CHINA – MEASURES AFFECTING IMPORTS OF AUTOMOBILE PARTS
Document: Request for Consultations by the European Communities
Date: 3 April 2006
Document codes: WT/DS339/1; G/L/770; G/TRIMS/D/22; G/SCM/D67/1
Complainant: EU
Respondent: China
Third parties: Argentina, Australia, Brazil, Japan, Mexico, Taiwan, Thailand
Dispute stage: Appellate Body
Agreements cited: Art. II:1, III:2, III:4, III:5, XI, XIII:1  GATT 1994Art. 2.1, 2.2  Trade-Related Investment Measures (TRIMs)Art. 3  Subsidies and Countervailing Measures (SCM)Part I, para. 1.2, Part I, para. 7.2, Part I, para. 7.3  Protocol of Accession

CHINA – MEASURES AFFECTING IMPORTS OF AUTOMOBILE PARTS

Request for Consultations by the European Communities

 The following communication, dated 30 March 2006, from the delegation of the European
Communities to the delegation of China and to th e Chairman of the Dispute Settlement Body, is
circulated in accordance with Article 4.4 of the DSU.

 The European Communities hereby requests c onsultations with the People's Republic of
China (hereinafter "China") pursuant to Article 4 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (DSU), Article XXII:1 of the General Agreement on Tariffs and
Trade 1994 (GATT 1994), Article 8 of the Agreement on Trade-Related Investment Measures
(TRIMs Agreement) and Articles 4 and 30 of the Agreement on Subsidies and Countervailing
Measures (SCM Agreement) regarding China's imposition of measures that adversely affect exports
of automobile parts from the European Communities to China.

 The measures in question include, but are not limited to, the following:

– Policy on Development on Automotive Industry (Order No. 8 of the National Development
and Reform Commission, 21 May 2004);

– The People's Republic of China's Measures for the Administration of Importation of
Automotive Parts and Components for Complete Vehicles (Decree No. 125), which entered
into force on 1 April 2005;

– The People's Republic of China's Rules for Determining Wheth er Imported Automotive Parts
and Components Constitute Complete Vehicles (General Administration of Customs Public
Announcement No. 4), which entered into force on 1 April 2005.

For each of the measures referred to above, this re quest also covers any am endments, replacements,
extensions, implementing measures or other related measures.

 Under the above measures, imported automobile parts, as defined by the measures, which are
used in the manufacture of vehicles for sale in China are considered to fulfil the characteristics of a
whole vehicle if they are imported in excess of ce rtain thresholds. This is the case when specific
combinations of parts of the later assembled vehi cle are imported or when the price of the imported
parts attain 60% or more of the vehicle. If th ese thresholds are met, the measures provide that
imported parts will be subject to charges equal the tariffs for a co mplete vehicle. These charges are
assessed after the assembly of the parts into complete vehicles.
WT/DS339/1, G/L/770,
G/TRIMS/D/22, G/SCM/D67/1

 The European Communities considers that th ese measures are inconsistent with China's
obligations under the GATT 1994, the TRIMs Agreemen t, the SCM Agreement and the Protocol on
the Accession of the People's Republic of China. In particular:

– China has acted inconsistently with Article III:2 of the GATT 1994 by subjecting the products
of the territory of other Members imported into the territory of China, directly or indirectly, to
internal taxes or other internal charges of an y kind in excess of those applied, directly or
indirectly, to like domestic products. China has al so applied internal taxes or other internal
charges to imported or domestic products in a manner contrary to the principles set forth in
paragraph 1 of Article III;

– China has acted inconsistently with Article III:4 of the GATT 1994 by imposing specified
thresholds for imported parts in an assemble d vehicle above which an additional charge
applies on each imported part included in the vehi cle. Thereby, China has failed to accord, to
products of the territory of the European Comm unities imported into the territory of China,
treatment no less favourable than that accorded to like products of national origin in respect of
all laws, regulations and require ments affecting their internal sale, offering for sale, purchase,
transportation, distribution or use;

– China has acted inconsistently with Ar ticle III:5 of the GATT 1994 by establishing and
maintaining internal quantitative regulations re lating to the mixture, processing or use of
products in specified amounts or proportions whic h requires, directly or indirectly, that any
specified amount or proportion of any product which is the subject of the regulation must be
supplied from domestic sources. Moreover, China has applied internal quantitative
regulations in a manner contrary to the principles set forth in paragraph 1 of Article III;

– China has acted inconsistently with Article 2.1 and Article 2.2 of the TRIMs Agreement in
conjunction with paragraph 1(a) of the Illust rative List annexed to the TRIMs Agreement by
applying investment measures related to trad e in goods that are inconsistent with the
provisions of Article III or Article XI of GATT 1994 and by applyi ng investment measures
related to trade in goods, compliance with wh ich is necessary to obtain an advantage, and
which require the purchase or use by an enterpri se of products of domestic origin or from any
domestic source, whether specified in terms of particular products, in terms of volume or
value of products, or in terms of a proportion of volume or value of its local production.
Further, China has acted inconsistently with Article 2.1 and 2.2 of the TRIMs Agreement in
conjunction with paragraph 2(a) of the Illustra tive List annexed to the TRIMs Agreement, by
applying investment measures related to trad e in goods that are inconsistent with the
provisions of Article III or Article XI of GATT 1994 and by applyi ng investment measures
related to trade in goods, compliance with wh ich is necessary to obtain an advantage, and
which restricts the importation by an enterprise of products used in or related to its local
production, generally or to an amount related to the volume or value of local production that it
exports;

– China has acted inconsistently with Artic le 3 of the SCM Agreement by granting or
maintaining subsidies contingent, in law or in fact, whether solely or as one of several other
conditions, upon export performance and by gr anting or maintaining subsidies contingent,
whether solely or as one of several other c onditions, upon the use of domestic over imported
goods. A list of available evidence in this connection is annexed.

– China has acted inconsistently with its obligations under the Marrakesh Agreement
Establishing the World Trade Organization, as set out in the Protocol on the Accession of the
WT/DS339/1, G/L/770,
 G/TRIMS/D/22, G/SCM/D67/1

People's Republic of China to the WTO, in partic ular Part I paragraph 7.3 of the Protocol of
Accession of China, and in paragraph 203 of the Working Party Report on the Accession of
China in conjunction with Part I, paragraph 1. 2 of the Protocol of Accession of China, and
paragraph 342 of the Worki ng Party Report on the Accession of China by failing, upon
accession, to comply fully with the TRIMs Agreem ent, without recourse to Article 5 thereof,
and to eliminate local content requirements and to not enforce the terms of contracts
containing such requirements. Further, China has made the allocation, permission or rights
for importation and investment conditional upon performance requirements set by national or
sub-national authorities, or subject to secondary conditions covering, for example, the use of
local inputs.

– China has nullified or impaired the benefits accruing to the European Communities under the
Protocol on the Accession of the People's Re public of China to the WTO, in particular
paragraph 93 of the Working Party Report on the Accession of China, in conjunction with
Part I, paragraph 1.2 of the Protocol of Accession of China and paragraph 342 of the Working
Party Report on the Accession of China, by imposing tariffs exceeding 10% on completely
knocked-down and semi knocked-down kits for motor vehicles.

– China has acted inconsistently with Article II:1(a) and (b) of the GATT 1994 by failing to
accord to the commerce of another Member treat ment no less favourable than that provided
for in the appropriate Part of the Schedule annexed to the GATT 1994. China has failed to
exempt products, which are the products of territories of another Member, on their
importation into China's territory, from ordinary customs duties in excess of those set forth
and provided in China's Schedule. China has failed to exempt such products from all other
duties or charges of any kind imposed on or in connection with the importation in excess of
those imposed on the date of this Agreement or those directly and mandatorily required to be
imposed thereafter by legislation in force in the importing territory on that date.

 The European Communities reserves the right to address additional measures and claims
under other provisions of the WTO Agreement regard ing the above matters during the course of the
consultations.

 The European Communities looks forward to receiving in due course a reply from China to
this request. The European Comm unities is ready to consider with China mutually convenient dates
to hold consultations in Geneva.
WT/DS339/1, G/L/770,
G/TRIMS/D/22, G/SCM/D67/1

ANNEX

– Policy on Development on Automotive Industry (Order No. 8 of the National Development
and Reform Commission, 21 May 2004);

– The People's Republic of China's Measures for the Administration of Importation of
Automotive Parts and Components for Complete Vehicles (Decree No. 125), which entered
into force on 1 April 2005;

– The People's Republic of China's Rules for Determining Wheth er Imported Automotive Parts
and Components Constitute Complete Vehicles (General Administration of Customs Public
Announcement No. 4), which entered into force on 1 April 2005.