RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/DSB/M/262 
9 March 2009 
 (09-1188) 
Dispute Settlement Body 
12 January 2009  
 
 
    
MINUTES OF MEETING 
 
Held in the Centre William Rappard
 
on 12 January 2009  
 
Chairman:  Mr. Mario Matus (Chile) 
 
 
1. China – Measures affecting imports of automobile parts 
(a) Reports of the Appellate Body (WT/DS339/ AB/R – WT/DS340/AB/R – WT/DS342/AB/R) 
and Reports of the Panel (WT/DS339/R – WT /DS340/R – WT/DS342/R and Add.1 and 2) 
1. The Chairman  drew attention to the communication from the Appellate Body contained in 
document WT/DS339/13 – WT/DS340/13 – WT/DS342/ 13 transmitting the Appellate Body Reports 
on:  "China – Measures Affecting Imports of Automobile Parts", which was circulated on 
15 December 2008 in document WT/DS339/AB/R  – WT/DS340/AB/R – WT/DS342/AB/R, in 
accordance with Article 17.5 of the DSU.  He remind ed delegations that the Appellate Body Reports 
and the Panel Reports pertaining to this dispute ha d been circulated as unrestricted documents.  As 
Members were aware, Article 17.14 of the DSU required that:  "An Appellate Body report shall be 
adopted by the DSB and unconditionally accepted by the parties to the dispute unless the DSB decides by consensus not to adopt the Appellate Body re port within 30 days following its circulation to 
Members.  This adoption procedure is without prej udice to the right of Me mbers to express their 
views on an Appellate Body report".  
2. The representative of Canada
 said that her country wished to thank the Panel and the 
Appellate Body as well as the Secretariat for their wo rk on this case.  Canada also thanked the other 
parties – the EC, the United States and China, and th e third parties for their useful participation.  
Canada welcomed the findings of the Panel and the Appellate Body that  the specific Chinese 
measures at issue violated Article III of the GATT 1994 by imposing an internal charge and an 
administrative burden on imported auto parts that were  not imposed on domestic parts.  Canada urged 
China to bring its measures into conformity rapi dly, and looked forward to discussions with China 
regarding a reasonable compliance period.  Complia nce would ensure that Canadian auto parts 
received open and non-discriminatory access to the Chin ese market at the import duty rate that China 
had committed to when joining the WTO.  Canada also welcomed the helpful guidance provided by 
the Panel and the Appellate Body on the scope of the obligations in Articles II and III of the GATT 
1994 and the relationship between them .  Canada believed that this gui dance would be useful to WTO 
Members in the future.  Canada was also pleased that  the Reports in this matter had confirmed that 
obligations in Protocols of Accession were bindi ng, including commitments incorporated in those 
Protocols from the Working Party Reports.  Canada regretted that the Appella te Body had reversed 
the finding of the Panel that the challenged measure s violated paragraph 93 of China's Working Party WT/DSB/M/262 
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  Report.  However, the Appellate Body had reversed only on the basis that the challenged measures 
did not impose an ordinary customs duty, and had not ruled on the substantive meaning of paragraph 93.  Canada urged China to comply with its substantive obligations under that paragraph, 
on which the Panel Report provided guidance.  Cana da requested that the DSB adopt the Panel and 
the Appellate Body Reports. 
3. The representative of the European Communities
 said that the EC wished to thank the Panel 
and the WTO Secretariat, as well as the Appellate Body  and its Secretariat for the efforts dedicated to 
this dispute.  The EC was particularly grateful for the thoroughness of the analysis and the very 
complete findings, which would certainly prove extrem ely helpful in solving this dispute.  China's 
measures imposed a charge on imported parts when th ey were assembled into a vehicle that did not 
have sufficient local content.  The measures also imposed highly burdensome procedures requiring a 
constant check of the use of imported parts and removing the flexibility needed for an economically 
efficient production whenever imported parts were used.  The Panel and the Appellate Body had 
confirmed that such measures, being dependent on the internal use of imported parts, should be 
classified under Article III of the GATT 1994, and th at they were in breach of both paragraph 2 
(because no charge was imposed on domestic parts) and paragraph 4 (because they modified the 
condition of competition between dom estic and imported parts).  Th e EC welcomed those findings 
that had confirmed that, irrespective of the name or presentation of the measures, rules discriminating 
against imported products had no place in the WTO.   Those measures were in fact discriminatory 
measures forcing purchases of auto parts from domes tic producers and transfer of technology to allow 
China to become a major actor in the production of au tomobiles and auto parts.  This was not just the 
complainants' and the Panel's and Appellate Body's  reading of the measures, but China's own words 
proclaimed in its 2004 "Policy on De velopment of Automotive Industry". 
4. The EC also wanted to praise the Panel and th e Appellate Body for the thoroughness of their 
analysis on the difficult "threshold issue";  i.e. on the distinction between Articles II and III of the 
GATT 1994.  Until now there had been very little gui dance on the proper definition of "ordinary 
customs duties" and "internal charge" despite those concepts being key to fundamental WTO 
obligations.  The Panel's and th e Appellate Body's findings woul d undoubtedly prove extremely 
valuable to the whole WTO Membership in the futu re.  The EC was grateful to the Panel for the 
thorough analysis under Article II, and was also grat eful for the Appellate Body's brief examination of 
China's arguments on the HS General Interpretative Rules and for confirming that such arguments, 
among WTO Members, could not result in trumping the application of Article III.  Like the Panel and 
the Appellate Body, the EC also shared the systemic  concerns that "the security and predictability of 
tariff concessions would be undermined if ordinary customs duties could be applied based on factors 
and events that occur internally, ra ther than at the moment and by virtue of importation, and that this, 
in turn, would upset the carefully negotiated and balanced structure of key GATT rights and 
obligations, including the different disciplines im posed on ordinary customs duties and internal 
charges" (AB Report, para 165).  The EC regretted that  it had not been possible to settle this dispute at 
an earlier stage.  The EC hoped that China would now be faithful to its obligations as a WTO Member 
and would fully respect the ruling by bringing  its measures into conformity with the WTO 
Agreements within the shortest delay. 
5. The representative of the United States  said that his delegation wished to begin by thanking 
the Panelists, the Appellate Body, and the Secretariat fo r their work in this matter.  The United States 
was pleased to propose the adoption of the Panel and the Appellate Body Reports in the dispute 
brought by the United States.  The United States might  not agree with every point in the Reports.  For 
example, the United States did not agree with the Appellate Body's statement of its authority to review the meaning of a municipal law on its face.  In the US view, the manner in which a challenged 
measure operated within a Member's domestic system was a factual issue in a dispute, not a legal 
issue concerning the applicability of, and conform ity with, the covered agreements.  That said, 
however, the Reports overall were thorough and well -reasoned, and they had made a substantial  WT/DSB/M/262 
 Page 3 
 
 
  contribution to ensuring the integrity of the national treatment obligation contained in the 
GATT 1994.   
6. As delegations would recall, China's measures at  issue in this dispute imposed a 25 per cent 
charge on all the imported parts included in a moto r vehicle assembled in China if the number or 
value of the imported parts exceeded specified thres holds.  The measures also imposed extraordinarily 
burdensome administrative requirements on any auto manufacturer within China that chose to use 
even a single imported part.  In order to avoi d the charge and the burdensome administrative 
requirements, auto manufacturers within China must  either purchase local parts, or relocate parts 
manufacturing operations to China.  The measures were essentially a local content requirement in 
plain breach of the national treatment obligations of Article III of the GATT 1994.  China's only 
defense was that it could avoid its national treatme nt obligations by labeling the charge as an 
"ordinary customs duty".  But this defense was unt enable.  The measures were not applied to auto 
parts in the form in which they were imported, but instead were applied to complete vehicles 
assembled within China.  Accordingly, both the Pa nel and the Appellate Body  had found, as all three 
complainants maintained, that Ch ina's measures imposed internal charges.  Once China's measures 
had properly been found to be internal charges, China had not contended that its measures were 
consistent with its national treat ment obligations.  Accordingly, the Panel and the Appellate Body 
Reports both had gone on to find that China' s measures breached China's obligations under 
Articles III:2 and III:4 of the GATT 1994.   
7. The United States would further note that the findings of this case had great systemic 
importance with regard to fundamental WTO rul es governing trade in goods.  In essence, China had 
asserted that the level of local content of a fini shed good produced in China might be used to 
determine the classification of an imported part u sed to make that good, and that an unsatisfactory 
level of domestic content provided a basis fo r imposing higher charges on parts imported for 
manufacturing purposes.  Under that approach, no  WTO Member would be protected from domestic 
content requirements that favored domestic parts ove r imported parts.  If China's reasoning had been 
accepted, the central national treatment principl es of the GATT 1994 – as applied to international 
trade in manufacturing parts – would have been evi scerated.  The United States was gratified that both 
the Panel and the Appellate Body had taken note of these systemic consequences, and had firmly 
rejected China's arguments.   
8. Members were well aware of the situation faci ng the automotive industry around the world.  
China's measures served as a major trade barrier to  the use within China of imported parts.  
Particularly in the current circumstances, it w as essential for China to promptly remove those 
measures.  As the US delegation had explained to  the DSB when the United States had requested the 
establishment of the panel, the United States had commenced this dispute after extensive dialogue 
with China, both formal and informal, which had failed to lead to a resolution of the dispute.  The United States welcomed the adoption of the Pane l and the Appellate Body Reports at the present 
meeting.  China had consistently affirmed its inte ntion to act consistently with WTO rules and to 
respond swiftly to any findings of non-compliance.  In that spirit, the United States looked forward to China moving promptly to bring its measur es into compliance with its obligations. 
9. The representative of China
 said that his country wished to thank the Panel, the Appellate 
Body, and the Secretariat for their hard work and dedication during the Panel and the Appellate 
Body's proceedings.  China was pleased to notice that  the Appellate Body Repor ts had made clear that 
the challenged measures were not inconsistent with  China's commitment in paragraph 93 of China's 
Accession Working Party Report.  However, it was re grettable that the Appellate Body, by denying 
the HS as appropriate context in interpreting rele vant GATT Articles, had upheld the Panel's finding 
concerning the "threshold" issue and the allege d violation of Articles III:2 and III:4 of the 
GATT 1994.  Having said that, China would like to make two general observations concerning the 
Panel and the Appellate Body Reports in this matt er.  First, China welcomed the finding of the WT/DSB/M/262 
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  Appellate Body that a panel's interpretation of a Member's municipal law was a matter of legal 
interpretation to be reviewed by the Appellate B ody under Article 17.6 of the DSU.  The Appellate 
Body had correctly concluded that, when a panel examined a Member's municipal law for the purpose 
of determining whether the Member had complie d with its WTO obligations, this was a legal 
characterization by the panel.  Often, the interpre tation of a Member's municipal law would be central 
to a determination of whether the Member had co mplied with its WTO commitments, particularly in 
"as such" challenges.  It would undermine the criti cal importance of appellate review under Article 17 
of the DSU if those findings by a panel were subj ect to appellate review solely as a matter of the 
panel's assessment of the facts.  Moreover, China did not consider th at panels were in a better position 
than the Appellate Body to interpret a Member's  municipal law for the purpose of determining 
whether the Member had complied with its WT O commitments.  The process of interpreting 
municipal law was not materially different than th e process of interpreting the covered agreements, at 
least where municipal law was interpreted on its face.  The Appellate Body was, of course, eminently qualified in matters of legal interp retation.  Therefore, the general principle that the Appellate Body 
should give some degree of deference to the factual determinations of a panel was not implicated by a 
panel's interpretation of a Member's municipal law.  Those were not factual determinations. 
10. The second general observation that China w ould like to make concerned the Panel's 
"alternative" findings set forth in Section VII.D of  the Panel Reports, and the related "alternative" 
conclusions and recommendations of the Panel set fo rth as item "(b)" in each of the conclusions and 
recommendations sections of the Reports.  Those "alte rnative" findings pertained, generally, to the 
consistency of the measures with  Article II:1(a) and (b) of the GATT 1994, on the assumption that the 
charge imposed under the challenged measures was an ordinary customs duty.  China appealed certain 
of those "alternative" findings of the Panel.  On a ppeal, the Appellate Body had considered that there 
was "no reason" to examine these alternative findings,  in light of its finding that the charge imposed 
under the challenged measures was an internal ch arge under Article III:2 of the GATT 1994, found it 
unnecessary to rule on the Panel's "alternative" finding.  China considered that, in light of the findings 
and conclusions of the Appellate B ody on the Panel's "alternative" findings, the "alternative" findings 
of the Panel set forth in Section VII.D of the Reports, and the related conclusions and 
recommendations of the Panel, did not form part of  the recommendations that the DSB would adopt at 
the present meeting as the result of modification by th e Appellate Body Reports to the Panel Reports.  
Having exercised its right to appeal those findings under Article 17 of the DSU, China was entitled to 
have those findings reviewed on appeal.  Article 17.12 of the DSU provided, in this respect, that 
"[t]he Appellate Body shall address each of the issues" that an appellant raised in its notice of appeal.  
11. China understood that the Appellate Body, on occasion, determined that it was unnecessary to 
address certain issues raised on appeal in light of its  disposition of other issues in that appeal.  The 
Appellate Body appeared to have considered that, in light of the alternative nature of the Panel's 
findings, and in light of its finding that the char ge imposed under the challenged measures was an 
internal charge, it was unnecessary to address China' s claims of error in respect of the Panel's 
alternative findings.  Under those circumstances, the Panel's alternative findings, and the related 
conclusions and recommendations, could not form pa rt of the recommendations adopted by the DSB.  
This followed directly from Article 16.4 of the DS U, which clearly provided that the adoption of 
panel reports by the DSB was contingent upon a part y's right to seek review by the Appellate Body 
under Article 17 of the DSU.  This right was not  fulfilled unless the Appellate Body addressed the 
claims of error on appeal, as required by Article 17. 12.  Finally, China thanked for the opportunity to 
express its views on the Reports in this matter.  China would be examining those Reports carefully 
and would inform the DSB of its intentions in r espect of the implementation of the recommendations 
and rulings, as provided for under Article 21.3 of the DSU.   
12. The DSB took note  of the statements and adopted :  (i) the Appellate Body Report contained 
in WT/DS339/AB/R and the Panel Report contained in WT/DS339/R and Add.1 and Add.2, as upheld 
by the Appellate Body Report;  (ii) the Appellate Body Report contained in WT/DS340/AB/R and the  WT/DSB/M/262 
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  Panel Report contained in WT/DS 340/R and Add.1 and Add.2, as modified by the Appellate Body 
Report;  and (iii) the Appellate Body Report cont ained in WT/DS342/AB/R and the Panel Report 
contained in WT/DS342/R and A dd.1 and Add.2, as modified by the Appellate Body Report. 
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