completion into the finished state" (see Note VII to GIR 2 (a)). 
Response of the United States (WT/DS340) 
 
273. The United States does not agree with China's statement.  Nothing in the position of the 
United States states or implies that China cannot apply GIR 2(a) to incomplete or unfinished 
automobiles having the essential character of a co mplete vehicle, or to automobiles presented 
unassembled or disassembled.  (As the United States has explained, China's measures – if considered 
to impose regular customs duties – go far beyond GI R 2(a) by classifying bulk shipments of auto parts 
as complete vehicles.)   
274. Contrary to China's contentions, Paragraph 93 of the Working Party Report has nothing to do 
with GIR 2(a).  Paragraph 93 states: 
Certain members of the Working Party expressed 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 
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.
60   
 China's argument confuses two very different  matters – tariff classification, and tariff 
treatment.  The HS Convention governs tariff classification at the 6-digit level, and provides no 
obligations  regarding tariff treatment.61  In fact, it is common for parti es to the HS Convention to have 
more detailed breakouts (for example, at the 8-di git level) and to use those 8-digit breakouts to 
provide different tariff treatment to articles that fa ll under the same 6-digit HS heading.  In contrast, 
Paragraph 93 addresses the tariff treatment of CKDs and SKDs – not their tariff classification.     
275. Because the HS Convention addresses tariff cl assification, and Paragraph 93 addresses the 
different matter of tariff treatment, China is wr ong in arguing that GIR 2(a) somehow presents 
conflicts between the HS Convention and the Working Party Report.  Rather, it is a simple matter for 
China to act consistently with both.  In par ticular, if China classifi es CKDs/SKDs under the HS 
heading for complete vehicles, it can (and indeed must under its Paragraph 93 obligation) provide a 
separate tariff breakout under that heading for C KDs/SKDs, and provide a tariff treatment of 10% for 
the CKD/SKD breakout.  As Canada has noted, it in fact is not unusual for countries to provide separate tariff lines for whole vehicles and for CKDs/SKDs.
62   
276. Moreover, the very text of Paragraph 93 refu tes China's argument that GIR 2(a) requires  that 
a complete vehicle and articles covered by GIR 2(a) (such as certain CKDs/SKDs) must enter under 
                                                      
60 WT/ACC/CHN/49 (Ex. JE-26). 
61 HS Convention, Art. 9 (Ex. JE-35).   
62 Second submission of Canada, para. 67.   WT/DS339/R/Add.1 
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  the exact same tariff line.  The text of paragra ph 93 explicitly notes the possibility that China might 
create separate tariff lines: ("If Chin a created such tariff lines ....).  
Response of Canada (WT/DS342) 
 277. No. Canada's position, as stated in paragra ph 70 of its second written submission, is that 
China can only charge the 25% rate on assembled vehi cles. But this does not mean that a vehicle can 
avoid the assembled rate merely by removing a si ngle part (such as wiper blades or tires). Members 
that have separate lines for CKDs in their na tional customs tariffs have procedures for such 
classifications.
63 
278. Canada submits that China's customs authorities have reasonable discretion, in keeping with 
relevant WTO obligations (e.g ., as set out in GATT Article X), to make a determination of whether a 
product, in the state in which it arrives at China's border, is "assembled" or a CKD/SKD. If it is the 
latter, even if classified as a whole vehicle, China is obligated to charge no more than a 10% duty in 
accordance with paragraph 93 of the Working Part y Report. Without prejudice to future disputes, 
Canada illustrates what it submits would be a reasonable approach, in keeping with China's 
commitments, taking as an example the picture Ch ina provided as Exhibit CHI-5, described by China 
variously as an SKD or a whole vehicle with its tires removed:64 
• If the shipment is a whole vehicle with only its tires removed, it would be reasonable for 
China to classify it as an assembled  whole vehicle and charge the whole vehicle rate.  
• If, however, the shipment is only an assembled body with chassis, but all other parts 
(e.g., engine, transmission, axles, etc.) were  shipped unassembled in the same shipment 
with that body and chassis, th en China could either classify the constituent parts 
separately and charge them the appropriate  rates (generally 10%), or classify the 
shipment as an unassembled  whole vehicle, and charge it at the CKD/SKD rate of 10%. 
Comments by China on Complainants' responses to question 205 
279. In response to this question, the United States cl aims that "if China classifies [CKD/SKD kits] 
under the HS heading for complete vehicles, it can ( and indeed must  under its Paragraph 93 
obligation) provide a separate tariff breakout under that heading for [CKD/SKD kits], and provide a 
tariff treatment of 10% …"65  Once again, the United States is engaged in a wholesale re-writing of 
the commitment that China actually made in paragraph 93 of the Working Party Report.   
280. All parties agree that, under the Harmonized System Convention, customs authorities must  
apply the General Interpretative Rules in the classifica tion of entries.  This requirement is stated in 
Article 3.1(a)(ii) of the Harmonized System Conve ntion (each Member "shall apply the General Rules 
for the interpretation of the Harmonized System …").  As a party to the Harmonized System 
Convention, the classification of CKD/SKD kits as moto r vehicles is not optional for China, as the US 
comment appears to suggest ("if  China classifies [CKD/SKD kits under the HS heading for complete 
                                                      
63 See for example, the Putale and Zyfert  cases, cited by Australia in its oral statement, which decided 
whether the imported products at issue fell under a particular tariff line in Australia's Customs Tariff for "assembled" motor vehicles. 
64 See paragraph 36 of China's first written submission,  describing the shipment as "SKD kits prepared 
for shipment to China" which "appear" to have only the tyres removed; and paragraph 20 of China's second written submission where it states that Exhibit CHI-5 is "a car with its tyres removed". 
65 US answers after second meeting at para. 45 (emphasis added).    WT/DS339/R/Add.1 
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  vehicles …").  Thus, what the United States is actually claiming is that China must  create separate 
tariff lines for CKD/SKD kits with a 10 per cent rate of duty.  Indeed, the US must believe that China 
was required to create these separate time lines when it acceded to the WTO , as China was a member 
of the Harmonized System at that time and was re quired to apply GIR 2(a) to the classification of 
CKD/SKD kits.   
281. Once again, the United States is trying to re-write a commitment that was expressly 
conditional (" if China created such tariff lines …") in to a commitment that was present and 
unconditional at the time that China joined the WTO ("China must  create such tariff lines …").  There 
is simply no basis for this re-writing of the commitment that China actually made.   
206. ( China )  Are the complainants required to make a prima facie  showing that China has 
misapplied the essential character test under GIR 2(a) to sustain their claims that China has violated Articles II or III of the GATT?  Please explain the legal basis for your answer. 
Response of China 
 282. The Appellate Body has explained that a complaining Member must "put forward evidence 
and legal argument sufficient to demonstrate" that the challenged measures are inconsistent with the 
relevant provisions of the covered agreements.
66  In the present dispute, the  complainants have opted 
to bring an as such  challenge to the challenged measures.  The Appellate Body has observed that: 
By definition, an "as such" claim challenges laws, regulations, or other instruments of 
a Member that have general and prospective application, asserting that a Member's 
conduct—not only in a particular instance that  has occurred, but in future situations 
as well—will necessarily be inconsistent with that Member's WTO obligations. In 
essence, complaining parties bringing "as such" challenges seek to prevent Members 
ex ante from engaging in certain conduct. The im plications of such challenges are 
obviously more far-reaching than "as applied" claims.67 
283. When challenging a measure as such,  the complainants "are required to present evidence as to 
the scope and meaning of the challenged measure, including, for example, the text of the measure 
supported by evidence of its consistent application."68  Likewise, "[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 su ch 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 …"69 
284. In respect of the essential char acter test, the fundamental problem with the complainants' case 
is that they have failed to present evidence and legal arguments sufficient to identify the specific 
instances in which the challenged measures will necessarily  result in a misapplication of this standard.  
As China explained in its oral statement at the second substantive meeting, the complainants have 
failed to define the boundaries of the essential charac ter test as it relates to parts and components of 
motor vehicles under Chapter 87 of the Harmonized System, and to substantiate those boundaries by 
reference to evidence and legal arguments.  Nor ha ve the complainants demonstrated a consistent 
                                                      
66 US – Wool Shirts  at p. 16.   
67 US – Oil Country Tubular Goods Sunset Reviews  at para. 172 (emphasis added).   
68 US – Oil Country Tubular Goods Sunset Reviews  at para. 257 (emphasis added).   
69 US – Carbon Steel  at para. 157 (emphasis added).   WT/DS339/R/Add.1 
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Page A-236 
  
  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, the Panel cannot find that the challenged measures, as such, 
are inconsistent with the essential character test under GIR 2(a).  
Comments by the European Communiti es on China's response to question 206 
285. The European Communities has made a prima facie  showing that the measures are 
inconsistent with Article 2 of the TRIMs Agreement  and Article III of the GATT 1994 and, 
alternatively, inconsistent with Article II of th e GATT 1994.  China has referred to the Harmonised 
System and GIR 2 (a) thereunder as its defence.  As a matter of principle it is for China to provide the detailed arguments why GIR 2 (a) justifies its measur es.  However, as a matter of fact the European 
Communities has demonstrated that under all the cr iteria under Articles 21 and 22 of Decree 125, the 
measures necessarily lead to tariff classification that is not consistent with the essential character test. 
In this respect the European Comm unities refers in particular to paragraphs 112 to 117 of its second 
written submission. 
Comments by the United States on China's response to question 206 
286. As an initial matter, as the United States has ar gued elsewhere, GIR 2(a) deals with the proper 
classification of items under the HS nomenclature and is  only relevant in the interpretation of China's 
schedule of tariff commitments (which in turn is relevant to the alternative claim of a breach of 
Article II).  If a charge is an internal charge a nd thus subject to Article III:2, then GIR 2(a) is 
irrelevant.  See  US response to Panel question No. 187.   
287. With respect to an alterna tive claim under Article II (should the Panel conclude that the 
charges are "ordinary customs duti es"), the United States has made a prima facie showing that China 
has breached its obligations under Article II and Chin a's schedule of tariff commitments. GIR 2(a) is 
not part of the WTO Agreement, and is not part of the US prima facie  case.  Rather,  China has raised 
arguments based on GIR 2(a) in an attempt to rebut the prima facie case.
70  That said, the United 
States has presented sufficient eviden ce and argument to sustain its claims on this issue.  See e.g., US 
responses to Panel question Nos. 116, 117, 128, 208, and 209.   
207. ( Canada )  Do you agree with China that one of the principal differences between the 
CBSA determination (on the disassembled furniture case) and Decree 125 is that Decree 125 
specifies the precise thresholds at which China w ill consider a collection of imported auto parts 
to have the essential character of a motor ve hicle and that by doing that, Article 21 of 
Decree 125 makes these measures more transparent and predictable to importers? (China's 
response to Panel question No. 124) 
Response of Canada (WT/DS342) 
 
288. No, Canada does not agree. Canada's Me morandum D10-14-38 Tariff Classification of 
Furniture Imported in Disassembled Condition (" the Memorandum") only affects those importers 
where there are proper grounds to suspect that they ordered a finished piece of furniture for retail sale 
(not where what was actually ordered was parts, unlike the measures), but had the parts shipped 
separately. Those importers should in any event ha ve based their business decisions on the tariff rate 
                                                      
70 Rebuttal submission of the United States, paras. 27-31.    WT/DS339/R/Add.1 
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  for finished furniture since that is what was actu ally ordered, so the possible application of the 
Memorandum to the shipment should not make their business any less predictable. They will have no 
additional administrative burden, nor will their cost s increase beyond what they would have projected. 
289. In contrast, China's measures provide uncertainty to importers of auto parts. Unlike Canadian 
practice regarding furniture as set out in the Memora ndum, where complete furniture is ordered, here 
auto parts must be declared as "Deemed Whole Ve hicles" in order to receive an import licence. 
Further, the measures ensure that every importer of  auto parts, unless they know that the imported 
parts will be used for retail sale as spare parts, must take account of the measures. The importer in 
China may not know who their ultimate customer is, or  whether the vehicle that will be produced with 
the parts has already been found to be subject to charges under the measures. Ev en if they knew that 
the ultimate vehicle was not covered by the measures,  and thus that imported parts used in it would 
not be Deemed Whole Vehicles, they do not know  if the vehicle will be re-assessed based upon a 
difference in valuation, or on changes in sourcing ( as illustrated in the exampl es described in the chart 
in Canada's first written submissi on, paragraph 65 – notably the third example for changes of sourcing 
and the fifth example for differences in valuation).  
290. The importer's contract with the vehicle manufacturer might in addition impose punitive costs 
on the importer if domestic-content levels from the pa rts supplier are not met. Further, even if the 
importer knows that the parts will not be Deem ed Whole Vehicles based upon the model in which 
they are eventually used, and even if they know that the model will never be reassessed such that the 
parts become Deemed Whole Vehicles (for example,  because the vehicle manufacturer goes to great 
lengths to ensure that it has more than enough domestic content), the importer still must track the 
imported content of its parts to comply with th e administrative burden imposed by the measures. 
208. ( Complainants )  Do you agree that national governments have the discretion, within 
their obligations under the GATT, in applying  their Schedules, to interpret whether a 
particular shipment of parts of a given pro duct has, on a case-by-case basis, the essential 
character of the whole? 
Response of the European Communities (WT/DS339) 
 
291. The European Communities is of the view that  the Harmonised System limits the discretion 
of the Members in applying their schedules under the GATT. As its name already indicates, the 
Harmonized System aims at harmonising the tariff classification of goods. However, in view of the 
variety of different goods in the market and the e normous volumes of trade in goods world-wide, it is 
not possible to write down exhaustive criteria for a ll possible situations that customs authorities may 
be faced with in their daily work. It is therefore necessary to have interpretative rules that apply in 
those exceptional situations where the nature of the good is not immediately apparent in the light of 
the headings of the schedules. The customs au thorities of the Members do possess this kind of 
practical and limited discretion, which however is guided by the objective of harmonised tariff 
classification. In this instance the discretion is lim ited by the notions of "as presented" and "essential 
character" and the specific Explanatory Note to chapter 87. 
Response of the United States (WT/DS340) 
 
292. The HS nomenclature does not in every instance  specify what does or does not constitute the 
"essential character" of a complete article.  Howeve r, the HS nomenclature does place limits on the 
determination.  For example, when a less than co mplete article has its own heading (such as a vehicle 
chassis), that item must be classified under its speci fic heading, and cannot be classified as a complete 
vehicle.   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-238 
  
  Response of Canada (WT/DS342) 
 
293. Canada agrees that Members generally have the discretion under Article II to apply lower 
tariff rates than the bound rates set out in their Schedule, as long as that discretion does not violate 
Article II or other provisions of the WTO Agreement  (e.g., Most-Favoured-Nation obligations in 
Article I).  Canada also agrees that Members have  the discretion to classify parts which have the 
essential character of the finished good either as pa rts or as the finished good (as noted in the 
quotation cited in footnote 77 of Ca nada's second written submission), in accordance with the rules of 
the Harmonized System, including GIR 2(a) as appropriate.  However, China is not applying its 
Schedule within its obligations under the GATT , but instead acts inconsistently with Article III, and 
acts as if it is only bound by its WCO obligations, which it erroneously applies. 
209. ( Complainants )  If your answer to the previous qu estion was yes – do you believe that 
this discretion is somehow different if a Member sets 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?  What is the legal basis for your position? 
Response of the European Communities (WT/DS339) 
 
294. China's systematic treat ment under the measures of imported goods contrary to their objective 
characteristics and contrary to the explicit wording of the headings of schedules has nothing to do 
with discretion. The material conditions set out in Articles 21 and 22 of Decree 125 and their 
application under the 'multiple shipments' theory of  China amounts to tariff classification at will. This 
is anarchy, not discretion. Any general conditions  a Member applies under its schedules should be set 
out explicitly in the schedules and be otherwise c onsistent with its WTO ob ligations (Appellate Body 
Report in EC – Export Subsidies on Sugar , paragraphs 211 to 223). 
295. The European Communities accepts that Member s may adopt instruments and use documents 
that guide customs authorities and importers in the co ntext of particular kinds of shipments. However, 
such guidance must be in accordance with the Harmonised System and the Member's WTO 
obligations. 
Response of the United States (WT/DS340) 
 
296. 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 Harmonized System 
Convention – its obligations under the Harmonized System Convention.  Article 3(1)(a) of the 
Harmonized System Convention requires that each Cont racting Party is required to undertake that its 
Customs tariff and statistical nomenclatures shall be  in conformity 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 Subheading 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. 
  WT/DS339/R/Add.1 
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 Page A-239 
  
  297. If Decree 125 imposed customs duties, it would be inconsistent with the Harmonized System 
Convention because it does not apply the General In terpretative Rules and the Section Notes that 
require goods to be classified in their condition as imported under the heading that most accurately 
describes the good.  If Decree 125 were considered a valid interpretation of the Harmonized System, 
it would void (empty out) several headings and subheadings that specifically describe automobile 
assemblies, subassemblies, and parts.  
Response of Canada (WT/DS342) 
 298. Canada does not take issue with Members setting fo rth guiding criteria to apply to particular 
shipments of goods to determine their classification. This approach is illustrated with respect to kit 
cars in Canada (Exhibit CHI-17), and other shipments elsewhere (e.g ., EC Regulation 2127/2005, 
Exhibit CHI-14). However, Canada s ubmits that such criteria must be  in accordance with the rules of 
the Harmonized System and consistent with a Me mber's WTO obligations. Canada has set out in 
paragraphs 41-51 of its second writte n submission why the measures, even if applied to a single 
shipment of all parts at the border, do not cl assify in accordance with the requirements of the 
Harmonized System. 
210. China states in paragraph 43 of its second wr itten submission that "[t]he significance of 
the WCO's interpretation, as pertinent to this di spute, 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." 
(a) ( China )  Please elaborate on this statement based on the specific language of the HS 
Committee Decision at issue.  In other words, where in the Decision does China find support for 
such an interpretation? 
Response of China 
 299. The conclusion that the term "as presented" do es not preclude the application of GIR 2(a) to 
multiple shipments of parts and components arises as a necessary implication of the interpretation that 
the HS Committee adopted.  If the term "as presented"  were limited to a single shipment (however a 
"shipment" might be defined), it would not be co nsistent with this unders tanding of the term "as 
presented" to conclude that "the questions of  split consignments and the classification of goods 
assembled from elements originating in or arriving  from different countries" were "matters to be 
settled by each  country in accordance with its own national regulations."  Both of the circumstances 
referred to in paragraph 10 of the HS Committee decision necessarily entail an application of 
GIR 2(a) to classify parts and components that arrive in more than one shipment.  In finding that these 
are applications of GIR 2(a) to be determined by each country in accordan ce with its national laws 
and regulations, the HS Committee must have cons idered that the term "as presented" does not 
preclude these applications of GIR 2(a). 
Comments by the European Communities on China's response to question 210(a) 
300. Even China acknowledges now that these is nothi ng in the "decision" of the HS committee 
that explicitly provides for the unpr ecedented interpretation that China attempts to give of the notion 
of "as presented" in GIR 2 (a). China refers to a "necessary implication", which in reality amounts to a 
mere assertion by China. As th e European Communities stated in paragraph 27 of its second oral 
statement, the phrase "elements originating in or arriving from different countries" in that decision 
have absolutely nothing to do with the "multiple  shipments" theory China has invented for the WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-240 
  
  purposes of these Panel proceedings. The European  Communities also refers to its reply to 
question 210 (b) and paragraphs 100 to  111 of its second written submission. 
Comments by the United States on China's response to question 210(a) 
301. China mistakenly asserts in its response to Panel question No. 210(a), that: "Both of the 
circumstances referred to in paragraph 10 of the HS Committee decision necessarily entail an 
application of GIR 2(a) to classify parts and components that arrive in more than one shipment.  In finding that these are applications of GIR 2(a) to be  determined by each country  in accordance 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)."   
302. This is a mischaracterization of the meaning of the HS Committee "decision"
71 and the proper 
meaning of the term "as presented" and is inc onsistent with the proper interpretation of the 
Harmonized System.  As the complainants have expl ained, the "decision" does not make findings on 
this issue, and thus the HS Committee d ecision repeatedly cited to by China does not  stand for the 
proposition that GIR 2(a) applies to multiple shipment s of bulk parts.  Rather the "decision" notes that 
the question of multiple origin is not addressed by GIR 2(a).  See WCO Secretariat Response to Panel 
question 12.  See also US Responses to Pane l question No. 210, paragraphs 50 and 51.  
(b) ( Complainants )  Does the term "as presented", explicitly or implicitly, 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?  What is the legal basis for 
your view?   
 Response of the European Communities (WT/DS339)  
303. It is inherent in the ordinary meaning of the words "as presented" that it cannot include 
multiple shipments of goods presented to customs at  different times, different places, from different 
origins and destined for different importers. As the WCO secretariat has confirmed, "as presented" in 
GIR 2 (a) "could be understood to mean the mome nt at which the goods are presented to Customs or 
other officials with a view to classifying the goods  concerned in the Customs tariff or in the trade 
statistics nomenclatures" (point 1 of the reply from the WCO secretariat). 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', wh ich are necessary preconditions for China's position.  
304. Furthermore and more fundamentally, the Appellate Body has confirmed that "in 
characterizing a product for purposes of tariff classification, it is necessary to look exclusively at the 'objective characteristics' of the product in ques tion when presented for classification at the border" 
(EC – Chicken cuts , paragraph 246). The notion of multiple shipments of products 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. 
Response of the United States (WT/DS340) 
 
305. The United States interprets the term "as presen ted" as explicitly precluding the application of 
GIR 2(a) to shipments of goods that are not imported together.  The legal basis for this view is that 
                                                     
 
71 It is noteworthy that even the WCO Secretariat's re ference to Paragraph 10 is merely a portion of the 
"Summary Record," and not a decision  of the Harmonized System Committee.  See the WCO Secretariat's 
response to the Panel's question 11.        WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-241 
  
  contracting parties to the Convention of the Harmonized System are obligated to apply GIR 1 and the 
relevant section and chapter notes.  Under GIR 1, "c lassification 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 [other GIRs]."  Contracting Parties cannot ignore the 
physical condition of the merchandise and consider  what processes the importation will subsequently 
undergo to determine the classification.  In addition,  as the United States has explained, this view is 
based on the plain meaning of "as presented," and the fact that "as presented" replaced "as imported," and is intended to have the same  meaning.  Finally, the United States has explained that China's 
interpretation of "as presented" is completely  at odds with the object and purpose of the HS 
Convention of ensuring consistenc y of import and export statistics and of facilitating trade.   
306. The matter of split consignments, which was addressed in the 1995 decision, involves a 
different issue.  Indeed, China acknowledges this :  China states in its response to Panel question 
No. 138, that: "[A] 'consignment' is generally unde rstood to mean a set of goods handed over to the 
custody of a transport carrier for delivery, whether those goods are packed in one container or in 
multiple containers.  A consignment is 'split' when  the carrier breaks the consignment into multiple 
modes or stages of delivery (e.g., it loads the containers making up the consignment onto two 
different vessels).  There are a variety of reasons w hy this could occur, such as the need to balance 
loads (a consideration that is partic ularly relevant in air transport) or an opportunity to take advantage 
of costs savings in shipment."  Accordingly, th e treatment of split consignments mentioned in the 
HSC decision does not provide support for China's over-reaching measures.  The multiple shipments 
of motor vehicle parts that are deemed to be whol e motor vehicles per China's measures are not split 
consignments, but rather, multiple shipments of  goods from different countries that were never 
consigned for shipment together.   
Response of Canada (WT/DS342) 
 
307. Canada does not believe that it is necessary for th e Panel to come to a final determination of 
all the precise situations in which the term "as presented" in the Harmonized System may apply to 
certain shipments of multiple goods. That would be  a matter for the WCO, not the WTO. However, 
Canada does note, as was explained in the second oral h earing, that "as presented" refers to GIR 2(a) 
itself, not the peripheral and specific exception re ferred to in the WCO Decision. The WCO Decision 
simply referred to previous consideration of this matter, which, as Canada demonstrated in its second 
written submission,
72 was based upon practice relating to the ability of importers to classify certain 
products (notably machinery, and not motor vehicles) imported in separate shipments as one product. 
See also Canada's response to Question 224. Moreove r, Canada has shown clear subsequent practice 
that WTO Members who are also WCO members inte rpret "as presented" to mean classification based 
on the objective characteristics of a product in a single shipment.73  
308. China has failed to rebut this direct evidence. Instead, China's sole example was its suggestion 
that the United States has a rule that "any goods arriving on the same ship, and destined for the same 
consignee, will ordinarily be classified on a combined basis".74 Canada defers to its co-complainant 
on this point, but notes that the text cited in China' s oral statement, footnote 15, refers to what needs 
to be included on "one entry", and "entry" is defi ned in 19 C.F.R. § 141.0a as "documentation" – it 
therefore appears to apply to a documentary requirement, not classification.75 However, in any event, 
the US rule is not before this Panel, and if a WT O panel were to consider that question it would be 
                                                      
72 See para. 59, first three bullets. 
73 See above, at fn. 28. 
74 China's second oral statement, at para. 24. 
75 Exhibit CDA-37. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-242 
  
  very different since the principal issue in this di spute, the imposition of ordinary customs duties based 
upon the state of goods after they arrive in a Me mber's customs territory, would not be at issue.
76  
309. The Panel can easily determine that the plain meaning of the terms of the Harmonized System 
as a whole, including the term "as presented" as contained in GIR 2(a), does not support China's 
erroneous interpretation of GIR 2(a) that it may aggregate shipments from different suppliers to 
different importers at different times from different countries based on the state of those shipments not 
as they arrive at the border, or as they first arrive  at China's customs, but based on their state after 
manufacturing. Further, as Canada has set out above and in its second written submission,77 China has 
not provided any evidence of Member practice showing otherwise.  
Comments by China on Complainants' responses to question 210(b) 
310. In response to Question 210(b), Canada states it "does not believe that it is necessary for the 
Panel to come a final determination of all the precise situations in which the te rm 'as presented' in the 
Harmonized System may apply to certain shipment s of multiple goods.  That would be a matter for 
the WCO, not the WTO."78  The United States, on the other hand, "interprets the term 'as presented' as 
explicitly precluding the application of GIR 2(a)  to shipments of goods that are not imported 
together."79  The EC likewise claims that "[i]t is inhere nt in the ordinary meaning of the words 'as 
presented' that it cannot include multiple shipments of goods presented to customs at different times, 
different places, from different origins …"80 
311. In point of fact, the WCO has now confirmed that members of the Harmonized System may 
apply GIR 2(a) to classify multiple shipments of parts and components as a single entity.  There is no 
better evidence of the complainants' inability to de fine and substantiate th eir understanding of the 
term "as presented" than the fact that, at this late stage in the Panel proceedings, one complainant 
appears to acknowledge the application of GIR 2(a) to multiple shipments, and takes the position that 
this particular application of GIR 2(a) is a ma tter for the WCO to resolve, while the other two 
complainants take the position that the applicati on of GIR 2(a) to multiple shipments is expressly 
prohibited – in contradiction to the decision of th e HS Committee.  These positions are simply not 
consistent with a clear and unambiguous understanding of the term "as presented." 
312. As China explained in response to question 228, it is not China's obligation to identify and 
prove the circumstances in which the challenged measures would necessarily be consistent  with its 
WTO obligations.  Rather, it is the complainants'  obligation to identify and prove the circumstances in 
which the challenged measures would necessarily be inconsistent  with China's WTO obligations.   
(c) ( All parties )  The WCO stated in response to the questions from the Panel (page 4) that 
"[d]ecisions of the HS Committee, including the Explanatory Notes and any amendments thereto, are not binding (See Article 3.1(a) of th e Convention).  Contracting Parties to the HS 
are requested to inform the Secretariat in case th ey are not able to implement any decision by 
the HS Committee.  The Secretariat has not rece ived such a notification with respect to the 
decision at hand."  In this regard, what are the implications that arise when no contracting 
                                                     
 
76 The provision dealing with liability for duties in  the part cited by China (at 19 C.F.R. § 141.1) 
notably emphasizes that, with respect to customs dutie s, "Duties and liability for their payment accrue upon 
imported merchandise on arrival of the importing vessel within a Customs port". 
77 At paras. 53, 54 and 57. 
78 Canada answers after second meeting at p. 19. 
79 US answers after second meeting at para. 50. 
80 EC answers after second meeting at para. 44.    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-243 
  
  parties to the HS have informed the WCO Secret ariat that they are not able to implement the 
HS Committee Decision at issue?  Does it mean that the Decision is in fact binding on the 
Contracting Parties as China submits? 
Response of China 
 
313. As China explained in response to question 111, the question of whether the decision of the 
HS Committee is formally binding on the WCO member s is not relevant to the present dispute.  As 
China has explained, in finding that the application of  GIR 2(a) to multiple shipments is a matter to be 
resolved under national laws and regulations, th e WCO has necessarily interpreted GIR 2(a) as 
containing no prohibition on this particular applica tion of the rule, and has found that this application 
of the rule is not otherwise inconsistent with the Harmonized System.  The fact that the WCO Secretariat has received no notifications from WCO members concerning their inability to implement 
the decision of the HS Committee simply confirms that this decision of the HS Committee has not 
proven to be particularly controve rsial or detrimental to the opera tion of the Harmonized System.   
Response of the European Communities (WT/DS339) 
 
314. First of all it should be clarified that, from a technical point of view, the wording "Decision" 
of the HS Committee covers only the adoption of  Explanatory Notes, amendments thereto and 
Classification opinions. Despite of its heading, th e document China is referring to is a working 
document concerning the result of a technical discussion only. The only legally relevant decision 
taken was to amend Explanatory Note VII to GIR 2 (a) with respect to the relevant assembly operations. 
315. Second, the HS Committee decision is from 1995 while the Recommendation of the Customs 
Co-operation Council on the Application of the Harmonized Committee Decisions was adopted in 
June 2003. There is no suggestion that the recommendation is to apply retroactively. 
316. Third, both under the Harmonized System Convention and under Community law the WCO's 
decisions (i.e. Explanatory Notes, amendments th ereto and classification opinions) are not binding 
irrespective of the fact whether the WCO has or h as not received a notification from a Member of the 
HS Convention concerning such decisions. This is  confirmed by the secretar iat of the WCO in its 
reply to the Panel. 
Response of the United States (WT/DS340) 
 
317. As the United States indicated in its response to Panel question No. 111, in the context of the 
Harmonized System, a decision taken by the Harmonized System Committee is not legally binding on its members.  Decisions of this committee are consid ered advice and guides to the interpretation of the 
Harmonized System.  US Customs authorities consider  that these decisions often provide valuable 
insight into how the Harmonized System Committ ee views certain provisions.  In rendering its 
decisions, the Harmonized System Committee "also us ually decides whether the decision merits an 
amendment to the Explanatory Not es, the issuance of a classification opinion to be added to the 
Compendium, or to merely report the decision in th e report of the session.  If the decision results in 
amendments of the Explanatory Note or goes into the Compendium, then it should receive 
considerable weight ...  Decisions of the Harmonized  System Committee that are merely given in the 
report should be given little weight."  See Treasury Decision (T.D.) 89-80, which sets forth the US position as to the proper guidance on the use of certain documents for interpretation of the 
Harmonized System.  (Ex. US-4)  Since its implementation of the Harmonized System in 1989, the WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-244 
  
  US Customs administration has cited this Treasury  Decision routinely in administrative rulings on 
tariff classification matters.   
318. There were two "decisions" taken by the WCO as  reflected in Annex IJ/7 to Doc. 39.600 
(HSC/16- Report).  The first decision taken was to  remove the reference to "simple assembly" from 
the Explanatory Note to General Interpretative Rule  2(a).  With regard to the first "decision," US 
Customs authorities give this decision considerable we ight and have classified in accordance with the 
WCO's decision to remove the reference of "simple assembly."   
319. The second "decision" described in paragraph 10  of Annex IJ/7 to Doc. 39.600 merely 
indicated that neither the status of split consi gnments nor the classification of goods assembled from 
imported goods of various origins is within the jurisdiction of the HS Convention or the HS 
Committee.  The original comment was by the Nomenclature Committee.  The Nomenclature 
Committee was responsible for the interpretation of the Customs Cooperation Council Nomenclature 
(CCCN), which was predecessor to the Harmonized Sy stem.  As the "decision" was only reflected in 
the report of the Committee and no amendments we re made to the Explanatory Notes, nor was a 
Classification Opinion adopted, we find that paragraph 10 has little weight as it is not an enforceable 
decision of the Harmonized System Committee.  Rath er, the second "decision" is merely stating that 
guidance/action is not affirmatively stated by the WCO decision, and accordingly customs administrations have the responsibility to interpret their obligations under the Convention.  This does 
not mean that a member administration can abroga te the requirements of the General Interpretative 
Rules by regulation at the domestic level.  
320. It is not surprising that the WCO Secretariat has not received notification that a Contracting 
Party has not been able to implement the second "d ecision."  The HS Committee "decision" is not one 
that could be implemented by the Contracting Parties as it was not a decision but a statement that matters were not within the purview of the Harmonize d System.  As such, the lack of any notification 
does not create any legal inference.   
Response of Canada (WT/DS342) 
 
321. First, Canada notes that this WCO decision was concluded in November 1995, yet the WCO 
only issued the Recommendation of the Customs Co-operation Council on the Application of the 
Harmonized Committee Decisions on 30 June 2001.
81 Therefore, any application of the "deemed 
acceptance" principle could only appl y to WCO decisions after this date. There is no mention that it 
should be applied retroactively. For this reason,  the WCO Decision is outside the purview of the 
deemed acceptance principle. 
322. Second, WCO decisions are non-binding, so ev en a "deemed acceptance" principle cannot 
render them binding. This would contravene the Harmonized System Convention . While Article 8 of 
the Convention  provides for acceptance of WCO decisions, th is does not change the fact that such 
decisions, even if accepted, are merely "advisory" and only constitute "guidance" under Article 7. The 
WCO itself confirmed this in response to Question 5 when it stated "the nature of the commitments 
posed by explanatory notes, classification opinion s and other advice rendered by the Committee, even 
when specifically approved by the C ouncil pursuant to Article 8 of the HS Convention, is in the nature 
of advisory rather than conventional " [emphasis added]. 
                                                      
81 Customs Co-operation Council, Recommendation on the Application of the Harmonized System 
Committee Decisions , 30 June 2001 (Exhibit CDA-40).  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-245 
  
  323. Third, as previously noted to the Panel, this WCO decision has been taken out of context by 
China. Its focus is with respect  to assembly operations; a decision subsequently reflected in 
Explanatory Note VII. The split shipment issue was peripheral and never incorporated into an 
explanatory note. Further, as noted in Question 21 0(b), above, the reference to split or multiple 
shipments in the Committee Decision in question did not  require a particular classification practice. It 
simply referred to previous consideration of this matter, which, as Canada demonstrated in its second 
written submission,
82 was based upon practice relating to the ability of importers to classify certain 
products (notably machinery, and not motor vehicles) imported in separate shipments as one 
product.83 Motor vehicles were excluded from the list of products in the original Combined Customs 
Nomenclature decision. 
324. Last, Canada would point out that the situation might be different in the case of HS 
Committee decisions that require a certain practice to be followed. Those decisions are not binding, 
but are usually followed by WCO members in order to maintain consistent trade and classification 
practices. The obligation to inform the Committee is  independent from the non-binding nature of the 
decision. 
Comments by the European Communities on China's response to question 210(c) 
325. The only legally relevant decision under GIR 2 (a) taken by the HS committee was to amend 
Explanatory Note VII to GIR 2 (a) with respect to relevant assembly operations.  The European 
Communities refers to its reply to question 210 (c). 
Comments by the United States on China's response to question 210(c) 
326. In its response to Panel question No. 210(c), China interprets the WC O "decision" as dealing 
with the "finding that the application of GIR 2(a) to multiple shipments is a matter to be resolved 
under national laws and regulations, the WCO has ne cessarily interpreted GIR 2(a) as containing no 
prohibition on this particular application of the rule , and has found that this application of the rule is 
not otherwise inconsistent with the Harmonized System."   However, the HS Committee did not 
address the question of "multiple shipments".  In stead, the HS Committee discussed the question of 
"split consignments" and the determin ation of "origin" of goods from  different countries.  See First 
Response of WCO Secretariat, page 1, para. 4, and US Responses to Panel question No. 210(c), which 
explains this point in greater detail.   
211. ( European Communities )  The European Communities states in paragraph 78 of its 
second written submission that "in this case, the cl assification of auto parts can be determined 
on the basis of the terms of the headings" and in paragraph 93 that "GIR 2(a) is of extremely limited relevance for the present case."   
 Can the classification of auto parts under China's Schedule be determined on the basis 
of the terms of the headings only?  If yes, what would be the relevance of the General 
Explanatory Note to Chapter 87, which explicitly refers to GIR 2(a), to the interpretation of the 
products falling under Chapter 87?   
                                                     
 
82 See para. 59, first three bullets. 
83 This practice is discussed in more detail in response to Panel Question 224. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-246 
  
  Response of the European Communities (WT/DS339) 
 
327. As the European Communities has pointed out inter alia  in paragraph 94 of its second written 
submission (see also paragraphs 251 to 253 of its fi rst written submission), recourse to GIR 2(a) can 
only be relevant in very specific individual cases as  presented to customs and not at the level of 
China's tariff schedules generally as China insists. Chapter 87 of Ch ina's tariff schedules contains no 
additional condition. As the European Communities has stated inter alia  in its reply to question 139, 
GIR 2 (a) is not relevant in interpreting a Member's schedule generally unless one assumes a very 
specific product or a combination of products that are presented to customs at the same time. General 
Explanatory note to Chapter 87, which is a particul ar application of GIR 2 (a) in the context of 
Chapter 87, provides for a tool in exceptional borde rline situations to be applied on a case by case 
basis. Therefore, and as stated inter alia  in paragraph 91 of the European Communities' second 
written submission, in the overwhelming majority of cases it is a simple task to interpret the notions 
of 'motor vehicle' and 'parts' of such motor vehi cles. Therefore, the General Explanatory Note to 
Chapter 87 is relevant in the excep tional individual situations foreseen by the examples of that note. 
328. To put the question in context, the classification of a brake cylinder, or of a product fulfilling 
the conditions of heading 87.06 "chassis fitted wi th engines" would not necessitate recourse to 
GIR 2 (a) and the General Explanatory note to Ch apter 87 because the classification of the product 
would be clear on the basis of the heading. 
212. ( All parties )  Do "split consignment" and "eleme nts originating in or arriving from 
different countries" mentioned in paragraph 10 of  the HS Committee Decision refer to the same 
situation or two different situations?   
Response of China 
 
329. As China discussed in response to question 138 from the Panel, paragraph 10 of the HS 
Committee Decision refers to two different circumst ances.  This is evident 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 sentence concludes that these are 
"matters  to be settled by each country in accordance with  its own national regulations."  The plural 
structure of the sentence clearly indicates that the pa ragraph refers to two different circumstances.   
Response of the European Communities (WT/DS339) 
 
330. The European Communities refers to its reply to question 138, where it stated that these are 
inter-related issues that concern trade facilitation. In the context of some very large or complex 
machinery that are difficult to transport in one si ngle consignment, the importer may wish to declare 
the product as a single product irrespective of the fact  that the elements of the product are split into 
different consignments for transportation purposes.  The latter part of the sentence referring to 
"elements originating in or arriving from different count ries" refers in this cont ext to rules of origin as 
clarified by the secretariat of the WCO.  
Response of the United States (WT/DS340) 
 
331. The terms "split consignments" and "elements or iginating in or arriving from different 
countries" as mentioned in paragraph 10 of the Harmonized System Committee decision (CHI-29) refer to two separate situations.     WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-247 
  
  332. First, with respect to "split consignments," a "consignment" consists of 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 consignment into multiple 
deliveries (e.g., it ships the containers maki ng up the consignment on different vessels).  
333. Second, with respect to "elements originating in or arriving from different countries," the 
United States believes that this is a reference to th e determination of the country of origin of imported 
goods that consist of parts originating from more than one country.  The United States does not agree 
with China's manipulation of the definition of "g oods assembled from elements originating in or 
arriving from different countries, "as explained in Un ited States' rebuttal to Ch ina's response to Panel 
question No. 138.  China has asserted that this phrase means "the classification of goods assembled 
from imported parts and components (or 'elements') th at arrive in the customs territory in multiple 
shipments."  China's self-serving definition is mere  conjecture given that the decision identified in 
paragraph 10 does not include a definition of th is phrase and China has not identified any other 
documents promulgated by the HS Committee th at would support its interpretation.   
334. Furthermore, China's interpretation also disregar ds the HS Committee's reference to "different 
countries," as China asserts that this reference " cannot mean that the decision of the HS Committee 
applies only in the case of goods assembled from more than one exporting country" because this issue 
would be relevant only in the context of the applic ation of the Rules of Origin.  The United States' 
interpretation is supported by the letter dated 20 June 2007 from the S ecretary General of the WCO in 
response to the Panel's request for technical advice.
84  In that letter, the Secretary General states that 
"[t]he phrase 'elements originating in or arriving from different countries' encompasses the possibility 
of goods being of (preferential o[r] non-preferential) origin from the country of shipment or from 
another country."  (emphasis in original).  
Response of Canada (WT/DS342) 
 
335. Canada believes that the reference is to two diffe rent concepts. The first, as discussed in more 
detail in response to Question 224, refers to practices relating to allowing importers to classify certain 
separate shipments of a single product as one item.  The second refers to the situation where a 
particular shipment may have elements of differe nt origin, in accordance with particular rules of 
origin. 
Comments by the European Communiti es on China's response to question 212 
336. As explained by the European Communities in paragraph 106 of its second written 
submission, China's position on this issue has evolve d throughout these Panel proceedings.  This in 
itself demonstrates that China has entirely invented the "multiple shipments th eory".  The secretariat 
of the WCO was very clear in its reply when stat ing that "the phrase 'elements originating in or 
arriving from different countries' encompasses the possi bility of goods being of  (preferential or non-
preferential) origin  from the country of shipment or from another country" (emphasis in the original). 
The textual arguments provided in China's reply to  question 212 ignore the fact that paragraph 10 of 
                                                      
84 As the United States noted at the second substantive meeting, the WCO Secretariat has no legal 
mandate under the HS Convention to issue authoritative interpretations of the HS Convention.  Accordingly, 
statements from the WCO Secretariat ar e only informative to the extent that such statements provide reasoning , 
documents, or information that the Panel might find help ful in interpreting the HS Convention.  Thus, in each 
and every case in this submission where the United States re fers to a response of the WCO Secretariat, it is only 
because the United States views that particular response as being helpfu l in understanding the HS Convention, 
and not because the United States views the WCO Secretaria t statements as being authoritative interpretations of 
the Convention.   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-248 
  
  the decision makes a passing reference to these 'matte rs' in one single sentence.  Had there been two 
genuinely separate issues at stake, the text of the decision would have made that very clear. 
213. ( China )  Where does China consider a multiple shipment situation encompassed by 
China's measures falls under, "split consignments" or "elements originating in or arriving from 
different countries" in paragraph 10 of the HS Committee Decision?  Please explain your 
response in detail with supporting evidence. 
Response of China 
 
337. In practice, Decree 125 could apply to either circumstance, although it will generally apply to 
the second circumstance referred to in paragra ph 10 of the HS Committee Decision.  An auto 
manufacturer could, for example, import parts and components for a registered model as part of a 
single consignment, but split that single consignm ent into multiple shipments.  Decree 125 would 
apply to this circumstance in th e same manner as it applies to parts and components for a registered 
vehicle model that enter China under multiple consignments.  Decree 125 does not distinguish 
between these two circumstances, and thus China cannot  provide the Panel with a specific estimate of 
the prevalence of these two circumstances.  Howeve r, China expects that most auto parts and 
components for registered vehicle models enter China under multiple consignments.   
Comments by the European Communiti es on China's response to question 213 
338. As explained by the European Communities in paragraph 106 of its second written 
submission, China's position on this issue has evolve d throughout these Panel proceedings. As China's 
reply demonstrates, its position is still not entirely clear. Reply to question 213 provides for another 
attempt by China to establish its position. The European Communities notes that China does not 
provide any evidence despite the question explicitly requiring so. 
214. ( All parties )  Regarding the meaning of "element s originating in or arriving from 
different countries" mentioned in paragraph 10 of the HS Committee Decision, the WCO 
responded that "it encompasses the possibility of goods being of (preferential or non-preferential) origin from the country of shipme nt or from another country."  What are the 
parties' views on the WCO's response? 
Response of China 
 
339. China does not fully understand the basis for the WCO's statement, as it is well established 
that the classification of an article is unr elated to the determination of its origin.
85  The HS Committee 
has no responsibility for matters pertaining to Rules of Origin; this is the responsibility of the WCO 
Technical Committee on Rules of Origin.  While there is some discussion in the HS Committee 
Decision concerning the relationship between GIR 2(a) and Rules of Origin, the decision notes the 
views of several delegates "who felt that the Rule s of Origin had nothing to do with the General 
Interpretative Rules which provide solely for the classification of goods in the Harmonized System."86   
340. The lack of any relationship between GIR 2(a) and Rules of Origin may explain why the 
WCO Secretariat stated only th at the second circumstance descri bed in paragraph 10 of the HS 
Committee Decision " encompasses the possibility of goods being of (prefere ntial or non-preferential) 
origin from the country of shipment or from another country."  The WCO Secretariat did not state that 
                                                      
85 See, e.g ., CDA-18 at p. 4 ("The origin never affects classification."). 
86 CHI-29.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-249 
  
  this was the exclusive circumstance or concern underlying the HS Committee's reference to "goods 
assembled from elements originating in or arriving from different countries." 
Response of the European Communities (WT/DS339) 
 341. The European Communities agrees with the repl y of the WCO secretariat. This notion refers 
to rules of origin in the context of a split shipment. 
Response of the United States (WT/DS340) 
 
342. According to the WCO Secretariat, the phrase "elements originating in or arriving from 
different countries" as set forth in paragraph 10 of the HS Committee's Report in CHI-29 encompasses the possibility of goods being of (pre ferential o[r] non-preferential) origin from the 
country of shipment or from anothe r country." (emphasis in original).  The United States agrees with 
this statement.  In this context, the United Stat es believes that the issue of determining origin is 
beyond the scope of GIR 2(a) and is a matter to be  resolved by national la ws in accordance with any 
other appropriate international standards.   
343. The United States is also of the view that the WCO Secretariat's response undermines China's 
interpretation of the phrase "elements originating in  or arriving from different countries" as "the 
WCO's official interpretation of GIR 2(a) as applied to the classification of articles that are assembled from multiple shipments of parts and components."  (See China's response to Pa nel question No. 111.)  
China has not identified any evidence that would s upport its interpretation th at multiple importations 
of parts and components from a single exporting country  are involved in this scenario.  (See China's 
response to Panel question No. 138.)  China's inte rpretation also disregards the Committee's specific 
reference to "different countries" in paragraph 10 an d argues that this reference "cannot mean that the 
decision of the HS Committee applies only in the case of goods assembled from more than one 
exporting country" because this issue would be relevant  only in the context of the application of the 
Rules of Origin.  However, the WCO Secretariat' s response (as cited above) helps demonstrate that 
the issue is only relevant to the determination of origin.  
Response of Canada (WT/DS342) 
 
344. As noted in response to Question 212, above, Ca nada agrees with the WCO that the reference 
is to elements of a shipment that may be of different origin. 
Comments by the European Communiti es on China's response to question 214 
345. The European Communities understands the reply of China as disagreeing with the reply of 
the WCO secretariat.  The last sentence of Chin a's reply amounts to stating that since the WCO 
secretariat did not explicitly state that its reply is  exhaustive, there must be something more to the 
'decision' and that 'something more' must be China's position in this dispute. It goes without saying 
that the European Commun ities respectfully disagrees. 
Comments by the United States on China's response to question 214 
346. The crux of China's view on the WCO Secretar iat's response is that the Committee did not 
state that the Rules of Origin were "the ex clusive circumstance or concern underlying the HS 
Committee's reference to 'goods assembled from elemen ts originating in or arriving from different 
countries.'" As the United States has explained in its response to Panel question No. 214, however, the 
phrase "elements originating in or arriving from diffe rent countries" mentioned in paragraph 10 of the WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-250 
  
  HS "decision" is intended to convey that "the i ssue of determining origin is beyond the scope of 
GIR 2(a) and is a matter to be resolved by natio nal laws in accordance with  any other appropriate 
international standards."  The United States also  notes that the WCO Secretariat did not identify any 
other circumstances or concerns in this context.   
347. The United States notes the WCO Secretariat's response to Panel question No. 11, wherein the 
WCO Secretariat indicated its belief that the phrase "the classification of goods assembled from elements originating in or arriving from different co untries" is a reflection of "the Committee's view 
that the determination whether multiplicity of origin shall affect applicability of GIR 2(a) is a matter 
left to each CP [Contracting Party to the HS Convention]."
87  Because GIR 2(a) only applies to goods 
in their condition when imported, the implication of this position is that when an importation contains 
goods of various origins that could be classi fied together as incomplete/unfinished or 
unassembled/disassembled under GIR 2(a), it is at the discretion of the national customs authorities as 
to whether that classification is permissible.  This understanding is c onsistent with the WCO 
Secretariat's statement (in response to Panel qu estion No. 11) that "[t]he HS does not direct 
[Contracting Parties] to classify entries differently or  alike at the HS level on the basis of single origin 
as opposed to multiple origin."  
215. Paragraph 10 of the HS Committee Decision refers to, inter alia , "classification of goods 
assembled from elements originating in or arriving from different countries."   
(a) ( Complainants )  Does "goods assembled" in paragraph 10 refer to "goods that arrive 
already assembled or goods that are to be assembl ed in the importing country"?  What is the 
legal basis for your position? 
Response of the European Communities (WT/DS339) 
 
348. The European Communities does not  believe that this aspect was considered by the HS 
committee in the decision. However, in view of th e fact that requests for treating split consignments 
as a single entry (see last sentence under point 2 of the reply of the WCO secretariat) are normally 
made in the interest of facilitating transport of comp lex and large machinery, it is reasonable to expect 
that the good has been disassembled for the purposes of transportation. 
Response of the United States (WT/DS340) 
 
349. The United States believes that the phrase "goods assembled" refers to both situations, i.e. 
goods that arrive already assembled and goods that ar e to be assembled.  The basis for this conclusion 
is the ordinary meaning of the text.  
Response of Canada (WT/DS342) 
 350. Canada's understanding is that the term refers  to goods that are to be assembled in the 
importing country.  This understanding is based up on consultation with Canadian representatives on 
the HS Committee.  However, a plain reading of the phrase might suggest that it refers to goods already assembled when they arrive . In any event, as Canada notes in response to Question 210(c), 
what is significant is that the reference does not provide evidence of practice consistent with the 
measures. 
                                                     
 
87 The WCO bases its belief upon a very limited context, that being only the "sole guidance" of the 
Summary Record.  In this particular instance, then, the WCO Secretariat's response to Question 11 is conjecture 
rather than an official interpretation.    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-251 
  
  (b) ( China )  In this connection, China states in its response to Panel question No. 110 that 
"the term 'as presented' must be interpreted to allow national customs authorities to apply the principles of GIR 2(a) to goods that are assembled domestically from multiple shipments of 
imported parts and components."  Could China please provide any evidence supporting its 
position that "goods assembled" in paragraph 10 of this Decision refers to "goods assembled 
domestically". 
Response of China 
 
351. The decision of the HS Committee would not make  sense if it referred to "goods that arrive 
already assembled."  The HS Committee Decision at issue is an interpretation of GIR 2(a).  As the references to split consignments and "goods assemble d from elements originating in or arriving from 
different countries" make clear, paragraph 10 of the HS Committee Decision relates to the second sentence of GIR 2(a), concerni ng goods that are presented unassembled or disassembled .  GIR 2(a) is 
not relevant to the classification of goods that arrive already assembled , and thus there would be no 
reason for the HS Committee to adopt an interpretation of GIR 2(a) as it relates to the classification of such goods. 
352. More generally, GIR 2(a), by its very nature, concerns the classification of goods that are 
assembled domestically.  When customs authorities a pply the second sentence of GIR 2(a) to classify 
unassembled or disassembled goods that have the ess ential character of the complete article, the 
presumption is that those goods will be assembled do mestically after importation.  GIR 2(a) directs 
customs authorities to classify unassembled or di sassembled parts and components as the complete 
article precisely because those parts and components are susceptible to assemb ly into the complete 
article after importation.  In this context, it is  not surprising that the HS Committee is discussing 
goods that will be assembled domestically from multiple  shipments of parts and components, as this is 
consistent with the general subject matter of GIR 2(a). 
Comments by the European Communities on China's response to question 215(b) 
353. Contrary to China's position in the reply, th e European Communities is  of the view that 
paragraph 10 of the 'decision' did not consider the notion of "as presented" in GIR 2 (a). 
Comments by the United States on China's response to question 215(b) 
354. China asserts that, as GIR 2(a) refers to goods that arrived unassembled or disassembled, the 
"decision" of the HS Committee would not make sen se if it referred to goods that arrive already 
assembled.  China's CKD kit example in its respon se to Panel question No. 175, however, provides an 
example of how an entry covered by GIR 2(a) could be assembled before it arrives at the border.  The 
example involved a CKD kit that, as China puts it, was "assembled" in Germany from parts produced 
in Germany and in other countries.  Thus in that circumstance there would be a CKD kit assembled  in 
Germany which, if the kit were sufficientl y developed, could be classified as an unassembled  "whole 
vehicle" upon its arrival in China.   
355. More importantly, China bases its response to this question on the premise that the "HS 
Committee Decision at issue is an interpretation of GIR 2(a)."  However, this is not an accurate 
description of the text cited by China, as that portion of the discussion by the HS Committee was not 
about the interpretation or application of GIR 2(a) , but the treatment of split consignments and the 
treatment of goods for origin purposes .  A fuller explanation of the proper interpretation of the HS 
Committee discussion can be found in the US Response to Panel question No. 212.  The United States 
would note that this interpretation is supporte d by the WCO Secretariat's response to Panel WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-252 
  
  question 11 in which the WCO Secretariat confirms that the passage cited is referring to origin and 
not classification and that the determination of origin  being affected by application of GIR 2(a) is a 
matter left to each Contracting Party.  
216. In response to Panel question No. 121, th e complainants have expressed, in essence, a 
view that China's illustration in paragraph 97 of its first written submission is overly simplified 
and alien to reality.   
(a) ( Complainants )  In particular, the European Communities states that "different auto 
parts are manufactured in different parts of the world and are genuinely shipped to the 
customers in separate shipments," and Canada st ates that "in normal manufacturing, parts are 
shipped at different times from different suppliers and undergo complex manufacturing processes at different plants in China or abroad be fore they are ready to be incorporated into a 
motor vehicle."  Could the complainants please point to any evidence that can support this 
commercial reality of automobile manufacturers in the parties' exhibits submitted so far to the 
Panel or otherwise, please provide such evidence. 
Response of the European Communities (WT/DS339) 
 
356. The European Communities refers in particular to Exhibits EC - 3 and EC - 4 that provide 
examples of different parts manufacturers in different  parts of the world in supplying the parts of a 
given vehicle. Further illustrations of the global stra tegy for the supply of auto parts are submitted in 
Exhibits EC – 27 to 33
88. 
Response of the United States (WT/DS340) 
 
357. Please refer to the United States' response to Pa nel question No. 176.  In addition, Exhibit 
US- 8 provides examples of the number and variet y of different parts and component manufacturers 
supplying parts to a particular vehicle.  JE-4 (pages 19-22) and JE-5 (pages 30-34) include lists of a 
number a major component suppliers operating in China.   
Response of Canada (WT/DS342) 
 
358. Canada has presented evidence relating to the co mmercial reality to which Canada refers, 
both in the existing evidence and in additional references, in response to Question 176(b), above. 
(b) ( European Communities )  The European Communities also states in its response that "to 
suggest that the manufacturer orders all of th e parts from one company, then separates the 
parts into different containers in order to benefit from the lower duty rates in China for parts is 
completely alien to reality.  However, even if such practices would exist, they would not 
circumvent the rules on customs classification."   Could the European Communities elaborate on 
this statement, including the basis for its posi tion that such practices would not circumvent the 
rules on customs classifications.  Response of the European Communities (WT/DS339) 
                                                     
 
88 See for e.g ., in "DaimlerChrysler AG Recognises Winners of the 2006 Global Supplier Award" 
(Exhibit EC-32, downloaded at www.ai- online.com): "Reflecting the trend of an automotive industry that still 
continues to become more global and interconnected ev ery year, the 2006 award recipients truly earn the 
description "globe trotter." With headquarters either in  Asia, Europe or North America, each of the supplier 
companies represent the growing global presen ce of the auto industry's supply base."  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-253 
  
   
359. Even in an entirely hypothetical situation where a vehicle is built, then disassembled, 
transported into China in several shipments a nd assembled again into a complete vehicle, the 
objective characteristics of the products presented for classification at the border consist of those 
entries that are presented to customs on a shipme nt by shipment basis. Unless all the parts are 
presented to customs at the same time and place, the goods would be classified as parts or, depending 
on the state of assembly, possibly as an intermediary  category such as "chassis fitted with engines" 
(heading 87.06) or "body without a cab" (headi ng 87.07). This is normal under the Harmonized 
System and entirely normal and legal under Article  II of the GATT 1994. Tariff differences and the 
risk of circumvention are irrelevant. 
360. In the real world of the automotive industry such operations would in any event be far too 
costly as the disassembly and reassemb ly together with the costs invol ved in multiple and overlapping 
transport operations and complex logistics woul d very quickly outweigh any tariff differential 
between complete vehicles and parts.  
(c) ( Other parties )  Do the other parties agree with the European Communities' statement 
quoted above in (b)? 
 
Response of China 
 
361. For the reasons that China has previously e xplained, China does not agree with the EC 
statement quoted in part (b) of this question.  Ch ina considers that the EC position allows form to 
prevail over substance in the classification of parts and components.  China further considers that the 
EC position is antithetical to the function that GI R 2(a) serves within the Harmonized System to 
distinguish between complete articles and parts of t hose articles.  If this delineation were entirely at 
the discretion of the importer through the manner in  which it structures and documents its imports, 
there would be no purpose in defining the circ umstances under which customs authorities may 
classify unassembled or disassembled parts and components as equivalent to the complete article.   
362. Under the EC's apparent interpretation, an im porter could enter the same collection of parts 
and components on the same ship, at the same port, and on the same day, and yet obtain a different 
customs classification merely by separating the part s and components into "different containers."  
This position would leave customs authorities utterl y without recourse to define and enforce the 
boundaries between complete articles and parts of t hose articles.  Any set of tariff provisions that 
established different 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 ta riff provision with the higher rate of duty would 
be automatically inutile.    
363. The EC's extreme form-over-substance position shar ply highlights the complainants' failure to 
articulate and substantiate an interpretation of GI R 2(a) and the term "as presented."  The EC has 
repeatedly advanced extreme (and,  in China's view, absurd) positions on key terms in this dispute, 
such as the term "as presented," without offering the slightest substantiation for these positions based 
on customary rules of public international law.  As China discusses in response to question 228, the 
complainants' failure to present evidence and le gal arguments to support these positions means that 
they have failed to meet their burden of proof in  bringing as such claims against the challenged 
measures.   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-254 
  
  Response of the United States (WT/DS340) 
 
364. If a manufacturer were to order all of the part s from one company and then, in order to obtain 
a lower duty, separate the parts into different cont ainers and make separate entry of each shipment, 
the United States would not find it to circumvent th e rules on customs classification.  See Exhibits 
US-9 and US-10 for examples of such a determination.   
Response of Canada (WT/DS342) 
 365. Canada agrees with the Eur opean Communities' statement. 
Comments by the United States on China's response to question 216(c) 
366. In response to Panel question 216(c), China asserts that: "[u]nder the EC's apparent 
interpretation, an importer could enter the same collection of parts and components on the same ship, 
at the same port, and on the same day, and yet obtain a different customs classification merely by 
separating the parts and components into 'different  containers.'  This position would leave customs 
authorities utterly without recourse to define and enforce the boundaries between complete articles 
and parts of those articles."  China's interpretation that customs authorities are utterly without recourse 
is incorrect.  As more fully explained in th e US Responses to Panel question Nos. 221 and 223, 
customs authorities must classify a good in its condition as imported.   
367. Further in its response to Panel question No. 216(c), China asserts that: "The EC's extreme 
form-over-substance position sharply highlights the comp lainants' failure to articulate and substantiate 
an interpretation of GIR 2(a) and the term 'as pr esented.'"  The US has submitted in response to 
several questions (See, e.g., US responses to Panel qu estion Nos. 210, 216(c), 218, 233, 236, 237) that 
the term "as presented" is clearly and uniformly understood by different customs authorities as meaning the condition of the good at the time of impor tation.  This view was also expressed by the 
WCO Secretariat's first response to questi ons posed by the Panel on page 1, 5
th paragraph.  
Comments by China on Complainants' responses to question 216(c) 
368. In response to question 216(c), Canada agrees with the EC's statement that it "would not 
circumvent the rules on customs classification" for an  importer to order a coll ection of parts from one 
company, and then separate the part s into separate shipments in order to obtain a lower rate of duty.  
China notes that Canada's agreement with the EC cannot be reconciled with the CBSA determination 
concerning disassembled furniture.  If importers are en titled to break a collection of parts into separate 
shipments in order to benefit from lower duty rates that apply to parts, then the CBSA determination 
is inconsistent with this principle.  The CBSA dete rmination is plainly applied against the interests of 
the importer and contrary to the manner in which the importer chose to structure its importation of 
parts.  The CBSA determination does this in order to ensure the collection of the higher duty rate that 
applies to complete furniture. 
(d) ( United States )  Does the United States believe 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 duty rate  that would apply to the complete article?  
Should an identical CKD kit be classified diff erently if it arrives in multiple shipments? 
  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-255 
  
  Response of the United States (WT/DS340) 
 
369. Under both the WTO Agreement and the Harmonized System, a good should be classified in 
its condition as imported.  Assuming that an impor ted CKD is a complete vehicle unassembled, it 
would be classified differently than the auto parts incl uded in such kits if such auto parts were to be 
imported separately.  Consistent with GIR 1,
89 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 assemb ly of a complete automobile.  Any measure that 
compels an auto manufacturer to provide proof of the post-importation assembly of many different 
imported parts, in their entirety, into a complete automobile does not retroactively confer to those 
parts at the time of importation the "essential charact er" of an automobile.  The United States does not 
investigate whether a manufacturer may be arranging multiple shipments in order to obtain lower duty 
payments, and does not consider such pr actice to constitute "circumvention."   
217. ( European Communities )  In response to Panel question No. 8, the European 
Communities stated that 30 per cent to 35 per cent of parts are common to different models: 
(a) ( European Communities )  Please provide documentary evidence to support this 
assertion. 
Response of the European Communities (WT/DS339) 
370. This question is closely linked to question 176 b). As stated in the reply to that question, the 
economic reality of the automotive industry is we ll illustrated by the notion of an "automobile 
platform", which is a shared set of components common to a number of different automobiles.  
371. The figure used by the European Communities in  response to question 8 is a very cautious 
one as depending on the vehicle category and the use of the "platform" the figure may be considerably higher. Of course a very specific model in the upper end of the price range ("the Ferrari range") may 
also have clearly less than 30 % of common part s but the average given by  confidential industry 
sources is in the range of 30 to 35 %. This is c onfirmed by information found on the internet stressing 
that for Honda "commonality between different models built on a platform is only
 20 – 40 % 
(30-40 % between cars and 20 % between cars and SUVs"90. Exhibits EC – 12 to 25 demonstrate how 
the industry is increasingly using such platforms common to many vehicle models in order to cut 
costs.  
(b) ( China )  If a particular part is used in the manufacturing of a registered vehicle model 
that is a "deemed whole vehicle" and is also u sed in the manufacturing of a registered vehicle 
model that is not a "deemed whole vehicle," when a shipment of those parts is presented to China's customs authorities, how is it classified? 
 
Response of China  
372. As stated in Article 15 of Decree 125, "[t]he automobile parts of each vehicle model shall be 
declared on a separate form."  Thus, if a part is common to a registered vehicle model and a non-
                                                     
 
89 For an explanation of GIR 1, see the United States' rebuttal to China's response to Panel 
question 13(b). 
90 Platform politics: Japanese automakers vary on their definitions of what constitutes a vehicle 
platform, Automotive Industries, January 2004 in Exhibit EC - 23, emphasis added. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-256 
  
  registered vehicle model, the importer will file separate declarations for imports of that part that are 
for use in a registered vehicle model.   
Comments by the European Communities on China's response to question 217(b) 
373. China's reply demonstrates very concretely th at the classification of a product depends on its 
internal use in China. 
Comments by the United States on China's response to question 217(b) 
374. China's response provides another example of how its measures, if they are viewed as 
imposing customs duties, classify parts with complete disregard of their physical characteristics.  The 
parts in this example are imported together and ar e physically identical and yet will be charged at 
different rates based solely on their purported end use.  The United States notes that the division of 
parts into separate declarations will be totally arbitrary, as the parts are the same and thus 
interchangeable.  Indeed, it is likely that once entered into China the parts will be treated 
interchangeably by the manufacturer, as maintaining the artificial division would create logistical 
difficulties.   
218. ( All parties )  Does the term "presented" referred  to in "as presented" and "presented 
unassembled or disassembled" respectively in the first and second sentences of GIR 2(a) have the same meaning?  If not, why not?  Does the term "presented" referred to in the first sentence 
of GIR 2(a) (as in "as presented") mean "as presented assembled "?   
Response of China 
 375. China does not perceive any reason why the meaning of "presented" would differ between the 
first and second sentence of GIR 2(a).  By implic ation, the first sentence of GIR 2(a) concerns 
incomplete or unfinished articles that are presented assembled  and that have the essential character of 
the complete article.   
Response of the European Communities (WT/DS339) 
 
376. The European Communities is of the view th at these notions denote the same meaning in 
time. In this respect reference is ma de to the reply to question 210 (b). 
377. The first sentence of GIR 2(a) lays down the general rule without considering whether the 
good has been assembled. The second sentence addresses the question of assembly. These two 
sentences have separate Explanatory Notes that gui de their interpretation. However, chapter 87 
contains a " lex specialis " in the form of an Explanatory note under GIR 2 (a). Under this " lex 
specialis" the conditions of GIR 2 (a) are clearly more likely fulfilled in an individual case if the 
goods are presented in an advanced stage of assembl y since the notion of "fitting" is used in the 
examples. 
Response of the United States (WT/DS340) 
 
378. The term "presented" has the same meaning in  the first and second sentences of GIR 2(a).  
The term "presented" refers to the condition of the me rchandise at the time of importation.  It is at the 
time of importation that merchandise is presen ted to national Customs authorities for tariff 
classification and the assessment of duties, which ar e necessary prerequisites to clear Customs.    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-257 
  
  379. The first sentence of GIR 2(a) provides that "[a]ny  reference in a heading to an article shall be 
taken to include a reference to that article incomp lete, or unfinished, provided that, as presented, the 
incomplete or unfinished article has the essential charact er of the complete or finished article."  The 
usage of the term "as presented" in this sentence re fers to the condition of an incomplete or unfinished 
article at the time of importation.  This sentence do es not suggest that the article must be "assembled" 
at the time of importation in order to be classified  in accordance with its having the essential character 
of the complete or finished article.   
Response of Canada (WT/DS342) 
 
380. Yes, they have the same meaning and refer to a point in time when the product is "presented" 
to customs. The first reference to "as presented" allo ws consideration of the article if it arrives at the 
border assembled, unassembled or disassembled, as long as it is incomplete or unfinished  (and meets 
the essential character criterion). In the second sentence,  "as presented" refers to the same point in 
time but to an article having different char acteristics than in the first sentence, i.e ., being complete or 
finished  and "arriving at the border" unassembled or disassembled. Obviously in the case that a 
product is both complete or finished and assembled,  GIR 2(a) is not applicable – the product would 
simply be classified in accordance with GIR 1.  
219. ( China )  China contends that part of the condi tion of the auto parts "as presented" at 
the border is the importer's decl aration that the parts will be a ssembled, with other imported 
auto parts, into a complete vehicle.  How do es China respond to Canada's contention at 
paragraph 32 of its oral statement that the importers do not voluntarily submit this documentation, but are required to do so as a means to obtain an import licence? 
Response of China 
 
381. China does not understand the relevance of this assertion.  There is nothing in the 
Harmonized System, or international customs prac tice generally, that prohibits customs authorities 
from requiring importers to submit certain documentation to ensure the correct classification of an import entry.  Underlying Canada's statement in pa ragraph 32 of its oral statement is the presumption 
that GIR 2(a) exists solely to benefit the im porter, a presumption for which it has provided no 
interpretive basis. 
382. As for Canada's assertion that the importer provi des the customs declaration in order to obtain 
an import licence, this is incorrect.  The import licen ce is obtained prior to the entry of the goods at 
issue, and is presented together with the customs declaration when the goods are entered.  In any 
event, as China pointed out at the second substantive meeting of the Panel, Article 2:2(a)(i) of the Agreement on Import Licensing Procedures  plainly contemplates that customs authorities can require 
compliance with national customs laws as a condition to the issuance of an automatic import licence.  
This would include laws that are necessary to  ensure the proper classification of entries. 
Comments by the United States on China's response to question 219 
383. Underlying China's response to the Panel's ques tion is the presumption that its requirement 
that importers make a declaration regarding the post-importation usage of their imported merchandise 
is a law that is "necessary to ensure the proper classi fication of entries."  The United States disagrees.  
As explained in the US rebuttal to China's res ponse to Panel question No. 134, China's process of 
"establish[ing] the relationship among multiple shipments of parts and components for assessing duties that apply to the completed article" is impermissible for purposes of classification under 
GIR 2(a).  In this context, the identity of the good that is imported must be demonstrable by the good WT/DS339/R/Add.1 
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  in its condition "as presented" for entry into the custom s territory, that is, at the time of importation.  
Separate importations of other parts and components (including by other importers) with which the 
good will be assembled in the importing country cannot  be considered in the classification of the 
good.  
Comments by Canada on China's response to question 219 
384. China confuses the clear message of paragraphs 31 and 32 of Canada's second oral statement.  
In paragraph 31, Canada made the point that Ch ina only looks to the cust oms declaration at the 
border.  Further, Canada was referring to two ty pes of documentation – the customs declaration and 
the documentation necessary to obtain the import licence its elf – that work together to ensure that any 
import licence is conditional on a prior determinati on of future liability under the measures.  An 
importer cannot import auto parts until it has satisfied  the requirement of the measures to account for 
imported content; any self-declaration that concludes that imported auto parts are not "Deemed Whole Vehicles" leads to a customs audit.  
220. ( China )  In paragraph 11 of its oral statement, China claims that the crucial issue is the 
interpretation of the term "as presented" that de fines the extent to which China can classify a 
shipment of auto parts and components based on  the evidence that it is one of a series of 
shipments of parts and components that are susceptible to being assembled into a complete 
vehicle.  Is being susceptible to being assembled into a complete vehicle different than 
comprising the essential character of a complete vehicle ?  If so, how?  If not, why not? 
Response of China 
 
385. The WCO noted in its response to the first set  of questions from the Panel that GIR 2(a) 
"call[s] for an analysis of th e susceptibility of the subject collection of parts to be assembled in 
accordance with the guidelines set forth in paragraph (VII) of the Explanatory Notes," i.e., in 
accordance with the types of assemb ly operations specified therein.  The methods of assembly 
specified by GIR 2(a) are distinct from the question of whether a collection of parts (whether assembled or unassembled) has the essential character of  the complete article.  Thus, they are not the 
same inquiry, although they are both necessary inqu iries under the second sentence of GIR 2(a) – the 
parts and components must be capable of assembly  ("susceptible" to assembly ) within the assembly 
parameters of GIR 2(a), and must have the essential character of the complete article.   
Comments by the European Communiti es on China's response to question 220 
386. The European Communities points out to the E xplanatory Note to chapter 87 of the HS 
nomenclature. The examples provided therein demonstrate that "fitting" is an important element in deciding whether a given collection of auto parts presented to customs at the same time have the essential character of the complete vehicle. China's cl aim in its reply to the question that the methods 
of assembly are distinct from the question whether a collection of parts has the essential character of 
the complete vehicle is therefore incorrect. 
Comments by the United States on China's response to question 220 
387. China asserts that: "[t]he methods of assembly specified by GIR 2(a) are distinct from the 
question of whether a collection of parts (whether assembled or unassembled) has the essential character of the complete article.  Thus, they are not the same inquiry, although they are both 
necessary inquiries under the second sentence of GIR 2(a) – the parts and components must be 
capable of assembly ('susceptible' to assembly) within the assembly pa rameters of GIR 2(a), and must  WT/DS339/R/Add.1 
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  have the essential character of the complete article."   China's response is based on the faulty premise 
that GIR 2(a) covers the aggregation of multiple shipments from multiple destinations.  As the United 
States has previously indicated, GIR 2(a) cannot be utilized by the methods described by China which 
ignore fundamental classification principles as set fo rth in the Harmonized System.  By its very 
nature, the Harmonized System is divided into cate gories or product headings beginning with crude 
and natural products and continuing  in further degrees of complexity through advanced manufactured 
goods.  Furthermore, China's proposed interpretation of  GIR 2(a) is completely incompatible with the 
HS Convention's object and purpose of ensuring the consistency of import and export statistics 
maintained by parties to the Convention.   
388. Contracting parties to the Convention of the Harmonized System are obligated to apply GIR 1 
and the relevant section and chapter notes.  Unde r GIR 1, "classification shall be determined 
according to the terms of the headings and any rela tive Section or Chapter Notes and, provided such 
headings do not otherwise require, according to the [other GIRs]."  Contracting Parties cannot ignore 
the physical condition of the merchandise and consider what processes the importation will 
subsequently undergo to determine the classification.  This is what China claims it has a right to do 
and it is, therefore, in breach of its obligations unde r Article 3 of the Harmonized System Convention.  
For further details about the proper scope and meaning of GIR 2(a) as it relates to "as presented" and 
"multiple shipments", we refer the Panel to the US Responses to Panel question Nos. 210(b) and 223.   
221. ( United States )  Please comment on China's argument in paragraph 24 (citing 19 CFR § 
141.51) of its second oral statement that any goods arriving on the same ship and destined for 
the same consignee will ordinarily be classified on a combined basis.  Please explain what the 
phrase "on one entry" means. 
Response of the United States (WT/DS340) 
 
389. China's argument in paragraph 24 of its second oral statement mischaracterizes the United 
States regulation.  According to China, the Unite d States "takes the position that any goods arriving 
on the same ship, and destined for the same consi gnee, will ordinarily be classified on a combined 
basis."  The legal basis for this assertion is 19 C.F. R. § 141.51, which provides, in relevant part, that 
"[a]ll merchandise arriving on one conveyance and cons igned to one consignee must be included on 
one entry."  (emphasis added) (Exhibit US-11)  The inclusion of merchandise on one entry, however, 
is not the same as what China ambiguously describes as "classifi[cation] on a combined basis."   
390. The phrase "on one entry" refers how the importer must present its customs documents.  An 
"entry" is "that documentation required by § 142.3 of this chapter [Chapter 19 of the Code of Federal 
Regulations] to be filed with the appropriate Cu stoms officer to secure the release of imported 
merchandise from Customs custody."  That documenta tion includes certain Customs forms, evidence 
of the right to make entry, commercial invoices, p acking lists, etc.  19 C.F.R. § 142.3. (Exhibit US-
12)  The requirement that merchandise imported by the same importer on the same conveyance must 
be included "on one entry" means only
 that all of this documentati on must be included together.  
Contrary to China's argument, section 141.51 does not require that every article included in the 
documentation must be classified under a single heading .  Instead, the relevant Customs entry form 
would contain a listing of each and every type of  merchandise imported on the conveyance and their 
separate corresponding tariff classifications .  Thus, the United States regulation 19 C.F.R. § 141.51 
does not (as China argues) draw the line between th e "form and substance" of an importation.  This 
regulation is merely a requirement involving the paperwork submitted by an importer. WT/DS339/R/Add.1 
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  Comments by China on Complainants' responses to question 221 
391. In responding to this question, the United States has misstated the relevance of its "one entry" 
regulation, found at 19 C.F.R. § 141.51.  China neve r argued that this regulation "require[s] that every 
article included in the documentation must be classified under a single heading. "
91  Clearly, if the 
importer imports tennis shoes and circuit breaker s on the same ship, those articles will never be 
classified under a "single heading."  China's point  was that if the importer enters parts and 
components that have the essential character of the complete article on the same ship, it must 
"present" those parts and components as a single en try.  The necessary conseq uence, which the United 
States does not deny, is that those parts and compone nts will be classified as the complete article in 
accordance with GIR 2(a).  In other words, the importer does not have the option of declaring those 
parts and components as "separate" entries and obtaining a preferable classification and tariff result on that basis. 
392. In the context of the present dispute, the releva nce of the US regulation is that the application 
of GIR 2(a) to parts and components is not at the discretion of the importer.  As the United States 
itself explains, the regulation concerns the manner in which the importer "must present" articles that 
arrive on the same ship.
92  Contrary to the US denial, this regulation does, in fact, draw a line between 
the form and substance of what the importer imports  – whatever arrives on the same ship, on the same 
day, is classified as if it were "presented" t ogether, no matter how the importer might otherwise 
choose to declare and "present" the various contai ners that it has placed on that ship.  As China 
explained in its oral statement to the Panel, this is simply where the United States  has chosen to draw 
the line between form and substance, but it is not a result that is prescribed either by the ordinary 
meaning of the term "as presented" or by the rul es of the Harmonized System, as the WCO itself has 
made clear.93 
222. ( All parties )  We note that the General Explanatory Notes to Chapter 87 refer to 
GIR 2(a).  Please point to any other chapters in the Harmonized System where a reference is 
made to GIR 2(a). 
Response of China 
 
393. GIR 2(a) is also referred to in the General E xplanatory Notes to Section XVI, and also in the 
Explanatory Notes to Chapter 90.   
Response of the European Communities (WT/DS339) 
 
394. In accordance with Explanatory Notes IV and V III to GIR 2 (a), cases covered by the Rule (or 
different aspects thereof) are cited at least in th e General Explanatory Notes to Section XVI and 
chapters 44, 61, 62, 86, 89 and 90. 
Response of the United States (WT/DS340) 
 
395. Reference to General Interpretative Rule 2(a)  can also be found in General Explanatory 
Notes (III), (IV) and (V) to Section XVI which cove rs chapters 84 and 85 of the Harmonized System 
and in General Explanatory Note (II) to Chapter 90.   
                                                      
91 US answers after second meeting at para. 69 (emphasis added).   
92 US answers after second meeting at para. 69.   
93 China oral statement at second su bstantive meeting at para. 25.    WT/DS339/R/Add.1 
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  Response of Canada (WT/DS342) 
 
396. Other areas of the Nomenclature that have refe rences to GIR 2(a) in their Explanatory Notes 
are Section XVI generally (Machinery and Mechanical Appliances, etc.),
94 and in Chapter 44 (Wood 
and Articles of Wood)95 in Section IX. Within Section XVII (Vehicles, Aircraft, Vessels and 
Associated Transport Equipment), Chapters 86 (Railway or Tramway Locomotives, etc.),96 87 and 89 
(Ships, boats and floating structures) all refer to GIR 2(a).97 
Comments by the European Communiti es on China's response to question 222 
397. The European Communities refers to its reply to question 222, which is more complete than 
the reply of China. 
223. ( Complainants )   China stated at the second substantive meeting that "the complainants 
appear to believe that the term 'as presented'  means that importers can 'present' parts and 
components of an article in whatever form they  wish.  In their view, the manner in which the 
importer 'presents' a collection of parts and compon ents determines their customs classification.  
Thus, for example, if an importer declares a collection of parts and components as 'separate' shipments, customs authorities must give effect to this declaration even if the parts and components arrive at the same port, on the same day, and have the essential character of the complete article."  (paragraph 21 of China's second oral statement)  Do you agree with China's description of the complainants' position above?   If so, what is the basis for such an 
interpretation? 
Response of the European Communities (WT/DS339) 
 
398. There is a very important difference between China's measures and the very specific example 
it refers to. The example of separate customs declarations concerning a collection of parts and 
components that arrive at the same port and on the same day and which would, if assembled together, 
have the essential character of the complete artic le has nothing to do with the Chinese measures. The 
measures impose a 25 % charge after parts that have arrived at different times, at different places, from different origins and which do not have the essen tial character of a complete vehicle even when 
                                                     
 
94 See Note (IV) ("Incomp lete Machines") and (V) ("Unassembled Machines"). 
95 See Headings 44.15 and 44.16. 
96 The relevant text is as follows: 
Incomplete or unfinished vehicles are classified with the corresponding complete or finished vehicles, 
provided they have the essential charact er thereof. Such vehicles may include: 
(1)Locomotives or motorised railway or tramway coaches, not fitted with a power unit, measuring 
instruments, safety apparatus or service equipment. 
(2)Passenger coaches not fitted with seats. 
(3)Truck underframes complete with suspension and wheels. On the other hand, bodies of motorised railway or tramway coaches, of vans, wagons or trucks or of 
tenders, not mounted on underframes, are classified as parts of railway or tramway locomotives or rolling-stock 
(heading 86.07). 
97 The relevant text is as follows: 
The Chapter also includes: 
(A)Unfinished or incomplete vessels (e.g., those not equipped with their propelling machinery, 
navigational instruments, lifting or handlin g machinery or interior furnishings). 
(B)Hulls of any material. 
Complete vessels presented unassembled or disassemb led, and hulls, unfinished or incomplete vessels 
(whether assembled or not), are classified as vessels of a particular kind, if they have  the essential character of 
that kind of vessel. In other cases, such goods are classified under heading 89.06. WT/DS339/R/Add.1 
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  fitted together just because the final vehicle does not have a sufficient proportion of domestic parts. 
China is simply using examples that are entirely alien to its measures. 
399. As a matter of principle customs have to classify the product according to its objective 
characteristics when presented for classification at the border. However, the customs authorities have 
the right and obligation to verify whether the d eclaration is correct. Under some circumstances the 
example provided by China could amount to a false customs declaration.  
400. The European Communities does not agree with  the presentation of the problem by China, 
which is giving the impression that importers are infringing the rules by changing the presentation of 
the parts. There is nothing illegal in importing the parts separately. As illustrated by the European 
Court of Justice in Case C-35/93 (Dr. Eisbein), the second sentence of Rule 2(a) must be interpreted 
as meaning that an article is to be considered to  be imported unassembled or disassembled where the 
component parts, that is the parts which may be  identified as components intended to make up the 
finished product, are all presented for customs clearance at the same time (Exhibit EC – 34, 
paragraph 19). 
Response of the United States (WT/DS340) 
 
401. It is not the position of the United States that the usage of the term "a s presented" means that 
customs authorities must give effect to every decl aration made by an importer.  Rather, customs 
authorities classify goods based upon their condition upon importation.  GIR Rule 2(a) requires that 
customs officials 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.  This view is supported by the stru cture of the Harmonized System itself, which 
specifically names certain parts in their own headi ngs (e.g., spark-ignition reciprocating or rotary 
internal combustion piston engines of heading 84. 07, transmission shafts of heading 84.83, chassis 
fitted with engines of heading 87.06, bodies (includi ng cabs) of heading 87.07) and contains headings 
for parts suitable for use solely or principally w ith motor vehicles (e.g., heading 87.08 which provides 
for parts and accessories of the motor vehicles of headings 87.01 to 87.05).  To classify all parts 
eventually incorporated into complete motor ve hicles as finished motor vehicles, per China's 
Decree 125, would empty many headings and subheadings of the goods specified therein.  
Response of Canada (WT/DS342) 
 
402. Canada does not agree with China's descripti on of the complainants' position. As Canada 
noted in its second written submission at paragra phs 18-26, the principal term at issue for the 
application of ordinary customs duties is "on their importation", which refers to the physical point at which products enter the customs territory of a Member. Nevertheless, as Canada set out in 
paragraph 23 of its second written submission, the term "as presented" refers to  the same concept of 
the state of a good at the point at which a Member's  customs authority receives it (rather than its state 
at any point so long as "customs procedures" still apply to the good, as China suggests), since those words were introduced "to make it quite clear that th e provisions of the [GIRs] concerned applied to a 
given article in the state in which it is presented for Customs clearance ." Canada again refers to the 
response of the WCO Secretariat to Question 1, regarding the meaning of "as presented". 
Comments by China on Complainants' responses to question 223 
403. What is most revealing about the complainants' responses to this question is their failure to 
answer it.  The complainants simply do not explai n whether parts and components that arrive at the 
same port, on the same day, and that have the essential character of the complete article, must  WT/DS339/R/Add.1 
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  nonetheless be classified as "parts" if this is how  the importer chooses to "present" them.  Having 
failed to take a position on this issue, they necessarily fail to provide any basis for such an 
interpretation of the term "as presented".   
404. The EC comes closest to answering the questi on, asserting that "[t]he example of separate 
customs declarations concerning a collection of part s and components that arrive at the same port and 
on the same day and which would, if assembled togeth er, have the essential character of the complete 
has nothing to do with the Chinese measures."
98  The EC nonetheless offers that "[u]nder some 
circumstances the example provided by China c ould amount to a false customs declaration."99 
405. The EC does not explain why the example posed by this question "has nothing to do with" the 
challenged measures.  The challenged measures do, in fact, apply to the circumstance in which parts 
and components arrive at the same port, on the sam e day, and have the essential character of a motor 
vehicle.  The EC's answer appears to suggest that, as applied to this circumstance , the challenged 
measures would be based on a proper understanding of the term "as presented."  Moreover, the EC's 
answer appears to suggest that the challenged me asures respond to a circumstance that "could amount 
to a false customs declaration" if the parts and components were not declared as a single entry. 
406. Once again, the complainants' answers highlight their inability to articulate and substantiate 
an interpretation of the term "as presented," and to define the circumstances under which the 
challenged measures are necessarily  inconsistent with a proper unde rstanding of this term.  We now 
have (1) the United States with its "same ship, same  day" regulation; (2) the EC's possible support for 
a "same port, same day" rule; and (3) Canada's view th at the application of GIR 2(a) to multiple 
shipments is a matter for the WCO to resolve.  Wh at the complainants have failed to provide is a 
consistent interpretation of the term "as presented, " supported by customary principles of international 
law, with which the challenged measures are necessar ily inconsistent.  For the reasons that China has 
explained, this means that the complainants have failed to meet their burden of proof.   
224. ( Complainants )  Is it the complainants' view that GIR 2(a) exists solely to benefit the 
importer?  If not, are there circumstances in whic h customs authorities, not importers, should 
or can determine the manner in which goods are presented in accordance with the principle of 
GIR 2(a)?  Please explain in detail. 
Response of the European Communities (WT/DS339) 
 
407. No, GIR 2 (a) is a general rule for the interp retation of the Harmonized System although as 
Explanatory Note V to GIR 2 (a) points out, the second part of the rule relating to unassembled or disassembled articles covers particularly situations where the unassembled state is due to reasons such 
as requirements or convenience of packing, handling or  transport. The question of the classification of 
split consignments is in the view of the European  Communities a matter to be considered exclusively 
on the basis of a request from the importer. This position is shared by the secretariat of the WCO (see 
point 2, last sentence of the reply of the WCO secretariat). 
Response of the United States (WT/DS340) 
 
408. It is not the United States' view that GIR 2(a) exis ts solely to benefit the importer.  It is likely 
that this characterization stems from a previous discussion wherein the United States explained that 
19 C.F.R. § 141.57 is a regulation for the benefit of importers who intended their goods to have been 
                                                     
 
98 EC answers after second meeting at para. 62.   
99 EC answers after second meeting at para. 63.   WT/DS339/R/Add.1 
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Page A-264 
  
  accommodated on a single conveyance for arrival in  the United States as a single shipment, but which 
were split after consignment to the carrier.  Unde r the regulation, single entry treatment for split 
shipments is limited to very narrow circumstances,  at the election of the importer, and certification 
that the entry was split at the election of the impor ter must be made when the goods are imported.  
This single entry treatment permits the classification of the split ships as a single importation.  
409. This aforementioned regulation is consistent with paragraph 10 of the HS Committee's 
inclusion of a prior decision of the Nomenclature  Committee in its Report (CHI-29), which indicates 
that questions of "split consignments … [are] to be settled by each country in accordance with its own 
national regulations."   
410. Under the Harmonized System, consistent with Article 3 of the HS Convention, classification 
is based on the Contracting Party's obligation to use all of the headings and subheadings of the 
Harmonized System without addition or modification, together with their related numerical codes; and 
to apply the General Rules for the interpretation of the Harmonized System and all the Section, 
Chapter, and Subheading Notes.  Article 3 specifica lly provides that the Contracting Parties shall not 
modify the scope of the Sections, Chapters, head ings or subheadings of the Harmonized System.  
Accordingly, 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 articles.    
Response of Canada (WT/DS342) 
 
411. Canada does not believe that GIR 2(a) exists so lely to benefit the importer. Canada has only 
argued, and shown, that the reference in the WCO Decision to separate shipments that China treats as 
paramount was intended for the benefit of importers , not GIR 2(a) itself, despite China's repeated 
efforts to stretch the complainants' arguments on this point to GIR 2(a).  
412. GIR 2(a) permits customs authorities to determ ine whether a good, based upon its state as it 
arrives at the border, has the essential character of a finished pr oduct. This involves elements such as 
visual inspection, reference to documents, and if necessary further testing or analysis (based upon the 
state of the good as it passed the border). Discretion fo r the importer mostly exists in the case of split 
shipments, where a single item is ordered but deliver ed in separate shipments because of the nature of 
the product (such as the "Functional Units" concept in  Canada's customs practice, to which Canada 
referred in the second oral hearing ; the EC law cited in China's first written submission, at para. 125 
(Exhibit CHI-24) and Japan's customs practice with respect to machinery cite d by Japan in response 
to Question 2) . As Canada noted in footnote 69 to its  second written submission, these sorts of 
practices formed the basis of the comment relati ng to split shipments in 1963, to which the 1995 HS 
Committee Decision referred. 
225. ( Canada )  Canada states in paragraph 13 of its second oral statement that "China even 
ignores the fact reflected in paragraph 11 of the WCO's reply to this Panel's questions, that GIR 2(a) has nothing to do with customs duties – that, in effect, China is standing the correct 
assessment of duties under Article II on its head ."  Is it Canada's view that GIR 2(a) has 
nothing with do with customs duties?  If so, what is the relevance of GIR 2(a) to the 
interpretation of China's tariff Schedule? 
Response of Canada (WT/DS342) 
 
413. The reference in Canada's second oral statemen t to GIR 2(a) having "nothing to do with" 
customs duties refers to the fact that GIR 2(a) is  a rule for the classification of goods. China attempts  WT/DS339/R/Add.1 
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  to turn a WTO dispute into a WC O dispute, and also ignores proper classification, starting with GIR 
1. Canada has pointed out (see paragraph 44 of its  second written submission) that classification is a 
prerequisite for assessment of duties, but, as the WCO points out in response to Questions 5 and 11, 
"[t]he application of customs duties is outside the legal purview of the WCO". This connects with the 
point that Canada makes in Section II.E of its second written submission that China is required by 
paragraph 93 of the Working Pa rty Report on its accession to provide  a 10% rate of duty on CKDs 
and SKDs regardless of classification. 
D. A
RTICLE II OF THE GATT  1994 
226. ( United States )  Should the assembly of "separately organized and shipped 'knock down 
kits'" be in any manner distinguished from ot her regular bulk shipments of parts for assembly 
purposes?   
Response of the United States (WT/DS340) 
 
414. The United States is not clear on what is enco mpassed by the phrase "separately organized 
and shipped knock down kits."  Nonetheless, the genera l rule for importations of auto parts is that 
unless they are presented as unassembled or disassembled vehicles under GIR 2(a), they would not be treated any differently than bulk importation of parts for assembly purposes.   
227. ( Canada )  Please elaborate on your response to Panel question No. 13(a), in particular 
your statement that "in the context of Article II, charges must be internal in order for this 
concept of 'circumvention' to apply." 
Response of Canada (WT/DS342) 
 
415. As Canada has argued, ordinary customs duti es must be imposed based upon the state of 
goods as they arrive at the border. China's measur es do not do that. Instead, China imposes charges 
based upon the state of the good at a point in time we ll after they arrive at the border – when those 
goods are later aggregated with other parts in a manufactured vehicle. Thus, for the concept of 
circumvention even to exist, it must apply to behaviour after the border once the goods are in the hands of manufacturers in the internal market.  
416. China's theory of circumvention is illustrated in Slide 1 of Canada's second oral statement. 
There is no evidence that such a simplistic scenario  would ever occur, but let us assume that it does 
for the sake of illustration. If Chin a imposed a charge on the vehicle manufacturer that had imported a 
set of parts in two shipments on the basis that it had "circumvented" appropriate tariff duties, this 
would not be an ordinary customs duty, as the charge would not be imposed on the parts "on their importation". It would be an internal charge, as it is imposed within China, and is neither an ordinary 
customs duty nor any other "border" charge permitt ed by GATT Article II. That internal charge 
might, in principle, be justified under Article XX(d)  as necessary to enforce customs duties – an issue 
discussed further in response to Question 284 – but it could not properly be characterized as the imposition of an ordinary customs duty. 
228. ( China )  In order for a certain measure to be found "as such" inconsistent with the 
WTO Agreement, does the measure have to be proved to always violate the WTO Agreement?  
Please provide legal support for your answer. WT/DS339/R/Add.1 
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  Response of China 
 
417. As noted in response to question 206, the Appellate Body has found that "[b]y definition, an 
'as such' claim challenges laws, regulations, or othe r instruments of a Member that have general and 
prospective application, asserting that a Member's c onduct—not only in a particular instance that has 
occurred, but in future situations as well—will necessarily be inconsistent with that Member's WTO 
obligations."
100  It is not clear from this statement, or  from the jurisprudence concerning "as such" 
claims more generally, whether the measure must be shown to always  violate the WTO Agreement.  
But it is clear that, at a minimum, a party bringing  an as such claim against a measure must identify 
and prove the specific circumstances in which the me asure "will necessarily be inconsistent" with the 
responding Member's WTO obligations.   
418. The complainants' burden of proof, in this respect , is directly related to the function of the 
Panel under Article 19.1 of the DSU.  When a panel concludes that a measure is inconsistent with a 
covered agreement, "it shall recommend that the Member concerned bring the measure into 
conformity with that agreement."  The measures at issue in the present disput e apply to a wide array 
of factual circumstances, including, for example,  with respect to the application of the essential 
character test under GIR 2(a) and the manner in which specific collections of auto parts and 
components are presented to Chinese customs authorities.   In the absence of a clear delineation of the 
circumstances in which the challenged measures will necessarily  be inconsistent with China's WTO 
obligations, the Panel would have no basis to identif y the specific respects in which China must bring 
the measures into conformity with its WTO obligati ons.  It is for this reason that the complainants 
bear the burden of identifying and proving the sp ecific circumstances in which the measures will 
necessarily violate China's WTO obligations.   
419. As China explained in its oral statement to the Panel at the second substantive meeting, the 
complainants' failure to meet their burden of proof in respect of their claims against the challenged 
measures is endemic to their entire case.  The comp lainants have alleged, for example, that any 
charges collected as a result of the application of  Decree 125 are not ordinary customs duties because 
they are not based on the condition or status of goods "as presented" at the border.  Yet the complainants have failed to provide a specific in terpretation of the term "as presented" and to 
substantiate that interpretation in accordance with cu stomary principles of international law.  At the 
second substantive meeting, China repeatedly challenge d the complainants to define and substantiate 
their understanding of this term.  The Panel will recall that their response, in effect, was that whatever 
the term "as presented" might mean, and whatever am biguity might exist in the understanding of this 
term, the challenged measures "go beyond" what the complainants  believe to be proper understanding 
of this term.   
420. This is a perfect illustration of the basic flaw  underlying the complainants' as such claims 
against the challenged measures.  As shown above, the complainants bear the burden of proving the 
specific circumstances in which the challenged meas ures will necessarily be inconsistent with China's 
WTO obligations.  What, then, are the specific circumstances in which the challenged measures will 
not be based on the condition or status of goods "as pr esented" at the border?  Is there a distinction, 
for example, between parts and components that  arrive on the same ship but under different 
consignments, as compared to parts and components th at arrive on different ships but under the same 
consignment?  Is there a distinction between part s and components that a manufacturer imports from 
its own affiliates in multiple shipments, as compar ed to parts and components that a manufacturer 
imports from unaffiliated suppliers in multiple shipme nts?  The challenged measures apply to all of 
these circumstances, and others.  Yet the complainan ts have offered nothing that would allow the 
                                                     
 
100 US – Oil Country Tubular Goods Sunset Reviews  at para. 172.    WT/DS339/R/Add.1 
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  Panel the distinguish among these or other circumstan ces, and to identify the specific circumstances in 
which the challenged measures would necessarily be inconsistent with a pr oper understanding of the 
term "as presented." 
421. It is not China's  obligation to identify and prove the circumstances in which the challenged 
measures would necessarily be consistent  with its WTO obligations.  It is the complainants who opted 
to bring an as such case against the challenged measures, including, inter alia,  their claim that the 
measures are necessarily inconsistent with China's ta riff commitments under Artic le II.  In so doing, 
the complainants plainly recognized that this dispute implicated the proper classification and tariff 
treatment of motor vehicles and pa rts and components of motor vehicles.  For the reasons that China 
has explained, the complainants must demonstrate that the charges that Ch ina collects pursuant to 
Decree 125 are not the ordinary customs duties that China is allowed to collect under its Schedule of 
Concessions.  But they have failed to meet their bur den of demonstrating the specific circumstances in 
which the challenged measures will necessarily result in  the collection of charges that China is not 
allowed to collect under its Schedule of Concessions, wh ether it is as a result of a misapplication of 
the essential character test, an improper understanding of the term "as presented", or otherwise.  For 
these reasons, China considers that the complainants  have failed to meet their burden of proof. 
Comments by the European Communiti es on China's response to question 228 
422. The European Communities and its co-complai nants have established in detail why the 
measures are "as such" in violation of Article 2 of the TRIMs Agreement  and Article III, paragraphs 2, 
4 and 5 of the GATT together with a number of co mmitments relating to these agreements in China's 
Accession Protocol to the WTO. China has not even attempted to rebut the prima facie  case brought 
against it under the TRIMs Agreement  and Article III of the GATT 1994.  
423. Were the Panel to examine the measur es only under Article II of the GATT 1994 ( quod non ), 
the European Communities has estab lished that the measures are as such necessarily inconsistent with 
Article II as under all the criteria used under Artic les 21 and 22 of Decree 125, the measures require
 
imported auto parts to be characterised (i.e. 'cla ssified' if examined under Article II) as complete 
vehicles, which triggers customs duties in excess of the ones applying to parts.  Furthermore, the mere 
fact that Articles 21 and 22 of D ecree 125 consider 'multiple shipments' of parts originating from 
different countries, and arriving to China at different times and at different places necessarily means that the measures are as such inconsistent with Ar ticle II. This is because the classification of the 
product subject to ordinary customs duties on  importation is not based on "the objective 
characteristics of the product in question when prese nted for classification at the border" (Appellate 
Body in EC – Chicken Cuts , paragraph 246). 
424. Even if the relevant parts are presented to cu stoms at the same time and place in accordance 
with the standard principles of customs administration, the criteria under Articles 21 and 22 of 
Decree 125 would still necessarily lead to incorrect  classification as set out more in detail in 
paragraphs 112 to 117 and 130 to 135 of the European Co mmunities' second written submission and 
replies to questions 117 and 233 of the Panel.  The me re fact that in some exceptional circumstances 
the deeming or classification of a large collection of  auto parts as the complete vehicle under the 
substantive criteria of Article 21(1) and 21(2) of D ecree 125 would be consistent with the rules of the 
Harmonised System is irrelevant for a finding of an "as such" inconsistenc y under Article II of the 
GATT 1994. 
425. Furthermore, it is China that has pleaded GIR 2 (a) in its defence.  As a matter of principle, it 
is China's burden of proof to demonstrate that the various assertions and theories it has developed 
around GIR 2 (a) are in any way relevant to the case.  As the European Communities has demonstrated WT/DS339/R/Add.1 
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  in particular in its second written submission (parag raphs 92 to 132), China's arguments relating to 
GIR 2 (a) are entirely without merit. 
Comments by Canada on China's response to question 228 
426. The burden of proof in respect of China's GI R 2(a) defence rests with China, not the 
complainants. Canada has shown that the measures, on their face, prescribe violations of Article III of 
the GATT.  Canada does not need to s how "specific circumstances" of the application  of the measures 
being inconsistent with China's WTO obligations, although it has done so. In all cases, the measures 
establish domestic-content requirements in violation of  Article III.  Even if aspects of this dispute 
were found to be subject to the disciplines under Article II, the measures "as such" violate Article II 
by always subjecting auto parts to the motor vehicle ra te if the thresholds are exceeded. It is irrelevant 
to the analysis of Article II that, in rare inst ances, 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 Harmonized System.   
229. ( All parties )  During the course of this proceedin g, the parties have referred to the 
notions of "tariff arbitrage", "tariff evasion" or "tariff circumvention".  Please explain where 
such notions can be found in the WTO Agreement a nd how it is relevant to the present dispute. 
Response of China 
 
427. As China explained in response to questions 9 and 13 from the Panel, China considers that the 
issue of circumvention in this case, or what one might otherwise call tariff arbitrage or tariff evasion, 
concerns the proper tariff classification of parts and components that have the essential character of a 
motor vehicle.  The need to ensure the proper classi fication of imports is inherent in every Member's 
Schedule of Concessions, which is incorporated into  the WTO Agreement.  As China explained in 
response to question 68 from the Panel, the Appellate Body has repeatedly affi rmed the importance of 
the Harmonized System in interpreting a Member's  Schedule of Concessions.  Thus, the question of 
ensuring the proper classification of imports, and th ereby preventing the circumvention or evasion of 
the importer's obligation to pay duties, is governed  by the classification rules of the Harmonized 
System.   
Response of the European Communities (WT/DS339) 
 
428. The European Communities does not believe that  it has used these notions in this dispute 
except when countering China's arguments relating to "tariff circumvention". These notions are not 
used under EC law or in the WTO Agreements. "Tariff arbitrage" is generally a more neutral concept, 
whereas "tariff evasion" and "tari ff circumvention" are notions with a more negative connotation. The 
concepts relate to the allegation made by China that vehicle manufacturers are shipping parts in 
multiple shipments in order to avoid paying the duty on complete vehicles.  
Response of the United States (WT/DS340) 
 
429. Such notions are not found in the WTO Agreement.   
430. The prima facie case presented by the United States is based on China's obligations under  the 
WTO Agreement, as applied to the measures that  China has actually adopted.  Nothing in the 
evaluation of the prima facie  case presented by the United States involves any such notions of "tariff 
arbitrage", "tariff evasion" or "tariff circumvention".    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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 Page A-269 
  
  431. China in its defense has raised "tariff evasion" or  "tariff circumvention" as the justification for 
its measures, and it is therefore China's burden to explain precisely what China means, and to explain 
how the concepts defined by China are relevant to any possible defense to  the breaches of China's 
WTO obligations that the United States has show n to exist.  China has failed to do so.   
432. As the United States set out in its opening statemen t at the second meeting, China in fact uses 
these phrases to represent two very different concepts .  Neither of those concepts could serve as a 
defense to China's breaches of its WTO obligations.   
433. First, China uses this language of "circumven tion" to mean that under its domestic tariff 
schedule, China is to charge a whole-vehicle rate  of duty on any imported part, regardless of any 
actual intent on behalf of the manufacturer to "circumv ent" or "evade" tariffs, so long as that part is 
used to manufacture within China a vehicle with a foreign content that exceeds the thresholds under 
China's measures.  As the United States has explaine d, there is no possible interpretation of China's 
WTO obligations that would allow for China to im pose a 25 per cent tax on bulk shipments of parts 
imported for manufacturing purposes.    
434. Second, China uses the same notions of "evasi on" and "circumvention" to mean that China 
must be able to address certain limited, though still hypothetical, examples, such as the case of a CKD 
split into two separate shipments.  Chin a, however, has failed to show a single  instance
 where any 
importer ever engaged in the specific practices id entified by China.   Moreover, China's asserted 
rationale does not match the scope of China's meas ures.  To the contrary, China's measures sweep 
broadly to cover all imports of bul k parts for manufacturing purposes, not just instances of CKDs split 
into two separate shipments. 
Response of Canada (WT/DS342) 
 
435. Those notions are not found in the WTO Agreement . As discussed in response to 
Question 227, above, China's unsupported assertion is  that vehicle manufact urers are shipping all 
parts necessary to assemble a vehicle in two or more shipments in order to avoid paying the whole-vehicle rate of duty (although, as Canada argues, even  if those parts were shipped together the proper 
rate of duty would be 10% – see response to Qu estion 205). If this ever happened, it could be 
characterized neutrally as "tariff arbitrage" or "tari ff avoidance", or characterized more negatively as 
"tariff evasion" or "tariff circumvention". If there we re evidence that this were happening, and if the 
measures were targeted to address this practice, th en the legal issue for the present dispute would be 
whether Article XX(d) is available to counter such a practice.  
230. ( United States )  China submits that the United States concedes that "there might be a 
few combinations" of auto parts under Decree 125 th at could conceivably properly be classified 
under the HS as whole vehicles.  Do you agree with this statement?  If not, why?  If yes, please 
explain such combinations of auto parts. 
Response of the United States (WT/DS340) 
 
436. As the United States has explained, a CKD or S KD kit containing all of the parts necessary to 
assemble a complete vehicle could conceivably be classified as a complete vehicle, assuming all the requirements of GIR 2(a) had been met.  (Under Paragraph 93 of the Working Party Report, however, 
the kit would nonetheless have to receive a tariff treat ment of no greater than 10 per cent.)  Other than 
this, the United States is not aware of what Chin a is referring to with respect to this alleged 
"concession." WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-270 
  
  231. China submits that as a matter of tariff cl assification, there is n ecessarily a continuum 
between the parts of an article and the complete article in its finished form:  
(a) ( Complainants )  Do you agree with China? 
Response of the European Communities (WT/DS339) 
 
437. No, the European Communities is of the view that  at the level of China's tariff schedules there 
are clear distinctions between motor vehicles (headi ngs 87.01 to 87.05), parts thereof (in particular 
heading 87.08) and the intermediary categories be tween motor vehicles and parts (headings 87.06 and 
87.07). 
438. The fact that there are instances where a give n consignment as presented to customs that is 
not a complete or finished motor vehicle but might have the essential character of a complete or finished vehicle does not suggest a continuum in Ch ina's schedule. It refers to an instance where 
China's schedule must be applied to a given borderline situation. 
Response of the United States (WT/DS340) 
 
439. In paragraph 12 of its rebuttal Submission, Chin a asserts that "GIR 2(a) necessarily gives rise 
to a continuum of circumstances under which custom s authorities will classify parts and components 
as equivalent to complete articles, regardless of their state of assembly or disassembly."  China is attempting to blur the distinction between complete  vehicles and auto parts by relying on a condition 
of goods that will not be achieved until after the goods  have been imported into China (where they 
undergo assembly with other separately imported parts).  
440. Per the United States' response to Panel qu estion No. 145, we disagree with China's 
characterization of a "continuum" for the classification of motor vehicles.  This characterization is contrary to the structure of the Harmonized Syst em.  The Harmonized System is made up of 96 
chapters grouped into 21 sections consisting of a pproximately 5,000 article descriptions in the 
headings and subheadings.  The Ha rmonized System is divided into categories or product headings 
beginning with crude and natural products and continuing in furt her degrees of complexity through 
advanced manufactured goods.  
441. Consistent with GIR 1, when an imported motor vehicle part is specifically described by a 
heading of the tariff schedule, it must be classified u nder that heading.  GIR 2(a) requires that customs 
officials make a determination as to whether mo tor vehicle parts imported together impart the 
essential character of a complete or finished article .  If not, then the motor vehicle parts are to be 
individually classified.  These GIRs do not create a "continuum" for the classification of automotive 
parts.  The determination of the "essential character " must be based upon the condition of the goods at 
the time of importation.  
442. This view is supported by the structure of th e Harmonized System, wh ich names certain parts 
in their own headings (e.g., spark-ignition reciproca ting or rotary internal combustion piston engines 
of heading 84.07, transmission shafts of heading 84.83, chassis fitted with e ngines of heading 87.06, 
bodies (including cabs) of heading 87.07) or the creation of parts headings (e.g., heading 87.08 which provides for parts and accessories of the motor vehicles of headings 87.01 to 87.05).  Under China's 
"continuum" characterization, the classification of  all imported motor vehicle parts eventually 
incorporated into complete motor vehicles (in the domestic market) as motor vehicles would empty 
many headings and subheadings of the goods specified therein.  WT/DS339/R/Add.1 
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 Page A-271 
  
  Response of Canada (WT/DS342) 
 
443. No. See reply to paragraph (b), below. 
(b) ( All parties )  Assuming that there is such continuum, where should the line be drawn 
between complete vehicles and parts a nd components of complete vehicles? 
 
Response of China 
 
444. Consistent with GIR 2(a), the line between co mplete vehicles and parts and components of 
motor vehicles must be drawn in accord ance with the essential character test.   
Response of the European Communities (WT/DS339) 
 
445. In an individual case of classification, the Ge neral Explanatory Note to Chapter 87 provides 
for clear and specific guidance. Reference is also  made to the reply to question 211. Chapter 87 
contains also very important intermediary cat egories between complete vehicles and parts and 
components of complete vehicles. In particular, heading 87.06 demonstrates clearly that a motor vehicle without its body is to be classified as a "c hassis fitted with engines", not as a motor vehicle.  
Response of the United States (WT/DS340) 
 
446. The line must be drawn based upon the condition of the goods when they are imported.  To 
permit classification based on any other condition woul d destroy the predictability of the application 
of the Harmonized System and preclude its stated purposes of tracking the identity of goods that are 
crossing international borders and promoting as close a correlation as possible between import and 
export trade statistics and production statistics. See Preamble to the International Convention on the 
Harmonized Commodity Description and Coding System. 
Response of Canada (WT/DS342) 
 
447. Canada, in its second written submission at pa ragraphs 41-52 (including the chart), sets out 
the appropriate lines to be drawn between various headings in Chap ter 87 of the Harmonized System. 
The emphasis on headings covering intermediate cate gories (notably 87.06 – chassis with engine) is 
supported by the WCO Secretariat, which in its res ponse to the Panel's questions highlighted the need 
to consider such categories for classification.
101 
Comments by the European Communities on China's response to question 231(b) 
448. China's mere reference to the " essential character" test in GIR 2 (a) ignores entirely the fact 
that in the context of chapter 87 of the HS system  the overwhelming majority of situations can be 
decided on the basis of GIR 1, wh ich means that there is no continuum in which a line should be 
drawn. In those exceptional cases where GIR 1 does not  provide the answer and a line must therefore 
be drawn because of a large collection of parts being presented to customs at the same time, 
Chapter 87 of the HS nomenclature provides for very  specific examples that guide classification. In 
this respect the European Communities refers inter alia  to its second written submission under 
paragraphs 75 to 98 and 112 to 117. 
                                                      
101 See, e.g ., the response to Question 3, noting that Chapter 87 "also provides a separate heading for 
motor vehicle chassis fitted with engines (heading 87.06) and a heading for motor vehicle bodies (including 
cabs) (heading 87.07)". WT/DS339/R/Add.1 
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Page A-272 
  
  232. ( China )  China submits that the complainants acknowledge that customs authorities can 
undertake "investigations," and consider "evidenc e," to determine whether multiple shipments 
of parts and components have the essential char acter of the complete article.  Could China 
please explain where and how the complainants acknowledge this. 
Response of China 
 
449. China discussed this point in detail in pa ragraphs 53 through 64 of its second written 
submission.  To summarize: 
450. Canada first referred to "investig ations" and "evidence" in its oral statement to the Panel at 
the first substantive meeting.
102  One of the factors that Canada cited in support of its claim that the 
challenged measures are inconsistent with Article  III was its assertion that the measures "are not 
based on an earlier investigation ."103  Canada further asserted that China had "offer[ed] no evidence 
concerning the timing of shipments, or their frequency,  or anything else that relates to the core issue 
of the condition of goods on  presentation at the border."104 
451. In response to question 82(b) from the Panel, th e United States stated that "nothing in China's 
measures is limited to, or targeted at, some hypothetical manufacturer who is splitting a CKD shipment into two or more separate boxes."
105  The United States stated that "if a Customs authority 
were involved in an investigation as to whether an  importer was engaged in such a practice," it might 
examine the factors to which Canada had referred in it s oral statement at the first substantive meeting, 
and which the Panel had summarized in question 82( b), i.e., the origin of imported parts, who 
purchases the parts, whether there was an earlier inv estigation, and the timing of shipments or their 
frequency.   
452. In response to question 124 from the Panel,  concerning Canada's classification of 
unassembled or disassembled furniture, Canada asser ted that, under this measure, "[t]here is no 
assumption of a violation: if an importer declares th at it is importing furniture parts, in the absence of 
contrary evidence obtained by Canadian customs of ficials, they are charged at the parts rate."106  As 
China noted in paragraph 59 of its second written s ubmission, Canada did not explain how Canadian 
customs officials would "obtain contrary evidence," but presumably it would be through the results of an investigation.  
453. For the reasons that China set forth in paragraph 64 of its second written submission, the 
necessary implication of these statements by the United States and Canada is that there are 
circumstances under which customs au thorities can apply GIR 2(a) to multiple shipments of parts and 
components to prevent the evasion of duties that appl y to the complete article.  Thus, the issue is when  
and how customs authorities may do this, and, in partic ular, what sorts of factors and evidence the 
customs authorities may take into account in making these determinations.    
Comments by the European Communiti es on China's response to question 232 
454. China's reply does not identify any instances where the European Communities would have 
"acknowledged that customs authorities can undertake 'investigations' and cons ider 'evidence', to 
                                                     
 
102 Canada oral statement at first substantive meeting at paras. 24, 34.   
103 Canada oral statement at first substantive meeting at para. 24 (emphasis added). 
104 Canada oral statement at first substantive meeting at para. 34 (emphasis added).   
105 US answers at para. 49.   
106 Canada answers at p. 32.    WT/DS339/R/Add.1 
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  determine whether multiple shipments of parts a nd components have the essential character of the 
complete article". The Europ ean Communities has not acknowledged anything of the kind. 
Comments by the United States on China's response to question 232 
455. China alleges that there are three instan ces where the complainants acknowledge that 
investigations may be conducted to determine wh ether multiple shipments of parts and components 
have the essential character of the complete artic le.  The first instance involves Canada's oral 
statement at the first substantive meeting.  The United States has already addressed the context of 
Canada's comments in its response to Panel questi on No. 82(b), and for the reasons set forth in its 
response, the United States does not believe that Ca nada's comments in any way provide support for 
the Chinese measures at issue.   
456. The second instance also involves the United States' response to Panel question No. 82(b).  In 
that response, the United States is merely hypoth esizing about an investigation involving the splitting 
of a CKD shipment into two or more boxes."  The response does not indicate that the United States 
believes such an investigation would be appropriate .  The United States is rather pointing out that if 
the intent of China's measures was to address such practices, then the measures would look quite 
different than they do.  China's investigations involve evidence of domestic assembly, and such 
assembly is not a basis for classification under the Harmonized System.  See, e.g., US response to 
Panel question No. 116.  
457. The third instance involves a Canadian classification decision on unassembled or 
disassembled furniture.  The contex t of that decision is clearly distinguishable from the Chinese 
measures at issue in this case.  For a more detailed explanation, see the US rebuttal to China's answer 
to Panel question No. 238(b).       
233. ( Complainants )  Do you agree with China's submission in paragraph 25 of its second 
written submission that the complainants have failed to make a prima facie  case showing that 
China has misapplied the essential character test under GIR 2(a). 
Response of the European Communities (WT/DS339) 
 
458. No. The European Communities h as demonstrated under its alternative Article II GATT 1994 
claim that in all cases foreseen under Article 21 of Decree 125, the measures require to classify auto 
parts as complete vehicles in violation of the HS nomenclature and, as a result, to impose on auto 
parts the higher 25 % duty on complete vehicles in stead of the bound duty rate of 10 % or less for 
auto parts. Reference is also made to para graphs 112 to 117 and 130 to 135 of the European 
Communities' second written submission and reply to  question 117 of the Panel. Furthermore, the 
mere fact that China is applying its measures under the premise of combining the entries from multiple shipments is in itself sufficient to make an  as such finding of inc onsistency under Article II 
of the GATT because such a rule departs from the fundamental premise of tariff classification as 
confirmed by the Appellate Body in paragraph 246 of EC – Chicken Cuts  and leads necessarily and 
systematically to erroneous tariff classification. 
Response of the United States (WT/DS340) 
 
459. No, the United States does not agree with China.   
460. As an initial matter, the United States does not agree that it is the complainants' burden to 
make such a prima facie case.  In the event that  China's measures were found to impose ordinary  WT/DS339/R/Add.1 
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Page A-274 
  
  customs duties instead of internal  charges, the United States has sh own that China's measures – which 
impose a 25 per cent duty on auto parts imported fo r manufacturing purposes – are inconsistent on 
their face with China's commitmen t to impose a maximum of a 10 per cent duty on auto parts.  
GIR 2(a) is not an element of the prima facie case of the breach of China's tariff commitment on auto 
parts.  Rather, it is China that has introduced this language from outside the WTO Agreement in an 
attempt to argue that its WTO commitments allows for such tariff treatment.   
461. Furthermore, regardless of any question of bur den of proof, the United States has in fact 
shown that China's measures are not consistent with  any possible reading of GIR 2(a).  As the United 
States has explained, the HS Convention and the Ha rmonized System of tariff nomenclature must be 
read in its entirety.  GIR 1 requires that articles be classified in accordance with their headings.  When 
an auto part has its own heading under the HS, it may not – consistent with the HS – be considered as 
an  incomplete automobile having the essential charac ter of a complete automobile.   Because China's 
measures classify bulk shipments of parts as having the essential character of a complete vehicle, the 
measures ignore the specific headings for such part s set out in the HS, and thus cannot be considered 
as having the essential character of a complete vehicle.   
462. Although China talks about a "prima facie" case, what China has demanded is something 
different: namely, that the complainants must define  the line between the collections of parts that do 
and do not have the "essential character" of a comple te vehicle.  Such line drawing, however, would 
amount to advisory opinions on measures that are not at issue in this dispute.  Rather, the function of 
dispute settlement is to determine whether the meas ure in dispute – that is, the measure China has 
actually adopted – is consistent with China's WTO obligations.  And, regardless of the exact 
demarcation between collections of parts having th e essential character of a complete vehicle and 
collections of parts not having such character, Chin a's measures in this dispute are far outside any 
possible interpretation of GIR 2(a). 
Response of Canada (WT/DS342) 
 
463. No, Canada does not agree. First, Canada's claim is that China's measures violate GATT 
Article III and the TRIMs  Agreement . That claim does not require a consideration of GIR 2(a). China 
has presented a defence that the measures only impo se ordinary customs duties (as repeatedly noted 
by Canada, and not refuted by China, a defence wh ich they effectively concede applies only to parts 
imported directly by vehicle manufacturers). The inapp licability of that defence, in light of the proper 
interpretation of the wording of Article II of GATT  is set out in Section II.B of Canada's second 
written submission.  
464. As context for interpreting Article II, the Ha rmonized System as it was used in negotiating 
China's Schedule is relevant, but as Canada demons trated in Section II.C and D of its second written 
submission China has not properly applied that sy stem, and has presented no common and consistent 
subsequent practice demonstrating that the GATT obligations at issue in this dispute (notably 
Articles II and III) have been accepted by WTO Members to allow measures of the sort that China has 
imposed.  In contrast, Canada has shown the GA TT, WTO jurisprudence and WCO documents cannot 
support China's misapplication. In addition, Ca nada has shown subseque nt practice that all 
complainants, third parties and other WTO Member s classify based on the state of a product at the 
border in a single shipment. 
Comments by China on Complainants' responses to question 233 
465. The EC asserts that it "has demonstrated unde r its alternative Article II GATT 1994 claim that 
in all cases foreseen under Ar ticle 21 of Decree 125, 
the measures require to classify [ sic] auto parts  WT/DS339/R/Add.1 
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 Page A-275 
  
  as complete vehicles in violation of the HS nomenclature …"
107  The EC has demonstrated no such 
thing.  The criteria set forth in Article 21 encompass collections of parts and components that unquestionably have the essential character of a moto r vehicle; even the United States concedes that 
"there might be a few combinations" of auto part s under Decree 125 "that could conceivably properly 
be classified under the Harmonized System as whole vehicles."
108  The EC simply has no basis to 
assert that Decree 125 is inconsistent with the essential character test in all ci rcumstances to which it 
might be applied. 
466. The United States, for its part, claims that "GIR 2(a) is not an element of the prima facie case 
of the breach of China's tariff commitment on auto parts."109  China does not understand the basis for 
this claim.  In order for the United States to dem onstrate that the challenged measures are inconsistent 
with China's Schedule of Concessions, the United States must demonstrate that the measures are not based on a proper interpretation of the terms in China's Schedule of Concessions.  Whether it was 
China or the complainants that firs t raised the application of GIR 2(a)  to the interpretation of China's 
Schedule of Concessions is irrelevant; the questi on is whether the complainants have made a prima 
facie  case that the challenged measures are inconsiste nt with China's tariff provisions for motor 
vehicles, as interpreted in the context of the rules of the Harmonized System.     
234. ( China )  In paragraph 41 of its oral statement, China argues that it has articulated an 
understanding of the term "as presented" in GIR 2(a) that supports its position that the challenged measures are consistent with Chin a's rights and obligations under Article II: 
(a) Please explain the legal basis for the argument that being consistent with GIR 2(a) 
means being consistent with Article II; 
Response of China 
 
467. The interpretive issue under Article II is whethe r the challenged measures implement and give 
effect to a proper understanding of the term "motor vehicles" in China's Schedule of Concessions.  As 
the Appellate Body has found in EC – Computer Equipment  and EC – Chicken Cuts,  the Harmonized 
System, including the General Interpretative Rules, pr ovide relevant context for the interpretation of a 
Member's Schedule of Concessions.   
468. As China has explained at length, GIR 2(a) is  the rule within the Harmonized System that 
addresses the tariff classification relationship between  complete articles and the parts and components 
of those articles.  Under the second sentence of GIR 2(a), customs authorities classify parts and 
components of an article as the complete article if  they are "presented unassembled or disassembled", 
have the essential character of the complete article, and are capable of assembly within the parameters 
of assembly operations set forth in Paragraph (VII) of the Explanatory Notes to GIR 2(a).   
469. To the extent that the challenged measures corr ectly classify auto parts and components under 
GIR 2(a), including the manner in which the parts and components are "presented", they implement 
and give effect to a proper interpretation of th e term "motor vehicles" in China's Schedule of 
Concessions.  As China discussed in  response to question 186, if the challenged measures result in a 
correct classification of auto parts and component s that have the essential character of a motor 
vehicle, the measures collect a valid customs duty on  auto parts and components, and are consistent 
with China's rights and obligations under Article II.  As China also discussed in response to questions 
                                                     
 
107 EC answers after second meeting at para. 70.   
108 US answers after first meeting at para. 89.   
109 US answers after second meeting at para. 89.   WT/DS339/R/Add.1 
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  167 and 203, a charge is imposed on goods "on their importation" into the customs territory if the 
Member imposes the charge by reason of, or in rela tion to, the importation of goods into its customs 
territory.   
470. The challenged measures are consistent with Ch ina's rights and obligations under Article II 
because they classify parts and components based on the manner in which the parts and components 
are presented to Chinese customs authorities – i.e ., as one of a series of shipments that are related to 
each other through their common assembly into a single article, as evidenced by the customs 
declaration – and because they result in the collect ion of a duty liab ility that arose by reason of the 
importation of auto parts and components that have the essential character of a motor vehicle.  This 
duty liability is set forth in China's Schedule of  Concessions, and the measur es properly interpret and 
implement the relevant provisions of China's Sche dule of Concessions in accordance with the rules of 
Harmonized System. 
(b) Please explain whether your understanding of  the term "as presented" also means that 
China's measures are consistent with Articles III and XI of GATT 1994 as well as Article 2 of 
the TRIMs Agreement and the relevant provisions of the SCM Agreement. 
 
Response of China 
 
471. China has previously discussed th e legal basis for its position that Article II and Article III are 
binary in nature, most recently in response to question 167(a) and question 203.  As China has 
explained, an ordinary customs dut y that a Member is allowed to co llect in accordance with its rights 
and obligations under Article II cannot be analysed as an internal charge under Article III.  This 
conclusion is strongly reinforced by the jurisprudence referred to in question 203.  Thus, to the extent 
that the challenged measures collect an ordinary cu stoms duty that China is allowed to collect under 
its Schedule of Concessions, as interpreted in accord ance with GIR 2(a) and the term "as presented", 
these are not measures or charges that can be analyz ed under Article III.  For the same reason, to the 
extent that the measures collect an ordinary custom s duty in accordance with Article II, they cannot be 
analyzed within the scope of Article XI, which relates only to "prohibitions or restrictions other than 
duties,  taxes or other charges." 
472. In respect of the TRIMs Agreement,  China explained in paragra phs 132 to 137 of its second 
written submission that the collection of an ordina ry customs duty does not fall within the scope of 
Article 2 of the TRIMs Agreement,  as an ordinary customs duty is not "inconsistent with the 
provisions of Article III or Article XI of GATT 1994" for the reasons just explained.  Moreover, as 
China discussed in footnote 97, however one char acterizes the purpose of the Illustrative List in 
relation to Article III and Article XI of the GATT, it is evident that the Illustrative List concerns the 
types of measures that fall within the scope of these provisions, i.e ., internal measures and import 
restrictions.  An ordinary customs duty is not of either type.   
473. Finally, in respect of the SCM Agreement,  China has explained in pa ragraphs 156 to 160 of its 
second written submission that the proper classificati on 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 .   
Comments by the United States on China's response to question 234 
474. China's analysis is essentially b ackwards: It starts with a purported interpretation of China's 
Schedule then moves to an analysis of Article II stat ing that if there is any "relation to importation," 
then Article II applies to the exclusion of Article III.  As the United States noted in its comments to  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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  China's response to Panel question No. 179, this mode  of argumentation is based on the false premise 
that Article II (and a Member's schedule) "allo ws" departures from other obligations under the WTO 
Agreement, and essentially renders Article III meaningless.  
475. The US position on these issues is discussed in, inter alia , its first written submission, and in 
its responses to Panel question Nos. 37 and 187.   
235. ( Complainants )  Do you agree with China's argument that the complainants' claim 
against the challenged measures must be that  China has drawn the line between parts and 
wholes in the wrong place rather than whether China can classify multiple shipments of parts 
and components on the basis of their common assembly? 
Response of the European Communities (WT/DS339) 
 
476. As set out in detail in all of its submissions, th e European Communities is of the view that the 
measures are inconsistent with Article 2 of the TRIMs Agreement and Article III, paragraphs 2, 4 and 
5 of the GATT 1994. 
477. In respect of its alternat ive claim under Article II of the GATT 1994, the European 
Communities has demonstrated that the measures and in particular Articles 21 and 22 of Decree 125 require the classification of auto parts as complete vehicles in blatant violation of its tariff schedules. This is further aggravated by the application of these criteria under the "multiple  shipments" theory by 
China which has no basis in law and l eads to tariff classification at will. 
478. China's argument referred to in the question is not hing but an attempt to blur the issues before 
the Panel in order to draw attention away from the main claims of the complainants. 
Response of the United States (WT/DS340) 
 
479. No, the United States does not agree.   
480. In the event that China's measures were found to impose ordinary customs duties instead of 
internal charges, China's duties would be inconsiste nt with its obligations und er its schedule of tariff 
commitments because China imposes a 25 per cent duty on  bulk shipments of auto parts.  As the 
United States has explained, there is no issue of "line drawing" under the HS Convention when an 
auto part or an auto assembly or subassembly has its own tariff heading.  In those cases, as required 
under a plain reading of China's WTO Schedule of tariff commitments (and as confirmed by GIR 1 of 
the HS Convention) the heading must be used.  The issue of line drawing raised by China – that is, 
between incomplete vehicles having or not having th e essential character of a complete vehicle – only
 
applies to incomplete vehicles or such incomp lete vehicles presented unassembled or disassembled .  
Bulk shipments of manufacturing parts, however, are not "incomplete vehicles presented unassembled or disassembled."   
481. In other words, China only gets to its issue of  "line drawing" by creating a fictitious article 
consisting of bulk shipments of auto parts from diffe rent sources, by different importers, at different 
times, and in different quantities.  Furthermore, be cause of the realities of automobile production, one 
cannot determine what parts will actually be used in any particular vehicle until the vehicle is actually 
manufactured.  Such measures are inconsistent with China's WTO obligations because China – 
instead of basing its charges (be they internal charge s or customs duties) on the article that is actually 
imported – in fact bases the level of its charges on the article as manufactured within China.   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-278 
  
  Response of Canada (WT/DS342) 
 
482. No. As discussed in response to Questions 180 and 181, China does not impose ordinary 
customs duties on products "on their importation" . Instead, China says it can classify "multiple 
shipments" together for the purposes of imposing grea ter duties. As Canada demonstrated in response 
to Question 210 and in Section II.D of its second wr itten submission, China has no support in law or 
practice for this position.  
483. It is, however, true that Canada also takes issue with where Chin a has "drawn the line", even 
assuming all the parts in question arrive together at  the border in one shipment. See Canada's response 
to Question 209 and 231(b). 
236. ( Complainants )  Do the complainants agree with China that the specific issue presented 
in this dispute in relation to the application of GIR 2(a) to multiple shipments is the meaning of 
the term "as presented" in GIR 2(a)? 
Response of the European Communities (WT/DS339) 
 
484. To the extent that GIR 2 (a) is relevant at a ll to the dispute in these Panel proceedings, there 
are two general elements of GIR 2 (a) on which the European Communities entirely disagrees with 
China: the interpretation of the notions "essential character" and "as presented". The arguments of the 
European Communities in relation to GIR 2 (a) have been set out in detail in paragraphs 92 to 132 of 
its second written submission. 
Response of the United States (WT/DS340) 
 
485. No, the United States does not agree.  While th e phrase "as presented" or "presented", as used 
in GIR 2(a) is relevant – the la nguage helps confirm that China's interpretation is untenable – the 
ordinary meaning of "as presented" is not the only co nsideration.  Rather, the term "as presented"  has 
to be considered in context of the rest of GIR 2( a) and the entire HS Convention, and in light of the 
object and purpose of that international agreement.   
486. Furthermore, in evaluating China's argument, it is  important to precisely define what is meant 
by a "multiple shipment."  If China is referring to China's hypothetical scenario of a CKD kit split into 
two separate boxes, so that each box contains multiple  parts of a single unassembled vehicle, then the 
question is rather narrow, and that question more  likely may turn on the precise meaning of "as 
presented."    
487. As the United States has explained, howev er, China's measures go far beyond China's 
example of a split CKD kit.  Rather, China's meas ures create fictitious combinations of separate 
importations of bulk manufacturing pa rts, and apply increased charges to those parts if and only if 
they are used in the manufacture within China of a vehicle that exceeds China's thresholds for foreign 
content.  If this is what China means by "multiple shipments," then much more
 than the definition of 
"as presented" is involved.   
488. The specific language of GIR 2(a) is: 
"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 include a reference to that artic le complete or finished (or falling to be  WT/DS339/R/Add.1 
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 Page A-279 
  
  classified as complete or finished by virt ue of this rule), presented unassembled or 
disassembled."
110  
In China's example of a CKD kit entered in a single box, the factual scenario falls within the 
realm of 2(a) (though all of the specific requirement s may or may not be met, such as the requirement 
that only "assembly" is allowed) because the kit woul d contain all of the parts used in the assembly of 
a single article. 
489. However, in the scenario actually  covered by China's measures – which includes bulk 
shipments of parts to be used for manufacturing and other purposes – there is not in fact the 
importation of an article  unassembled or disassembled.  That article  – the fictitious "kit" artificially 
created by China's measures – does not actually exist until after all of the various parts from different 
sources are actually used on the assembly line to cr eate a complete vehicle.  Thus, in the scenario 
involving the normal importation of bulk parts from different sources, the language of GIR 2(a) does 
not fit — regardless of the precise meaning of "as imported."  
490. Put another way, China would read GIR 2(a) not to cover unassembled "articles," but instead 
to cover parts  used in the assembly of articles.  Thus , China would read the second sentence of 
GIR 2(a) to mean:   "[Any reference in a heading to an article'] shall also include a reference to parts 
of an article used after importation to produce that  article complete or finished (or falling to be 
classified as complete or finished by virtue of th is rule), presented in kits or in separate bulk 
shipments."  But this is a very different rule from the actual GIR 2(a), and there is no way to interpret 
the actual language of GIR 2(a) in this manner.     
491. Moreover, in accordance with the principles of in terpretation reflected in Article 31(1) of the 
Vienna Convention, China's argument must be evaluate d not on the text of GIR 2(a) in isolation, but 
also taking into account the other GIRs, the HS Conve ntion – including the specific headings for auto 
parts, assemblies, and subassemblies – and the obj ect and purpose of the HS Convention.  As the 
United States has explained, China's interpretation of GIR 2(a) is untenable for a number of reasons, 
including that it does not fit with GIR 1's requirement  to use the headings set out in the HS, and the 
fact that China's interpretation of GIR 2(a) is comp letely inconsistent with the object and purpose of 
the HS Convention to promote uniformity and consiste ncy of import, export and production statistics.   
492. For these reasons, China's argument about the classification under the HS Convention of 
"multiple shipments" involves a consideration of much more  than just the meaning of "as presented" 
under GIR 2(a).   
Response of Canada (WT/DS342) 
 
493. No. As set forth in a number of questions above, and in Canada's second written submission 
in Section II generally, the issue in this dispute is whether China's measures violate GATT Article III 
and Article 2 of the TRIMs Agreement , and whether China can defend such a violation on the basis 
that the measures are imposing ordinary customs duti es within the meaning of Article II:1(b), first 
sentence. In the context of interpreting a Member's  Schedule under Article II:1(b), as Canada notes in 
paragraph 42 of its second written submission a nd in response to Question 187, the Harmonized 
System is to be taken into account as context to  determine the concessions at the time they were 
negotiated, not for re-classificati on at a later date as China now attempts to do. However, that 
interpretation requires a consideration of the Harmoni zed System as a whole, starting with GIR 1 and 
the Explanatory Note to 87.06. 
                                                      
110 Exhibit CHI-15.   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-280 
  
  237. ( Complainants )  Do the complainants agree with China that importers are not 
necessarily entitled to obtain a lower rate of dut y merely by restructuring their imports of parts 
and components, or documenting these imports as  "separate" shipments.  Please, explain. 
Response of the European Communities (WT/DS339) 
 
494. China has not provided any evidence that importers  even try to restructure their imports in 
order to benefit from a lower duty rate. However, ev en if there would be such evidence the Appellate 
Body has stated 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" ( EC – Chicken Cuts , paragraph 246). In the absence of any conditions in 
the applicable tariff schedules, importers are entitl ed to structure their im ports according to their 
preferences and the priorities of their manufacturing pl ans. Even in the hypoth etical situation where a 
product is genuinely split into different shipments for the mere purpose of benefiting a lower tariff 
rate, the classification of the product for the purposes of Article II of the GATT 1994 must be made in 
accordance with the 'objective ch aracteristics' of the product in question when presented for 
classification at the border.  
Response of the United States (WT/DS340) 
 
495. The United States is of the position that the condition of the goods as imported controls 
classification.  Accordingly, an importer is not entitled to misrepresent the condition of the goods 
when imported in order to obtain a lower rate of  duty.  China presents two scenarios in which it 
believes that importers are not entitled to obtain the lower duty rates for auto parts in lieu of paying 
the higher rate of duty for complete motor vehicles.   
496. The first scenario involves the "restructuring" of the importations of parts and components.  It 
is not apparent in what way the transactions are be ing restructured in the context of this scenario.  
However, the presumed context is that parts that  were previously imported together on the same 
conveyance are now shipped in multiple conveyan ces on multiple dates to multiple ports.  Presuming 
that, alone, none of the parts has th e essential character of a complete motor vehicle, then an importer 
would be entitled to obtain the rate of duty applicab le to the parts (and not complete motor vehicles) 
when the parts are separately imported.   Please s ee the US response to Panel question No. 216(c).   
497. In its rebuttal to China's response to Panel qu estion No. 134, the United States' explained that 
manufacturing a relationship among multiple importations  of parts and components for the purpose of 
assessing duties that apply to the completed article  is impermissible for purposes of classification 
under GIR 2(a).  In this context, the identity of the good that is imported must be demonstrable by the 
good in its condition "as presented" for entry into the customs territory, that is, at the time of 
importation.  Separate importations of other parts and com ponents 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 th e other parts and components at the time that the 
good is imported.  Activities occurring after the impo rted goods have entered the country's customs 
territory are not a basis for classification under the Harmonized System.   
498. The second scenario involves an importer's submission of paperwork claiming that parts 
imported together are "separate shipments."  The contents of the paperwork does not turn such a 
collection of parts into multiple importations.  As noted above, an importer is not entitled to 
misrepresent the condition of the goods when imported in order to obtain a lower rate of duty.  For these reasons, the United States disagrees with para graph 40 of China's rebuttal Submission in which  WT/DS339/R/Add.1 
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 Page A-281 
  
  China asserts that "evading the boundary between pa rts and wholes under GIR 2(a) would be a simple 
matter of paperwork" unless China's views are accepted.  
Response of Canada (WT/DS342) 
 
499. There is no evidence to suggest that any companies are or ever have sought to obtain a lower 
rate of duty merely by documenting their imports as  "separate" shipments. As set out in response to 
Question 224, above, customs authorities determine appropriate classification of goods based upon 
their state as they arrive at the border, which in cludes (but is not limited to) the declaration. As 
Canada discussed in response to Question 229, even if  China's theory of "tariff circumvention" were 
supported by evidence, the measures impose internal charges that would have to be justified under 
GATT Article XX(d) as taken to enforce customs duties. 
Comments by China on Complainants' responses to question 237 
500. In response to the question of whether an importer could submit separate customs 
documentation for parts and components that have the essential character of the complete article, and 
thereby obtain a different classification and tariff result, the United States responds that "the contents of the paperwork does [ sic] not turn such a collection of parts into multiple importations."
111  T h e  
United States further states that "an importer is  not entitled to misrepresent the condition of the goods 
when imported in order to obtain a lower rate of duty."112  The United States does not explain how 
these conclusions follow from its understanding of th e term "as presented."  These assertions by the 
United States may reflect its "same ship, same day" ru le, as set forth in 19 C.F.R. 141.51.  That is, the 
US statements may reflect its understanding that the manner in which the importer documents a group 
of parts and components is irrelevant, provided that they arrive on the same ship, on the same day.  
However, as discussed in reference to question 221 above, the United States has not explained why 
this result is prescribed by its interpretation of the term "as presented" or by the rules of the 
Harmonized System. 
238. The United Statement submits that if China is right in arguing that GIR 2(a) provides 
for the classification of bulk auto parts used in manufacturing as the complete, manufactured 
product, and that the application of the GRI is ob ligatory, then the obligation to classify parts in 
this manner would apply to each a nd every party to the Convention.  
(a) ( China )  Please comment on the United States' view. 
Response of China 
 
501. This is incorrect.  The WCO stated in response to  the Panel's first set of questions that the HS 
Committee has not adopted a specific interpretation of  the term "as presented" in GIR 2(a).  As it 
notes, the Harmonized System is "silent on this point."113  The potential range of the application of 
GIR 2(a) to multiple shipments of parts and component s is embodied in the term "as presented".  In 
the absence of a specific interpretation of this term  by the WCO, there is necessarily some amount of 
discretion among WCO members in deciding whethe r and how to apply GIR 2(a) to multiple 
shipments, including multiple shipments of what the Un ited States refers to as "bulk auto parts."  This 
conclusion is supported by the HS Committee Decision at CHI-29, which states that the application of 
                                                      
111 US answers after second meeting at para. 106.   
112 US answers after second meeting at para. 106.   
113 WCO Response at para. 1. WT/DS339/R/Add.1 
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Page A-282 
  
  GIR 2(a) to "goods assembled from elements originati ng in or arriving from different countries" is a 
matter "to be settled by each country in acco rdance with its own national regulations." 
Comments by the European Communities on China's response to question 238(a) 
502. As the European Communities has argued in deta il, the "multiple shipments theory" presented 
by China goes against the very basis principles of th e Harmonised System. In th is respect reference is 
made in particular to paragr aphs 100 to 111 of the second writte n submission of the European 
Communities. 
Comments by the United States on China's response to question 238(a) 
503. China's interpretation of the Harmonized System and the purported "decision" taken by the 
HS Committee is limited by the very terms of th e Harmonized System Convention itself.  While the 
WCO Secretariat is correct to point out that  the HS Committee has not adopted a specific 
interpretation of the term "as presented" in GIR 2(a) , it does not give a Contracting Party the right to 
develop an interpretation that is incompatible with  the object and purpose of the Convention, and that 
abrogates its obligations under the Convention to ap ply GIR 1 and the terms of the headings and the 
relevant section and chapter notes.   
504. China's interpretation of GIR 2(a) exceeds the discretion a Contracting Party has to interpret 
the GIRs as it eliminates from consideration sever al headings within the Harmonized System such as 
headings 87.06 and 87.07, which deal with s ub-assemblies as well as specific headings that name 
particular goods such as headings 84.07 and 84.08.  This view is supported by the WCO Secretariat's 
response to Question 6 submitted by the Panel, whic h states in relevant part, 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.)  Examples of such are headings 87.06 and 87.07".  For further discussion on the discretion a Contracting Party has under the Harmoni zed System Convention, we refer the Panel to 
the US Responses to Panel questi on Nos. 209, 210,  and 224.   
(b) ( China )  Could China provide any evidence that any other party to the Convention has 
adopted measures comparable to China's measures at issue in this case.  Please do not repeat 
the individual customs cases that China has cited as comparable to its own measures in its written submissions and responses to the Panel questions so far. 
 
Response of China  
505. Other than the customs decisions, regulations , and practices to which China has already 
referred in its submissions, China is not aware of any measure adopted by another party to the 
Harmonized System Convention that is directly compar able to the measures at issue in this dispute.  
There are two important points to note, in this regard.   
506. First, as China has explained, th e need for this type of measur e only arises where there is (1) a 
significant difference in duty rates between an article and the parts of that article; and (2) the article at 
issue is capable of assembly within the parameters set  forth in GIR 2(a).  China does not consider that 
this is a common circumstance.  This conclusion is supported by the response of the WCO to the 
Panel's first set of questions, which observed that  Chapter 87 of the Harmonized System presents 
"unique classification challenges" in light of its complex array of provisions for motor vehicles and  WT/DS339/R/Add.1 
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 Page A-283 
  
  for parts and components of motor vehicles.
114  Seen in this light, the need for a measure of this type 
would principally arise where a country maintains a significant difference in duty rates between motor 
vehicles and parts and components of motor vehicles.   
507. Secondly, it is important to note that there are 124 Contracting Parties to the Harmonized 
System Convention, representing over 200 countries a nd customs unions.  It is not possible for China 
to undertake a comprehensive review of all the na tional laws and regulations of these countries that 
are comparable to the measures at issue in this disput e.  In addition to the scale of such an exercise, 
the national customs laws and decisions of many countries are not readily available for research 
purposes (even if one were able to overcome the barrier  presented by the fact that they appear in many 
different languages).  China notes, in this connect ion, that it was able to identify a very recent 
Canadian customs determination – the CBSA determination on furniture that appears at CHI-15 – that 
it considers to be directly comparable to the measures at issue in this dispute.  Canada is a developed country with a highly sophisticated system for ma king customs laws and regul ations available on the 
Internet.  It is entirely possible that there are ot her countries that have a dopted similar measures to 
deal with the same basic problem of the tariff relationship between complete articles and parts of those articles, in the presence of a significant difference in duty rates. 
Comments by the European Communities on China's response to question 238(b) 
508. The European Communities notes that China is not able to present any evidence of 
comparable measures in other countries, as it was not  able to point to any evidence of comparable 
measures in China applied in other sectors (see China' s reply to question 57 of the Panel). This is not 
surprising in view of the unprecedented position of China on customs classi fication. The necessary 
implication therefore must be that China recognises  that it is not able to provide any evidence of 
international customs practice that could sustain its position. 
509. It should also be noted that China once again c onfuses the interpretation of a general rule with 
the fiscal consequences of a tariff difference between  parts and complete products. A rule cannot be 
applied differently just because the consequences of its application may be more significant. 
Comments by the United States on China's response to question 238(b) 
510. China attempts to justify its measure based on what the WCO Secretariat identified as the 
"unique classification challenges" in the structure of Chapter 87 of the nomenclature.  This is a non 
sequitur.   Those "unique classification challenges" relate to the classification of certain assemblies – 
as presented at the border – and not
 to the classification of bulk shipments of parts for manufacturing.  
Indeed, the classification of such parts is a simple matter – a radiator falls under the heading for radiators, a brake falls under the heading for brakes, and so on.   
(c) ( China )  If not, does China think that every pa rty to the Convention (and China itself 
with respect to all goods except auto parts) is ac ting inconsistently with the obligations under 
the Convention to apply GRI 2(a)?  
Response of China 
 
511. No.  See China's response to question 238(a) above. 
                                                     
 
114 WCO response at para. 3.   WT/DS339/R/Add.1 
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  239. ( China )  In relation to China's position that the measures at issue are border measures, 
could China please answer the following: 
(a) In China's tariff Schedule, are there any conditions attached to the importation of 
automobiles or parts thereof? 
Response of China 
 
512. No.  As China explained in response to ques tions 27 and 54 from the Panel, China was not 
required to inscribe any condition in  its Schedule of Concessions in order to interpret and enforce its 
Schedule of Concessions in accordance with the rules of the Harmonized System.   
Comments by the European Communities on China's response to question 239(a) 
513. In the light of the previous submissions, it is clear that the European Communities 
fundamentally disagrees with China. However, it shoul d be noted that even if China had included the 
general conditions that form its de fence in this case into its sche dules, such conditions would still 
violate Article 2 of the TRIMs Agreement  and Article III of the GATT 1994 in accordance with the 
jurisprudence of the Appellate Body in EC – Export Subsidies on Sugar , paragraphs 211 – 223, and 
Article 3 of the SCM Agreement . 
(b) At the time of China's accession to the WTO, was there any understanding between 
negotiating Members that there should be any condi tion attached to that part of the Schedule? 
 
Response of China 
 
514. No. 
Comments by the European Communities on China's response to question 239(b) 
515. There was no such understanding between the negotiating Members at the time of China's 
accession to the WTO. 
(c) When a shipment of parts and components of  complete vehicles is presented to China's 
customs authorities, what do China's customs au thorities do if an automatic licence for such 
importation is not presented? 
 
Response of China 
 
516. If the imported auto parts are subject to an automatic import license requirement, the Customs 
will not accept the import declaration if it is not accompanied by the import license.  It is highly uncommon for entries to be presented without a re quired automatic import license, because (1) the 
importer can obtain the automatic import license with essentially no administrative burden or delay; 
and (2) the importer would have to  pay warehousing fees to hold the goods at the point of entry while 
it obtained the necessary import license.   
Comments by the European Communities on China's response to question 239(c) 
517. Before the "automatic" import licence can be granted allegedly "with essentially no 
administrative burden and delay", the automobile manufacturer is obliged to carry out the self-
verification foreseen in Article 7 of Decree 125 and Article 6 of Announcement 4. If the conclusion of  WT/DS339/R/Add.1 
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  the self-verification is that the model contains suffi cient local content, the manufacturer is obliged to 
provide also the review report from customs. 
518. China's reply makes it clear that the import li cence is far from automatic as the manufacturer 
is obliged to go through cumbersome and lengthy procedures before the licence is granted. 
519. Reference is also made to the observations made  above to China's reply to question 173 (a). 
Comments by the United States on China's response to question 239(c) 
520. In its response to part (c) of this question, China asserts that an importer "can obtain the 
automatic import license with essentially no administ rative burden or delay."  To the contrary, under 
Article 7 of Decree 125, a manufacturer must comple te a self-assessment before obtaining an import 
license.  To complete the self-assessment, a manufacturer must (1) catalogue all the parts of each 
model it manufacturers, (2) determine whether, under the measures, the parts are foreign or domestic, 
and (3) calculate the thresholds for each assembly sy stem and the overall price percentage of imported 
parts in the model.  The determination of the so urce of the parts extends to secondary suppliers and 
may involve an analysis of whether the parts have undergone a "substantial processing" in China 
within the meaning of Article 24 of Decree 125 and Article 18 or Order No. 4.  Then there are the filing requirements of Article 9 of Decree 125, s hould a filing be required.  These requirements can 
hardly be described as "essentially no administrative burden or delay."   
240. ( Canada )  With respect to the CBSA's decision  on disassembled furniture imports, 
(a) Please elaborate on why because a finished product was "purchased at the retail level", 
that decision should be distinguished from the measures at issue? 
Response of Canada (WT/DS342) 
 
521. Canada emphasizes that the Memorandum is not the subject of the present dispute. As such, 
the Memorandum is relevant only for purposes of  determining whether there is common and 
consistent practice accepted by WTO Members relate d to the interpretation of Members' Schedules. 
On that point, as it did in paragraph 3 of its r esponse to Question 116, Canada emphasizes that China 
has not shown any other such examples in the pract ice of WTO Members that is even similar to the 
Memorandum.  
522. In any event, Canada has shown that the Memo randum applies only where finished furniture 
is purchased at the retail level but shipped separately so as to be classified as parts. This is analogous 
to the practice of allowing importers to classify as one product split shipments of a single product (see 
response to Question 224, above). It is not analogous to the measures. Further, unlike the measures, 
the Memorandum does not require importers to declare parts as a finished product in order to obtain an import licence. Last, Canadian customs has discr etion whether to investigate individual instances 
where it suspects whole furniture is being imported, whereas, under the measures, all parts that exceed 
the thresholds under Article 21 of Decree 125 are presumed  to evade auto part duties. 
(b) Following on Canada's response to Panel question No. 124 and as pointed out by China 
in paragraph 59 of its second written submission, could Canada please elaborate on what "contrary evidence obtained by the Canadian customs officials" means and what documents 
were examined by the Canadian customs officials; WT/DS339/R/Add.1 
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  Response of Canada (WT/DS342) 
 
523. Based on historical compliance records, Cana dian customs authorities have found that the 
overwhelming majority of importers are honest and comply with all import requirements. This would 
include those importers specified in the Me morandum. Consequently, the documentation and 
classification provided by the importer at the time of importation are accepted at face value. 
524. However, Canada from time to time does conduc t routine compliance verification audits on 
importers. Such audits include reviewing whether importers properly declared origin, value and 
classification of imported goods. Customs officials review documents such as the purchase order, 
sales contract, confirmation order, purchase agreement and correspondence files. If, in the course of such an audit of a furniture retailer, a customs offi cial determines that the Memorandum applies, then 
the retailer makes an amendment to the original importation documents that would include a change 
in tariff classification. 
(c) Canada mentions that Canadian customs officials are not required to classify furniture 
parts as finished furniture but, instead, are afforded discretion  to determine whether such a 
classification is warranted.  Please elaborate on this statement.  Also, please comment on 
whether, and if so, how the fact that such discretio n is afforded to customs officials is relevant to 
distinguishing this decision from China's measures; 
Response of Canada (WT/DS342) 
 
525. China's measures presume that any time the volume or value thresholds for imported parts in 
those measures are exceeded the imported parts shoul d be classified as whole vehicles. This is on the 
presumption that any time such parts are imported, and by whomever they are imported, the purpose is to "circumvent" tariffs. Further, vehicle manuf acturers are forced to call parts "Deemed Whole 
Vehicles" to obtain an import licence. There is no discretion for China's customs authorities to 
consider the commercial reality (discussed in respon se to Question 176) that most parts would have 
been imported by independent third parties for th eir own commercial purposes – in other words, there 
is no discretion in customs authorities to apply th e measures only for the purposes that China says the 
measures are required – to prevent tariff "cir cumvention" (see response to Question 229 for a 
discussion of the relevance of this concept more generally).  
526. In contrast, the Canadian practice relating to classification of furniture is directed at the 
discrete situation of when an item of furniture (not  parts for the furniture) is purchased by a retailer 
but shipped separately as parts. At the time of importation, customs officials do not generally check if the imported  furniture parts are classified as finished furniture. Any verification generally takes place 
later, as noted in response to paragraph (b), above, as part of a routine compliance verification audit. 
Further there is no requirement for importers to ma intain and report to Canadian authorities on a parts 
audit trail, which is required under the measures, nor is there a system to require pre-determination of 
the destination of imported furniture parts, as contemplated for auto parts in the measures. 
527. The importance of discretion can be illustrated by an example. Suppose there is a situation 
where a furniture retailer imports 100 table tops an d 400 table legs from the same exporter, and those 
shipments occur separately but clo se in time. Based on those facts it might appear that the importer 
had purchased 100 tables from the exporter, and the Memorandum would apply. However, an 
examination of the documentation by a customs offi cial might confirm that the table tops were 
purchased and invoiced separately from the table legs a nd that the table legs were of a different style 
than the table top. The customs official would then  have the discretion, under Canada's practice, to 
make a determination that the Memorandum did not apply and classify the goods as parts. This aspect  WT/DS339/R/Add.1 
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  of the Memorandum is one of many elements th at distinguish the Canadian practice from the 
measures. Also, an importer has the right to appeal this decision at the Canadian International Trade 
Tribunal ("CITT"). 
(d) Does Canada believe, as China contends in paragraph 61 of its second written 
submission, that if the accompanying documentation (or other "evidence") supports the conclusion that [a] shipment of parts and components is one of a series of related shipments that it is proper to classify that shipment as the complete article in accordance with GIR 2(a)?  
Response of Canada (WT/DS342) 
 
528. Canada does not agree with China. "Documen tation" is only one element of assessing the 
objective characteristics of the product. This is ma de clear in Answer 1 from the WCO to questions 
from the panel in EC – Chicken Cuts , where it stated "the determination of the essential character of a 
product can be done in several ways. The most obvious  is through a visual inspection of the product… 
Reference can also be made to accompanying documents". The use of documentation in the 
Memorandum is based on a presumption of honesty among importers who have voluntarily declared 
they are ordering complete furniture. This is in contrast to the presumed  dishonesty of importers under 
the measures, who are not truly ordering complete vehicles but must declare so on documentation, or 
they are otherwise barred from obtaining an import licence necessary to import the parts.   
529. Further, Canada has described its position on China's theory of classification of "multiple 
shipments", for example in response to Question 23 7, above. The Canadian practice of classification 
of furniture in the Memorandum, which is not be ing challenged in this dispute, and which as 
discussed above is very different from the measures,  does not establish subsequent practice for the 
general rule contended by China in para graph 61 of its second written submission. 
(e) Is it Canada's position that the essential character test under GIR 2(a) should be based 
only on the objective characteristics of the good and any information provided by the importer 
with respect to that good?  If so, should it be  understood that Canada's customs authorities do 
give consideration to other shipments with wh ich the product later may be incorporated as 
argued by China in its second written submission paragraph 60? 
Response of Canada (WT/DS342) 
 530. Canada's position is that ordi nary customs duties under Article II:1(b), first sentence, can only 
be imposed on products "on their im portation". Canada, in response to  Question 187, has provided its 
position on the relevance of GIR 2(a) to this disp ute, and in response to Question 210 has discussed 
the limited extent to which the meaning of GIR 2(a)  needs to be interpreted for the purposes of this 
dispute.  With respect to the Memorandum, see the response to paragraph (a) and (c), above. 
241. ( Canada )  The CBSA's decision in Exhibit CHI- 17 on tariff classification of kit cars 
states in paragraph 3 that "[i]t should be noted th at the tariff classification of the third type of 
kit is based on the decision rendered on June  11, 1990 by the Canadian International Trade 
Tribunal in Appeal AP-89-228."   
(a) In light of this statement and given that th e tariff headings that were at issue in that 
decision are the same as those in this case, could Canada please elaborate on how the CBSA 
decision in Exhibit CHI-17 should be distinguished from the measures at issue to the extent that 
they affect the tariff classification of CKD or SKD kits. WT/DS339/R/Add.1 
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  Response of Canada (WT/DS342) 
 
531. Canada does not seek to distinguish the memorandum in Exhibit CHI-17 from tariff 
classification generally, although as Canada noted in response to Question 60, that memorandum 
deals with a different type of product than is at issue in this case. As Canada has repeatedly noted 
(most recently in paragraph 17 of its second oral st atement), it has always ac cepted that parts that 
have the essential character of a finished vehi cle may be classified as such, so long as they are 
contained in a single shipment.  
532. Canada does say that there should be an assessment  of what exactly is in a kit (which Exhibit 
CHI-17 does) rather than an assumption that what  is described as a CKD or SKD has the essential 
character of a whole vehicle. For example, as illustrated in the CITT decision discussed in 
paragraph (b), below, it is quite possible that a "kit" could properly be cl assified as a body and parts 
rather than a whole vehicle. And, of course, Canada  repeats that even if a CKD or SKD contains parts 
with the essential character of a whole vehicle, Chin a is obliged by paragraph 93 of the Working Party 
Report to charge no more than 10%. 
(b) Please explain the relevance and/or significance of "the decision rendered on 
June 11, 1990 by the Canadian International Tr ade Tribunal in Appeal AP-89-228" in relation 
to tariff classification decisions to be made by  the Canadian customs authorities concerning the 
third type of kits referred in that decision.  Please also provide a copy of this decision. 
Response of Canada (WT/DS342) 
 
533. That decision related to a determination of whether an imported Mercedes replica assembly 
kit (which included most parts, but not the power  train, suspension or engine) qualified for duty 
exemption on the basis that it was either a motor vehicles manufactured more than 25 years earlier or 
parts to be used on such a vehicle.
115 The CITT concluded that while the kit replicated an older 
Mercedes, the parts were designed to be mounted on a power train, suspension and engine less than 15 
years old, and that therefore the parts did not qua lify for the duty exemption. The CITT also accepted 
that GIR 2(a) applied such that the parts had the essential character of a vehicle body, with some other 
parts that were not part of the body, and that therefore the kit was properly classified as a body 
(8707.10.90) and parts (8708.70.90, 8708.92.90, 8708.94.90 and 8708.99.99). 
(c) Is that decision binding on Canadian customs authorities? Response of Canada (WT/DS342) 
 
534. In this case, as in most appeals to th e CITT, the appeal was transaction-based ( i.e., based on a 
particular import) and the decision only applied to  the goods under appeal (and not to all similar 
goods imported by all importers). The CBSA then implemented the particular decision by re-
determining the tariff classification of the particular goods subject to the appeal.  
535. However, while a CITT decision is only binding with respect to the goods that are the subject 
of review, the CBSA applies the finding of the CITT to similar goods as a matter of policy. This explains the reference in Exhibit CHI-17 to the CITT decision, which reflects CBSA's policy 
generally to refuse to grant replica assembly kits  the duty exemption available for parts for vehicles 
older than 25 years. 
                                                     
 
115 Bradley v. The Deputy Minister of National Revenue for Customs and Excise , 1990, CITT, Appeal 
No. AP-89-228 (Exhibit CDA-41).  WT/DS339/R/Add.1 
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  242. ( Canada )  In paragraph 26 of its second oral statement, Canada states that there is 
nothing in the text of Article II to justify Chin a's argument that a brake cylinder once in China 
may be classified as a motor vehicle by virtue of how it is used in a domestic production process.  
Is there anything in Article II that precludes it? 
Response of Canada (WT/DS342) 
 
536. Yes. As set out in Section II.B of Canada's second written submission, ordinary customs 
duties may be no greater than the amounts set out in a Member's Schedule for products "on their 
importation", meaning their physical state as they arri ve at the border. A Member is obliged to apply 
ordinary customs duty within the rates set out in  its Schedule. Imposing an ordinary customs duty 
greater than that amount is a violation of Article II: 1(b), first sentence. While Canada submits that the 
measures impose internal charges, and thus Artic le II is not engaged, even if the measures are 
ordinary customs duties, the bound rate for brake cy linders in China's Schedule is 10%, while China 
imposes a charge of 25%.  
243. ( China )  Please comment on the United States' argument in paragraph 19 of its second 
oral statement that if China's position were adopted "a Member could avoid its Article III disciplines by the simple ruse of structuring its customs laws so that no product is actually 
"imported" until after discriminatory internal charges and other discriminatory measure had 
been applied."  The Panel is not asking China to comment on whether its measures actually do 
this, but rather on the interpretative question presented by the United States in the general 
sense. 
Response of China 
 
537. China has responded to this assertion on multiple occasions.
116  The United States apparently 
believes that, through the constant repetition of the same point, it can avoid the fact that China has 
already addressed this concern in detail. 
538. As China has most recently explained in r esponse to questions 189 and 199 above, it is not 
China's position that a Member can structure its cust oms laws to defer the point at which goods are 
considered imported, and thereby impose whatever discriminatory charges or measures it wishes.  The 
question in relation to a particular customs process is  whether it gives effect to a measure or charge 
that a Member is allowed to maintain or collect by reason of, or in relation to, the entry of goods into 
its customs territory.  Thus, a Member may not, under the guise of a customs process, maintain a measure or collect a charge in respect of goods from another Member that it is not allowed to 
maintain or collect under its WTO commitments.   
539. To be perfectly clear, the Member's character ization under its municipal law of when a good 
has been "imported" does not define the scope of its  rights and obligations in respect of Article II and 
Article III.  As China explained in response to qu estion 37 from the Panel, China considers that goods 
have been imported "once the national customs authorities have completed the administrative 
processes that are necessary for th e imposition and assessment of the specific border charges that the 
Member is allowed to impose in respect of the imports at is sue, and the imports are no longer subject 
to customs control."
117  Whatever those administrative processe s entail, they canno t involve forms of 
discrimination that are not specifically countenanced by the Member's rights and obligations under 
                                                      
116 See, e.g.,  China rebuttal submission at para. 119; China answers at 31; China answers at p. 35; 
China answers at p. 105. 
117 China answers at p. 31.   WT/DS339/R/Add.1 
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  Article II.  Therefore, these customs processes ca nnot provide a "ruse" for discriminating against 
goods from another Member in respects that are inconsis tent with the disciplines of Article III.  This 
is an objective standard, not a standard that l eaves the boundaries between a Member's Article II and 
Article III obligations subject to its  own discretion and national laws. 
Comments by the European Communiti es on China's response to question 243 
540. China's reply is circular. On the one hand Ch ina considers that Members cannot defer the 
point at which goods are considered imported throug h the structuring of their customs laws. On the 
other hand China is of the view that goods have been imported "once the national customs authorities 
have completed the administrative processes that are necessary for the imposition and assessment of 
the specific border charges that the Member is allowe d to impose in respect of the imports at issue, 
and the import are no longer subject to customs cont rol". This test suggested by China provides that 
through the structuring of customs laws a Member can in fact defer the point at which goods are considered imported. The European Communities f undamentally disagrees with this position, which 
was also specifically addressed by the panel in EEC – Parts and Components . For analysis, the 
European Communities refers inter alia  to paragraphs 48 and 49 of  its second written submission. 
Comments by the United States on China's response to question 243 
541. China's response is entirely b ased on the false premise that Article II and China's schedule 
give China the "right" to define a "customs dut y" however China sees fit and to adopt measures 
inconsistent with Article III in order to collect such supposed "customs duties".  To the contrary, 
Article II imposes obligations on Members that choos e to impose customs duties.  Article II does not 
provide that Members may choose to define "customs duties" however they see fit, and Article II does not give Members any "right" to breach Article III (or other WTO obligations) by adopted measures 
addressed to the collection of such self-defined "custo ms duties." If China were correct that Article II 
provided such "rights" to WTO Members, then, ind eed, as the United States has explained, Article III 
could be rendered a nullity through the ruse of de fining internal charges as "customs duties".   
244. ( United States )   The United States, in paragraph 19 of its second oral statement, states 
that the only sensible way to view "imported" in th is context is with its normal meaning, that is 
"the time when the product enters the Member's customs territory."  Could the United States please explain how they determined that th is was the ordinary meaning of the word 
"imported". 
Response of the United States (WT/DS340) 
 
542. Please see the United States response to Panel question No. 191.  The United States also notes 
that the act of importation should not be confused  with subsequent customs procedures and clearance 
processes.  Indeed, the finalization of the collec tion of duties may not occur until some time after 
importation.  See e.g. the United States response to Panel question No. 32.  
245. ( All parties )  The United States mentioned at the second substantive meeting that the HS 
Committee Decision referred to by China canno t be used as context for the meaning of 
Article II of the GATT because it postdates that  agreement, i.e, a decision from 1995 cannot be 
used as context for an agreement concluded in 19 94.  Could the other parties please comment on 
whether they share this view and why.  WT/DS339/R/Add.1 
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  Response of China 
 
543. The US position is incorrect, for four reasons.  First, as China noted in response to 
question 186, the meaning of GIR 2(a) is principally  relevant to the interpretation of China's Schedule 
of Concessions, which took effect on 11 December 2001 – six years after the HS Committee Decision.  Even if the relative timing of these two events had some bearing upon the significance of 
the HS Committee Decision, the HS Committee Deci sion clearly preceded the conclusion of China's 
Schedule of Concessions. 
544. Second, as China explained in response to qu estion 112 from the Panel, the Appellate Body 
specifically referred in EC – Chicken Cuts to the relevance of any interp retations of the GIRs adopted 
by the WCO and the HS Committee.  Nothing in th e Appellate Body's statem ent suggests that this 
would be limited to interpretati ons of the GIRs that existed prior to  the conclusion of the GATT in 
1994. 
545. Third, as China has previously pointed out, the 1995 HS Committee Decision merely 
reaffirmed an interpretation of GIR 2(a) that has existed for at least 40 years.  When the GATT was 
concluded in 1994, this interpretation of GIR 2(a) had long been established.  Because the 
interpretation that the HS Committee reaffirmed in  1995 existed in 1994, it provides relevant context 
for the interpretation of Article II and China's Sc hedule of Concessions in the same respect as other 
elements of the Harmonized System. 
546. Finally, even if the 1995 decision of the HS  Committee did not provi de relevant context 
within the scope of Article 31(2) of the Vienna Convention,  it would nonetheless constitute a "relevant 
rule of international law applicable in the rela tions between the parties" within the meaning of 
Article 31(3)(c) of the Vienna Convention , regardless of when the HS Committee Decision was 
adopted.  It could also constitute a "subseque nt agreement among the parties regarding the 
interpretation of the treaty or the application of its  provisions" within the meaning of Article 31(3)(a) 
of the Vienna Convention.    
547. For these reasons, the 1995 HS Committee Decision is  clearly relevant to the interpretation of 
China's commitments under Article II and its Schedule of Concessions. 
Response of the European Communities (WT/DS339) 
 
548. As pointed out in the European Communities' re ply to question 114, the Appellate Body has 
considered in paragraph 199 of EC – Chicken Cuts  that "the above circumstances confirm that, prior 
to, during, as well as after the Uruguay Round nego tiations, there was broad consensus among the 
GATT Contracting Parties to use the Harmonized System as the basis for their WTO Schedules, 
notably with respect to agricultural products. In our  view, this consensus constitutes an "agreement" 
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 interpreting the WTO 
agreements, of which the EC Schedule is an integr al part. In this light, we consider that the 
Harmonized System is relevant for purposes of interpreting tariff commitments in the WTO Members' Schedules."  
549. In general, the decision of the HS committee referr ed to in by China can at most be relevant 
as context for the determination of whether the assembly operations involved in the assembly of a 
CKD or SKD kit are "further working operations" w ithin the meaning of Explanatory Note VII to WT/DS339/R/Add.1 
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  GIR 2 (a). This is the only legally relevant decisi on taken by HS committee in the context of the 1995 
decision. 
Response of the United States (WT/DS340) 
 550. As the question notes, during the second substa ntive meeting the United States made the 
above point regarding the time of the 1995 HS  Committee Decision as compared to the earlier 
completion of the Uruguay Round.   
551. The United States would also note that this issue of timing is not the only reason that the 
United States believes that the HS Convention (and a fortiori  any decisions under the HS Convention) 
are not context for the purpose of interpreting the WTO Agreement.  The United States has also made 
the more general point that the HS Convention is  not context for interpreting the HS Convention 
because it does not meet the requirements for "cont ext" under customary rules of interpretation of 
public international law, as reflected in Article  31(2) of the Vienna Convention on the Law of 
Treaties.
118     
552. The United States also submits that there is a substantial distinction between using the HS 
Convention as a tool for interpreting the WTO Agreement (including the GATT 1994) as a whole versus using the HS Convention as a tool for inte rpreting a Member's schedule that was explicitly 
based on the HS nomenclature.  In the latter case,  the United States is of the view that the HS 
Convention may be used as a supplementary means of  interpretation of that Member's schedule under 
the principles reflected in Article 32 of the Vienna Convention .  
Response of Canada (WT/DS342) 
 
553. Canada agrees that the Harmonized System, as it was used for negotiating China's Schedule, 
may be relevant as context for interpreting GATT Ar ticle II. For the reasons set out in detail in 
paragraph 59 of Canada's second written submissi on, the HS Committee discussion referred to by 
China is not relevant for interpreting that Schedule.  China has also presented no practice either before 
or after accession similar to the measures. Last, Ch ina has offered no evidence that a peripheral issue, 
taken out of context by China, and contained in a non-binding WCO decision was at all relevant to 
negotiating China's Schedule. 
Comments by the United States on China's response to question 245 
554. As stated in its response to this question, th e United States is of the view the HS Convention 
may be used as a supplementary means of interpretation of that Member's schedule (if based on HS 
nomenclature) under the principles of interpretation reflected in Article 32 of the Vienna Convention . 
                                                     
 
118 In particular: (1) the HS Convention is not an "agreement relating to the treaty which was made 
between all the parties in connexion with the conclusion of the treaty," because not all Contracting Parties 
during the Uruguay Round were parties to the HS Convention and because the HS Convention is not an 
agreement "relating to the conclu sion" of the WTO Agreement"; and (2) the HS Convention is not an 
"instrument which was made by one or more parties in connexion with the conclusi on of the treaty and accepted 
by the other parties as an instrument related to th e treaty" because the HS C onvention was not made in 
connection with the conclusion of the WTO Agreement, nor was it "accepted by other parties as an instrument 
related" to the WTO Agreement.  The United States re fers the Panel to its Second Submission, wherein the 
United States noted the limited finding in Chicken Cuts regarding the HS Convention as context for agricultural  
products, and the fact that in the Gambling  dispute, the Appellate Body disagreed with and overturned a panel 
finding that the UN nomenclature was to be used as context for interpreting Memb ers' GATS schedules.    WT/DS339/R/Add.1 
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 Page A-293 
  
  555. Contrary to China's assertions, the 1995 decision of the HS Committee is not legally binding 
and therefore does not establish a "rule of interna tional law" or constitute an "agreement" between 
parties to the HS Convention.  
246. ( All parties )  China argues that because its charg es relate to a valid customs duty, they 
fall within the purview of Article II.  Could Chin a please explain the legal basis from the text of 
Article II or other sources, for its understanding  that Article II applies to anything that 
"relates" to a valid customs duty?  Could the co mplainants please indicate whether they agree 
with China's interpretation of Article II and pr ovide the legal basis for their agreement or 
disagreement. 
Response of China 
 
556. China's responses to question 179 and 203 discuss the legal basis for this conclusion.  As 
explained therein, and in China's other submis sions to the Panel, the textual issue within 
Article II:1(b), first sentence, is the meaning of  the term "on their importation."  There are two 
principal sources of interpretation which support th e conclusion that charges are imposed on goods 
"on their importation" into a Member's customs terri tory if the charges fulfil a valid customs duty, i.e., 
a customs duty that the Member is allowed to co llect in accordance with its Schedule of Concessions. 
557. First, as discussed in response to question 17 9, the term "on their importation" must be 
interpreted in the light of the consistent a nd widespread practice among Members of imposing 
customs-related measures, and collecting customs duties,  after goods have crossed the frontier.  In the 
absence of a temporal or geographic limitation on th e scope of the term "on their importation," there 
must be some other principle by which the scope of  this term is defined.  As China documented in 
paragraph 103 of its second written s ubmission, the interpretations offered by the parties to this 
dispute (including the third parties) all point to the reason  or event  that triggered the imposition of the 
charge as the determinative consideration in eval uating whether the charge is within the scope of 
Article II:1(b).
119  This understanding is consistent w ith the practice among WTO Members of 
collecting ordinary customs duties after goods have physically crossed the frontier, provided that the 
charges relate to a liability that arose by reason of the entry of those goods into its customs territory. 
558. The second basis of interpretation is the ordinary meaning of the term "on" in the context of 
Article II:1(b), first sentence.  As discussed  in response to question 203, the Panel in 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 regard to.'."120  This meaning of the term "on" has 
been adopted by the panels in EC – Export Subsidies on Sugar  and Dominican Republic – Import and 
Sale of Cigarettes.121  As the latter panel noted, "the ordinary meaning of the word 'on' suggests that it 
is a preposition denoting a relation.  In that sense, the expression 'on the importation' would be akin to 
'with respect to the importation'."122  This ordinary meaning of the word "on" supports the conclusion 
that a charge is imposed "on their importation" if the charge relates to, or is in respect of, the 
importation of the good into the customs territory of the Member imposing the charge.   
                                                      
119 China Rebuttal Submission at para. 103.   
120 India – Autos  at para. 7.257.   
121 EC – Export Subsidies on Sugar  (Panel Report) at para. 7.274; Dominican Republic – Import and 
Sale of Cigarettes  (Panel Report) at para. 7.258. 
122 Dominican Republic – Import and Sale of Cigarettes  at para. 7.258 (citing The New Shorter Oxford 
English Dictionary  at 1,995-1,996).   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-294 
  
  Response of the European Communities (WT/DS339) 
 
559. The European Communities does not  agree with China. Under Article II:1 (b), first sentence 
of the GATT 1994, ordinary customs duties can only be imposed on the importation of the product. 
Other duties or charges may be imposed in connec tion with importation under Article II:1 (b), second 
sentence. However, according to paragraph 1 of  the Understanding on the Interpretation of 
Article II:1(b) of the GATT 1994, "[i]n order to ensu re transparency of the legal rights and obligations 
deriving from paragraph 1(b) of Article II, the nature  and level or 'other duties or charges' levied on 
bound items, as referred to in that provision, shal l be recorded in the Schedules of concessions 
annexed to GATT 1994 against the tariff item to wh ich they apply". Furthermore, the broad purpose 
of Article III of the GATT 1994 of avoiding protectioni sm must be remembered when considering the 
relationship between Article III and other provisi ons of the WTO Agreement including Article II 
(Appellate Body Report in Japan – Alcoholic Beverages II, p.16). 
560. The interpretation by China referred to in th e question is one of many different vague 
formulations that China uses in its attempt to wide n the scope of Article II to the detriment of the 
scope of Article III. There is nothing in law that supports China's position that Article II applies to 
anything that "relates" to a valid customs duty. 
Response of Canada (WT/DS342) 
 561. Canada has set out in Section II.B of its  second written submission its understanding of 
Article II as it applies to this dispute. 
Comments by the European Communiti es on China's response to question 246 
562. Further to its reply to question 246, the Eu ropean Communities emphasises that China is 
erroneously using the panel report in India – Autos  where the panel interpreted the words "on 
importation" in Article XI of the GATT 1994 and not  under Article II:1(b). As pointed out by the 
European Communities in its reply to question 203 of  the Panel, the notion of "on importation" under 
the latter provision is narrower because Article II: 1(b) distinguishes between the notions of "on 
importation" and "in conn ection with importation". 
Comments by the United States on China's response to question 246 
563. China's response conflates the distinct concepts of "imposing" and "collecting" a charge, as 
discussed in the comments the United States on China's responses to Panel question No. 179. 
564. As discussed in its responses to Panel questi on Nos. 84 and 203, the United States disagrees 
with China's interpretation of "on their importation." 
Comments by China on Complainants' responses to question 246 
565. The EC states that "[t]here is nothing in la w that supports China's position that Article II 
applies to anything that 'rel ates' to a valid customs duty."
123  This is incorrect.  Among the other 
interpretive bases that China has di scussed in respect of the interpretation of Article II:1(b), first 
sentence, China notes that three prior panels have re ferred to the ordinary meaning of the word "on" 
                                                      
123 EC answers after second meeting at para. 79.    WT/DS339/R/Add.1 
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  as including "'with respect to', 'in connection, asso ciation or activity with or with regard to'."
124  This 
interpretation directly supports China's interpre tation of the term "on their importation" in 
Article II:1(b), first sentence, as encompassing charg es that a Member collects "in relation to," or 
"with respect to," the importation of a product, with out regard to the exact point in time or space at 
which the charge is collected.   
247. ( Complainants )  Please explain how the complainants  classify and treat imported auto 
parts and automobiles under their respective schedules. 
Response of the European Communities (WT/DS339) 
 566. Classification of goods in the EC nomenclature  is guided by the principles set up by the 
General Interpretative Rules.  
567. GIR 1 states that the classification shall be dete rmined according to the terms of the headings 
and any relative section and chapter notes. In a case of incomplete or unfinished articles, or articles 
presented unassembled or disassembled (if they are complete or finished articles or are falling to be 
classified as complete or finished articles by virtue of GIR 2 (a)), provided that they, as presented
, 
have the essential character  of the complete or finished article.  
568. The headings and the corresponding duty rates th at merit consideration for the classification 
of the vehicles and parts of the vehicles are the following: 
Complete vehicles  
Heading 87.01 Tractors (various duty rates - duty rate: 3% for pedestrian-controlled tractors, 
duty rate: 16 % for road tractors for semi-trailers , duty rate: "free" for track-laying tractors, 
duty rate: "free" for other agricultural tr actors, duty rate: 7% for other tractors) 
Heading 87.02 Motor vehicles for the transport of ten or more persons, including the driver 
(duty rate 10% or 16% depending on a type of engine and cylinder capacity) 
Heading 87.03 Motor vehicles for the transport of persons (other than those of heading 8702) 
(generally - duty rate 10%, with the exemption of certain types of vehicles specially designed 
for travelling on snow, golf cars and similar vehicles with duty rate: 5%) 
Heading 87.04 Motor vehicles for the transport of goods (generally duty rates 10% or 16% 
depending on a gross vehicle weight, type of e ngine and cylinder capacity, then duty rate free 
for dumpers designed for off-highway use, duty rate: 3,5% for vehicles specially designed for 
the transport of highly radioactive materials)  
Heading 87.05 Special purpose motor vehicles (duty rate: 3,7%) Intermediate products
 (a combination of vehicle elements  and/or parts fitted and/or equipped 
together without being complete vehicles) 
                                                      
124 India – Autos  at para. 7.257.  This interpretation was adopted by the panels in EC – Export Subsidies 
on Sugar  at para. 7.274 and Dominican Republic – Import and Sale of Cigarettes  at para. 7.258. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
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  Heading 87.06 Chassis fitted with engines fo r motor vehicles of headings 8701 to  8705 
(various duty rates, namely 4,5 %, 6%, 10% an d 19% - depending on what type of vehicle it 
is intended for) 
Heading 87.07 Bodies (including cabs) for motor vehicles for motor vehicles of headings 
8701 to 8705 (duty rate: 4,5%) 
Parts and accessories
 of Chapter 87 (heading 87.08) (var ious duty rates, namely 3%, 3,5%, 
4,5% for various parts) 
Parts and accessories of motor vehicles classified elsewhere than Chapter 87  (tyres, engines, 
accumulators). (various duty rates, e.g. heading 4011 New pneumatic tyres, of rubber – duty 
rate: 4,5%,  Engines for motor vehicles – headings 8407 and 8408, duty rate: 2,7 % or 4,2% depending on type and cylinder capacity) 
569. The HS Explanatory Notes provide guidance for the classification in order to ensure uniform 
classification.  Classification is done on the basis of the objective characteristics of the product at 
issue as presented at the border. In  essence, the EC classi fies the relevant products in the way it argues 
that China ought to classify the same products sin ce both China and the EC use the HS nomenclature. 
Response of the United States (WT/DS340) 
 
570. The United States classifies auto parts and au tomobiles in their condition as imported under 
the terms of the Harmonized System.  Most auto pa rts and auto accessories are classified outside of 
chapter 87 by applying General Interpretative Rule 1 and the relevant Section and Chapter Notes that 
direct auto parts and auto accessories to headings out side of chapter 87.  (For example, see Note 2 to 
Section XVII which directs parts and accessories to other chapters or sections within the Harmonized System.)  Automobiles are classified in chap ter 87, specifically under heading 87.03.  
Response of Canada (WT/DS342) 
 
571. Assembled vehicles are classified as 87.02-87.0 5, with specific classification within those 
headings based on the application of GIR 1, taki ng into account all relevant Section, Chapter and 
Explanatory Notes. The MFN tariff rate for all of those headings is 6.1%, except dumpers designed for off-highway use (8704.10), whose MFN rate is 0%. 
572. Auto parts that are imported as assembled intermediate categories ( e.g., body, chassis with 
engine, engines) are classified as 84.07, 87.06 or 87. 07 based on the application of GIR 1, taking into 
account all relevant Section, Chapter and Explanator y Notes. The MFN tariff rate for chassis with 
engines is generally 6.1%, for bodies generally 6% , and for engines generally between 0% and 6%. 
573. Auto parts are classified in their appropria te heading (generally 87.08) based on the 
application of GIR 1, taking into account all releva nt Section Notes (in particular Notes 2 and 3 to 
Section XVII), Chapter Notes and Explanatory Notes (in particular the "parts" Explanatory Notes to 
Section XVII). With few exceptions (for example, seat covers 8708.29.60, which have an MFN duty 
rate of 8.5%), the MFN duty rate is either 6% or 0%. 
574. If a collection of parts with the essential char acter of an intermedia te category (such as a 
body, as in the case discussed in the response to Question 241(b), or a chassis with engine) is 
imported together, the parts would be classified as that intermediate category, in accordance with 
GIR 2(a).  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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 Page A-297 
  
  248. ( Complainants )  Please provide an estimated value of each combination of auto parts as 
shown in Exhibits EC – 1, 2, 5, 6, 7, 8, 9, 10, 11. 
Response of the European Communities (WT/DS339) 
 575. On average, the percentage of the different w hole assemblies in value of a complete vehicle is 
as follows: 
- Body assembly    10% 
- Engine assembly    17% 
- Transmission assembly   8% 
- Drive & non-drive axle assemblies  5% - Chassis assembly    1% - Steering system    4% - Brake system     3% 
- Other components    52% 
576. These percentages in value of the complete ve hicle are generally in line with the data 
provided by China at paragraph 19 of its first written submission. 
577. Using the above percentages and those subm itted by China under examples in which whole 
assemblies would be imported (Exhibits EC-5 to EC-7), the imported parts would represent: 
- 27% (using the above percentages) or 29,57% (using the percentages submitted by China) of 
the value of a complete vehicle for example 3 (Exhibit EC-5); 
- 30% (using the above percentages) or 30,67% (using the percentages submitted by China) of 
the value of a complete vehicle for example 4 (Exhibit EC-6); - 20% (using the above percentages) or 20,94% (using the percentages submitted by China) of 
the value of a complete vehicle for example 5 (Exhibit EC-7); 
578. In Exhibits EC-1, EC 2 and EC-8 to EC-11,  the European Communities presented examples 
in which key parts of assemblies (and not the whol e assemblies) would be imported above the specific 
thresholds defined in Annex I of Decree 125,  thereby deeming the assembly as imported in 
accordance with Article 22(2) of Decree 125 and Ar ticles 14(2) and 19 of Announcement 4. In the 
absence of average value for key parts, the Euro pean Communities has based  its calculations on the 
average value of the relevant whole assembly. As  each "imported" assembly would actually contain 
domestic parts, the combination of imported key parts would represent necessarily less than : 
- 27% (using the above percentages) or 29,57% (using the percentages submitted by China) of 
the value of the vehicle for examples 1 and 2 (Exhibits EC-1 and EC-2); - 29% (using the above percentages) or 22,08% (using the percentages submitted by China) of 
the value of the vehicle for example 6 (Exhibit EC-8); 
- 20% (using the above percentages) or 20,94% (using the percentages submitted by China) of 
the value of the vehicle for examples 7 and 9 (Exhibits EC-9 and EC-11); - 34% (using the above percentages) or 29,68% (using the percentages submitted by China) of 
the value of the vehicle for example 8 (Exhibit EC-10). 
579. The European Communities also refers to paragr aphs 66 and 67 of its first oral statement in 
which it demonstrated that a combination of parts amounting to 17% of the value of a vehicle would 
be sufficient to classify all imported parts in that vehicle as a complete vehicle. WT/DS339/R/Add.1 
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Page A-298 
  
  580. It should also be kept in mind that under Article  22(3) of Decree 125, it is sufficient that 60% 
of the value of the assembly has been imported in order to deem the assembly imported. And, imported parts as common as bolts, nuts, screws etc. will be included in the calculation of that 60% 
threshold and classification of imported parts as a complete vehicle
125. A combination of imported 
parts representing an even lower percentage than above under paragraph 86 in the value of the vehicle 
would therefore trigger the classification of importe d parts as complete vehicles and the imposition of 
the 25% charge: 
- 16,2% (using the above percentages) or 17,74%  (using the percentages submitted by China) 
of the value of the vehicle for imports of 60% of the value of the engine and the body (Article 
22(2)(a) in combination with Article 22(3) of Decree 125); - 9% (using the above percentages) or 11,05% (using the percentages submitted by China) of 
the value of the vehicle for imports of 60% of  the value of the body and 3 other assemblies 
(Article 22(2)(b) in combination with Article 22(3) of Decree 125); 
- 7,8% (using the above percentages) or 10,76%  (using the percentages submitted by China) 
of the value of the vehicle for imports of 60%  of the value of 5 assemblies other than the 
engine or the body (Article 22(2)(c) in co mbination with Article 22(3) of Decree 125). 
Details of the above calculations are provided as Exhibits EC – 35 and 36. 
Response of the United States (WT/DS340) 
 
581. Calculating the estimated value of the groups of parts shown in the EC's exhibits is dependent 
on a number of assumptions including the model and price of the vehicle and the level of trade (i.e., wholesale, retail, supplier pricing, etc. ) at which one captures the pricing of the individual parts.  
Valuations and ratios will fluctuate from model to model and methodology to methodology.  In 
preparing its response to this question, the United St ates selected two vehicle models in different price 
brackets for which information is publicly availa ble – a Cadillac Escalade (US retail base price of 
$55,000) and a Buick LeSabre (US retail base price of $26,000) – both of which are sold in the 
Chinese market.
126  The price of the various combinations of parts compared to the price of the 
complete vehicle is provided in Exhibit US- 13.  Prices for each part were obtained from 
www.GMPartsDirect.com.  These estimates are not inte nded to provide the actual cost of these parts 
in the assembly process, but rather should provide a general estimate of the value of the parts to the 
overall value of the complete vehicle.  
Response of Canada (WT/DS342) 
 
582. Canada is not able to provide estimated values for each of the exhibits listed, as it has been 
unable to find average pricing for the key parts lis ted in those exhibits. However, with a view to 
assisting the Panel, Canada attaches Exhibit C DA-42 (the "Merrill Lynch Report"), which on page 1 
reveals  information regarding the average pricing for th e parts used in various areas of a vehicle, 
including the number of areas that can be Deemed Imported Assemblies under the measures.127  
                                                      
125 Remark 3 in annex 2 of Decree 125: "Connecting parts (such as tube lines, bolts, nuts, screws, 
clamps and adhesives), sealing parts and fixing parts that make possible the integrity of an Assembly (excluding body and chassis assemblies) or key parts are included as part of the assembly." 
126 For transparency, the vehicles and model years selected were based on the availability of 
independently-obtained information.  Where possible, pricing for individual parts has been presented separately.  The Buick LeSabre model is now called the Buick LaCrosse. 
127 Merrill Lynch, Global Auto Supplier Review: Who Makes the Car , May 29, 2007 (Exhibit CDA-42).  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-299 
  
  583. It is possible to use those data directly to calcu late the value of exhibits where all the parts for 
the Assembly in question are present ( i.e., where the Assemblies are Deemed Imported under 
Article 22(1) of Decree 125, in particular Exhibits  EC-5, 6 and 7). For the other exhibits, where the 
Assemblies are Deemed Imported under Article 22(2)  of Decree 125 on the basis of the number of 
key parts, Canada is not able to provide precise information in the absence of pricing for those key 
parts. However, Article 22(3) (the 60% value thres hold) provides a useful substitute. While the values 
under Article 22(2) may not always be in the same range as the figures cited, Canada suggests that in 
a number of cases (for example, Exhibit EC-2), the value using Article 22(2) would be less than under 
22(3) because of the very few key parts necessar y for a finding that the Assembly is Deemed 
Imported (which could not account for 60% of the valu e of the Assembly). This is also logical, since 
Article 22(2) would be unnecessary if it only applied where the Assembly was already Deemed Imported under Article 22(3). Applying those data in the chart below, and comparing them to the 
value of $13,600 for the value of all parts used in a ve hicle, reveals that the percentage value of parts 
in a vehicle required to make the parts Deemed  Whole Vehicles under Article 22(3) in the EC 
examples ranges from 12.6% to 21%, and under Article 22(1) from 21% to 34.7%. 
 
 
Body & 
Structural 
Engine 
Assembly 
Transmission 
Assembly 
Axles, 
Driveshafts, 
etc. (i.e., Drive 
and Non-Drive 
Assemblies) 
Braking 
System 
Steering 
System 
THRESHOLD 
VALUE * 
PERCENT OF 
TOTAL 
VALUE OF 
VEHICLE  
Value of Assembly $2375 $2350 $1225 $810 $435 $375   
Threshold for 
Article 22(3) (60% 
of above) $1425 $1410 $735 $486 $261 $225   
EC -1       $2835 20.4% 
EC-2       $2835 20.4% 
EC-5        $4725 34.7% 
EC-6       $4385 32.2% 
EC-7        $2845 21.0% 
EC-8        $2382 17.5% 
EC-9       $1707 12.6% 
EC-10        $2856 21% 
EC-11       $1707 12.6% 
 
 * For Exhibits EC 5, 6 and 7, which describe complete Assemblies, a value of 100% is used, 
and the box is shaded. For all others, a value of 60% is used, and the box remains unshaded. 
249. ( All parties )  What importation documents are generally required by customs 
authorities?  Is there a limit to the extent to which customs authorities can request information 
from importers? WT/DS339/R/Add.1 
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Page A-300 
  
  Response of China 
 
584. According to the Customs Import and Export Declaration Administration Rules , when the 
importer declares the imports to the Customs, it shall provide the import declaration form and the 
documents required by the import declaration form, including the contract, invoice, packing list, bill 
of lading, and the legal authorization for the impor ter's customs agent.  Aside from these documents, 
if the imported product is subject to a license re quirement, the importer shall provide the import 
license. 
585. China is not aware of any limit prescribed by in ternational agreement concerning the extent to 
which customs authorities can request information from importers. 
Response of the European Communities (WT/DS339) 
 
586. In the European Communities the importers need to file a SAD (single administrative 
document) that is a document composed of vari ous pages with various boxes to be filled in 
concerning information related to the product at i ssue (description, data concerning the importer, 
origin, proposed tariff classification, customs value etc.). The importer will of course have to provide 
commercial documents such as invoices and bills of tr ansport (manifest) mostly in order to check the 
origin and value of the product for customs purposes. Sometimes the product could also be 
accompanied by Binding Origin or Tariff Informati on as well as by a certificate of origin. All the 
above is to be done when presenting the product at the border. 
Response of the United States (WT/DS340) 
 
587. The documents required by Customs authorities vary to some extent in each country.  As a 
general matter, the United States notes the gene ral requirement for the submission of a "Goods 
declaration," which is defined in Chapter 2 of th e General Annex to the Revised Kyoto Convention as 
"a statement made in the manner prescribed by th e Customs, by which the persons concerned indicate 
the Customs procedure to be applied to the goods  and furnish the particulars which the Customs 
require[s] for its application."   
588. Customs authorities can request information from importers to the extent that it is necessary 
for demonstrating compliance with the Customs laws .  Such information may include a number of 
documents defined in the WCO Glossary of Inte rnational Customs Terms, including the following: 
bond, certificate of origin, certified declaration of or igin, customs declaration, declaration of origin, 
and the goods declaration.  The United States also notes that some other documents that are 
commonly provided by importers include the bill of lading, commercial invoice, packing lists, etc.   
589. The information that customs authorities can requi re from importers is also limited by other 
provisions of the WTO Agreement, including Articles VIII and X of the GATT 1994.    
Response of Canada (WT/DS342) 
 
590. At the time of importation the following three documents are required: 
• Form B3, Canada Customs Coding Form;
128 
• Form CI1 Canada Customs Invoice;129 and 
                                                      
128 Canada Border Services Agency, Canada Customs Coding Form B3-3 (Exhibit CDA-43).  WT/DS339/R/Add.1 
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 Page A-301 
  
  • Commercial invoice. 
591. Canadian customs officials can request any ot her additional information from importers that 
is required in order to properly classify and value pr oducts (with the consequent  assessment of duty, if 
any).
130 However, such additional requests would gene rally only take place in compliance verification 
following importation, and would relate only to in formation required to answer specific questions 
(e.g., customs officials might request a diagram of a part  to substantiate that it is properly classified as 
a bumper). 
Comments by the European Communiti es on China's response to question 249 
592. Further to its reply to question 249, the European Communities considers that such 
documentation must be proportionate and re quired for the purposes of genuine customs 
administration. 
250. Canada stated during the second substantive meeting that China does not have the right 
to withhold a decision on the classification and assessment of imported goods, but it has the 
right to classify parts that have the essential character of a finished vehicle: 
(a) ( Canada )  Please clarify whether it is your view  that the assessment of an imported 
product for tariff classification ca n take place only at the border. 
Response of Canada (WT/DS342) 
 
593. Canada confirms that its position is that tari ff classification must be made based upon the 
state of the product as it arrives at the border. As Canada has explained, for example in response to 
Questions 32 and 87, procedures may be necessary after that point in order to determine proper 
classification, such as testing or administrative review procedures, and payment may take place after that point. A Member is not permitted to look to a collection of imports as they are assembled in 
manufacturing in order to assess duty rates. 
(b) (European Communities, United State and China)  Please comment on Canada's view. 
Response of China 
 
594. China believes that the Panel is referring to  the following statement in paragraph 18 of 
Canada's oral statement: "Let us be very clear: there are parts, and there are parts that have the essential character of a finished vehicle.  China is en titled to classify the latter, as they are presented at 
the border, as a finished vehicle.  However, it is not China's right to withhold a decision on essential 
character until it sees fit." 
595. As China stated at the second substantive meeti ng, China considers that this statement by 
Canada is effectively a concession of its claims under Paragraph 93 of the Working Party Report.  Canada has clearly stated that China is entitled to apply GIR 2(a) to classi fy as a motor vehicle any 
collection of parts and components that has the esse ntial character of a motor vehicle, provided that 
they are "presented" to the Chin ese customs authorities within Canada's understanding of that term 
(whatever that might be).  Whatever else this might include, it would certainly include a CKD/SKD 
                                                                                                                                                                    
 
129 Canada Border Services Agency, Canada Customs Invoice Form CI1 (Exhibit CDA-44). 
130 The statutory authority for customs officials to obtain this information is found in Section 13 of the 
Customs Act for actions at the border, and Section 42(2) for post-importation compliance verifications. WT/DS339/R/Add.1 
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Page A-302 
  
  kit that arrives as a single entry.  Thus, Canada  has conceded that China is entitled to classify 
CKD/SKD kits as motor vehicles in accordance with  the essential character test under GIR 2(a).  The 
necessary consequence of this concession by Canada is  that China is allowed to apply the 25 per cent 
duty for motor vehicles to CKD/SKD kits.   
596. More generally, China does not "withhold a decision on essential character until it sees fit."  
Under Decree 125, the determination of whethe r a vehicle model is comprised of parts and 
components that have the essential character of a motor vehicle is made prior to the entry of parts and 
components for that vehicle model.  It is this dete rmination that gives rise to the importer's obligation 
to declare these parts and components accurately when  they enter the customs territory of China.  
Canada's assertion merely restates the central question of whether this method of customs classification is based on a proper understanding of the term "as presented." 
Response of the European Communities (WT/DS339) 
 
597. The European Communities agrees with Canada  that the assessment of an imported product 
for tariff classification can take place only at th e border. As referred to in many occasions, the 
Appellate Body has considered 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" ( EC – Chicken Cuts , paragraph 246). In certain exceptional 
instances, Members may classify as a complete vehicl e a combination of parts when presented at the 
border at the same time and having the essential character of a complete vehicle. In this respect 
reference is made to the rep lies of the European Communities inter alia  to questions 211 and 231. 
Response of the United States (WT/DS340) 
 
598. The United States agrees with Canada's views.  The United States notes, however, that "parts" 
are very unlikely to have the essential character of a finished vehicle.  Rather, and the United States 
believes that this was what Canada stated, the point is that a collection 
of parts (commonly referred to 
as a CKD) presented at the border could have the essential character of an unassembled or disassembled vehicle, if that collection of parts met all the requirements of GIR 2(a).   
Comments by the United States on China's response to question 250(b) 
599. The United States notes that China's response to th is question does not contradict its statement 
at the Second Substantive Meeting confirming the accuracy of the United States' description (in 
paragraphs 3-5 and 65 of the attachment to th e US Rebuttal Submission) of China's pre-WTO 
accession tariff practices.  China's response merely  identifies one instance in which an auto 
manufacturer paid the motor vehicle rate when importing a CKD kit rather than a lower rate 
associated with imported parts.  As the United States has explained previously (see paragraph 65 of 
the attachment to the US Rebuttal Submission), Ch inese authorities would have insisted on applying 
the higher motor vehicle tariff rate if they had view ed a particular auto manufacturer as insufficiently 
committed to investment in China to justify th e lower rate, although normally the negotiations 
between the Chinese authorities and an auto manufactu rer resulted in the application of a lower rate 
associated with imported parts. 
251. ( United States )   As stated in paragraph 10 of its second oral statement, the United States 
has maintained a view that "China's charges (w hether internal charges or customs duties) are 
straightforward violations of Articles III:4 a nd III:5 of the GATT 1994, as well as the TRIMs 
Agreement."  In this context, is the United States referring to China's measures as a whole (i.e.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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 Page A-303 
  
  charges and administrative requirements) when it uses the term "China's charges" in its 
statement above?   
Response of the United States (WT/DS340) 
 600. Yes, in this context, the United States is refe rring to the measures as a whole.  The specific 
example given in the oral statement focused  on the manner in which the domestic-content 
conditionality of the charges (whether or not those charges are internal charges or ordinary customs 
duties) affected the internal use, purchase, and sale of imported parts.  However, the same logic 
applies to the administrative burdens imposed by th e measures.  That is, the administrative burdens 
associated with applying the domestic-content test s in China's measures se rve as a disincentive for 
manufacturers and parts producers to use, purchase, and sell imported auto parts.   
If not, is it the United States' position that ev en if the Panel were to find the charges to be 
"customs duties" applied in a manner consistent with Article II, such "customs duties" should 
still be subject to the disciplines of Articles III:4 and III:5 of the GATT 1994 and the TRIMs 
Agreement? 
Response of the United States (WT/DS340) 
 
601. As noted, the answer to the first part of this question is "yes," so it appears that the second 
part of this question is not applicable.  However, the United States again notes that the consistency of 
a measure with a Member's tariff bindings is not determinative of whether or not the measure is 
consistent with other WTO obligations.   
252. ( United States ) Could the United States please elaborate on its argument in paragraph 28 
of its second oral statement that "[t]he only p ertinence of the HS Convention is to assist in 
interpreting China's Schedule of tariff commitments."  In the United States' view, what 
elements of the HS Convention can be properly  considered by the Panel to interpret China's 
Schedule of tariff commitments for auto parts? 
Response of the United States (WT/DS340) 
 
602. As the question indicates, the United States consid ers that the HS Convention can be used as a 
supplementary means of interpretation for Member's schedules that make use of the HS nomenclature.  
The United States is not aware of any limitations on the specific elements of the HS Convention (such 
as the Preamble, the nomenclature, general interpreta tive notes, and chapter notes) that might be used 
for such purposes.   
253. ( United States )  Could the United States please provide any evidence that can support its 
view that "[i]t is normal business practice fo r a manufacturer to start operations with the 
assembly of kits, and then to move to full assem bly operations using separate shipments of parts 
and assemblies."  (paragraph 33 of the United States' second oral statement) 
Response of the United States (WT/DS340) 
 
603. The United States refers the Panel to histori cal analyses which have described a typical 
progression of the foreign expansion of auto ma kers beginning with the importation of assembled 
autos, then a movement to the importation of CKDs, before progressing to more full assembly WT/DS339/R/Add.1 
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  operations.
131  Most international joint ventures in Ch ina also began production with CKD assembly 
operations.132   
E. CKD  AND SKD  KITS  
254. ( All Parties )  Please provide the Panel with any documentary evidence to support your 
positions with respect to the way China's cust oms authorities treated CKD/SKD kit imports 
prior to its accession to the WTO as well as after its accession but prior to the implementation of 
the measures.   
 For example, the United States has ma intained its position that up to the 
implementation of the measures, China did not apply the tariff rates fo r motor vehicles to CKD 
and SKD kits, but rather applied the tariff rate s that were negotiated between an individual 
auto manufacturer in China and the Chinese author ities, based on the amount of the auto 
manufacturer's investment in China and the exte nt to which the auto manufacturer used local 
content in the assembly of its vehicles.  On the other hand, China has argued that it has always 
treated CKD and SKD imports as complete vehicles. 
Response of China 
 
604. China has classified CKD/SKD kits as motor vehicles and assessed CKD/SKD kits at the 
applicable duty rates for motor vehicles both prior an d subsequent to its accession to the WTO.  This 
is evidenced by the documentation of two specific CKD import entries: 
605. In 2001, before China acceded to the WTO, Dongfeng Peugeot Citroe n imported a CKD kit 
and declared it as a CKD kit.  Afterwards, the impor ter paid the 70% import tariff, which at the time 
was China's duty rate for the corresponding motor vehicle.133 
606. In 2004, after China had joined the WTO, Sh anghai GM imported and declared a CKD kit.  
Afterwards, the importer paid the 34.2% import tariff,  which at the time was China's duty rate for the 
corresponding motor vehicle.134 
Response of the European Communities (WT/DS339) 
 
607. The European Communities does not possess any further specific documentary evidence on 
this issue beyond that submitted with its first written submission (see paragraph 25 thereof) and the 
evidence submitted by Canada unde r paragraphs 67 and 68 of its second written submission. 
Response of the United States (WT/DS340) 
 
608. In the attachment to its Rebuttal Submission (a t paragraphs 3-5), the United States described 
China's tariff practices in the years leadi ng up to its WTO accession, which took place on 11 
December 2001.  The United States further explained (at paragraph 5 of the attachment to its Rebuttal 
                                                      
131 Ford in the Netherlands, 1903-2003, Global Strategies and National Interests, Ford: The European 
History 1903-2003, Ferry de Goey, pages 233-234 (Exhibit US-15).   
132 The Past, Present and Future of China's Automo tive Industry: A Value Chain Perspective, Matthias 
Holweg, Jianxi Luo, and Nick Oliver (The Cambridge-MIT Institute, August 2005), page 37.  (Exhibit US-16).   
133 CHI-47. 
134 CHI-48.  WT/DS339/R/Add.1 
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  Submission) that these tariff practices continued af ter China acceded to the WTO "until China began 
to implement the measures at issue in this dispute."   
609. At the Second Substantive Meeting, when asked if it disputed these factual assertions, China 
confirmed that the United States' description of Ch ina's tariff practices is factually accurate for the 
years leading up to China's accession to the WTO.  China only disputed the United States' description 
of China's post-WTO accession tariff practices.  Ch ina contended that, since its accession to the 
WTO, it has consistently applied the tariff rate fo r motor vehicles to CKD and SKD kits.  For further 
documentary evidence of China's tariff practices for the years leading up to China's accession to the 
WTO, the United States would point the Panel to JE-25 (at page 189).   
610. With regard to China's tariff practices duri ng the period from China's accession to the WTO 
until the measures at issue went into effect, the United States has been unable to obtain additional 
documentary evidence at this point.  Nevertheless, fo r the purposes of this dispute, the more relevant 
time period covers the years leading up to China's accession to the WTO, not the post-WTO accession 
period.  In particular, it is China's tariff practices  in the pre-WTO accession period that are relevant to 
the interpretation of China's commitment in para graph 93 of the Working Party Report accompanying 
China's WTO accession protocol.  As the United Stat es explained in the attachment to its Rebuttal 
Submission (in paragraphs 8 and 9): 
China's tariff practices relating to CKDs a nd SKDs (and parts) during the period from 1992 
until China's accession to the WTO at the end of 2001 help to explain wh y paragraph 93 of the 
Working Party Report accompanying China's Protoc ol of Accession reads the way it does.  As 
the panel will recall, pa ragraph 93 provides:   
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 or se mi-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 year s leading up to China's WTO accession, WTO 
Members, including the United States, knew that China had separate tariff lines for CKDs and 
SKDs that scheduled tariff rates that were the same as those for motor vehicles from 1992 to 
1995, and that China eliminated these tariff lin es effective January 1, 1996.  WTO Members 
also knew that the Chinese authorities had neverthe less been applying substantially lower tariff 
rates for CKDs and SKDs (and parts) than fo r motor vehicles, both when China had separate 
tariff lines for CKDs and SKDs and when it did not.  In negotiating paragraph 93, therefore, 
WTO Members wanted to ensure that China would continue to treat CKDs and SKDs essentially as parts for tariff purposes after acced ing 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.     
Response of Canada (WT/DS342) 
 
611. Canada notes that during the second hearing Chin a conceded that CKDs and SKDs that China 
allowed specific importers to import prior to accession were not charged at the whole-vehicle rate, but 
rather were charged lower duties. Canada has set out in paragraphs 67 and 68 of its second written 
submission its evidence regarding China's treatmen t of CKDs and SKDs prior to accession, with 
extensive references. In light of China's admissi on during the second hearing, it appears that China 
now concedes that the process prior to accession was as described, for example, in Exhibit CDA-28 at 
page 5, i.e, that CKDs and SKDs were treated as  parts and, in accordance with China's pre-accession WT/DS339/R/Add.1 
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  policy, charged tariff rates based upon the domestic content of the vehicle in which the parts were 
incorporated. 
Comments by the European Communiti es on China's response to question 254 
612. The European Communities refers to its reply to question 254 and to Canada's observations 
on the replies of China after the second meeting of the Panel. 
Comments by Canada on China's response to question 254 
613. In response to this question, China has, for the first time, provided evidence of its 
classification and duty assessment of CKDs. That ev idence is extremely helpful as it establishes that 
China in fact created separate tariff lines for CKDs and SKDs following its accession to the WTO. 
Paragraph 93 of the Working Party Report therefore requires China to apply a 10% duty rate for those 
tariff lines.   
614. China's own evidence from December 2004 (Exhibit CHI-48) shows that the shipment in 
question was classified under a separate tariff lin e (8703.23.34.90) – "CKD for Buick 2800cc cars". 
As Canada noted in paragraph 67 of its second wr itten submission, introducing tariff lines at the 
"national level" (i.e., beyond the six-digit level) is precisely how WTO Members create separate tariff 
lines for unassembled vehicles.  China's classificati on is virtually the same as examples provided by 
Canada, such as Indonesia (at Exhibit CDA-24). The only difference appears to be that Indonesia's 
national tariff generally uses ".11" or ".21" as the last two digits, while China uses ".90".   
615. To confirm that China's introduction of tariff lines for CKDs was not limited to 2800cc cars, 
Canada has obtained a copy of China's Customs Ta riff for 2005, which shows that 10-digit tariff lines 
ending in ".90" are generally for CKDs and SKDs  (or "complete sets of assemblies", as they are 
described in the tariff).
135   
616. China agreed in response to Question 257 that it committed to provide a tariff rate of 10% for 
any separate tariff lines for CKDs and SKDs. Ch ina notes in response to Question 258, "tariff 
treatment – i.e., the applicable duty rate – is  always linked to tariff classification".  As Exhibit CHI-48 
demonstrates, and Exhibit CDA-48 confirms, China h as established separate tariff lines, with specific 
duty rates, for CKDs and SKDs.  What China has not done, as China itself admits it is required to do, is to apply a 10% rate of duty for those separate tariff lines.  
617. China's other example, Exhibit CHI-47, from January 2001, illustrates the application of 
duties to a particular CKD shipment prior to Ch ina's accession to the WTO.  The complainants, 
starting with their first written submissions, demonstr ated that the duty rate that China applied to 
CKDs prior to its WTO accession varied depending both on the domestic content of the vehicles manufactured using the CKD and negotiations by in dividual vehicle manufacturers.  China conceded 
in the second hearing that vehicle manufacturers that were allowed to import CKDs during that period 
were charged a duty rate generally lower than th e whole vehicle rate.  China has not rebutted the 
evidence of the complainants on this  point, either generally or specifically (e.g., by showing that 
CKDs imported into China in 1999 from Canada, referred to in paragra ph 68 of Canada's second 
written submission, were charged duty at the whole vehicl e rate).  It is consistent with the evidence of 
the complainants that the particular CKD shipme nt in 2001 documented in Exhibit CHI-47 was 
charged a rate of duty at or near the whole vehicle rate. 
                                                     
 
135 Customs Import and Export Tariff of the People's Republic of China, 2005, Economic Science 
Publishing House (Exhibit CDA-48).  WT/DS339/R/Add.1 
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 Page A-307 
  
  Comments by China on Complainants' responses to question 254 
618. The United States erroneously claims that, at  the Second Substantive Meeting, "China 
confirmed that the United States' description of Ch ina's tariff practices is factually accurate for the 
years leading up to China's accession to the WTO."
136  China explained in response to a question from 
the Panel 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 C KD/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 documented its ordinary pre-
accession classification and tariff treatment of CKD/SKD kits in response to question 254 from the Panel. 
619. The complainants have presented no evidence that China classified CKD/SKD kits as parts  
prior to its accession to the WTO, or treated them as parts  for tariff purposes.  The fundamental 
premise of their claim – that paragraph 93 committed China to apply the tariff rate for auto parts to 
CKD/SKD kits – is therefore entirely without foundation.
137  The United States continues to refer to 
JE-25 as "evidence" for this alleged pre-accession pr actice of treating CKD/SKD kits as "parts" (or 
"essentially  as parts"), even though China has demonstrated that JE-25 uses the term "CKD" and 
"SKD" to refer generically to the use of imported parts to assemble motor vehicles – a point that 
Canada has explicitly conceded.138  Canada now refers to CDA-28 at page 5, and yet it is evident that 
this document, whatever its authority, is using the term "CKD" in the same generic sense – as 
evidenced, once again, by the fact th at the tariff rates to which this document refers are the tariff rates 
for parts  under China's pre-WTO local content policies.139   There is simply no evidence for the claim 
that China ever classified CKD/SKD kits as "parts" and assessed these entries at the applicable duty 
rates for parts. 
620. For the reasons that China explained in paragraphs 138 to 155 of its second written 
submission, the complainants' effort to establis h a pre-accession practice of classifying CKD/SKD 
kits as parts 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.  Irrelevant as it is, the complainants  have not, in fact, presented any evidence of this 
alleged practice.   
255. ( All parties )  For auto manufacturers, what are the benefits of importing CKD and/or 
SKD kits, as opposed to importing individual auto parts?   
                                                      
136 US answers after second meeting at para. 122.   
137 In fact, the United States does not even claim that paragraph 93 required China to treat CKD/SKD 
kits as parts for tariff purposes; the most it can muster is its vague assertion that paragraph 93 represented a 
commitment by China to treat CKD/SKD kits " essentially  as parts for tariff purposes …"  US answer after 
second meeting at para. 123 (emphasis added).   
138 See China second written submission at para. 146.   
139 See CDA-28 at page 5.  The tariff rates for "CKD parts" discussed in this document are the same as 
those described in JE-25, i.e., the tariff rates for parts  under China's pre-accession local  content policies, not the 
applicable tariff rates for CKD/SKD kits.   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-308 
  
  Response of China 
 
621. China does not consider that it is possible to  generalize about the reasons why an auto 
manufacturer would import CKD/SKD kits, as compared to importing auto parts and components in 
multiple shipments.  There are many factors that an auto manufacturer might take into account in 
deciding between these two methods of importati on, including quality control considerations, 
inventory management, the balance between shipping  and assembly costs at different locations, and 
the intended volume of production. 
Response of the European Communities (WT/DS339) 
 
622. The advantages are limited to very specific circ umstances. It costs much more to ship CKD 
and SKD kits than to ship parts in bulks or comp lete vehicles because shipping in kits requires special 
costly boxes/containers and time and people to prep are the kits. This requires considerably more 
handling of the goods (with associated costs) than shipping parts in bulk or shipping a complete 
vehicle that can move by itself. The reason why CKD/ SKD kits are shipped is that sometimes there is 
no manufacturing capacity in the country of destinati on. Essentially the necessary investment is yet to 
be made for building up cars from bulk shipments of parts.  
623. To move to exports of parts in bulk, it is necessary to have in the place of destination the 
assembly and manufacturing plants together with a sufficiently developed informatics system and 
people able to manage thousands of parts to be used in different models. If that capacity does not 
exist, the management of the parts is carried out in  another country where that capacity exists before 
shipping CKD/SKD kits to the country of destinatio n. However, this is always a temporary solution 
pending the development of the needed capacity and a first step in the process of developing the local 
automobile industry. 
Response of the United States (WT/DS340) 
 
624. Rather than importing CKD or SKD kits, wher e auto manufacturers have no operations or 
only limited operations, they generally prefer to import completely-built-up vehicles (CBUs).  As 
explained in our response to Panel question No. 2 53, manufacturers may decide to enter a market 
using imported CKD/SKD kits as part of a longer- term plan to establish production operations in a 
country.  In addition, when auto manufacturers en counter government-imposed policies restricting the 
importation of CBUs (as was the case in China up  through the mid-1990s) they may consider 
importing CKDs or SKDs.  
Response of Canada (WT/DS342) 
 625. CKDs and SKDs are principally used by auto manufacturers either to start up their production 
or for vehicles that are sold in low volumes within a particular country. As noted by Liu (Exhibit CDA-31) at page 5, it is faster for vehicle manufact urers (both domestic and foreign) to get vehicles 
to market by at first importing in CKD or SK D form existing models. CKDs provide vehicle 
manufacturers with the commercial opportunity to intr oduce new models into a market quickly, either 
to test the market or to supplement existing produc ts to meet market demand. A vehicle manufacturer 
does not need a full, dedicated assembly line to assemble  CKDs into a complete vehicle. As a result, it 
does not have to pay the expensive fixed cost of setting up a full assembly line without knowing if the 
demand in the market would warrant such an investment.     
626. It also allows vehicle manufacturers adequate tim e to develop local suppliers, if they need to 
do so. If the vehicle is in production in one market, the manufacturer has supply chains to provide all  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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 Page A-309 
  
  the parts and systems necessary for vehicle production,  which helps to ensure quality control at the 
outset of production. As the manufacturers devel op commercial relationships with local suppliers, 
CKD exports tend to decrease, and eventually cease. 
627. Finally, in some cases, vehicle manufacturers may obtain certain tax advantages in the form 
of differential tariffs or domestic tax preferenc es linked to providing local employment opportunities. 
These advantages will again diminish over time where the parts rate and overall cost structure of 
domestic production justify, as in the case of China, changing from a business model where complete vehicles or CKD/SKD kits are imported to one wher e production of both parts and complete vehicles 
is largely domestic. 
Comments by the European Communiti es on China's response to question 255 
628. China's reply incorrectly paraphrases the Panel' s question.  The issue is not about CKD and 
SKD kits vs. multiple shipments of parts.  Howe ver, China's reply demonstrates that it actually 
recognises that CKD and SKD kits are clearly different  from the importation of individual auto parts.  
Even China now admits that there are genuine opera tional reasons to import individual auto parts.  
This again demonstrates that China has i nvented its 'anti-circumvention theory'. 
256. ( Canada )  Could Canada please provide evid ence supporting its statement in its 
response to Panel question No. 61(b) that "mos t Members who have separate tariff lines for 
CKDs charge lower rate than for fully assembled  vehicles."  Please indicate the names of such 
Members. 
Response of Canada (WT/DS342) 
 
629. Canada directs the Panel to tariff lines for count ries listed in footnote 80 to Canada's second 
written submission, specifically Malaysia (Exhibit CDA-23), Indonesia (Exhibit CDA-24), Vietnam (Exhibit CDA-26) and the East African Community  (Kenya, Uganda, Tanzania) Common External 
Tariff, Chapter 87 (Exhibit CDA-27). The other two c ountries referred to in that footnote (Australia 
and the Philippines) have separate lines that would a ffect trade statistics, but the tariff rate treatment 
for unassembled vehicles is largely the same as that for assembled vehicles. 
257. ( China )  In relation to China's commitment under paragraph 93 of China's Working 
Party Report, the United States submits in response to Panel question No. 61(b) that "conversely, it would not be reasonable to read the sentence as allowing China to provide any 
tariff treatment it wished, so long as China crea tes no new tariff heading for CKDs and SKDs.  
Such a reading would amount to no commitment at all..."   
 Could China comment on this view.  In ot her words, if China was treating CKDs and 
SKDs as complete vehicles at the time of ne gotiations as China argues and the commitment 
under paragraph 93 were conditioned upon creation  of a new tariff line, would not the 
commitment indeed be meaningless since all China has to do is continue to treat CKD and SKD 
kit imports as complete vehicles? 
Response of China 
 
630. No.  As China has explained, paragraph 93 for esaw the possibility that China might choose to 
follow the path of several other developing countries  in Asia by establishing lower tariff rates for 
CKD/SKD kits, in derogation of GIR 2(a).  If China were to follow that path by establishing separate WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-310 
  
  tariff lines for CKD/SKD kits, or if it were to est ablish separate tariff lines for CKD/SKD kits for any 
other reason, China committed to establish a tariff rate of 10 per cent for these imports. 
631. This is not a meaningless commitment – it binds China to adopt a specific tariff rate, if the 
condition set forth in paragraph 93 is met.  The fact that this c ondition is under China's control does 
not make it a meaningless commitment.  There are other instances in various WTO agreements in 
which a condition precedent is under the control of the Member against whom the obligation would 
be sought, if the condition were satisfied.
140  These are not meaningless commitments.  Nor can these 
provisions be interpreted to require the Member to cause the condition to be satisfied, as the United 
States implicitly suggests. 
632. Stated differently, it is not the case that the commitment in paragraph 93 is "meaningless 
since all China has to do is continue to treat CKD and SKD kit imports as complete vehicles," as this 
question proposes.  There are reasons why Chin a might choose to classify CKD/SKD kits as 
something other than complete vehicles, and to establish separate tariff lines for this purpose – for 
example, to encourage the growth of domestic assembly operations as an alternative to the 
importation of CBU vehicles.  In that event, Ch ina would assess CKD/CKD kits at a duty rate of 
10 per cent. 
Comments by the European Communiti es on China's response to question 257 
633. China's reply demonstrates that its interpreta tion of paragraph 93 of the Working Party Report 
must be erroneous. It is hardly credible to asser t that the Members intended to leave it to China to 
"control" the commitment. Such a reading deprives the commitment  of any value. 
Comments by the United States on China's response to question 257 
634. China asserts that paragraph 93 of China's Work ing Party Report foresaw the possibility that 
China might at some time after its WTO accession c hoose to follow the path of some other Asian 
countries and establish lower tariff rates for CKDs, i.e ., lower than the motor vehicle rate.  China, like 
every other WTO Member, has the right to apply a tariff rate below its bound rate; it doesn't need an 
accession commitment to allow it to do so.  If that were the "commitment" that China made in 
paragraph, it would truly be a meaningless one.  
258. ( China )  In response to Panel question No. 61(b), the United States submits that the use 
of the term "tariff treatment" in paragraph 93 of the Working Party Report highlights that the working party's concern was the rate of duty ap plied by China, and that the concern was not 
the classification of CKDs or SKDs.  Does the te rm "tariff treatment" in paragraph 93 of the 
Working Party Report refer to the tariff duty applied by China, but not the classification of 
CKDs or SKDs?  If not, is it China's view that tariff treatment is always linked to tariff 
classification?  Please explain the legal basis for your answer. 
                                                     
 
140 See, e.g.,  Agreement on Government Procurement , Article XII:1 ("If, in tendering procedures, an 
entity allows tenders to be submitted in several languages,  one of those languages shall be one of the official 
languages of the WTO.");  General Agreement on Trade in Services,  Article XVI, fn. 8 (requiring Member to 
allow certain movements of capital, but only if  it makes specified market access commitments); General 
Agreement on Trade in Services,  Annex on Financial Services, Article 1(c) (committing Member to make 
certain financial services commitments if its allows th ese services to be provided in competition with public 
entities).    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-311 
  
  Response of China 
 
635. It is axiomatic that the classification of a good precedes the determination of the duty rate that 
applies.  Within a Schedule of Concessions, it is impossible to determine the correct rate of duty 
without first determining the classification of the good.  A Schedule of Concessions is a matrix of 
articles, specified in rows, and corresponding duty ra tes, specified in columns.  One cannot determine 
the correct duty rate without first establishing the correct  tariff line.  In this f undamental respect, tariff 
treatment – i.e ., the applicable duty rate – is al ways linked to tariff classification. 
636. Aside from overlooking this basic feature of how  duties are assessed, th e US attempt to sever 
the "tariff treatment" of CKD/SKD kits from the correct classification  of CKD/SKD kits ignores the 
plain language of the commitment set forth in pa ragraph 93.  Paragraph 93 makes no reference 
whatsoever to the "tariff treatme nt" of CKD/SKD kits in the abstract, without regard to their 
classification.  On the contrary, the commitment th at China made is conditioned on the creation of 
tariff lines.   For the reasons just explained, the determ ination of whether a particular tariff line is 
applicable requires an act of classification.  If the intention underlying paragraph 93 had been that 
China would apply a 10 per cent rate of duty to CKD/SKD kits without regard to their correct 
classification in relation to a particular tariff line,  the commitment would not have been expressed in 
terms of the creation of new tariff lines.  Instead, th e paragraph would have stated, quite simply, that 
China would unconditionally apply a duty rate of 10 per cent to CKD/SKD kits, in all events.  That is 
not what paragraph 93 says.   
637. The US effort to sever the duty rate from the correct classification is just one more attempt by 
the complainants to rewrite the commitment that the parties actually negotiated, and that is set forth in 
paragraph 93.  That commitment plainly and unamb iguously requires the creation of new tariff lines 
as a condition precedent.   
Comments by the European Communiti es on China's response to question 258 
638. The classification of the good is assumed in pa ragraph 93 of the Worki ng Party Report.  The 
commitment is made in respect of the tariff treat ment.  As the US has stated under its reply to 
question 259 (c), Members were concerned that Ch ina would adopt a new tariff line which resulted in 
a change from the parts rates of dut y to higher, whole vehicle rates. 
Comments by the United States on China's response to question 258 
639. In applying its tariff schedule , a Member will make a classification decision.  At the same 
time,  in its agreements with other Members , it need not commit to a particular classification.  Rather, 
the Member can commit to a particular rate of duty that would apply irrespective of how that Member 
classifies a particular item.  An example of this can be found in Attachment B of the Ministerial 
Declaration on Trade in Info rmation Technology Products (ITA).  See also  the Certification of 
Modifications to Schedule XX - United States (WT/Let/182). 
259. China states in its response to Panel quest ion No. 137 that China does not consider that 
a Member can create a new tariff line "de facto" and that the process of creating a new tariff 
line involves amending the Member's tariff sch edule to include the new tariff line. 
(a) ( China )  What is the exact process of creating  a new tariff line?  How can a Member 
amend its tariff schedule to include a new tariff line?   WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-312 
  
  Response of China 
 
640. As China explained at the second substantive mee ting of the Panel, the Ministry of Finance 
issues a revised tariff schedule each year (which, of course, reflects China's Schedule of Concessions).  
If China were to introduce a new tariff line, it woul d include the new tariff line in the next tariff 
schedule issued by the Ministry of Finance. 
(b) (All parties)  Assuming that a new tariff lin e can be de facto created, in such case, what 
factors should be taken into account to determ ine whether such a tariff line was created?  For 
example, would it be relevant to examine how Ch ina, in fact, has been treating CKD and SKD 
kit imports regardless of what its Schedule indicates? 
Response of China 
 
641. As China explained in response to question 137,  China does not consider that a new tariff line 
can be created "de facto."  A tariff line is a specifi c thing – a line in a Member's tariff schedule, with 
corresponding duty rates.  It either exists or do es not exist.  When Members negotiate commitments 
that are conditioned on the creation of a new tariff line, they must understand that the tariff line must 
come into existence in order for the commitment to arise.  By contrast, if it is their common 
understanding that the Member assuming the obligation will fulfil that obligation without regard to 
the contents of the Member's tariff schedule,  they will negotiate the commitment to reflect this 
understanding.   
Response of the European Communities (WT/DS339) 
 
642. A situation where a member adopts a measure that  provides for a tariff treatment of that good 
without incorporating formally a new line concerning that good into its Schedule could be described 
as the creation of a new de facto  tariff line. This is precisely what China has done under Article 2(2) 
and 21(1) of Decree 125. China applies the 25 % co mplete vehicle duty rate on such CKD and SKD 
kits instead of its commitment to apply a 10 % rate. 
Response of the United States (WT/DS340) 
 
643. The United States understands the discussion of a "de facto" tariff line to relate to the 
evaluation of the consistency of China's measures wi th the obligations set out in Paragraph 93 of the 
Working Party Report.  More specifically, this i ssue arises because China argues that it is free from 
any obligation under Paragraph 93 to  provide a 10 per cent tariff treatment on CKDs/SKDs because of 
the introductory clause of the last  sentence of paragraph 93.  That  sentence states "If China created 
such tariff lines [for CKDs/SKDs], the tariff rates would be no more than 10 per cent."  In other 
words, the concept of "de facto" tariff line is helpfu l to evaluate China's argument that it is free of any 
obligation with respect to the tariff rates on C KDs/SKDs because, according to China, it has not 
created a tariff line for CKDs/SKDs.   
644. It is relevant to understanding the meaning of Paragraph 93 to examine how China was 
treating SKDs/CKDs at the time of accession.  As the United States has explained, and as China 
agreed at the second substantive mee ting, prior to accession China did not
 treat CKDs and SKDs the 
same as complete vehicles.  Instead, they entered not at high whole-vehicle rates, but at rates of duty 
at or below the duty rates for parts, nego tiated on a case-by-case basis that depended on the 
manufacturer's current use and planned future use of  domestic content.  In context, the phrase "if 
China created such tariff lines" in Paragraph 93 means that if China stops using parts rates of duty for 
CKDs/SKDs and instead begins entering CKDs/SKDs as single units under a specific tariff line, the  WT/DS339/R/Add.1 
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  rate of duty must be no more than 10 per cent.  Although the measures do not create a de jure  new 
tariff line, they achieve the same effect as a new ta riff line by deeming that all CKDs/SKDs must be 
entered as whole vehicles at a whole vehicle rate of duty.   In other words, contrary to China's 
argument, China's measure achieve exactly what Members were concerned about (namely, a new, 
higher tariff treatment for CKDs/SKDs instead of the prior ad hoc rates that were at or below parts 
rates), and as such, when read in context, Para graph 93 requires China to impose a rate of duty on 
CKDs/SKDs that is no greater than 10 per cent.   
Response of Canada (WT/DS342) 
 
645. Canada does not believe that there is a le gal concept of creating a new tariff line " de facto ". 
The issue is rather what paragraph 93 of the Working Party Report requires, and how China has 
violated its commitment to maintain the pre-acce ssion and pre-measures preferential treatment for 
CKDs and SKDs. See Canada's response to Ques tion 286 and Canada's sec ond written submission at 
paragraph 63. As Canada has argue d (for example, in Section II. E of its second written submission, 
and in its response to Question 61), paragraph 93 either  requires China to classify CKDs or SKDs as 
parts in their appropriate individual headings, or to classify them as whole vehicles at the six-digit 
level, but to further classify them at a more detailed level (e.g ., at the eight-digit level) as CKDs and 
SKDs, or "unassembled" and charge them duty no gr eater than 10%. As set out in paragraphs 68 and 
69 of Canada's second written submis sion, this is consistent with China's preferential treatment of 
CKDs and SKDs prior to accession. Thus, the enactme nt of the measures violates the treatment China 
was obligated to continue to provide for CKDs a nd SKDs, as, under Article 21(1), it now treats CKDs 
and SKDs as subject to the whole-vehicle rate of 25%. 
Comments by China on Complainants' responses to question 259(b) 
646. Canada now concedes that it "does not believe th at there is a legal concept of creating a new 
tariff line ' de facto '."
141  Instead, Canada asserts that "the issue is rather what paragraph 93 of the 
Working Party Report requires, and how China has violated its commitment to maintain the pre-
accession and pre-Measures preferential treatment for [CKD/SKD kits]."142  Thus, notwithstanding 
the fact that the commitment that China made in paragraph 93 is expressly  conditioned on a specific 
event – the creation of new tariff lines for CKD/SKD kits – Canada entirely forsakes the relevance of 
this condition, either de jure  or de facto .  Instead, it purports to find in paragraph 93 a "commitment to 
maintain" certain pre-accession practices, even thoug h (a) the paragraph makes no reference to these 
alleged practices; (b) the paragraph makes no reference to maintaining anything ; and (c) Canada has 
provided no evidence of what these alleged practi ces were.  This is, as China has explained, a 
wholesale re-writing of the commitment that China actually made in paragraph 93. 
(c) ( All parties )   Does "tariff line" in the context of  paragraph 93 of China's Working Party 
Report refer to tariff treatment or  tariff classification or both? 
Response of China 
 
647. Please see the response to question 258 above.   
                                                      
141 Canada answers after second meeting at p. 39.   
142 Canada answers after second meeting at p. 39.   WT/DS339/R/Add.1 
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  Response of the European Communities (WT/DS339) 
 
648. The classification of the good is assumed in paragraph 93. The commitment is made in 
respect of the tariff treatment of the speci fic goods identified i.e. CKD and SKD kits. 
Response of the United States (WT/DS340) 
 
649. In context, the phrase "tariff line" in paragraph 93 refers to both tariff classification and tariff 
treatment.  As the United States has explained, Paragraph 93 as a whole is clear in explaining that 
Members were concerned with tariff treatment
 of CKDs/SKDs.  Thus, in context, the phrase "tariff 
line" indicates that Members were concerned that China would adopt a new tariff line which resulted 
in a change from the parts rates of dut y to higher, whole vehicle rates.  
Response of Canada (WT/DS342) 
 650. Paragraph 93 is dealing with tariff treatment. Wh en a CKD or SKD is presented at the border, 
whether it is classified as parts or as a whole vehicl e, China is obligated to charge a tariff rate no 
greater than 10%. As set out above in answer to para graph (b), if China were to change its previous 
practice from classifying CKDs and SKDs as parts, it must introduce a tariff line in its customs tariff at a level greater than six digits for C KDs and SKDs, with a 10% rate of duty. 
(d) ( All parties )  Is tariff treatment always linked to ta riff classification?  If not, could you 
please provide the Panel with examples of a Member's tariff treatment commitment that is 
made without any link to tariff classification. 
Response of China 
 
651. Please see the response to question 258 above.   
Response of the European Communities (WT/DS339) 
 
652. Tariff treatment is normally linked to the identification of the product at issue and relates to 
the applicable duty rate as identified in the Schedu le of concessions of WTO members. In order to 
"categorize" or "classify" products within the sch edule of concessions and then to look at the 
applicable tariff treatment, one has to apply HS tariff classification rules as context due to the fact that 
tariff concessions have been negotiated on the basis of the HS nomenclature. 
Response of the United States (WT/DS340) 
 
653. Tariff commitments are generally expressed in terms of tariff nomenclature (under the HS or 
other systems), but not always.  For example, Article I of the GATT 1994 requires MFN treatment for 
like products, without any specific reference to ta riff classification.  Another example is the 
Ministerial Declaration on Trade in Informati on Technology Products.  Attachment B of that 
agreement lists products subject to the tari ff commitments in the agreement, regardless
 of how such 
products are classified.  A third example is Paragr aph 93 itself, which provides a tariff-treatment 
commitment for CKDs/SKDs, even though such artic les were not at the time of accession listed in 
China's tariff schedule, nor are CKDs/SKDs provided fo r in the headings of the HS nomenclature.    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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 Page A-315 
  
  Response of Canada (WT/DS342) 
 
654. Tariff treatment commitments under a Member's  Schedule are always linked to tariff 
classification. As Canada explained in footnote 79 of its second written submission, there may be 
further classification at the national level beyond  the six-digit classification under the Harmonized 
System. Members may also have programs for waiver of customs duties that are not based upon tariff 
classification. But those programs in effect waive a liability that has already crystallized based upon 
the state of the imported product as it arrived at the border. 
260. ( All parties )  In respect of a CKD or SKD kit, do the parties agree that the parts and 
components of such a kit could originate in different countries? 
Response of China 
 
655. Certainly.  A CKD or SKD kit assembled in Ge rmany, for example, is almost certain to 
include parts and components that originated in count ries other than Germany.  There is no difference, 
in this respect, between a CKD/SKD kit and a full y-assembled motor vehicle, which is also very 
likely to include parts and components that originated in more than one country.   
Response of the European Communities (WT/DS339) 
 
656. Yes, the parts and components of such a kit may and normally do originate in different 
countries. However, the kit itself arrives in a single shipment from one country. 
Response of the United States (WT/DS340) 
 
657. Yes, it is possible that the parts and components included in a particular CKD or SKD kit 
could originate in different countries, but such parts would be presented together and would be 
imported by a single importer.     
Response of Canada (WT/DS342) 
 
658. Canada agrees that in those rare cases where a true CKD or SKD is shipped from one country 
to another it may have parts of different origin. Fo r example, the CKDs shipped from Canada to China 
in 1999 that were referred to in  paragraph 69 of Cana da's second written submission would certainly 
have contained parts of US as well  as Canadian origin, given the in tegration of production of the auto 
industry in those two countries, and likely would also have had some parts of other origin ( e.g., 
Mexico, Japan, Korea, the EC, China, which suppl y parts to the automotive industry in Canada). 
However, the CKD itself arrives in a single shipment from one country. 
Comments by the European Communiti es on China's response to question 260 
659. The European Communities refers to its reply to question 260. China now acknowledges that 
parts and components originate from different countries. 
F. S
UBSIDIES AND COUNTERVAILING MEASURES  
261. ( United States )  At paragraph 63 of the attachment to your rebuttal submission, you 
agree with China "in general that in the case of true border measures properly applying a Member's Schedule there may well be no 'rev enue foregone' within the meaning of 
Article 1.1(a)(1)(ii) of the SCM Agreement."  Does this mean that if the Panel were to rule in WT/DS339/R/Add.1 
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Page A-316 
  
  China's favour under Article II of GATT 1994, no  basis would remain for your claim under the 
SCM Agreement?  Please explain in detail.   
Response of the United States (WT/DS340) 
 660. One scenario in which a GATT Article II-compliant customs duty would not seem to result in 
foregone revenue is as foll ows:  If a WTO Member is properly a pplying its tariff schedule to imported 
Product A, and it is also properly applying its tari ff schedule to imported Product B, then the WTO 
Member is not foregoing revenue, even though the tariff rates for the two products are different.   
661. In contrast, assume a scenario where a WTO Member is imposing tariffs on imported Product 
A at the applicable bound rate in one set of ci rcumstances, but in another set of circumstances  is 
imposing tariffs on imported Product A at a rate below the applicable bound rate.  In this scenario, the 
WTO Member is foregoing revenue by virtue of th e fact that the tariff rate for imported Product A 
varies depending on the circumstances.  In this scenar io, the appropriate "normative benchmark" is the 
revenue collected when the bound rate is applie d to imported Product A.  The revenue foregone 
equals the difference between the revenue collected  in the circumstance when the bound rate is 
applied and the revenue collected in the circ umstance when the lower rate is applied. 
662. Similarly, if the government applies its tariff schedule to imported Product A at a rate below 
the applicable bound rate if the importing comp any uses certain domestic goods, but applies the 
applicable bound rate if the importing company does not use those domestic goods, then the 
government would be foregoing revenue in those ci rcumstances where it applies a rate below the 
applicable bound rate.  The appropriate "normative benchmark" is the revenue collected when the 
bound rate is applied to imported Product A (i.e., when the importing company does not satisfy the 
requirement of using the domestic goods).  The re venue foregone equals the difference between the 
revenue collected when the bound rate is applie d to imported Product A (i.e., when the importing 
company does not satisfy the requirement of us ing the domestic goods) and the revenue collected 
when the lower rate is applied to imported Produc t A (i.e., when the importing company satisfies the 
requirement of using the domestic goods).  In th is example, the government's financial incentive 
would fall within the "prohibited" category of Ar ticle 3.1(b) of the SCM Agreement because it is 
contingent on the use of domestic over imported goods. 
663. In the context of this dispute, if the Panel were to find China's measures consistent with 
GATT Article II, either of the two scenarios described above could apply.   
664. First, if the Panel were to find that China is properly applying tariffs to imported Parts A and 
B (i.e., imported Part A receives its properly a pplicable bound rate, imported Part B receives its 
properly applicable bound rate), the United States would agree that there may well be no revenue 
foregone by the Chinese government within the m eaning of Article 1.1(a)(1)(ii) of the SCM 
Agreement.   
665. If, however, the Panel were to find that China is applying tariffs to imported parts at the 
applicable bound rate in one set of circumstances (i .e., imported Part A receives a 25 per cent tariff 
rate when it is assembled into a motor vehicle cont aining insufficient local content), but is applying 
tariffs to the same imported Part A at a rate below the applicable bound rate in another set of 
circumstances (i.e., the same imported Part A receives a 10 per cent tariff rate when it is assembled 
into a motor vehicle containing sufficient local cont ent), the United States would argue that there is 
foregone revenue (as described below in  response to Panel question 267).     WT/DS339/R/Add.1 
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 Page A-317 
  
  262. ( European Communities )  Does the European Communities agree with the United States 
that in the case of true border measures which properly apply a Member's Schedule, there may be no "revenue foregone" within the meaning of Article 1.1(a)(1)(ii)?  If so, how does the 
European Communities reconcile this view with th e fact that it only makes a claim under the 
SCM Agreement in the case that the Panel woul d have considered the measure as a border 
measure consistent
 with Article II GATT?   
Response of the European Communities (WT/DS339) 
 
666. The European Communities claims that the Ch inese measures violate Articles 3.1(b) and 3.2 
of the SCM Agreement only in case the Panel were, contrary to the arguments of the European 
Communities, to find (a) that the measures fall under Article II of the GATT 1994 and (b) that China 
is entitled to accord to the imports of auto parts th e treatment (i.e. 25% rate) it provides for vehicles in 
its Schedule.143 The European Communities has demonstrated  in its previous submissions that the 
Chinese measures, under such a "double hypothesis", constitute a financial contribution within the 
meaning of Article 1.1(a)(1)(ii) of the SCM Agreement . China foregoes revenue "otherwise due" by 
charging certain imported auto parts at the 10% ra te while charging other imported auto parts (i.e. 
those that do not satisfy the local content requirement s set out in the measures) at the 25% rate which 
constitutes a "defined, normative benchmark".144  The European Communities considers that this 
finding is not excluded if th e 25% duty rate is in accordance with the Chinese Schedule. 
263. ( European Communities )  Please explain in detail the legal basis for your position that 
legitimate border measures that are fully consiste nt with GATT Article II can nevertheless, in 
law, constitute prohibited subsidies under Article 3.1(b) of the SCM Agreement. 
Response of the European Communities (WT/DS339) 
 
667. The European Communities considers that nothi ng in the wording, context or purpose of 
Article 3.1(b) of the SCM Agreement excludes legitimate border measures cons istent with Article II of 
the GATT 1994 from the scope of prohibited subsidies. 
668. A measure is a prohibited subsidy within the meaning of Article 3.1(b) of the SCM Agreement 
if three conditions are met: The measure must (a) constitute a financial contribution within the 
meaning of Article 1.1(a)(1), (b) confer a benefit within the meaning of Article 1.1(b), and (c) be 
contingent upon the use of domestic over imported go ods within the meaning of Article 3.1(b). None 
of these conditions is excluded by the existence of legitimate border measures consistent with Article 
II of the GATT 1994. 
669. As regards (a), a financial contribution  within the meaning of Article 1.1(a)(1)(ii) of the SCM 
Agreement requires that "government revenue that is  otherwise due is foregone or not collected". As 
set out by the Appellate Body in US – FSC, this is determined on the basis of a comparison between 
the "revenue actually raised" and revenue that woul d have been raised "otherwise" taking into account 
"some defined, normative benchmark". Both the re venue actually raised and the revenue otherwise 
due can be based on border measures that are consistent with Article II of the GATT 1994. 
                                                      
143 See first written submission of the European Communities, para. 282, and second written 
submission of the European Communities, para. 149. 
144 See first written submission of the European Communities, para. 285 to 288, and second written 
submission of the European Communities, para. 150 to 151. WT/DS339/R/Add.1 
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Page A-318 
  
  670. Concerning point (b) above, a benefit
 within the meaning of Article  1.1(b) is conferred if the 
financial contribution makes the recipient "better off" than it would otherwise have been. It is 
irrelevant for this assessment whether border meas ures conferring the benefit are consistent with 
Article II of the GATT 1994 or not. 
671. With regard to point (c) above, subsidies are contingent upon the use of domestic over 
imported goods within the meaning of Article 3.1(b)  if the recipient gets the subsidy only under the 
condition that he uses domestic over imported goods . The consistency with Article II of the GATT 
1994 of any border measures providing the subsidy is, again, irrelevant. 
672. A simple example demonstrates this point. The tariff schedule of WTO Member X sets forth 
two different tariff rates for the import of processo rs: 20% for processors that will be assembled into 
computers with domestic hard disks (category A processors), and 40% for processors that will be 
assembled into computers with imported hard disks (category B processors). If X charges imports of 
processors according to this schedule, such impor t duties would not infringe Article II of the GATT 
1994. X would, however, grant a subsidy prohibited under Article 3.1(b) of the SCM Agreement. 
First, there is a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM 
Agreement .  X foregoes revenues otherwise due if the revenues actually raised (i.e. 20% from imports 
of category A processors) are compared with the revenue that would have been raised "otherwise" 
(i.e. 40% from imports of category B processors). This  40% revenue is no "entitlement in the abstract" 
but a "defined, normative benchmark" contained in X' s legal system. Second, X also confers a benefit 
to manufacturers of computers which combine the processors with domestic hard disks since these 
manufacturers do not have to pay the higher duties. Third, this subsidisation is contingent upon the 
use of domestic over imported goods because com puter manufacturers only get the benefit of the 
lower duty rate if they combine the processors with domestic hard disks. These findings are not 
affected by the fact that the import duties were in  accordance with the schedule and, thus, not contrary 
to Article II of the GATT 1994. 
264. ( European Communities )  Are you arguing that the existence of a WTO-consistent tariff 
rate on a complete article which is higher than a WTO-consistent tariff rate on the parts of that 
article can, in itself, constitute a subsidy?  Please explain in detail.   
Response of the European Communities (WT/DS339) 
 
673. The European Communities does not argue that th e existence of a WTO-consistent tariff rate 
on a complete article which is higher than a WTO-consis tent tariff rate on the parts of that article can, 
in itself, constitute a subsidy. 
674. As set out above and in prev ious submissions, the European  Communities argues that China 
foregoes revenue "otherwise due" by ch arging certain imported auto parts  at the 10% rate while 
charging other imported auto parts  (i.e. those that do not satisfy th e local content requirements set out 
in the measures) at 25 %, and that this confers a benefit.145 In abstract terms, the European 
Communities does not argue that the difference between the tariff rates for the complete article and its 
parts constitutes a subsidy. The subs idy rather consists of the differe nce between the lower tariff rate 
for parts manufactured into articles with sufficient local content and the higher tariff rate for parts 
manufactured into articles with insufficient local content. 
                                                      
145 See first written submission of the European Communities, para. 284 to 292, and second written 
submission of the European Communities, para. 150 to 152.  WT/DS339/R/Add.1 
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 WT/DS342/R/Add.1 
 Page A-319 
  
  265. ( European Communities )  You stated at the Second Substantive Meeting that your claim 
under the SCM Agreement was based on the do uble hypothesis that the Panel found that 
China's measures are ordinary customs duties wi thin the meaning of Article II:1(b) and that 
China is entitled to charge the 25% rate for parts. 
(a) Please confirm that your contention is that if the Panel made these findings, the 25% 
rate would be the rate for all auto parts, and that therefore charging the 10% rate in respect of 
some  parts would result in the Chinese government foregoing revenue that it otherwise was due. 
Response of the European Communities (WT/DS339) 
 675. The European Communities does not contend, under the double hypothesis for its claim under 
Article 3.1(b) of the SCM Agreement , that the 25% rate would be the rate for "all" auto parts. As set 
out above and in previous submissions, the 25% rate would be the rate for auto parts that do not 
satisfy the local content requirements set out in the measures. For other auto parts, i.e. those that 
satisfy the local content requirements, the 10% rate would apply.
146 
676. As set out in response to questions 157 and 1 58 from the Panel, the European Communities 
does not argue that the 25% rate is a "default rate" and considers that such finding would not be part 
of the relevant legal test in order to determine the "normative benchmark" under Article 1.1(a)(1)(ii) 
of the SCM Agreement .147 
266. ( European Communities and China)  If the Panel were to find that China was entitled to 
classify as a motor vehicle parts that have the essential character of a complete motor vehicle, 
and therefore was entitled to charge the 25% duty in the instances set forth in the measures, in your view would such a ruling mean that China was permitted to apply its motor vehicle rate to certain parts , or would it mean that China was permitted to apply its motor vehicle rate to motor 
vehicles ? 
Response of China 
 
677. China does not understand the distinction suggested  by this question.  Under GIR 2(a), parts 
and components that have the essential character of th e complete article are cla ssified as the complete 
article, not as parts.  As the comp lete article, they are subject to the appropriate duty rates that apply 
to the complete article.   
678. This question may pertain to an aspect of GIR 2(a) that the parties have discussed during the 
two substantive meetings of the Panel.  It is unqu estionably the case that, under GIR 2(a), a "part" will 
sometimes be classified as the complete article.  For example, a steering wheel that is part of a group 
of parts and components that have the essential char acter of a motor vehicle will be classified and 
assessed as a motor vehicle, not as a steering wheel.  This follows from the ordinary application of 
GIR 2(a).  This is no different than the fact that  the same steering wheel in a completely assembled 
motor vehicle will also be classified as part of a motor vehicle, not as a steering wheel.   
679. For these reasons, a finding by the Panel that China is entitled to classify as a motor vehicle 
parts that have the essential character of a complete  motor vehicle, and to charge the 25 per cent duty 
in the instances set forth in the challenged measure s, would necessarily mean that China is allowed to 
                                                     
 
146 See first written submission of the European Comm unities, para. 288; second written submission of 
the European Communities, para. 150; response by the European Communities to Question 157 from the Panel. 
147 Response by the European Communities to Questions 157 and 158 from the Panel. WT/DS339/R/Add.1 
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Page A-320 
  
  apply the 25 per cent rate of duty to auto parts a nd components that have the essential character of a 
motor vehicle.   
Response of the European Communities (WT/DS339) 
 680. Such a ruling would mean that China was permitte d to apply the 25% (motor vehicles) rate to 
certain parts
, i.e. those parts that do not satisfy the local content requirements set out in the measures.  
Comments by the European Communiti es on China's response to question 266 
681. China's acknowledgment, in response to questi on 266, that such a ruling would mean that 
China was "allowed to apply the 25 per cent ra te of duty to auto parts and components " (emphasis 
added) supports the claim of the European Communities under Article 3 of the SCM Agreement . As 
set out in greater detail in previous submissions148, the 10% duty treatment for parts  not Deemed 
Whole Vehicles can be compared with the "defin itive, normative benchmark" of the 25% duty 
treatment for parts  Deemed Whole Vehicles since they both concern, under the hypothesis which 
opens the application of Article 3 of the SCM Agreement , the treatment of imports of auto parts in the 
Chinese legal system. 
Comments by the United States on China's response to question 266 
682. The United States takes China's response to mean th at if a bulk shipment of a particular auto 
part falls within the purview of the measures, th en China would "classify" that part as a complete 
vehicle.  In this regard, the United States also re fers the Panel to China's response to Panel question 
No. 175 and the comments of the United States thereon. 
267. ( European Communities and United States )  How do the European Communities and the 
United States reconcile their view that the 25 per cent charge on imported parts and 
components is the appropriate "normative benc hmark" for purposes of the analysis of their 
claims under Article 3.1(b) of the SCM Agreement, with their main claims that such charge is 
not the appropriate rate of duty for auto parts, but rather the appropriate rate of duty for 
motor vehicles?  In other words, how can the di fference between the 25% complete vehicle rate 
and the10 % parts rate constitute the revenue  foregone that is otherwise due, if as the 
complainants argue the 10% rate (and not the 25% rate) is the appropriate rate to apply to all 
parts? 
Response of the European Communities (WT/DS339) 
 683. The European Communities does not see any discr epancy. The claim under Article 3.1(b) of 
the SCM Agreement  is based on the hypothesis that China is  entitled to apply the 25% duty rate to 
auto parts not satisfying the local cont ent requirements set out in the measures . Under such a 
hypothesis, the 25% rate constitutes the appropria te "definitive, normative benchmark". The claim 
relating to Article II of the GATT 1994, on the other hand, is not  based on the aforementioned 
hypothesis. In the absence of the aforementione d hypothesis, the European Communities considers 
that China cannot impose customs duties of 25% on the imports of auto parts. 
684. For the convenience of the Panel, the European  Communities reiterates the structure of its 
claims which consists of three layers. In its main claim (level 1), the European Communities 
                                                      
148 See first written submission of the European Co mmunities, paras. 285 to 288; second written 
submission of the European Communities, paras. 149 to 151.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-321 
  
  demonstrates that the measures violate Article 2 of the TRIMs Agreement and constitute internal 
measures inconsistent with Article III of the GATT 1994.  In the alternative, i.e. were the Panel to find 
that the Chinese measures are mere ly enforcing ordinary customs duties (level 2), the European 
Communities sets out that China violates Article II of the GATT 1994 by imposing 25% duties on 
auto parts instead of the applicable 10% duty rate  provided for in the Chinese schedule. Were the 
Panel to find that the measures are merely enforci ng ordinary customs duties and that China is entitled 
to apply the 25% rate on auto parts ("double hypothesis", level 3), the European Communities 
alternatively claims that the measures violate Article 3.1(b) of the SCM Agreement . Within this third 
alternative level, China fore goes revenue "otherwise due" when it imposes 10% on auto parts 
satisfying the local content requirements set out in the measures 25% on auto parts that do not. 
(a) ( European Communities and United States )  How can the application of the 25 per cent 
rate be considered "legitimately comparable" to application of the 10 per cent rate, if the 25 per 
cent rate (or the difference between it and the 10 per cent rate) are, in your view, WTO-
inconsistent in the first place? 
Response of the European Communities (WT/DS339) 
 
685. As set out above, the application of the 25% rate to auto parts is not
 WTO-inconsistent under 
the hypothesis  that China is entitled to apply the 25% duty ra te to auto parts. This hypothesis is the 
basis for the claim under Article 3.1(b) of the SCM Agreement . Under this hypothesis, the 25% rate 
constitutes the appropriate "definitive, normative be nchmark" in order to compare the "revenue 
actually raised" with the revenue that would have been raised "otherwise". Therefore, the European 
Communities considers that the 10% rate on auto parts satisfying the local content requirements 
contained in the measures and the 25% rate for auto parts that do not are in fact comparable for the 
purposes of Article 1.1(a)(1)(ii) of the SCM Agreement .149 
Response of the United States (WT/DS340) 
 
686. The scenario that seems to be the premise of the Panel's question is that China's measures 
impose ordinary customs duties in the amount of 25 per cent on imported parts if they are not assembled into a motor vehicle with sufficient local content but impose ordinary customs duties in the 
amount of only 10 per cent on those same imported part s if they are assembled into a motor vehicle 
with sufficient local content.  In  this scenario, assuming that the Panel were to find that China's 
measures constituted customs duties but applied tari ffs in excess of the bound rate in breach of GATT 
Article II in some circumstances (e.g., in the ci rcumstances in which those measures apply a 25 per 
cent tariff rate to imported parts assembled into a mo tor vehicle containing insufficient local content), 
it would be appropriate to view the 25 per cent tari ff rate as the appropriate "normative benchmark" 
for purposes of the analysis under Article 3.1(b) of th e SCM Agreement.  That is the rate that would 
apply to a particular imported part unless the auto  manufacturer responds to the incentives provided in 
China's measures and satisfies the requirement of usi ng that imported part in the assembly of a motor 
vehicle containing sufficient local content.  The United States does not view the SCM Agreement analysis as being affected by the fact that the 25 per cent tariff rate is inconsistent with GATT 
Article II.  The 25 per cent tariff rate can still ser ve as the appropriate "normative benchmark" for 
purposes of the analysis under Article 3.1(b) of th e SCM Agreement.  Even though the application of 
that tariff rate would be inconsistent  with GATT Article II, it is still the rate that applies in China, i.e., 
under Chinese law (as determined by the Panel as a factual matter), and it is Chinese law that 
determines the benchmark.  The revenue foregone in  this scenario would equal the difference between 
the revenue collected when the 25 per cent tariff rate  is applied to imported parts that are assembled 
                                                     
 
149 See second written submission of the European Communities, para. 151. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
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  into a motor vehicle containing insufficient local content and the revenue collected when the 10 per 
cent tariff rate is applied to the same imported pa rts if they are assembled into a motor vehicle 
containing sufficient local content. 
687. The United States views the charges imposed unde r China's measures not as ordinary customs 
duties but rather as internal charg es.  (See the US response to question No. 190.)  Specifically, China's 
measures impose an internal charge in the amount of 25 per cent on imported parts if they are not 
assembled into a motor vehicle with sufficient lo cal content but impose a charge of only 10 per cent 
on those same imported parts if they are assembled into  a motor vehicle with sufficient local content.  
In this scenario, assuming that the Panel were to  find that China's measures constituted internal 
measures that are inconsistent with GATT Article III,  it would be appropriate to view the 25 per cent 
internal charge as the appropriate "normative benchmark" for purposes of the analysis under 
Article 3.1(b) of the SCM Agreement.  That is th e charge that would apply to a particular imported 
part unless the auto manufacturer responds to the incentives provided in China's measures and 
satisfies the requirement of using that imported part  in the assembly of a motor vehicle containing 
sufficient local content.  As in the scenario where the charges at i ssue are treated as ordinary customs 
duties, the United States does not view the SCM Agreem ent analysis as being affected by the fact that 
the 25 per cent internal charge is GATT-inconsistent .  The 25 per cent internal charge can still serve 
as the appropriate "normative benchmark" for purposes of the analysis under Article 3.1(b) of the 
SCM Agreement.  Even though the application of th at internal charge would be inconsistent with 
GATT Article III, it is still the charge that applies in China, i.e ., under Chinese law (as determined by 
the Panel as a factual matter), and it is Chinese la w that determines the benchmark.  The revenue 
foregone in this scenario would equal the differen ce between the revenue collected when the 25 per 
cent internal charge is applied to imported parts that are assembled into a motor vehicle containing insufficient local content and the re venue collected when a 10 per cent charge is applied to the same 
imported parts if they are assembled into a moto r vehicle containing sufficient local content. 
688. The United States notes that in response to Panel question No. 157, when attempting to 
describe the "revenue foregone" by the Ch inese government within the meaning of 
Article 1.1(a)(1)(ii) of the SCM Agreement, th e United States characterized China's measures as 
requiring auto manufacturer to pay a combination of  import duties and internal charges.  The United 
States believes that the correct view of China's meas ures, as a legal matter, is that they only impose 
internal charges, as explained above.   
(b) ( European Communities ) At paragraph 287 of your first written submission, in respect 
of your claim under the SCM Agreement, you argu e that to determine wh ether a government is 
foregoing revenue that "otherwise would be due",  it is necessary to "compare the revenues due 
under the contested measure and the revenues that  would have been raised otherwise taking 
into account a normative benchmark governing such comparison."  Comparing the revenue 
raised under the contested measure (25 per cent) to what in your view would be collected if the measure did not exist (10 per cent), it would appe ar that the contested measure produces more,
 
not less,  revenue for the government of China than would be the case in its absence.  Why is this 
not the appropriate analysis; that is, why is 10 per cent not the appropriate "normative benchmark" in this case, particularly given your view that the 25 per cent is WTO inconsistent?   
Response of the European Communities (WT/DS339) 
 
689. First and as set out in response to the previous  question, the application of the 25% rate to 
auto parts is not WTO-inconsistent under the hypothesis,
 on which the Article 3.1(b) claim is based, 
that China is entitled to apply the 25% duty rate to auto parts.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-323 
  
  690. Secondly, the European Communities does not compare "the revenue raised under the 
contested measure (25 per cent) to what (…) would be collected if the measure did not exist (10 per 
cent)". Instead, the European Communities compares  the revenues actually raised from the imports of 
auto parts satisfying the relevant local content requirements (10%) with revenues that could have 
"otherwise" been raised. These re venues appear in form of the duties imposed on auto parts not 
satisfying the relevant local content requirements ( 25%). As this 25% rate is explicitly foreseen for 
certain imported auto parts in the Ch inese measures, it is, in the words of United States – FSC,  no 
"entitlement in the abstract" but a "definitive, normative benchmark".
150 By charging imports of auto 
parts satisfying the relevant local content require ments with duties of only 10%, China has ignored 
this benchmark and, thus, has forgone "gove rnment revenue that is otherwise due". 
691. The European Communities does not understand the alternative analysis referred to in the 
question. Comparing the 10% duties not with the 25% benchmark, but with the 10% duties would not be a comparison since one thing cannot be compared with itself. Besides, an alternative analysis 
cannot start with the 25% duties and compare these  with the 10% duties. The European Communities 
does not claim that China foregoes revenues by imposing 25% duties on auto parts not satisfying the relevant local content requirements. The claim is  rather that China foregoes revenue by charging 
imports of auto parts satisfying the relevant lo cal content requirements with duties of only 10%. 
268. ( United States )  Is the United States arguing that the 15% ad valorem  differential 
between the 25% and the 10% rates, which accordin g to the United States is charged internally, 
is the benchmark?  If so, can the US explain th e legal basis for a conclusion that the 15% is 
otherwise due to the Chinese Government when it is not charged on vehicles that have sufficient 
local content? 
Response of the United States (WT/DS340) 
 
692. The United States assumes that this question inte nds to refer to the "differential between the 
25% and the 10% rates" rather than the "differe ntial between the 15% and the 10% rates."  As 
explained above in response to question Nos. 190 and 267, the benchmark is the revenue collected 
when the 25% charge is applied, and it is the diffe rential 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, represents the revenue foregone by the Chinese government.  
269. ( United States) With respect to your claim under the SCM Agreement, at the Second 
Substantive Meeting you stated that the normat ive benchmark may change over time as the 
measures have their intended effect of diverting parts purchases from imports to local sources, i.e., that in the beginning most auto manufacturers will pay the 15% charge and some will pay 
0%, but in the end the converse will be true.   
(a) If this statement is correct, does this not imply that the amount of revenue foregone, and 
any subsidization, would reach zero after th e measures were in place for a certain period? 
Response of the United States (WT/DS340) 
 
693. The statement made by the United States at th e Second Substantive Meeting was not intended 
to mean that the normative benchmark would ch ange over time.  Rather, the United States was 
addressing how to determine the appropriate norma tive benchmark in the circumstances of this 
                                                     
 
150 See first written submission of the European Comm unities, para. 288; second written submission of 
the European Communities, para. 150; response by the European Communities to Question 157 from the Panel. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-324 
  
  dispute.  Specifically, the United States was attemp ting to explain that it was not always appropriate 
to define the normative benchmark in terms of a "defau lt rate," to the extent that a default rate means 
the revenue normally or most often collected.  In many cases it is appropriate to define the normative 
benchmark in these terms.  However, in some case s, such as this dispute, the normative benchmark 
will not necessarily represent the revenue level normally or most often collected.  Rather, the normative benchmark can mean the revenue level th at applies unless a particular contingency is 
satisfied. 
694. As the United States explained in paragraph 145 of  the attachment to its rebuttal submission, 
when measures provide incentives for manufacturer s to use domestic over imported goods, like the 
measures at issue in this dispute, they are by thei r nature designed to change manufacturers' behavior 
over time.  The goal of measures like those at issue in this dispute is to change how business is 
normally conducted and to create an incentive for ma nufacturers to begin sourcing more parts locally 
rather than importing them.  While the higher ch arge may prevail initially, as business practices 
respond to these incentives, the revenue most ofte n collected under the measures would change as 
well.  More and more manufacturers would qua lify for the lower charge by assembling vehicles 
containing sufficient local content.    
695. Thus, in the case of China's measures, the normative benchmark – the 25 per cent internal 
charge – remains the same over ti me.  However, that does not mean  that the 25 per cent internal 
charge is a default rate in the sense that it repr esents the level of revenue normally or most often 
collected, as the level of revenue normally or most  often collected by the design of the measures 
themselves will change over time.  Rather, the 25 per cent internal charge is the rate that applies 
unless an auto manufacturer satisfies the contingency of  using sufficient local content in the assembly 
of a vehicle to qualify for the 10% charge, and for th at reason the 25 per cent in ternal charge serves as 
the normative benchmark.  
(b) What is the legal basis for your contention that a "normative benchmark", which is 
supposed to be the point of comparison fo r determining whether a measure engenders the 
foregoing of revenue, can be identified on the ba sis of the effects of that same measure when 
applied over a period of time?   
Response of the United States (WT/DS340) 
 
696. The United States is not arguing that the normative benchmark can be identified on the basis 
of the effects of the measure at issue when app lied over time.  As explained above in response to 
Panel question 269(a), the normative benc hmark remains the same over time.   
270. ( United States )  In your first written submission, in connection with your claim under the 
SCM Agreement, you state that the measur es "exempt manufacturers from the charges 
otherwise due if they use domestic auto parts ra ther than imported auto parts", and you further 
argue that what the manufacturers are exempted  from under those circumstances is an "across-
the-board 25 per cent charge on auto parts".  However, in your answer to question 157 from the 
Panel, you suggest that you are not arguing that  25 per cent is the "default" rate, or "general" 
rate from which there are exception s under certain circumstances.   
(a) Are you arguing that an "across-the-board"  rate, from which "exemptions" are granted 
under certain circumstances is different from a "g eneral" rate from which "exceptions" are 
granted under certain circumstances?    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-325 
  
  Response of the United States (WT/DS340) 
 
697. The United States is not arguing that an "acro ss-the-board" rate, from which "exemptions" are 
granted under certain circumstances is different from a "general" rate from which "exceptions" are 
granted under certain circumstances.   
(b) Please provide your detailed legal reasoning for considering 25 per cent to be the 
appropriate "normative benchmark" in this ca se for determining the existence of "revenue 
foregone".  If you are no longer arguing that there is a 25 per cent "across-the-board" rate on 
auto parts, please explain in detail the basis for your position that 25 per cent nevertheless is the 
appropriate "normative benchmark" to be applied for purposes of this claim. 
Response of the United States (WT/DS340) 
 
698. Please see the United States response to Panel question Nos. 267 and 268. 
271. ( European Communities )  At paragraph 291 of your first written submission, you argue 
that vehicle manufacturers do not have to pay the higher rate of "typically 25%" if they satisfy the local content requirements of the contested  measures.  In your answer to the Panel's 
question 157, however, you state that you have no t argued that 25% would be "the default rate" 
of charges applied to imported auto parts and that the 10% rate would "only be available upon 
demonstration that local content requirements w ere met".  Please clarify in how a "typical" 25 
per cent rate that will be reduced "if" loca l content requirements are met differs from a 
"default" or "general" rate from which "exceptions" will be granted under certain 
circumstances.   
Response of the European Communities (WT/DS339) 
 
699. In its first written submission, the European Communities stated: 
Vehicle manufacturers which satisfy the local content requirements of Article 21 of 
Decree 125 are financially "better off" than those which do not. They do not have to pay the higher import duties for parts of typically 25% and are instead only charged at 10%. They receive a benefit in the amount  of the difference between the two duty 
rates.
151 
700. This does not mean that vehicle manufacturers generally face a 25% duty rate for parts which 
is reduced to 10% in case they manage do demonstrat e that they meet the local content requirements. 
The European Communities has not argued that Ar ticle 28 of Decree 125 provides for such a default-
exception structure. It rather depends on the ex-o fficio "verification" by the Chinese authorities 
whether auto parts are charged at 10% or 25%. Th e European Communities does not consider that the 
25% rate must be the "default" rate in or der to qualify as a "normative benchmark" under 
Article 1.1(a)(1)(ii) of the SCM Agreement .152 It is sufficient that the 25%  rate is explicitly foreseen 
for certain imported auto parts in the Chinese me asures so that it constitutes, in the words of 
US - FSC,  no "entitlement in the abstract" but  a "definitive, normative benchmark".153 
                                                      
151 See first written submission of the European Communities, para. 291. 
152 Response by the European Communities to Questions 157 and 158 from the Panel. 
153 See second written submission of the European Communities, para. 150. WT/DS339/R/Add.1 
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  272. ( European Communities and United States )  Please confirm, as stated orally during the 
second substantive meeting, that the European  Communities and the United States are not 
pursuing their respective claims under the SCM Ag reement in respect to importations of CKD 
and SKD kits under Article 2(2) of Decree 125. 
Response of the European Communities (WT/DS339) 
 
701. The European Communities c onfirms that it is not pursuing its claim under the SCM 
Agreement  in respect to importations of CKD and SK D kits under Article 2(2) of Decree 125. 
Response of the United States (WT/DS340) 
 
702. The United States is not pursuing a claim under the SCM Agreement with regard to the 
importation of CKD and SKD kits under Article 2(2) of Decree 125. 
G. A
RTICLE III OF THE GATT  1994 
273. ( All parties ) The Appellate Body in EC – Bananas III  held that the distribution of  
import licenses among operators within  the European Communities went:   
"far beyond  the mere import licence requirements needed to administer the 
tariff quota for third-country and no n-traditional ACP bananas or Lomé 
Convention requirements for the import ation 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 in ternal sale, offering for sale, purchase, 
..." within the meaning of Article III:4 (...)."  (Appellate Body Report on EC – 
Bananas III , para. 211) (Emphasis added) 
 In light of the Appellate Body holding in EC – Bananas III , would the following 
questions be relevant to deciding whether the measures fall under Article III:4 GATT:  namely, 
first, whether they "go far beyond" the require ments needed to administer the customs duties 
and, second, whether are intended, among other things  to affect the internal sale of  auto parts 
and components.  Response of China 
 703. As China discussed in response to question 85 from the Panel, the fundamental problem with 
the license allocation procedures at issue in EC – Bananas III  is that they bore no relationship to the 
tariff rate quota that the EC was allowed to mainta in.  The criteria that the EC had adopted for the 
allocation of quota licenses were neither necessary no r germane to the administration of the TRQ.  
The EC was allowed to adopt procedures to alloca te import licenses in accordance with its rights 
under Article II.  However, the procedures that the EC adopted for this purpose did not allocate import 
licenses on a neutral, non-discriminatory basis.  Ra ther, they did so in a manner that was plainly 
designed to favour operators who marketed banan as from EC and traditional ACP sources – a factor 
that was entirely unrelated to the TRQ itself.  It was this aspect of the license allocation procedures 
that the panel and Appellate Body found to fall within the scope of Article III:4.
154 
                                                      
154 See EC – Bananas III  at para. 211 ("At issue in this appeal is not whether any impose licensing 
requirement, as such, is within the scope of Article III:4, but whether the EC procedures and requirements for  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-327 
  
  704. Applying these principles to the challenged me asures, the complainants would need to 
demonstrate that the challenged measures "go far beyond" what is necessary to ensure the correct 
classification of motor vehicles under China's Schedule of Concessions, including parts and 
components that have the essential character of a motor vehicle.  As in EC – Bananas III,  this would 
only be the case in respect of specific aspects of the challenged measures that are not necessary to 
ensure the proper application of GIR 2(a) to part s and components of motor vehicles.  In order to 
make this showing, the complainants would need to demonstrate the specific respects in which the 
challenged measures violate GIR 2(a), for example, because they result in classifications that are not 
consistent with the essential character test, or becau se they result in classificat ions that are not based 
on the manner in which parts and components are pr esented to Chinese customs authorities.  As China 
explained in its oral statement to the Panel at the second substantive meeting, and as discussed in 
response to question 228 above, the complainants ha ve failed to support these conclusions based on 
evidence and legal argument.  The complainants th erefore have no basis to contend that there are 
aspects of the challenged measures that are unrelated to the proper administration and enforcement of 
China's tariff provisions for motor vehicles, or that "g o far beyond" what is necessary for this purpose.   
705. As for whether the challenged measures are "intended to affect the internal sale of auto parts 
and components," whatever effect they have, in this regard, is the effect that arises from the difference 
in duty rates in China's tariff schedule between mo tor vehicles and parts of motor vehicles.  The 
difference in duty rates, and whatever incentives or disincentives this difference in duty rates creates, 
are inherent features of the Schedule of Concessions that China negotiated, and that China is entitled 
to implement and enforce.   
Response of the European Communities (WT/DS339) 
 
706. The European Communities reiterates that the Chinese measures do not impose ordinary 
customs duties but fall under Article 2 of the TRIMs Agreement  and Article III of the GATT 1994 for 
the reasons set out in great detail in its previous submissions.
155 The holding of the Appellate Body in 
EC – Bananas III  provides additional reasons for determining that the Chinese measures fall under 
Article III:4 GATT. 
707. The Chinese measures "go far beyond " the requirements needed to administer any possible 
customs duties in several respect s. First, the measures go far beyond customs duty administration 
when they impose charges not at the time or point of importation, but intern ally after assembly and 
manufacture. Secondly, the measures do not impose charges "on importation", but on the basis of how the auto parts are used after importation and, in particular, whether they are subsequently assembled 
and manufactured in China into vehicles with an in sufficient level of local content. Thirdly, the 
measures provide in Article 29 of Decree 125 that ma nufacturers have to pay charges even if they 
purchase parts on the Chinese internal market from supp liers that previously imported them. Fourthly, 
the measures go far beyond customs duty administration by imposing the very cumbersome procedural requirements which are set out in  detail in the first written submission.
156 This is illustrated 
                                                                                                                                                                     
the distribution  of import licenses for imported bananas among eligible operators within  the European 
Communities are within the sc ope of this provision."); EC – Bananas III (Panel Report) at para. 7.178 
("although licences are a condition for the importation of bananas into the EC at in-quota tariff rates, we find that the administration of licence distribution procedures and the eligibility criteria for the allocation of licenses 
to operators form part of the EC's internal legislation.").   
155 See second written submission of the European Communities, para. 35 to 56; also see first written 
submission of the European Communities, para. 138 to 139. 
156 See first written submission of the European Communities, para. 45 to 65. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
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  by the currently pending applications under the pro cedures of the measures some of which date back 
to 2005 (Exhibit EC - 26). 
708. The European Communities also considers that the Chinese measures are intended, 
among 
other things to affect the internal sale  of auto parts. The Chinese measures intend to make imported 
auto parts less attractive for vehicle manufacturers since their use entails cumbersome administrative 
procedures and risks – depending on the level of  local content in the manufactured vehicles – 
triggering higher internal charges on imported auto parts.157 The burdensome procedures and the 
threat of the internal charge of 15 % on imported parts create an incentive for vehicle manufacturers 
to mainly use domestic parts. As such, the Chinese m easures affect "the internal sale, offering for sale, 
purchase, ..." within the meaning of Article III:4, and therefore fall within the scope of this provision   
Response of the United States (WT/DS340) 
 
709. The United States agrees that the factors listed in EC– BananasIII are relevant.  Moreover, in 
the event China's measures were considered as im posing ordinary customs duties, the United States 
submits that China's measures presen t an even clearer case than in EC – Bananas  IIIof a border 
measure that breached Article III of the GATT 1994.  Under China's measures, the measures on their 
face affect the internal use, purchase, and sale of im ported parts by increasing the duties applicable to 
other imported parts based on the level of local cont ent contained in an article manufactured within 
China.   
Response of Canada (WT/DS342) 
 
710. Canada notes first that if its argument is accep ted that the measures are entirely internal, with 
no legitimate connection to customs duties, then the above analysis is not necessary – the measures on 
their face violate Articles III:2, 4 and 5 and the TRIMs Agreement .  
711. Canada agrees that the factors in EC – Bananas III  are relevant. Customs procedures that are 
not necessary to administer charges under Article II are subject to Article III:4. Article III:4 does not specify that laws or regulations must be "internal" to be subject to its purview, but rather any laws or 
regulations "affecting" the "internal sale, offering for sale, purchase, transportation, distribution or 
use" are subject to Article III:4.  
712. With respect to the second question, the "intent" behind the measures is not relevant to 
assessing whether the measures violate Article III:4. Wh at is relevant is whether the measures modify 
the conditions of competition and therefore provide less favourable treatment for imported goods than 
for domestic ones. This is not a question of "intent" but of the "effect" of the measures. In EC – 
Bananas III , the examination of "intent" assisted the de termination of whether the measures at issue 
"affected" the internal sale, etc.  Similarly, in  the present dispute the fact that measures have a 
protectionist design emphasizes what is clear from the structure of the measures: that they are 
intended to affect the internal competition of  imported auto parts in the Chinese market. 
Comments by the European Communiti es on China's response to question 273 
713. China responded that measures only go far beyond  the requirements needed to administer the 
customs duties if "specific aspects of the challe nged measures […] are not necessary to ensure the 
proper application of GIR 2(a) to parts and compone nts of motor vehicles". China, thus, distorts the 
                                                     
 
157 See first written submission of the European Communities, paras. 107 to 119 and 147 to 151; 
second written submission of the European Communities, para. 59.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-329 
  
  test set out by the Appellate Body in EC – Bananas III  by falsely equating customs duty 
administration with the "application of GIR 2(a) ".  As repeatedly set out by the European 
Communities
158, GIR 2(a) is of extremely limited relevance for customs duty administration in the 
present case. If interpreted correctly, the "go far be yond"-criterion established by the Appellate Body 
brings the Chinese measures clearly under the scope of Article III:4 GATT.159 
714. With regard to the second element of the test , China's statement "whatever effect [the 
measures] have, (…), in this regard, is the effect that arises from the difference in duty rates" does not 
respond to the question from the Pa nel which relates to the intent  of the measures.  Besides, the 
statement is wrong since the likely effect of the measures, i.e. reducing imports of parts through 
discriminatory local content requirements, is diam etrically opposed to the likely effects of the 
negotiated tariff differential in China's schedule, whic h is to give an incentive for the imports of auto 
parts.  Were China to argue that the measures do not intend  to affect the internal sale of auto parts, its 
response would ignore the stated purpose of the measures which is fostering the development of the 
Chinese auto parts industry, a purpose to be achiev ed by making the purchase of imported auto parts 
less attractive through higher internal  charges and burdensome procedures.  
274. ( Canada )  In paragraph 17 of its second oral statement, Canada states that under the 
measures, two otherwise-identical imported goods are given two different tariffs solely on the 
basis of their end use.  Could you please explai n how applying two different tariffs to the same 
goods is an internal measure within the meaning of Article III. 
Response of Canada (WT/DS342) 
 
715. See Canada's response to Question 188.  
275. ( China )  Please comment on the view that China' s measures at issue, by making certain 
imported auto parts less attractive due to addi tional procedural requirements and higher tariff 
duties, create incentives to use domestic auto parts. 
Response of China 
 
716. As China explained in response to question 273,  whatever incentives or disincentives arise 
from the difference in duty rates in China's Sche dule of Concessions are characteristics that are 
inherent to the Schedule of Concessions that Chin a 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 part y disputes 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 a nd components, as compared to importing finished 
motor vehicles.  As China has explained throughout th is proceeding, it is not inconsistent with China's 
rights and obligations under Article II to ensu re that auto manufacturers do not evade this 
characteristic of China's tariff schedule, and deprive China of customs revenue, through the 
importation of motor vehicles in multiple shipments of parts and components.   
717. With respect to the "additional procedural re quirements" associated with the challenged 
measures, China notes that the complainants have fail ed to provide any evidence of the "burden" that 
these procedures allegedly impose upon auto manufactur ers, and what impact they have had on any 
auto manufacturer's sourcing decisions.  In any event,  as China explained in paragraphs 128 to 131 of 
                                                      
158 See e.g. second written submission of the European Communities, para. 93. 
159 For details see the response by the European Communities to Question 273 from the Panel. WT/DS339/R/Add.1 
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  its second written submission, the alleged "burden" imposed by cu stoms procedures does not fall 
within the scope of Article III of the GATT 1994.  Th e Members' rights and obligations in respect of 
customs-related procedures are set forth in Article VIII of the GATT.   
Comments by the European Communiti es on China's response to question 275 
718. The European Communities notes that China h as not, as requested in the question from the 
Panel, commented on the complainants' argument  that its measures create an incentive to use 
domestic parts. China's assertion that the measures avoid evasion of tariff rates contained in its schedule through "multiple shipments of parts" is misconceived for the reasons which the European 
Communities has set out previously.
160  Contrary to China's allegation, the European Communities 
has provided evidence of the administrative burden which the measures impose.161 
Comments by the United States on China's response to question 275 
719.   China's answer – that tariffs always create a disincentive to import parts – entirely avoids the 
key issue raised by this question: that Ch ina's measures adversely affect the internal purchase, sale 
and use of imported auto parts, in direct breach  of Articles III:4 and III:5 of the GATT 1995.  The 
usual customs duty imposed by WTO Members – whic h is based on the article in its condition upon 
importation – does not create any further disincentives affecting the internal purchase, sale, and use of 
an imported good.  But China's measures – by asses sing duties based on the amount of local content 
contained in automobiles manufactured within Ch ina – create a major disincentive to the purchase, 
sale, and use of goods imported into China.  And, this disincentive is in addition to, and separate from, 
the disincentive related to the tariff.   
720. The separate and distinct nature of the disin centive is highlighted by China's own description 
of its treatment of fasteners under the measures.  At the second meeting, China explained that (1) 
fasteners are always assessed at the 10 per cent part s rate, but that (2) the use of imported fasteners 
affects the local content calculations, so that us ing imported fasteners coul d require that all other 
imported parts in a vehicle would be assessed a 25 per cent charge, instead of a 10 per cent charge.  
Thus, separate and apart from any disincentive related to the rate of duty on fasteners, the measures 
create a disincentive to the internal  purchase, sale and use of imported fasteners.  The same is true 
with respect to all other parts subject to the measur es, but the fact that (according to China) fasteners 
are never assessed at a 25 per cent rate helps to hi ghlight the distinction be tween (1) the disincentive 
associated with customs duties normally applied by  WTO Members and (2) the disincentive created 
by China's measures on the use of goods post-importation.   
276. ( China )  If the Panel were to find that the charges fall within the scope of Article II 
GATT, would the procedural aspects fall within the scope of Article II GATT? 
Response of China 
 
721. More accurately, they would fall within the scope of Article VIII of the GATT 1994.  As 
China explained in paragraphs 128 to 131 of its  second written submission, if a Member imposes a 
customs procedure to ensure the collection of customs duties that it is allowed to impose under its 
Article II commitments, those measures are necess arily customs measures (provided, as discussed in 
response to question 273, that the measures are germane to the customs purpose).  Article VIII 
concerns the "fees, charges, formalities and requi rements imposed by governmental authorities in 
                                                      
160 See most recently second written submission of  the European Communities, paras. 92 to 132. 
161 See first written submission of the Eur opean Communities, paras. 45 to 65.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-331 
  
  connection with importation and exportation," including, inter alia,  the documents and documentation 
necessary to ensure the proper classification of import  entries and the collection of ordinary customs 
duties.   
Comments by the European Communiti es on China's response to question 276 
722. China responded that, were the Panel to find th at the charges fall under Article II of the 
GATT, the procedural aspects would be governed by Article VIII:1(c) of the GATT 1994.
162  In the 
view of the European Communities, the programmati c provision of Article VIII:1(c) does not exclude 
the application of Article III:4 to measures that "go far beyond" the requirements to administer 
ordinary customs duties and rather intend to affect the internal sale of products. As demonstrated in 
previous submissions, this is the case for the Chinese measures.163  Therefore, the procedural aspects 
of the Chinese measures would still need to be assessed  under Article III:4 of the GATT, even if Panel 
were to categorize the charg es as ordinary customs duties. 
H. TRIM S AGREEMENT  
277. ( China )  If the Panel were to consider that par agraphs 1(a) and 2(a) of the Illustrative 
List of the TRIMS Agreement spell out two specific TRIMs that are considered inconsistent with respectively Article III:4 and XI:1 GATT, and thus decide that it does not have to make a 
preliminary assessment on whether the meas ures fall within the scope of respectively 
Articles III:4 and XI:1 GATT, why should the ch allenged measure not be considered as covered 
by these specific examples?  Please explain based  on the language of the Illustrative List. 
Response of China 
 
723. The panel in EC – Bananas III  considered that the TRIMs Agreement , including the 
Illustrative List, "essentially interprets and clarifies the provisions of Article III (and also Article XI) 
where trade-related investment measures are concerned."
164  Likewise, the panel in India – Autos  
considered that the Illustrative List "simply provi des additional guidance as to the identification of 
certain measures considered to be inconsistent  with Article III:4 and XI:1 of the GATT 1994."165 
724. Paragraph 1 of the Illustrative List describes tw o specific TRIMs that "are inconsistent with 
the obligation of national treatment provided for in  paragraph 4 of Article III of GATT 1994 …"  One 
of these, as set forth in Paragraph 1(a), is an a dvantage which requires "the purchase or use by an 
enterprise of products of domestic origin or from any domestic source …"  These provisions cannot, 
by their express terms, apply to the application of  an ordinary customs duty in accordance with the 
terms of a Member's Schedule of Concessions.   
725. To begin with, the application of an ordinary customs duty cannot, for the reasons that China 
has explained, be "inconsistent with the obligatio n of national treatment provided for in paragraph 4 
of Article III …"  As discussed in response to ques tion 203, and the earlier submissions cited therein, 
the GATT clearly distinguishes between customs measure s that are within the scope of Article II, and 
internal measures that are within the scope of Article  III.  The "discrimination" that Article II permits 
in respect of the application of ordinary cust oms duties to the goods of another Member cannot 
                                                      
162 China's response refers to the second  written submission of China, para. 131. 
163 See second written submission of the European Communities, para. 56; response by the European 
Communities to Question 273 from the Panel. 
164 EC – Bananas III  (Panel Report) at para. 7.185. 
165 India – Autos  at para. 7.157.   WT/DS339/R/Add.1 
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Page A-332 
  
  constitute an impermissible internal charge within  the scope of Article III.  Paragraph 1 of the 
Illustrative List, in describing certain TRIMs that are inconsistent with Article III, does not change 
this result.  Otherwise, the charges that Memb ers are allowed to collect under Article II could 
constitute a violation of the TRIMs Agreement, a r esult that is not consistent with the distinction 
between customs charges and intern al charges, and that would risk encroaching upon with the rights 
and obligations of Members under Article II.  By its terms, paragraph 1 of the Illustrative List refers 
to measures and charges of a type that are within th e scope of Article III.  Ordinary customs duties are 
not of this type. 
726. In addition, there is no "advantage" in the app lication of an ordinary customs duty that is 
obtained by "the purchase or use by an enterprise of  products of domestic origin or from any domestic 
source."  This is illustrated by the facts of the present dispute.  Under China's Schedule of Concessions, the purported "advantage" – the lower duty rate for auto parts and components – is 
contingent upon what the manufacturer imports .  If the manufacturer imports parts and components, it 
pays the duty rate for parts and components.  If th e manufacturer imports motor vehicles or parts and 
components that have the essential character of a motor vehicle, it pays the duty rate for motor vehicles.  This is a feature that arises direc tly from China's Schedule of Concessions, not from "the 
purchase or use by an enterprise of products of domestic origin …"   
727. Consider, in this regard, two different sets of  imports.  To avoid any controversy over the 
multiple shipment issue, we will assume that both sets of imports arrive in what all parties would 
consider to be a "single shipment."  One set of im ports consists of auto parts and components that do 
not have the essential character of a motor vehicle.  Accordingly, they are assessed at a duty rate of 10 
per cent.  The other set of imports cons ists of auto parts and components that do have the essential 
character of a motor vehicle, and they are therefore assessed at a duty rate of 25 per cent.  The first set of imports will be assembled toge ther with domestic parts and components to form a complete motor 
vehicle.  However, the 10 per cent duty rate app licable to those parts and components is not an 
"advantage" that required "the purchase or use by an enterprise of products of domestic origin."  The 
manufacturer obtained the 10 per cent duty rate because of what it imported, not because it purchased or used a certainty quantity of domestic parts in the final assembly of the motor vehicle.  The applicable duty rate is a function of the proper cl assification of the imported parts, not the ratio 
between imported and domestic parts in the vehicle that the manufacturer finally assembles.
166 
728. This example illustrates that the purported "advant age" – the 10 per cent duty rate – is entirely 
endogenous to China's tariff schedule.  It falls outsi de the scope of paragraph 1(a) of the Illustrative 
List because (1) it is not an internal charge or measure  of the type that paragraph 1(a) defines; and (2) 
in any event, it is not contingent upon the pur chase or use by the manufacturer of products of 
domestic origin.  
729. The same conclusion applies in respect of Artic le XI and paragraph 2(a) of the Illustrative 
List.  Paragraph 2(a) defines certain TRIMs that ar e inconsistent with Article XI of the GATT 1994.  
Article XI, by its terms, explicitly excludes ordinary customs duties as a type of prohibition or restriction on imports.  The administration and enfo rcement of ordinary customs duties is therefore 
outside the scope of the types of charges and measures  that paragraph 2 of the Illustrative List seeks to 
define.  In addition, the challenged measures do not "restrict … the importation by an enterprise of 
products used in or related to its local production …" , as set forth in paragraph 2(a) of the Illustrative 
                                                     
 
166 If it were otherwise, the proper application of GIR 2(a) could always  give rise to an improper "local 
content requirement" within the scope of paragraph 1(a) of the Illustrative List.  This "advantage" would be conferred whenever the tariff rate for parts and components of an article is lower than the tariff rate for the 
complete article.    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-333 
  
  List.  As Article XI itself makes clear, ordinary customs duties do not "restrict" imports.  Rather, they 
are charges that a Member is entitled to collect in accordance with its ri ghts and obligations under 
Article II of the GATT 1994.  A contrary reading of pa ragraph 2(a) of the Illustrative List would mean 
that all customs duties constitute a violation of the TRIMs Agreement , to the extent that the article on 
which the duty is assessed is "used in or related to " the local production of the importer.  There is 
simply no basis to conclude that the TRIMs Agreement  was intended to prohibit ordinary customs 
duties on any article that is used in or related to  local production – a category that encompasses a vast 
array of ordinary customs duties that WTO Me mbers routinely assess in accordance with their 
Schedules of Concessions.   
Comments by the European Communiti es on China's response to question 277 
730. In spite of the Panel's request to specifically address the examples in paragraphs 1(a) and 2(a) 
of the Illustrative List of the TRIMs Agreement , China's response with regard to paragraph 2(a) is 
entirely – and concerning paragraph 1(a) largely – li mited to a repetition of its well known "threshold" 
arguments which the European Co mmunities has repeatedly refuted.
167 
731. In addition, China now argues fo r the first time – in spite of ample previous opportunities – 
that the advantage of the lower charges does not "r equire (…) the purchase or use by an enterprise of 
products of domestic origin" (see pa ragraph 1(a) of the Illustrative List) but that it is solely 
"contingent upon what the manufacturer imports ". This is incorrect. As demonstrated in previous 
submissions168, the imposition of charges under the Chinese measures depends on whether the 
Verification Center, after verifications, conclu des that the imported automobile should be 
characterised as complete vehicles (Article 28 of Decree 125) which in turn depends on whether the 
imported parts were assembled into vehicles with an insufficient level of local content (see Article 57 
of the Automotive Policy Order, Articles 21 and 22 of Decree 125 and Articles 13 to 24 of Announcement 4). In other words, the question of wh ether a manufacturer enjoys the advantage of the 
lower charges depends on  how the auto parts are used after importation and, in particular, whether 
they are subsequently assembled and manufactured in Chin a into vehicles with an insufficient level of 
local content .
169 
278. ( All parties )  In the light of the language of the General interpretative note to Annex 1A, 
would it be possible to consider that Article 2 of the TRIMs Agreement should prevail over the 
provisions of the GATT 1994? 
Response of China 
 
732. Yes, but as China noted at the second substantiv e meeting of the Panel, it does not consider 
that this dispute implicates any potential conflict between the TRIMs Agreement  and the GATT 1994.   
Response of the European Communities (WT/DS339) 
 733. The General interpretative note to Annex 1A provides: 
                                                     
 
167 See response by the European Communities to Questions 85 and 103 from the Panel; second written 
submission of the European Communities, para. 20 to 23. 
168 See first written submission of the European Communities, para. 66; second written submission of 
the European Communities, paras. 51 to 55. 
169 See first written submission of the European Communities, para. 96 to 106. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
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  In the event of conflict between a provisi on of the General Agreement on Tariffs and 
Trade 1994 and a provision of another agre ement in Annex 1A to the Agreement 
Establishing the World Trade Organizati on (referred to in the agreements in 
Annex 1A as the "WTO Agreement"), th e provision of the other agreement shall 
prevail to the extent of the conflict. 
734. The European Communities does not consider th at there is in the present case a conflict 
between Article 2 of the TRIMs Agreement  and the applicable provisions of the GATT 1994. The 
Chinese measures are inconsistent both with Article 2 of the TRIMs Agreement  and with Article III, 
paragraphs 2, 4 and 5 of the GATT 1994. Therefore, there is no need for the TRIMs Agreement  to 
prevail over the provisions of the GATT 1994. 
735. Nevertheless, the European Communities recomme nds following the approach outlined by the 
Appellate Body in EC – Bananas III  where it considered that the ag reements more specific to the 
matter should be considered first.
170 Therefore, the Chinese measures should be first examined under 
Article 2 of the TRIMs Agreement and then u nder Article III of the GATT 1994. Thus, the finding 
that the Chinese measures fall within paragraph 1(a) of the Illustrative List annexed to the TRIMs 
Agreement  and, thereby, "are inconsistent with the obligation of national treatment provided for in 
paragraph 4 of Article III of GA TT 1994" (see Article 2.2 of the TRIMs Agreement ) informs their 
examination under Article III:4 of the GATT 1994.171 
Response of the United States (WT/DS340) 
 736. As a theoretical matter, yes, this would be possible.  As the United States has explained, 
however, the United States is not aware of any conf lict in the context of this dispute between the 
TRIMs Agreement and the GATT 1994.   
Response of Canada (WT/DS342) 
 
737. To the extent a conflict between the TRIMs Agreement  and the GATT occurs, the TRIMs 
Agreement should prevail in the light of General interp retative note to Annex 1A. However, no such 
conflict exists in this case.  
738. China attempted to argue at the second heari ng that a TRIM would not apply because it was 
solely a question of China enforcing its Schedule under  Article II that was at issue and paragraph 1 of 
the Illustrative List only applies to internal measures. This suggestion is incorrect, as what is relevant 
is whether a TRIM imposes a local-content requirement. This can occur internally or at the border and 
the TRIM will be deemed inconsiste nt with Article III:4 of the GATT. Further, a finding of a violation 
of the TRIMs Agreement  is not in conflict with China's defe nce because the measures do not actually 
enforce China's Schedule but rather directly conflict with it. To the extent there was an actual conflict 
between application of the TRIMs Agreement  and China's so-called right to enforce its Schedule, the 
General interpretative note to Annex 1A makes it clear that the TRIMs Agreement  would take 
precedent over such an Article II defence. 
                                                     
 
170 Appellate Body Report, EC – Bananas III , paras 202-204. 
171 See second written submission of the European Communities, para. 61.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-335 
  
  I. A
RTICLE XI OF THE GATT  1994 
279. In paragraph 20 of its second oral statemen t (see also the United States' response to 
Panel question No. 165), the United States states that China's measures could constitute a 
prohibited import restriction under Article XI of the GATT 1994.   
(a) ( United States )  Could the United States please elaborate on this point, with specific 
reference to the requirements of Article XI of  the GATT 1994 and the as pects of the measures 
the United States believes qualify as import restrictions. 
Response of the United States (WT/DS340) 
 739. Article XI:1 of the GATT 1994 states, in relevant part:   
No prohibitions or restrictions other than du ties, taxes or other charges, whether made 
effective through quotas, import or expor t licences or other measures, shall be 
instituted or maintained by any contracting party on the importation of any product of 
the territory of any other contracting party . . . . 
740. The range of measures that Memb ers may not institute or mainta in under Article XI:1 is quite 
broad.  The provision encompasses all prohibitions or restrictions on impor tation other than those 
enumerated, regardless of whether a Member utilizes a quota, an import or export licensing regime, or 
other measures to effect the prohibition or restriction.  Se veral previous panels have characterized the 
scope of this provision as "broad" and "comprehensive."
172 
741. The only caveat contained in Article XI:1 is that "duties, taxes or other charges" are exempted 
from coverage.  While the measures do impose char ges, to the extent that the charges may be 
considered to be imposed "on importation," the measur es also constitute prohibitions or restrictions on 
the importation of auto parts.      
742. In paragraph 115 of its rebutta l submission China argues that "the process of importation is 
complete, and goods have been imported, once all the customs formalities requi red in connection with 
the importation of these goods have been satisfied."  In its response to Panel question No. 37, China 
states that a basic feature of the measures is "to defer the completion of customs formalities in respect 
of parts that are declared as parts of register ed vehicle models until the auto manufacturer has 
imported and assembled all of the imported parts and components that it will use to assemble the 
vehicle model."  China thus argues that the charges are imposed upon importation and that 
importation does not occur prior to the assembly of th e parts into a motor vehicle.  While the United 
                                                      
172 See  India - Autos , WT/DS/146/R, WT/DS/175/R , paras. 7.246 (noting that the term "other 
measures" is a "broad residual category"  that is meant to suggest a broad scope of measures that could be subject 
to Article XI:1 disciplines) and 7.264 (noting that "the text of Article XI:1 is very broad in scope, providing for 
a general ban on import or export restrictions or prohib itions ‘other than duties, taxes or other charges'"), citing 
India – Quantitative Restrictions, WT/DS90/R, para. 5.128; Turkey –Textiles , WT/DS34/R, para. 9.61 (noting 
that the title of Article XI – General Elimination of Quantitative Restrictions" – makes clear the general rule that 
Members shall not utilize quantitative restrictions against imports); and India-Quantitative Restrictions , para. 
5.142 (noting that Article XI:1 is "‘comprehensive' in  that it prohibits import restrictions ‘made effective 
through quotas, import or export licences  or other measures '").  Other panels that have found Article XI:1's 
coverage to be "comprehensive" include: Panel Report, Korea – Various Measures on Beef , WT/DS 161/AB/R, 
WT/DS/169/AB/R, para. 749; Japan – Agricultural Products I , BISD 35S/163, para. 5.2.2.2; and Japan – Semi-
Conductors , BSID 35S/116, para. 104. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-336 
  
  States disagrees with this assertion, if accepted, this  alleged deferral of "importation" would restrict 
imports in at least two ways:    
743. First, there is a temporal restriction.  A ma nufacturer is not allowed to import a part for 
assembly into a new vehicle until all parts of new vehicle are gathered for assembly.  A manufacturer 
cannot import parts in separate shipments at different times, but must combine all the imported parts used in the same vehicle into a single importation.   
744. Second, there is a qualitative restriction.  A ma nufacturer is not allowed to import "parts" to 
be included in a vehicle if the collected importe d parts in the finished vehicle will exceed the 
thresholds established in the measures.  At that point, a manufacturer can only import "vehicles."  For 
example, a manufacturer may wish to import spec ial premium tires to be included as an optional 
feature on a particular model.  If the engine, chassis, and body were imported, the measures would deem the imported parts in that vehicle to "fulfill th e characteristics of a whole vehicle."  At that point 
the auto manufacturer in China would be prohibi ted from importing tires for the vehicle.  Any tire 
included in the vehicle would have to be considered  a feature of a whole vehicle and imported as part 
of the "vehicle."   Thus, the manufacturer woul d be prohibited from importing tires in a separate 
shipment, but would instead be required to collect all parts into a single importation which China would then consider a complete vehicle. 
745. The United States is not arguing that the measures are inconsistent with Article XI as part of 
its case in chief; this is an argum ent in the alternative.  Indeed that United States maintains that parts 
are imported at the time they enter the territory of  China and that the measures, rather than delaying 
importation, actually impose internal charges on im ported parts in breach of Article III of the 
GATT 1994.  The United States is asserting, in the alternative, that if China were correct that the 
measures prohibited importation until the time of assem bly, the measures would be inconsistent with 
Article XI.   
(b) ( China )  Does China agree with the United St ates?  Please comment on the United 
States' arguments above. 
Response of China 
 
746. The US assertion in paragraph 20 of its se cond oral statement is premised upon multiple 
mischaracterizations of China's arguments and the manner in which the challenged measures operate.  
China has never argued that "no parts are to be c onsidered 'imported' until after manufacturing."  Nor 
has it described the challenged measures as operating on this basis.  As China has explained most recently in response to question 199 above, the ch allenged measures establish a customs process to 
ensure the correct classification of parts and com ponents that have the essential character of a motor 
vehicle.  This classification determination is based  on the prior evaluation of the vehicle model and 
the resulting declaration that the manufacturer provid es at the time the parts and components enter the 
customs territory of China.  The measures do not "prohibit the importation of parts until after the completion of a manufacturing operation," or prohibit the importation of auto parts in any other respect.  Manufacturers are free to enter auto pa rts and components into China.  The customs 
procedure that Decree 125 establishes merely assures the proper classification and collection of duties 
on parts and components that have the essential character of a motor vehicle.  Article XI makes clear 
that the collection of ordinary customs duties is not a prohibition or restriction on imports that is 
within the scope of the provision.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-337 
  
  Comments by the European Communities on China's response to question 279(b) 
747. The European Communities has addressed the mischaracterization of the Chinese measures 
(e.g. "customs process", "determination is based on the prior evaluation (…) and the declaration") 
apparent in China's response to this  question in previous submissions.
173 China's assertion that it "has 
never argued that 'no parts are to be considered  'imported' until after manufacturing'.  Nor has it 
described the challenged measures as operating on this basis" is directly contradicted by its response 
to question 204.  There, China stated that "the measures at issue in the present dispute (…) do not 
impose duties on parts and components after they ha ve entered free circulation in China".  This 
implies that in China's view the parts are not yet in free circulation when charges are imposed.  As 
charges are imposed after manufacture (see Article 28 of Decree 125), this can only mean that parts 
are not in free circulation or, in other words, imported when manufacture takes place. 
J. ARTICLE XX( D) OF THE GATT  1994 
280. ( Complainants )   Paragraph (d) of Article XX refers to, inter alia , "laws and regulations 
that are not in themselves inconsistent with the provisions of the GATT 1994".  China argues 
that the measures secure compliance with Chin a's tariff provisions for motor vehicles, which 
are incorporated in the GATT and are  therefore not inconsistent with the GATT provisions.  Do 
the complainants agree with China's view?  If not, why? 
Response of the European Communities (WT/DS339) 
 
748. The European Communities does not agree with  China's view that its measures secure 
compliance with China's Schedule of Concessions. It  is irrelevant that China's tariff provisions 
reproduce China's Schedule and are not as such GATT- inconsistent. China has not demonstrated that 
the measures are "necessar y to secure compliance with" its Sche dule as required under Article XX(d) 
of the GATT 1994. The European Communities has already presented extensive arguments in this 
regard174 and only provides a succinct summary of th ese arguments in response to this question. 
749. First, the Chinese measures do not intend to secure compliance with China's schedule of 
concessions, but actually aim at fostering the de velopment of the Chinese auto parts industry. 
Secondly, the Chinese measures ar e not suitable to secure compliance with China's schedule of 
concessions. As demonstrated in the alternative Article II claim,175 the measures impose duties which 
are at variance with China's tariff schedule. Thirdly, China has not demonstrated that there is in reality 
a problem of tariff evasion that needs to be addr essed. Finally and even if there was a problem of 
tariff evasion, China has failed to consider any l ess burdensome means to secure compliance with its 
tariff schedule. 
Response of the United States (WT/DS340) 
 
750. The United States does not agree.  As the United States explained in its opening statement at 
the second meeting, China uses this type of la nguage to express two very different positions, 
involving two entirely different factual contexts.   A proper analysis of China's arguments requires 
that these two different positions presented by China be disentangled.      
                                                      
173 See in particular second written submission of the European Communities, paras. 50 to 56. 
174 See second written submission of the European Communities, para. 141 to 146. 
175 See first written submission of the European Communities, para. 207 to 281; second written 
submission of the European Communities, para. 67 to 135. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-338 
  
  751. First, China uses this language of " securing compliance with China's tariff provisions for 
motor vehicles"  to mean that under its domestic tariff schedule, China is to charge a whole-vehicle 
rate of duty on any imported part, so long as that pa rt is used to manufacture within China a vehicle 
with a foreign content that exceeds the thresholds under China's measures.  As the United States has 
explained, there is no possible interpretation of Ch ina's WTO obligations that would allow for China 
to impose a 25 per cent duty on bulk shipments of parts imported for manufacturing purposes.   Thus, 
under this formulation of China's position, there is no "law or regulation" identified by China "that is 
not inconsistent" with the provisions of the GATT 1994.   
752. Second, China  uses the same language about " securing compliance with China's tariff 
provisions for motor vehicles"  to mean that China must be able to address certain limited, though 
still hypothetical, examples, such as the case of a CKD split into two separat e shipments.  China, 
however, has failed to show a single  instance
 where any importer ever engaged in the specific 
practices identified by China.   Moreover, Chin a's asserted rationale does not match the scope of 
China's measures. To the contrary, China's measures sweep broadly to cover a ll imports of bulk parts 
for manufacturing purposes, not just instances of CKDs split into two separate shipments.  Thus, 
leaving aside whether or not China's may (consiste nt with its WTO obligations) stop the hypothetical 
practice of splitting CKD kits into two separate boxe s, the measures China has actually adopted are 
not necessary to secure compliance with its provisi ons for motor vehicles because they are drastically 
broader in scope than measures intended to stop su ch types of "evasion" alleged by China.    
753. Finally, under Article 93 of the Working Pa rty Report, China is required to impose a 
maximum of a 10 per cent rate of duty on CKDs/SKD s.  Since China's measures – under China's own 
theories of the application of GIR 2(a) – classify imported manufacturing parts as CKDs/SKDs, China's measures result in a tariff treatment that is  inconsistent with China's WTO obligations (as 
contained in the Working Party Report).   
Response of Canada (WT/DS342) 
 
754. The measures do not secure compliance with China's tari ff provisions for motor vehicles. As 
set out in paragraphs 87-90 of Canada's second written submission, the pur pose of the measures is 
clear, namely to provide protection and support to th e domestic auto parts industry. Second, as the EC 
pointed out in its second oral statement at paragraph 36, the measures are not designed to enforce 
China's Schedule since, on their face, they conflict  with it by imposing an additional 15% charge on 
foreign auto parts. This additiona l charge is not listed in China's Schedule and therefore cannot be 
applied. 
281. ( All parties )   Which measure should be considered  as "the law or regulation" falling 
within the meaning of paragraph (d): Ch ina's tariff provisions for motor vehicles as such  or 
China's tariff provisions for motor vehicles as interpreted  by China allegedly according to 
GIR 2(a)? 
Response of China 
 
755. China does not perceive a distinction between  its tariff provisions for motor vehicles "as 
such" and its tariff provisions for motor vehicles as interpreted in accordance with the rules of the 
Harmonized System.  As the Appellate Body has found in EC – Computer Equipment  and EC – 
Chicken Cuts,  tariff headings are interpreted in accord ance with the interpretive rules of the 
Harmonized System.  The term "motor vehicles" in China's tariff provisions must be understood in the 
context of GIR 2(a) and its rules for distinguishing between an article and the parts and components of 
that article.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-339 
  
  756. In addition, as China discussed in paragra ph 168 of its second written submission, the 
interpretive relationship between motor vehicles and parts of motor vehicles would arise even if GIR 2(a) did not exist.  The relationship between parts and wholes is intrinsic to any set of tariff 
provisions that has separate headings for an article and its constituent parts; customs authorities must 
have some basis to determine where one set of tari ff provisions ends and the other begins.  Thus, the 
question of tariff interpretation arises no matter wh at, and customs authorities must have some basis 
to resolve this question of interpretation.   
Response of the European Communities (WT/DS339) 
 757. China provided the response to this question in  its first written submission when it alleged 
that "the challenged measures implement and en force the provisions of China's tariff schedule
 relating 
to imports of 'motor vehicles'" (emphasis added).176 This refers to the Schedule as such. China's 
erroneous interpretation of its Schedule was developed by China ex post for the purposes of this 
dispute and is not part of its Schedule. In the cont ext of China's Article XX(d) defence, it is for the 
Panel to interpret China's Schedule and not for China. 
Response of the United States (WT/DS340) 
 
758. As the party asserting an affirmative defense,  China has the burden of explaining how its 
measures purportedly fit within the scope of Article XX(d).  China has not been clear on its theory 
regarding the supposed application of Article XX(d).   As set out in the United States response to 
Question 280, the United States submits that regard less of how China would formulate its purported 
defense, China's measures do not fall w ithin the scope of Article XX(d). 
Response of Canada (WT/DS342) 
 759. Canada considers that the alleged GATT-consis tent "law or regulation" is the whole of 
China's Schedule as implemented under Chinese law, and not one particular tariff line. The GATT-
consistent law or regulation consis ts solely of the Schedule and not secondary considerations such as 
the GIRs under the Harmonized System, since they ar e not directly incorporated into the Schedule. 
The GIRs are relevant as part of the Harmonized Sy stem in interpreting the proper classification of a 
good under a Member's Schedule. However, that cont ext requires an application of the Harmonized 
System as a whole, including GIR 1 and appropriate Explanatory Notes (such as for 87.06). Canada 
also directs the Panel to its responses to Ques tions 187 and 210, and Section II.C.1 of its second 
written submission. 
Comments by the European Communiti es on China's response to question 281 
760. China's response attempts to blur the line betw een the "law or regulation" which it allegedly 
seeks to secure compliance with, i.e. its tariff sch edule provisions for vehicles, and its erroneous 
interpretation thereof. As set out in the EC response to this question, it is for the Panel, and not for 
China, to assess under Article XX(d) of the GATT 1994 inter alia  whether (a) the Chinese tariff 
provisions are consistent with the GATT 1994 and (b) the measures are necessary to secure compliance therewith. China's interpretation of its "law  or regulation", on the other hand, is irrelevant 
in this context.
177 
                                                      
176 See first written submission of China, para. 203. 
177 China's response is all the more  surprising since China emphasises in response to question 290 that 
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  282. ( China )  In paragraph 145 of its second writte n submission, the European Communities 
submits that China's arguments under Article XX(d) is "inherently contradictory" when it comes to the attempt of justifying an infringeme nt of Article II of th e GATT 1994 because, in 
that case, the measures "apparently do not enforce but deviate from China's Schedule."  Does 
China agree with the European Communities?  If not, please explain how the measures can be 
justified under Article XX(d) if the Panel were to find them inconsistent with Article II.  Please 
also explain whether, and if so, how the Panel's analysis of China's defence under Article XX(d) in respect of an Article II violation should be different from that in respect of an Article III 
violation. 
Response of China 
 
761. In respect of Article II, the Panel could find, for example, that there is uncertainty within the 
Harmonized System concerning the circumstances under which customs authorities are allowed to 
classify 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 unde r Article II, as they do not have a clear affirmative  
basis within the rules of the Harmonized System.   
762. For the reasons that China set forth in paragra phs 42 to 45 of its second oral statement, China 
considers that a finding of uncertainty within the rules of Harmonized System is a circumstance in 
which the doctrine of in dubio mitius  would apply, and should lead to the conclusion that China 
retains its sovereign authority to define and enfo rce the boundaries between complete motor vehicles 
and parts of motor vehicles, and be tween the substance of what an importer imports and the form in 
which it does so.   
763. However, another way of viewing the presence of a known and identifiable ambiguity within 
the rules of the Harmonized System, and within inte rnational customs practice generally, is that China 
is entitled to rely upon the general exception in Ar ticle XX(d) to adopt measures that are necessary to 
secure compliance with its tariff provisions for moto r vehicles, and to ensure that those provisions 
have meaningful effect.  China's tariff provisions fo r motor vehicles reflect the tariff bindings set forth 
in its Schedule of Concessions, and they are theref ore 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 authorities need to interpret and enforce their tariff schedules to ensure that they are 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 en sure that Members are nonetheless able to adopt 
measures that are necessary to secure compliance with their tariff provisions. 
764. The Article XX(d) analysis would be different in respect of a finding of a violation of 
Article III.  The Panel might find, for example, th at the challenged measures collect internal charges 
in violation of Article III based on its understanding of when goods ar e considered to be "imported" 
for the purpose of Article III.  The Panel might also  find, for example, that the challenged measures 
impose procedures that constitute internal measures,  again based on its understanding of the scope of 
Article III in relation to the scope of Article II.  In these circumstances, the charges and measures 
could be justified under Article XX(d) as char ges and measures that are necessary to secure 
                                                                                                                                                                    
 
Member concerned: "It would not be consistent with the object and purpose of the GATT to find that the 
availability of a defence under Article XX(d) is contingent  upon what a Member considers to be illegal under its 
national laws – a consideration that will necessarily  differ from one Member country to another."  WT/DS339/R/Add.1 
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  compliance with a valid interpretation of China' s tariff provisions for motor vehicles, i.e., an 
interpretation that encompasses parts and component s 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 interpre tive rules of the Harmonized System, and is not 
otherwise inconsistent with the meaning of the releva nt terms in China's tariff schedule, but that China 
has adopted impermissible "internal" charges a nd measures as a means of securing compliance with 
that interpretation.   
765. While China would not agree with the finding of  violation under Article III, it would seem to 
be exactly the circumstance in which Article XX (d) would apply.  The reference to customs 
enforcement in Article XX(d) presupposes that Me mbers may need to take actions that are 
inconsistent with its GATT obliga tions (and thus requiring the invoca tion of a general exception), but 
that are otherwise necessary to secure compliance with  its customs laws.  The adoption of charges and 
measures that violate the disciplines of Article III, but that are necessary to secure compliance with a 
customs measure that the Member is allowed  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 th is circumstance, it is hard to see when it would ever apply.   
766. As China has explained throughout this proceed ing, the purpose of Decree 125 is to ensure 
that its tariff provisions for motor vehicles apply without regard to the manner in which the manufacturer chooses to structure and documents its imports of parts and components that have the 
essential character of a motor vehicle.  Decree 125 en sures that substance prevails over form in the 
assessment of duties.  For the reas ons that China has explained, Ch ina believes that Decree 125 falls 
within the scope of China's rights and obligations unde r Article II.  However, if the Panel were to find 
that one or more aspects of the measure constitut es 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 allowed to collect by reason of the 
importation of parts and components that have the essential character of a motor vehicle. 
Comments by the European Communiti es on China's response to question 282 
767. In its response, China does not manage to escape the inherent contradiction in its argument 
which lies in the fact that measures providing for ordinary customs duties in excess of the Schedule 
cannot be necessary to secure compliance with th e Schedule. Instead, China tries to hide the 
contradiction by replacing the clear term "infri ngement of Article II of the GATT 1994" with the 
evasive label "ambiguity within the rules of the Harmonized System". Such labeling does not change 
the reality of China's contradictory Article XX defence. 
768. With regard to the alleged justification of an  Article III violation, the European Communities 
notes that China has still not demonstrated that th e measures are necessary to  secure compliance with 
its tariff schedule provisions for vehicles. Instead, Ch ina formulates its hope that "it would seem to be 
exactly the circumstance in which Article XX(d) woul d apply" or "[i]f Article XX(d) did not apply in 
this circumstance, it is hard to see when it would ever apply". Such wishful thinking, however, cannot 
replace a proper defense under Article XX(d). 
283. ( China )  China submits in its second written submission that it invokes Article XX(d) in 
case the Panel were to find that, inter alia , (1) China needs a separate basis within the WTO law 
to enforce its tariff provisions for motor vehicles; and (2) the rules of the Harmonized System do 
not provide a basis for China to give meaningf ul effect to the higher duty rates for motor 
vehicles.  Could China please explain in detail wh at China is respectively referring to by these 
two scenarios. WT/DS339/R/Add.1 
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  Response of China 
 
769. Several of the Panel's questions following the fi rst substantive meeting of the Panel asked the 
parties to discuss the legal basis within the WT O agreements for Members to adopt measures to 
prevent the evasion of ordinary customs duties.  As discussed in paragraphs 162 and 163 of China's 
second written submission, and the answers to Panel qu estions cited therein, China considers that the 
prevention of tariff evasion is a question of en suring the proper classification of imported goods, 
including the proper classification of goods under ci rcumstances in which the importer has sought to 
structure and document its imports so as to evade a specific classification result.  For the reasons 
explained therein, China considers that these are issu es of customs administration that can be resolved 
within the rules of the Harmonized System.   
770. Because the Harmonized System provides cont ext for the interpretation of a Member's 
Schedule of Concessions, the Harmonized System is, in China's view, the b asis in WTO law for the 
resolution of these types of issues.  In paragra ph 164 of its second written submission, China referred 
to the event in which the Panel nonetheless considered  that "China needs a separate basis within WTO 
law to enforce its tariff provisions for motor vehicles ."  By "separate basis", China was referring to a 
basis in WTO law other than  the rules of the Harmonized System.  In referring to this circumstance, 
China meant to address the possibility that, for whatever reason, the Panel would find that the 
Harmonized System does not provide a basis in WTO law for Chin a to adopt measures to enforce its 
tariff provisions for motor vehicles.  This is one of  the circumstances in which China considers that it 
could properly rely upon Article XX(d) to justify the challenged measures. 
771. The second circumstance to whic h China referred, in which the rules of the Harmonized 
System do not provide a basis for China to give m eaningful effect to its tariff provisions for motor 
vehicles, is the circumstance discu ssed in response to question 282 above.  That is, the Panel could 
find that there is ambiguity within the Harmonized  System concerning the circumstances under which 
customs authorities can classify multiple shipment s of parts and components as having the essential 
character of the complete article, and conclude, for this reason, that the Harmonized System does not 
provide a clear legal basis for the measures.  For the reasons discussed in response to question 282, 
this is another circumstance in which China cons iders that it could properly rely upon Article XX(d) 
to justify the challenged measures. 
Comments by the European Communiti es on China's response to question 283 
772. As set out in our comments on the previous  reply, China errs when it argues that 
Article XX(d) of the GATT 1994 provides "a basis in WTO law other than  the rules of the 
Harmonized System". Logically, a measure infringing Article II of the GATT 1994 or "the rules of the Harmonized System", as China now puts it, cannot be necessary to secure compliance with China's 
Schedule. 
284. ( Canada )  Canada submits that "Canada accepts that Article XX(d), in principle, could 
be used to justify internal charges necessary to enforce customs measures." (Canada's response 
to Panel question No. 82)  Please clarify whether "customs measures" in its answer refers to China's tariff Schedule.  
Response of Canada (WT/DS342) 
 
773. Customs measures could include China's tariff Schedule in principle , since Article XX(d) 
does not preclude such a defence under Article III. Ind eed, that is essentially what was at issue in the 
EEC – Parts and Components
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  charges as necessary to enforce customs measures. Canada does not suggest that such a defence 
would necessarily be successful simply by virtue of the relationship of the defence to a Member's 
Schedule. 
774. However, in reality , if the Panel were to find that China's measures violate Article III, then its 
Article XX(d) must necessarily fail. This is because, on the facts of this particular case, the purpose of the additional charge is to protect China's domest ic auto industry and not to enforce its Schedule. 
Moreover, as explained at paragraph 79 of Cana da's second written submission and in response to 
Question 84, China cannot use its Schedule as a defe nce to violate its other obligations under the 
GATT. 
285. ( Canada )  Please elaborate on your position that China cannot use its Schedule to shield 
a violation of Article III or the TRIMs Agreement unless specific provision is made for such departure in the WTO Agreement itself. 
Response of Canada (WT/DS342) 
 
775. Canada emphasizes that China has no conditions in  its Schedule that would allow it to classify 
auto parts based on their end-use. Consequently, it has no justification to de rogate from applying the 
tariff rate for auto parts listed in its Schedule. Even  if, theoretically, China we re allowed to read into 
its Schedule the ability to classify motor vehicles ba sed on end-use, the Appellate Body has made it 
clear in EC – Export Subsidies on Sugar  that a Member is not permitted to reduce its obligations 
under other provisions of the GATT by qualifyi ng them under Article II:1(b) or any other 
provision.
178 China is therefore barred in the present dis pute from attempting to read into its Schedule 
the condition that it can classify auto parts based on end-use, as this would derogate from its 
Article III obligations.  
286. ( All parties )   If the Panel were to find China's measures to be inconsistent with the 
provisions of GATT Articles III, could the parties ex plain whether, and, if so, to what extent the 
Panel's analysis under China's Article XX(d) defence, must  entail a similar type of analysis as 
that undertaken in respect of Article II, in particular concerning the interpretation of China's tariff Schedule. 
Response of China 
 
776. Under Article XX(d), a measure relating to customs enforcement must by necessary to secure 
compliance with laws or regulations that are not in consistent with the GATT.  In the event that the 
Panel were to find that the challenged measures are in consistent with the provisions of Article III, the 
Panel would need to evaluate, in respect of China's defence under Article XX(d), whether the 
challenged measures secure compliance with an inte rpretation of China's tariff provisions for motor 
vehicles that is consistent with its rights and oblig ations under the GATT.  This is the circumstance 
that China discusses beginning in the fourth pa ragraph of its response to question 282 above. 
Response of the European Communities (WT/DS339) 
 
777. In the view of the European Communities,  when the Panel analyses China's alleged 
justification under Article XX(d), it needs to ex amine whether the Chinese measures are "necessary to 
secure compliance with" China's schedule of concessions . This entails a similar type of analysis as 
under Article II because measures imposing duties that are inconsistent with China's Schedule cannot 
                                                     
 
178 EC – Export Subsidies on Sugar , Appellate Body Report, at para. 219. WT/DS339/R/Add.1 
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  be considered to be suitable and, thus, necess ary to secure compliance therewith. This analysis 
resembles the one under Article II to the extent th at the Panel would need to examine whether the 
charges imposed under the measures are in excess of t hose provided for in the Schedule. In contrast to 
the analysis under Article II, this Article XX(d) analysis would however not depend on a finding that 
the charges under the Chinese measures are ordinary customs duties. 
Response of the United States (WT/DS340) 
 
778. As a theoretical matter, it may be possible to  justify under Article XX(d) a measure adopted 
to enforce an ordinary customs duty consistent with Article II that is in breach of Article III of the 
GATT 1994.  (Article XX(d) does mention "customs en forcement.") However, in the context of this 
case, the United States does not understand, and Ch ina has not met its burden of showing, why it 
would be necessary to adopt a measure in breach of  Article III in order for China to enforce any 
legitimate customs measure, including the collection of ordinary customs duties on autos or auto 
parts.  Put another way, China has not explained why – if it is in fact applying an ordinary customs 
duty – China cannot simply impose that rate of duty on auto parts based on their condition at the time 
they are imported into the territory of China.   
Response of Canada (WT/DS342) 
 
779. As Canada has emphasized at paragraph 23 of its First Oral Statement, China's Article II 
argument is really nothing more than an Article XX(d ) defence to its Article III violation. Article II is 
itself not a "defence" – it imposes obligations on Members, which are cumulative to other obligations in the WTO Agreement . The assessment of a defence under Article  XX(d) is therefore different than 
an assessment of whether China is imposing ordina ry customs duties as permitted by Article II:1(b), 
first sentence, in two ways. First, China bears the bur den of proof to justify an Article XX(d) defence. 
Second, there is a specific legal test to be app lied under Article XX(d) that does not apply where a 
charge is properly classified under Article II. The relevant question under Article II would be whether 
China is applying ordinary customs duties in excess of those set out in its Schedule for auto parts, 
while an Article XX(d) defence instead involv es an examination of wh ether the measures are 
necessary to secure compliance with China's Schedul e. The latter does not require an assessment of 
the validity of China's interpretation of auto parts and motor vehicles under its Schedule, but only 
whether the measures ensure compliance with that Sc hedule, where the Schedule is properly applied.  
780. With respect to Article XX(d), Canada refe rs the Panel to Section III of its second written 
submission. Canada maintains that this is the sole  defence that China may invoke, as the measures do 
not impose ordinary customs duties. 
Comments by the European Communiti es on China's response to question 286 
781. China's response that "the Panel would need  to evaluate, (…) whether the challenged 
measures secure compliance with an interpretation of  China's tariff provisions for motor vehicles" 
(emphasis added) is based on the same misunders tanding which the Europ ean Communities already 
identified in its above comment on China's res ponse to question 281. Under Article XX(d), the 
infringing measure must be necessary to secure complia nce with a law or regulation, and not with an 
erroneous interpretation thereof. 
287. ( China )  With regard to China's arguments under Article XX(d) in respect of Article 29 
of Decree 125, could China confirm whether it is its position that the measures at issue (i.e. 
Policy Order No. 8, Decree 125, and Announcement 4) are "laws or regulations that are not 
themselves inconsistent with the GATT 1994 " within the meaning of Article XX(d).  If so, does  WT/DS339/R/Add.1 
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  an analysis of this element under Article XX(d) in relation to Article 29 of Decree 125 depend on 
whether China's measures themselves can be found consistent with the GATT 1994? 
Response of China 
 782. The measures secure compliance with China's tariff schedule, which incorporates China's 
Schedule of Concessions by reference.
179  This is the law or regulation that is not inconsistent with the 
GATT 1994.  As China discussed in paragraphs  185 to 187 of its second written submission, 
Article 29 of Decree 125 is justified under Article XX (d) because it is necessary to ensure that China's 
tariff provisions for motor vehicles are not subject to evasion by manufacturers who are able to 
arrange with third-party suppliers to import parts and components that have the essential character of 
a motor vehicle. 
Comments by the European Communiti es on China's response to question 287 
783. The infringement of Article III of the GATT 1994 through Article 29 of Decree 125 cannot be 
justified on the basis of Article XX(d) of the GA TT 1994. Contrary to China's response, Article 29 of 
Decree 125 is not necessary to prevent any evasi on of China's vehicle tariffs through collusion 
between third-party parts suppliers and vehicle manu facturers. China has neither substantiated tariff 
evasion, nor collusion or that any of these would necessitate a provision like Article 29 of Decree 125.
180 As set out above, the measures do not en force the 25% tariff rate for complete 
vehicles. 
288. ( China )  In its defence of "Article 29 Decr ee 125 measures" under Article XX(d), China 
appears to take into account intentional  circumvention of the measure by the manufacturers, 
whereas "intent" does not seem to be considered  relevant to justify other aspects of the 
measures at issue under Article XX(d) and for its general definition of circumvention.  Could 
China elaborate on this argument and clarify the relevance of the importers' intent. 
Response of China 
 
784. China does not consider that intention is releva nt in either circumstance.  The purpose of the 
challenged measures is to ensure that parts and components that have the essential character of a 
motor vehicle receive the same tariff classification, and are subject to the same rate of duty, without 
regard to the manner in which the auto manufactur er structures and docum ents its imports.  One 
respect in which the auto manufact urer may structure its importation of parts and components is to 
arrange to purchase imported parts and components from a third-party supplier in China.  This is the 
specific circumstance that Article 29 addresses.   
Comments by the European Communiti es on China's response to question 288 
785. The question whether the importers' intentions ar e relevant for this case has been the subject 
of ever changing positions by China (see e.g.  the second written submission of the European 
Communities, paragraphs 125 to 129). It appears th at China has now come to the conclusion that 
intention is not relevant at all although in its fi rst written submission the "demonstrated and declared 
intention" was the cornerstone of the anti-circumve ntion theory (see China's first written submission, 
paragraphs 33, 153, 155 and 162). 
                                                      
179 See China first written submission at para. 203.   
180 See, for a discussion of China's Article XX(d) de fence in general, second written submission of the 
European Communities, paras. 143 to 146. WT/DS339/R/Add.1 
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  289. ( Canada )  Canada submits, inter alia , in relation to the requirements of the chapeau of 
Article XX(d) that there is no question that the application of the measures adversely affects the 
conditions of competition between imported a nd domestic parts (paragraph 103 of Canada's 
second written submission).  Please elaborate in your argument on the violation of the chapeau 
of Article XX, in light of the Appellate Body's finding in US – Gasoline that "the provisions of 
the chapeau cannot logically refer to the same standard(s) by which a violation of substantive 
rules has been determined to have occurred."  In other words, if the violation of China's 
measures for which Article XX(d) is invoked is in  relation to Article III, would the question of 
discrimination between imported and domestic  parts not already have been determined? 
Response of Canada (WT/DS342) 
 
786. Canada agrees with the Panel's statement. Canada was considering the third strand of 
discrimination under the chapeau , namely whether the measures constitute a disguised restriction on 
trade. The statement referring to respecting the app lication of the measures was simply to supplement 
the main point of the paragraph, namely that "as set out in paragraph 88, the primary purpose of the 
restriction is to afford protection to the dom estic automotive industry from imported competition". 
Thus, reference to the application of the measures shows that, in the context of Article XX, both the 
design and application of the measures, when taken i ndividually or as a whole, illustrate that they are 
nothing more than a disguised restriction on trade.  This is important, since the Appellate Body has 
found that the prevention of abuse of the Article XX exceptions is a fundamental purpose of 
assessment under the chapeau . For this reason, if the measures were considered provisionally 
justifiable under Article XX(d), they fail to meet the chapeau  requirements because they are an abuse 
of the Article XX(d) exception. 
290. ( China )  The Panel in EEC – Parts and Components  found that the examples of laws and 
regulations identified in Article XX(d) would s eem to suggest that Article XX(d) only covers 
measures designed to prevent actions that would be illegal  under the laws or regulations.  In 
light of this statement, what are the illegal actions under the laws or regulations that China's 
measures are designed to prevent?  Please explain in detail. 
Response of China 
 
787. China does not consider that there is anything in the ordinary meaning of Article XX, or 
Article XX(d) in particular, to support the conclusion  that the actions that a measure seeks to prevent 
must be "illegal."  Article XX(d) makes no referenc e to "illegality."  Moreover, the "illegality" of a 
particular action is defined under municipal law.  It would not be consistent with the object and 
purpose of the GATT to find that the availability of a defence under Article XX(d) is contingent upon 
what a Member considers to be illegal under its na tional laws – a consideration that will necessarily 
differ from one Member country to another.   
788. The specific term to which Article XX(d) refe rs is "customs enforcement."  Members may 
enforce their customs laws and regulations in ways  that do not necessarily involve a prior finding of 
illegal action by the importer.  For example, a Member may require the submission of certain documentation to ensure the correct classification of  an import entry.  While it may be illegal under 
national law to fail to submit this documentation, or to submit this docum entation with material 
inaccuracies or misrepresentations, Article XX(d) does not require that any such illegality actually 
occur as a precondition to the adoption of the docum entation requirements.  Likewise, a Member may 
impose a particular customs control procedure to ensure the proper classification of an import entry, 
to ensure compliance with a specific condition of en try, or for any other valid customs purpose.  To 
the extent that these types of measures have elemen ts that are inconsistent with a Member's other  WT/DS339/R/Add.1 
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  GATT commitments (for example, beca use they are inconsistent with the requirements of Article III), 
a Member may seek to justify these elements under Article XX(d) without regard to whether any illegality has occurred under its natio nal laws or regulations.  The question, in each instance, is 
whether the measure is related to customs enforcement.   
789. With that said, it is illegal under Chinese law to fail to pay the customs duties that apply to 
imported articles.  China has previously described  the relevant Chinese laws and regulations, and 
provided relevant excerpts, in response to ques tion 30 from the Panel.  The challenged measures 
secure compliance with these laws and regulations by  ensuring that importers correctly declare the 
entry of parts and components that have the e ssential character of a motor vehicle and pay the 
corresponding duties, whether the parts and component s enter the customs territory of China in one 
shipment or in multiple shipments.   
Comments by the European Communiti es on China's response to question 290 
790. Contrary to China's response, the European Communities considers that the Chinese measures 
fail to satisfy the qualification "to secure compliance with laws or regulations" as interpreted by the 
Panel in EEC – Parts and Components  (at paras. 5.15 to 5.18). The Panel required that measures 
prevent actions  inconsistent with the obligations set out in laws or regulations  or, in other words, are 
related to the enforcement of oblig ations under laws or regulations . According to China, the "laws or 
regulations" in question are the tariff provisions for vehicles contained in its Schedule. The measures, 
however, do not prevent behaviour inconsistent w ith the Chinese Schedule. They do not enforce the 
Schedule, but are on the contrary inconsistent w ith the Schedule by imposing charges that deviate 
from the tariffs contained in the Schedule.
181  
291. ( China )  With respect to China's Article XX(d) defence, China stated at the second 
substantive meeting that the illegal actions Chin a's measures are designed to prevent was the 
improper declaration of goods being imported.   
(a) Is China arguing that if an auto manufacturer imports a shipment of brakes and 
declares them as such and if those brakes are me ant to be included in a registered vehicle model 
that meets the thresholds for a "deemed whole vehicle" in China's measures, that auto manufacturer is committing customs fraud? 
Response of China 
 
791. If a manufacturer were to import a shipment of brakes for a registered vehicle model, 
Article 15 of Decree 125 would require the manufacture r to note this status on the import declaration 
form.  Failure to complete the declaration in acco rdance with Article 15 would constitute a violation 
of Decree 125.  As set forth in Article 36 of D ecree 125, a violation of the rules set forth in 
Decree 125 may constitute an act of smuggling or a violation of customs supervision rules under the 
Customs Law  and the Implementation Rules on Customs Administrative Penalties .  China has 
previously discussed these laws and regulations in response to question 30 from the panel.  As 
discussed in response to that question, the exact na ture of the violation and the range of potential 
penalties would depend upon the amount of the custom s duties that were evaded through the improper 
completion of the customs declaration form. 
(b) Can China clarify whether it believes that if an auto parts supplier imports a shipment 
of brakes and declares them as such and if tho se brakes are later sold to an auto manufacturer 
                                                     
 
181 See second written submission of the European Communities, para.146. WT/DS339/R/Add.1 
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  who includes it in a registered vehicle model that meets the thresholds for a "deemed whole 
vehicle" in China's measures, that auto manufacturer is committing customs fraud? 
Response of China 
 792. If the manufacturer purchases the parts from the s upplier for a registered vehicle model, the 
manufacturer is required under Article 29 to pay the difference between any duty already collected in 
respect of those parts and the duty applicable to pa rts and components that have the essential character 
of a motor vehicle.  This is a question of en suring the correct classification of these parts and 
components.  For the reasons discussed in respon se to question 290, China does not consider that 
Article XX(d) can only be invoked in respect of what a Member might classify as "customs fraud." 
Comments by the European Communiti es on China's response to question 291 
793. In the view of the European Communities, Ch ina's responses reveal the absurdity of the 
measures:  Vehicle manufacturers who properly declare au to parts for what they are, i.e. on the basis 
of "the 'objective characteristics' of the products in question when presented for classification at the 
border" (see the Appellate Body in EC – Chicken Cuts , para. 246), can violate the measures and, thus, 
commit an act of smuggling or a violation of customs supervision rules under Article 36 of 
Decree 125.  The same goes for vehicle manufactur ers who do not pay certain charges if they 
purchase parts on the Chinese internal market from s uppliers that previously imported, declared and 
cleared them. measures which criminalize behaviour that  is consistent with the tariff provisions in the 
Schedule cannot be "necessary to secure compliance" therewith. 
292. ( All parties )  Is the object and purpose of the me asure relevant under the analysis of 
paragraph (d) of Article XX?  If so, under what  element of analysis under paragraph (d)?   
Response of China 
 
794. China is uncertain as to what the Panel means by  the "object and purpose of the measure."  In 
China's view, the relevant consideration under Article  XX(d) is whether the measure is one that is 
necessary to secure compliance with customs laws.  This can be discerned by the nature and operation 
of the measure at issue.  In this respect, the "object and purpose of the measure" is a relevant 
consideration under Article XX(d).   
Response of the European Communities (WT/DS339) 
 795. Under Article XX(d) of the GATT 1994, a meas ure can be provisionally justified if it is 
"necessary to secure compliance with laws or regul ations which are not inconsistent with the 
provisions of this Agreement". 
796. The Appellate Body in Korea – Various Measures on Beef  held that Article XX(d) sets out a 
two-pronged test: 
For a measure, otherwise inconsistent with  GATT 1994, to be justified provisionally 
under paragraph (d) of Article XX, two elemen ts must be shown.  First, the measure 
must be one designed to "secure compliance"  with laws or regulations that are not 
themselves inconsistent with some provision of the GATT 1994.  Second, the measure must be "necessary" to secure su ch compliance.  A Member who invokes  WT/DS339/R/Add.1 
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  Article XX(d) as a justification has the burden of demonstrating that these two 
requirements are met.
182 
797. Under the first element of this test, China needs to demonstrate that its measures are 
"designed to secure compliance" with its Schedule of  concessions. As demonstrated in greater detail 
in previous submissions, the Chinese measures are not designed to secure compliance with China's 
schedule of concessions, but actually aim at foster ing the development of the Chinese auto parts 
industry.183 
Response of the United States (WT/DS340) 
 798. The Appellate Body has found that an exam ination of a measure under Article XX(d) 
involves a two-step analysis: 
For a measure ... to be justified provisiona lly under paragraph (d) of Article XX, two 
elements must be shown.  First, the measure must be one designed to "secure 
compliance" with laws or regulations that are not themselves inconsistent with some 
provision of the GATT 1994.  Second, the m easure must be "ne cessary" to secure 
such compliance.
184   
799. In examining whether China's measures are in  fact "designed to secure compliance" with 
some GATT-consistent measure, the Panel should l ook at all facts and circumstances.  The United 
States notes that laws are often adopted for more than one reason,185 and that statements of intent 
contained in legislation may not be determinative.  Nonetheless, the statements of intent contained in 
China's laws are relevant and should be considered by the Panel.  In  particular, the Panel should take 
note that China's measures state that they are intended to promote the development of China's 
domestic auto parts industry, and the fact that China's measures make no mention of any goal of 
preventing "tariff evasion" or "tariff circumvention."     
Response of Canada (WT/DS342) 
 
800. The object and purpose of the measures is relevant to assessing them under Article XX(d) in 
three respects. First, the object and purpose is relevant under the first part of the provisional 
justification test, namely whether the measures are "designed to secure compliance" with a GATT-
consistent measure. As explaine d at paragraphs 87-90 of Canada 's second written submission and 
Question 280, above, the object and purpose of the m easures is not to secure compliance with China's 
Schedule as, on their face, their fundamental thrust is to offer protection and support to the domestic 
automotive industry.  
801. Second, the object and purpose may colour th e assessment of whether the measures are 
"necessary" under the second part of the provisional justification test, as the measures could not be 
said to be necessary for a specific purpose (i.e ., enforcing a Schedule), if, in fact, the predominant 
purpose of the measures was found to be different (i.e ., protectionist in nature). In this dispute, 
                                                      
182 Appellate Body Report, Korea – Various Measures on Beef , para. 157. 
183 See second written submission of the European Communities, para. 144. 
184 Appellate Body Report, Korea – Various Measures on Beef , para. 157. 
185 The United States notes that "object and purp ose" has a specific meaning under the Vienna 
Convention with respect to the interpretation of intern ational agreements, and that it may create confusion to 
refer to the "object and purpose" of domestic measures adopted by individual countries.   WT/DS339/R/Add.1 
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  "necessary" must be applied in the strictest sen se given the protectionist object and purpose of the 
measures. 
802. Last, an assessment of the object and purpose of the measures is relevant to considering 
whether the measures are a disguised restriction on trade under the chapeau . While application , not 
design  is the relevant consideration under the chapeau , it would be difficult to assess whether a 
measure is a "disguised restriction on trade" without  taking into consideration its object and purpose. 
Again, in this dispute, the measures on their face reveal that they are nothing more than a disguised 
restriction on trade. 
293. ( United States and European Communities )  China submits that the measures at issue 
serve to protect important interests and values such  as the prevention of tariff circumvention, 
the collection of tax revenues and the enforcem ent of negotiated tariff concessions.  Please 
comment on China's position. 
Response of the European Communities (WT/DS339) 
 803. As set out in previous submissions, China has not demonstrated that its measures serve to 
protect any of these values. China has not demonstrated that there is in reality a problem of tariff circumvention or that its measures serve the co llection of tax revenues or the enforcement of 
negotiated tariff concessions.
186 Vehicle manufacturers which import auto parts for assembly and 
manufacture into vehicles in China do not circumvent  any tariffs. According to the negotiated tariff 
concessions laid down in the Chinese schedule, imported auto parts are charged at 10%, and not – as 
the measures provide – at 25% for the mere reason that they are manufactured into vehicles with 
insufficient local content. As the measures impose charges in excess of what is provided in China's 
tariff schedule, they disrespect  the negotiated tariff concessions. 
804. In the view of the European Communities, the one  important value at stake in this case is the 
respect for the core principles of the WTO system , namely the principles of non-discrimination and 
the security and predictability of the multilatera l trading system. The Chinese measures put in 
question these core principles of the WTO system. 
Response of the United States (WT/DS340) 
 
805. The United States has addressed these arguments by China in its response to Question 280, 
and respectfully refers the Panel to that response.   
294. ( All parties )  Please provide more specific eviden ce to support your arguments with 
respect to the effect that the measures have had on trade. 
Response of China 
 
806. The lack of any adverse impact on trade is ev idenced most directly by the continued rapid 
growth of the import of auto parts into China. Since Decree 125 was first in troduced in 2005, China 
compared import statistics from 2004 and 2006 to illust rate the lack of impact.  According to data 
from the China Automotive Industry Yearbook, in 2004 , the total value of imported auto parts was 
USD10.39 billion, whereas in 2006 the value was USD 12.45 billion, an increase of 19.8 per cent. 
                                                      
186 See second written submission of the European Communities, para. 146.  WT/DS339/R/Add.1 
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  807. In addition, in 2006, many auto manufactur ers introduced new models of cars into the 
Chinese market.  According to the data from Ch ina Automotive Industry Yearbook, in 2006, there 
were 110 new models of passenger car introduced, of  which 43 were new models and more than 70 
were upgraded models.  Most of the new mode ls were from Volkswagen, GM, Toyota, BMW, 
Mercedes-Benz, and other joint ventures in China. 
Response of the European Communities (WT/DS339) 
 
808. As illustrated in the graphics attached as Exhibit EC - 37
187, the adoption of the Automotive 
policy order in May 2004 was followed by a dramatic fa ll of EC exports of car parts to China. In just 
a few months, exports dropped to 53%, and then to  as low as 33% of their May 2004 level. Thereafter 
exports of parts began to grow sl owly and appear to have now stabilised at the level of May 2004. 
However, this must be considered against th e booming Chinese demand and production of vehicles 
and the much steadier growth rates of EC exports observed before May 2004.  
809. A comparison between EC exports of car pa rts and Chinese production of motor vehicles 
suggests that the adoption of the Automotive policy order prompted auto manufacturer to switch as 
quickly as possible to domestic parts suppliers in order to adapt to the local content requirements 
imposed by the measures. This resulted in a reduction of EC parts' market share, which now seems to 
have become permanent as evidenced by the steady gap between the two curves.  
810. Meanwhile, recent industry analysis suggest s that Chinese companies are becoming 
increasingly aggressive and there are growing fear s that with government support and incentives 
foreign companies will eventually be sidelined. Th e risks for foreign investors are growing (see 
Exhibit EC – 38, last bullet point). 
Response of the United States (WT/DS340) 
 
811. The level of the trade effects of China's meas ures are not an element of the United States 
claims under the WTO Agreement, and the United St ates has not made arguments with respect to 
levels of trade effects.  Should the DSB ultimatel y find that China's measure s are in breach of its 
obligations and should China fail to come into co mpliance, the level of trade effects would be 
considered in an arbitration under Article 22.6 of the DSU. 
Response of Canada (WT/DS342) 
 
812. The measures have a great impact given that the automotive industry is a signature industry 
for any economy and the measures apply without restriction to the whole automotive industry. 
813. It is apparent on its face, and for the comme rcial reasons set out in the complainants' 
submissions (which China has not disputed) that in  a highly competitive and price-sensitive market an 
                                                      
187 In this graphics, the European Communities has used export statistics for engines for vehicles and 
their components, and parts and com ponents of motor vehicles (HS 8407 .31, 8407.32, 8407 .33, 8407.34, 
8408.20, 8409 .91, 8409.99, 87 08). This is considered an approximation sufficiently accurate for the purpose of 
giving an overview of the trade imp act of the measures. Statistics for Chin ese production of motor vehicles have 
been obtained from the website of the National Bureau of Statistics of China 
(http://www.stats.gov.cn/english/statisticaldata/index.htm ). WT/DS339/R/Add.1 
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  increased cost and burden on imported auto parts will have a significant impact. To the extent that the 
Panel needs to make a factual finding on this poin t, it is an inference that can easily be drawn.
188  
814. With respect to the effect on parts manufacturers outside China, whose imports are those 
discriminated against by the measures, Canada not es that the Canadian Auto Parts Manufacturers' 
Association specifically indicated its concern about the measures, reflecting the effect they have had 
on trade.189 
815. Evidence of the effect of the measures is also  found in statements by Chinese businesspeople 
after the measures came into force. For example: 
816. A presentation by a director of China Auto motive System, a Chinese-owned company and 
one of the largest auto parts suppliers in China, in February 2007, 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 rea lly boost the sales for China auto part 
makers".
190  
817. Similarly, in a July 2006 article discussing the auto industry in China,  an analyst (from Global 
Insight), referring to the measures, noted that th ey have already had a big impact on some luxury 
brands with low production volumes, citing a stop in production of Ca dillacs by GM in particular, and 
stating that other vehicle manufacturers "may follow in its footsteps".191  
Comments by the European Communiti es on China's response to question 294 
818. China's choice of reference periods is vitiated by the fact that the Automotive policy order 
was announced in May 2004. As shown in exhibit EC–37, this was followed by a dramatic reduction 
of EC exports of parts to China (-60% between  May and December 2004). The annual total for 2004 
therefore constitutes an unnaturally low base as fa r as imports of car parts are concerned, which 
results in an "inflated" percenta ge growth between the two periods. 
819. Furthermore, the 19,8% growth of imports of parts should be compared with the growth of 
Chinese production of cars. According to our calcu lations based on data from China's Statistics 
bureau, China produced 5,186,400 cars in 2004, and 7,611,500 cars in 2006, i.e. an increase of 46.8%, more than the double than the growth in imports of parts.
192 In other words, more and more parts are 
sourced from local suppliers.  
820. A more detailed analysis of the effects of the measures on the basis of monthly data and 
considering the relation between imported parts a nd Chinese production of cars shows that Chinese 
                                                      
188 See, for example, Canada – Aircraft , Appellate Body Report, at para . 203: "Clearly, in our view, the 
Panel had the legal authority and the discretion to  draw inferences from the facts before it…". 
189 Automotive Parts Manufacturers' Association News , "President's Message: Driving Canada's 
Future", November 2006, at p. 2 (Exhibit CDA-45). 
190 China Automotive Systems, Roth Capital Confer ence, Presentation Transcript, 21 February 2007, 
online: http://china.seekingalpha.com/article/27700  (Exhibit CDA-46). 
191Assembly Magazine , "The Great Race", 1 July 2006, online: 
http://www.assemblymag.com/CDA/Articles/Feature_Article/3b60276b6ba1c010VgnVCM100000f932a8c0  
(Exhibit CDA-47). 
192 These figures were obtainined by adding the monthly figures contained in EC-36. As explained in 
the exhibit, data for January and December 2006 are not av ailable 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 (Fed-Nov. 06), this would add up to 6,361, 300 units, i.e. an increase of  22.7% compared to 2004.  WT/DS339/R/Add.1 
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  production of cars grew, between the announcement of the Automotive policy order and the last 
comparable figures (March 2007), by 101%, while EC  exports of parts grew only by 18% (see second 
graph of exhibit EC – 36). 
Comments by China on Complainants' responses to question 294 
821. The EC's claim that the challenged measures have had an impact on its exports of car parts to 
China suffers from a basic flaw of logic and causation.   The EC refers to a short-term decline in the 
volume of EC exports to China after May 2004, when  Order No. 8 was adopted.  The inference that 
the EC seeks to draw is that Order No. 8 had a dir ect and immediate impact on the value of the EC's 
exports of car parts to China.  The problem with th is reasoning is that Order No. 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.  As China has explained, Chapter XI of Order No. 8 was a broad statement of policy concerning the administration and enforcement of China's tariff rates for motor vehicles and motor vehicle parts.
193  It was not until the 
adoption of Decree 125 in April 2005 that the chal lenged measures could have  had any conceivable 
impact on sourcing decisions.  However, as the EC's ow n data illustrate, the EC's exports of auto parts 
to China resumed their upward trend in early 2005 – just as Decree 125 took effect.194  Since that 
time, the value of EC car part exports to China h as reached record heights, reaching its highest point 
as recently as March 2007, according to the EC's ow n data.  This is hardly consistent with the 
proposition that the challenged measures have had an adverse impact on trade.    
295. ( China )  What is the exact level of enforcement China seeks with respect to its laws and 
regulations within the meaning of paragraph (d) of Article XX? 
Response of China 
 
822. As discussed in response to question 296 be low, China 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 the customs territory of  China in one shipment or in multiple shipments.  
Proper classification of import entries is an objectiv e that, by its nature, customs authorities seek to 
achieve in respect of all similar entries.   
Comments by the European Communiti es on China's response to question 295 
823. The European Communities would like to note that China's reference to "uniform" and 
"[p]roper classification" attempts to distract from the fact that China has up to now not demonstrated 
the proportionality of its measures. For the reasons  set out in the EC second written submission, the 
measures are in fact inappropriate and disproportionate.195 
296. ( China )  In the view of the European Communities, as an alternative to the measures at 
issue, China could have investigated only individual instances of alleged evasion under its 
customs laws, instead of imposing charges under th e measures on all imported auto parts that 
are assembled into vehicles that do not satisfy the arbitrary Chinese local content thresholds.  
Could China comment on this view, including why such a less trade-restrictive alternative would not be reasonably available to achi eve the desired level of enforcement. 
                                                     
 
193 See China's answer to question 48 from the Panel.   
194 See EC-37.   
195 See second written submission of the European Communities, para. 146. WT/DS339/R/Add.1 
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  Response of China 
 
824. The EC's assertion is mistaken, in two respects.  First, the measures do not "impose charges 
on all imported auto parts that are assembled into vehicles that do not satisfy the arbitrary Chinese 
local content requirements."  Rather, as China h as explained, the measures ensure the correct 
classification of imported auto parts and component s that have the essential character of a motor 
vehicle.  As China has also explained, the question of tariff evasion, in the present context, is one of 
ensuring the correct classification of what is imported.  One important objective of customs 
classification is to achieve the same classification of  an article whenever it is imported.  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.  This is why the measur es cannot be limited to "individual instances" – the 
objective of the measures is to ensure the consiste nt classification of parts and components that have 
the essential character of a motor vehicle, in all cases. 
825. The second problem with the EC's assertion is th at, in the absence of the challenged measures, 
China would have essentially no m echanism for determining whether multiple shipments of parts and 
components are related to each through their comm on assembly into a single article.  Without a 
customs process for determining whether a manufacturer is importing parts and components that have the essential character of a motor vehicle in multiple  shipments, there is no basis to investigate and 
determine whether any given shipment of auto part s 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.   
Comments by the European Communiti es on China's response to question 296 
826. China's arguments why investigations of cu stoms evasion on an individual basis do not 
provide for a reasonably available alternative to the measures are not convincing. Acts of customs 
evasion, the danger of which China has still not dem onstrated, 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 investigations. China's reference to the possibly limited resources of its 
customs authorities cannot justify otherwise dispr oportionate measures. Furthermore, China has not 
demonstrated why it needs a "mechanism for dete rmining whether multiple shipments of parts and 
components are related to each through their common assembly into a single article". In the view of 
the European Communities a "mechanism" creating fictions such as the ones contained in the 
measures is not suitable, necessary or proportionate  to further the objective of uniform customs 
classification. 
297. ( Canada )  In paragraph 35 of its second oral statement, Canada states that it has 
demonstrated that China's measures are arbitr ary in application and expressly designed to 
restrict trade.  Please refer the Panel specifically to where in Canada's written submissions this 
is demonstrated. 
Response of Canada (WT/DS342) 
 
827. It is important to note that under Article XX, China, not Canada, has the burden of proof to 
show that its measures are necessary. Nonetheless, Ca nada has shown that the measures are applied in 
a manner that results in arbitrary and unjustifiable discrimination and a disguised restriction on trade. 
In paragraph 102 of its second written submission,  Canada first notes that the measures apply 
arbitrary discrimination because the thresholds under th e measures are by their very nature arbitrary. 
As demonstrated in paragraphs 48-51 (including th e chart), the measures would rarely, if ever, result  WT/DS339/R/Add.1 
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  in a motor vehicle or a good having the essential character of a whole vehicle. They simply do not 
relate to proper classification for motor vehicles under the Harmonized System. Therefore, their application results in arbitrary discrimination.  
828. Canada has also shown that the measures resu lt in unjustifiable discrimination because they 
presume  circumvention in all instances, yet China h as not shown that a legal concept of "tariff 
circumvention" exists, and even if it had, Canada  has shown at paragraphs  91-96 and footnote 106 of 
its second written submission, and in response to Qu estion 14, that no such evidence exists. Last, 
Canada has elaborated on paragraph 103 of its seco nd written submission in answer to Question 289, 
above, to explain how the measures are nothing more than a disguised restriction on trade. 
298. ( China )  In its response to Panel question No. 14 , China provides some import statistics 
for the years 2002, 2003, and 2004.  The data shows percentage increases in 2002 and 2004 that are comparable to each other, however the growth  for 2003 is nearly 200%.  What was different 
about 2003? 
Response of China 
 
829. The most significant development in 2003 was the dramatic increase in the production of 
sedans.  This is shown in the following statistics: 
Production of Motor Vehicles in China
 
 1999 2000 2001 2002 2003 2004 
Cargo Vehicle 756,312 751,699 803,076 1,092,546 1,228,181 1,514,869
Increase Ratio - -0.61% 6.83% 36.05% 12.41% 23.34%
Coach 509,179 709,042 834,927 1,068,347 1,177,476 1,243,022
Increase Ratio - 39.25% 17.75% 27.96% 10.21% 5.57%
Sedan 566,105 607,455 703,525 1,092,762 2,037,865 2,312,561
Increase Ratio - 7.30% 15.82% 55.33% 86.49% 13.48%
Total 1,831,596 2,068,186 2,341,528 3,253,655 4,443,522 5,070,452
Increase Ratio - 12.92% 13.22% 38.95% 36.57% 14.11%
 
830. As these figures show, total motor vehicle pr oduction increased by 36 per cent in 2003 (a 
figure comparable to 2002), while sedan produc tion increased by 86 per cent – nearly doubling the 
production of sedans as compared to 2002.  This  increase in the production of sedans corresponded 
with the introduction of a large number of ne w vehicle models into the Chinese market.   
831. China considers that the large increase in auto parts and engine  parts in 2003 (as reported in 
response to question 14) is clearly related to the sh arp increase in the production of sedans in the same 
year.  China's customs statistics record the importation of only 34,858 CKD/SKD kits in 2003.  The 
parts and components for the remaining 910,245 additi onal sedans produced in that year must have 
come from somewhere, and the sharp increase in the value of imported engines and auto parts in 2003 
provides the answer.   WT/DS339/R/Add.1 
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Page A-356 
  
  832. These figures demonstrate that auto manufactur ers in China were sharply increasing their 
production of motor vehicles, and sedans in particul ar, using very high ratios of imported parts and 
components.  As China has previously discussed in response to questions 77 and 160, the fact that 
many of these vehicles models are assembled fro m imported parts and components that have the 
essential character of a motor vehicle has been confir med by the fact that approximately 130 vehicle 
models have been verified as such.  China has al so provided examples of specific vehicles models in 
response to question 160. 
Comments by the European Communiti es on China's response to question 298 
833. According to industry sources (exhibit EC – 41), 2003 was a year characterised by an 
impressive growth in demand. Higher demand for car s resulted in increases in Chinese production of 
cars and in the launch of new models. This of cour se in turn resulted in higher demand for parts.  
834. Local suppliers of parts and assemblies could not meet this rise in demand for parts in the 
short term, and car manufacturers, eager to maintain  high production levels in order to satisfy demand 
for cars, relied on imported parts, especially to accelerate the launch of new models (EC – 41, last 
bullet point of the April 2003 report, sixth bullet point of the August 2003 report).  
835. Against this example, it is clear that the measures at stake in these proceedings are not 
designed and enforced to fight a non-existent "circu mvention" of the customs duty on motor vehicles, 
but to make sure that the local industry of parts and components gets its "fair share" of the ever 
increasing Chinese production of cars, or, in the word s of the Automotive policy order, to "nurture a 
group of relatively strong auto-parts manufacturers". 
836. As for China's circular argument that a high leve l of verifications is evidence of a high level 
of models built from parts having the essential character  of a motor vehicle, reference is made to 
paragraphs 12 and 13 of th e EC rebuttal submission. 
299. ( Canada )  Canada states in paragraph 37 of its second oral statement that 
"Article XX(d) can be used to justify measures taken in respect of law or regulation otherwise 
consistent with GATT, such as China's Schedule properly applied .  The measures are not 
actually used for customs enforcement, as the re are no customs duties at issue to enforce."  
(emphasis added)  Could Canada please explai n how the Panel can determine whether China's 
Schedule is properly applied within the meaning of Article XX(d).  Please also clarify what Canada means by the statement that "there a re no customs duties at issue to enforce."  
Response of Canada (WT/DS342) 
 
837. Canada's reference to "properly applied" means enforcement of the proper tariff rate for auto 
parts or motor vehicles listed in China's Schedul e. This must be done based on the objective 
characteristics of the product as presented at the bor der in a single shipment, not based on end-use or 
multiple shipments from different exporters to diffe rent importers. If China had properly applied its 
tariff rate based on proper classification of auto pa rts or motor vehicles, then it could validly attempt 
to justify its measures as "necessary" if it were able  to show an actual enforcement problem existed 
based on a recognized legal defence. However, China has failed to meet its burden to demonstrate that 
"tariff circumvention" is a valid defence, or that , even if it were, there is any evidence of such a 
problem.  
838. With respect to Canada's comment that "there are no customs duties at issue to enforce", see 
Question 225.  WT/DS339/R/Add.1 
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 Page A-357 
  
  300. ( China )  The complainants have expressed a view that China's arguments relating to 
Article II of the GATT 1994 are essentially Chin a's Article XX(d) defence.  Does China agree 
with this view? 
Response of China 
 
839. China emphatically disagrees with this view.  China considers that it is, in fact, the 
complainants who are attempting to shift the bu rden of proof by mischaracterizing what is 
unquestionably a complex set of interpretive issu es under Article II as "essentially" an Article XX(d) 
defence.   
840. As China discusses in response to  question 228 above, it was the complainants  who opted to 
bring an as such case against the challenged meas ures, including their claim that the challenged 
measures are inconsistent with China's obligations  under Article II.  The complainants have the 
burden of proving their claims, including their claim that the challenged measures do not collect the 
ordinary customs duties on motor vehicles that China is allowed to collect under its Schedule of 
Concessions.  The complainants cannot shift this burden of proof to China by disregarding the 
necessary elements of their own claims and forcing China to defend the measures under 
Article XX(d).  China is entitled to invoke Article XX(d) in the event that th e Panel identifies one or 
more respects in which the challenged measures are in consistent with its WTO obligations.  But it is 
the complainants who have the burden of proving th e inconsistencies they ha ve alleged before the 
question of Article XX(d) even arises.   
841. In addition, it is entirely evident that the s ubstantive issues under Article II and Article XX(d) 
are not the same, and are not even "esse ntially" the same.  The core in terpretive issue under Article II 
is whether the challenged measures collect ordinary  customs duties in accordance with China's tariff 
provisions for motor vehicles, as interpreted in  accordance with GIR 2(a), including the terms 
"essential character" and "as presented."  China's pos ition is that the challenged measures are based on 
a proper understanding of these terms within the Ha rmonized System, that the measures collect valid 
customs duties in accordance with  China's Schedule of Concessions, and that the measures are 
consistent with China rights and oblig ations under Article II.  This is not the same question as whether 
the challenged measures would be justified under Arti cle XX(d) in the event that the Panel found that 
they were inconsistent with China's obligations  in respect of Article II or Article III.   
Comments by the European Communiti es on China's response to question 300 
842. Contrary to what China suggests in its res ponse, the European Communities does not attempt 
to "shift th[e] burden of proof to China". The Eu ropean Communities and the other complainants have 
demonstrated inter alia  that the Chinese measures are "internal" measures inconsistent with 
Article III:2, III:4 and III:5 of the GATT 1994. The burden of proof for a successful Article XX 
defense rests then on China. China, however, fails to demonstrate that its measures are necessary to 
secure compliance with its Schedule since they impo se charges which are in excess of the tariff rates 
set forth therein.
196 
301. ( European Communities )  Could the European Communities please elaborate its 
argument in paragraph 35 of its second oral st atement that "even according to the statistics 
provided by China itself, there has been an import ant and constant growth in the importation of 
complete vehicles into China prior to the adoption of the measures." 
                                                      
196 See second written submission of the European Communities, para. 146. WT/DS339/R/Add.1 
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  Response of the European Communities (WT/DS339) 
 
843. China has not been forthcoming in providing sta tistical information for the various assertions 
it has made in relation to the circumvention of its  schedules on motor vehicles. However, if one takes 
as the basis the statistics provided by  China in its reply to question 14 b) from the Panel that relates to 
the period prior to the adoption of the measures, th ere is no evidence that would suggest any shift in 
the pattern of trade between imports of complete ve hicles and their parts. There has been a constant 
growth in the import of automotive products in gene ral, which is a testimony of the booming market 
for vehicles in China following its economic success story.  
302. ( European Communities )  Could the European Communities please elaborate on its 
position in paragraph 36 of its second oral st atement.  What analysis would the Panel be 
required to carry out to determine whether "[the measures] impose charges which directly 
conflict with China's tariff schedules instead of enforcing them" within the meaning of 
Article XX(d)? 
Response of the European Communities (WT/DS339) 
 
844. See response to question 286 from the Panel. 
303. ( All parties ) The Panel in EEC – Parts Components  held that Article XX(d) only covers 
measures related to the enforcement  of obligations under laws and regulations that are GATT 
consistent and not measures which merely prevent actions that are consistent with laws or 
regulations but undermine their objectives .  In the context of the present case, do the measures 
serve to enforce the payment of ordinary customs duties for "motor vehicles"? 
Response of China 
 
845. Yes.  For the reasons that China has explained, it is consistent with a proper interpretation of 
the term "motor vehicles" to conclude that the term includes parts and components that have the 
essential character of a motor vehicle, including multiple shipments of parts and components that are related to each other through their common assembly into  a motor vehicle.  It is this GATT-consistent 
interpretation of the term "motor vehicles " that the measures serve to enforce.   
Response of the European Communities (WT/DS339) 
 846. No, the Chinese measures do not serve to enforce the payment of ordinary customs duties for 
motor vehicles. This would be the case if the measures  helped to ensure that importers of vehicles pay 
the appropriate customs duties for vehicle imports. Ho wever, the enforcement of the ordinary customs 
duties for vehicle imports is not at stake in the present case. The measures do not concern the imports 
of vehicles. They exclusively deal with imported auto parts,
 which even when considered together do 
not have the essential character of a complete vehicl e, and impose on them charges in excess of those 
provided for in the Schedule. 
Response of the United States (WT/DS340) 
 
847. As the United States has explained in its oral st atement at the second meeting, and in response 
to Question 280 above, the answer to this question depends on precisely what practice China is trying 
to address.  If China means that importations of bulk shipments of manufacturing parts are subject to a whole-vehicle rate of duty, then no, the measur es do not enforce the payment of ordinary customs 
duties on motor vehicles because bulk shipments of parts are not
 motor vehicles under any possible  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
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  reading of China's schedule.  If China means that  a CKD kit split into two separate boxes should be 
subject to a whole-vehicle rate (and leaving aside  for purposes of this ques tion China's commitments 
under paragraph 93 of the Working Party Report), then China's measures arguably might enforce such 
a policy.  However, as the United States has explai ned, China's measures are vastly more broad in 
coverage than the hypothetical CKD kit broken into two separate boxes, and thus the measures cannot 
be necessary to enforce any policy regarding "split kits."   
Response of Canada (WT/DS342) 
 848. The measures do not serve to "enforce" the paym ent of ordinary customs duties for "motor 
vehicles" but, as explained in Canada's response to  Question 280, directly "conflict" with China's 
Schedule by imposing an additional 15 % internal charge on auto parts. 
849. In EEC – Parts and Components the panel found that a measure could be justified under 
Article XX(d) if it served to enforce an obligatio n under a GATT-consistent law, but could not be 
justified if it did not "enforce" the law or regula tion but only prevented the undermining of the policy 
objectives of that law or regulation.
197 In other words, Article XX(d) cannot be used to prevent 
"undermining" a Member's permitt ed charges, such as anti-dumping (or ordinary customs duties). 
Applying this principle, China's measures cannot be  justifiable under Article XX(d) in two respects. 
First, the measures prevent "actions" fully consistent  with China's Schedule, namely application of the 
appropriate duty rates for auto parts, on the theo ry that the charges under the measures are necessary 
to prevent "tariff circumvention", i.e., undermining of the Schedule. Second, not only are the 
measures preventing actions consistent with China's Schedule, but they attempt to enforce the policy 
objective of protecting and supporting China's automotive industry.198  
Comments by the European Communiti es on China's response to question 303 
850. See the comments of the European Communiti es on China's response to question 290.  
                                                      
197 EEC – Parts and Components , Report of the GATT Panel, at para. 5.17. 
198 As set out in Canada's second written submission at paras. 87-90 WT/DS339/R/Add.1 
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  ANNEX A-3 
 
RESPONSES AND COMMENTS OF PARTIES TO AN ADDITIONAL QUESTION  
FROM THE PANEL 6 AUGUST 2007 
 
304.  ( All parties )  Please clarify the order in which the following events take place under 
China's measures with respect to imported auto parts characterized as complete vehicles:   
- the assembly of imported auto parts into complete vehicles;  
- automobile manufacturer's declaration for duty payment  for imported auto parts; 
- automobile manufacturer's application for v erification by the Verification Center and 
the Center's issuance of verification report[s];  
- the customs authorities' classification of imported auto parts; and  - the customs authorities' collection of  duties for imported auto parts.   
 Please support your answer with relevant pr ovisions of the measures as well as, if 
possible, any documentary evidence showing a specific sequence of these procedures.  Please also confirm that imported auto parts that shou ld not be characterized as complete vehicles are 
not subject to the above procedures applicable to  imported auto parts characterized as complete 
vehicles. 
Response of China 
 
1. To clarify the order in which the events specified by this question take place, it is important to 
emphasize the distinction between the assembly of the first batch  of a particular vehicle model, and 
the subsequent assembly of that vehicle model in  commercial production.  As China explained in 
response to question 167(b) from the Panel, th e self-evaluation and verification process under 
Decree 125 is conducted on a vehicle model basis.  This process results in a determination, on a 
per-model basis, of whether the imported auto parts in that vehicle model meet one or more of the 
thresholds set forth in Article 21 of Decree 125.  This determination will apply to all subsequent 
imports of auto parts for the same vehicle model,  unless and until the imported auto parts used in the 
assembly of that vehicle model change in relati on to the thresholds specified under Article 21. 
2. Thus, in relation to the events specified by th e Panel in this question, the first event that 
occurs is the assembly by the manufacturer of the first batch  of a particular vehicle model.  As China 
explained in response to question 167(b), this can be  one vehicle or a small quantity of vehicles, a 
number that the manufacturer may choose at its di scretion.  The second event that occurs is the 
manufacturer's application for verification of th e self-evaluation results.  Under Article 19 of 
Decree 125, the manufacturer is required to submit this  application within 10 days after the assembly 
of the vehicle model that is to be registered (i.e ., after the assembly of the first batch).  The 
verification application includes the results of the manufacturer's self-evaluation of the vehicle 
model.
1  The Verification Center then conducts its review of the self-evaluation and releases its 
verification report.2 
3. The results of the self-evaluation and verification process determine the subsequent 
declaration and classification of auto parts that the manufacturer imports for use in the regular 
commercial production of the vehicle model.  If the ve hicle model has been verified as meeting one or 
more of the thresholds of Article 21 of Decree 125, the manufacturer must import parts for that 
                                                      
1 See Article 25 of Decree 125 and Article 7 of Announcement No. 4.   
2 See Article 19 of Decree 125.    WT/DS339/R/Add.1 
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  vehicle model separately from other auto parts, and must declare the imported parts as parts of a 
registered vehicle model.
3  The manufacturer provides this declar ation at the time the parts enter the 
customs territory of China, as part of the normal customs entry process.  These parts enter the customs 
territory of China in bond and remain under customs control.4 
4. Under Article 28 of Decree 125, the manufacturer declares the amount of duty owed to the 
Customs after it has assembled the parts and com ponents into a finished motor vehicle.  The 
manufacturer is required to declare the amount of duty owed on the tenth working day of each month, 
based on the number of registered vehicle models that it assembled in the prior month.5  T h e  
classification of the imported parts and compone nts in the assembled motor vehicles, and the 
determination of duty liability, are based on the prior  determination that the vehicle model in question 
is assembled from imported parts and components that have the essential character of a motor 
vehicle.6  As China explained in response to question 167(b) from the Panel, there is no additional 
verification process that occurs after each  entry of auto parts for that vehicle model, or after the 
assembly of each  motor vehicle of that vehicle model type.  The results of the evaluation and 
verification process, conduct in respect of the first batch of that vehicle model, will apply to all subsequent imports of auto parts for that vehicle model, unless and until the manufacturer can demonstrate that the imported parts and components in that vehicle model no longer have the essential 
character of a motor vehicle.
7 
5. China confirms that, following the self-evaluation and verification process, auto parts that are 
not used in the assembly of registered vehicle models are not subject to the procedures described 
above.   
Response of the European Communities (WT/DS339) 
 
6. The question from the Panel distinguishes betwee n procedures applicable to imported auto 
parts characterised as complete vehicles and those th at are not.  This implies that the procedures or 
their sequence under China's measures could differ ab initio  for imported auto parts characterised as 
complete vehicles and those that are not.  The European Communities would like to stress however 
that this is not the case. Rather, it is only on the basis  of the procedural steps under the measures that a 
characterisation of parts as complete vehicles or not is made. For example, the characterisation of an imported auto part as not
 "complete vehicle" can be based on either the review (Article 7(2) of 
Decree 125) or the verification (Article 18 of Decr ee 125).  Their characterisation as either "complete 
vehicles" or "not complete vehicles" (i.e. parts) is the outcome  of these procedural steps, which may 
vary depending on the specifics of the situation and the stage of the process. 
7. The Chinese measures provide for th e following sequence with rega rd to the procedural steps 
mentioned by the Panel question (i.e. those afte r self-evaluation and review under Article 7 of 
Decree 125): 
• The assembly  of imported auto parts into the first batch of complete vehicles; 
• automobile manufacturer's application for verification  by the Verification Center and the 
Center's issuance of verification report(s); 
• automobile manufacturer's declaration  for duty payment for imported auto parts; 
                                                      
3 See Articles 14-15 of Decree 125.   
4 See Articles 16, 27 of Decree 125.   
5 See Article 31 of Decree 125.   
6 See Article 28, para. 2 of Decree 125. 
7 See Article 20, para. 2 of Decree 125.   WT/DS339/R/Add.1 
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Page A-362 
  
  • the customs authorities' classification
 of imported auto parts; 
• the customs authorities' collection  of duties for imported auto parts. 
8. This sequence of events follows from the following considerations. 
9. Assembly before verification : The assembly of imported auto parts into complete vehicles 
precedes the verification of the vehicle model. This follows directly from Article 19(1) of Decree 1258 
which provides: 
An automobile manufacturer shall submit a verification application to the CGA 
within 10 days after  the first batch of vehicles of the registered vehicle model are 
produced/assembled .  The Verification Center shall, within one month after receiving 
instructions from the CGA, conclude the verification and issue a verification report. 
(footnote omitted, emphasis added) 
10. Assembly and verification before duty d eclaration, classification and collection : Article 28 of 
Decree 125 clearly sets out that the manufacturer's  declaration for duty payment and the ensuing 
classification and collection of duties by customs necessarily follows the assembly of imported auto parts into complete vehicles and their verification: 
After the imported automobile parts have b een 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 ve hicles, 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 th e 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. 
11. Furthermore, Article 34 of Decree 125 is based on the premise that the manufacturer's 
declaration (and, consequently, the classification and collection of duties by customs) follows after the 
production/assembly of the complete vehicles. 
12. Reference is also generally made to paragraphs  47 to 67 of the first written submission of the 
European Communities, the correctness of which Ch ina has not disputed. The European Communities 
has seen the practical examples in the reply of Ca nada and would like to associate itself with those 
examples. 
Response of the United States (WT/DS340) 
 13. As discussed below, the order in which th e listed events will occur will vary based on 
different factual situations.  Also, in addition to th e listed events involving the application of China's 
measures, the US response below includes what is of ten the initial event in the sequence: namely, the 
importation of the parts (that is, the time when the parts are physically brought into China).   
                                                     
 
8 The European Communities refers to the common tr anslation of Decree 125 as agreed upon between 
the complaining parties and China as sent by China to the Panel on 2 August 2007, with the exception of 
Article 28(1) for which we refer to the UNOG translation of 16 August.  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-363 
  
  14. Before addressing various scenarios, some bac kground is helpful.  The process of applying 
China's measures usually begins with the manufac turer performing the self-evaluation required by 
Article 7 of Decree 125.
9  This process is mandatory, since it is a necessary precondition for obtaining 
an import license.  Article 7 provides that if th e manufacturer determines that the model does not 
trigger any of the established thresholds then it must request a review by the Verification Center.  If the Verification Center concludes that imported part s in the model are not "characterized as complete 
vehicles," then no registration is required at that  time.  The remaining requirements of the measures 
are then not applied to that model until such time  as changes are made in the composition of the 
vehicle, which in turn would result in a need to re-examine the applicability of the thresholds.    
15. If the self-evaluation determines that the im ported parts in the basic model exceed the 
thresholds established in the measures, then Article 7 requires the manufacturer to register the vehicle 
model.  Pursuant to Article 19, the manufacturer mu st submit an application within 10 days after the 
first "batch" of vehicles of the registered vehicle model is assembled to have the model "verified."  
The Verification Center will then issue a verificatio n report.  As indicated in China's response to 
Panel question No. 171, and as commented upon by th e European Communities, the length of time it 
takes to complete the verification report varies and can be significant.   
16. Pursuant to Article 28, after the imported part s have been assembled into complete vehicles, 
the automobile manufacturer shall make a declara tion for duty payments to customs.  The customs 
authorities will then make "classification" decisi ons and collect charges on the imported parts.  
Further, Article 31 provides that "customs shall collect the duty and the import VAT for all imported 
automobile parts used in assembling a certain vehi cle model in the last month by a manufacturer, 
applying the tariff rates applicable to complete vehicles."   
17. With this background in mind, the order of the various events listed above, under various 
scenarios, is as follows: 
18. For the first batch of assembled vehicles, th e order would be: importa tion of auto parts, 
assembly of imported parts, application for verificati on, issuance of the verification report, declaration 
for duty payment, "classification" by customs authorities, and collection of charges.   
19. For parts imported after the initial batch (or ba tches), but before the verification report is 
issued (a process that China con cedes can take a substantial period of time), the order would be: 
application for verification, importation of auto part s, assembly of imported parts, issuance of the 
verification report, declaration for duty payment,  "classification" by customs authorities, and 
collection of charges.   
20. If a model has been in production for some ti me without any modification to its production 
plan, and after initial inventories of auto parts have  been exhausted, the order for parts imported at 
that point will likely be: application for verificati on, issuance of verification report, importation of 
auto parts, assembly of imported parts, declaratio n for duty payment, "classification" by customs 
authorities, and collection of charges.   
21. However, if any changes in the parts used in production occur, then importation of the parts 
again becomes the first step in the list of events.  For example, Article 20 provides that if optional 
parts are installed on a vehicle, the manufacturer sh all report the options to the Verification Center 
and make declarations at the time of the actual in stallation of the optional parts.  The Verification 
Center would then review and issue a verification repor t.  Similarly, if the production plan is adjusted 
                                                     
 
9 See also Article 6 of Order No. 4.   WT/DS339/R/Add.1 
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Page A-364 
  
  in a way that would affect the local content re quirements of the measures, the manufacturer may 
reapply for a re-verification.  In these circumstances,  the order would be similar to that of the "first 
batch" of vehicles (paragraph 6 above). 
22. Finally if an imported part – even if originally intended for use in producing a complete 
vehicle – is not in fact used in such production within one year,
10 then the order of events would be: 
importation of auto parts, assembly of other parts (but  not this particular imported part) into complete 
vehicles, declaration for duty payment, "classificat ion" by customs authorities, and collection of 
charges.   
23. In sum, although the importation of parts, application for verification, assembly operations, 
and issuance of the verification report may occur in different orders depending on the circumstances, 
the last three activities will consistently be the d eclaration for duty payment, the "classification" 
determination, and then the collecti on of charges pursuant to Article 28.11  Furthermore, in every case 
it is impossible to predict whether an imported auto part will actually be used in the production of any 
particular model until production actually occurs, and in many cases, the importation of the parts will 
occur before even the issuance of a verification report for the model in which the part is intended to be 
used.   
Response of Canada (WT/DS342) 
 
24. Canada notes that this reply reflects the info rmation set out by Canada in its first written 
submission in Section IID to H, where the measures  and their consequences are described in detail. 
That information is, in Canada's view, sufficient to  establish that the measures apply internal charges 
on imported auto parts based upon their use in manufacturing, contrary to GATT Article III and the TRIMs Agreement .  
25. First, Canada emphasizes that the measures appl y to all imported auto parts, for it is the 
measures that establish the artificial distinction between imported auto parts that are or are not 
Deemed Whole Vehicles.  For example, prior to cu stoms finally determining whether imported parts 
are Deemed Whole Vehicles, vehicle and auto part s manufacturers that use imported auto parts must 
track the imported content of all products and ma intain evidence of payment of ordinary customs 
duties for those parts.
12  Even if a vehicle manufacturer has concluded that a particular vehicle model 
should not be subject to charges under the measures gi ven its level of imported content, and even if 
that self-verification has been confirmed on re view by the Verification Centre, the vehicle 
manufacturer (and auto parts manufacturers that supply imported parts to that vehicle manufacturer) cannot be certain that a different result will not be obtained on verification by the Verification Centre 
after the first batch of vehicles has been produced.
13 
26. With respect to the specific st eps in the Panel's question, Canada builds on the examples set 
out at paragraphs 65 and 66 (includi ng Table 1) of its first writte n submission, with reference to 
specific provisions of the measures, as appropriate.  We use two examples of  shipments of 100 brake 
cylinders for a light truck with a customs value of 1,000 RMB to demonstrate the order in which the 
                                                      
10 This could occur for a variety of reasons, such  as where parts are defective, destroyed in 
manufacturing, or are used as replacement parts, and al so where initial production fo recasts are not accurate and 
accordingly the manufacturer does not produce as many vehicles as originally planned.    
11 Article 19 (2) of Decree 125 also contains special provisions covering models already in production 
at the time Decree 125 entered into effect.  See also Article 10 of Order No.4.   
12 Decree 125, Article 22; Announcement 4, Article 20. This requirement is discussed in Canada’s First 
Written Submission, at paras. 62 and 63. 
13 Decree 125, Article 28; Announcement 4, Article 7.  WT/DS339/R/Add.1 
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 Page A-365 
  
  steps in the Panel's question occur, although tho se steps may be demonstrated using any number of 
other examples. 
27. First, we take a brake cylinder imported by a parts manufacturer and used to manufacture a 
vehicle model initially calculated not to be subject to charges under the measures, but, with sourcing 
changes, it is recalculated as being found subject to  such charges (the thir d scenario in the joint 
Background section of the first written submissions).  Then we consider a situation where a vehicle 
manufacturer imports the shipment directly for use in  a model self-verified as subject to the measures 
(a scenario not described in the joint Background sec tion).  For the sake of illustration, in both cases 
the brake cylinders are shipped by vessel from Canada  to Shanghai, and used to manufacture a vehicle 
in Chongqing.  
28. First example – a shipment of brake cylinders imported by an auto parts manufacturer in 
China: 
a. The vehicle manufacturer, as required by the M easures, files a self-verification plan for 
the vehicle model in which it calculates the imported parts that it intends to use in 
manufacturing that model. To get that informa tion, the vehicle manufacturer is required to 
consult all of its domestic supp liers to determine the importe d parts that those suppliers 
will use in products the manufacturer will buy fro m them for use in the vehicle model. As 
a result of those consultations, the vehicle manufacturer calculates the level of imported 
parts that it will use and determines that only the Engine, the brake Assembly (in part due 
to the use of imported brake cylinders), and the transmission Assembly are Deemed 
Imported Assemblies under the measures. As  the threshold of Deemed Imported 
Assemblies has not been exceeded,
14 the vehicle manufacturer submits a self-verification 
stating that parts used in that vehicle m odel are not Deemed Whole Vehicles under the 
measures. The self-verification is reviewed by the Verification Centre,15 which confirms 
that imported parts used in the vehicle m odel will not be Deemed Imported Vehicles. 
b. The shipment of brake cylinders is ordered by the auto parts manufacturer from abroad. 
The auto parts manufacturer applies for and receives a licence to import the brake cylinders.
16 No financial guarantee is posted under th e measures with respect to the brake 
cylinders.17 
c. The vessel carrying the shipment arrives at the port of Shanghai.  The shipment is 
unloaded, but is kept in the physical control of China customs.18 
d. The importer declares the shipment.19 
                                                      
14One of the thresholds under Decree 125, in Article 21(2)(b), is an Engine and three other Assemblies. 
15 See China’s response to Question 167, which confirms that the Verification Centre reviews 
determinations of vehicle manufacturers under the measures, whether positive or negative. 
16 Article 7 of Decree 125 requires a vehicle manufacturer to submit a self-verification report when 
making an application for an import licence, but this requirement does not apply to auto parts manufacturers 
who import auto parts. 
17 China confirmed, in response to Question 185(a), that the bond procedure does not apply to parts 
imported by auto parts manufacturers, who instead "go through the regular normal customs process and pay the 
import duty to the customs". 
18 As provided for in Articles 14 and 17 of the Customs Law of the People's Republic of China  
("Customs Law") (attached as Exhibit CDA-49). WT/DS339/R/Add.1 
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Page A-366 
  
  e. Chinese customs authorities classify the shipme nt as 100 brake cylinders for light trucks 
(8708.93.40). Customs duties are assessed
20 at 10,000 RMB according to the import tariff 
rate for those goods (1,000 RMB x 10% x 100 brake cylinders). 
f. Customs issues a duty memorandum in the amount of 10,000 RMB for customs duty. 
g. The importer pays 10,000 RMB in customs duty.21  
h. The shipment of brake products is released from customs to the importer,22 and shipped to 
the auto parts manufacturer's facilities. 
i. The importing auto parts manufacturer then u ses the brake cylinder, together with other 
imported and domestic parts, to manufacture a brake assembly that is a Deemed Imported 
Assembly under the measures because it has four imported key parts.  That Assembly is then shipped to the vehicle manufacturer in Chongqing. 
j. At around the same time, a wholly owned domestic parts manufacturer advises the 
vehicle manufacturer that it will not be able to supply an axle shaft for the vehicle model. 
The self-verification submitted by the vehicl e manufacturer for the vehicle model had 
indicated that the axle shaft would have no imported content, but the vehicle manufacturer is unable to find an alternative source domestically in sufficient time for the 
first production of the model and must use impor ted axle shafts.  As a result, the front 
drive Assembly is now also Deemed Impor ted.  Since the vehicle model now has a 
Deemed Imported Engine and three other Assemblies, the vehicle manufacturer is 
required to apply to customs for re-verification.
23  That re-verification confirms that the 
imported content in the vehicle model has exceeded the permitted number of Deemed 
Imported Assemblies, and that therefore importe d parts used in the model will be charged 
under the measures as Deemed Whole Vehicles. 
k. The vehicle manufacturer uses the brake Asse mbly provided by the parts manufacturer 
(which includes the imported brake cylinder) to  manufacture a batch of 100 vehicles.  The 
vehicle manufacturer submits a verification app lication to customs for the first batch of 
vehicles.24 
l. The Verification Centre issues a verification re port confirming that the batch produced by 
the vehicle manufacturer has exceeded the th resholds for imported content, and is 
therefore subject to charges under the measures.25 
m. The vehicle manufacturer pays charges under the measures for all imported parts, which 
for the brake cylinders amounts to a payment of 15%, or 15,000 RMB.26 
                                                                                                                                                                     
19 This must be done within 14 days of the declaration of the arrival of the vessel, as set out in 
Article 24 of the Customs Law.   
20 In accordance with Article 53 of  the Customs Law. We do not disc uss in this example payment of 
other amounts that are not at issue in this dispute (e.g., internal charges such as VAT that could, in accordance 
with GATT Article II:2(a), be applied at the border). 
21 In accordance with Article 60 of the Customs Law, this must be done within 15 days of issuance of 
the duty memorandum.   
22 In accordance with Article 29 of the Customs Law. 
23 See Decree 125, Articles 20 and 21(2)(b). 
24 See ibid., Article 19. 
25 See ibid.  WT/DS339/R/Add.1 
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 Page A-367 
  
  29. Second example – a shipment of brake cylinders  imported directly by a vehicle manufacturer: 
a. The vehicle manufacturer, as required by the measures, files a self-verification plan in 
which it calculates that a particular model that it intends to manufacture will have 
Deemed Imported Assemblies that exceed th e thresholds in the measures. That 
determination is reviewed by the Verification Centre,
27 which confirms that imported 
parts used in the model will be Deemed W hole Vehicles subject to charges under the 
measures. 
b. The vehicle manufacturer applies for an impor t licence for the brake cylinders (and other 
auto parts imported directly by the vehicle manufacturer), attaching the self-verification 
plan.28  The import licence is issued for the brake cylinder (and other parts), with a 
notation that the parts are Deemed Whole Vehicles. 
c. The vehicle manufacturer provides a duty guarantee for parts that it intends to import 
based on the value of the monthly average of imported parts.29  For the sake of 
illustration, assume that the only monthly import of auto parts directly by the vehicle 
manufacturer will be the shipment of 100 brake cylinders for light trucks.  In that case, the guarantee is set at 10,000 RMB.
30   
d. The vessel carrying the shipment arrives at the port of Shanghai.  The shipment is 
unloaded, and released from physical control of customs.  The vehicle manufacturer is free to arrange for transport of the parts to Chongqing as it sees fit ( i.e., there is no 
requirement to use bonded carriers, nor does customs supervise in any other way the 
process of transport). 
e. The importing vehicle manufacturer then uses the brake cylinders in brake assemblies that 
it manufactures, which in turn are used in th e vehicle model. The vehicle manufacturer 
submits a verification application to customs for the first batch of vehicles manufactured 
using a particular combination of parts.
31 
f. The Verification Centre issues a verification re port confirming that the batch of vehicles 
has exceeded the permitted number of Deemed Imported Assemblies, and that therefore 
imported parts used in the model will be charged under the measures as Deemed Whole 
Vehicles.32 
                                                                                                                                                                     
26 15% x 1,000 RMB x 100 brake cylinders. This assumes that the vehicle manufacturer can prove that 
the auto parts manufacturer that imported the brake cylinder already paid 10,000 RMB in ordinary customs 
duty, and thus under Article 29 of Decree 125 the vehicle manufacturer gets credit for this payment. If the 
vehicle manufacturer cannot prove this payment, then the charge would be 25,000 RMB (as noted in Canada’s First Written Submission in fn. 114). In accordance with Article 31 of Decree 125, the payment must be made 
by the tenth working day of the month subsequent to the month in which the verification report is issued. 
27 See China’s response to Question 167, which confirms that the Verification Centre reviews 
determinations of vehicle manufacturers under the measures, whether positive or negative. 
28 As required by Article 7 of Decree 125. 
29 See Decree 125, Article 12. 
30 China confirmed in answer to Question 18 that "cus toms calculates the bonds based on the applicable 
rates for auto parts." As set forth above, the rate for br ake cylinders is 10%, and thus the guarantee with respect 
to those parts would be 10% x 1,000 RMB x 100 brake cylinders. 
31 See Decree 125, Article 19. 
32 See ibid., Article 19. WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
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  g. Customs determines that the brake cylinder and other imported parts are subject to 
charges under the measures as Deemed Whole Vehicles.
33 
h. The vehicle manufacturer pays charges under the measures to the cu stoms office for all 
imported parts used in the vehicle batch, whet her imported directly or contained in parts 
bought domestically.34 The brake cylinders are charged 25% under the measures, or 
25,000 RMB.35 That amount equals the 10% ordinary customs duty (10,000 RMB) that 
crystallized upon the arrival of the shipment of brake cylinders at Shanghai, and an internal charge of 15% (15,000 RMB). The duty guarantee in the amount of 10,000 RMB 
remains in place. 
30. The specifics of the measures' application may vary, as these examples demonstrate. The 
verification and assembly processes, assembly and issuance of the original or subsequent verification reports may vary in order depending on the example.   However, the final steps under the measures for 
all imported parts will always involve the declaratio n for duty payment, the so-called classification of 
the parts, and the determinati on and collection of charges.  
Comments by the United States on China's response on question 304 
 
31. As the United States has explained in its pr ior oral and written submissions, under China's 
measures the level of the charge assesse d on any particular imported part cannot
 be determined until 
after the part is actually used in the production of a co mplete vehicle.  The reason for this is twofold:  
(i) because no manufacturer can accurately predict whether any particular imported part will actually 
be used in the production of a specific vehicle model, as opposed to th e other possible uses or 
dispositions of that part (such as use in production of a different  vehicle model, or use as a 
replacement part, or being discarded as defectiv e, or being destroyed in manufacturing); and 
(ii) because the determination of whether any specific vehicle model meets the local-content 
thresholds is based on a lengthy post-manufacturing verification process, and that determination must 
be revisited whenever the composition of the parts used  in the model is modified.  It is for these very 
reasons that, under China's measures, the char ges on imported parts are not assessed until after 
manufacturing of vehicles within China.   
32. China's response to Question 304 ignores the first set of issues set out above, and tries to 
underplay the second.  In particular, China's res ponse tries to make it sound as if the uncertainties 
regarding the level of charges to be applied to any particular imported part are a minor issue affecting 
small numbers of imported parts, when in fact these uncertainties are ongoing and an inherent part of a system which assesses a charge based on the level of local content contained in a product assembled 
within China after importation.   
33. China's response suggests that th ere is an initial decision on the "first batch" of assembled 
vehicles which establishes certainty on all future  imports.  However, since the issuance of the 
verification report on the first batch of vehicles takes weeks or months, the vehicle manufacturer will likely be importing parts and assembling them during the period prior to the issuance of the verification report.  Thus, in this entire period prior to the issuance of the verification report, the level 
of charges to be imposed on imported parts used in the vehicle model is unsettled.  Moreover, a 
"vehicle model" is not a static concept.  Whenev er the composition of the parts in a model changes, 
                                                     
 
33 See ibid., Article 28. 
34 See ibid., Article 31. 
35 25% x 1,000 RMB x 100 brake cylinders.    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
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  additional verifications will be required, which ag ain leaves uncertain the level of charges to be 
imposed on imported parts used in the production of the model.   
34. China's response states that "the results of  the self-evaluation and verification process 
determine the subsequent declaration and classificatio n of auto parts that the manufacturer imports for 
use in the regular commercial production of the vehicl e model."   This statement undermines China's 
assertion that its charges are customs duties ass essed upon importation.  Since parts used in 
production may be imported prior to the issuance of China's verification report, and since the determination of the level of the charge is based on an examination of the final assembled vehicle and 
the amount of imported content in that vehicle, Chin a's own statements confirm that the level of the 
charges assessed on a particular part is not based on the characteristics of the part itself (or on any 
element of the importation process), but rather on th e amount of imported content in the vehicle and 
on processes that occur within China after importation.    
35. Although the measures require a manufacturer  (when the part is imported by a manufacturer 
rather than a parts supplier) to declare that an imported part is part of a registered vehicle model at the 
time the part enters China, that declaration is no t dispositive.  Rather, the government of China, 
pursuant to Article 28 of Decree 125, makes the dis positive determination, and does not do so until 
after the part has been assembled into a complete vehicle. 
36. Finally, China states that "there is no additi onal verification process that occurs after each 
entry of auto parts for that vehicle model, or afte r the assembly of each motor vehicle of that vehicle 
model type."  While verification  may not occur after the assembly of each vehicle, the " classification " 
of each imported part and the assessment  of the charges due on each imported part do occur after the 
assembly of each motor vehicle.  Verification simply examines the amount of imported content in a particular vehicle model; that is, the verification pr ocess is tied to models, not to the importation of 
any particular part.  Under China's measure, the onl y way to determine definitively the "classification" 
of a particular imported part, and thus the only wa y to assess the level of the charge on that imported 
part, is to determine after importation and assembly
 whether that part was used in a vehicle that is 
deemed a "whole vehicle" under China's local-content criteria.   
Comments by Canada on China's response to question 304 
37. Canada would first note that China’s res ponse to Question 304 contains the following 
statement: "[t]he results of the self-evaluation and verification process determine the subsequent 
declaration and classification  … of the vehicle model".  That is, classification occurs after  the 
manufacturing of the vehicle. China attempts to conf use this fact by alleging that classification occurs 
at the border based on a prior determination. Article  28 of Decree 125, on its face, makes it clear that 
"after the imported automobile parts have been assembled into complete vehicles … Customs shall 
proceed with classification and duty collection".  Ev en if classification were only based on the import 
declaration as China suggests, this would still not cha nge the fact that the declaration is not voluntary 
and is itself based on end-use classification.  It is the self-verification and subsequent review by 
customs together with the Verification after the ma nufacture of the first batch of vehicles which form 
the basis for the final declaration. It follows that any subsequent declaration must necessarily also be 
based on the end-use of those parts, not  their classification at the border.   
38. Second, Canada disagrees with China’s explana tion of how the measures operate. Article 19 
of Decree 125, read in context, shows that the firs t event is not the production or assembly of the first 
batch of vehicles.  Rather, the first event is the self-verification followed by customs review of the 
self-verification.  China conflates the customs review  of the self-verification under Article 7 with the 
Verification of the first batch of  manufactured vehicles under Article 19.  Decree 125 makes clear that WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-370 
  
  self-verification and review precede Verification of the first batch of vehicles.  Self-verification and 
customs review are necessary as part of the registration process (see Articles 7-9), whereas the 
assessment of the first batch of vehicles and subseque nt Verification of that batch (Article 19) occur 
after  the vehicle model is registered. 
  WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-371 
  
  ANNEX A-4 
 
RESPONSE OF CHINA TO A QUESTION FROM THE UNITED STATES 
FOLLOWING THE SECOND SUBSTANTIVE MEETING  
  
1. Consider a vehicle model (Model I), reg istered under Article 7 of Decree 125, with 
respect to which the imported automobile parts used  in that particular model are required to be 
characterized as complete vehicles.  Part A used in Model I is produced in the United States.  
Part B used in Model I is produced in Canada.  All other imported parts used in Model I are 
produced in other countries.  Assume that Pa rt A and Part B both have their own tariff 
headings under China's tariff schedule, and that  they would be so classified under those 
headings if they were not characterized as comp lete vehicles.  The following sequence of events 
occur: 
• Model I is registered in 2006. 
• In December 2006, the manufacturer imports from the United States 300 
units of US-produced Part A and declares the parts as being characterized as complete Model I vehicles under Decree 125. 
• In January 2007, the manufacturer imports from Canada 250 units of 
Canadian-produced Part B and declares the parts as being characterized as 
complete Model I vehicles under Decree 125. 
• During 2007, the manufacturer starts pro duction of Model I, and produces 
200 Model I vehicles.  It decides to halt production in late 2007. 
• The remaining 100 units of Part A and 50 units of Part B are held in 
inventory, to be used in other models  with respect to which imported parts 
are not characterized as complete vehicles, or to be sold to dealers as replacement parts.   
A. Please explain how the 2006 importation of 3 00 units of Part A are reflected in China's 
official import statistics.  In particular, what would be: 
 
(i) the year of importation; 
(ii) the tariff heading (e.g, the heading for Model I or the heading for Part A) 
(iii) the number of units; 
(iv) the value (e.g ., as based on the value of Part A, or the value of a complete Model I); 
(v) the country of origin (and/or country of  exportation, if reflected in China's 
statistics);  
(vi) the timing of when such imports are re flected in China's official statistics. 
 B. Please explain how the 2007 importation of 250 units of Part B are reflected in China's 
official import statistics.  In particular, what would be: 
 
(i) the year of importation; 
(vii) the tariff heading (e.g., the heading for Model I or the heading for Part B); 
(ii) the number of units; 
(iii) the value (e.g., as based on the value of Part  B, or the value of a complete Model I); WT/DS339/R/Add.1 
WT/DS340/R/Add.1 WT/DS342/R/Add.1 
Page A-372 
  
  (iv) the country of origin (and/or country of  exportation, if reflected in China's 
statistics); 
(v) the timing of when such imports are re flected in China's official statistics. 
 
C. Please explain whether the production of 200 Model I vehicles during 2007 has any 
effect on China's import statistics. 
 D. Please explain the effect, if any, on Ch ina's import statistics of the manufacturer's 
decision to use the remaining units of Part  A and Part B for uses other than producing 
Model I or other vehicles the parts of which are characterized as complete vehicles.   
 E. Please explain whether the production of 200 Model I vehicles has any effect on China's 
production statistics. 
 
2. Consider a vehicle model (Model II) produced in the United States.  Model II is produced exclusively from imported parts.  Only one part from China, Part C, is used in the 
production of Model II.  Part C has its own ta riff heading under China's tariff schedule.  The 
Chinese exporter of Part C knows that Part C will be used in the production of Model II, and 
knows that Model II will be produced entirely from imported parts.   
In December 2006, the exporter exports 300 units of Chinese-produced Pa rt C to the United 
States, to be used in the production of Model II.  Please explain how the 2006 exportation of 300 
units of Part C is reflected in China's official export statistics.  In particular, what would be: 
 
(i) the year of exportation; 
(ii) the tariff heading (e.g ., the heading for Model II or the heading for Part C); 
(iii) the number of units; 
(iv) the value (e.g ., as based on the value of Part C, or the value of a complete Model II);  
(v) the timing of when such exports are re flected in China's official statistics. 
 
Response of China 
1. Please see China's response to panel question 175 concerning customs statistics.  
 
Comments by the United States on China's response  
2. China has chosen not to respond to the questions  posed by the United States.  Instead, China 
includes only a reference to its response to Panel question 175.  That response of China contains a 
mere assertion:  "With regard to the question of whether the import statistics of China will match the 
export statistics of other countries, in most cases the figures will match, but there are always exceptions."
1    
3. China provides no explanation for this asserti on regarding "most cases", and in fact, this 
assertion must be wrong.  As the United States questions are intended to highlight, whenever  an 
imported part is treated as a "whole vehicle" under China's measures, there will necessarily be 
completely different treatment – in each and every case  – under China's import statistics and the 
                                                      
 1China's responses to the written questions from the Panel following the second meeting, response to 
question 175.    WT/DS339/R/Add.1 
 WT/DS340/R/Add.1 
 WT/DS342/R/Add.1 
 Page A-373 
  
  exporting country's export statistics.  Moreover,  when Chinese producers export parts to other 
countries, China applies no measures comparable to  Decree 125.  As a result, China's own import and 
export statistics for auto parts must be completely inconsistent.   
4. The United States submits that China's failure to respond to the US questions is telling.  
China's entire defense in this dispute is based on its  purported interpretation of  the HS Convention.  A 
main object and purpose of that agreement is to ensure the consistency and usefulness of trade 
statistics (and not, as China implies, to ensure the collection of certain levels of duty).  Yet when 
asked a question that would require China to rec oncile the operation of China's measures as they 
affect trade statistics with the object and purpose of  the HS Convention to ensure the consistency of 
such statistics, China refuses to respond.  The reason is clear – China' s proposed interpretation of the 
GIR 2(a) would destroy the usefulness of trade st atistics, and, as such, that interpretation is 
unsustainable as being fundamentally incompa tible with the object and purpose of the HS 
Convention.  Without any possible tie to the goals set out in the HS Convention – a non-WTO 
Agreement upon which China so heavily relies – Ch ina's measures must be seen for what they 
actually are: namely, as domestic content requirement s intended to foster the growth of a domestic 
auto parts industry, adopted without any regard to  the plain inconsistency of those measures with 
China's WTO obligations.  
__________