CHINA – MEASURES AFFECTING IMPORTS OF AUTOMOBILE PARTS
Document: Reports of the Panel Addendum
Date: 18 July 2008
Document codes: WT/DS339/R/Add.2; WT/DS340/R/Add.2; WT/DS342/R/Add.2; WT/DS339/R; WT/DS340/R; WT/DS342/R.
Complainant: Canada
Respondent: China
Third parties: Argentina, Australia, Brazil, Japan, Mexico, Taiwan, Thailand
Dispute stage: Appellate Body
Agreements cited: Part I, para. 1.2, Part I, para. 7.2, Part I, para. 7.3  Protocol of AccessionArt. III:2, III:4, III:5, III:1, II:1, X:1, X:3  GATT 1994Art. 2.1  Trade-Related Investment Measures (TRIMs)Art. 3.1(b), 3.2  Subsidies and Countervailing Measures (SCM)

CHINA – MEASURES AFFECTING IMPORTS OF
AUTOMOBILE PARTS

Reports of the Panel

Addendum

 This addendum contains Annexes B, C, D and E to the Reports of the Panel to be found in
documents , and Annex A can be found in Add.1.

ANNEX B

RESPONSES OF THIRD PARTIES TO QUESTIONS FROM THE PANEL

CONTENTS PAGE
Annex B-1 Responses of Argentina to Questions from the Panel B-2
Annex B-2 Responses of Australia to Questions from the Panel B-5
Annex B-3 Responses of Brazil to Questions from the Panel B-15
Annex B-4 Responses of Japan to Questions from the Panel B-19
Annex B-5 Responses of Mexico to Questions from the Panel B-28

ANNEX B-1
1

RESPONSES OF ARGENTINA TO QUESTIONS FROM THE PANEL

13. Argentina considers it not to be "appropri ate to make a parallelism between ordinary
customs duties and anti-dumping or counter vailing duties" (paragraph 20 of Argentina's
written submission). It seems that Argentina makes this argument in relation to the discussion
regarding "subsequent practice" under the Article II claims.

(a) (Argentina) Given your above statement, do you see any usefulness in the
findings of the GATT Panel decision in EEC – Parts and Components , cited by
the parties in their written submission, to the question of the characterization of
the measures?

 The Panel report in EEC – Parts and Components could be useful to the Panel in this case,
since China uses the inconsistencies identified by th e Panel in the rules to prevent circumvention of
the EEC's anti-dumping duties to demonstrate that the Chinese measures are similar to the EEC's
revised anti-circumvention measures, and not to th ose that were brought before the GATT Panel.
However, even though the Panel considers that the EEC – Parts and Components case should be
taken into account and seeks to determine whethe r the revised EEC measures are similar to the
Chinese measures, Argentina considers that the inconsistencies detected by the Panel are reflected in
the form in which the Chinese measures – in particular Decree 125 – are implemented.

 China argues that "the revised anti-circumve ntion measure applies the anti-dumping duty to
the imported parts and components as a condition of their importation ".
2 China states that because of
the declaration made by the importer upon importati on, the importer's obligation to pay the tariff
applicable to automobiles for those parts and com ponents having the essential character of a complete
motor vehicle is a condition that attach es to the entry of goods into China. 3 It argues that "like the
EEC's revised anti-circumvention measure, the challenged measures impose duties that are
conditional upon the entry of goods into China, and are therefore border measures subject to Article II
of the GATT."
4

 However, as already explained in the written su bmissions not only of Argentina, but of other
Members as well, the disputed measures apply a tax charge to auto parts depending on whether those
auto parts, subsequent to the manufacturing process, are incorporated into co mplete vehicles that do
not have sufficient local content. The measures impose the charge on auto parts as if they were
complete motor vehicles, not upon importation or c onditional upon the importation of the parts, but
subsequent to verification and depending on whether the imported parts have been assembled together
with other imported parts to make up a "Deemed Whole Vehicle" as described in Article 21 of
Decree 125.

 In other words, even if the findings of the Panel in EEC – Parts and Components are
considered relevant, the Panel will be able to veri fy that the inconsistencies detected in the anti-
circumvention measures originally applied by the EEC can also be found in the disputed Chinese
measures.

1 Annex B-1 contains the responses by Argentina to questions posed by the Panel after the first
substantive meeting. This text was originally submitted in Spanish by Argentina.
2 First written submission of China, paragraph 58.
3 Ibid., paragraph 60.
4 Ibid., paragraph 61.

16. In paragraph 137 of its first written submission China refers, inter alia, to Argentina's
anti-circumvention measures in respect of anti-dumping and countervailing duties. Can
Argentina confirm whether these measures are stil l in place and elaborate upon these and point
in particular to the elements which distinguish them from the Chinese measures in question.

 The legislation cited in China's first written submission, Decree 1088/2001 of 28 August 2001
published in the Official Gazette of 30 August 2001 , is no longer in force following the amendment
introduced in Decree 421/2002 of 5 March 2002, publishe d in the Official Gazette of 8 March 2002.
Both decrees were notified to the WTO. Thus, th e decree that regulates investigation procedures in
the framework of the Agreement on Subsidies and Countervailing measures and the Agreement on
Implementation of Article VI of the General Agreement on Tariffs and Trade is Decree 1326/98.

 Anti-dumping and countervailing duties, as appropria te, are applied in addition to all of the
other taxes in force with respect to the import in question, which are governed by their respective
legal regimes. They are governed on a residual basis by the rules applicable to import duties.

 Circumvention practices are dealt with on the b asis of the chief precedents gathered in the
investigation of the circumvented measure, crea ting for the purpose a separate procedural issue in
which the interested parties are able to intervene.

 In such case, the Ministry of the Economy d ecides whether there is a need to increase the
anti-dumping or countervailing duties to be applied to imports of like products or parts thereof from
the same origin as those investigated or from other origins, whatever the case.

 What distinguishes the Argentine measures fro m the Chinese measures is that the Argentine
measures are applied in the same way as an anti-dumping/countervailing duty, i.e. upon importation.
Argentina's application of anti-circumvention meas ures does not depend on the level of local content
or imported content in the end product. Moreover, under Chinese rules, if a local producer buys auto
parts from a local supplier which, in its turn, has im ported them, that producer will be subject to the
tariff applied to complete vehicles, while anti-ci rcumvention measures are applied upon importation.
Similarly, if a Chinese producer decides to add im ported parts to those previously declared, that
producer will have to pay the difference in taxes under Chinese rules (Article 20 of Decree 125). This
is not the case under Argentine anti-circumvention rules.

 Under Argentine anti-circumvention rules, a separate procedure is conducted alongside the
investigation of the anti-dumping/countervailing me asure that is being circumvented. If it is
confirmed that there is circumvention, the anti- dumping/countervailing duties are increased, but as
anti-dumping/countervailing duties, they are applied in addition to all of the other charges in respect
of the import concerned, which remain in force under their respective legal regimes. In other words,
they are applied upon importation, and do not depend on a subsequent manufacturing process as in the
case of the disputed Chinese measures.

17. In paragraphs 15-16 of your written submis sion you state that Article 29 of Decree 125
suggest that there is an "import stages" in the procedures under the measures. It further
suggests that after that "stages" all other co llected charges could still not be considered as
border measures. Please, elaborate on this argument?

 Argentina's argument in these paragraphs is that, contrary to what China contends, the
disputed measures are not customs duties, since the ta riff applicable to complete vehicles is applied to
auto parts not upon importation, but at a late r stage, when the manufacturing process has been

completed. This is even more obvious in the cases covered by Article 29, where the auto parts which
have been imported by a supplier that paid the corresponding import duty for the parts at the import
stage are subsequently purchased by a manufacturer to be used to manufacture a motor vehicle. If in
the manufacturing process these imported parts ar e assembled with other parts used by the
manufacture, they could be considered "Deemed Whol e Vehicles". Consequently, the parts sold by
the supplier and used by the manufacturer are subjected to a new charge depending on their
destination following importation. Contrary to what China contends, this charge is not subject to or
conditional upon the import of the auto part, but the additional charge depends on the final use of the
imported auto part in the manufacturing process. In other words, the condition for imposing the
charge applicable to complete vehicles is based on a process which takes place locally once the goods
have entered Chinese territory and once the import ed auto part has been incorporated in the
manufacture of a vehicle considered to be a "Deemed Whole Vehicle" by the same Chinese
authorities. Consequently, the disputed measures as such cannot be considered border measures as
China asserts.

ANNEX B-2

RESPONSES OF AUSTRALIA TO QUESTIONS FROM THE PANEL

I. QUESTIONS TO ALL THIRD PARTIES
1. We note that in paragraph 137 of its first written submission China refers, inter alia, to
the anti-dumping regulations of certain third parties:
(a) Do you currently have, or have you ever had, anti-circumvention measures in place for
(i) anti-dumping duties and/or (ii) ordinary cust oms duties? If yes, please explain your measure
in detail (including the citation to any legislation or regulation that govern the application of
these measures) and whether it is a border or internal measure within the meaning of Articles II
and III of the GATT.
No.
(b) Are you aware of any such measures maintained by other WTO Members?
 Australia prefers not to comment on measures maintained by other WTO Members in the
context of the present dispute, in which China's measures are the measures at issue.
2. Do you have significantly different tariff lin es for a given "complete" product and for
"parts and components" thereof?
The Harmonized System generally requires parts a nd complete goods to be classified within
different subheadings, sometimes within the same heading or chapter, other times in different
headings and chapters. In Australia, the duty rat es for complete motor vehicles and for motor vehicle
parts are the same. The duty rates for other co mplete goods and their parts do differ in many cases,
but usually not to any significant degree.
If yes, how would your customs authority assess and charge ordinary customs duties in
relation to:
(a) "parts and components" that enter your territory from multiple shipments and are
imported by the manufacturer itself and assembled together with domestic parts into a complete
product for sale in the domestic market;
If the parts in any particular individual shipment in multiple shipments (i.e. a series of individual
shipments), constituted an unassembled/unfinished product that had the essential character of the
complete product, those parts would be classified and assessed for ordinary customs duty purposes as
a complete product. The remaining parts in that particular individual shipment would be classified
and assessed for ordinary customs duty purposes as parts. In additio n, the parts in the remaining
individual shipments would be classified and asses sed for ordinary duty purposes as parts. The
identity of the importer, be that a supplier or a ma nufacturer, has no bearing on the classification of
the goods.
1

1 This response does not cover the special situation of split shipments/split consignments. Australia
currently has provisions to allow for split shipments to be classified as one item, in limited circumstances. See
response to question 4 below.

(b) "parts and components" that enter your territory from a single shipment and are
imported by the manufacturer itself and assembled together with domestic parts into a "complete
product" for sale in the domestic market;
 If the parts in a single shipment constituted an unassembled/unfinished product that had the
essential character of the complete product, those pa rts would be classified and assessed for ordinary
customs duty purposes as a complete product. The remaining parts in the shipment would be
classified and assessed for ordinary customs duty purpo ses as parts. The identity of the importer, be
that a part supplier or a manufacturer, has no bearing on the classification of the goods.
(c) "parts and components" that enter your territory from multiple shipments and are
imported by a part supplier/manufacturer and assembled together with domestic parts into a
"complete product" for sale in the domestic market;
See response to 2(a) above.
(d) "parts and components" that enter your territory from a single shipment and are
imported by a part supplier/manufacturer and assembled together with domestic parts into a
"complete product" for sale in the domestic market;
See response to 2(b) above.
Would the duty assessment and charge of the "parts and components" in each of the
scenarios cited above change if these imported goods would correspond to 100% of the "parts
and components" needed to assemble the "compl ete product"? Would your answers in respect
to the scenarios cited above involving multiple shipments change depending on the time
differences between the arrival of the shipments concerned?
The fact that the imported goods correspond to 10 0% of the parts needed to assemble the
"complete product" would not alter the responses to 2(a)-(d) above. No regard would be had to
whether the imported goods were to be assembled in Australia into a complete product without any
domestic content. In addition, changes to the timin g of the arrival of the multiple shipments would
not alter the responses to 2(a) & (c) above.
3. In your country, when do the customs authorities make a determination as to when a
collection of parts cannot and/or should not be di stinguished from the complete article that they
are intended to form? How does your customs offi ce interpret "as presented" in Rule 2(a) of
General Rules for the Interpretative Notes of the HS in this relation?
 In accordance with the Harmonized System , Australian customs authorities make this
determination at the time of importa tion. Under rule 2(a) of the General Rules for the Interpretation
of the Harmonized System (GIR 2(a) or the "essential character" rule) parts can only be classified as
completed products where, as presented
, they have the essential character of the complete product.
Australian custom authorities interpret "as presented" to mean as imported.

4. Please comment on China's statement in paragraph 160 of its first written submission
and in paragraph 13 of its oral statement in rel ation to the WCO affirmed decision concerning
Rule 2(a) of the General Interpretative Rules. In particular, please clarify the legal status of
this WCO decision, including whether it is binding on the parties to the WCO.

 Australia considers that Chin a's statement in paragraph 160 of its first written submission
2
does not fully represent the WCO Harmonized System Committee's (the Committee) Decision
concerning GIR 2(a). The extract referred to by China in relation to split consignments is obiter
dictum that arose in relation to a Decision by the Committee interpreting the phrase "articles presented
complete or unfinished." The true effect of the c ited Decision is to clarify that no account is to be
taken of the complexity of the assembly method in interpreting GIR 2(a).

 In Australia's view, the cited Decision is not legally binding on parties to the WCO. The
Committee established under the Harmonized System Convention is comprised of a representative
from all contracting parties and has the role of preparing recommendations, opinions, Explanatory
Notes and decisions.
3 On 30 June 2001 the WCO issued a Recommendation of the Customs Co-
operation Council on the Application of the Harmonised System Committee Decisions 4 which
recommended that decisions of the Committee be come binding on parties unless they notify the
Secretary General of their inability to comply within twelve months. However, a WCO
recommendation is not legally binding on a WC O party unless it accepts the recommendation. 5
Further, the Decision referred to in paragraph 160 of China's written subm ission was concluded in
November 1995, before the above Recommendation could have been accepted by any of the parties.
Consequently, parties are not bound by the 1995 decision of the Committee concerning GIR 2(a).
Given that the Decision raises the issue of sp lit consignments it may be helpful to briefly
summarise Australian practice in this regard. Au stralia considers split shipments/split consignments
to cover goods that are split over two or more ship ments which all arrive at the border at the same
time. It does not mean multiple shipments that a rrive at many different times. Usually split
shipments are used to transport goods which are too large to be transported on a single shipment.
5. How should Rule 2(a) be interpreted in light of the decision cited in the preceding
question?
As noted above, Australia considers that the Decision only deals with goods that have been
imported over a number of shipments that arrive at the same time , not to multiple shipments arriving
at different times. As a result the decision of the Harmonized System Committee is of limited scope
and its impact on the interpretation of GIR 2(a) is minimal.
 The Decision does not allow WCO parties to u se alleged "split-consignments" to circumvent
the essential character rule (GIR 2(a)) in an a ttempt to alter the commitments under their tariff
schedules. Such an interpretation would undermine the founding principle of the WCO and the
Harmonised System, which is to create harmony and predictability in the application of tariff
schedules.
6. Please comment on China's position that Note VII of the Explanatory Notes to Rule 2(a)
of the General Interpretative Rules is relevan t in delineating the boundary between complete
articles and parts of those articles (paragraph 100 of China's first written submission).

2 Australia's response to this question is based solely on paragraph 160 of China's first written
submission as Australia has not seen paragraph 13 of China's oral statement.
3 Article 7(b) of the International convention on the Harmonised Commodity Description and Coding
System.
4 http://www.wcoomd.org/ie/En/Recommendations/recapple.htm
5 Australia adopted this recommendation in 2001.

 Australia notes that, unlike the General Rules for the Interp retation of the Harmonized
System, the Explanatory Notes are not annexed to the Harmonized System Convention and are not an
integral part of that Convention. The Explanatory Notes merely offer guidance on the interpretation
of the Harmonized System. They do not amend the ordinary meaning of the terms in the Harmonized
System.

 Australia considers that Note VII of the Explanatory Notes to GIR 2(a) simply confirms that
following an application of the 'essential characte r' rule any parts imported in excess of those
necessary to form the complete article should be classified separately as parts. Note VII does not
imply, as China suggests, that parts may only be cl assified as parts when they are not being imported
for the purpose of assembling a complete article from imported parts.
7. Could different aspects of the challenged me asures be respectively considered as either
internal measures or border measures? In other words, could one part of the measures be a
border measure while the other an internal measure? If yes, please indicate which specific part
is border measure-related and which part is inte rnal measure-related? What factors would you
take into consideration to make such determination?
 Australia does not consider that, in the circum stances of the present dispute, one part of the
challenged measures could be a border measure while another part could be an internal measure.
8. In your view, if the measures were to be considered as border measures, would the Panel
still be required to address the complainants ' claims under Article III of the GATT and
Article 2 of the TRIMs Agreement?
 No. In this regard Australia notes the A ppellate Body's comments regarding judicial
economy in Canada – Wheat Exports and Grain Imports.
6
9. What is the difference between a charge im posed "on ... the importation" and a charge
imposed "in connection with the importation" within the meaning of Article II:1(b), second
sentence, of the GATT? What is the relevance of this difference, if any, to this case?
 In Australia's view the phrase "on or in connection with the importation" represents a
collective and interconnected obligation that is not di visible into its constituent parts. In any event,
given that Australia considers China's measures at issue to be internal measures, any alleged
difference is irrelevant to the present dispute.
10. With respect to the phrase "on their importatio n into the territory" of Article II:1(b),
first sentence GATT 1994, should this be understood as a reference to the time of presentation
at the border or to some later point in time? If later, should the charge assessed be determined
on the basis of the condition of the products as presented at the border or on the basis of their
inclusion in a finished product after entry?
 In Australia's view the phrase "on their importa tion into the territory" refers to the time of
presentation of the product at the border.
11. Do your have a formal definition of CKD and SKD in relation to your specific Schedule
or, more generally, in any pertinent legislation or reg ulation? If yes, please provide it. If not,

6 Canada – Wheat Exports and Grain Imports, WT/DS276/AB/R, para. 133.

what is, in your opinion, the meaning of these two terms? How are CKD and SKD kits
classified in your country?
No. Australia's understanding is that Completely Knocked Down (CKD) or Semi-Knocked
Down (SKD) kits usually refer to substantially complete articles that are broken down into individual
parts (CKD) or sub-assemblies (SKD). Minor parts, such as batteries, windscreens or tyres, may often
be omitted, but once assembled a substantially complete article would be formed. In Australia, CKD
and SKD kits are generally considered as unassembled articles which, if assembled, would have the
essential character of the complete article. Consequently, they are generally classified as the complete
article in accordance with GIR 2(a).
12. (All parties) The European Communities explains in paragraph 262 of its first written
submission that a situation foreseen under Article 21(2)(a) of Decree 125, namely importation of
both an engine assembly and a body assembly together, is far away from the categories foreseen
by the Chinese tariff schedule examined in the light of the general Explanatory Notes for
Chapter 87 whereby an incomplete or unfinished ve hicle may be classified as the corresponding
complete or finished vehicle provided it has the essential character of the latter.
(a) Do you consider that the two examples of incomplete or unfinished vehicles in the
General Notes for Chapter 87 correspond to any of the criteria set out in Article 21 of Decree
125?; and
Australia accepts that the criteria set out in Article 21(1) of Decree 125 in relation to complete
CKD or SKD kits, if presented to Customs as such at the time of importation, would usually be
considered to have the essential character of co mplete goods and therefore classified as complete
goods in accordance with GIR 2(a). However, Australia does not accept that goods meeting the
remaining criteria in Article 21 of Decree 125 would automatically be considered to have the essential
character of motor vehicles. Ultimately it woul d depend on exactly which parts or assemblies were
included and which ones were not.
(b) In your view, what auto part products, ot her than those referred to the General Notes
for Chapter 87, would qualify as an "incomplete or unfinished vehicle having the essential
character of a complete or finished vehicle"? Please explain by referring to specific examples.
Australia does not consider that it is possible to provide an exhaustive list of what
configurations would have the essential character of a motor vehicle. This determination needs to be
made on a case-by-case basis taking into account all the relevant facts and circumstances. However,
Australia is able to offer the following observations by way of illustration. There must be sufficient
parts to assemble a machine that had more than tw o wheels connected by some sort of axle system
driven by some form of motive power, and more than likely, provision for a driver. Absence of a
windscreen, mirrors or bumper bars would not be fata l to a determination that a configuration has the
essential character of a motor vehicle. However, absence of an engine and gearbox would be.
13. Argentina considers it not to be "appropriate to make a parallelism between ordinary
customs duties and antidumping or countervailing duties" (paragraph 20 of Argentina's written
submission). It seems that Argentina makes this argument in relation to the discussion
regarding "subsequent practice" under the Article II claims.
(b) (All other third parties) Do you agree with Argentina's statement in paragraph 20 of its
written submission?

 Australia supports the thrust of Argentina's concerns. In Australia's view, provisions with
respect to anti-circumvention of anti-dumping and countervailing duties are not directly applicable to
tariff classification. Anti-dumping duties and countervailing duties are not ordinary customs duties
within the meaning of Articles I and II of GATT 1994 . Unlike anti-dumping and countervailing
duties, ordinary customs duties are not directed at remedying injury to a Member's domestic industry.
However, it does not follow from this that EEC – Parts and Components, which dealt with an
anti-circumvention provision for anti-dumping duties, is irrelevant to this dispute. Firstly, Argentina
raised its concerns in the context of China's relia nce on subsequent practice as a means of interpreting
its tariff schedule. On the other hand, the complainants rely on EEC – Parts and Components in
addressing the question of whether the challenged measures are border measures or internal measures.
Secondly, according to the Appellate Body in Japan – Alcoholic Beverages II , adopted GATT Panel
Reports create legitimate expectations among WTO Members and should be taken into account.
7
14. The following argument is contained in paragraph 14 of Australia's third party oral
statement, which was made in relation to China's claim that a charge imposed after the time or
point of importation can still be a border charge if it relates to a condition of liability that
attached at the time of importation:
Presumably, in an attempt to establish a nexu s with importation, the measures at issue
include a declaration made at the time of importation. However, this declaration
appears to be entirely focused on the way in which the imported parts will be used
internally within China, rather than on the contents of a consignment upon importation.
... Therefore ... the liability attaches internally , after the vehicle has been manufactured.
(emphasis added)
(a) (Australia) Please elaborate more on this argument.
 According to China's first written submission importers must declare, at the time of
importation, whether imported parts will be used to assemble a vehicle model that has been "deemed"
a complete vehicle. The declaration is secured by the provision of a bond.
 These bonding requirements appear to be solely designed to assist in the collection of a tax
based on the internal use of imported parts in ma nufacturing. Although the bonding requirements
ostensibly attach at the point of entry into China, in reality they regulate the internal use of the parts
and administrative procedures necessary to attach the 25% charge. The decision of whether a
particular part will be charged at the higher rate of 25% is not made at the border. It can only be made
post-manufacture when it can be determined whethe r a particular part, in combination with other
imported parts, constitutes a sufficient percentage of the completed vehicle to be charged at the higher
rate. Therefore, the bonding requirements do not create a nexus between importation and the 25%
charge. Contrary to China's arguments, the fina l charge is not a condition of importation because it
does not attach to the importation of all parts as th ey arrive at the border. It only attaches once the
parts have entered the Chinese domestic market, based on their use in car manufacturing. It is for this
reason that Australia considers that the liability attaches internally, afte r the vehicle has been
manufactured.
 In any event, Australia's considers that if a WTO Member imposed a condition on the end use
of an import that was not contained in its Sche dule, that WTO Member would be in breach of
Article II GATT 1994.

7 Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, p. 14.

15. In paragraph 8 of its third party oral statement, Brazil lists some elements of the
measures that might help the Panel to assess what Brazil calls the "taxable event", which would
be relevant to the characterization of the measures:
(b) (All other third parties) Do you agree with Brazil, in particular to the non-exhaustive list
of elements it listed as relevant to the charac terization of the measures? Which of these
elements would add or subtract from that list?
 Australia considers that Brazil's notion of the 'tax able event', together with its list of elements,
might provide the Panel with a helpful analytical tool when assessing the proper characterisation of
China's measures at issue. Another important c onsideration is the substance of the measures over
their form. However, ultimately in determining between the application of Article II or III of
GATT 1994 the Panel needs to look to the ordinary meaning of the terms in these provisions
accordance with the Vienna Convention on the Law of Treaties 1969.
(c) (All other third parties) Do you think these elements could be applied in general to any
situation where is necessary to determine the character of a measure.
See response to 15(b) above.
III. SPECIFIC QUESTIONS TO AUSTRALIA
18. In paragraph 22 of its oral statement Australia states that there is a fundamental
principle of the Harmonized System that when goods are classified "it is always done on the
basis of the objective characteristics of the product at the time of importation, that is, as
imported and presented to Customs on a shipment-by-shipment basis. The intention of the
importer and differing duty rates are irrelevant".
Some of the reasoning underlying Australian prac tice in relation to the Harmonised System is
set out below. Australia believes that this reasoni ng may be of assistance in considering the various
WTO obligations raised in the present dispute.
(a) Could Australia define what it means by "objective characteristics" and if there is
guidance for this in the Harmonized System?
The "objective characteristics" that might be taken into account when identifying goods were
discussed by Justice Lockhart in a decision of the Federal Court of Australia as follows:
Whether the goods [fall within a partic ular heading of] the customs tariff is
determined by an objective test not by the in tentions of the manufacturer in China or
of the exporter or the importer. The test is applied at the port of entry of the goods
and at the time of entry. The character istics of the goods, their get-up, colour,
decoration, labelling and packaging are all re levant considerations. In some cases a
visual inspection of the goods and their p ackaging will disclose characteristics of the
goods and enable a judgement to be made as to whether they are for therapeutic or
prophylactic use. But visual inspection will not necessarily provide the answer in
each case. Tests may have to be carried out and enquiries made to ascertain the
relevant characteristics of the goods. In the present case samples were taken and sent
for chemical analysis. As the Tribuna l noted, the paucity of the information

contained in the labelling of the goods necessitated further enquiries being made in
respect of them.
8
(b) Does Australia have any support or citations for the premise that Customs should only
do its analysis on a shipment-by-shipment basis?
Under Australian law identification and classifica tion of goods is carried out at the time of
importation, taking into account the condition and state of the goods at that time. The Australian
Tariff Act has limited provisions allowing for goods sp read over split shipments to be classified as a
single shipment. According to the Full Federal Court of Australia (emphasis added):
…in determining what is the essential character of goods it is the state or condition of
the goods at the time of importation that is the determining factor and that it is wrong
to classify goods or to determine their essen tial character by reference to the purpose
of the importer or of the purchaser. Regard must be had to the characteristics of the
goods themselves, as they would present themselves to an informed observer…
9
(c) How does Australia respond to China's argu ments that the decision of the Harmonized
System Committee on the interpretation of GI R 2(a) specifically contemplates that national
authorities may determine that parts constitute the essential character of a finished product
based on multiple shipments?
Australia considers the Harmonized System Co mmittee's Decision relates to a good split over
a number of shipments that all arrive at the same time
. It does not contemplate goods that are spread
over a number of different shipments all arriving at different times.
Further, Australia understands that China has adopted this approach in relation to motor
vehicles only. Therefore, the question arises as to why China does not use this approach for all
imports.
19. In paragraph 24 of its oral statement Australia states that in the application of the
"essential character" test, the value of the parts in relation to the value of the completed good is
irrelevant. Could Australia please elaborate on why it believes the value has no relevance,
providing specific legal support for its reasoning.
Australia does not consider value to be an elem ent of tariff classification. Nowhere in the
Harmonised System or in the Australian Customs Ta riff Act does it require that value be taken into
account when performing the classification exercise.
Just because a complete good is missing something of low value does not mean that it still has
the essential character of the complete good. For example, a collection of parts for a Central
Processing Unit (CPU) of a computer would not have the essential character of a CPU if they did not
include the processor, regardless of the value of the processor and whether it was worth 5% or 95% of
the CPU.
In Australia's view, the value of goods or their parts has no place in an objective international
trading classification system. Customs valuation is distinct from tariff classification as evidenced by

8 Chinese Food & Wine Supplies Pty Ltd v Collector of Customs (Vic) (1987) 72 ALR 591 at 599.
9 Times Consultants Pty Ltd v Collector of Customs (1987) 76 ALR 313 at 327.

the existence of the Customs Valuation Agreement.
10 Values are subjective and can change according
to factors such as seasons, fashion, exchange rates a nd fuel prices. This could lead to inconsistent
classification of essentially the same goods from different sources. Under the Harmonised System,
goods and their parts should be classified consistently based on what they are, not on how much they
are worth.
When exploring the concept of "essential char acter" under GIR 2(a), Australian courts and
tribunals have found that value has no relevance. Rather, they have found that the term "essential
character" is concerned with the physical characteris tics of the goods. The courts have used ordinary
dictionary definitions to determine the meaning of "essential character".
 In Re Renault (Wholesale) Pty Ltd and Collector of Customs Australia's Administrative
Appeals Tribunal (AAT), dealing with the precursor to the current GIR 2(a), attempted to define
'essential character'. The goods requiring classifica tion were parts for Renault and Peugeot motor
cars, which were to be used to assemble complete vehicles. The only parts missing were the fanbelts
of the Renaults and the gearboxes of the Peugeots. The AAT said:
 The Oxford Dictionary gives a meaning to the words [essential character] as follows:
"Essential (2) of or pertaining to essence, specific being, or intrinsic nature.
Differentia: - essential character: in sci entific classification the marks which
distinguish a species, genus, etc. from the others included with it in the next superior
division."
Thus the term points to the characteristics, which distinguish the goods as belonging
to a genus or a sub-genus. It is true this u se of the words is ordinarily a scientific use.
However, we are of the view that the term is not so limited and that it is appropriately
so used in interpretative rule 2(1)(a).
The question thus arises whether the goods, though incomplete and unfinished, have a
character which is sufficient to distinguis h them, firstly, as belonging to the genus
motor vehicles, secondly, as belonging to the sub-genus motor vehicles for the
transport of persons, goods or materials of a kind operated by self-contained power
and, thirdly, as belonging to the further sub-category unassembled motor vehicles of
this type.
… On the evidence, we are of the view that the subject goods had the essential
character of motor vehicles for the transpor t of persons, goods or materials of a kind
operated by self-contained power, albeit unassembled motor vehicles. We are of the
view that the type and quantity of work required to be done in Australia to the
imported goods to form motor vehicles was consistent with the identity of the goods
being unassembled motor vehicles, though unfinished vehicles. …We are of the view
that, looked at collectively, the goods we re sufficiently committed to assembly into
motor vehicles of the designated type and we re sufficiently complete to be identified
as belonging to the specified class and to no other.
11
 In Re Phillips and House Group and Collector of Customs the AAT found that it was more
than the visual appearance of the goods which determined thei r essential character. Although the

10 Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994.
11 Re Renault (Wholesale) Pty Ltd and Collector of Customs (No 3) (1978) 2 ALD 111 at 116.

Tribunal agreed with the definition adopted in Rena ult they also applied the following definition of
essential character, saying:
We … would refer also to the Random H ouse Dictionary of the English Language
where one meaning assigned to the word "essen tial" is "pertaining to or constituting
the essence of a thing", and where the word "essential" and its synonyms "inherent"
and "intrinsic" are said to refer to "that which is in the natural composition of a
thing", and where "essential" is said to suggest "that which is in the very essence or
constitution of a thing". It follows that we consider that the adoption of the phrase
"essential character" indicates clearly that th e mere visual apparent character of an
article was not the concept to which the a ttention of the By-Law was being directed.
Rather a concept of essentiality was involved, in which it is necessary to establish
what the article really is.
12
 In the cases of Putale and Zyfert13 in the Federal Court of Australia the goods requiring
classification were cars which were complete except for gear boxes and engines. Sheppard J said:
… the bodies in the Zyfert case lack motive power. They have no engines or
gearboxes. … how can it be said, incomplete or unfinished though the vehicles may
be, that they have the essential character of assembled motor vehicles? They have no
motive power, which by any dictionary definition such vehicles must have …
Both Putale and Zyfert were appealed and separate benches of the Full Federal Court of Australia
upheld the decision of Sheppard J.
20. In footnote 21 to paragraph 24, in describing the essential character of a motor vehicle,
Australia cites to two Australian federal court d ecisions. Could Australia please provide copies
of these decisions.
Copies of these decisions attached.
14

12 Re Phillips and House Group and Collector of Customs (1979) 2 ALD 704 at 708.
13 Putale Pty Ltd v Collector of Customs (N.S.W.) (1982) 5 ALD 156: Zyfert v Minister for Industry and
Commerce (1982) 5 ALD 156.
14 Exhibit ALA-1 and ALA-2

ANNEX B-3

RESPONSES OF BRAZIL TO QUESTIONS FROM THE PANEL

I. QUESTIONS TO ALL THIRD PARTIES
1. We note that in paragraph 137 of its first written submission China refers, inter alia, to
the anti-dumping regulations of certain third parties:
(a) Do you currently have, or have you ever had, anti-circumvention measures in place for
(i) anti-dumping duties and/or (ii) ordinary cust oms duties? If yes, please explain your measure
in detail (including the citation to any legislation or regulation that govern the application of
these measures) and whether it is a border or internal measure within the meaning of Articles II
and III of the GATT.
(b) Are you aware of any such measures maintained by other WTO Members?
Brazil does not have any anti-circumvention measures in place for anti-dumping duties or
ordinary customs duties. Brazil is not aware of any such measures maintained by other WTO
Members other than those mentioned by China in its written submission.
2. Do you have significantly different tariff lin es for a given "complete" product and for
"parts and components" thereof? If yes, ho w would your customs authority assess and charge
ordinary customs duties in relation to:
(a) "parts and components" that enter your territory from multiple shipments and are
imported by the manufacturer itself and assembled together with domestic parts into a complete
product for sale in the domestic market;
(b) "parts and components" that enter your territory from a single shipment and are
imported by the manufacturer itself and assembled together with domestic parts into a "complete
product" for sale in the domestic market;
(c) "parts and components" that enter your territory from multiple shipments and are
imported by a part supplier/manufacturer and assembled together with domestic parts into a
"complete product" for sale in the domestic market;
(d) "parts and components" that enter your territory from a single shipment and are
imported by a part supplier/manufacturer and assembled together with domestic parts into a
"complete product" for sale in the domestic market;
Would the duty assessment and charge of the "parts and components" in each of the
scenarios cited above change if these imported goods would correspond to 100% of the "parts
and components" needed to assemble the "compl ete product"? Would your answers in respect
to the scenarios cited above involving multiple shipments change depending on the time
differences between the arrival of the shipments concerned?
Brazil has significantly different tariff lines for a given "complete" product and for "parts and
components" thereof. With regard to questions (a) through (d), if shipments were declared by the

importer as containing "parts and components", the cu stoms authority, in principle, would classify the
mentioned products as "parts and components" and charge the corresponding ordinary customs duties.
These imports, however, are subject to fiscal laws and other regulations enacted to hinder fraudulent
declaration.
3. In your country, when do the customs authorities make a determination as to when a
collection of parts cannot and/or should not be di stinguished from the complete article that they
are intended to form? How does your customs offi ce interpret "as presented" in Rule 2(a) of
General Rules for the Interpretative Notes of the HS in this relation?
As a general rule, verification of products for classification purposes and for collection of
duties is made at the time that the products bei ng imported into Brazil are presented to the customs
authorities – i.e., before clearing customs.
4. Please comment on China's statement in paragraph 160 of its first written submission
and in paragraph 13 of its oral statement in rel ation to the WCO affirmed decision concerning
Rule 2(a) of the General Interpretative Rules. In particular, please clarify the legal status of
this WCO decision, including whether it is binding on the parties to the WCO.
Brazil notes that it has not had access to China's oral statement, since it was delivered during
the meeting of the parties with the Panel, at whic h third parties were not allowed to be present. Nor
has Brazil received a copy of this statement. As a result, Brazil is not in a position to comment on
China's statement.
On the basis of paragraph 160 of China's first written submission, Brazil comments as
follows. Brazil understands that irrespective of th e legal status of Decision HSC/16/Nov.95, or of
any other Decision adopted by the Contracting Pa rties to the World Customs Organisation, WTO
Members are bound by the obligations assumed unde r the WTO covered agreements, including the
Schedules of Concessions.
Brazil also notes that, in EC – Computer Equipment , the AB stated that Explanatory Notes
and decisions of the WCO may be relevant in interpreting the covered agreements. The panel in EC –
Chicken Cuts reached a similar conclusion regarding th e Explanatory Notes and General Rules of
Interpretation, finding that WCO decisions can be a useful source of information on subsequent
practice by WTO Members.
5. In any event, although the Explanatory Notes, GRI and WCO decisions may be relevant
to the interpretation of WTO Agreements, they are not "binding".How should Rule 2(a) be
interpreted in light of the decision cited in the preceding question?
Rule 2(a) refers to incomplete or unfinishe d articles that, as presented, have the essential
character of the complete or finished article, whether assembled or disassembled. Decision
HSC/16/Nov.95 addresses the acceptance of split c onsignments and the classification of goods
assembled from elements originating in or arri ving from different countries. Although the Decision
recognizes the possibility that WCO members will accept split consignments, it does not modify or
waive the "essential character" requirement articulated in Rule 2(a).
6. Please comment on China's position that Note VII of the Explanatory Notes to Rule 2(a)
of the General Interpretative Rules is relevan t in delineating the boundary between complete
articles and parts of those articles (paragraph 100 of China's first written submission).

The Explanatory Notes clarify the meaning of the General Rules for the Interpretation of the
Harmonised System. In this sense, Note VII may be relevant to de termining the appropriate
classification procedures for articles "presented unasse mbled or disassembled" within the meaning of
Rule 2(a), the components of which shall not be subjected to any further working operation or
completion into the finished state.
7. Could different aspects of the challenged me asures be respectively considered as either
internal measures or border measures? In other words, could one part of the measures be a
border measure while the other an internal measure? If yes, please indicate which specific part
is border measure-related and which part is inte rnal measure-related? What factors would you
take into consideration to make such determination?
In theory, different parts or sections of a gi ven measure could be subject to different WTO
obligations. The separate analysis of the specific components of a measure should not, in any case,
impair the overall conclusions reached regarding the WTO consistency of the measure in light of the
claims made.
A measure, or parts thereof, may be considered as a border measure or as an internal measure
according to the conditions governing the application of the measure. In paragraph 8 of its third party
oral statement, Brazil presented an indicative, non- exhaustive list of elements that may assist the
Panel in determining whether the measures at issue are internal measures or border measures.
9. What is the difference between a charge imposed "on ... the importation" and a charge
imposed "in connection with the importation" within the meaning of Article II:1(b), second
sentence, of the GATT? What is the relevance of this difference, if any, to this case?
In Article II:1(b), the words "on" and "in" are separated by the word "or", which may be taken
to infer that the words have a different meaning. However, in both cases, the imposition of a duty or
charge "on … the importation" or "in connection w ith the importation" of a product suggests a causal
relationship between the act of importation and the collection of the duty or charge– i.e., the event
triggering the imposition of duties is the importation of the product.
The report of the GATT panel in EEC – Parts and Components (L/6657), adopted on
16 May 1990, concluded that anti-circumvention duties on finished products assembled or produced
in the EEC were not levied "on or in connectio n with the importation" within the meaning of
Article 11:l(b), and consequently did not constitu te customs duties within the meaning of that
provision (paras. 5.4 - 5.8).
10. With respect to the phrase "on their importat ion into the territory" of Article II:1(b),
first sentence GATT 1994, should this be understood as a reference to the time of presentation
at the border or to some later point in time? If later, should the charge assessed be determined
on the basis of the condition of the products as presented at the border or on the basis of their
inclusion in a finished product after entry?
The phrase "on their importation into the territory" seems to suggest a temporal link between
the act of importation and the collection of the duty or charge. Nonetheless, even if a given duty is not
levied when products are presented at the time of importation, this is not necessarily dispositive of
whether that duty is a "border" or "internal" meas ure. As Brazil observed in its oral statement, the
timing of the collection of duties is one of several fa ctors that a panel may consider when defining the
nature of the "taxable event," and thus determin ing whether a measure falls within Article II or
Article III of the GATT (Brazil oral statement, para. 8).

When duties are imposed or collected after importation, as a result of an assessment made
"on" importation, the customs classification of the im ported goods must be b ased on the condition of
the goods "on" importation, i.e., as presented to the customs authorities.
11. Do your have a formal definition of CKD and SKD in relation to your specific Schedule
or, more generally, in any pertinent legislation or reg ulation? If yes, please provide it. If not,
what is, in your opinion, the meaning of these two terms? How are CKD and SKD kits
classified in your country?
Mercosur's Common External Tariff and Nomenclature are based on the Harmonised
Commodity Description and Coding System. Neither provides a formal definition of Completely
Knocked Down (CKD) or Semi Knocked Down (SKD) products.
15. In paragraph 8 of its third party oral statement, Brazil lists some elements of the
measures that might help the Panel to assess what Brazil calls the "taxable event", which would
be relevant to the characterization of the measures:
(a) (Brazil) You have mentioned that in examining these elements the Panel should consider
them "in their appropriate context". Please elaborate on this.
Brazil hopes that the elements listed in paragraph 8 of its third party oral statement may assist
the Panel in determining what Brazil referred to as th e "taxable event," or th e event or events that
trigger the application of the measures at issue. Th is analysis may be useful in determining whether
the measures qualify as border or internal measur es under GATT Articles II or III, respectively. As
explained by Brazil, the elements referred to ar e not exhaustive and should not be regarded in an
isolated manner. On the contrary, they should be considered as a group, taking into account all
relevant facts, including the relevant Chinese legislation and WTO provisions.

ANNEX B-4

RESPONSES OF JAPAN TO QUESTIONS FROM THE PANEL

I. QUESTIONS TO ALL THIRD PARTIES
1. We note that in paragraph 137 of its first written submission China refers, inter alia, to
the anti-dumping regulations of certain third parties:
(a) Do you currently have, or have you ever had, anti-circumvention measures in place for
(i) anti-dumping duties and/or (ii) ordinary customs duties? If yes, please explain your measure
in detail (including the citation to any legislation or regulation that govern the application of
these measures) and whether it is a border or internal measure within the meaning of Articles II
and III of the GATT.
Japan does not have or has never had any anti-circumvention measures for (i) anti-dumping
duties or (ii) ordinary customs duties.
(b) Are you aware of any such measures maintained by other WTO Members?
As far as Japan understands, the US, the EC , Malaysia, Mexico, Venezuela and Iceland
maintains such measures. However, Japan consid ers that the WTO consistency of the measures of
other WTO Members is irrelevant for the purpose of this dispute.

2. Do you have significantly different tariff lines for a given "complete" product and for
"parts and components" thereof?
If yes, how would your customs authority assess and charge ordinary customs duties in
relation to:
(a) "parts and components" that enter your territory from multiple shipments and are
imported by the manufacturer itself and assembled together with domestic parts into a complete
product for sale in the domestic market;
(b) "parts and components" that enter your territory from a single shipment and are
imported by the manufacturer itself and assembled together with domestic parts into a "complete
product" for sale in the domestic market;
(c) "parts and components" that enter your territory from multiple shipments and are
imported by a part supplier/manufacturer and assembled together with domestic parts into a
"complete product" for sale in the domestic market;
(d) "parts and components" that enter your territory from a single shipment and are
imported by a part supplier/manufacturer and assembled together with domestic parts into a
"complete product" for sale in the domestic market;
Would the duty assessment and charge of the "parts and components" in each of the
scenarios cited above change if these imported goods would correspond to 100% of the "parts
and components" needed to assemble the "compl ete product"? Would your answers in respect
to the scenarios cited above involving multiple shipments change depending on the time
differences between the arrival of the shipments concerned?

With regard to the products concerned in th is case, Japan has different tariff lines for a
complete product and for parts and components thereof. As stated in paragraph 31 of Japan's written
submission, as a rule, Japan's customs authorities co nduct an assessment of imported products at the
time of customs clearance. They assess imported goods in the same manner regardless of whether
those goods are imported by a manufacturer or by a part supplier/manufacturer.
With regard to scenarios (b) and (d) cited in Question 2, parts and components in a single
shipment are assessed based on the criterion whethe r those parts and components have the essential
character of a complete or finished article unde r the General Interpretative Rule 2(a) and its
Explanatory Note VII.
With regard to scenarios (a) and (c) cited in Question 2, parts and components in multiple
shipments are, as a rule, assessed at the time of customs clearance of each shipment separately.
The only cases in which parts and components a rriving in multiple shipments may be treated
as a single entry into Japan are limited to the imports of goods classified under Section XVI of the HS
nomenclature.
For example, Regulation for Chap. XVI:2 of Ta riff Nomenclature, a Notification of Director
General for Customs Bureau of Japan, provides as follows;
"[w]hen an importer makes or requests to make import declarations, in several installments,
for machineries under a single contract for rea sons of their transportations, subject to
conditions that the consignmen t under the import declaration is a part of the contract
concerned and has the essential character of the machinery concerned, such split
consignments could be classified jointly into the subheading for the concerned machinery
after the arrival of the last consignment."
In Japan, it is not relevant for the duty assess ment of parts and components whether or not
those imported goods "correspond to 100% of the parts and components needed to assemble the
complete product".
The time differences between the arrivals of shipments do not affect the above-mentioned
manner of assessment of parts and components from mu ltiple shipments. Japan would like to recall,
however, if shipments are not presented at the same time, they will normally not be considered
simultaneously and duties will be assessed separatel y on each individual shipment. In other words,
time differences do matter.
3. In your country, when do the customs authorities make a determination as to when a
collection of parts cannot and/or should not be di stinguished from the complete article that they
are intended to form? How does your customs offi ce interpret "as presented" in Rule 2(a) of
General Rules for the Interpretative Notes of the HS in this relation?
As stated in paragraph 31 of Japanese writt en submission, as a rule, Japan's customs
authorities decides the classification of imported products at the time of customs clearance; goods
imported in different consignments are classified separately in principle but jointly only in exceptional
cases as mentioned in the answer to Question 2.
Japan customs authorities understands that "as presented" means as the time when objects for
duty assessment are determined for purpose of Article 4 of the Customs Law of Japan, i.e. in general,
the time when import declaration for respective goods is made.

4. Please comment on China's statement in paragraph 160 of its first written submission
and in paragraph 13 of its oral statement in rel ation to the WCO affirmed decision concerning
Rule 2(a) of the General Interpretative Rules. In particular, please clarify the legal status of
this WCO decision, including whether it is binding on the parties to the WCO.
Japan considers that the decision of the WCO Harmonized System Committee, which is
referred to in paragraph 160 of the Chinese first writt en submission is not legall y binding. In general,
in the light of the Appellate Body's reports in EC - Computer Equipments and EC – Chicken Cuts ,
they need to be considered because they may be re levant as one of the "cont ext" and/or subsequent
practices under the Vienna Convention for the pur pose interpreting the WTO consistency of the
concerned measures, as well as General Rules of Interpretation and Explanatory Notes.
5. How should Rule 2(a) be interpreted in light of the decision cited in the preceding
question?
The HS Committee is silent on the application of "split consignment". China indicated that
split consignment was a situation where "an importer imports in multiple shipments an item (or group
of items) that is the subject of a single contract, invoice, or transaction."
1
In addition, as touched upon in paragraph 32 of Japan's written submission, rules of the US
and the EC on split consignments, which are referred to by China in its submission, are exceptional
provisions. First, treatment as a single consignment is given at the request of an importer, and it is not
unilaterally decided by customs or any other governme nt authorities. Second, Japan understands that,
under the US rules, "such split shipments must be accommodated on a single conveyance and
delivered to and accepted by the carrier in the exporting country under one bill of lading or waybill."
Because of the reasons stated above, Japan cons iders that without the above conditions being
met for "split consignments," Rule 2(a) should be interpreted that, (a)s a rule, … customs authorities
should decide the classification of the imported products at the time of customs clearance.
6. Please comment on China's position that Note VII of the Explanatory Notes to Rule 2(a)
of the General Interpretative Rules is relevan t in delineating the boundary between complete
articles and parts of those articles (paragraph 100 of China's first written submission).
 Based on the last paragraph of Note VII of the Explanatory Note, China insists that "a
collection of parts is first classified as the total nu mber of complete articles that can be assembled
from those parts.(emphasis added)"
 However, Japan understands Note VII of the Explanatory Note should be read as a whole, and
not be interpreted in a selective manner. The firs t paragraph of the Note provides that "[f]or the
purposes of this Rule, 'articles presented unassembled or disassembled' means articles the components
of which are to be assembled either by means of fixing devices (screws, nuts, bolts, etc.) or by
riveting or welding, for example, provided only assembly operations are involved."
 After finding a collection of parts as "articles presented unassembled or disassembled" based
on the first paragraph of the Note, the last paragra ph of the same Note could be applied for the first
time. In other words, the paragraph cited by Chin a will be applied to a collection of parts without
further working operation for completion into the fini shed state other than those provided at the first
paragraph.

 1 See para.156 of China's written submission.

7. Could different aspects of the challenged measures be respectively considered as either
internal measures or border measures? In other words, could one part of the measures be a
border measure while the other an internal measure? If yes, please indicate which specific part
is border measure-related and which part is internal measure-related? What factors would you
take into consideration to make such determination?
Japan notes that internal charges falling under Ar ticle III of the GATT are not considered to
be customs duties falling under Article II, or vice versa.
8. In your view, if the measures were to be considered as border measures, would the Panel
still be required to address the complainants ' claims under Article III of the GATT and
Article 2 of the TRIMs Agreement?
Japan is of the opinion that the issue, wh ether the concerned measures are measures under
GATT Article III or not, should also be considered following TRIMs Agreement.
In this regard, Japan notes th at the issue of whether the duties imposed under the Chinese
measures are domestically categorized as cu stoms duties and that of whether the scheme of local
content requirements under the measures fall under the TRIMs Agreement should be examined
separately. Japan would like to recall that, in Indonesia – Autos , the panel found that "[t]he lower
duty rates are clearly 'advantages' in the meaning of the chapeau of the Illust rative List to the TRIMs
Agreement". As such, the panel found that the Indonesian measures fell within the scope of the
TRIMs
2. In this dispute, China's measures, which consist of relevant laws and regulations as specified
in panel requests, can also be considered as TRIM s when it were considered to provide advantages,
lower customs duty rates of 10% only to auto parts meeting the criteria of Decree 125.
9. What is the difference between a charge im posed "on ... the importation" and a charge
imposed "in connection with the importation" within the meaning of Article II:1(b), second
sentence, of the GATT? What is the relevance of this difference, if any, to this case?
As Japan has stated in its submission, it be lieves that the duties imposed under the Chinese
measures are internal charges under Article III:2 GATT and that the measures are internal regulations
under Article III:4 GATT. Fundamentally, the issue is whether the duties or taxes at issue are
triggered or conditioned by importation. Japan s upports the complainants in saying that these are
internal taxes as they depend, not on how the part s are presented at the time they enter the customs
territory of China, but on their combination with ot her parts at the time vehicles are assembled within
the customs territory of China. In other words, one does not reach Article II:1(b), including the
language "in connection with importation" in the second part of Article II:1(b).
However, even if the Panel were to charact erize the charges deriving from China's measures
as customs duties, Japan believes that such duties are inconsistent with Article II GATT and that they
are covered either by the first part of Article II: 1(b) (duties in excess of ordinary customs duties "on
their importation"), as China argues, or by the second part of the provision (other duties and charges
"on or in connection with the importation").
Article II:1(b) makes a distinction between ordinary customs duties and other charges.
It stipulates that goods shall not be subject to other customs duties 'on importation'. Customs duties by
definition are assessed 'on importation'. Accordingly, th ere is no need to consider customs duties that
are assessed 'in connection' with importation.

In respect of the more broadly cast group of "all other duties and charges", the second part of
Article II:1(b) ensures that they do not escape th e discipline of scheduled concessions by covering not
only charges that are assessed 'on importation', but also 'in connection with importation'. If charges 'in
connection with importation' woul d not have been covered explic itly, one can imagine lengthy
debates as to whether charges that were conditio ned by importation but not assessed 'on importation'
could be added to bound duties. One could think, for example, of such issues as customs warehousing
requirements. A proposed 1955 amendment to the GATT would have clarified the phrase by adding
an explicit reference to charges on in ternational transfers of payments.
3 In other words, the term 'in
connection with importation' is broader than 'on importation' to ensure full coverage of border
measures and avoid a loophole for certain customs-related charges.
In sum, Japan believes that the Chinese measur es violate Article III GATT. However, to the
extent that the Panel decides to review the duti es imposed under the measures under Article II GATT,
they are covered by the first and/or second part of Article II:1(b) GATT. The broader 'in connection
with the importation' language of the second part of that provision serves to ensure that no measure
that results in a financial burden on imported goods in excess of that to which a WTO Member
committed in its Schedule shall be imposed.
10. With respect to the phrase "on their importatio n into the territory" of Article II:1(b),
first sentence GATT 1994, should this be understood as a reference to the time of presentation
at the border or to some later point in time? If later, should the charge assessed be determined
on the basis of the condition of the products as presented at the border or on the basis of their
inclusion in a finished product after entry?
As a rule, customs authorities need to decide the classification of imported products at the
time of customs clearance4 for the purpose of appropriate imposition of customs duties; therefore it is
reasonable to understand that the phrase "on their impor tation into the territory" of Article II:1(b) is a
reference to the time of presentation at the border.
In this regard, China asserts that customs practices of sever al countries demonstrate that
"Article II is not limited to charges that ar e collected 'on or at the time of importation." 5 It is
important to note, however, that the practices of other countries are inherently different from the
Chinese measures concerned. Although Japan is not in a position to evaluate the measures of other
countries it notes, for example, as a matter of facts that Japan is aware that Australia allows its
customs office to reexamine the duty amount, only when "any duty has been short levied or
erroneously refunded." Also in New Zealand, th e customs office can amend the assessment, only in
case "the entry or any declaration made in re lation to the goods was fraudulent or willfully
misleading."
11. Do your have a formal definition of CKD and SKD in relation to your specific Schedule
or, more generally, in any pertinent legislation or regulation? If yes, please provide it. If not,
what is, in your opinion, the meaning of these two terms? How are CKD and SKD kits
classified in your country?
Japan does not have any specific tariff lines for or the formal definitions of CKD or SKD.
With regard to our views on the meanings of CKD and SKD, Japan reiterates that WTO members
should fully respect GIR 2(a). This means that, for example, if imported parts "as presented" possess
the "essential character" of auto parts such as "chassis fitted with engine" and not that of complete

3 See Jackson, World Trade and the Law of GATT (1969), p. 209.
4 See para. 31 of Japan's written submission.
5 See para. 64 and below of China's written submission.

vehicles, they should be considered as auto parts covered by heading 8706. Once such imported parts
are classified as auto parts, it is not appropriate to reclassify the parts as complete vehicles covered by
HS 8702-04 retrospectively just because such auto parts are assembled into a complete vehicle later.
12. (All parties) The European Communities explains in paragraph 262 of its first written
submission that a situation foreseen under Article 21(2)(a) of Decree 125, namely importation of
both an engine assembly and a body assembly together, is far away from the categories foreseen
by the Chinese tariff schedule examined in the light of the general Explanatory Notes for
Chapter 87 whereby an incomplete or unfinished ve hicle may be classified as the corresponding
complete or finished vehicle provided it has the essential character of the latter.
(a) Do you consider that the two examples of incomplete or unfinished vehicles in the
General Notes for Chapter 87 correspond to any of the criteria set out in Article 21 of
Decree 125?; and
In order to fulfill essential character of motor vehicles, any combinations of imported auto
parts which are deemed to be complete vehicl es under Article 21 of the Decree 125 still requires
considerable assembling work by hiring skilled labor forces and introducing facilities with
depreciable assets which are designed for the local production in China. Japan, therefore, considers
that any of the criteria set out in Article 21 of Decree 125 does not correspond to the conditions of
incomplete or unfinished vehicles in the General Notes for Chapter 87.
(b) In your view, what auto part products, other than those referred to the General Notes
for Chapter 87, would qualify as an "incomplete or unfinished vehicle having the essential
character of a complete or finished vehicle"? Please explain by referring to specific examples.
Japan notes that it was discussed, in Indonesia – Autos
6, that an "incomplete or unfinished
vehicle having the essential character of a complete or finished vehicle" should contain "almost all"
the parts and components necessary for assembling the car.
13. Argentina considers it not to be "appropriate to make a parallelism between ordinary
customs duties and antidumping or countervailing duties" (paragraph 20 of Argentina's written
submission). It seems that Argentina makes this argument in relation to the discussion
regarding "subsequent practice" under the Article II claims.
(b) (All other third parties) Do you agree with Argentina's statement in paragraph 20 of its
written submission?
In Japan's view, the antidumping/countervailing dut y measures referred to are not relevant as
the WTO consistency of those measures themselves is not undisputed.
14. The following argument is contained in pa ragraph 14 of Australia's third party oral
statement, which was made in relation to China's claim that a charge imposed after the time or
point of importation can still be a border ch arge if it relates to a condition of liability that
attached at the time of importation:
Presumably, in an attempt to establish a nexu s with importation, the measures at issue
include a declaration made at the time of importation. However, this declaration
appears to be entirely focused on the way in which the imported parts will be used
internally within China, rather than on the contents of a consignment upon importation.

6 WT/DS54, 55, 59, 64 at para. 14.195.

... Therefore ... the liability attaches internally , after the vehicle has been manufactured.
(emphasis added)
(b) (All other third parties) Do you agree with Australia?
Japan agrees with Australia and considers that the timing of the declaration does not
demonstrate that the duties imposed under the measur es are customs duties, and not internal charges.
It is important to note that the challenged measures require a declaration on the content of a completed
auto vehicle after it is manufactured in China, not on the contents of a particular consignment upon
importation.7
15. In paragraph 8 of its third party oral statement, Brazil lists some elements of the
measures that might help the Panel to assess what Brazil calls the "taxable event", which would
be relevant to the characterization of the measures:
(b) (All other third parties) Do you agree with Brazil, in particular to the non-exhaustive list
of elements it listed as relevant to the charac terization of the measures? Which of these
elements would add or subtract from that list?
Japan agrees with Brazil in that whether a charge in question is subject to Article II:1(b) or
Article III:2 should be examined based on a non- exhaustive list, subject to the following
considerations.
It is worth recalling that, although all the criteria enumerated by Brazil may seem to relate to
"customs practices" for domestic regulatory or ad ministrative purposes, domestic practices are not
determinative as to whether charges imposed under a measure are covered by Article II or Article III
of GATT. 8 The GATT Panel in EEC – Parts and Components expressed its concern that if the
description or categorization of a charge under domestic law were relevant to whether the charge is
covered by Article III of GATT, a Member could in particular impose charges on products after
importation simply by assigning the collection of these charges to the customs administration and
allocating the revenue generated to their customs revenue
9.
Therefore, Japan considers that it is important to consider factors which are not determined by
the choice of Members, such as the timing of the assessment of the amounts of the duties. In the
present case, a duty imposed on an imported part is assessed following assembly and production,
rather than directly upon importation. 10 The final duties imposed on imported parts are assessed only
after their assembly into complete automobiles and this fact shows that the measures concerned
should be categorized as internal regulations.
(c) (All other third parties) Do you think these elements could be applied in general to any
situation where is necessary to determine the character of a measure?
These elements may be applied when the above st ated points are kept in mind. In addition,
Japan considers that depending on the nature of a par ticular case, the relative weight of each of these
elements could be different from case to case. Thus , not only the mere fact that some action is
required at the time of importation, but also subs tantive roles/meaning of each action in the entire
administration of the measures concerned should be examined.

7 See para. 16 of Japan's written submission, “
8 See paras. 8 of Japan's oral statement.
9 See GATT Panel Report, EEC – Parts and Components, para. 5.7

As pointed out by Australia, China attempts to establish a nexus with importation, by showing
that "the measure at issue includes a declaration made at the time of importation."
11 However, if one
reviews the procedure established by Decree 125 in their entirely, it becomes clear that the declaration
made at the time of importation is but an administra tive formality. What really matters is the Chinese
authorities' evaluation of the domestic manufacturing process within China of the foreign-owned car
manufacturers. This evaluation dose not depend on w ho imports the parts (e.g., the manufacturer or
an independent importer), or on how these parts are presented at the border.
IV. SPECIFIC QUESTIONS TO JAPAN

21. China has asserted in this dispute that the charges are imposed after the parts have
conditionally entered (instead of unconditionally entered) in its territory to support its claim
that they are ordinary customs duties. Please el aborate on your statement that the challenged
measures fall under Article III of the GATT because they are not imposed conditional "merely"
on importation of the parts (paragraph 10 of Japan's written submission).
In paragraph 68 of China's first written s ubmission, China asserts that "the challenged
measures are border measures within the scope of Article II," because "(t)hey impose a condition
upon the entry of auto parts and components into th e customs territory of China, based upon a prior
determination that the parts and components form pa rt of a larger collection of imported parts and
components having the essential character of a motor vehicle."
Japan considers that, however, under the Chin ese measures, the charges are not imposed
conditional "merely" on importation of the parts but rather conditional on factors unrelated to
importation of the parts because of the following r easons. Article 28 of Decree 125 provides that
"(a)n automobile manufacturer shall declare duty pa yments to the customs after imported automobile
parts are assembled into complete vehicles." (empha sis added) In other words, under Decree 125, the
duty on a part is assessed and imposed following asse mbly and production, rather than directly upon
importation. As clearly stated in Articles 21 and 22 of Decree 125, if the imported parts are
incorporated in a car which is not deemed to have sufficient local contents, the imported parts will be
subject to customs duties that are normally payable on a imported complete vehicle. Therefore, Japan
considers that charges in question are not imposed upon the importation under the measures
concerned and subject to Article III:2 of GATT.
22. Please elaborate on your statement that "t he fact that the measures require some action
at the time of importation does not mean that they are border measures". (paragraph 16 of
Japan's written submission, emphasis added).
In paragraphs 45 and below of China's firs t written submission, China enumerates three
reasons why it believes its measures should be cl assified as boarder measures as follows; (a) the
importers are required to make declarations at the ti me of importation, (b) auto parts that enter China
pursuant to such a declaration remain in a bonded st atus, and (c) the measures are administered by the
Customs Administrations of China.
China enumerates these actions and attempts to argue that when something is domestically
categorized as a customs rule, the imposition of ch arges under the rule should be considered to be
covered by Article II. However, the fact that a WTO Member treats certain measures as "customs
practices" for its domestic regulatory or administra tive purposes does not have a bearing on the issue
of whether the measures are within the scope of Ar ticle II or Article III of the GATT. In addition,
when reviewing the administration of the Chinese measu res in their entirety, it becomes clear that the

11 See, para. 14 of Australian oral statement.

actions taken at the time of importation are relatively unimportant compared to the assessment by the
Chinese authorities of the manufacturing process within China by foreign-owned car manufacturers.
This assessment is key, and trigge rs the application of a higher or lower duty or tax (corresponding
with incomplete vehicle or with parts). See also above answer to question 15(c).
23. Please elaborate on your statement in paragraph 41 of your written submission, in
particular on the issue of how much value is added to the assembling process of CKD or SKD
kits. How is your answer relevant to the question of whether certain imported parts and
components have the "essential character" of a complete product pursuant to Rule 2(a) of the
General Rules for the Interpretation of the HS?
As stated in paragraph 41 of Japan's written submission, since cars have become extremely
complex objects, when SKD and CKD kits are assembl ed, this regularly involves more than screwing
some parts together including a variety of steps, ranging from painting to testing of complicated
electronics. With regard to the question on the relation with the "essential character," Japan notes
that it was discussed in Indonesia – Autos that CKD kits including "almost all" the parts and
components necessary for assembling the cars had "c haracteristics closely resembling those of a
completed car, which had clearly the "essential character" of a complete vehicle.
24. Paragraph 9 of the oral statement of Japan indicates that "the test concerning Article II
and III is an autonomous test the outcome of which is not determined by the choice of Members
to treat the measures as "customs measures" or "internal regulations" for domestic
administrative or regulatory purposes." Which co mponents are considered relevant for this
test? In this respect, in your view, are the elements provided by Brazil in paragraph 8 of its oral
submission helpful and/or comprehensive?
Please see the Japan's answer to Question 15 (b).

ANNEX B-5
1

RESPONSES OF MEXICO TO QUESTIONS FROM THE PANEL

I. QUESTIONS TO ALL THIRD PARTIES
1. We note that in paragraph 137 of its first written submission China refers, inter alia, to
the anti-dumping regulations of certain third parties:

(a) Do you currently have, or have you ever had, anti-circumvention measures in place for
(i) anti-dumping duties and/or (ii) ordinary customs duties? If yes, please explain your measure
in detail (including the citation to any legislation or regulation that govern the application of
these measures) and whether it is a border or internal measure within the meaning of Articles II
and III of the GATT.

(i) The following anti-circumvention measures fo r anti-dumping duties are currently in force in
Mexico:

• Imports of grade 55 high fructose corn syrup (HFCS)
:2 The investigating authority
concluded that the importation of grade 90 HFCS (enriched HFCS) constituted a
circumvention of payment of countervailing duties, since this type of HFCS was a
concentrated version of the HFCS that was subject to countervailing duties (HFCS 42
and HFCS 55). Following an analysis of the production processes, the investigating
authority concluded that by importing enriched HFCS and then diluting it in the national
territory, certain companies were circumven ting the payment of the countervailing duty
imposed on HFCS 42 and HFCS 55.

• Imports of technical grade methyl parathion
:3 The investigating authority concluded that
imports of a type of methyl parathion classified under a separate tariff heading
(3808.10.99) were circumventing the count ervailing duties imposed on the type of
methyl parathion subject to countervailing duties (2920.10.02), since both types of
methyl parathion were in reality the same produc t. This was based on an analysis of the
chemical composition of the two products wh ich revealed that they both contained the
same principal component O, O-dymethyl-O-(4-nitrophenyl)-phosphorothioate.
Consequently, the obligation to pay countervailing duties extended to the other type of
methyl parathion.

1 Annex B-5 contains comments by Mexico to questions posed by the Panel after the first substantive
meeting. This text was originally submitted in Spanish by Mexico.
2 Final resolution of the investigation of circ umvention of the payment of countervailing duties
imposed on imports of grade 55 high fructose corn syrup (merchandise classified under tariff heading
1702.60.01 of the General Import Tax Law) exported from the United States, irrespective of the country of
provenance, published in the Diario Oficial de la Federación (Official Journal) of 8 September 1998.
3 Final resolution of the investigation of circumvention of payment of the final countervailing duty on
imports of technical grade methyl parathion (merchandise classified under tariff heading 2920.10.02 of the
General Import Tax Law) exported from the People's Re public of China, irrespective of the country of
provenance, published in the Diario Oficial de la Federación (Official Journal) of 18 January 1999.

• Imports of cuts of bovine m eat, boneless and with bone in :4 The investigating authority
concluded that there was a trading company that exported to Mexico bovine meat
produced by enterprises that were subject to countervailing duties. The investigating
authority determined that the bovine meat imported by that trading company would be
exempted from payment of countervailing duties only where the bovine meat had been
produced by enterprises that did not engage in dumping under the original anti-dumping
resolution.

 The three cited anti-circumvention measures we re issued in conformity with the Foreign
Trade Act that was in force from 1993 to 2003. In particular, Article 71 of that Act stated that:

"In cases where parts or components are introduced into the national territory for the
purpose of assembly on that territory of goods subject to provisional or final duties
with a view to eluding payment of such du ties, the duty in question shall be imposed
on the importation of the said parts or components. The same rule shall apply to
cases where parts or components are assemble d in a third country and the finished
product is introduced into the national terr itory, or to the exportation of products
having relatively slight physical differen ces in comparison with those subject to
provisional or final countervailing duties."
 The current provision governing circumvention is Article 89B of the Foreign Trade Act as
amended (see the Diario Oficial de la Federación of 13 March 2003):

 "ARTICLE 89B – The following are deemed to constitute circumvention of countervailing
duties or safeguard measures:

 I. Introduction into the national territory of inputs, parts or components for production or
assembly of a product subject to a countervailing duty or safeguard measure;

 II. Introduction into the national territory of goods subject to a countervailing duty or
safeguard measure that contain inputs, parts or components integrated or assembled in a third
country;

 III. Introduction into the national territory of goods from the same country of origin as the
product subject to a countervailing duty or saf eguard measure that have relatively slight
differences from the product in question;

 IV. Introduction into the national territory of goods subject to a countervailing duty or
safeguard measure and imported at a rate lower than the applicable duty or measure; or

 V. Any other action resulting in failure to pay the countervailing duty or safeguard measure.

 Goods imported under such cond itions shall be subject to pa yment of the countervailing duty
or to the corresponding safeguard measure. Circumvention of provisional or final
countervailing duties or safeguard measures shall be determined through proceedings initiated
ex officio or at the request of an interested party."

4 Final resolution of the investigation of the circumvention of payment of countervailing duties on
imports of cuts of bovine meat, boneless and with bone in (merchandise classified under tariff headings
0201.20.99, 0202.20.99, 0201.30.01, 0202.30.01 of the General Import Tax Law) exported from the United
States, regardless of the country of provenance, published in the Diario Oficial de la Federación (Official
Journal) of 22 May 2001.

 The three above-mentioned anti-circumvention measures are deemed to be border measures,
not internal measures.

(ii) Mexico does not have any anti-circumvention measures for customs duties.

(b) Are you aware of any such measures maintained by other WTO Members?

 No.

2. Do you have significantly different tariff lines for a given "complete" product and for
"parts and components" thereof? If yes, ho w would your customs authority assess and charge
ordinary customs duties in relation to:

(a) "Parts and components" that enter your territory from multiple shipments and are
imported by the manufacturer itself and assembled together with domestic parts into a complete
product for sale in the domestic market;

(b) "parts and components" that enter your territory from a single shipment and are
imported by the manufacturer itself and assembled together with domestic parts into a "complete
product" for sale in the domestic market;

(c) "parts and components" that enter your territory from multiple shipments and are
imported by a part supplier/manufacturer and assembled together with domestic parts into a
"complete product" for sale in the domestic market;

(d) "parts and components" that enter your territory from a single shipment and are
imported by a part supplier/manufacturer and assembled together with domestic parts into a
"complete product" for sale in the domestic market.

 Would the duty assessment and charge of the "parts and components" in each of the
scenarios cited above change if these imported goods would correspond to 100 per cent of the
"parts and components" needed to assemble the "complete product"? Would your answers in
respect to the scenarios cited above involving multiple shipments change depending on the time
differences between the arrival of the shipments concerned?

 In accordance with Rule 2(a) of the Genera l Rules for the Interpretation of the Harmonized
System, which are mandatory in Mexico by virtue of their publication in the Diario Oficial de la
Federación of 6 March 2006, if the product imported h as the essential character of the vehicle, i.e. the
driveline (made up of the chassis, engine, steering, axel, suspension and breaks), then it is subject to
the tariff for a complete vehicle and not the tari ff applied to parts and/or components thereof,
regardless of whether the autoparts in question arrive in multiple shipments or in a single shipment.

3. In your country, when do the customs authorities make a determination as to when a
collection of parts cannot and/or should not be di stinguished from the complete article that they
are intended to form? How does your customs offi ce interpret "as presented" in Rule 2(a) of
General Rules for the Interpretative Notes of the HS in this relation?

 This question is related to the previous one, in that the importation of the essential part of the
vehicle (driveline) is considered tantamount to im porting the complete vehicle (see interpretation of
Mexico).

4. Please comment on China's statement in paragraph 160 of its first written submission
and in paragraph 13 of its oral statement in rel ation to the WCO affirmed decision concerning
Rule 2(a) of the General Interpretative Rules. In particular, please clarify the legal status of
this WCO decision, including whether it is binding on the parties to the WCO.

 Mexico declines to take a position on this question.

5. How should Rule 2(a) be interpreted in light of the decision cited in the preceding
question?

 Mexico declines to take a position on this question.

6. Please comment on China's position that Note VII of the Explanatory Notes to Rule 2(a)
of the General Interpretative Rules is relevan t in delineating the boundary between complete
articles and parts of those articles (paragraph 100 of China's first written submission).

 Mexico declines to take a position on this question.

7. Could different aspects of the challenged measures be respectively considered as either
internal measures or border measures? In oth er words, could one part of the measures be a
border measure while the other an internal measure? If yes, please indicate which specific part
is border measure-related and which part is internal measure-related? What factors would you
take into consideration to make such determination?

 Mexico declines to take a position on this question.

8. In your view, if the measures were to be considered as border measures, would the Panel
still be required to address the complainants ' claims under Article III of the GATT and
Article 2 of the TRIMs Agreement?

 Mexico declines to take a position on this question.

9. What is the difference between a charge imposed "on … the importation" and a charge
imposed "in connection with the importation" within the meaning of Article II:1(b), second
sentence, of the GATT? What is the relevance of this difference, if any, to this case?

 Mexico declines to take a position on this question.

10. With respect to the phrase "on their importat ion into the territory" of Article II:1(b),
first sentence GATT 1994, should this be understood as a reference to the time of presentation
at the border or to some later point in time? If later, should the charge assessed be determined
on the basis of the condition of the products as presented at the border or on the basis of their
inclusion in a finished product after entry?

 Mexico declines to take a position on this question.

12. ( All parties) The European Communities explains in paragraph 262 of its first written
submission that a situation foreseen under Article 21(2)(a) of Decree 125, namely importation of
both an engine assembly and a body assembly together, is far away from the categories foreseen
by the Chinese tariff schedule examined in the light of the general Explanatory Notes for
Chapter 87 whereby an incomplete or unfinished ve hicle may be classified as the corresponding
complete or finished vehicle provided it has the essential character of the latter.

(a) Do you consider that the two examples of incomplete or unfinished vehicles in the
General Notes for Chapter 87 correspond to any of the criteria set out in Article 21 of Decree
125?; and

(b) in your view, what auto part products, ot her than those referred to the General Notes
for Chapter 87, would qualify as an "incomplete or unfinished vehicle having the essential
character of a complete or finished vehicle"? Please explain by referring to specific examples.

 Mexico declines to take a position on this question.

13. Argentina considers it not to be "appropri ate to make a parallelism between ordinary
customs duties and antidumping or countervailing duties" (paragraph 20 of Argentina's written
submission). It seems that Argentina makes this argument in relation to the discussion
regarding "subsequent practice" under the Article II claims.

(a) (Argentina) Given your above statement, do you see any usefulness in the findings of the
GATT Panel decision in EEC – Parts and Components, cited by the parties in their written
submission, to the question of the characterization of the measures?

(b) (All other third parties) Do you agree with Argentina's statement in paragraph 20 of its
written submission?

 Mexico declines to take a position on this question.

14. The following argument is contained in paragraph 14 of Australia's third party oral
statement, which was made in relation to China's claim that a charge imposed after the time or
point of importation can still be a border charge if it relates to a condition of liability that
attached at the time of importation:

 Presumably, in an attempt to establish a nexus with importation, the measures at issue
include a declaration made at the time of importation. However, this declaration
appears to be entirely focused on the way in which the imported parts will be used
internally within China, rather than on the contents of a consignment upon importation.
... Therefore ... the liability attaches internally , after the vehicle has been manufactured.
(emphasis added)

(b) (All other third parties) Do you agree with Australia?

 Mexico declines to take a position on this question.

15. In paragraph 8 of its third party oral statement, Brazil lists some elements of the
measures that might help the Panel to assess what Brazil calls the "taxable event", which would
be relevant to the characterization of the measures:

(a) (Brazil) You have mentioned that in examining these elements the Panel should consider
them "in their appropriate context". Please elaborate on this.

(b) (All other third parties) Do you agree with Brazil, in particular to the non-exhaustive list
of elements it listed as relevant to the charac terization of the measures? Which of these
elements would add or subtract from that list?

(c) (All other third parties) Do you think these elements could be applied in general to any
situation where it is necessary to determine the character of a measure.

 Mexico declines to take a position on this question.

V. SPECIFIC QUESTIONS TO MEXICO
25. In paragraph 137 of its first written submission China refers, inter alia, to Mexico's anti-
circumvention measures in respect of anti-dum ping and countervailing duties. Can Mexico
confirm whether these measures are still in place and elaborate upon these and point in
particular to the elements which distinguish them from the Chinese measures in question.

 Are you aware of any such practice maintained by any other WTO Members?

 The document to which China refers is Mexi co's notification of the amendments to the
Foreign Trade Act submitted on 11 April 2003 to the Committees on Anti-Dumping Practices, on
Subsidies and Countervailing measures, and on Sa feguards. The notified amendments are still in
place. With regard to the circumvention of countervailing measures, Article 89B states the following:

 "ARTICLE 89B – The following are deemed to constitute circumvention of countervailing
duties or safeguard measures:

 I. Introduction into the national territory of inputs, parts or components for production or
assembly of a product subject to a countervailing duty or safeguard measure;

 II. Introduction into the national territory of goods subject to a countervailing duty or
safeguard measure that contain inputs, parts or components integrated or assembled in a third
country;

 III. Introduction into the national territory of goods from the same country of origin as the
product subject to a countervailing duty or saf eguard measure that have relatively slight
differences from the product in question;

 IV. Introduction into the national territory of goods subject to a countervailing duty or
safeguard measure and imported at a rate lower than the applicable duty or measure; or

 V. Any other action resulting in failure to pay the countervailing duty or safeguard measure.

 Goods imported under such conditions shall be subject to payment of the countervailing duty
or to the corresponding safeguard measure. Circumvention of provisional or final
countervailing duties or safeguard measures shal l be determined through proceedings initiated
ex officio or at the request of an interested party."

26. The Panel notes Mexico's statement in par agraph 3 of its written submission that the
challenged measures violate, inter alia, the SCM Agreement. However, unlike the claims under

GATT, TRIMs and the Accession Protocol of China, Mexico does not elaborate on its
arguments in relation to the SCM claims. Could Mexico please elaborate on its assertion that
the measures violate the SCM Agreement?

 Mexico agrees with the arguments put forward by the United States
5 and the European
Communities6 that China's measures constitute a prohib ited subsidy under Article 3.1(b) of the
Agreement on Subsidies and Countervailing measures (SCM Agreement).

 The measures adopted by China meet both of the conditions set forth in the definition of a
subsidy in Article I of the SCM Agreement: (i) financial contribution; (ii) benefit.

 The financial contribution in the case at issue fits the conditions set forth in
Article 1.1(a)(1)(ii) of the SCM Agreement, accordi ng to which a financial contribution exists when
government revenue that is otherwise due is foregone. By providing for the collection of a 25 per cent
charge on domestic auto parts and a 10 per cent ch arge on imported auto parts, the measures in
question effectively forego collection of the difference between the two charges, and this amounts to a
financial contribution.

 Foregoing government revenue clearly provides the recipient with a benefit, since it places
the recipient in a better position than it would have had if the financial contribution had not existed.

 According to Article 3.1(b) of the SCM Agreemen t, this subsidy is deemed to be prohibited in
that it is contingent upon the use of domestic over imported goods. Similarly, since this subsidy is a
prohibited subsidy, it is also deemed to be specific under Article 2.3 of the SCM Agreement.

5 First written submission of the United States, paragraphs 122-126.
6 First written submission of the European Communities, paragraphs 282-299.

ANNEX C

CORRESPONDENCE BETWEEN THE PANEL AND THE
WORLD CUSTOMS ORGANISATION

CONTENTS PAGE
Annex C-1 Letter dated 7 June 2007 from the Panel to the Secretariat of the WCO C-2
Annex C-2 Letter dated 20 J une 2007 from the Secretariat of the WCO to the
Panel
C-5
Annex C-3 Letter dated 16 July 2007 from th e Panel to the Secretariat of the WCO C-11
Annex C-4 Letter dated 30 July 2007 from th e Secretariat of the WCO to the Panel C-14
Annex C-5 China's Comments on the Response of the WCO dated 30 July 2007 C-25
Annex C-6 Observations of the European Communities on the letter of the
Secretariat of the WCO of 30 July 2007
C-30
Annex C-7 Canada's Comments on the WCO Responses C-36

ANNEX C-1

LETTER DATED 7 JUNE 2007 FROM THE PANEL TO THE SECRETARIAT
OF THE WORLDS CUSTOMS ORGANISATION

 At its meeting of 26 October 2006, the WTO Dispute Settlement Body established the Panel
on China – Measures Affecting Im ports of Automobile Parts pursuant to requests by the European
Communities in document WT/DS339/8, the United St ates in document WT/DS340/8, and Canada in
document WT/DS342/8 (please see attached documents ), in accordance with Article 9 of the Dispute
Settlement Understanding. On 27 January 2007, a Panel was compos ed to examine this complaint
(please see the attached document with the tr iple symbol WT/DS339/9, WTDS340/9, and
WT/DS342/9).

 In these proceedings, issues relating to the Harm onised System, in particular tariff headings
8702, 8703, and 8704 of Chapter 87, have been raised in connection with the interpretation of China's
tariff Schedule under the GATT 1994. Given that the WCO is responsible for the administration of
the Harmonized System, the purpose of this letter is to request, on behalf of the Panel, the assistance
of the WCO in the form of any factual information available to it with respect to the relevance and
application of General Interpretative Rule 2(a) and the Harmonized System Committee Decision on
the Interpretation of General Interpretative Rule 2(a) in interpreting the tariff headings in question.

 The specific questions regarding which the Pa nel would like to seek the assistance from the
WCO at this stage are as follows:

1. Rule 2(a) of the General Rules for the Interpretation of the HS:
• Rule 2(a) states, inter alia, that "[a]ny reference in a heading to an article shall be taken
to include a reference to that article incomplete or unfinished, provided that, as presented,
the incomplete or unfinished article has th e essential character of the complete or
finished article." What does "as presented" mean as referred to in Rule 2(a)?;
• How should Rule 2(a) be interpreted in light of the below referenced Harmonized System
Committee Decision on the Interpretation of General Interpretative Rule 2(a)?;
• Is Rule 2(a), including its Explanatory No tes, relevant in delineating the boundary
between complete products and parts of those products for tariff classification purposes?;
• How should Rule 1 and Rule 2(a) be applied to the interpretation of Chapter 87 of the
HS?
• Article II of the GATT 1994, obligates WTO Members to apply tariffs to imported goods
of other Members in accordance with the term s and conditions contained in their tariff
Schedules. In light of this, can a Member's application of General Interpretative Rule
2(a) in interpreting their tariff Schedules co exist with this obligation under the GATT
1994? Assuming so, how much flexibility does a Member have in applying the
principles of Rule 2(a)?
• Under the measure at issue in this case, Ch ina treats the following combinations of auto
parts, whether shipped together or separately, as complete vehicles:

(1) Complete Knocked-Down ("CKD") or Se mi Knocked-Down ("SKD") kits imported
for assembling vehicles;
(2) certain combinations of assemblies (i.e. 8 assemblies are distinguished: body, engine,
transmission, driving axle, driven axle ( non-drive axle), frame, steering system and
braking systems) imported for assembling vehicles:
(a) Body + Engine;
(b) Body or Engine + at least 3 other imported Assemblies; and
(c) No less than 5 imported Assemblies other than the Body or
Engine; or
(3) the total price of imported parts account for at least 60% of the total price of a
complete vehicle of that vehicle model.
In your view, are the criteria listed above, which are used for classifying parts of a
product as a complete product, consistent w ith General Interpretative Rule 2(a) and
within the scope of discretion permitted to national authorities?
2. Harmonized System Committee Decision on the Interpretation of General
Interpretative Rule 2(a) (HCS/16/Nov. 95, Annex IJ/7 To Doc. 39.600E):
• What is the current legal status of this WCO decision? Is the decision binding on the
parties to the WCO and has there been an y subsequent discussions relating to or
modifications to the decision?;
• Paragraph 10 of this WCO decision refers to the questions of "s plit consignments" and
"the classification of goods assembled from el ements originating in or arriving from
different country". What do these phrases mean and are there any differences between
these two situations?;
• Paragraph 11 of this WCO decision refers to an additional study on the interpretation of
General Interpretative Rule 2(a) to be unde rtaken by the WCO Secretariat. It also
instructs the Secretariat to prepare a draft Explanatory Note. Could you please clarify
whether there has been any developments in this respect; and
• In paragraph 12 of this WCO decision, Admi nistrations were invited to send comments.
Have there been any developments in this respect?
3. General Classification Practices:
• Is it a common practice for customs authorities to impose tariff duties based on the
determination that separate parts of a product constitute the complete product?; and
• If so, is there a common practice among national customs authorities regarding what
point in time a determination is made wh ether the parts of a product constitute the
complete product for tariff classification purpo ses? In other words, do national customs
authorities make such determinations beyond th e point of importation (i.e. at the border)
and/or after the parts are assembled into a complete product within the importing
country?

4. Auto Parts:
• With respect to CKD and SKD kits, is there any difference between "manufacturing" and
"assembling"? If so, what is the difference and how is such difference relevant to
understanding General Interpretative Rule 2(a)?; and
• What degree of fitting or equipping of auto parts do you consider as necessary for such
parts to be classified as complete vehicles within the meaning of the General Notes for
Chapter 87?
 The Panel would like to thank you in adva nce for your cooperation and assistance in this
important matter. The information provided by the WCO will be of utmost assistance to the Panel in
coming to a positive solution to the dispute between the parties. It would be greatly appreciated if the
information requested in this letter could be made available by 26 June 2007.

ANNEX C-2

LETTER DATED 20 JUNE 2007 FROM THE SECRETARIAT OF THE
WORLD CUSTOMS ORGANISATION TO THE PANEL

 I am pleased to respond to your inquiry of 7 June 2007, in which you requested technical
advice regarding certain issues before Dispute Settl ement Panel DS339/340/342. The focus of your
inquiry is General Interpretative Rule (GIR) 2 (a ) of the Harmonized System and its impact on the
specific dispute at hand.

 As requested, please find attached to this le tter the Secretariat’s response to the raised
questions. Should you have any further questions or wish to obtain additional information, please do
not hesitate to contact me.

 The following information is provided in th e sequence of your letter of 7 June 2007.

"Rule 2 (a) of the General Rules for the Interpretation of the HS"

1. Interpretation of "as presented" : Firstly, I should explain that the HS was developed from the
Customs Co-operation Council Nomenclature (CCCN) and that General Interpretative Rule 2 (a) to
that previous nomenclature used the term "imported" in the English version. This GIR formed the
basis for GIR 2 (a) of the HS.

 When the HS was developed, the word "imported" in the CCCN was replaced with
"presented" in the English version of the HS. The French version of the CCCN already used the word
"présenté", and was not modified. The change was originally intended for a proposed Rule covering
goods shipped with their accessories, and the change was considered to be a modification that "would
align the two versions of the Rule and, at the same time, make it applicable to exported articles if
necessary" (Annex F/2 to Doc. 25.300E (NC/42/Apr. 79)). Although that proposed Rule did not
become part of the HS, the Nomenclature Committee (the Committee established under the CCCN
Convention) noticed that the misalignment also ex isted in General Interpretative Rule 2 (a), and
decided to replace "imported" with "presented" thro ughout the English versions of the Nomenclature
and Explanatory Notes, aligning it on the French word "présenté".

 In this context, I would like to remind you th at, unlike the CCCN, which was a Nomenclature
for the classification of goods in Customs Tariffs, the HS is used as a basis for Customs tariff and
statistical nomenclatures. The latter is emphasized in Article 3.1.b of the HS Convention, which
stipulates that "Contracting Parties shall make public ly available its import and export trade statistics
in conformity with the six-digit codes of the HS". Consequently, it appears that the term "imported"
would not have been appropriate for the application of the HS.

Returning to your question regarding the interp retation of the expression, "as presented", the
Committee has not considered its meaning except in the context of the issue of split consignments,
which I will discuss below in response to your specific question on that matter.

That being said, in the view of the Secretariat, the term "as presented" could be understood to
mean the moment 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.
However, the HS is silent on this point and the HS C has not considered any related modifications to
the HS; your organisation may wish to raise the issue before the Committee for consideration.

2. HSC Decision on interpretation of GIR 2 (a) : You refer to Annex IJ/7 to Doc. 39.600E, the
Report of the 16
th Session of the Harmonized System Committee (Nov. 1995). During that Session,
the Committee discussed some of the standards to be applied to the classification of unassembled or
disassembled goods pursuant to GIR 2 (a). The fo cus of the Committee’s consideration was the
nature of the individual parts that could compos e unassembled or disassembled articles that would be
eligible for classification as entities under GIR 2 (a). The Committee decided that the GIR would be
applicable only to kits or other collections of parts that could be combined into the finished article by
means of simple assembly operations, and would not be applicable to parts that required further
working or forming. This principle was embodied in the Explanatory Note to GIR 2 (a), which states
on page GIR-2, in paragraph (VII),

For the purposes of this Rule, "articles presented unassembled or disassembled"
means articles the components of which are to be assembled either by means of fixing
devices (screws, nuts, bolts, etc.) or by riveting or welding, for example, provided
only assembly operations are involved.
No account is to be taken in that regard of the complexity of the assembly method.
However, the components shall not be subjected to any further working operation for
completion into the finished state.
Unassembled components of an article which are in excess of the number required for
that article when complete are to be classified separately.
The Committee also reaffirm ed the October 1963 decision of the former Nomenclature
Committee (reported in paragraph 81 of Doc. 11.000) that, "the question of split consignments and the
classification of goods assembled from elements origin ating in or arriving from different countries are
matters to be settled by each country in accordan ce with its own national regulations." In the
Secretariat’s experience -- based on informal cl assification inquiries from customs administrations
over the years -- national regulations and laws appear to differ with respect to the applicability of
GIR 2 (a) to split consignments. Your organisatio n may wish to suggest that the HSC charge the
Secretariat with further research on this issu e, including possibly an informal survey of
administrations regarding their application of GIR 2 (a) for split consignments. I would, however,
expect that those administrations which permit such consolidation of entries would consider requests
for that treatment on a case by case basis, applying standards set forth in national laws and
regulations.
3. Relevance of GIR 2 (a) in determining the boundary between complete products and parts of
those products for tariff classification purposes : I believe that your question focuses on the meaning
of the clause, "the article has the essential character of the complete or finished article" as it appears in
GIR 2 (a). The Nomenclature and Explanatory Notes are largely silent regarding the meaning of this
expression, although several examples are cited among the Explanatory Notes to certain areas of the
HS; a notable example is the General Explanatory Note to Chapter 87 which states on page XVII-87-1
that :

An incomplete or unfinished vehicle is classified as the corresponding complete or
finished vehicle provided it has the essential character of the latter (see Interpretative
Rule 2 (a)), as for example :
(A) A motor vehicle, not yet fitted with the wheels or tyres and battery.

(B) A motor vehicle not equipped with its engine or with its interior fittings.
(C) A bicycle without saddle and tyres.
The question at what point a collection of parts can be considered to substantially compose a
complete motor vehicle is one that must be considered on a case by case basis. The Committee has
not formally developed principles, nor has the Co mmittee ruled formally on the classification of
unassembled sets of parts for motor vehicles of Chapter 87. However, I would note that Chapter 87
presents unique classification challenges because in a ddition to headings describing complete motor
vehicles (headings 87.01 – 87.05) and a headi ng for parts and accessories (heading 87.08), the
Chapter 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 86.07).

I mention these because, in the view of the Secr etariat, some sets of parts may be classifiable
by application of GIR 2 (a) in either of those headin gs. In this connection I should note that heading
87.07 would cover only those sets in which the engi ne is already fitted into the chassis, and such
assemblies that include cabs are classified in the head ings for complete motor vehicles (See Note 3 to
Chapter 87).

Therefore, the treatment of collections of part s of motor vehicles could range from individual
classification of each part in heading 87.08 or other eo nomine provisions in the Nomenclature (see
Note 2 to Section XVII), through headings 87.06 and 87.07, to headings 87.01 – 87.05. The
borderlines among these headings have not been test ed in the Committee with respect to unassembled
sets of parts.

That having been said, and although we are not in a position to give you specific advice on
some of the questions you raised regarding conc rete cases of importations, I shall note below the
principles that would come into play in making such determinations.

4. Application of GIR 1 and GIR 2 (a) in HS Chapter 87 : I would like to note first, that
GIR 2 (a) can only be applied in conjunction with GIR 1. As I stated in the previous two paragraphs,
when applying GIR 2 (a) to sets of unassembled parts, it is important to keep in mind not only the
exclusions contained in Note 2 to Section XVII, which would be applicable pursuant to GIR 1, but
also the texts of headings 87.06 and 87.07 (including Note 3 to Chapter 87). As an additional GIR 1
consideration, I would point out the important effect of Note 3 to Section XVII, which requires that,

References in Chapters 86 to 88 to "parts" or "accessories" do not apply to parts or
accessories which are not suitable for use sole ly or principally with the articles of
those Chapters. A part or accessory which an swers to a description in two or more of
the headings of those Chapters is to be classified under that heading which
corresponds to the principal use of that part or accessory.
5. Impact of GATT Article II on application of GIR 2 (a) : Article 3 of the HS Convention
obligates Contracting Parties to use the GIRs, Legal Notes and texts of the headings and subheadings
in their national nomenclatures, along with the releva nt numerical codes. Your organisation is the
repository for bindings with respect to tariffs, a nd I would expect that the schedules of concessions
deposited with the WTO by Contracting Parties to the HS would conform to the HS legal texts.

The nature of the commitments posed by Ex planatory Notes, Classification Opinions and
other advice rendered by the Committe e, even when specifically appr oved by the Council pursuant to
Article 8 of the HS Convention, is in the nature of advisory rather than conventional. The WCO has

in place procedures for notification by national admi nistrations when they are unable to apply, for
example, a particular decision. Beyond these cons iderations, I would defer to your organisation the
assessment of the relationship between GATT Article II and the GIR 2 (a).

6. Application of GIR 2 (a) to certain specific collections of parts : The examples you cited
address the question whether certain collections of parts could be considered to have "the essential
character of the complete or finished article", in terms of GIR 2 (a). Short of providing a specific
classification advice, I can offer the following principles that would affect a decision on application of
GIR 2 (a) your decision :

a. CKD and SKD kits : During the above mentioned HSC/16 consideration of GIR 2 (a)
(Annex IJ/7 to Doc. 39.600E), the Committe e agreed that the HS should not impose a
requirement that the subsequent assembly of the parts be "simple". For that reason the
HS does not limit the scope of GIR 2 (a) to sets of parts for which the required assembly
operation falls below a certain level of comple xity. Note the second part of paragraph
(VII) to the General Explanatory Note to GI R 2 (a), quoted above in my response to
point 0 above;

b. Certain sets of subassemblies : As above, the HS criterion is whether the specific
collection of parts presented has the essential character of the complete or finished
article. I remind you also, in this connection, of headings 87.06 and 87.07, and suggest
that you may wish to submit certain exampl es to the Committee for classification advice,
which could also eventually become embodi ed in the Explanatory Notes or in the
Compendium of Classification Opinions;

c. Sets of parts composing 60 percent or more the "total price" of the comparable
complete vehicle : Again, this would be a matter for the Committee to consider.

To respond to your question whether application of GIR 2 (a) to the above kinds of products
is within the scope of discreti on permitted to national authorities, I would merely say that absent
specific guidance from the Nomenclature (i.e., lega l provisions) or the Committee (i.e., interpretation
of the Nomenclature), it is within the purview of national customs administrations to interpret these
provisions. I should stress, however, that under the provisions of the HS Convention (i.e., Article 10),
any dispute between Contracting Parties concerni ng the interpretation or application of the HS
Convention shall, so far as possible, be settled by negotiation between them. If it is not possible to
settle the dispute, it shall be referred to the HSC to consider the dispute and to make recommendations
for its settlement.

"Harmonized System Committee Decision on the Interpretation of General Interpretative
Rule 2 (a) (HCS/16/Nov. 95, Annex IJ/7 to Doc. 39.600E)"

7. Current legal status and possible modifications : The Committee decision that GIR 2 (a)
should imply a certain range of expected assembly operations, was embodied in the Explanatory Note
to GIR 2 (a). Note that decisions of the HS Committee, including the Explanatory Notes and any
amendments thereto, are not binding (See Article 3. 1(a) of the Convention). Contracting Parties to
the HS are requested to inform th e Secretariat in case they are not able to implement any decision by
the HS Committee. The Secretariat has not received su ch a notification with respect to the decision at
hand.
8. Codification and further consideration of HS treatment of split consignments : During the
above mentioned HSC/16 discussions, the Committee reaffirmed its earlier decision (reported in

paragraph 81 of Doc. 11.000, NC/11/Oct. 63) that the possible treatment of split consignments as a
single entity for purposes of Interpretative Rule 2 (a ) was a matter to be handled exclusively at the
discretion of each individual administration, taking into account national laws and regulations. From
time to time the Committee informally noted this decision but it was never codified in legal or
Explanatory Note texts. The phrase "elements orig inating in or arriving from different countries"
encompasses the possibility of goods bei ng of (preferential of non-preferential) origin from the
country of shipment or from another country.
9. Secretariat study on possible modification of GIR 2 (a) or the related Explanatory Note :
During each review cycle, possible Explanatory No te revisions have always included the GIRs.
Following the conclusions at the 16
th Session, the Committee continued discussions at its 17 th and 18th
Sessions, resulting in an amendment to the Explanatory Note to GIR 2 (a). With that amendment Item
(VII), first paragraph, was replaced by the following text :
"(VII) For the purposes of this Rule, "article s presented unassembled or disassembled" means
articles the components of which are to be assembled either by means of fixing devices
(screws, nuts, bolts, etc.) or by riveting or welding, for example, provided only assembly
operations are involved.

 No account is to be taken in that regard of th e complexity of the assembly method. However,
the components shall not be subjected to any further working operation for completion into
the finished state." (Annexes H/25 and L/6 to Doc. 40.600E – HSC/18/Nov. 96)

10. Input from member administrations to possible legal or EN changes related to GIR 2 (a) :
See paragraph 9 above.
"General Classification Practice"

11. Impose tariff duties based on application of GIR 2 (a) : The application of tariff duties is
outside the legal purview of WCO. In this context I would like to draw your attention to Article 9 of
the HS Convention, which stipulates that "The C ontracting Parties do not assu me by this Convention
any obligation in relation to rates of Customs duty."
12. Timing of customs determination of final assembly for purposes of application of GIR 2 (a) : I
would like to refer to my remarks in paragraph 1 above. That having been said, the Secretariat is
aware that at least one Contracting Party has introduced legal provisions in Section XVI (i.e.,
Chapters 84 and 85) and for headings 86.08, 88.05, 89.05 and 89.07, stipulating that "The provisions
of General Rule 2 (a) are also applicable, at the request of the declarant and subject to conditions
stipulated by the competent authorities, to [machines] [goods of headings 86.08, 88.05, 89.05 and
89.07] imported in split consignments."
In this context, it is also to be noted that the term "importation" is denoted as "the act of
bringing or causing any goods to be brought into a Customs territory" ( Glossary of International
Custom Terms).
"Auto parts"

13. Difference between "manufacturing" and "assem bling" of CKD/SKD kits, and the relevance
thereof to application of GIR 2 (a) : In my view, although the term "manufacturing" does not occur in
the text of GIR 2 (a) or in the related Explanat ory Notes, it includes but is not restricted to
"assembling". According to the Explanatory Note to GIR 2 (a), the assembling process is restricted to

actions which involve means of fixing devices (screws, nuts, bolts, etc.) or by riveting or welding, for
example. No account is to be taken in that re gard of the complexity of the assembly method.
However, the components shall not be subjected to any further working operation for completion into
the finished state. See also paragraph 9 above.
14 Degree of fitting or equipping necessary for a veh icle to be considered complete within the
meaning of the Notes to Chapter 87 : Firstly, I would reiterate the point I stated under items 6b and
12 above -- that we would interpret GIR 2 (a) to call for an analysis of the susceptibility of the subject
collection of parts to be assemb led in accordance with the guideli nes set forth in paragraph (VII) on
Explanatory Notes page GIR-2 and quoted under item 2 above. This analysis would not rely upon
observation or certification of actual assembly procedures, but would depend on the kinds of
operations that would be necessary in order to transf orm the parts into an article that would have the
essential character of the complete or finished article of an appropriate heading.
Finally, it would be appreciated if the content of this submission is not made available to the
general public without prior approval from this side.

ANNEX C-3

LETTER DATED 16 JULY 2007 FROM THE PANEL TO THE SECRETARIAT
OF THE WORLD CUSTOMS ORGANISATION

 I would like to take this opportunity to thank you again for your response to our inquiry of
7 June 2007 with respect to the Panel proceedings on . Your reply has proven very helpful in understanding various issues relating to the
Harmonized System presented in this case.
 In this regard, the Panel would like to seek furt her clarifications on this issue with respect to
the additional questions that follow below, in cluding issues relating to the "Revised Kyoto
Convention on the Simplification and Harmoniza tion of Customs Procedures" and the WCO's
"Glossary of International Customs Terms."
Rule 2(a) of the General Rules for the Interpretation of the HS:

5. Concerning the determination of the "essential character" of an incomplete or unfinished
article as envisaged under GIR 2(a), can such a dete rmination be made on a case-by-case basis only?
In other words, in your view, can customs authorities have a set of pre-determined criteria that will be
used in determining whether certain imported part s and components have the essential character of a
complete article?
6. Following up on your response in paragraph 4 of your reply that GIR 2(a) must be applied
together with GIR 1, does this mean that GIR 2(a) can only be taken into cons ideration after applying
GIR 1?
7. Are the six General Interpretative Rules applied in a hierarchical order? If the classification
can be determined according to the terms of the headings and any relative Section or Chapter notes,
are other rules simply not applicable?
8. Is it within customs authorities' discretion to cl assify parts as a complete article to ensure the
collection of a higher rate of duty applicable for co mplete articles regardless of the manner in which
the importer wishes to structure and document its import s? In this connection, what is the pertinence,
if any, of the second sentence of Explanatory Note V to GIR 2(a), which states that "it is usually for
reasons such as requirements or convenience of packing, handling or transport"?
9. Could you explain what are the circumstances in which a need for customs authorities to
apply the principles of GIR 2(a) arises. In this re gard, what are the differences between the first and
second sentences of GIR 2(a)?
10. Does the principle of the second sentence of GIR 2(a) with respect to "articles presented
unassembled or disassembled" cover only situations where parts necessary to assemble a complete
article arrive at the border in one shipment at onc e or does it also cover situations where parts to
assemble a complete article arrive separately in multiple shipments, including those arriving at
different times in different ports from different places of origin?
11. Following up on Question 2 (second bullet point) in our previous letter to you, could you
please advise us whether the type of goods mentioned in paragraph 10 of the HS Committee Decision,
namely "the classification of goods assembled from elements originating in or arriving from different

countries", refers to goods that have arrived at the border in already assembled form from such
elements? In other words, what does "goods asse mbled" mean in this context, goods already
assembled when presented at the border or goods to be assembled in the importing country?
12. Is the Nomenclature Committee's decision c ited in paragraph 10 of the HS Committee
Decision (HSC/16/Nov. 95) an indication that matters involving goods of mixed origin are beyond the
scope of GIR 2(a)? Does paragraph 10 of the HS Committee decision address the question relating to
the rules of origin rather than tariff classification issues? Please provide a copy of the Nomenclature
Committee's decision (NC/11/Oct. 63 – Report) cited in paragraph 10 of the HS Committee Decision.
13. Paragraph 11 of the HS Committee Decision states that "Mr. Kusahara pointed out that the
legal text of General Interpretative Rule 2(a) was open to different interpretations." To what extent is
the legal text of General Interpretative Rule 2( a) open to different interpretations by the WCO
Members?
14. When parts and components are imported and subsequently assembled into a complete article,
what should be shown in the impor t statistics of the importing country ? For example, should it be
different origins of the parts and components that make up the complete article?
15. Is it a norm for customs authorities to presu me that the information on the importer's
declaration form is correct and accept it as declar ed by the importer unless such information can be
proven incorrect by customs authorities?
16. In applying the principle of GIR 2(a), how should parts generally used in the assembly of
various goods such as nuts and bolts be classified? Are these connecting parts also taken into account
in determining whether certain parts have the essential character of a complete article?
17. Is the concept of "consignments" as in "split consignments" any different from the concept of
"shipment"?
Revised Kyoto Convention on the Simplification and Harmonization of Customs Procedures
(the "Kyoto Convention"):

18. Does the Kyoto Convention contain any reference to the time and place of the collection or
assessment of duties? Is there any other supplemental material informing the meaning of the time and
place of the collection or assessment of duties? Is there any relevant information in the negotiating
history of the Kyoto Convention on the meaning of these terms?
19. Chapter 2 of the Kyoto Convention contains the following definition:
• E8./ F11. " Customs duties" : means the duties laid dow n in the Customs tariff to
which goods are liable on entering
 or leaving the Customs territory;

• E20./ F14. " import duties and taxes ": means Customs duties and all other duties,
taxes or charges which are collected on or in connection with the importation of
goods, but not including any charges which ar e limited in amount to the approximate
cost of services rendered or collected by the Customs on behalf of another national
authority.

 Are there any supplemental materials informing the meanings of respectively "liable on
entering (...) the Customs territory " and "on or in connection with the importation " referred to above?

Is there any relevant informati on in the negotiating history of the Kyoto Convention on the meanings
of "liable on entering (...) the Customs territory
" and "on or in connection with the importation "
referred to above? Has the language of Article II:1(b) of the GATT 1994 been in any manner
mentioned in the negotiating history of the Kyoto Convention in the context of these definitions?

20. What is the relationship between the respective definitions of " Customs duties" and " import
duties and taxes" in Chapter 2 of the Kyoto Convention? In particular, what is the difference between
the expression "liable on entering" used in the former and the expression "on or in connection with the
importation" used in the latter?
World Customs Organization, Glossary of Inte rnational Customs Terms, Brussels, May 2006
(The "GLOSSARY"):

21. In the "Recommendations of the Customs Co- operation Council concerning the use of the
Glossary of International Customs Terms" of 6 Ju ly 1993, it is stated that "though the Glossary does
not in itself have the legal status of an interna tional instrument, it has been approved by the Council
and certain definitions within it have been accep ted by the Contracting Parties to the principal
international Customs Conventions." Would it be possible for the WCO to indicate which are the
definitions of the Glossary that "have been accep ted by the Contracting Parties to the principal
international Customs Conventions" and/or whether the above-mentioned two definitions are included
in the scope of such definitions that have been accepted by the Contracting Parties?
 The Panel would be very grateful if the info rmation requested in this letter could be made
available by 30 July 2007
. Also, taking this opportunity, I woul d like to assure you that the parties to
the dispute have been reminded of the confidentialit y of your letter dated 20 June 2007. If you have
questions and/or concerns in this matter, please don't hesitate to let us know.

ANNEX C-4

LETTER DATED 30 JULY 2007 FROM THE SECRETARIAT OF THE
WORLD CUSTOMS ORGANISATION TO THE PANEL

 I am pleased to respond to your follow-up inqui ry of 16 July 2007, regarding certain issues
before Dispute Settlement Panel DS339/340/342 and my earlier correspondence (07NL0408).

 As requested, please find attached to this letter the Secretariat's response to the questions that
have been raised. Should you have any further ques tions or wish to obtain additional information,
please do not hesitate to contact me.

Rule 2(a) of the General Rules for the Interpretation of the HS :

5. Question: Concerning the determination of the "essential character" of an incomplete
or unfinished article as envisaged under GIR 2(a) , can such a determination be made on a case-
by-case basis only ? In other words, in your view, can customs authorities have a set of pre-
determined criteria that will be used in determining whether certain imported parts and
components have the essential character of a complete article?
There is nothing in the Convention or policy decisions of the HS Committee that would
preclude an administration from establishing formal cr iteria for determining when GIR 2 (a) is to be
applied. Indeed, interpretation of the HS is th e right of every Contracting Party (CP), and such
interpretations could conceivably take the form of advance classification rulings (binding tariff
information or BTI), individual classification dete rminations upon liquidation of a specific formal
entry, national court rulings, regulations or statutes.
Of course, such actions could result in interpretations that differ among countries. When a CP
requests that the Committee consider the classification of a specific article (or group of articles
presented together), and the Committee makes a de termination and issues a Classification Opinion
(CO), it is not uncommon for the resulting CO to be at variance with one or more national
classification rulings, BTIs, or other administrative or statutory rules. CPs are expected to seek a way
to modify their internal instruments so as to perm it application of the CO, and they are obligated to
inform the Committee when they are unable to do so.
6. Question: Following up on your response in paragraph 4 of your reply that GIR 2(a)
must be applied together with GIR 1, does this mean that GIR 2(a) can only be taken into
consideration after applying GIR 1?
 My statement in response to your initial questi on #4 was that, "GIR 2 (a) can only be applied
in conjunction with GIR 1." As stated in the legal text of GIR 1,
The titles of Sections, Chapters and sub-Ch apters are provided for ease of reference
only; for legal purposes, classification shall be determined according to the terms of
the headings and any relative Section or Ch apter Notes and, provided such headings
or Notes do not otherwise require, according to the following provisions : "
 The words "and,…, according to the following provisions" requires that all the GIRs be
consulted when classifying articles in the HS. Howe ver, GIRs 3 and 4 begin with text that clearly

makes them applicable only when GIRs 1, 2, 5 and 6 do not provide a unique classification for the
subject article. Not being introduced by such co nditional text, GIR 2 must always be considered
provided the headings and legal notes do not otherwise require.
 The italicised text in the preceding sentence m eans 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 apply (that is, because such headings or Notes …otherwise require. )
Examples of such are headings 87.06 and 87.07, as I pointed out in my letter of 20 June 2007. This
principle is expounded in paragraph (V) of the Explanatory Note to GIR 1 (ENs page GIR-1):
"In provision (III) (b), the expression " provided such headings or Notes do not
otherwise require " is intended to make it qu ite clear that the terms of the headings
and any relative Section or Chapter Notes are paramount, i.e., they are the first
consideration in determining classification. For example, in Chapter 31, the Notes
provide that certain headings relate onl y to particular goods. Consequently those
headings cannot be extended to include goods which otherwise might fall there by
reason of the operation of Rule 2 (b)."
7. Question: Are the six General Interpretative Rules applied in a hierarchical order? If
the classification can be determined according to the terms of the headings and any relative
Section or Chapter notes, are other rules simply not applicable ?
 It is common practice to explain the applicati on of the GIRs as sequential. The Secretariat
itself has provided classification advice to customs administrations in which we stated that
classification is by GIR 1 (and 6, of course) and that GIRs 2 – 5 do not apply. However, you can see
from my previous response that to be precise, when classification is by GIRs 1 and 6, it does not mean
that other GIRs have not been consulted. It merely means that application of the text of GIR 1, in
particular the phrase, "provided such headings or Notes do not otherwise require," makes GIR 2
inapplicable.
 A Classification Opinion promulgated by the HS C includes a statement of applicable GIRs.
For the reasons enumerated above, the Committee now includes GIR 1 in every statement of
applicable GIRS (Other Section or Chapter Notes are sometimes also cited.)
8. Question: Is it within customs authorities' discretion to classify parts as a complete
article to ensure the collection of a higher rate of duty applicable for complete articles
regardless of the manner in which the importer wi shes to structure and document its imports?
In this connection, what is the pertinence, if any, of the second sentence of Explanatory Note V
to GIR 2(a), which states that "it is usually fo r reasons such as requirements or convenience of
packing, handling or transport"?
Article 9 of the HS Convention states that "The Contracting Parties do not assume by this
Convention any obligation in relation to rates of Customs duty." That strong statement makes it
clear that the purview of the WCO, its instrume nts and its Committees does not extend to tariff-based
issues. Therefore, the Secretariat is not in a position to respond to questions related to such issues. I
would refer you to my response to question 5 above regarding national authorities' discretion in
classification.
However, I should also note that the preamble to the original BTN Convention
(15 December 1950) notes the desirability of "a common basis for the classification of goods in
customs tariffs."

As for the cited EN text, it is the Secretaria t's understanding that the text is merely an
explanation of historical reasons for articles being shipped unassembled or disassembled. The ENs
are merely advisory in nature and not dispositive, and are therefore neither prescriptive nor, by reverse
analogy, proscriptive.
9. Question: Could you explain what are the circumstances in which a need for customs
authorities to apply the principles of GIR 2(a) arises. In this regard, what are the differences
between the first and second sentences of GIR 2(a) ?
Based on my previous responses above, it follows that GIR 2 (a) should always be applied
when all three of the following conditions are met :
(i). the entry under consideration is presente d incomplete, unfinished, unassembled or
disassembled and
(ii). as presented it has the essential character of the complete or finished article, and
(iii). the heading and Legal Notes of the HS do not otherwise provide for the entry.
As regards the difference between the first and second sentences of GIR 2 (a), the first
sentence provides for classification, as an entity, of articles presented incomplete or unfinished, while
the second sentence provides for classi fication, as an entity, of certain collections of individual
articles (commonly referred to as "parts"). The second sentence also clarifies that in order to qualify
for classification as an entity, the actual collection of "parts" does not have to be sufficient to
assemble a complete or finished articles, so long as the "parts" can be assembled into an incomplete or
unfinished article that has the essential character of a complete or finished article.
Please note that the use of the terms "entity" and "parts" in the above paragraph is not
intended to be construed in any particular legally binding way but merely as a generic informational
concept.
10. Question: Does the principle of the second sen tence of GIR 2(a) with respect to "articles
presented unassembled or disassembled" cover on ly situations where parts necessary to
assemble a complete article arrive at the border in one shipment at once or does it also cover
situations where parts to assemble a complete arti cle arrive separately in multiple shipments,
including those arriving at different times in different ports from different places of origin ?
I would use the expression "split consignments " to identify the kinds of shipments you
describe. "Split consignments" is not formally de fined but is used widely to describe a range of
trading practices. As I noted in paragraph 8 of my June 20 letter, the HSC, which determines the
scope of the HS, has decided "that the possible tr eatment of split consignments as a single entity for
purposes of Interpretative Rule 2 (a) was a matter to be handled exclusively at the discretion of each
individual administration, taking into account national laws and regulations."
This would not preclude the Committee from c onsidering a modification to the legal or
Explanatory texts to provide a rule for such situa tions, but so far the Committee has not elected to do
so.
11. Question: Following up on Question 2 (second bullet point) in our previous letter to you,
could you please advise us whether the type of goods mentioned in paragraph 10 of the HS
Committee Decision, namely "the classification of goods assembled from elements originating in

or arriving from different countries", refers to good s that have arrived at the border in already
assembled form from such elements? In othe r words, what does "goods assembled" mean in
this context, goods already assembled when presented at the border or goods to be assembled in
the importing country ?
The Session in question occurred in 1995, and th e sole guidance we have is the Summary
Record (Doc. 39.600) itself.
The entire sentence from which you quoted reads,
"Thus, the Committee decided that the qu estions of split consignments and the
classification of goods assembled from elemen ts originating in or arriving from
different countries are matters to be settle d by each country in accordance with its
own national regulations."
The HS does not direct CPs to classify entries di fferently or alike at the HS level on the basis
of single origin as opposed to multiple origin. I w ould be inclined to regard the passage you quoted
rather as referring to the classification of a collec tion of articles based on their susceptibility to further
assembly, and reflecting 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.
Again, this would not preclude the Committee from considering a modification to the legal or
Explanatory texts to provide a rule for such situa tions, but the Committee has not elected to do so in
the past.
12. Question: Is the Nomenclature Committee's decision cited in paragraph 10 of the HS
Committee Decision (HSC/16/Nov. 95) an indica tion that matters involving goods of mixed
origin are beyond the scope of GIR 2(a) ? Do es paragraph 10 of the HS Committee decision
address the question relating to the rules of orig in rather than tariff classification issues ?
Please provide a copy of the Nomenclature Committee's decision (NC/11/Oct. 63 – Report) cited
in paragraph 10 of the HS Committee Decision.
I would respond to your first question by statin g that the Nomenclature Committee's decision
cited in paragraph 10 of the HS Committee Deci sion (Annex IJ/7 to Doc. 39.600, HSC/16/Nov. 95)
appeared to be an indication that the HS does not address the applicability of GIR 2 (a) to the
classification of goods of mixed origin.
I would respond to your second question by stati ng that it seems that paragraph 10 of the HS
Committee decision connotes that, in their view, whether multiple origin should affect the
classification of unassembled or disassembled articles is a matter to be handled exclusively at the
discretion of each individual administration, taking into account national laws and regulations.
At the end of this response you will find a copy of the relevant excerpt from the Summary
Record of the 11
th Session of the Nomenclature Committee (Doc. 11.000, Oct. 1963).
13. Question: Paragraph 11 of the HS Commi ttee Decision states that "Mr. Kusahara
pointed out that the legal text of General Interpretative Rule 2(a) was open to different
interpretations." To what extent is the legal text of General Interpretative Rule 2(a) open to
different interpretations by the WCO Members ?

The point raised by the Director of Nomenclatu re reflects the general concept I stated in my
response to question #5 above, that interpretation of the HS is the right of every CP, and such
interpretations could conceivably take the form of BTIs, individual classification determinations upon
liquidation of a specific formal entry, national court rulings, regulations or statutes.
Of course, such actions could result in interp retations that differ among different countries.
When a CP requests that the Committee consider th e classification of a specific article (or group of
articles presented together), and the Committee ma kes a determination and issues a CO, it is not
uncommon for the resulting Classification Opinion (CO) to be at variance with one or more national
classification rulings, BTIs, or other administrative or statutory rules. CPs are expected to seek a way
to modify their internal instruments so as to perm it application of the CO, and they are obligated to
inform the Committee when they are unable to do so.
14. Question: When parts and components are imported and subsequently assembled into a
complete article, what should be shown in the import statistics of the importing country? For
example, should it be different origins of the parts and components that make up the complete
article ?
Article 1 (b) of the HS Convention provides that :
Each Contracting Party shall also make pub licly available its import and export trade
statistics in conformity with the six-digit codes of the Harmonized System, or, on the
initiative of the Contracting Party, beyond that level, to the extent that publication is
not precluded for exceptional reasons such as commercial confidentiality or national
security.
The HS therefore does not preclude CPs from publishing data reflecting origin. However, as I
noted in my response to question #11 above, the HS do es not direct CPs to treat entries differently or
alike on the basis of single origin as opposed to multiple origin.
The 1 July 2006 WCO Recommendation on The Use of Standard Units of Quantity to
Facilitate the Collection, Comparison and Analys is of International Statistics Based on the
Harmonized System specifies, for parties that a pply the Recommendation, a unique unit of quantity
for each subheading as the minimum quantitative data reported by that administration in its national
trade statistics. As of 13 March 2007, 52 (out of 128) CPs and three non-contracting parties have
notified the Secretariat that they are applying that particular Recommendation.
However, those units of quantity represent an aggregate figure for an entire HS subheading,
so the impact of a particular administration's polic y regarding multiple origin and GIR 2 (a) might not
be evident from the quantitative data, and again th e HS does not specify how multiple origin would
affect reporting of the standard unit of quantity, thereby leaving it to each administration to decide and
implement its own methodology for dealing with that issue.
15. Question: Is it a norm for customs authorities to presume that the information on the
importer's declaration form is correct and accep t it as declared by the importer unless such
information can be proven incorrect by customs authorities ?
The HS is silent with respect to presumption of correctness. From time to time, the members
of the WCO meet in several fora to discuss matters of Customs technique and procedure. There are
several international instruments, such as th e Valuation Agreement and the (Revised) Kyoto

Convention through which Contracting Parties agree to disclose and/or harmonize certain aspects of
their procedures, and you may be interested in examining those Conventions.
16. Question: In applying the principle of GIR 2(a), how should parts generally used in the
assembly of various goods such as nuts and bolts be classified ? Are these connecting parts also
taken into account in determining whether certain parts have the essential character of a
complete article?
In practice, many automotive fittings, such as t hose described in headings 73.17 or 73.18, are
considered parts of general use as defined by Note 2 to Section XVI. Pursuant to Note 3 to Section
XVII, such articles when presented separately are not classifiable in the provisions for parts of
automotive vehicles.
However, that would not preclude them from being included among the components covered
by GIR 2 (a), since the GIRs are applicable to the entire HS – unless, of course, the legal text of any
headings or Notes otherwise requires.
17. Question: Is the concept of "consignments" as in "split consignments" any different
from the concept of "shipment"?
None of those terms has conventional status in the HS, and therefore there would be no
official interpretation of any of them. However, I would expect that because of the wide use of such
terms, with widely differing meanings among diffe rent customs administra tions, national laws and
regulations, and the trade, in the future the HS Committee would either avoid such expression in any
documents that might have precedent value (Classification Opinions, Recommendations,
Conventions), or else define the term rigidly.
Revised Kyoto Convention on the Simplification and Harmonization of Customs Procedures
(the "Kyoto Convention") :

General comments
 : China became a Contracting Party to the Revised Kyoto Convention by
depositing its instrument of accession to the Protocol of Amendment on 15 June 2000 and the Revised
Kyoto Convention entered into force on 3 Feb 2006. Accordingly, the Definitions provided for in
Chapter 2 of the General Annex to the Revised K yoto Convention became effective on that day.
Nevertheless, Definitions per se did not establish obligations on the Contracting Parties. China has a
period of three years (or five years for certain prov isions) from the date of entry into force of the
Revised Kyoto Convention to fully implement substa ntive provisions (i.e., 3 Feb 2009 = three years
after the entry into force of the convention).
In order to avoid any misunderstanding between the original Kyoto Convention (1973) and
the Revised Kyoto Convention (1999), the abbreviati on of RKC is used for the latter convention in
this response.
The texts of the Kyoto Convention and the RKC are available on the WCO public web site at:
http://www.wcoomd.org/ie/En/Conventions/conventions.html
The RKC Guidelines are not legally binding instruments, but they provide useful information
which can be used by WCO Members as interp retative notes and guidance by indicating best
practices. If you do not have access to the Guid elines, please contact us. (The Guidelines are
copyright protected and are normally sold to the public on payment of a fee).

The interpretative authority for the RKC is its Contracting Parties collectively. Any
expression of views in this note are those of the WCO Secretariat.
18. Question: Does the Kyoto Convention contai n any reference to the time and place of the
collection or assessment of duties? Is there any other supplemental material informing the
meaning of the time and place of the collection or assessment of duties? Is there any relevant
information in the negotiating history of the Kyoto Convention on the meaning of these terms ?
The RKC legal texts provide that national legislation shall specify the circumstances
concerning the assessment and collection of Customs duties. It does not therefore specify the time
and place of the collection or assessment of duties. The relevant RKC General Annex Chapter is
Chapter 4.
With respect to the assessment, the relevant Sta ndards are 4.1, 4.2, 4.3 and 4.5 of the General
Annex, and supplementary information is found in their Guidelines (General Annex Chapter 4 –
Guidelines on Duties and Taxes, 1.2 Background, 2.1 Assessment and collection of duties and taxes,
2.1.1. Assessment).
The RKC provisions distinguish collection from payment: the former is an action by the
Customs while the latter is an action by the trade. Your question specifies collection. With respect to
collection, the relevant Standards are 4.10. Supple mentary information may be found in its Guideline
(General Annex Chapter 4 – Guidelines on Duties and Taxes, 2.1 Assessment and collection of duties
and taxes, 2.1.4. Collection).
With respect to the payment, the relevant Sta ndards are 4.8 and 4.9 of the General Annex.
The 'due date' is defined in Chapter 2 of the Gene ral Annex as "the date when payment of duties and
taxes is due". Its Guideline also specifies that duties and taxes are usually paid at the Customs office
where the Goods declaration was lodged or in some cases one Customs offi ce may be selected for
payment of duties and taxes for all shipments, regardless of where they were cleared.
19. Question : Chapter 2 of the Kyoto Convention contains the following definition :
• E8./ F11. "Customs duties": means the duties laid down in the Customs tariff to
which goods are liable on entering
 or leaving the Customs territory;

• E20./ F14. "import duties and taxes": means Customs duties and all other duties,
taxes or charges which are collected on or in connection with the importation of
goods, but not including any charges which are limited in amount to the
approximate cost of services rendered or collected by the Customs on behalf of
another national authority.

Are there any supplemental materials inform ing the meanings of respectively "liable on
entering (...) the Customs territory " and "on or in connection with the importation " referred to
above ? Is there any relevant information in the negotiating history of the Kyoto Convention on
the meanings of "liable on entering (...) the Customs territory " and "on or in connection with
the importation " referred to above ? Has the language of Article II:1(b) of the GATT 1994
been in any manner mentioned in the negotiating history of the Kyoto Convention in the context
of these definitions ?

With respect to the phrase "on or in connection with the importation", this phrase is not new.
For example, it was used in the definition of the te rm "import duties and taxes" in the original Kyoto
Convention Annex B.1 (Formalities for home use: entered into force in 1977) and the UN/TIR
Convention (1975). The Commentary to the original Kyoto Convention with respect to the definition
of the term "import duties and taxes" explains th at "(t)his Definition also covers Value Added Tax
collected in connection with the importation of good s." Accordingly, we interpret this phrase to
covers not only Customs duties but also a wide range of domestic taxes.
With respect to the scope of "all other duties or charges of any kind imposed on or in
connection with the importation" provided for in GATT Article II 1(b), in the GATT Council's
decision of March 1980 (BSID 27S/22), the GATT Council stated that the term refers in principle
only to those duties and changes that discriminate against imports. GATT Article II:2 made it clear
that they concern neither charges equivalent to internal taxes, nor anti-dumping or countervailing
duties, nor fees or other charges commensurate with the cost of services rendered.
20. Question: What is the relationship betwee n the respective definitions of "Customs
duties" and "import duties and taxes" in Chapter 2 of the Kyoto Convention ? In particular,
what is the difference between the expression "lia ble on entering" used in the former and the
expression "on or in connection with the importation" used in the latter?
Customs duties = duties laid down in the Custom s tariff to which goods are liable on entering
… the Customs territory
Import duties and taxes = [Customs duties] + [a ll other duties, taxes or charges which are
collected on or in connection with the importation of goods]
Domestic taxes may be charged on the goods (excise duty) or sales transaction (VAT). In our
view, the phrase "on or in connection with the impor tation" refers to the imposition of domestic taxes
on the imported products.
World Customs Organization, Glossary of In ternational Customs Terms, Brussels, May
2006 (The "GLOSSARY") :

21. Question: In the "Recommendations of the Customs Co-operation Council concerning
the use of the Glossary of International Customs Terms" of 6 July 1993, it is stated that "though
the Glossary does not in itself have the legal stat us of an international instrument, it has been
approved by the Council and certain definitions within it have been accepted by the Contracting
Parties to the principal international Customs Conventions." Would it be possible for the WCO
to indicate which are the definitions of th e Glossary that "have been accepted by the
Contracting Parties to the principal internatio nal Customs Conventions" and/or whether the
above-mentioned two definitions are included in the scope of such definitions that have been
accepted by the Contracting Parties ?
General Comments
: WCO Recommendations (CCC Recommendations) are not legally
binding instruments.
WCO Recommendations are available on the WCO's public web site
http://www.wcoomd.org/ie/En/Recommendations/recommendations.html

The Glossary of International Customs Terms is available in electronic form on the WCO
Members' web site. Please let me know if your st aff do not have access to the site and would like
copies (French and/or English).
http://members.wcoomd.org/Procedures/Glossary.pdf

The Glossary contains several notes explaining the reference to international conventions,
notably the Revised Kyoto Convention and the TIR Convention.
The key phrase is the one you quote, namely 'though the Glossary does not in itself have the
legal status of an international instrument, it has been approved by the Council and certain definitions
within it have been accepted by the Contracting Parties to the principal international Customs
Conventions as part thereof.'
As mentioned before, the WCO Recommendations are not legally binding instruments. In
addition, China has not accepted the Recommendation in question.
In our view, a particular word or phrase, even if used in different conventions, will have the
meanings assigned to it in the Convention in question.
I hope that this information is useful to you. It would be appreciated if the content of this
submission is treated as confidential as we agreed in the letter of 20 June 2007, and that it not be made
available outside your Organisation except under th e conditions we agreed to in your e-mail of
22 June 2007 and my reply (07NL0449) of 25 June 2007.

 NOMENCLATURE COMMITTEE 11.000 E
 11th session

 30 October 1963

R E P O R T

 (a) Articles imported unassembled or disassembled (Doc. 8179, 8333, 8917, 9386, 9550,
9732, 10.195, 10.313 and 10.829)

79. The Committee pursued its examination of this item on the basis of Member Administrations'
observations concerning the Draft Interpretative Rule on the classification of articles imported
unassembled or disassembled.

80. The following decisions were taken:

 (1) The Committee confirmed, by a two-thir ds majority its decision to insert a new
General Interpretative Rule in the Nomenc lature rather than introducing individual
Section or Chapter Notes, since it was agreed that that procedure of issuing
Classification Opinions would not provide a satisfactory solution for the problem.

 (2) The Committee agre ed that, since an Interpretative Rule should apply throughout the
Nomenclature, the new Rule should contai n no provision restricting its scope. In
compliance with the request of certain De legations, it was, however, decided to
maintain the phrase "falling within Secti ons VII and XXI of the Nomenclature"
(placing it between square brackets), pending further progress in the study.

 (3) Since Interpretative Rule 1 already incl udes an equivalent provision covering all the
following Rules, it was considered unn ecessary to include the phrase "unless
otherwise provided" in the new Draft Rule.

 (4) As requested by Members using the English version of the Nomenclature, the
Committee decided to substitute the word "goods" for "articles" in the English text.

 (5) In order to give the proposed Rule the same scope as the various Section and Chapter
Notes which it will replace, the Committee decided that it should not contain a
restriction limiting it to those goods which are imported unassembled or disassembled
mainly for reasons of convenience of handling, packing or transport.

 (6) It was agreed that the new Rule should also apply to parts imported unassembled or
disassembled; this will be made clear in the Explanatory Notes.

 (7) The Committee decided to maintain th e reference to "goods regarded as being
complete", since the question of a Rule for the classification of incomplete or
unfinished articles is being studied separately.

81. It was further agreed that the questions of split consignments and th e classification of goods
assembled from elements originating in or arriving from different countries are matters to be settled
by each country in accordance with its own national regulations.

82. Having regard to the decisions taken, the draft Interpretative Rule now reads as follows:

 English version

 "Goods which are complete or are rega rded as being complete [falling within
Sections VII to XXI of the Nomenclature], imported unassembled or disassembled,
are to be classified as assembled goods of the corresponding kind".

 French version

Nomenclature,] doit, lorsqu'il est présenté à l'état démonté ou non monté, être classé

83. This text will be re-examined by reference, in particular, to the results of the current study on
the rule for the classification of incomplete and unfinished goods (see paragraphs 85 to 87 below).

 The Secretariat will, however, commence as of now the preparation of draft consequential
amendments to the Explanatory Notes for submission to a future Session.

ANNEX C-5

CHINA'S COMMENTS ON THE RESPONSE OF THE WORLD
CUSTOMS ORGANIZATION DATED 30 JULY 2007

1. China considers that the res ponse of the World Customs Organization to the Panel's second
set of questions definitively resolves the issue of whether customs authorities can apply General
Interpretative Rule 2(a) to multiple shipments of parts and components that have the essential
character of the complete article. As China has maintained throughout these proceedings, the answer
to that question is that the application of GIR 2(a) to multiple shipments of parts and components is a
matter to be resolved by each member of the Harm onized System in accordance with its national laws
and regulations. Contrary to the complainan ts' repeated and unsubstantiated assertions, the
application of GIR 2(a) to multiple shipments is not precluded by the rules of the Harmonized System
and is, in fact, expressly contemplated by the 1995 decision of the Harmonized System Committee.
2. In response to question 10, concerning the application of GIR 2(a) in "situations where parts
to assemble a complete article arrive separately in multiple shipments, including those arriving at
different times in different ports from different places of origin," the WCO explains that these types of
shipments would be described as a type of split consignment.
1 The WCO refers the Panel to its letter
of 20 June 2007, in which it explains that the Harmonized System Committee "has decided ‘that the
possible treatment of split consignments as a single entity for purposes of Interpretative Rule 2(a) was
a matter to be handled exclusively at the discre tion of each individual administration, taking into
account national laws and regulations.'"2
3. The discretion of national authorities to apply GIR 2(a) to multiple shipments of parts and
components is further confirmed by the WCO's res ponse to questions 11 and 12. The WCO explains
that the reference in the HS Committee Decisi on to "the classification of goods assembled from
elements originating in or arriving from different c ountries" is likewise a matter "to be settled by each
country in accordance with its own national regulations." 3 The WCO views this statement "as
referring to the classification of a collection of articles based on their susceptibility to further
assembly, and reflecting the Committee's view that the determination whether multiplicity of origin
shall affect applicability of GIR 2(a) is a matter left to each [Contracting Party to the Harmonized
System]."4 Thus, it is within the discretion of the members of the Harmonized System to apply
GIR 2(a) to parts and components that originate in or arrive from different countries – which
necessarily means that the components arrived in more than one shipment.
5

1 WCO second response at para. 10. The WCO notes that term "'split consignment' is not formally
defined but is used widely to describe a range of trading practices." Id. It is clear that the WCO understands the
term "split consignment" in a broad sense, to encompa ss circumstances in which the parts and components that
make up the entity were not necessarily the subject of the same transaction ( e.g., because they arrived from
different places of origin).
2 WCO second response at para. 10 (quoting WCO First Response at para. 8).
5 This explanation by the WCO refutes the US contention that the HS Committee Decision pertained to
a Rules of Origin issue. The WCO explains that "[t]he HS does not direct CPs to classify entries differently or
alike at the HS level on the basis of single origin as opposed to multiple origin." WCO second response at
para. 11. That is, origin and classification are unrel ated to each other. The classification of parts and
components under GIR 2(a) is the same, without regard to whether they originated in a single country or
multiple countries. The HS Committ ee Decision clarifies that the classifi cation of parts and components that

4. These responses by the WCO confirm China's position that the application of GIR 2(a) to
multiple shipments of parts and components is not inconsistent with the Harmonized System, and is
indeed within the discretion of each member of th e Harmonized System. The complainants' repeated
efforts to contradict this understanding of the HS Committee Decision have been in error. In addition,
the WCO's response confirms that this understandi ng of GIR 2(a) and its application to multiple
shipments has existed since at least 1963, when GIR 2 was first adopted.
6
5. The complainants will undoubtedly contend that the WCO's response to question 6 supports
their view that the classification of auto parts and components is resolved entirely by GIR 1, and that
the application of GIR 2(a) does not arise if the ar ticle in question has its own HS heading (e.g., under
87.06 or 87.07). However, this is not the case if the national customs authority classifies multiple
shipments of parts and components as a single entity (which, the WCO has confirmed, is within its
discretion under GIR 2(a)). In that event, cu stoms authorities may validly consider, in accordance
with GIR 2(a), whether the parts and components that make up the single entity have the essential
character of the complete article. This is a necessary consequence of the authority that members of
the Harmonized System have to apply GIR 2(a) to multiple shipments of parts and components.
A. IMPLICATIONS OF THE WCO'S SECOND RESPONSE
6. China considers that the WCO's resolution of the applicability of GIR 2(a) to multiple
shipments of parts and components has important imp lications for the present dispute. The principal
implications are as follows:
− It is consistent with the context provid ed by the Harmonized System for China to
interpret the term "motor vehicles" in it s Schedule of Concessions to encompass parts
and components of motor vehicles that have the essential character of a motor vehicle
under GIR 2(a), whether those parts and comp onents arrive in one shipment or in
multiple shipments.
− Because it is consistent with the rules of th e Harmonized System to apply GIR 2(a) to
multiple shipments of parts and components, it follows that Members may adopt customs
procedures to provide for classification on this basis. This necessarily entails a customs
process for determining whether multiple ship ments of parts and components are related
to each other through their common assembly in to a finished article. The classification
of multiple shipments of parts and components on this basis is not a classification based
on the end-use of those parts and components in the importing Member's customs
territory. Rather, it is, to use the WCO's wo rds, "the classification of a collection of
articles based on their susceptibility to furt her assembly" into the complete article.
7 This
is a legitimate basis for classification under GIR 2(a).
− The complainants have argued that Decree 125 does not result in the collection of
ordinary customs duties because, in thei r view, Members can only assess ordinary
customs duties based on the contents of a single shipment. In the same vein, the
complainants have argued that the term " as presented" in GIR 2(a) means "as presented

arrive from multiple origins – i.e ., in multiple shipments – is a matter to be decided by each member of the
Harmonized System.
6 The WCO provided the report of the Nomenclature Committee dated 30 October 1963 (Doc. 11.000).
The language in paragraph 81 of this report is identical to the language adopted by the HS Committee in 1995.

in a single shipment ." The WCO's response confirms that these assertions are without
basis.
− The charges that China collects pursuant to Decree 125 are the ordinary customs duties
for motor vehicles that China is allowed to collect under its Schedule of Concessions. As
Canada notes, "[t]ariff treatment commitme nts under a Member's Schedule are always
linked to tariff classification."
8 China agrees. Because China may apply GIR 2(a) to
classify multiple shipments of parts and components as having the essential character of
a motor vehicle, China is entitled to collect the customs duties for motor vehicles that
result from this classification, consistent with its tariff commitments.
− For these reasons, the challenged measures are within the scope of Article II:1(b), first
sentence, and are consistent with China's ri ghts and obligations thereunder. China has
explained that a charge is collected on goods "on their importation" into a Member's
customs territory if it is a charge that arose by reason of the entry of the goods into its
customs territory and fulfils a valid customs liability.
9 This conclusion is supported,
inter alia, by the ordinary meaning of the word "on", which, as several panels have
found, denotes a relationship between the measure or charge and the relevant event ( i.e.,
importation).10 That relationship plainly exists under the challenged measures, as the
charges that China collects pur suant to Decree 125 are the ordinary customs duties for
motor vehicles for which importers are liabl e under China's tariff schedule when they
enter auto parts and components that have the essential character of a motor vehicle,
whether in one shipment or in multiple shipments.
7. There are two other important implications of the WCO's response. The first concerns the
proper allocation of the burden of proof in this dispute. The complainants have repeatedly asserted, in
various formulations, that the challenged measures do not result in the collection of ordinary customs
duties because the charges that China imposes are not based on the condition of auto parts and
components "as presented at the border," or on "the condition of the goods at the border," or "based
on their state in a single shipment."
11 The United States has argued, in this connection, that the term

8 Canada responses after second meeting at p. 40. See also Canada rebuttal submission at para. 44
("[c]lassification is relevant in interpreting the obligation in Article II:1( b) not to charge duties greater than the
amount set out in China's Schedule because classification of the proper category is an essential first step for
assessing duty on it.").
9 See, e.g., China's answers to questions 179, 203; China rebuttal submission at paras. 100-104. To
quote the United States, "the relevant consideration is whether China's measures enforce the collection of a
customs duty under China's tariff schedule for which an auto part was liable when it entered the customs
territory of China." US answers af ter second meeting at para. 30. See also EC second written submission at
para. 41 ("The material aspect of 'on importation' means that a charge is imposed 'on importation' if it is due
because of importation of the product …") (emphasis added).
10 See China's answer to questions 203 and 246 (discussing India – Autos, EC – Sugar Subsidies, and
Dominican Republic – Cigarettes).
11 See , e.g., Canada second written submission at para. 20 ("ordinary customs duties may only be
imposed on products based on their state as presented at the border"); id. at para 23 ("the term 'as presented'
refers to the state of a product upon arrival at the border …"); id. at para. 26 ("ordinary customs duties must be
applied under Article II:1(b), first sent ence, only based on the state of a pro duct as it arrives at the border …");
id. at para.. 39 ("[l]iability to pay an ordinary customs duty must attach to this single event of importation.");
Canada responses after second meeting at p. 7 ("[duty] rates are based upon the proper classification of an
imported product in its state as it arrive at the border."); id. at 8 ("Canada has shown that the practice of WTO
Members is to classify goods based on their state in a single shipment as presented at the border."); id. at 10
("Canada submits that ordinary customs duties must crystallize based upon the status of goods the moment they
enter the territory of a Member …"); US rebuttal submission at para. 41 ("GIR 2(a) applies to goods as

"as presented" in GIR 2(a) "explicitly preclud[es] th e application of GIR 2(a) to shipments of goods
that are not imported together," while the EC has argue d that "[i]t 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 …"
12
8. The complainants have failed to substantiate their position that, in arriving at a proper
classification and assessment of duty, customs authorities are precluded from taking into account
whether a shipment of parts and components is re lated to other shipments of parts and components
through their common assembly into a single article. The WCO has now confirmed that the
complainants' position is incorrect – it is, in fact, within the discretion of national customs
administrations, and consistent with the rules of the Harmonized System, for customs authorities to
apply GIR 2(a) to classify multiple shipments of parts and components as a single entity.
9. This confirmation by the WCO further highlight s the complainants' inability to meet their
burden of proof in identifying and proving the specific circumstances in which the challenged
measures "will necessarily be inconsiste nt" with China's WTO obligations.
13 Plainly, there are
circumstances in which customs authorities can clas sify multiple shipments of parts and components
as having the essential character of the complete ar ticle, and to assess the corresponding duties for the
complete article. As China has explained, one aspect of the state or condition of an entry at the time
of importation is that it is one of a series of rela ted shipments of parts and components – a fact that
may be evident, for example, from the customs decl aration. The importer's obligation to pay the duty
rates applicable to the complete article arises from what it has imported – parts and components that
have the essential character of the complete article. This application of GIR 2(a) to classify entries
and assess duties is entirely consistent with the decision of the HS Committee that the classification of
goods arriving in multiple shipments is a matter to be resolved by each member of the Harmonized
System under its national laws and regulations.
10. What, then, are the specific respects or circ umstances in which the challenged measures "will
necessarily be inconsistent" with China's obligations under Article II to classify entries in accordance
with the rules of the Harmonized System and to assess the corresponding rates of duty found in its
Schedule of Concessions? The complainants have fa iled to answer this question, let alone provide
any support for an answer. Their categorical position that customs authorities can never apply
GIR 2(a) to classify multiple shipments of parts and components is clearly without basis. Having
failed to articulate and substan tiate a valid position on this key issue, the complainants cannot

presented upon importation"); US responses after second meeting at para. 7 ("customs duties must be based on
the condition of the article as imported"); id. at para. 16. ("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)"); id. at para. 30 ("the relevant consideration is whether China's
measures enforce the collection of a customs duty under China's tariff schedule for which an auto part was liable
when it entered the customs territory of China."); id. at para. 50 ("The United States interprets the term 'as
presented' as explicitly precluding the application of GI R 2(a) to shipments of goods that are not imported
together."); EC second written submission at para. 73 ("It is of paramount importance to underline that when
goods are classified in the Harmonised System it is alwa ys done on the basis of the objective characteristics of
the product at the time of importation, that is, as imported and presented to customs on a shipment-by-shipment
basis."); EC responses after second meeting at para. 44. ("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.").
12 US responses sfter second meeting at para. 50; EC responses after second meeting at para. 44.
13 United States – OCTG at para. 172. China discusses the complainants' burden of proof in response
to question 228 from the Panel.

demonstrate that the challenged measures are, as such, necessarily inconsistent with China's rights and
obligations under Article II of the GATT 1994.
11. Finally, the WCO's response to the Panel's sec ond set of questions has important implications
concerning the facts and circumstances surrounding the negotiation of China's Schedule of
Concessions and its accession to the WTO. The WC O has confirmed that, since at least 1963, the
parties to the Harmonized System (and its predecesso rs) have understood that the application of GIR
2(a) to the classification of multiple shipments of parts and components is a matter to be resolved
under national law. The HS Committee specifically reaffirmed this understanding of GIR 2(a) in
1995. When the complainants negotiated a Sche dule of Concessions with China that included a
significant tariff rate differential between motor vehicles and parts of motor vehicles, they were aware
of this interpretation, and aware of the possibility that China would decide, consistent with the
decision of the HS Committee, to apply GIR 2(a) to classify multiple shipments of parts and
components as having the essential character of a complete vehicle.
12. Under Article 32 of the Vienna Convention, th e Panel may draw upon these circumstances to
confirm the interpretation that results from the app lication of Article 31. If the complainants had an
understanding that China would not apply GIR 2(a) to classify multiple shipments of parts and
components as a single entity, it was incumbent upon them to negotiate and document this
understanding. It was not China's obligation to reserve its right to classify entries in a manner
consistent with the rules of the Harmonized System . As the Appellate Body has repeatedly affirmed,
Members negotiate Schedules of Concessions in th e context of the Harmonized System, including its
General Interpretative Rules and interpretations of the GIRs adopted by the WCO and the HS
Committee.
14 Accordingly, Members may classify entr ies in accordance with the rules of the
Harmonized System, unless they undertake a specific obligation not to do so in a particular
circumstance. China undertook no such obligation. These facts and circumstances surrounding the
negotiation of China's Schedule of Concessions conf irm that China may interpret the term "motor
vehicles" to include auto parts and components that have the essential character of a motor vehicle,
and that enter China in multiple shipments.

14 China discusses the role of the Harm onized System as context in response, inter alia, to questions
54, 68, and 112.

ANNEX C-6

OBSERVATIONS OF THE EUROPEAN COMMUNITIES ON THE LETTER OF THE
SECRETARIAT OF THE WORLD CUSTOMS ORGANIZATION OF 30 JULY 2007

Question 5
 Concerning the determination of the "essential character" of an incomplete or
unfinished article as envisaged under GIR 2(a), ca n such a determination be made on a case-by-
case basis only? In other words, in your view, can customs authorities have a set of pre-
determined criteria that will be used in determining whether certain imported parts and
components have the essential character of a complete article?
1. The reply of the WCO secretariat should first be put in its context. Under point 3 of its reply
of 20 June 2007 ("first letter"), the secretariat states that "the question at what point a collection of
parts can be considered to substantially compose a complete motor vehicle is one that must be
considered on a case by case basis". The reply of the WCO secretariat to question 5 must be
understood in this light. Indeed, th e reply refers to a "specific artic le (or group of articles presented
together)". The possibility to use a set of predetermi ned criteria relates therefore to a clearly identified
article or a group of articles and the determination is therefore still made on a case by case basis. This
is in line with the position of th e European Communities as set out inter alia in its second written
submission (paragraphs 92 to 99) and its reply to question 209 of the Panel.
2. The European Communities would like to also not e that question 5 put by the Panel to the
WCO secretariat appears to assume a distinction be tween a case-by-case analysis and the adoption of
predetermined criteria. This is not the case if the pr edetermined criteria identify a specific article or
group of articles that are assumed to be presented together.
Question 6

 Following up on your response in paragraph 4 of your reply that GIR 2(a) must be
applied together with GIR 1, does this mean that GIR 2(a) can only be taken into consideration
after applying GIR 1?
3. The reply of the secretariat of the WCO is entir ely in line with the position of the European
Communities as set out inter alia in its second written submission (paragraphs 75 to 91).
Question 7
 Are the six General Interpretative Rules a pplied in a hierarchical order? If the
classification can be determined according to th e terms of the headings and any relative Section
or Chapter notes, are other rules simply not applicable?
4. The reply of the secretariat of the WCO is entir ely in line with the position of the European
Communities as set out inter alia in its second written submission (paragraphs 75 to 91).
Question 8
 Is it within customs authorities' discretion to classify parts as a complete article to
ensure the collection of a higher rate of duty ap plicable for complete articles regardless of the
manner in which the importer wishes to struct ure and document its imports? In this

connection, what is the pertinence, if any, of the second sentence of Explanatory Note V to
GIR 2(a), which states that "it is usually for rea sons such as requirements or convenience of
packing, handling or transport"?
5. As the Secretariat declines to answer the question, there is no need to comment further.
Question 9
 Could you explain what are the circumstances in which a need for customs authorities to
apply the principles of GIR 2(a) arises. In this regard, what are the differences between the first
and second sentences of GIR 2(a)?
6. The three staged test for applying GIR 2 (a) is in line with the position of the European
Communities (see inter alia paragraphs 92 to 96 of its second written submission and its reply to
question 218 of the Panel). However, the European Communities would like to emphasise that in the
context of chapter 87 of the HS nomenclature, the st ate of "fitting" of the product is a very important
criterion as illustrated by the General Explan atory note to chapter 87, which is a " lex specialis "
application of GIR 2 (a) in the context of the ch apter. Therefore, and although the WCO secretariat
was not asked to address this specifi c issue, the European Communities is of the view that the Panel
should consider the WCO secretariat's reply in this light.
Question 10
 Does the principle of the second sentence of GIR 2(a) with respect to "articles presented
unassembled or disassembled" cover only situ ations where parts necessary to assemble a
complete article arrive at the border in one ship ment at once or does it also cover situations
where parts to assemble a complete article arrive separately in multiple shipments, including
those arriving at different times in different ports from different places of origin?
7. The reply of the WCO secretariat should first of all be put in its context. In its reply to
question 2 from the Panel (concerning the 1995 HS committee decision), the WCO secretariat stated
that "I would, however, expect that those administ rations which permit such consolidation of entries,
would consider requests for that treatment on a case by case basis, applying standards set forth in
national laws and regulati ons" (emphasis added). When replying to the question the WCO secretariat
has presumably had in mind specific instances wh ere for transportation etc. reasons a given
consignment is split into several shipments upon re quest of the importer. This corresponds to the
ordinary meaning of the word "split".
8. Second, the reply confirms that there is no accepted definition of "sp lit consignments". The
WCO secretariat confirms that the notion is "used widely to describe a range of trading practices".
9. Third, it would seem to the European Commun ities that the WCO secretariat's reply does not
address the situations foreseen by the contested Chinese measures, which do not fall within the
understanding of the notion of "split consignments" that seems to form the premise of the reply. For
the situations foreseen by the contested measures, Rule 1 applies and is sufficient in the
overwhelming majority of situations that come within the scope of the measures. This is illustrated by
the replies to questions 5 and 6.
10. Fourth, the reply demonstrates that the HS nomenclature does not have a rule for "split
consignments" in the sense that seems to form the pr emise of the WCO secretariat's reply. Therefore,
such a situation is not covered by the HS nomenc lature. Consequently Rule 2 (a) does not apply and

the Harmonised System cannot provide context for the interpretation of such a situation under
Article II of the GATT 1994. To the extent such issu es are before the Panel in the first place, it is
therefore for the Panel to decide the question in the light of the Appellate Body's jurisprudence
according to which "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).
Question 11
 Following up on Question 2 (second bullet poin t) in our previous letter to you, could you
please advise us whether the type of goods mentioned in paragraph 10 of the HS Committee
Decision, namely "the classification of goods assembled
 from elements originating in or arriving
from different countries", refers to goods that h ave arrived at the border in already assembled
form from such elements? In other words, wh at does "goods assembled" mean in this context,
goods already assembled when presented at th e border or goods to be assembled in the
importing country?
11. The reply to question 11 illustrates very clearly the nature of the 1995 'decision'. Even the
secretariat of the WCO is obliged to essentially guess what the HS committee actually decided. In the
view of the European Communities such a 'decisi on' cannot provide any guidance to the Panel in
adjudicating the dispute between the Parties. Howe ver, the reply demonstrates that the Harmonised
System does not address the applicability of GIR 2 (a) to the classification of goods of single or
multiple origin.
Question 12
 Is the Nomenclature Committee's decision ci ted in paragraph 10 of the HS Committee
Decision (HSC/16/Nov. 95) an indication that matters involving goods of mixed origin are
beyond the scope of GIR 2(a)? Does paragra ph 10 of the HS Committee decision address the
question relating to the rules of origin rather than tariff classification issues? Please provide a
copy of the Nomenclature Committee's decision ( NC/11/Oct. 63 – Report) cited in paragraph 10
of the HS Committee Decision.
12. Again, the reply of the WCO secretariat is e ssentially an 'informed guess'. However, the reply
suggests that the Harmonised System does not address the applicability of GIR 2 (a) to the
classification of goods of mixed origin. The European Communities does not consider that such issues
are before the Panel. To the extent the Panel would consider that such issues need to be addressed, the
reply demonstrates that the Harmonised System does not provide context for the analysis.
Question 13
 Paragraph 11 of the HS Committee Decision states that "Mr. Kusahara pointed out that
the legal text of General Interpretative Rule 2( a) was open to different interpretations." To
what extent is the legal text of General Interpretative Rule 2(a) open to different interpretations
by the WCO Members?
13. As the reply cross-refers to question 5, the European Communities refers to its observations
under question 5 (paragraphs 1 and 2).

Question 14
 When parts and components are imported a nd subsequently assembled into a complete
article, what should be shown in the import statistics of the importing country? For example,
should it be different origins of the parts and components that make up the complete article?
14. It is not entirely clear whether the reply re flects the question. The European Communities has
no observations on the reply.
Question 15
 Is it a norm for customs authorities to presu me that the information on the importer's
declaration form is correct and accept it as d eclared by the importer unless such information
can be proven incorrect by customs authorities?
15. As the reply does not address the substantive i ssue raised by the question, the European
Communities does not have any observations on the reply.
Question 16
 In applying the principle of GIR 2(a), how should parts generally used in the assembly
of various goods such as nuts and bolts be classi fied? Are these connecting parts also taken into
account in determining whether certain parts have the essential character of a complete article?
16. The reply demonstrates clearly that bulk shipments of parts must be classified according to
the specific headings for such parts. Part s of general use, when presented separately
 and even when
used for motor vehicles, cannot even be classified under the provisions for parts of automotive
vehicles let alone as complete vehicles, which is the case under the Chinese measures.
Question 17
 Is the concept of "consignments" as in "split consignments" any different from the
concept of "shipment"?
17. The reply demonstrates that the 1995 HS committee 'decision' cannot be used as context in
the present Panel proceedings. The 'decision' is not a document that could have "precedent value" and
the language used under paragraph 10 of the 'deci sion' has no conventional status in the HS
nomenclature. Indeed, the WCO secretariat confirms that the notions of "consignments", "split
consignments" and "shipment" are widely used with widely differing meanings among different
customs administrations.
A. REVISED KYOTO CONVENTION ON THE SIMPLIFICATION AND HARMONIZATION OF CUSTOMS
PROCEDURES (THE "KYOTO CONVENTION"):
Question 18
 Does the Kyoto Convention contain any reference to the time and place of the collection
or assessment of duties? Is there any other suppl emental material informing the meaning of the
time and place of the collection or assessment of duties? Is there any relevant information in the
negotiating history of the Kyoto Convention on the meaning of these terms?

18. Although the question emphasises the time and place,
 the language that follows ("collection
and assessment") may have accidentally mislead the secretariat of the WCO since the reply does not
appear to be particularly relevant for the case. In view of the European Communities, the crucial
difference between the Parties in relation to "tim e and place" concerns not only the collection or
assessment of duties, but first and foremost the time and place of the determination of the actual
product and the nature of the charge that is impo sed on the product. For adjudicating these questions,
the time and place of the collection and assessment of duties may not be as relevant as the time and
place where the actual product is identified in order to be subject to the relevant charge or duty.
Question 19
Chapter 2 of the Kyoto Convention contains the following definition:
• E8./ F11. "Customs duties": means the duties laid down in the Customs tariff to
which goods are liable on entering
 or leaving the Customs territory;

• E20./ F14. " import duties and taxes ": means Customs duties and all other
duties, taxes or charges which are collected on or in connection with the
importation of goods, but not including any charges which are limited in amount
to the approximate cost of services rendered or collected by the Customs on
behalf of another national authority.

 Are there any supplemental materials inform ing the meanings of respectively "liable on
entering (...) the Customs territory " and "on or in connection with the importation " referred to
above? Is there any relevant information in the negotiating history of the Kyoto Convention on
the meanings of "liable on entering (...) the Customs territory " and "on or in connection with
the importation" referred to above? Has the language of Article II:1(b) of the GATT 1994 been
in any manner mentioned in the negotiating history of the Kyoto Convention in the context of
these definitions?

19. The European Communities does not consider that the reply from the WCO secretariat
provides for any guidance for the Panel in this disput e. In particular, it is a matter of WTO law to
interpret Article II:1 (b) of the GATT 1994. This con cerns in particular any general statements made
by the GATT Council in 1980 under the GATT 1947.
Question 20
 What is the relationship between the respective definitions of " Customs duties " and
"import duties and taxes " in Chapter 2 of the Kyoto Convention ? In particular, what is the
difference between the expression "liable on ent ering" used in the former and the expression
"on or in connection with the importation" used in the latter?
20. The European Communities does not consider that the reply from the WCO secretariat
provides for any guidance for the Panel in this disput e. At most, the fact that under chapter 2 of the
Kyoto Convention "on or in connection with the im portation" refers to th e imposition of domestic
taxes on the imported products demonstrates that th e Kyoto Convention cannot be used as context for
the purposes of interpreting Article II of the GATT, where the notions of "on or in connection with
importation" are considerably narrower than under the Kyoto Convention.

B. W
ORLD CUSTOMS ORGANIZATION, GLOSSARY OF INTERNATIONAL CUSTOMS TERMS,
BRUSSELS, MAY 2006 (THE "GLOSSARY"):
Question 21
 In the "Recommendations of the Customs Co -operation Council concerning the use of
the Glossary of International Customs Terms" of 6 July 1993, it is stated that "though the
Glossary does not in itself have the legal status of an international instrument, it has been
approved by the Council and certain definitions within it have been accepted by the Contracting
Parties to the principal international Customs Conventions." Would it be possible for the WCO
to indicate which are the definitions of th e Glossary that "have been accepted by the
Contracting Parties to the principal internatio nal Customs Conventions" and/or whether the
above-mentioned two definitions are included in the scope of such definitions that have been
accepted by the Contracting Parties?
21. The European Communities does not consider that the reply from the WCO secretariat
provides for any guidance for the Panel in this dispute. This is in particular, since China has not even
accepted the Recommendation in question.

ANNEX C-7

CANADA'S COMMENTS ON THE WORLD CUSTOM
ORGANISATION'S RESPONSES

 Canada does not provide any detailed comments on the responses provided by the WCO, as it
considers that those responses in all material resp ects are consistent with Canada's arguments. In
particular, the WCO letter does not support China's arguments on the relevance of the Harmonized
System to the interpretation of a Member's obligations in relation to the imposition of
ordinary customs duties under GATT Article II:1( b), first sentence. As Canada has shown
through detailed references to State practice a nd documents of the WCO and its predecessor, and as
revealed in the WCO's responses, there is no evidence to support China's position that the Harmonized
System allows classification as contemplated by th e measures. Notably, there is no support for the
view that China may ignore intermediate categories (such as 87.06), or may classify based on the state
of products as used in manufacturing (rather than as they arrive at the border).

ANNEX D

CORRESPONDENCE BETWEEN THE PANEL AND UNOG

CONTENTS PAGE
Annex D-1 Letter dated 15 August 20 07 from the Panel to UNOG D-2
Annex D-2 Letter dated 16 August 20 07 from UNOG to the Panel D-3

ANNEX D-1

LETTER DATED 15 AUGUST 2007 FROM THE PANEL TO UNOG

 At its meeting of 26 October 2006, the WTO Dispute Settlement Body established the Panel
on China – Measures Affecting Im ports of Automobile Parts pursuant to requests by the European
Communities in document WT/DS339/8, the United St ates in document WT/DS340/8, and Canada in
document WT/DS342/8, in accordance with Article 9 of the Dispute Settlement Understanding. On
27 January 2007, a Panel was composed to exam ine this complaint (please see triple symbol
document WT/DS339/9, WTDS340/9, and WT/DS342/9) . These proceedings involve three Chinese
measures: Policy Order No. 8, Decree No. 125 and Public Announcement No. 4.

 In these proceedings, issues relating to the tr anslation of these Chinese measures into English
were raised and the parties were able to agree on a common English translation of the three measures,
with the exception of a single provision (first paragraph of Article 28 of Decree No. 125). Given that
Chinese and English are both official languages of the United Nations and given that all parties of the
proceedings are UN Members, the purpose of this le tter is to request, on behalf of the Panel, the
assistance of the United Nations Office at Geneva in this matter.

 The Panel would therefore be grateful if the Conference Services Division's Languages
Service of UNOG could provide the Panel with the Ch inese-English translation of the first paragraph
of Article 28 of Decree No. 125.

 In order to assist UNOG's translators on this task, the Panel has attached to this letter the
following set of documents:

 The three measures and their common Englis h translation as agreed by the parties
(including the two different versions of Decr ee No. 125's first paragraph of Article 28);
and
 the two different versions of Decree No. 125's first paragraph of Article 28, as an
excerpt.
 The Panel would greatly appreciate UNOG's unde rstanding in not making public this request
or any of the attached documents, as the proceedings of this dispute are strictly confidential.

 The Panel would like to thank you in adva nce for your cooperation and assistance in this
important matter. It would be greatly appreciated if the information requested in this letter could be
made available by 23 August 2007

ANNEX D-2

LETTER DATED 16 AUGUST 2007 FROM UNOG TO THE PANEL

Reference is made to your letter of 15 August 2007 addressed to the Director-General of UNOG,
Mr. Sergei Ordzhonikidze, requesting UNOG Conference Services Division to provide the WTO
Panel on China-Measures Affecting Imports of Auto mobile Parts with a Chinese-English translation
of the first paragraph of Article 28 of Decree NO.125.

On behalf of the Director-General, I am pleased to inform you that UNOG Conference Services
Division has acceded, on an exceptional basis, to your request. However, it should be clearly
understood that the Division vouches only for the grammatical accuracy of the translation and not for
any legal construction anyone might wish to place upon it.

Please find the translation attached.

Article 28.

After the imported automobile parts have been ass embled into complete vehicles, the automobile
manufacturer shall make a declaration of duty paya ble to Customs and Customs shall, in accordance
with the relevant provisions of the Customs La w of the People's Republic of China (hereinafter
referred to as the "Customs Law"), the Import-E xport Tariff Regulations ofthe People's Republic of
China and the Import-Export Tax Regulations of the People's Republic of China, proceed with
classification and duty collection.

ANNEX E

CONTENTS PAGE
Annex E-1 Translation of Policy Order 8 as agreed by the Parties E-2
Annex E-2 Translation of Decree 125 as agreed by the Parties E-18
Annex E-3 Translation of Announcement 4 as agreed by the Parties E-34

ANNEX E–1

TRANSLATION OF POLICY ORDER 8 AS AGREED BY THE PARTIES
Policy on Development of the Automotive Industry
Promulgation date: 05-21-2004
Effective date: 05-21-2004
Department: NATIONAL DEVELOPMENT AND REFORM COMMISSION
Subject: OTHER PROVISIONS

Order of the National Development and Reform Commission (No.8)

The Policy on Development of the Automotive Industr y, which has been deliberated and adopted at
the executive meeting of the National Development and Reform Commission and has been reported to
and approved by the State Council, is hereby promulgated, and shall come into force as of the date of
promulgation. The implementation of the Policy on Automotive Industry promulgated in 1994 shall
be stopped this very day according to the official reply of Letter No. 30 [2004] of the State Council.

Director of the National Development and Reform Commission MaKai
May 21, 2004

Policy on Development of the Automotive Industry

The Policy on Development of the Automotive Industry is formulated in order to meet the need to
continuously improve the socialist market economy system as well as the ne w circumstances for the
development of the automotive industry at home and abroad following accession to the World Trade
Organization; in order to promote the structural adjustment and upgrading of the automotive industry,
and comprehensively improve the international co mpetitiveness of the automotive industry; and in
order to satisfy the ever-increasing demand from c onsumers for automotive products, and foster the
healthy development of the automotive industry. Through the implementation of this Policy, our
country's automotive industry is to develop into a pillar industry of the national economy by 2010,
and to make greater contributions towards real izing the objective to comprehensively build a
fundamentally prosperous society.

Chapter I: Policy Objectives

Article 1. Maintain the principle to let the market play its fundamental role in allocating resources,
combined with macro-economic controls by the go vernment; create a market environment of fair
competition and integration, and shape an administ ration system for the automotive industry based on
law. The functional government departments carry out the administration of vehicle manufacturers,
transport vehicles for agricultural use (hereinafter low-speed lorries as well as three-wheel vehicles),
motorcycles and parts, as well as products thereof, in accordance with the compulsory requirements of
administrative laws and regulations and technical norms, to regulate the market behaviour of each
type of economic entity in the field of the automotive industry.

Article 2 . Foster the coordinated development of the automotive industry with related industries,
urban traffic infrastructure and environmental pr otection. Create an environment favourable to

automobile use, nurture a healthy automobile co nsumer market, protect consumers' rights and
promote private consumption of automobiles. By 2010, our country is to become a major global
automotive manufacturing country, with automotive products that are able to satisfy most of the
domestic market's demand and that have entered the international market in large volumes.

Article 3. Provide incentives to vehicle manufacturers to improve research & development ability and
technical innovation ability, to actively develop prod ucts with indigenous inte llectual property rights,
and to carry out brand sales strategies. In 2010 ve hicle manufacturers shall have forged a number of
well-known brands in automobile, motorcycle and parts products.

Article 4 . Promote structural adjustment s and restructuring in the au tomotive industry, increase
enterprises' economies of scale, improve industrial concentration, avoid a dispersed, chaotic, low-
grade and redundancy-prone build-up.
Through market competition, form several intern ationally competitive large vehicle manufacturers,
and strive to make them into the list of the world's top 500 enterprises by 2010.

Encourage vehicle manufacturers to enter into enterpri se alliances in accordance with market rules, to
accomplish synergies of strengths and sharing of resources, and to increase the scale of their
operations.

Nurture a group of relatively strong auto-parts manufacturers to achieve large-scale production such
that they are able to participate in the global auto parts supply chain as well as be internationally
competitive.

Chapter II: Development Planning

Article 5. The State directs the formulation of the industry's development planning in accordance with
the Policy on Development of the Automotive Indus try. The development planning includes medium-
and long-term development planning for the indus try and development planning for large vehicle
manufacturers. Medium- and long-term development planning for the industry are drawn up by the
National Development and Reform Commission ("NDRC") jointly with other relevant departments on
the basis of widely solicited opinions, and submitted to the State Council for approval and
implementation. Large vehicle manufacturers are to formulate the corporation's proper development
planning in conformity with the medium- and long-term development planning for the industry.

Article 6 . A corporation with characteristics includi ng unified planning, autonomously developed
products, an independent product tr ademark and brand and an integr ated sales and services system
management, and of which, moreover, the automotiv e products produced by its core enterprise and/or
wholly-owned subsidiaries, holding companies and Sino-foreign joint venture enterprises have a
domestic market share of 15% or more, or whose annual sales revenue from whole vehicles accounts
for 15% or more of the entire industry's annual w hole vehicles sales revenue, is entitled, as a "large
automotive enterprise corporation", to draw up an d submit the corporation's development planning
independently, for implementation after validation and approval by NDRC.

Chapter III: Technical Policies

Article 7. Maintain the principle of combining impo rted technology and autonomous development.
Keep track of and study international advanced technologies, actively carry out international
cooperation to develop advanced a nd applicable technologies with indigenous intellectual property
rights. Products with imported technology need to be demonstrably intern ationally competitive, as
well as meet the evolving requirements of the in ternational automotive industry's compulsory

technological standards. Products developed indigenously should stri ve to attain international
technical levels and to participate in interna tional competition. The State provides support to R&D
activities that are in line with the technical policies, in the form of fiscal policy.

Article 8. The State guides and encourages the developm ent of energy-saving, environmental, low-
emission vehicles. The automotive industry should, in conjunction with the State's strategy to
structurally adjust energy as well as the requirements on emission standards, actively engage in
research and industrialization of electric vehicles, power cells for automotive use and other new
power trains, and give priority to the developm ent of hybrid-power vehicle technology and diesel
engine technology for passenger vehicles. The Stat e will take measures in scientific research,
technological innovation, industrialization of new t echnologies, and policy environment, in order to
promote the production and use of hybrid-power vehicles.

Article 9 . The State supports research and development of alcohol fuels, natural gas, hybrid fuels,
hydrogen fuel, and other new vehicle fuels, a nd encourages vehicle manufacturers to develop and
produce vehicles powered with new fuels.

Article 10. The automotive industry and related industr ies should put emphasis on the development
and application of new technologies, in order to increase vehicles' fuel economy. By 2010, the
average fuel consumption of passenger vehicles s hould decrease by more than 15% compared to the
year 2003. In accordance with the compulsory re quirements of technical norms regarding energy-
saving, a system is to be established to display vehicle fuel consumption.

Article 11 . Actively carry out research into new material s for use in vehicles, such as lightweight
materials, recyclable materials, and environmenta lly-friendly materials. The State will in due time set
requirements for the minimum rate of recyclable materials to be used.

Article 12. The State supports research and production of automotive electronic products and actively
develops the automotive electronics industry, so as to accelerate the application of electronic
information technology in automotive products, in sales logistics and in the production enterprises,
and so as to promote the development of the automotive industry.

Chapter IV: Structural Adjustments

Article 13. The State encourages automotive enterprises to develop into corporations and so to form a
new competitive configuration. Through a strategic restructuring between enterprises on the basis of
market competition combined with macro-economic controls, an optimization and an upgrading of the
automotive industrial structure is to be achieved.
The objective of strategic restructuring is to s upport vehicle manufacturers in developing into large-
scale vehicle manufacturers by means of assets restructur ing, to encourage them to join in enterprise
alliances by means of cooperation involving the pairing of their respective strengths and the sharing of
resources, so to create an industrial configura tion in which large-scale vehicle manufacturers,
enterprise alliances and manufacturers of vehicles for special use may develop in a coordinated way.

Article 14. Manufacturers of whole vehicles should in the process of structural adjustment increase
their level of specialized production, and gradua lly transform parts-producing units supplying in-
house needs into open market-oriented, independent specialized parts-manufacturers.

Article 15 . Enterprise alliances should, in the fields of product research and development,
collaboration in production, and sales and services, extensively pursue cooperation, achieve
adjustments in product mix, optimize the allocation of resources, and reduce operating costs, so as to

realize economies of scale and integrated developmen t. An enterprise joining one enterprise alliance
should not form alliances with other enterprises, so as to consolidate the enterprise alliance's stability
and market position. The State encourages enterp rise alliances to form economic entities linked by
assets as soon as possible. If the cooperative developm ent plan of an enterp rise alliance foresees the
establishment of a new vehicle manufacturer or a project to produce cross-category vehicles, this is to
be implemented in accordance with the relevant provisions of this Policy.

Article 16. The State encourages automobile- and motorc ycle-manufacturers to develop international
cooperation, to give full play to their comparative advantages, and to participate in the international
division of industrial tasks; it supports large- scale vehicle manufacturers and foreign automotive
corporations merging and acquiring vehicle manufactur ers domestically and abroad, so as to expand
their market and business scope and so as to adapt to the globalizing trend in automobile production.

Article 17. Establish an exit mechanism for automotive whole vehicle- and motorcycle-manufacturers
by introducing special notification for vehicle manufacturers (including existing enterprises
undertaking the production of reassembled vehicles) that are unable to maintain normal production
operations. Enterprises of this kind are not to be a llowed to transfer their qualifications for producing
automobiles or motorcycles to non-automobile or mo torcycle-manufacturers or individuals. The State
encourages enterprises of this kind to shift their business towards special-use vehicles or auto parts, or
to engage in assets restructuring with another whole vehicle-manufacturer. Vehicle manufacturers are
not allowed to buy or sell their production qualifi cations, and bankrupt vehicle manufacturers will
have their registration on the Bulletin annulled.

Chapter V: Access Management

Article 18. Formulate "Regulations on the Management of Road Motorized Vehicles". The functional
government departments shall, in accordance with th ese "Regulations", carry out the management of
road motorized vehicles with regard to their d esign, manufacturing, certification, registration,
inspection, defect management, maintenance and up keep, scrapping and recycling. Such management
has to clearly distinguish rights and responsibilities, procedures should be transparent, simple to
operate, and easy to supervise by society.

Article 19 . Formulate compulsory requirements in the form of technical norms for safety,
environmental friendliness, energy saving and anti-thef t properties of road motorized vehicles. For all
road motorized vehicles, compulsory requirements in the form of technical norms formulated in a
unified manner are to be applied. These should be in line with our country's national conditions and at
the same time pro-actively link up with the comp ulsory requirements of international automotive
technical norms, so as to foster technical progr ess in the automotive industry. Road motorized
vehicles not in conformity with the compulsory re quirements of the relevant technical norms are not
allowed to be produced and sold. Transport vehicl es for agricultural use are only allowed to drive on
roads of Class 3 (inclusive) or below, and are to follow the compulsory requirements of technical
norms formulated accordingly.

Article 20. Establish a unified access management system for road motorized vehicle-manufacturers
and products, in accordance with this Policy as well as the State certification and accreditation rules.
Road motorized vehicle products that are confor m to the regulations of the access management
system as well as the compulsory requirements of the relevant laws and regulations and technical
norms, and pass the compulsory product certification, are recorded in the "Bulletin of Road Motorized
Vehicle-Manufacturers and Products" jointly pub lished by NDRC and the State Administration for
Quality Supervision, Inspection and Quarantine (AQS IQ). Products in the Bulletin must be marked
with the China Compulsory Certification (3C) marking. Imported vehicles and vehicles assembled

with imported vehicle bodies shall not be substitu ted for self-produced products for the purpose of
certification. Products illegally assembled and that violate intellectual property rights are prohibited
from entering the market.

Article 21. The Public Security Traffic Management De partments handle the registration of vehicles
based on the "Bulletin of Road Motorized Ve hicle-Manufacturers and Products" and the China
Compulsory Certification (3C) marking.

Article 22 . The relevant government functional depa rtments shall, according to the access
management system, set the conditions for granti ng enterprises access to production per category of
product – for vehicles, transport vehicles for agricult ural use, and motorcycles – and shall carry out a
dynamic management over manufacturers and their pr oducts so that any enterprise or product that
fails to meet with regulations shall have its en try into the "Bulletin of Road Motorized Vehicle-
Manufacturers and Products" removed. Amongst th e conditions for an enterprise's access to
production should be included the ability to desi gn and develop products, capability in terms of
product production facilities, the ability to ensure conformity of productio n of the products and
quality control, and capability in terms of product sales and after-sales service.

Article 23 . Certification bodies and inspection bodies for road motorized vehicle products are
designated by AQSIQ after consultation with NDRC, and shall carry out their certification and testing
tasks in accordance with the specific stipula tions of the market access management system.
Certification bodies and inspection bodies must have third-party impartial status and may not have
any shared interests with vehicle manufacturers in terms of assets or management, nor may they
engage in repeated inspections and repeated chargi ng of fees for one and the same product. The State
supports the regulated development of automotive, motorcycle and key parts inspection bodies with
third-party impartial status.

Chapter VI: Trademarks and Brands

Article 24. Automotive, motorcycle, engine and parts manufacturers should all strengthen enterprise
and product brand awareness, actively develop prod ucts with autonomous intellectual property rights,
pay attention to the protection of intellectual propert y rights, strive to enhance the enterprise's brand
recognition in their production and business activities, and safeguard the manufacturer's brand image.

Article 25 . Automotive, motorcycle, engine and parts manufacturers shall all register the
manufacturer's self-owned product trademark and se rvice trademark according to the "Trademark
Law". The State encourages manufacturers to formulate plans for brand development and protection
so as to endeavour to implement brand sales strategies.

Article 26. As from 2005, all domestically-produced vehicles, assemblies and parts have to be marked
with the manufacturer's registered product tradem ark; whole vehicle products sold on the domestic
market shall indicate, on a conspicuous place on the exterior of the vehicle body, the manufacturer's
product trademark and the enterprise's name or the product's place of production; if the product
trademark already includes a geographical reference to the manufacturer, it is allowed not to indicate
the product's place of production. All brand dealerships shall place the manufacturer's service
trademark in a visible place on their sales and service premises.

Chapter VII: Product Development

Article 27 . The State supports automotive, motorcyc le and parts-producing manufacturers in
establishing a product development structure and so to form product innovation capabilities and
autonomous development capabilities. Autonomous de velopment can take several forms including
independent development, joint de velopment, and development by de legation to others. In all cases
where an investment made for establishing research and development facilities for a manufacturer's
autonomously-developed products meets the State's re levant fiscal regulations aimed at fostering
enterprises' technological progress, such investment can be accounted for as a pre-tax expense. The
State shall bring out policies to encourage ma nufacturers' autonomous development as soon as
possible.

Article 28 . Vehicle manufacturers shall strive to master vehicle body development technology,
emphasize the development of product manufacturi ng technology, and develop as quickly as possible
a capability in chassis and engine development. The State will support the transformation of
industrializing large scale vehicle manufacturers, enterprise alliances or parts manufacturers to
develop state-of-the-art whole vehicle or parts assemblies with their own intellectual property rights.

Article 29. Automotive, motorcycle and parts-producing manufacturers should actively participate in
major technological research projects organized by the State and strengthen research in partnership
with research institutions, universities and colleges, emphasizing the application and conversion to
industrial purposes of research results.

Chapter VIII: Parts and Related Industries

Article 30. Auto parts manufacturers should adapt to in ternational industrial de velopment trends and
actively participate in product development work done by the manufacturers of complete vehicles and
assemblies. In the field of key auto parts, syst ematic development capabilities should progressively be
formed, while in the field of general autoparts, capabilities for the development and manufacturing of
advanced products should be formed, so as to meet domestic and foreign market demand and to strive
to enter the international purchasing system for auto parts.

Article 31 . Formulate specific development plans for parts, give different guidance and support
depending on the category of auto parts, bring it about th at capital in society is invested in the field of
auto parts production, impel auto parts manufacturer s that have comparative advantages to form the
capability to specialize, mass-produce and modularize supply. Auto parts manufacturers capable of
supplying several independent manufacturers that undertake the production of whole vehicles and of
entering the international purchasing system for auto pa rts shall be given priority support by the State
with respect to introduction of technology, t echnological upgrading, financing and merging and
restructuring. Manufacturers that undertake the production of whole vehicles should progressively
procure parts from the open market by adopting e-commerce and online purchasing methods.

Article 32. In line with the requirements of the automo tive industry development plan, manufacturers
in fields related to the automotive industry such as metallurgy, petrochemistry and chemistry,
machinery, electronics, light industry, textile and building materials, should put emphasis on
improving product levels and the ability to compet e on the market for meta llurgical materials,
mechanical equipment, industrial moulds, automo tive electronics, rubber, engineering plastics,
textiles, glass, oil products for automotive use etc ., so as to keep pace with the development of the
automotive industry. Give priority support to iron and steel-manufacturers in achieving the ability to
supply sheet metal for use in passenger vehicles; support the creation of centers for the design and
manufacturing of specialized moulds, and impr ove capabilities in automotive mould design and

manufacturing; support petrochemical enterpri ses to make technological progress and product
upgrading so as to improve oil products such as refi ned oil and lubricating oil, attain international
advanced levels and meet the needs of the automotive industry's development.

Chapter IX: Distribution Networks

Article 33. The State encourages automotive, motorcycle and parts manufacturers as well as financial,
service and trade enterprises to actively develo p automotive services and trade by learning from
internationally mature automotive sales methods , management experiences and service and trade
concepts.

Article 34. In order to protect the lawful rights and inte rests of automotive consumers, and to ensure
that they obtain quality service in the process of purchasing and using a vehicle, every domestic as
well as foreign vehicle manufacturer selling its sel f-produced automotive products on the domestic
market must, as soon as possible, establish a sales and services system for its self-produced vehicle
brands. This system may be established by the dom estic or foreign vehicle manufacturer either by
investing itself or by authorizing dealers to invest. Both domestic and foreign investors may engage in
brand sales and after-sales service activities in China for domestic as well as for imported vehicles,
once they have been authorized by the vehi cle manufacturer as well as handled the necessary
procedures in accordance with the relevant regulations.

Article 35. As from 2005, for all passenger vehicles self-produced by vehicle manufacturers, brand
sales and services are to be put into practice; as from 2006, for all self-produced automotive products,
brand sales and services are to be put into practice.

Article 36 . The current management method concerning the authorization of dealership rights for
small passenger vehicles is abolished; the Ministry of Commerce (MOFCOM) is to formulate, jointly
with the State Administration for Industry and Co mmerce (SAIC) and NDRC, Implementation Rules
for the Management of Automotive Brand Sales. Automotive dealers shall carry out automotive
business activities within the business scope authori zed by the management departments for the
administration of industry and commerce. A busin ess scope for a brand dealership for passenger
vehicles (including second-hand vehicles) of no more than 9 seats is to be authorized and published
by the State management department for the admi nistration of industry and commerce in accordance
with relevant regulations. Business licenses for bran d dealerships will be authorized consistently as
being for brand automobile sales.

Article 37. Automobile and motorcycle manufacturers s hould strengthen sales management in their
distribution network, and regulate maintenance services; they have the responsibility to inform society
which vehicle models are no longer in production, and to take active measures in order to guarantee
that within a reasonable time-span a reliable supply of parts is provided for use in after-sales services
and maintenance; at regular times they should made p ublic towards society the list of their authorized
brand sales or maintenance enterprises as well as t hose whose authorization has been revoked; and
they are not to supply products to dealers without brand authorization and failing to meet business
conditions.

Article 38 . Automobile, motorcycle and parts dealers shall abide by the State's relevant laws and
regulations in their business activities. The releva nt departments shall impose punishment according
to the law, to those who sell vehicles prohibited by the State or of which sales have been announced to
have discontinued; those who sell vehicles under a false or assumed manufacturer's name,
manufacturer's location, or quality certificate; those who are not authorized by the vehicle
manufacturer or whose authorization has been revoked and who continue to use the original brand to

engage in vehicle and/or parts sales and maintenance services; as well as those who deal in counterfeit
and bad quality auto parts to provide customers with repair services.

Article 39. Vehicle manufacturers should take the overall interests of the manufacturing and sales and
services segments into consideration with a view to increase comprehensive economic benefits. When
transferring the rights and interests of the sales se gment to another legal person, this should be
deemed a major change to the feasibility study repor t of the original investment project and, in
addition to reporting such a transfer to MOFCOM fo r its approval in accordance with the regulations,
it needs as well to be submitted for authorization to the unit that originally approved the project.

Chapter X: Investment Management

Article 40 . In accordance with the principle that any investment approval system should be
advantageous to enterprises' autonomous devel opment and to the government's exercising macro-
economic control, the government's approval and management system over vehicle manufacturers'
investment projects is being reformed so as to be carried out through two methods, i.e. filing and
approval.

Article 41. Investment projects for which filing is to be carried out:

(1) Existing manufacturers of automobiles, tran sport vehicles for agricultural use, and
vehicle engines, that through funding of th eir own expand their production capacity for
same-category products or add new pr oducts, including newly built manufacturing
facilities by the same company in a different location for same-category products.
(2) Investment in production of motorcycles and their engines.
(3) Investment in production of parts for automob iles, transport vehicles for agricultural use
and motorcycles.

Article 42 . For clause 1 under the investment projects fo r which filing is to be carried out, the
provincial government-level department in charge of investments or an enterprise corporation
separately listed in the State Plan is to submit th e project proposal to NDRC for filing; for clauses 2
and 3, the enterprise is to submit the project pr oposal directly to the provincial government-level
department in charge of investments. For the contents to be filed, see Annex 2.

Article 43. Investment projects for which approval is to be carried out:

(1) Newly-established manufacturers of automobiles, transport vehicles for agricultural use,
and vehicle engines, including new manufact urers with independent legal personality
established in a different location by an existing vehicle manufacturer.
(2) Existing vehicle manufacturers that are to produce another category of whole vehicles,
crossing over from the product category that they already produce.

Article 44 . For investment projects for which approva l is to be carried out, the provincial
government-level department in charge of investments or an enterprise corporation separately listed in
the State Plan is to submit the project proposal to NDRC for examination; projects to invest in the
production of special-use vehicles are to be ratified by the provincial government-level department in
charge of investments and submitted to NDRC for filing, while newly-established Sino-foreign joint
venture sedan car projects are to be submitted by NDRC to the State Council for its ratification.

Article 45. Projects included in the development plans of large vehicle manufacturers, once approved,
are to be implemented by the enterprise itself.

Article 46. Until January 1, 2006, approval of any ne wly-to-be-established manufacturer producing
transport vehicles for agricultural use will be temporarily suspended.

Article 47. New investment projects should fulfill the following conditions:

(1) Newly-established manufacturers of motorc ycles and their engines should have
technological development ability and conditions , and total project investment may not
be less than RMB 200 million.
(2) The registered capital of manufacturers of special-use vehicles may not be less than
RMB 20 million, and such an enterprise should have product development ability and
conditions.
(3) For investment projects for producing another category of whole vehicles, crossing over
from the product category that the enterprise in question already produces, the total
project investment (including utilization of previously existing fixed assets and
intangible assets) may not be less than RMB 1.5 billion; the manufacturer's
assets/liabilities ratio should be under 50%, with a bank credit rating of AAA.
(4) Vehicle manufacturers that are to produce sed an cars or other products in the passenger
vehicle category, crossing over from the produc t category that they are already making,
should have a record of mass production of automotive products and an accumulated
after-tax profit over the last three years of more than RMB 1 billion (as evidenced by the
tax bureau); the manufacturer's assets/liabiliti es ratio should be under 50%, with a bank
credit rating of AAA.
(5) For investment projects for newly-to-be-est ablished vehicle manufacturers, the total
project investment may not be less than RMB 2 billion and of this amount, the self-
owned capital may not be less than RMB 800 million; an organization for product R&D
has to be set up, for which the investment may not be less than RMB 500 million. The
investment project for a newly-established manufacturer of passenger vehicles or heavy
trucks must include the production of e ngines destined for the whole vehicle.
For investment projects for newly-to-be-est ablished manufacturers of vehicle engines,
the total project investment may not be less than RMB 1.5 billion and of this amount, the
self-owned capital may not be less than RM B 500 million; a R&D organization has to be
set up, so that the product level may be able to satisfy the compulsory requirements of
ever more stringent national technical norms.
(6) The scale of production, for the newly-established investment projects hereunder, may
not be less than:
For heavy trucks: 10,000 units.
For passenger vehicles: equipped with a 4-cyli nder engine, 50,000 units; equipped with a
6-cylinder engine, 30,000 units.

Article 48 . In Sino-foreign joint venture manufacturers of whole vehicles, special-use vehicles,
transport vehicles for agricultural use and motorcycles, the shareholding ratio on the Chinese side may
not be less than 50%. If a whole vehicle, special-use vehicle, transport vehicle for agricultural use, or
motorcycle joint stock enterprise with listed shares , sells shares of the legal person to the public, one
of the legal persons on the Chinese side must retain majority control which must be a higher share
than the aggregate of shares on the side of the fo reign investors' legal persons. One and the same
foreign company may establish no more than (and in cluding) two joint venture enterprises in China
for the production of whole vehi cle products of the same category (passenger vehicles, commercial
vehicles, or motorcycles), but if it acquires anot her domestic vehicle manufacturer jointly with its
Chinese joint venture partner, the limitation on two joint venture enterprises does not apply. If an

overseas enterprise with legal personality has majority control over another enterprise, both will be
deemed to be one and the same foreign company.

Article 49 . Domestic and foreign vehicle manufacturers investing in export-processing zones in
projects to produce vehicles and vehicle engines for export, need not be bound by the restrictions of
the relevant articles and clauses of this Policy but must apply to the State Council for special
approval.

Article 50. If the partners in a Sino-foreign joint vent ure vehicle manufacturer prolong the term of
their cooperation, change the joint venture's sharehol ding ratio or the foreign shareholder, this must,
in accordance with the regulations, be submitted for handling to the original approval department.

Article 51. As long as projects for which approval is to be carried out have not obtained notification
of approval, land administration departments ma y not handle land requisition procedures for them,
State-owned banks may not issue loans to them, General Administration of Customs ("Customs") may
not handle tax exemption applications from them , the Securities Regulatory Commission will not
authorize them to issue shares and be listed, and th e departments in charge of the administration of
industry and commerce will not handle the registration procedure for a newly-established
manufacturer. The relevant State departments shall not accept applications from manufacturers or
applications for product access.

Chapter XI: Import Management

Article 52 . The State supports the efforts of vehicle manufacturers to increase their domestic
production capacity, giving impetus to the technological progress of auto parts manufacturers and to
the development of the automotive manufacturing industry.

Article 53 . Any vehicle manufacturers using imported parts characterized as complete vehicles to
produce vehicles should report this factually to th e Ministry of Commerce, the Customs and NDRC.
The imported parts for the vehicle models in questi on must all be declared for duty payment to the
Customs office under whose jurisdictio n the enterprise falls, so as to enable the relevant departments
to exercise effective management.

Article 54 . Customs duties will be levied strictly in accordance with the tariff rates for imported
whole vehicles and parts, to prevent any loss of cu stoms duties. The relevant functional departments
of the State have to conduct inspections at each stag e of application for quota, import declaration, and
product access allowance.

Article 55. The following parts are characterized as comp lete vehicles: the body (including driver's
cabin) assembly, the engine assembly, the transm ission assembly, the drive axle assembly, the non-
drive axle assembly, the frame assembly, the steering system and the brake system.

Article 56 . Auto parts shall be determined to have th e character of a complete assembly in the
following cases: complete assemblies imported in thei r constituent parts (completely knocked-down),
or assemblies and/or systems imported dismantle d into several key parts (semi-knocked-down).
Whenever imported key parts attain or exceed the st ipulated quantity they shall be characterized as
Imported Assemblies.

Article 57. Within the scope of determining the characteristics of a complete vehicle, the imported
parts shall be characterized as complete vehicles if any of the following situations apply:

(1) The two main assemblies, namely the vehicle body (including driver's cabin) and the
engine, are imported to assemble the vehicle;
(2) One of the two main assemblies, namely the vehicle body (including driver's cabin) or
the engine, as well as three or more other assemblies are imported to assemble the
vehicle;
(3) When the two main assemblies, namely the vehicle body (including driver's cabin) and
engine are not imported, but five or more other assemblies are imported to assemble the
vehicle.

Article 58. The State designates as import ports for whol e vehicles the four coastal ports of Dalian
New Port, Tianjin New Port, Shanghai Port, and Huangpu Port, the two land ports of Manzhouli and
Shenzhen (Huanggang), as well as the Alashankou Port in Xinjiang (for whole vehicles imported for
use within Xinjiang Autonomous Region and produ ced in countries of the Commonwealth of
Independent States). Imported whole vehicles must be imported through the above-mentioned ports.
As of 2005, no bonded trade area in any import port sh all be allowed to stock vehicles destined to be
imported into the domestic market.

Article 59. The State prohibits the import of used vehicles, used motorcycles and their parts either by
way of trade or by way of donation, as well as th e import of used vehicle assemblies and parts as
scrap steel or scrap metal for dismantling and reva mping. Repairs of above-mentioned products from
abroad for re-exit over the border are allowed to take place within export-processing zones, but no
dismantling and revamping business of used vehicles or used motorcycles is allowed.

Article 60. Specific management measures for the import of whole vehicles and parts shall be drawn
up by the Customs jointly with other relevant de partments, and implemented upon approval by the
State Council. Sample vehicles sent from abroad for testing and vehicles temporarily imported to be
shown at exhibitions shall be managed in accordan ce with customs management regulations for the
temporary import and export of goods.

Chapter XII: Vehicle Consumption

Article 61. Cultivate an automobile market with priv ate consumption as its backbone, improve the
environment for automobile use, and safeguard th e rights and interests of automobile consumers.
Incite automobile consumers to purchase and u se low energy-consumption, low pollution, low
gasoline emission, new energy-source and new pow er-driven automobiles so as to strengthen
environmental protection. Bring about the coordina ted development of the automotive industry with
urban traffic infrastructure, environmental protection, energy saving and related industries.

Article 62 . Establish a nationwide, uni form and open automotive mark et and management system;
local governments should encourage that vehicles pr oduced in other regions achieve fair competition
in their regional market, and may not carry out discriminatory policies or measures that could have
discriminatory results towards automotive products not locally produced. All restrictions and
additional conditions on vehicle purchasing, use a nd property rights disposal that are not in
conformity with State laws and regulations as well as with the requirements of this Policy should be
revised or abolished.

Article 63 . The State sets and publishes uniform fee-charging items and rates for all fees of
administrative nature and fund contributions of govern ment nature as they pertain to vehicles, and
regulates all government fee-charging when a vehicle is registered and in the course of its utilization.
Localities may not add to these, during vehicle purch asing, registration and use, any other fees of
administrative nature and fund contributions and sums of government nature; if there is a need for

such additions, approval should be applied for acco rding to procedure based on the law, laws and
regulations or a document approved by the State Council. With the exception of fee-charging items
stipulated by the State, no unit is allowed to ch arge automobile consumers any compulsory fee for
non-business services. Automobile consumers have the right to file a complaint and to refuse payment
in case of compulsory charges that contravene regulations.

Article 64. Strengthen the management of fee-charging fo r business services. In the course of vehicle
utilization, business service fees that may arise such as for maintenance and servicing, non-statutory
insurance, motorized vehicle parking fees etc. shoul d be collected by the business service unit on the
basis of the principle that the automobile consum er is willing to accept such services. Fee-charging
and its rates for professions of a competitive nature such as maintenance and servicing can be fixed by
the business service provider himself according to market principles. In cases where business services
are engaged in using monopolistic resources such as w ith motorized vehicle parking, the rates for fee-
charging and the management methods are to be se t by the price management department under the
State Council or authorized price management depa rtments at provincial level, which are to publish
them and supervise their implementation. The business service provider shall place a regularly
updated billboard announcing the rates at the fee-co llecting location, for supervision by the public.
The placement of tollgates on highways must comply with relevant State regulations. All tollgates
must publicize on a conspicuous spot the reason for fee-charging and the fee-charging rates.

Article 65. Actively develop automotive services and trad e, to promote automobile consumption. The
State supports the development of automotive credit consumption. Financial institutions engaging in
credit business for automotive consumption should im prove their services, and perfect mortgaging
methods for automotive credit. Provided that the safet y of credit is assured, consumers are allowed to
use the vehicle they purchased as a mortgage so as to obtain automobile consumer credit. When
approved, enterprises that meet the conditions can set up non-bank financial institutions dedicated to
servicing automobile consumption, and foreign inve stors may engage in credit and leasing business
for automobile consumption. Put effort in deve loping all lines of business such as vehicle leasing,
driver training, logistics, emergency assistance etc ., perfect an information and statistics system for
the automotive business, develop on-line automob ile information services and e-commerce. Support
units that meet the conditions in establishing a c onsumer credit information system, and achieve
information sharing.

Article 66 . The State encourages the circulation of second-hand vehicles. Relevant departments
should actively create the conditions for regulating in a uniform manner the administrative methods
for levying taxes and charges in connection w ith second-hand vehicle exchanges, for rendering it
convenient for vehicle dealers to engage in second-hand vehicle exchange, and for nurturing and
developing a second-hand vehicle mark et. Establish a system for voluntary valuation requests for
second-hand vehicles. Except for vehicles that are St ate-owned assets, the exchange price for second-
hand vehicles should be determined between the buyer and the seller; the parties concerned may, on a
voluntary basis, entrust an intermediary body holding a certificate of qualification to carry out a
valuation, which shall be used as a reference at th e time of the transaction; no unit or department is
allowed to carry out a valuation of the exchanged ve hicle in a compulsory manner or in a compulsory
manner in disguise.

Article 67. Enterprises engaged in second-hand vehicle business should possess the required capital,
premises, and specialized technical personnel, a nd shall conduct their business activities only upon
approval by and registration at the management de partments for the administration of industry and
commerce. When selling second-hand vehicles, the ve hicle dealer should provide the buyer of the
vehicle with truthful information about the vehicle, and not engage in disguise or fraud. Vehicles sold
must have the "Motorized vehicle registration certif icate" and the "Motorized vehicle license", and at

the same time have certificates of annual inspection by the Public Security traffic management
department and the Environmental Protection ma nagement department. If the second-hand vehicle
purchased by the buyer is not eligible for outgoing or incoming registration of a motorized vehicle,
the dealer should refund the vehicle unconditionally and bear the corresponding responsibility.

Article 68. Perfect the automotive insurance system. Th e insurance system should collect premiums
in accordance with the level of risk of the consumer and of the insured vehicle. The insurance industry
is encouraged to promote a diversification of au tomotive insurance products and a market orientation
of insurance rates.

Article 69. All municipal people's governments should co mprehensively study policies and methods
for a balanced development between traffic demand, the modes of traffic in their municipality, and
available traffic resources such as urban roads and parking facilities. A system of hearings is to be
instituted when formulating non-provisional traffic management programs restricting traffic in certain
areas.

Article 70 . All municipal people's governments shoul d, in accordance with the economic
development situation in their municipality, activel y plan and build parking spaces and facilities with
as guiding principles to safeguard a smooth traffic flow, to make parking more convenient and to spur
automobile consumption. Formulate land-use polic ies for parking spaces and policies that encourage
investment, and encourage individuals, collectiv es as well as foreign investors to build parking
facilities. In order to regulate the construction of municipal parking facilities, the Ministry of
Construction should formulate corresponding sta ndards and issue specific requirements for the
building of parking facilities in residential areas, commercial areas, public spaces and recreational
spaces.

Article 71 . The relevant State departments shall form ulate and promulgate uniform automobile
emission standards, and shall distinguish in accordance with prevailing conditions between
immediately operative standards and anticipatory standards. The people's governments in every
province, autonomous region, and directly administered municipality shall, in accordance with the
local actual situation, choose to implement eith er the immediately operative standard or the
anticipatory standard. If the anticipatory standard is chosen as the immediately operative standard, the
implementation date shall be announced at least one year in advance.

Article 72. Implement a nationwide, uniform management system for motorized vehicle registration
and inspection; localities are not allowed to formulat e their own management me thods in this regard.
When applying for motorized vehicle registration a nd annual inspection, the Public Security traffic
management departments may not request doc umentation to be submitted other than the
documentation that has to be provided according to th e relevant State laws and regulations and State
Council regulations or regulations authorized by the State Council (identity card of the motorized
vehicle owner, certificate of origin of the motori zed vehicle, ex-factory quality certificate for the
whole vehicle for locally-produced motorized vehi cles or import certificate for imported motorized
vehicles, relevant tax certificates, proof of payment of the insurance premium for statutory insurance,
certificate of annual inspection). People's governments at every level as well as relevant departments
may not request the Public Security traffic management departments to examine additional
documentation at the time of registration and annual inspection. If the procedure provided by the
automobile consumer is conform to State regula tions, the Public Security traffic management
departments may not refuse to handle registration and annual inspection.

Article 73. The Public Security traffic and environmental protection management departments should,
in accordance with the vehicle category, usage and age, in consultation with relevant departments

formulate different management methods. For ne w vehicles and vehicles not used for commercial
purposes, the interval between inspections can be suitably lengthened, while for older vehicles the
frequency of inspections and the items to be inspected can be suitably increased.

Article 74 . The "Motorized Vehicle Registration Certifi cate" issued by the Public Security traffic
management departments can be used by the motori zed vehicle owner as proof of his property right
when leasing the vehicle, when applying for auto mobile consumer credit, or when trading a second-
hand vehicle; and when the vehicle is traded, the "Motorized Vehicle Registration Certificate" must
be transferred to the new owner at the same time.

Chapter XIII: Others

Article 75 . Automobile professional organizations, inte rmediary bodies and other social groupings
should strengthen their internal organization, in crease their service awareness, and make efforts to
play their role as intermediary bodies; they shou ld actively participate in exchange activities with
relevant professional circles internationally and fully play their role as a bridge and a hub between the
government and enterprises, so as to promote the development of the automotive industry.

Article 76 . Investors from the Hong Kong Special Ad ministrative Region, the Macau Special
Administrative Region and the Taiwan region inv esting in the automotive industry on the Chinese
mainland are subject to the relevant stipulations of this Policy.

Article 77 . Prior to the publication of compulsory re quirements on technical standards for road
motorized vehicle products, national compulsory standards provisionally apply.

Article 78. This Policy takes effect from the date of its publication, and NDRC is responsible for its
interpretation.

Annex 1: Terminology

1. Road motorized vehicle: any power-driven vehicle and trailer, with at least two wheels, and a rated
minimum speed higher than 6 km/h, comprising mainly vehicles, transport vehicles for agricultural
use, motorcycles, and other transport machines an d trailers used on roads. Not including vehicles
driving on rails, or any power-driven machines and tractors used in agriculture, forestry,
engineering etc. but not used on roads.

2. Automobile, special purpose vehicle, transpor t vehicle for agricultural use, motorcycle:
"automobile" as used in the Policy on Developmen t of Automotive Industry refers to vehicles as
defined in Art. 2.1 of National Standard GB/T 3730.1-2001, including whole vehicles and special
purpose vehicles; "special purpose vehicle" refers to vehicles as defined in Art. 2.1.1.11, 2.1.2.3.5
and 2.1.2.3.6 of National Standard GB/T 3730.1- 2001; "transport vehicle for agricultural use"
refers to vehicles as defined in National Standard GB 18320-2001; "motorcycle" refers to vehicles
as defined in National Standard GB/T 5359.1-1996.

3. Product category: according to the definitions of passenger vehicles, commercial vehicles and
motorcycles in the National Standards, and their detailed classification, in which:
(A) Passenger vehicles are classified into:
Sedans: Art. 2.1.1.1 to 2.1.1.6 of National Standard GB/T 3730.1-2001.
Other passenger vehicles (including multi-purpose and sport/utility vehicles): Art. 2.1.1.7 to
2.1.1.11 of National Standard GB/T 3730.1-2001.
(B) Commercial vehicles are classified into:
Buses: Art. 2.1.2.1 of National Standard GB/T 3730.1-2001.
Semi-trailer tractors and trucks: Art. 2.1.2.2 and 2.1.2.3 of National Standard GB/T 3730.1-2001.

4. New automobile, transport vehicle for agricultural use, or automotive engine investment project:
newly-established enterprises (including Sino-foreig n joint venture enterprises) producing whole
vehicles, special-purpose vehicles, farm trans port vehicles and automotive engines; as well as
existing enterprises (including Sino-foreign joint venture enterprises) producing whole vehicles,
special-purpose vehicles, farm transport vehicles, or engines, which either change the legal
person/shareholder(s) and/or estab lish a production enterprise with independent legal personality
in another location. Another location means, out side of the municipality or county where the
enterprise is located.

5. Total project investment: the total fixed assets investment (including existing fixed assets and
newly-added fixed assets) required for the investment project, plus intangible assets and working
capital.

6. Autonomous property rights (autonomous intelle ctual property rights): the product obtained
through autonomous development, joint development or development entrusted to a third party, in
which the enterprise owns the industrial property ri ghts to the product, the right to improve and to
certify the product, as well as the right to transfer the product technology.

7. Vehicle manufacturer: a manufacturer (including Sino-foreign joint venture or cooperative
enterprises) of whole vehicles or special purpose vehicles and lawfully registered within the
territory of China in accordance with the approval procedure stipulated by the State.

8. Domestic market share: the share that a corpor ation (manufacturer) occupies in the total sales of
domestic vehicles with its own sales of whole ve hicles in the domestic market over one whole
year.

Annex 2: Contents to be filed for an automotive investment project

The contents of materials to be filed include:

1. Basic information, legal address, legal representative's name, of the vehicle manufacturer or
the project investor. Business operation results and bank credit information for the past three
years.

2. Analysis of the necessity of establishing the investment project, and of the domestic and
foreign markets; analysis of the technological level of the product and of the origin of the
technology (explanation of the intellectual pr operty rights over the product); total project
investment, registered capital and sources of financing; production (operation) scale, contents
of construction; method of construction, and construction schedule.

3. For Sino-foreign joint venture or cooperative enterprises, basic information on the foreign
investor or cooperation partner, including na me of the foreign investor, country of
registration, legal address and legal representativ e, and nationality. The investment record
and business results of the foreign investor in China. The shareholding ratio of the Chinese
and foreign sides in the investment project, the method of investment and sources of
financing, and the term of the joint venture.

4. The contract for foreign technology transfer or technological cooperation.

5. Economic benefit analysis of the investment project.

6. Documentation on environmental impact, land use, bank undertakings, and construction
approval by the local government.

7. Supporting conditions and favourable policies offered by the local government.

ANNEX E-2

TRANSLATION OF DECREE 125 AS AGREED BY THE PARTIES
[Cover Letter of Decree 125]
D
ECREE OF THE PEOPLE'S REPUBLIC OF CHINA GENERAL ADMINISTRATION OF CUSTOMS, THE
PEOPLE'S REPUBLIC OF CHINA NATIONAL DEVELOPMENT AND REFORM COMMISSION, THE
PEOPLE'S REPUBLIC OF CHINA MINISTRY OF FINANCE, AND THE PEOPLE'S REPUBLIC OF CHINA
MINISTRY OF COMMERCE
NO. 125
February 28, 2005
In accordance with the Automotive Industry Development Policy as well as relevant regulations, the
General Administration of Customs, the Natio nal Development and Reform Commission, the
Ministry of Finance, and the Ministry of Commerce have formulated the Administrative Rules on
Importation of Automobile Parts Characterized as Complete Vehicles , now promulgated for
implementation from April 1, 2005.
[signature of MU Xinsheng]
The Minister, Customs General Administration
[signature of MA Kai]
The Chairman, National Development and Reform Commission
[signature of JIN Renqing]
The Minister, Ministry of Finance
[signature of BO Xilai]
The Minister, Ministry of Commerce

A
DMINISTRATIVE RULES ON IMPORTATION OF AUTOMOBILE PARTS
CHARACTERIZED AS COMPLETE VEHICLES
CHAPTER I G ENERAL PROVISIONS
Article 1 These Rules are formulated in accordance with relevant laws and regulations with a
view to formalizing and strengthening the administra tion of the importation of automobile parts, and
promoting the healthy development of the automobile industry.
Article 2 These Rules are applicable to the supervision and administration of the importation of
automobile parts characterized as comple te vehicles, used to produce/assemble 1 vehicles by
automobile manufacturers approved by or registered with relevant state authorities.
Automobile manufacturers importing completely knocked-down (CKD) or semi-knocked down
(SKD) kits may declare such importation to the Customs in charge of the area where the manufacturer
is located and pay duties, and these Rules shall not apply.
Article 3 The reference to "vehicles" in these Rules shall mean the classes M and N vehicles as
defined in the Classification of Vehicles and Trailers (National Standard of China, GB/T15089-2001).
"Class M Vehicles" shall mean passenger vehicles with at least four wheels. "Class N Vehicles" shall
mean cargo vehicles with at least four wheels.
Article 4 The reference to "assembly (system)" in these Rules shall include the vehicle body
(including cabin) assembly, the engine assembly, the transmission assembly, the driving axle
assembly, the driven axle assembly, the frame assembly, the steering system, and the braking system.
Article 5 The reference to "automobile parts characterized as complete vehicles" in these Rules
shall mean that the imported automobile parts shoul d be characterized as co mplete vehicles at the
stage when complete vehicles are assembled. The reference to "automobile parts characterized as
assemblies (systems)" shall mean that the importe d automobile parts should be characterized as
assemblies (systems) at the stage when the assemblies (systems) are assembled.
Article 6 The General Administration of Customs (hereinafter referred to as the "CGA"), the
National Development and Reform Commission (hereinafter referred to as the "NDRC"), the Ministry
of Commerce, and the Ministry of Finance shall be responsible for the administration of imported
automobile parts that should be characterized as complete vehicles according to these Rules.
The CGA, the NDRC, the Ministry of Commerce, and the Ministry of Finance shall establish a
Leading Panel for the Administration of the Impo rtation of Automobile Parts Characterized as
Complete Vehicles (hereinafter referred to as "the Leading Panel"). The Leading Panel Office shall be
resident at the CGA, and be responsible for dea ling with daily affairs of the Leading Panel.
Designated by the CGA, the National Professional Center for Verification of the Character of
Complete Vehicle (hereinafter referred to as "the Verification Center"), shall verify whether imported
parts can be characterized as complete vehicles or assemblies (systems).

1 Canada, the EC and the United States note that the Chinese original text contains the two words
"shengchan" and "zuzhuang", which are properly translated into "to produce" for "shengchan", and "to
assemble" for "zuzhuang". China considers that the two words are used in an interchangeable sense.

C
HAPTER II A DMINISTRATION OF REGISTRATION
Article 7 Automobile manufacturers shall conduct a self-evaluation of whether imported
automobile parts used in a particular vehicle m odel should be characterized as complete vehicles in
accordance with these Rules, if th e automobile manufacturers produce 2 vehicles with imported
automobile parts for domestic sales. If, through the self-evaluation, an automobile manufacturer
determines that the imported automobile parts shoul d be characterized as complete vehicles, the
automobile manufacturer shall register the releva nt vehicle models with the CGA prior to the
importation of such automobile parts. Each vehicl e model of the same automobile manufacturer shall
be registered separately.
If the self-evaluation suggests that the imported au tomobile parts should not be characterized as
complete vehicles, the automobile manufacturer shall request the CGA to conduct a review. The
CGA shall designate the Verification Center to conduct a simplified review or an on-site review. In
the event that the review indicates that the impor ted automobile parts should be characterized as
complete vehicles, the automobile manufacturer shal l file a supplementary registration. In the event
that the review concludes that the imported automob ile parts should not be characterized as complete
vehicles, registration is then unnecessary.
When an automobile manufacturer app lies to the NDRC to be listed on the Public Bulletin on On-
Road Motor Vehicle Manufactures 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
concerned. If the imported automobile parts are not characterized as complete vehicles, the
automobile manufacturer shall also submit the review opinion by the CGA.
"Characterized as Complete Vehicles" shall be marked by the NDRC in the Public Bulletin on On-
Road Motor Vehicle Manufacturers and Products and shall be marked by the Ministry of Commerce
in the Automatic Importation License for those vehi cle models assembled with imported automobile
parts that have been characterized as complete vehicles.
Article 8 Registered vehicle models shall be those that have been listed on the Public Bulletin
on On-Road Motor Vehicle Manufacturers and Products published by the NDRC.
Article 9 When an automobile manufacturer appli es for registration, the manufacturer shall
submit:
(1) a brief introduction of the manufacturer;
(2) an annual production plan for the vehicle model to be registered;
(3) a classification and price ratio schedule of the automobile parts of the vehicle model to
be registered; the total price of the vehicle model to be registered, and the itemized prices
of domestic parts and imported parts used in the vehicle model to be registered (each of
the above shall exclude relevant taxes);

2 Canada, the EC and the United States note that the Chinese original text contains the word
"shengchan", which is properly translated into "to produce". China considers that this word is used
interchangeably with "zuzhuang", "to assemble.

(4) a complete list of the domestic and forei gn suppliers that supply the automobile parts
used in the vehicle model to be registered, and a list of the automobile parts supplied by
each supplier;
(5) Evidence that the vehicle model to be registered has been included in the Public Bulletin
on On-Road Motor Vehicle Manufacturers and Products.
Article 10 Having received a registration applicati on, the CGA shall distribute relevant
documents to the NDRC, the Ministry of Commerce, and district customs offices. Having received
relevant documents, the NDRC, the Ministry of Comme rce, and the district customs office in charge
of the area where the manufacturer is located shall administer the registration in accordance with their
respective responsibilities.
Article 11 Once a district customs office in charge of the area where the manufacturer is located
receives a manufacturer's registration documents distri buted by the CGA, such district customs office
shall:
− examine the registration documents,
− register the automobile manufacturer and its vehicle models, if the criteria are met; and
− notify the manufacturer accordingly.
Article 12 After a vehicle model has been registered, the automobile manufacturer shall provide
comprehensive duty bonds commensurate with its impor tation plans to the district customs office in
charge of the area where the manufacturer is locat ed prior to the importation of such parts. The
amount of the comprehensive duty bonds shall not be less than the manufacturer's monthly average of
duties payable on the importation of such parts.
If the number of registered vehicle models is sub sequently changed or the importation plan modified,
the automobile manufacturer shall timely apply for an adjustment of the amount of the comprehensive
duty bonds to the district customs office in charge of the area where the manufacturer is located. If
such change or modification is verified to be true , the district customs office shall follow the required
procedures to adjust the amount of the bonds.
C
HAPTER III A DMINISTRATION OF CUSTOMS CLEARANCE
Article 13 An automobile manufacturer importi ng automobile parts that should be characterized
as complete vehicles shall declare such importation and pay duties to the district customs office in
charge of the area where the manufacturer is located.
If an automobile manufacturer imports automobile parts characterized as complete vehicles from ports
other than the one where the manufacturer is located, a pplication for inter-customs transshipment
shall be made by the automobile manufacturer to the district customs office of the area where the
manufacturer is located, after the vehicle model con cerned has been registered and the comprehensive
duty bonds have been provided.
Importation of other automobile parts that should not be characterized as co mplete vehicles shall not
be subject to the previous paragraph.

Article 14 To declare the importation of automobile pa rts characterized as complete vehicles, an
automobile manufacturer shall submit to the customs:
− an importation declaration form;
− the Automatic Importation License marked with "Characterized as Complete Vehicles";
− other relevant licenses; and
− accompanying documents required by the customs.
Article 15 If importation licenses are required for the importation of automobile parts
characterized as complete vehicles, the licenses shall be examined during customs clearance.
"Characterized as Complete Vehicles" shall be fi lled in the column of Duty/Exemption in the
importation declaration form; the name of the autom obile manufacturer shall be filled in the column
of Consignee.
The automobile parts of each vehicle model shall be declared on a separate form.
Article 16 Upon entry of automobile parts characterized as complete vehicles, the customs shall
handle the importation formalities by referen ce to relevant regulations regarding the administration of
bonded goods, and shall include such entries in the cu stoms statistics according to the status of the
entries.
C
HAPTER IV C RITERIA FOR WHETHER OR NOT TO BE CHARACTERIZED AS COMPLETE
VEHICLES AND THE VERIFICATION
Article 17 Application for verification as to whethe r imported automobile parts should be
characterized as complete vehicles shall be submitte d by automobile manufacturers to the CGA; the
CGA entrusts the Verification Center to conduct verifications. The customs shall determine the
applicable tariff rates and the dutiable prices, and shall handle the duty collection based upon the
Verification Report issued by the Verification Center. Implementation rules on how to verify whether
the imported automobile parts should be charact erized as complete vehicles will be separately
formulated and promulgated by the CGA.
Article 18 The Verification Center shall, in accordance with the instructions of the CGA, verify
relevant vehicle models assembled by automobile manufacturers and issue verification reports.
Article 19 An automobile manufacturer shall subm it a verification application to the CGA
within 10 days after the first batch of ve hicles of the registered vehicle model are
produced/assembled3. The Verification Center shall, within one month after receiving instructions
from the CGA, conclude the verification and issue a verification report.
For those vehicle models that have been put in to production before these Rules become effective,
automobile manufacturers shall, within one month af ter these Rules become effective, conclude the
self-evaluations, and report the results of the self-eval uations to the CGA. In the event that the self-
evaluation suggests that the imported automobile pa rts should be characterized as complete vehicles,
the automobile manufacturer shall file a registrati on with the CGA within 10 days after completion of
the self-evaluation, and shall apply for verification with the CGA. In the event that the self-evaluation

3 See the footnote associated with Article 2.1 of Decree 125.

suggests that the imported automobile parts should not be characterized as complete vehicles, the
automobile manufacturer shall apply for a review with the CGA. If the review indicates that the
imported automobile parts should be characterized as complete vehicles, the automobile manufacturer
shall, within 10 days after the issuance of the re view conclusion, file a supplementary registration
with the CGA, and shall apply for verification with the CGA. The Verification Center shall, in
accordance with the instructions of the CGA, conc lude the verification of the registered vehicle
models that have been put into production and issue a verification report within three months.
Article 20 The vehicle models verified by the Verification Center are baseline models. If
imported parts are installed on vehicles of a verified baseline model on an optional basis, the
automobile manufacturer shall report the options to the Verification Center and the district customs
office in charge of the area where the manufacturer is located, and shall make faithful declarations at
the time of the actual installation of the optional pa rts. After the Verification Center concludes its
review and issues a verification report, the customs shall make an adjustment when it determines the
dutiable prices and calculates the duties.
An automobile manufacturer may apply for re-verification of a baseline vehicle model if changes in
the importation of automobile parts in the produ ction process may result in a change in the
determination of whether the imported automobile parts should be characterized as complete vehicles.
The customs shall determine the dutiable prices for the purpose of duty calculation in accordance with
the Re-verification Report issued by the Verificati on Center. In the event that the re-verification
indicates that the imported automobile parts should no longer be characterized as complete vehicles,
the customs shall no longer administer such vehicle models pursuant to these Rules.
Article 21 Imported automobile parts shall be characterized as complete vehicles if one of the
following applies:
(1) imports of CKD or SKD kits for the purpose of assembling vehicles;
(2) within the scope identified in Article 4 of these Rules:
(a) imports of a body (including cabin) assembly and an engine assembly for the
purpose of assembling vehicles;
(b) imports of a body (including cabin) assembly or an engine assembly, plus at least
three other assemblies (systems), for the purpose of assembling vehicles;
(c) imports of at least five assemblies (systems) other than the body (including cabin)
and engine assemblies for the purpose of assembling vehicles; or
(3) the total price of imported parts accounts for at least 60% of the total price of a complete
vehicle of that vehicle model. This criterion shall enter into force on July 1, 2006.
Article 22 Imported automobile parts shall be characterized as an assembly (system) if one of
the following applies:
(1) imports of a complete set of parts for the purpose of assembling assemblies (systems);
(2) imports of key parts or sub-assemblies for the purpose of assembling assemblies
(systems), if the quantity of the imported key parts or sub-assemblies reaches or exceeds
the specified level as set forth in Annexes 1 and 2; or

(3) the total price of imported parts accounts for at least 60% of the total price of that
assembly (system).
Article 23 An assembly (system) manufactured by a domestic automobile assembly (system)
manufacturer shall be considered a domestic assembly (system), if the imported automobile parts used
in the manufacturing of the assembly (system) are not characterized as an assembly (system).
Article 24 If domestic automobile manufacturers or domestic automobile parts manufacturers
use imported automobile parts (excluding assembli es and sub-assemblies) or imported unfinished
automobile parts to manufacture automobile part s, the automobile parts manufactured by such
domestic manufacturers shall be considered domestic automobile parts, if the domestic manufacturers
substantially process the imported parts or unfinished parts.
The reference to "substantial processing" shall mean that the article, after being processed, meets the
substantial transformation criteria set forth in the Regulation on Rules of Origin for Imported and
Exported Goods of the People's Republic of China.
Article 25 When the Verification Center conducts verifications on whether the imported
automobile parts should be char acterized as complete vehicles, automobile manufacturers shall
actively cooperate, and shall submit the following documents:
(1) the verification application;
(2) the manufacturer's self-evaluation report;
(3) the List of Purchased Parts for Registered Vehicle Model (Annex 3);
(4) other documents deemed necessary by the Verification Center.
Article 26 If an automobile manufacturer is required to register or is required to apply for
verification of whether imported automobile parts should be characterized as complete vehicles, but
fails to do so, the CGA may instruct the Verification Center to conduct verifications.
C
HAPTER V D UTY COLLECTION PRINCIPLES AND CALCULATION OF DUTIES
Article 27 The customs in charge of the area where the manufacturer is located shall administer,
by reference to the rules for bonded goods, the impor ted automobile parts that are characterized as
complete vehicles, during the period from the cust oms declaration and clearance of the goods to the
payment of duties. In order to enhance the e fficiency and effectiveness of the administration,
automobile manufacturers with such capabilities shall be electronically connected to the customs in
charge of the area where the manufacturer is located.
Article 28 [UNOG TRANSLATION] After the imported automobile parts have been
assembled into complete vehicles, the automobile manufacturer shall make a declaration of duty
payable to Customs and Customs shall, in accordan ce with the relevant provisions of the Customs
Law of the People's Republic of China (hereinafter referred to as the "Customs Law"), the Import-
Export Tariff Regulations ofthe People's Republic of China and the Import-Export Tax Regulations of
the People's Republic of China, proceed with classification and duty collection.

If the Verification Center, after verifications, conclu des that the imported automobile parts should be
characterized as complete vehicles, the customs sh all classify them as complete vehicles, and shall
base both the tariff and the import VAT on rates applicable to complete vehicles. If the imported
automobile parts should not be characterized as comp lete vehicles, the customs shall classify them as
parts, and shall base the tariff and the import VAT on rates applicable to parts.
Article 29 If the customs treats the imported autom obile parts used by an automobile
manufacturer as complete vehicles for the purpose of classification and duty collection, and if the
supplier of the automobile manufacturer imported some of the automobile parts used by the
automobile manufacturer and already paid import duty and import VAT upon importation, such paid
import duty and import VAT shall be deducted fro m the total amounts of import duty and import
VAT due from the automobile manufacturer, provi ded that the automobile manufacturer provides
relevant proof of payment of import duty and import VAT.
If automobile parts, which are imported in comp liance with these Rules, are not used in the
production
4 of complete vehicles within one year, th e automobile manufacturer shall declare duty
payment to the customs within 30 days after the e xpiry date of the aforementioned one year period,
and the customs shall handle the duty collection in accordance with relevant regulations.
Article 30 These Rules shall apply to the situation in which vehicles manufactured under the
trade-for-processing programs are sold into the domestic market.
An automobile manufacturer operating under a trad e-for-processing program shall file retroactive
registrations with the CGA and shall accept verifications by the Verification Center in compliance
with these Rules, before such an automobile manuf acturer applies for domestic sales of the vehicles,
which are produced/assembled 5 with imported automobile parts characterized as complete vehicles.
Based upon the verification conclusion that importe d automobile parts should be characterized as
complete vehicles, and the License for Domestic Sales of Imported Bonded Materials under Trade-
for-Processing Programs and relevant importation licenses submitted by the manufacturer, the
customs shall apply the duty rates set forth in these Rules and collect the duties accordingly, and shall
also collect the interests incurred by virtue of duty deferral on all imported automobile parts.
Automobile manufacturers located in a bonded zone, in an export processing zone, or in other special
zones supervised by the customs shall file retroa ctive registrations with the CGA and shall accept
verification by the Verification Center in complia nce with these Rules, be fore such automobile
manufacturers may apply for domestic sales of the ve hicles that are assembled with automobile parts
characterized as complete vehicles that have cro ssed the border and entered into the aforementioned
zones. Based upon the verification conclusion that imported automobile parts should be characterized
as complete vehicles, the customs shall, upon presentation of relevant importation licenses by the
manufacturers, follow the required procedures to co llect duties applicable to domestic sales such
vehicles.
Article 31 An automobile manufacturer shall declare dut y payment to the district customs office
in charge of the area where the manufacturer is located, by the tenth working day of each month
subsequent to the month in which the Verification Center issues a report with the conclusion that the
imported automobile parts should be characterized as complete vehicles. The customs shall collect
the duty and the import VAT for all imported automob ile parts used in assembling a certain vehicle
model in the last month by a manufacturer, applying the tariff rates applicable to complete vehicles.

4 See the footnote associated with Article 7.1 of Decree 125.
5 See the footnote associated with Article 2.1 of Decree 125.

In the first declaration, an automobile manufacturer shall also declare duty payment to the customs for
imported automobile parts that had been produced
6 into complete vehicles before the issuance of the
verification report.
Article 32 An automobile manufacturer shall declar e to the customs the imported automobile
parts on which duties have not been paid within 30 days from the date on which the Verification
Center issues a verification report concluding th at the imported automobile parts should not be
characterized as complete vehicles. The cust oms shall calculate the duties and the VAT by
application of the tariff rates applicable to auto mobile parts and shall no longer administer such a
vehicle model under these Rules.
Article 33 If, after verifications by the Verification Ce nter, all the registered vehicle models of
an automobile manufacturer cannot be characterized as complete vehicles, and if the automobile
manufacture has paid all relevant duties, the cu stoms shall notify the manufacturer to release the
comprehensive duty bonds.
Article 34 In declaration for duty payment to the dist rict customs office in charge of the area
where the manufacturer is located, an automobile manufacturer shall submit:
(1) the verification report of the Verification Center;
(2) the quantity of the complete vehicles of relevant vehicle models that were produced7 by
the manufacturer in the last month, except for those models for which the imported
automobile parts should not be characterized as complete vehicles;
(3) the list of imported automobile parts that were used in production/assembly8 of complete
vehicles of relevant vehicle models in the last month, except for those parts that are not
characterized as complete vehicles in the verification report;
(4) other documents deemed necessary by the customs.
Article 35 In the declaration of an automobile manufacturer to the customs on imported
automobile parts that should be characterized as co mplete vehicles, the column of "Duty/Exemption"
shall be filled with "Dutiable as Complete Vehicles " and the column of "Transactional Term" shall be
filled with "CIF." In the declaration of an automobile manufacturer to the customs on imported
automobile parts that should not be characte rized as complete vehicles, the column of
"Duty/Exemption" shall be filled with "Dutiable as Parts" and the column of "Transactional Term"
shall be filled with "CIF."
C
HAPTER VI LEGAL LIABILITIES
Article 36 Violations of these Rules, which may cons titute smugglings or acts violating customs
supervision rules, will be punished by the customs according to the Customs Law and the
Implementation Rules on Customs' Administrative Penalties of the People's Republic of China. Those
constituting criminal offences will be subject to criminal liabilities according to the law.

6 See the footnote associated with Article 7.1 of Decree 125.
7 See the footnote associated with Article 7.1 of Decree 125.
8 See the footnote associated with Article 2.1 of Decree 125.

Article 37 If an automobile manufacturer, in violation of these Rules, fails to faithfully declare
that the imported automobile parts should be character ized as complete vehicles when it applies to be
listed on the Public Bulletin on On-Road Motor Vehicle Manufacturers and Products and when it files
the corresponding registrations, or if an automobile manufacturer imports automobile parts that should
be characterized as complete vehicles in multiple shipments without applying for registration with the
CGA prior to the importation, the NDRC shall temporarily take relevant vehicle models off the Public
Bulletin on On-Road Motor Vehi cle Manufacturers and Products until such automobile manufacturer
corrects its failures.
C
HAPTER VII M ISCELLANEOUS
Article 38 These Rules shall become effective on April 1, 2005.
ANNEXES
1. A SSEMBLY (SYSTEM) LIST
2. S COPE OF AUTOMOBILE PARTS IN ASSEMBLIES (SYSTEMS)
3. P URCHASE LIST OF AUTOMOBILE PARTS OF REGISTERED VEHICLE MODEL

ANNEX 1

ASSEMBLY (SYSTEM) LIST

Threshold Numbers for
Imported Parts (in units)
Assembly Names Key parts and Sub-assemblies
Category A Aggregate
Remarks
A side panel, door, bonnet 2 Class M1
B roof box, front apron, floorpan, luggage compartment
lid, rear panel, fender
--
5
A roof box, side panel 2 Class M2
B bonnet, front apron, door, rear panel, floorpan --
4
A roof box, side panel, body framing 2 Class M3
B Front apron, door, rear panel, floorpan --
4
A roof box, door, side panel 2
Vehicle bodies
(cab)
Class N
B bonnet, front apron, rear panel, fender, floorpan --
5
Under Class M1, if imported pressing
exterior cover is used, then the entire
sub-assembly should be regarded as
an imported sub-assembly.
A cylinder block, cylinder head, high-pressure oil pump 2 6 Diesel engine
B crankshaft, supercharger, camshaft, link lever, starter,
generator, diesel injector
--
A cylinder block, cylinder head, EFI device (including the
ECU, throttle valve, fuel-injector, and sensor)
2 Engine
Assemblies Gasoline
engine
B crankshaft, camshaft, fuel pump, link lever, starter,
generator, supercharger
--
6
Not including the radiator. radiator
fan, air filter, muffler, fuel tank, and
clutch A housing, gears, clutch 2
Transmission

MT
B Shaft, gear shifter Unit, synchronizer, transfer case -
4 1. Not including the remote
variable speed control system.

2. As to the transfer box of all-

 Page E- 29
A housing, clutch, (hydraulic coupling for automatic gearbox),
ECU
2
Assemblies
AT
B transfer box, gears (or friction wheel and steel belt), shafts,
gearshift components
--
4 wheel-drive vehicles, the aggregate
threshold number for the transmission
assemblies should be 3
-- 6 driving axle housing, left-right semi-axle (including constant speed
universal joint), steering knuckle, differential, swing arm,
wheel hub, bearing, final reduction gear, shock absorber,
suspension spring
-- 6
Vehicle axle of
Class M 1
vehicles driven axle axle (including trailing arm assembly), wheel hub, bearing,
suspension spring, shock absorber.
-- 4
driving axle housing, differential, semi-axle, driving shaft, final
reduction gear, wheel hub, bearing, shock absorber,
suspension spring
-- 5 When swing arm and steering
knuckle are added to the independent
front axle, the corresponding
aggregate threshold number should
be 6
Vehicle axle of
Class M
2 M 3
and N vehicles
driven axle steering knuckle, shock absorber, front axle, suspension
spring, wheel hub, bearing.
-- 4
Frames
longitudinal beam (or front auxiliary frame, and engine
cradle), cross beam (rear auxiliary frame)
-- 2
Braking systems
actuating brake cylinder (or pneumatic brake), assistor
assembly, front braking assemb ly, rear braking assembly,
ABS valves, and ECU assembly
-- 4
power steering steering assembly, steerin g control valve assembly, oil pump
for power steering, steering wheel, steering shaft and
universal joint,
-- 3
Steering
systems
non-power steering
steering assembly, steer shaft, universal joint, and steering
wheel
-- 2
Air-bag included in the steering
wheel.

Notes:

1. If imported parts under Categories A and B, in the aggregate, reach or exceed the aggregate threshold number for imported parts, such imported parts shall be characterized as
assembly (system); if, however, the quantity of imported parts under Category A reaches or exceeds the threshold number for Category A parts, such imported parts shall also
be characterized as assembly (system).
2. If the imported parts accounts for more than 60 % of the price of the key parts or sub-as sembly, such key parts or sub-assembly shall be deemed as imported key parts or sub-
assembly. Manufacturers shall provide a list of price ratios of needed parts.
[The calculation of importation ratios] of ke y parts and sub-assemblies, in principle, shall trace back to the second-level sup pliers to the manufacturers of complete vehicles,
and no further.
3. For all-wheel-drive vehicle, its transfer box should alone be ch aracterized as an assembly, substituting driven axle. In this case, the housing, gears (or chain), and adaptor in
the transfer box belong to Category A, and the corresponding threshold number should be 2. The shafts, bearings, synchronizers and electrical control devices in the transfer
box belong to Category B, and the corresponding threshold number should be 4.
4. For dual drive-axle and multi-axle vehicles , the assembly (system) character shall be determined in accordance with their respe ctive number of axles, and the aggregate
threshold number for complete vehicles character shall be increased accordingly.
5. During the period from April 1, 2005 to June 30, 2006, key parts under Category A and Category B shall be verified together according to the aggregate threshold number.
From July 1, 2006 and on, for all vehicle models, key parts under Categories A and B shall be verified separately according to the threshold numbers for their respective
category.
6. If a vehicle model does not contain key parts or sub-assembly that functionally corresponds to those listed in this Assembly (S ystem) List, the threshold numbers or the
number of its assemblies (systems) shall be decreased accordingly.

ANNEX 2
SCOPE OF AUTOMOBILE PARTS IN ASSEMBLIES (SYSTEMS)
This Scope of Automobile Parts in Assemblies (systems ) is mainly intended to clarify the scope of
assemblies and systems for the purpose of verifying the complete vehicles character. The scope is
delimited according to the following principles: (1 ) functional independence, and (2) distinctive and
separate assembly phases. It takes referenc es of : QC/T265-2004 <<Automobile Components
Code>>, QC/T514-1999 <<Passenger Car Body Te rms>>, QC/T4780-2000 <<Automobile Body
Terms>>, GB/T5727-1985 <<Terms and Definitions of Automobile Hydraulic Transmission>>,
GB/T5333-1985<<Terms and Definitions of Auto mobile Drive Axle>>, GB5620.2-1985 <<Terms
and Definitions of Automobile and Trailer's Br aking>>, GB/T5179-1985 <<Terms and Definitions of
Automobile Steering System>>.
Vehicle bodies (cab):
They include: the body-in-white prior to the painting work, excluding body auxiliaries and
decorative fittings, by wielding together the body structural members and covering components
(body-chassis frame construction).
Class M
1 includes: front apron, rear panel, roof box, floorpan, fender, door, bonnet, luggage
compartment lid (or rear hatch assembly).
Classes other than M 1 include: the front apron, side panel, roof box, floorpan, floor cover (metal
works), roof ventilation window, fender, door , bonnet, body framing (body-chassis frame
construction).
Engine assemblies:
They include: cylinder block, cylinder cap, timing gear case, valve cover, crankshaft, flywheel,
link lever, piston, bearing bush, camshaft, ti ming mechanism, intake/exhaust valve, driving
mechanism, intake/exhaust manifold, ignition sy stem, water pump, lubricant pump, oil filter,
crankcase ventilator, fuel pump, EFI device (inc luding ECU, throttle valve, fuel-injector, and
sensor), supercharger, starter, generator, fuel piping, fuel filter, sensor and alarming devices.
Diesel engine also includes: high pressure fuel pump, and intermediate cooler.
Radiator, fan, air filter, muffler, fan clutch, pollutant emission control devices (particle trap device,
and three-way catalytic converter) are not included.
Transmission assemblies:
Automatic transmission includes: housing, gears (or friction wheel and steel belt), shafts, gearshift
components, hydraulic torque converter, ECU fu el pump, hydraulic control box, sensor, and
transfer box.
Manual transmission includes: housing, gears, sync hronizers, shafts, gearshift components, sensor,
clutch, and transfer box.
Remote control system is not included.

Drive axle assemblies:
They include: final reduction gear, differential, semi-axle (including the constant speed universal
joint), steering knuckle, swing arm, wheel hub, bearing, suspension spring, and shock absorber.
Driven axle assemblies:
They include: vehicle axle (including trailing ar m assembly), wheel hub, bearing, shock absorber,
and suspension spring.
Frame assemblies:
They include: longitudinal beam (or front auxiliary frame, and engine cradle), cross beam (rear
auxiliary frame).
Braking systems:
They Include: braking pedal, actuating brake cylinder, wheel cylinder, booster, brake, ABS system
(ECU, valve, and sensor), brake piping, fluid reser ve tank, retarder, brake force adjusting device,
service braking pedal, parking braking control device, three-way braking valve, sensor, and
alarming device.
Pneumatic braking system also includes: air brak e chamber, brake shoe actuator, air compressor,
gas receiver, filter, air brake valve, double check valve, relay valve, and rapid-release valve.
Steering systems:
They include: steering wheel (including air bag), steering column, steering column support,
steering shaft, universal joint, steering gear, steering gear support, steering pitman arm, steering
rod, steering knuckle arm, and trapezoidal mechanism.
Power steering also includes: steering control valve, steering power cylinder, steering oil pump,
steering power oil container, steering electrical motor, and control modules.
Transfer box assemblies:
They include: housing, bearing, gears (or chains), adapter, gearshift components, and electrical
control devices.
Notes:
1. Due to the variety of the structures of each a ssembly, the scope is not the sole criterion for
different structures, categorization should base on the functions of the parts.
2. For those parts that have more that one functi on, they should be categorized according to their
most important function.
3. Link parts (such as piping, bolts nuts, screws, clamps, and adhesives), sealing elements and
fastening elements that contribute to the integrity of the assemblies and sub-assemblies (excluding
vehicle bodies and frame assemblies) should be included in the assemblies (systems).
4. Fuel, lubricating oil, lubricating grease, coolant, br ake fluid and power oil that are irrelevant to the
processing and assembling of the assemblies (syste ms) should not be included in the assemblies
(systems).

ANNEX 3
PURCHASE LIST OF AUTOMOBILE PARTS OF REGISTERED VEHICLE MODELS
Order HS tax code Assembly
code
Assembly
Name
Part
Number
Part
Name
Unit
Price
Quantity
per Vehicle
Part Price
per Vehicle
Proportion
in CBU
Sources
of PartsÒ
Name of
Manufacturer

ÒNote: Sources of Parts refer to imported automobile parts or domestic OEM parts.

ANNEX E-3

TRANSLATION OF ANNOUNCEMENT 4 AS AGREED BY THE PARTIES

[Cover Letter of Announcement No.4]
P
UBLIC ANNOUNCEMENT OF THE CUSTOMS GENERAL ADMINISTRATION OF THE PEOPLE'S
REPUBLIC OF CHINA
NO. 4 OF 2005
February 28, 2005
In order to implement the Administrative Rules on Importation of Automobile Parts Characterized as
Complete Vehicles , the Rules on Verification of Importation of Automobile Parts Characterized as
Complete Vehicles has been formulated by the Customs Ge neral Administration ("Customs") of the
People's Republic of China to regulate the verifi cation work and to ensu re openness, impartiality,
fairness and transparency. The Rules become effective on 1 April 2005.
It is so published.
Attachment: the Rules on Verification of Importation of Automobile Parts Characterized as Complete
Vehicles
[Seal of the General Administration of Customs]

Rules on Verification of Imported Automobile Parts
Characterized as Complete Vehicles
Chapter I General Provisions
Article 1 These Rules are formulated in accordance with the " Automobile Industry
Development Policy ", the " Administrative Rules on the Importation of Automobile Parts
Characterized as Complete Vehicles " (hereinafter referred to as the "Administrative Rules"), and the
"Regulations on Import and Export Tariff of the People's Republic of China " and its general rules for
tariff classifications, with a view to regulati ng the verification of imported automobile parts
characterized as complete vehicles and ensuring the publicity, impartiality, fairness, and transparency
of the verification process.
Article 2 The Office of the Leading Panel for the Ad ministration of Importation of Automobile
Parts Characterized as Complete Vehicles (hereinafter referred to as "the Office") is resident in the
Customs General Administration, and is responsible for organizing, coordinating, and directing the
verification of imported automobile parts characterized as complete vehicles.
Article 3 Designated by the General Administrati on of Customs, the National Professional
Center for Verification of the Character of Comp lete Vehicle (hereinafter referred to as the
"Verification Center") shall be responsible for carrying out the verification of whether imported
automobile parts can be characterized as complete vehicles.
Article 4 The Verification Center shall undertake the following tasks under the direction of the
Office:
1. Conducting on-site verifications of the regi stered vehicle models that have been
assembled into complete vehicles, and issuing verification reports;
2. Conducting simplified reviews or on-site review s of the conclusions of self-evaluations
conducted by automobile manufacturers, acco rding to which the imported automobile
parts should not be characterized as complete vehicles, and issuing review opinions;
3. Verifying other vehicle models when necessary;
4. Providing guidance and assistance to the au tomobile manufacturers for their self-
evaluations;
5. Creating and maintaining a database for the task of verifying whether imported
automobile parts can be characterized as complete vehicles;
6. Undertaking other tasks assigned by the Office.
Article 5 The task of verifying whether imported parts can be characterized as complete
vehicles shall be conducted by a special verification team organized by the Verification Center. Each
special team shall be composed of 3 or 5 automobile experts, who are randomly selected by the Office
from the Verification Expert Database.
The Customs may appoint 2-3 tariff experts to observe the progress of the verification and to provide
necessary assistance to the special verification team.

C
HAPTER II V ERIFICATION PROCEDURE
Article 6 Automobile manufacturers that produce 1 vehicles with imported automobile parts
shall conduct self-evaluations pursuant to the veri fication criteria specified in the Administrative
Rules, with reference to the Nomenclature and Illustrative Figures of the Vehicle Structures
(Annex 1) and the Tariff Schedule of Key Parts or Sub-assemblies (Annex 2), if the automobile
manufacturers assemble vehicles with imported automobile parts.
If the self-evaluation suggests that the imported auto mobile parts should be characterized as complete
vehicles, the automobile manufacturer shall regist er the vehicle model with the Office after the
vehicle model has been included in the Public Bulletin on On-Road Motor Vehicle Manufacturers and
Products and before the automobile parts are imported.
If the self-evaluation suggests that the imported au tomobile parts should not be characterized as
complete vehicles, the automobile manufacture shall fill out an Application for Review of the
Complete Vehicle Character (Annex 3), enclose a List of Automobile Parts for Verification (Review)
of Complete Vehicle Character (Annex 4) and apply for review with the Office.
Pursuant to the instructions of the Office, the Verification Center shall conclude a simplified review
or an on-site review within 12 working days, and issue the Report of Complete Vehicle Character
Review (Annex 5). In the event that the review conc ludes that the imported automobile parts should
be characterized as complete vehicles, the automob ile manufacturer shall file a registration with the
Office within 7 working days after the conclusion of the review is issued.
If the status of whether imported automobile parts can be characterized as complete vehicles changes
due to the fact that the composition of such parts is altered, the relevant vehicle model shall be
registered as a new model.
Article 7 The automobile manufacturer shall apply fo r verification to the Office within 10
working days after the vehicles of a regi stered new model are produced/assembled 2 by submitting the
following documents:
1. an Application Form for Verification of Complete Vehicle Character (Annex 6);
2. a Self-Evaluation Report of the Registered Vehicle Models;
3. a List of Purchased Parts for Registered Vehicle Models;
4. a List of Documents for Verification of Complete Vehicle Character (Annex 7);
5. Other documents required.
Article 8 The Office shall, after receiving the Application Form from an automobile
manufacturer, deliver a verification notice within 7 wo rking days and transfer the relevant documents
to the Verification Center. The Verification Center shall, within 7 working days after receiving the
notice, formulate a verification plan and report to the Office. The Office shall notify the relevant
Customs office to designate tariff experts to assi st in the verification, and shall also notify the
automobile manufacturer of the verification.

1 See the footnote associated with Article 7.1 of Decree 125.
2 See the footnote associate with Article 2.1 of Decree 125.

Article 9 The Verification Center shall, after receiving the verification notice from the Office,
conclude the verification within one month, issue a Report of Complete Vehicle Character
Verification (Annex 8) and a List of Automobile Parts for Comp lete Vehicle Character Verification
(Review) (Annex 4), and submit a file containing the above documents to the Office.
Article 10 The following procedure shall apply to those vehicle models that have been put into
production before the Administrative Rules become effective:
1. Automobile manufacturers shall conclude the self-evaluation within one month after the
Administrative Rules become effective.
2. In the event that the self-evaluation suggests that the imported automobile parts should
be characterized as complete vehicles, th e automobile manufacturer shall file a
registration with the Office within 7 working days after the conclusion of the self-
evaluation, and shall apply for verification with the Office.
In the event that the self-evaluation suggests that the imported automobile parts should
not be characterized as complete vehicles, th e automobile manufacturer shall fill out an
Application for Review of Complete Vehicle Character (Annex 5), enclose a List of
Automobile Parts for Complete Vehicle Character Verification (Review) (Annex 4), and
apply for review with the Office. If the review indicates that the imported automobile
parts should be characterized as complete ve hicles, the automobile manufacturer shall,
within 7 working days after the issuance of the review opinion, file a registration with the
Office, and shall apply for verification of wh ether the imported automobile parts can be
characterized as complete vehicles.
3. The Verification Center shall conclude the ve rification within 3 months after receiving
the instructions from the Office, issue a Report of Complete Vehicle Character
Verification (Annex 8) and a List of Automobile Parts for Complete Vehicle Character
Verification (Review) (Annex 4), and submit a file containing the above documents to the
Office.
Article 11 The opinions of review and the conclusions of verification shall be timely published
on the Administrative Website of Imported Automobile Parts Characterized as Complete Vehicles at
http://autoadmin.chinaport.gov.cn
; and the website of the Chinese Automobile Industry Information at
http://www.autoinfo.gov.cn.
Article 12 The Office shall be responsible for holdi ng meetings to evaluate and supervise the
conclusions of verification. In case an au tomobile manufacturer disputes the conclusion of
verification, the Office shall organize an appraisal meeting. The attendees to the meeting primarily
include the representatives of the relevant automobi le manufacturers, the automobile experts of the
industry and the tariff experts of the Customs. In case the appraisal conclusion indicates a re-
verification is necessary, the Office shall instruct the Verification Center to conduct a re-verification.
At least two thirds of the members of the team for re-verification shall be different from those of the
original team. The head of the re-verification team shall not be a member of the original team.
The Verification Center shall conclude the re-v erification within one month after receiving the
instruction. The conclusion of the re-verification shall be published after a file containing the re-
verification records is submitted to the Office.

C
HAPTER III V ERIFICATION CRITERIA
Article 13 Imports of automobile parts shall be characterized as imports of complete vehicles if
one of the following applies:
(1) imports of CKD or SKD kits for the purpose of assembling vehicles;
(2) within the scope identified in Article 4 of the Administrative Rules:
(a) imports of a body (including cabin) assembly and an engine assembly for the purpose
of assembling vehicles;
(b) imports of a body (including cabin) assembly or an engine assembly, plus at least
three other assemblies (systems), for the purpose of assembling vehicles;
(c) imports of at least five assemblies (systems) other than the body (including cabin)
and engine assemblies for the purpose of assembling vehicles; or
(3) the total price of imported parts accounts for at least 60% of the total price of a complete
vehicle of that vehicle model. This criterion shall enter into force on July 1, 2006.
Article 14 Imported automobile parts shall be characterized as an assembly (system) if one of
the following applies:
(1) imports of a complete set of parts for the purpose of assembling assemblies (systems);
(2) imports of key parts or sub-assemblies for the purpose of assembling assemblies
(systems), if the quantity of the imported key parts or sub-assemblies reaches or exceeds
the specified level as set forth in Annexes 1 and 2; or
(3) the total price of imported parts accounts for at least 60% of the total price of that
assembly (system).

Article 15 An assembly (system) manufactured by a domestic automobile assembly (system)
manufacturer shall be considered a domestic assembly (system), if the imported automobile parts used
in the manufacturing of the assembly (system) are not characterized as complete vehicles.
Article 16 If domestic automobile manufacturers or domestic automobile parts manufacturers
use imported automobile parts (excluding assembli es and sub-assemblies) or imported unfinished
automobile parts to manufacture automobile part s, the automobile parts manufactured by such
domestic manufacturers shall be considered domestic automobile parts, if the domestic manufacturers
substantially process the imported parts or unfinished parts.
Article 17 The reference to "substantial processing" shall mean that the article, after being
processed, meets the substantial transformation criteria set forth in the Regulation on Rules of Origin
for Imported and Exported Goods of the People's Republic of China."
Article 18 The substantial transformation criteria sh all be applied pursuant to the following
principles:
The basic criterion shall be the change inalteration of tariff classification. In case the criterion of
change in tariff classification cannot capture the substantial transformation, criteria of ad valorem
percentage and manufacturing or processing procedures should be supplemented.

1. The "change inalteration of tariff classification" criterion denotes the situation in which the tariff
classification for the output product, which is made of imported materials domestically, is
different from those for the imported materials at the four-digit level in the " Customs Tariffs of
Import and Export of the People's Republic of China ". This criterion of "change in a tariff
classification," however, shall not be applied to th e change in a classification at the four-digit
level resulting only from simple manufacturing such as simple assembling or cutting.
2. The " ad valorem percentage" criterion (i.e. ratio of s ubstantial processing) denotes the situation
in which domestic manufacturing or processing of imported intermediary products creates added
value, which reaches or exceeds 30% of the value of the output product. The formula is:
Price for Delivered Goods - Value of Imported Intermediate
Products
Price for Delivered Goods
× 100% ≥ 30%

The "Price for Delivered Goods" hereinabove refers to the price of the finished products charged by
parts suppliers to manufacturers of complete vehicl es or assemblies/systems; in case the manufacturer
of complete vehicles or assemblies (systems) produces the parts by itself, the " Price for Delivered
Goods" refers to the internal price.
The "Value of imported intermedia ry products" refers to the value of the raw materials and parts
(including unfinished parts) imported for direct use in manufacturing or assembling the end product,
and shall be calculated on the basis of CIF price of importation.
Calculation of the above-mentioned "ad valorem percentage" shall conform to the Generally Accepted
Accounting Principles and relevant provisions of the " Regulations on Import an d Export Tariff of the
People's Republic of China".
3. The "manufacturing or processing procedures" cr iterion refers to the main production procedures
deployed in domestic manufacturing or processing that accord the essential character to the
output product.
Article 19 Key parts or sub-assemblies of vehicle bod y, engine, and transmission shall be
divided into two categories: Category A and Category B. If the total of the imported parts under both
Categories A and B reaches or exceeds the aggregate threshold number for imported parts, such
imported parts should be characterized as a complete assembly (system); if, however, the imported
parts under Category A reach or exceed the threshol d number for Category A, such imported parts
should also be characterized as a complete assembly (system).
During the period from April 1, 2005 to June 30, 2006, key parts under Categories A and B shall be
jointly evaluated against the aggregate threshold number.
From July 1, 2006 and on, for all vehicle models, key parts of Categories A and B shall be separately
evaluated against their respective threshold numbers.
Article 20 If the imported parts accounts for more than 60% of the price of the key parts or sub-
assemblies, such key parts or sub-assemblies shall be deemed as imported key parts or sub-
assemblies. Manufacturers shall provide a list of price ratios of parts needed.

Key parts or sub-assemblies, in principle, shall onl y be traced back to the secondary suppliers of the
manufacturers of complete vehicles.
Imported parts purchased by domestic suppliers or trading companies shall be counted as imported
parts.
Article 21 If a vehicle model does not contain a key pa rt or a sub-assembly that functionally
corresponds to those listed in the " Assembly (system) List " in Annex 1 of the Administrative Rules,
the threshold numbers or the number of assemblies (systems) shall be decreased accordingly.
Article 22 For AWD vehicles, the driven axle in "Assembly (system) List" shall be substituted by
the assembly of transfer box.
Article 23 For dual drive-axle and multi-axle vehicles, whether imported automobile parts can
be characterized as a complete assembly (system) sh all be determined based on the number axles, and
the threshold numbers for determin ing whether imported automobile parts can be characterized as
complete vehicles shall be increased accordingly.
Article 24 The formula for the calculation of importation ratio is as follows.
If a vehicle is partially assembled with imported parts, the following formula shall apply:
Total Value of Imported Unassembled Parts per Unit Product
Importation Ratio =
Total Value of Unassembled Parts per Unit Product
× 100%

The "unit product" refers to a single complete vehicle or a single assembly (system).
The "Total value of unassembled parts per unit produc t" refers to the CIF price of CKD parts of the
original vehicle model or assembly (system), if th ere exists an original vehicle model or assembly
(system) that is being introduced or imported; if no reference vehicle model or assembly (system) is
available, it then refers to the CIF price of importe d parts plus the price of domestic parts (excluding
VAT).
The "Total value of imported unassembled parts per unit product" refers to the aggregate CIF price of
all imported parts.
Assembling cost in the production of assemblies (systems) and complete vehicles shall not be
included in calculation of the "total value of unassembled parts per unit product".
Processing cost incurred for painting and welding of vehicle bodies shall not be included in the price
of the assembly of vehicle body.
Oil or liquid used in complete vehicles and assembl ies (systems) shall not be included in calculation
of the "total value of unassembled parts per unit product". Oil or liquid that have been sealed in
finished products or semi-finished products may be included in calculation of the "total value of
unassembled parts per unit product". Consumable s used in manufacturing and processing may be
included in the calculation of the "total value of unassembled parts per unit product" if they eventually
become part of the products.

C
HAPTER IV S UPPLEMENTARY PROVISIONS
Article 25 The reference of the "vehicle model" in th ese Rules shall mean the models of classes
M and N vehicles, which may be determined by th e manufacturer, the brand, the displacement and
type of the engine, and the type of transmission. If an additional configuration is added to a registered
vehicle model and the imported parts thereof should be characterized as complete vehicle, the model
with the additional configuration shall be registered as a new model with the Office.
Article 26 If, (1) as indicated by an on-site review, th e imported parts should be characterized as
a complete vehicle; and (2) the production condition of the automobile manufacturer and the price of
the imported automobile parts have been verified; and (3) the result of on-site review satisfies the
requirements of a Verification Report; and (4) the manufacturer is so agreed and the Office is so
approved, the verification team may issue a Veri fication Report based upon the review opinions, and
no verification will be conducted.
Article 27 Staff of the bureaus comprising the Leading Panel, staff of the Verification Center,
automobile experts of the industry and tariff experts of customs, who are involved in the verification
or the administration of importation, shall provide confidential treatment to the materials submitted by
enterprises in accordance with the relevant laws and regulations.
Article 28
A false statement shall fall into Article 37 of the Administrative Rules and shall constitutes the
"failing to faithfully declare" if it leads to the situation, in which
− the self-evaluation suggests that the im ported automobile parts should not be
characterized as complete vehicles; and
− the review opinion indicates that the imported automobile parts should be characterized
as complete vehicles.
Article 29 These Rules shall become effective on April 1, 2005.
Annexes:
1. Names and Illustration of the Vehicle Structure and Body Parts
2. Table of HS Codes on the Key Parts and Sub-assemblies of Motor Vehicles
3. Application Form for Review of Complete Vehicle Character
4. Detailed List of Parts for Verification and Review of Complete Vehicle Character
5. Review Report for Complete Vehicle Character
6. Application Form for Verification of Complete Vehicle Character
7. Document List for Verifying Complete Vehicle Character
8. Report on Verification of Complete Vehicle Character

Annex 1 -Names and Illustration of the Vehicle Structure and Body Parts
1.
 Names of the Vehicle Structure
Front Wall The front structure in the cabin, including front panel, front windshield frame,
windshield pillar (A pillar), outside cover of the front wall etc.
 The front panel insulates the cabin from the engine and the outside.
Sidewall The lateral part of the cabin, can be separa te or integral assembly. In the separate
assembly, the sidewall includes the middle pillar (B pillar), upper beam for doors
etc.
Back Wall
The rear part of the cabin, including rear panel, back pillar, rear window frame etc.

The rear panel connects the floor and the right/left rear pillars and separates the
cabin from the trunk compartment.
Roof The top cover of the vehicle body, can be integral or divided into three parts along
the longitudinal drips. As the roof side beams also serve as upper beams for doors,
they are sometimes categorized as part of the sidewall. In the end, it depends on the
specific structure and the welded sub-assemblies.
Doors There are rotary doors, rotary wings and push-type gliding doors. Doors consist of
external panel, internal panel, door fra me, hinge, reinforcement panel for the lock,
glass rails.
Floor Floor and floor beams of the cabin and the trunk compartment.
Fender An outside panel covering the wheel. If not independent, it is included in the
sidewall.

2. Illustration of the Passenger Car Structure elements

3. Illustration of the Omnibus Structure elements

Annex 2 - Table of HS Codes on the Key Parts and Sub-assemblies of Motor Vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
1. Sidewall 8708.2990 8708.2990 90 Other parts and accessories of the body
2. Door 8708.2990 8708.2990 90 Other parts and accessories of the body
3. Engine Hood 8708.2990 8708.2990 90 Other parts and accessories of the body
4. Roof 8708.2990 8708.2990 90 Other parts and accessories of the body
5. Front Wall 8708.2990 8708.2990 90 Other parts and accessories of the body
6. Cabin floor 8708.2990 8708.2990 90 Other parts and accessories of the body
7. Trunk compartment lid
or rear door 8708.2990 8708.2990 90
Other parts and accessories of the body
8. Back wall 8708.2990 8708.2990 90 Other parts and accessories of the body
Body
9. Fender 8708.2990 8708.2990 90 Other parts and accessories of the body
8409 9991 Used in engines with power output of
132.39 kw (180) horse-power or more 10. Engine block
8409.9999 8409.9999 90 Other non-listed special engine parts
8409.9991 Used in engines with power output of
132.39 kw (180) horse-power or more 11. Cylinder head
8409.9999 8409.9999.90 Other un-listed special engine parts
12. Crankshaft 8483.1090 Drive shafts (incl. camshaft and
crankshaft）
8413.3021 Fuel pumps for engine with 132.39KW
(180 hp) or more power 13. High-pressure pump
8413.3029 Other fuel pumps
8414.8090.50 Supercharger for passenger vehicles
14. Supercharger 8414.8090
8414.8090.90 Supercharger for other vehicles
15. Camshaft 8483.1090 Drive shafts (incl. camshaft and
crankshaft)
84099991
 Used in engines with power output of
132.39 kW (180 hp) or more 16. Connecting rod
8409.9999 8409.9999.90 Other un-listed special engine parts
8511.4091
 Starter used in engines with power
output of 132.39 kW (180 hp) or more 17. Starter
8511.4099 Other starters and dual-use starters
18. Generator 8511.5090 Other generator
84099991
 Used in engines with power output of
132.39 kW (180 hp) or more Other
Engine (Diesel)
19. Diesel fuel injector
8409.9999 8409.9999.90 Other un-listed special engine parts

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
20. Engine block 8409.9199 8409.9199 90 Other parts of internal combustion
engine with ignition
21. Cylinder head 8409.9199 8409.9199 90 Other parts of internal combustion
engine with ignition
22. Crankshaft 8483.1090 Drive shafts (incl. camshaft and
crankshaft)
23. Camshaft 8483.1090 Drive shafts (incl. camshaft and
crankshaft)
24. EFI device (incl. ECU,
throttle body, fuel injector,
sensor)
8409.9191 Electronically controlled fuel ejection
device
8413.3021 Fuel pumps for engine with 132.39KW
(180 hp) or more power 25. Fuel pump
8413.3029 Other fuel pumps
26. Connecting rod 8409.9199 8409.9199 30 Other parts of internal combustion
engine with ignition – connecting rod
27. Starter 85114091 Starters used in engines with power
output of 132.39 kW (180 hp) or more
 8511.4099 Other starters and dual-use starters
28. Generator 8511.5090 Other generator
8414.8090.50 Supercharger for passenger vehicles
Engine (Gasoline)
29. Supercharger 8414.8090
8414.8090 90 Supercharger for other vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9910 Other parts and accessories of
tractors

8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939
 Other parts and accessories for off-
road dump trucks
8708.9949 Other parts and accessories of
medium and light trucks

 87089959.90
Other trans-mission and power
transfer parts (used in vehicles
listed under 87042240, 2300, 3240)

 8708.9959 20
Trans-mission and power transfer
parts (torque ≥ 90 kg) (used in
vehicles listed under 8704 2240,
2300, 3240)
87089960
Other non-listed parts and
accessories used in special-purpose
vehicles
30. Housing

87089999 Other parts and accessories of other
motor vehicles
8708.9910 Other parts and accessories used in
tractors
 8708.9929 90
Other parts and accessories used in
large buses
8708.9939
Other parts and accessories used in
off-road dump trucks
8708.9949
Other parts and accessories used in
medium and small trucks
 8708.9959 90
Other transmission and power
transfer parts (used in vehicles
listed under 87042240, 2300, 3240)
 8708.9959 20
Trans-mission and power transfer
parts (torque ≥ 90 kg) (used in
vehicles listed under 8704 2240,
2300, 3240)
8708.9960
Other non-listed parts and
accessories used in special-purpose
vehicles
Transmission (manual)
31. Gear

8708.9999
Other non-listed parts and
accessories of motor vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9310 Clutches and their parts used in
tractors
8708.9320 Clutches and their parts used in
omnibuses with 30 or more seats
8708.9330 Clutches and their parts used in off-
road dump trucks
8708.9340 Clutches and their parts used in
diesel and gasoline light trucks
 8708.9350.10 Clutches and their parts used in
diesel trucks with GVW ≥ 14t
 8708.9350.90 Clutches and their parts used in
gasoline trucks with GVW >8t
8708.9360 Clutches and their parts used in
special-purpose vehicles
32. Clutch
8708.9390 Clutches and their parts used in non-
listed motor vehicles
8708.9910 Other parts and accessories of
tractors
 8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939 Other parts and accessories used in
off-road dump trucks
8708.9949 Other parts and accessories of
medium and light trucks
 87089959.90
Other trans-mission and power
transfer parts (used in vehicles
listed under 87042240, 2300, 3240)
 8708.9959 20
Trans-mission and power transfer
parts (torque ≥ 90 kg) (used in
vehicles listed under 87042240,
2300, 3240)
8708.9960
Other non-listed parts and
accessories of special-purpose
vehicles
Transmission (Manual)
33. Shaft
8708.9999 Other non-listed parts and
accessories of motor vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9910 Other parts and accessories of
tractors
 8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939 Other parts and accessories used in
off-road dump trucks
8708.9949 Other parts and accessories of
medium and light trucks
 8708.9959.90
Other trans-mission and power
transfer parts (used in vehicles listed
under 87042240, 2300, 3240)
 8708.9959 20
Trans-mission and power transfer
parts (torque ≥ 90 kg) (used in
vehicles listed under 87042240,
2300, 3240)
8708.9960
Other non-listed parts and
accessories used in special-purpose
vehicles
34. Gear Shifter
unit
8708.9999 Other non-listed parts and
accessories of motor vehicles
8708.9910 Other parts and accessories of
tractors
 8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939 Other parts and accessories used in
off-road dump trucks
8708.9949 Other parts and accessories of
medium and light trucks
 8708.9959.90
Other trans-mission and power
transfer parts (used in vehicles listed
under 87042240, 2300, 3240)
 8708.9959.20
Trans-mission and power transfer
parts (torque ≥ 90 kg) (used in
vehicles listed under 87042240,
2300, 3240)
8708.9960
Other non-listed parts and
accessories used in special-purpose
vehicles
Transmission (Manual)
35. Synchronizer
8708.9999 Other non-listed parts and
accessories of motor vehicle

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9910 Other parts and accessories of tractors
 8708.9929 90 Other parts and accessories used in large
buses
8708.9939 Other parts and accessories used in off-
road dump trucks
8708.9949 Other parts and accessories used in
medium and small trucks
 8708.9959.20
Transmission and power transfer parts
(torque ≥ 90 kg) (used in vehicles listed
under 87042240, 2300, 3240)
 8708.9959.90
Other transmission and power transfer
parts (used in vehicles listed under
87042240, 2300, 3240)
8708.9960 Other non-listed parts and accessories
used in special-purpose vehicles
Transmission (Manual)
36. Transfer case

8708.9999 Other non-listed parts and accessories
used in motor vehicles
8708.9910 Other parts and accessories of tractors
 8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939 Other parts and accessories used in off-
road dump trucks
8708.9949 Other parts and accessories of medium
and light trucks
 8708.9959.90
Other trans-mission and power transfer
parts (used in vehicles listed under
87042240, 2300, 3240)
 8708.9959.20
Trans-mission and power transfer parts
(torque ≥ 90 kg) (used in vehicles listed
under 87042240, 2300, 3240)
8708.9960 Other non-listed parts and accessories of
special-purpose vehicles
Transmission (automatic) 37. Housing
8708.9999 Other parts and accessories of motor
vehicles

HS Code ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9910 Other parts and accessories of tractors
 8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939 Other parts and accessories used in off-
road dump trucks
8708.9949 Other parts and accessories of medium
and light trucks
 8708.9959.90 Other trans-mission and power transfer
parts (used in vehicles listed under
87042240, 2300, 3240)
 8708.9959.20 Trans-mission and power transfer parts
(torque ≥ 90 kg) (used in vehicles listed
under 87042240, 2300, 3240)
8708.9960 Other non-listed parts and accessories
used in special-purpose vehicles
38. Liquid Coupler
8708.9999 Other parts and accessories of motor
vehicles
39. ECU of AT 90328900 9032.8900 90 Othe r automatic adjustment or control
devises
8708.9910 Other parts and accessories used in
tractors
 8708.9929 90 Other parts and accessories used in large
buses
8708.9939 Other parts and accessories used in off-
road dump trucks
8708.9949 Other parts and accessories used in
medium and small trucks
 8708.9959 20 Transmission and power transfer parts
(torque ≥ 90 kg) (used in vehicles listed
[under] 87042240, 2300, 3240)
 8708.9959 90 Other transmission and power transfer
parts (used in vehicles listed [under]
87042240, 2300, 3240)
8708.9960 Other non-listed parts and accessories
used in special-purpose vehicles
Transmission (automatic)
40. Transfer case
8708.9999 Other non-listed parts and accessories
used in motor vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9910 Other parts and accessories of tractors
 8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939 Other parts and accessories used in off-
road dump trucks
8708.9949 Other parts and accessories of medium and
light trucks

87089959.90
Other trans-mission and power transfer
parts (used in vehicles listed under
87042240, 2300, 3240)

8708.9959 20
Trans-mission and power transfer parts
(torque ≥ 90 kg) (used in vehicles listed
under 87042240, 2300, 3240)
8708.9960 Other non-listed parts and accessories used
in special-purpose vehicles
41. Gear (friction wheel
steel band)
8708.9999 Other parts and accessories of motor
vehicles
8708.9910 Other parts and accessories of tractors
 8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939 Other parts and accessories used in off-road
dump trucks
8708.9949 Other parts and accessories of medium and
light trucks

8708.9959.90
Other trans-mission and power transfer
parts (used in vehicles listed under
87042240, 2300, 3240)

8708.9959 20
Trans-mission and power transfer parts
(torque ≥ 90 kg) (used in vehicles listed
under 87042240, 2300, 32
8708.9960
 Other non-listed parts and accessories used
in special-purpose vehicle
Transmission (automatic)
42. Shaft
8708.9999 Other parts and accessories of motor
vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9910 Other parts and accessories of tractors
 8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939 Other parts and accessories used in
off-road dump trucks
8708.9949 Other parts and accessories of
medium and light trucks

8708.9959.90
Other trans-mission and power
transfer parts (used in vehicles listed
under 87042240, 2300, 3240)

8708.9959.20
Trans-mission and power transfer
parts (torque ≥ 90 kg) (used in
vehicles listed under 87042240, 2300,
3240)
8708.9960 Other non-listed parts and accessories
used in special-purpose vehicle
Transmission (automatic)
43. Gear Shifter unit
8708.9999 Other parts and accessories of motor
vehicles
8708.9910 Other parts and accessories of tractors

8708.9929.10 Parts of middle and rear drive axles
with axle load capacity of ≥ 10 t
 8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939 Other parts and accessories used in
off-road dump trucks
8708.9949 Other parts and accessories of
medium and light trucks

8708.9959.90
Other trans-mission and power
transfer parts (used in vehicles listed
under 87042240, 2300, 3240)
8708.9960 Other non-listed parts and accessories
used in special-purpose vehicles
Axle (Driving Axle)
44. Housing
8708.9999 Other parts and accessories of motor
vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9910 Other parts and accessories used in
tractors

8708.9929 10 Parts of middle and rear drive axles
with axle load capacity of ≥ 10 t
 8708.9929 90 Other parts and accessories used in
large buses
8708.9939 Other parts and accessories used in off-
road dump trucks
8708.9949 Other parts and accessories used in
medium and small trucks
 8708.9959 90
Other trans-mission and power transfer
parts (used in vehi cles listed under
87042240, 2300, 3240)
8708.9960 Other non-listed parts and accessories
used in special-purpose vehicles
45. Left/right half shaft
(constant velocity
universal joint)
8708.9999 Other non-listed parts and accessories
used in motor vehicles
8708.9910 Other parts and accessories of tractors

8708.9929 10 Parts of middle and rear drive axles
with axle load capacity ≥ 10 t
 8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939 Other parts and accessories used in off-
road dump trucks
8708.9949 Other parts and acce ssories of medium
and light trucks

8708.9959.90
Other trans-mission and power transfer
parts (used in vehi cles listed under
87042240, 2300, 3240)
8708.9960
 Other non-listed parts and accessories
used in special-purpose vehicles
Axle (Driving Axle)
46. Steering knuckle
8708.9999 Other parts and accessories of motor
vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9910 Other parts and accessories of tractors
 87089929.90 Other parts and accessories of large
omnibuses
87089939 Other parts and accessories used in
off-road dump trucks
87089949 Other parts and accessories of
medium and light trucks

 87089959.90
Other trans-mission and power
transfer parts (used in vehicles listed
under 87042240, 2300, 3240),
87089960
 Other non-listed parts and accessories
used in special-purpose vehicles
47. Differential
87089999 Other parts and accessories of motor
vehicles
87089910 Other parts and accessories of tractors
 87089929.10 Parts of middle and rear drive-axles
with axle capacity >=10t
 87089929.90 Other parts and accessories of large
omnibuses
87089939 Other parts and accessories used in
off-road dump trucks
87089949 Other parts and accessories of
medium and light trucks

 87089959.90
Other trans-mission and power
transfer parts (used in vehicles listed
under 87042240, 2300, 3240),
87089960
 Other non-listed parts and accessories
used in special-purpose vehicles
48. Rock-arm
87089999 Other parts and accessories of motor
vehicles
Axle (Driving Axle)
49. Wheel hub 8708.7090 Other parts and accessories of motor
vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
 8482.1000.10 Ball bearings
 8482.2000.10 Tapered roller bearings for motor
vehicles
 8482.3000.10 Spherical roller bearings for motor
vehicles
 8482.4000.10 Needle roller bearings for motor
vehicles
 8482.5000.10 Other cylindrical roller bearings for
motor vehicles
50. Bearing
 8482.8000 Others, including hybrid ball and roller
bearings
8708.9910 Other parts and accessories of tractors
 8708.9929.10 Parts of middle and rear drive-axles
with axle capacity >=10t
 8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939 Other parts and accessories used in
off-road dump trucks
8708.9949 Other parts and acce ssories of medium
and light trucks

8708.9959.90
Other trans-mission and power transfer
parts (used in vehicles listed under
87042240, 2300, 3240)
8708.9960
 Other non-listed parts and accessories
used in special-purpose vehicles
Axle (Driving Axle)
51. Crown & Pinion
8708.9999 Other parts and accessories of motor
vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9910 Other parts and accessories of tractors
 8708.9929.90 Other parts and accessories of large
omnibuses
8708.9939 Other parts and accessories used in
off-road dump trucks
8708.9949 Other parts and acce ssories of medium
and light trucks

 8708.9959.90
Other trans-mission and power transfer
parts (used in vehicles listed under
87042240, 2300, 3240)
8708.9960
 Other non-listed part s and accessories
used in special-purpose vehicles
52. Suspension spring
8708.9999 Other parts and accessories of motor
vehicles
8708.8010 Suspension shock-absorbers of motor
vehicles
 87088090.10 Suspension shock-absorbers of
omnibuses with 30 seats or more
Axle (Driving Axle)
53. Shock-absorber
 87088090.90 Other suspension shock-absorbers of
motor vehicles
8708.6010 Non-driving axles and parts of tractors
8708.6020 Non-driving axles and parts of large
omnibuses
8708.6030 Dead axles and parts, used in off-road
dump trucks
8708.6040 Non-driving axles and parts of diesel
trucks with GVW<=14t
8708.6050 Non-driving axles and parts of trucks
8708.6060 Dead axles and parts, used in special-
purpose vehicles
54.Axle（trailing-
arm）
8708.6090 Other non-driving axles and parts of
motor vehicles
Axle (non-drive -axle)
55. Wheel hub 8708.7090 Other parts and accessories of motor
vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
 8482.1000.10 Ball bearings
 8482.2000.10 Tapered roller bearings for motor
vehicles
 8482.3000.10 Spherical roller bearings for motor
vehicles
 8482.4000.10 Needle roller bearings for motor
vehicles
 8482.5000.10 Other cylindrical roller bearings for
motor vehicles
56. Bearing
8482.8000 Others, including hybrid ball and roller
bearings
87086010 Non-driving axles and parts of tractors
87086020 Non-driving axles and parts of large
omnibuses
87086030 Dead axles and parts, used in off-road
dump trucks
87086040 Non-driving axles and parts of diesel
trucks with GVW<=14t
8708.6050 Non-driving axles and parts of trucks
8708.6060 Dead axles and parts, used in special-
purpose vehicles
57. Suspension spring
8708.6090 Other non-driving axles and parts of
motor vehicles
8708.6010 Non-driving axles and parts of tractors
8708.6020 Non-driving axles and parts of large
omnibuses
8708.6030 Dead axles and parts, used in off-road
dump trucks
8708.6040 Non-driving axles and parts of diesel
trucks with GVW<=14t
8708.6050 Non-driving axles and parts of trucks
8708.6060 Dead axles and parts, used in special-
purpose vehicles
Axle (non-driving axle)
58. Steering knuckle
8708.6090 Other non-driving axles and parts of
motor vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
87086010 Non-driving axles and parts of tractors
87086020 Non-driving axles and parts of large
omnibuses
87086030 Dead axles and parts, used in off-road
dump trucks
87086040 Non-driving axles and parts of diesel
trucks with GVW<=14t
87086050 Non-driving axles and parts of trucks
87086060 Dead axles and parts, used in special-
purpose vehicles
59. Rock arm
87086090
 Other non-driving axles and parts of
motor vehicles
8708.8010 Suspension shock-absorbers of motor
vehicles
 8708.8090.10 Suspension shock-absorbers of
omnibuses with 30 seats or more
Axle (non-driving axle)
60. Shock-absorber
 8708.8090.90 Other suspension shock-absorbers of
motor vehicles
8708.9910 Other parts and accessories of tractors
 8708.9929 90 Other parts and accessories used in
large buses
8708.9939 Other parts and accessories used in
off-road dump trucks
8708.9949 Other parts and accessories used in
medium and small trucks

 8708.9959 90
Other trans-mission and power transfer
parts (used in vehicles listed under
87042240, 2300, 3240)
8708.9960
 Other non-listed part s and accessories
used in special-purpose vehicles
Frame
61. Side member (or
front sub chassis and
engine supporter)
8708.9999 Other parts and accessories of motor
vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9910 Other parts and accessories of tractors
 8708.9929 90 Other parts and accessories used in
large buses
8708.9939 Other parts and accessories used in
off-road dump trucks
8708.9949 Other parts and accessories used in
medium and small trucks

 8708.9959 90
Other trans-mission and power transfer
parts (used in vehicles listed under
87042240, 2300, 3240)
8708.9960
 Other non-listed parts and accessories
used in special-purpose vehicles
Frame
62. Cross-member
（sub-chassis of
integral
body）
8708.9999 Other parts and accessories of motor
vehicles
87083910 Brakes and parts of tractors
87083920 Brakes and parts of large omnibuses
87083930 Brakes and their parts used in off-road
dump trucks
87083940 Brakes and parts of light trucks
87083950 Brakes and parts of heavy diesel trucks
87083960 Brakes and parts of special purpose
motor vehicles
63. Brake master
cylinder (pneumatic
valve)
8708.3999 8708.3999.90 Other brakes and parts of motor
vehicles
8708.3910 Brakes and parts of tractors
8708.3920 Brakes and parts of large omnibuses
8708.3930 Brakes and their parts used in off-road
dump trucks
8708.3940 Brakes and parts of light trucks
8708.3950 Brakes and parts of heavy diesel trucks
8708.3960 Brakes and parts of special purpose
motor vehicles
Brake System
64. Booster
8708.3999 8708.3999 90 Other brakes and parts of motor
vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.3910 Brakes and parts of tractors
8708.3920 Brakes and parts of large omnibuses
8708.3930 Brakes and their parts, used in off-road
dump trucks
8708.3940 Brakes and parts of light trucks
8708.3950 Brakes and parts of heavy diesel trucks
8708.3960 Brakes and parts of special purpose
motor vehicles
65. Front brake
ASSY
8708.3999 8708.3999 90 Other brakes and parts of motor
vehicles
87083910 Brakes and parts of tractors
87083920 Brakes and parts of large omnibuses
8708.3930
 Brakes and their parts used in off-road
dump trucks
87083940 Brakes and parts of light trucks
87083950 Brakes and parts of heavy diesel trucks
87083960 Brakes and parts of special purpose
motor vehicles
Brake System
66. Rear brake ASSY
8708.3999 8708.3999 90 Other brakes and parts of motor
vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.3910 Brakes and their parts used in tractors
8708.3920 Brakes and their parts used in large buses
8708.3930 Brakes and their parts used in off-road dump
trucks
8708.3940
 Brakes and their parts used in diesel and gasoline-
driven light trucks
8708.3950 Brakes and their parts used in heavy diesel trucks
8708.3960 Brakes and their parts used in special-purpose
vehicles

8708.3999.20
Hydraulic controllers of ABS (Consist of ECU
control module, motor, transducer and
electromagnetic valve)

8708.3999.30
Actuate slip-resistant device (for ABS) (Structure
similar to hydraulic controller of ABS, with a
function of ASR)
Brake System
67. ABS & ECU

8708.3999.10
EBD for ABS (Structure similar to hydraulic
controller of ABS, but with a function of EBD)
87089410 Steering wheels, steering columns and steering
gears of tractors
87089420 87089420.10 Steering wheels, steering columns and steering
gears of buses with 30 seats or more

 87089420.90 Steering wheels, steering columns and steering
gears of large omnibuses
87089430
 Steering wheel, steering column and steering gear
used in off-road dump trucks
87089440
 Steering wheels, steering columns and steering
gears of light trucks
87089450
 Steering wheels, steering columns and steering
gears of heavy diesel trucks
87089460
 Steering wheels, steering columns and steering
gears of special purpose motor vehicles
Steerin g system
Power steering

68. Steering gear
ASSY
87089490
 Other steering wheels, steering columns and
steering gears of motor vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8481.2010 Valves for oleohydraulic transmissions
8481.2020 Valves for pneumatic transmissions
8481.3000 8481.3000 90 Check (non-return) valves
69. Steering
controller valve
8481.4000 Safety or relief valves
70. Steering
booster 8413.6090 8413.6090.90 Rotary positiv e displacement pumps
8708.9410 Steering wheels, steering columns and steering
gears of tractors
 8708.9420.10 Steering wheels, steering columns and steering
gears of buses with 30 seats or more
 8708.9420.90 Steering wheels, steering columns and steering
gears of large omnibuses
8708.9430 Steering wheel, steering column and steering gear
used in off road dumpers
8708.9440 Steering wheels, steering columns and steering
gears of light trucks
8708.9450 Steering wheels, steering columns and steering
gears of heavy diesel trucks
8708.9460 Steering wheels, steering columns and steering
gears of special purpose motor vehicles
Steering system
Power Steering
71. Steering
wheel (incl.
Safety air bag)
8708.9490 Other steering wheels, steering columns ans
steering gears of motor vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9910 Other parts and accessories of tractors
 8708.9929.20 Parts of steering gear of buses with 30 seats or
more
 8708.9929.90 Other parts and acce ssories of large omnibuses
87089939 Other parts and accessories used in off-road
dump trucks

8708.9949 Other parts and accessories of medium and light
trucks
 87089959.10 Parts of steering gears of diesel trucks with
GVW≥14t
 87089959.90
Other trans-mission and power transfer parts
(used in vehicles listed under 87042240, 2300,
3240)
87089960 Other non-listed parts and accessories used in
special-purpose vehicles
Steering System
Power Steering
72. Steering column
and universal joint
87089999 Other parts and accessories of motor vehicles

HS Code
ASSY Key parts
8-digit code 10-digit code
Commodity Name
8708.9410 Steering wheels, steering columns and steering
gears of tractors
87089420 87089420.10 Steering wheels, steering columns and steering
gears of buses with 30 seats or more
 87089420.90 Steering wheels, steering columns and steering
gears of large omnibuses
87089430 Steering wheel, steering column and steering
gear used in off-road dump trucks
87089440 Steering wheels, steering columns and steering
gears of light trucks
87089450 Steering wheels, steering columns and steering
gears of heavy diesel trucks
87089460 Steering wheels, steering columns and steering
gears of special purpose motor vehicles
73. Steering gear
ASSY
87089490 Other steering wheels, steering columns and
steering gears of motor vehicles
8708.9910 Other parts and accessories used in tractors
 8708.9929 20 Steering gear parts used in buses with ≥ 30
seats
 8708.9929 90 Other parts and accessories used in large buses
8708.9939 Other parts and accessories used in off-road
dump trucks
8708.9949 Other parts and accessories of medium and light
trucks
 8708.9959 10 Steering gear parts used in diesel trucks with
total weight of ≥ 14 t
8708.9960 Other non-listed parts and accessories used in
special-purpose vehicles
Steering System
Non-power Steering
74. Steering
column and
universal joint
8708.9999 Other non-listed parts and accessories used in
motor vehicles

HS Code ASSY Key parts
8-digit code 10-digit code
Commodity Name
87089410 Steering wheels, steering columns and steering
gears of tractors
 87089420.10 Steering wheels, steering columns and steering
gears of buses with 30 seats or more
 87089420.90 Steering wheels, steering columns and steering
gears of large omnibuses
87089430 Steering wheel, steering column and steering
gear used in off-road dump trucks
87089440 Steering wheels, steering columns and steering
gears of light trucks
87089450 Steering wheels, steering columns and steering
gears of heavy diesel trucks
87089460 Steering wheels, steering columns and steering
gears of special purpose motor vehicles
Steering System
Non-Power Steering
75. Steering wheel
87089490 Other steering wheels, steering columns and
steering gears of motor vehicles

Annex 3 - Application Form for Review of Complete Vehicle Character

No.
Review Type: Review Verification Re-verification
File No. Q+4-digit tariff area co de + 4-digit code denoting year and
month+3-digit numbering
Customs
Authorities
at the place

Company No. (Business License No.) Company
Name
 Time of
Application

Vehicle Model No. Model
Name
 Start of
Production

Address Postal Code Contact
Person

E-Mail Telephone Fax
Office of the Leading Group：

We hereby apply for verification review of the abovementioned vehicle model of our company pursuant to the
Administrative Measures and the Verification Rules

The required materials are attached to this form.

Applicant (Signature/Seal)
Opinion of the Office of the Leading Group：

Instruction No. XXX: The Center is hereby instructed to conduct the review pursuant to the Administrative
Measures and the Verification Rules before XXX (Date). The review report shall be duly submitted via the
Internet.

Incumbent (Signature/Seal)

Opinion of the Center Office of the Leading Group：

This is to note that the Center recei ved the review instruction on XXX (Dat e) and shall finish the review work
within the stipulated time frame pursuant to the Administrative Measures and Verification Rules.

Incumbent (Signature/Seal)

Annex 4 - Detailed List of Parts for Verification and Review of Complete Vehicle Character
Form Head：Company Profile
File No. Q+4-digit tariff area code + 4-digit code denoting year and month+3-digit numbering
Company No. （Business License No.） Company Name
Address Postal Code
Customs Authorities at the
place

Verification (Review)
Report No.： （70） Responsible Persons for the Verification (Review)

Time of completing the
verification (review):

 Conclusion （Yes/No）
Verification (review)
Remark：

Vehicle Model Name： 70 （X） Vehicle Model Name in English ： 70 （X）
Numbering of the standard
vehicle model： 30(X) Numbering of the optional vehicle model： 30(X)
Displacement ML： 9(5) Gross Weight KG： 9(6)
Rated Driver/Passengers： 9(3) Start of Production： YYYYMMDD
Vehicle Price 9(13).9(5) Currency

Form Body: Details of the Parts
Import proportion in the
total input
No.
Commodity No.
Part Name
Part Code within the
company
Verified Unit Price
Currency
Unit Price in RMB
Unit of Measurement
% of this
subassembly
(system)
% of the
vehicle
Proportion
in unit
input
Name of the sub-
assembly
Name of the key compo-
nent of the assembly
A/B Parts? Yes/No
Procurement (operational
import/other
import/domestic
supply/manufa-cturing by
the company)
Name of the supplier
Proportion of sustantial
manu-facturing
HS Code Change Due To
Substantial Manu-
Facturing?
1

X(30)

9(3).9(9) 9(3).9(9) 9(9) .9(9) X(30) X(30)

 X(70) 9(9).9(9) Y/N
2

Note: The Center shall list the detail prices of the imported parts of the other imports, domestic supply and manufacturing by the company

Annex 5 - Review Report for Complete Vehicle Character

Note No. Time of
Review
 Place of
Review

File No. Q+4-digit tariff area code + 4-digit code denoting year and
month+3-digit numbering
Customs
Authorities at
the Place

Company
No.
（Business
License No.）
Company
No.
 Time of
Application

Vehicle
Model No.
 Name of
Vehicle
Model
 Start of
Production

Office of the Leading Group：

We have finalized the review of the abovementioned vehicle model pursuant to the Administrative Measures
and the Verification Rules and conclude as follows:

1. Number of assemblies , of which there are _ imported parts such as

□ body (including cabin) □ engine
□ transmission □ drive axle □ non-drive axle □chassis □ steering system
□ braking system □ others： □ others： □ others： □ others：

2. Import percentage： %

According to Articles 21 section □(1) □(2) □(3) of the Administrative Measures and as of XXX (Date), this
vehicle model □ uses imported parts characterized as Complete Vehicles □ uses imported parts NOT
characterized as Complete Vehicles

Attachment: Detail List of Parts for Verification of Complete Vehicle Character

The Center incumbent for the review (signature/seal)
Chief panelist of the review panel (signature/seal)
Members of the review panel (signatures/seals)

Annex 6 - Application Form for Verification of Complete Vehicle Character
No.:
Type： Review Verification Re-verification
File No. Q+4-digit tariff area code + 4-digit code denoting year
and month+3-digit numbering
Customs
Authorities at
the place

Company
No.
（Business
License No.）
Company Name Time of
Application

Vehicle
Model No.
 Model Name Start of
Production

Address Postal Code Contact
Person

E-Mail Telephone Fax
Office of the Leading Group：

We hereby apply for verification of the abovementioned vehicle model of our company pursuant to the
Administrative Measures and the Verification Rules.

The required materials are attached to this form.

Applicant (Signature/Seal)

Opinion of the Office of the Leading Group：

Instruction No. XXX: The Center is hereby instructed to conduct the verification pursuant to the
Administrative Measures and the Verifiication Rules before XXX (Date). The verification report shall be
duly submitted via Internet.

Incumbent (Signature/Seal)

Opinion of The Center Office of the Leading Group：

This is to note that The Center received the review instruction on XXX (Date) and shall finish the
verification work within the stipulated time frame pursuant to the Administrative Measures and the
Verification Rules

Incumbent (Signature/Seal)

Annex 7 - Document List for Verifying Complete Vehicle Character
1. Products and Production Summary

Including types of product series, main structure and technical data of the product; production
guidance, assembly batches at present, production conditions, local content plan, etc.

2. Statistics of 8 Assemblies and key part s imported and purchased domestically

Statistics on Imported Key Parts
Assembly Name Name of Imported Key Parts
(Sub-assemblies)

Ratio statistics for domestically purchased (including self-made) key parts
Name of Key
Parts
Domestic content
ratio
Imported parts
ratio
Domestic
Supplier

Remark: body, driving axle and non-driving axle shou ld be filled separately according to relevant key
parts in Class M 1, M 2, M 3 and N described in A dministrative Measures , Annex I ("Names and
Illustration of the Vehicle Structure and Body Part s"). Please enclose additional pages for the added
Assemblies.

3. Time limitation for parts not characterized as complete vehicles and relevant substantiating
material.
Including Customs Declaration of imported parts characterized as Complete Vehicles, Customs
Declaration at time of applying for parts not characterized as Complete Vehicles, imported parts list
and reduced order contracts or lists, etc.

4. Main domestic parts suppliers

No. Supplier Address Post
code
Principal Contact
Person
Tel Fax Email Products &
Quantity
1
2
3
4
Remarks:

1) The above table should list domestic parts supplie rs whose products account for more than 0.1% of
the complete vehicle.

2) Suppliers should be listed in Pinyin order

3) In accordance with the Center's verification arrangement, sampled suppliers should also provide the
list of main production equipment, sequence of pr oduction technology, Customs Declaration, supply
contract and quantity, etc.

Annex 8 - Report on Verification of Complete Vehicle Character

Note No. Time of
Verification
 Place of
Verification

File No. Q+4-digit tariff area code + 4-digit code denoting year and
month+3-digit numbering
Customs
Authorities at
the Place

Company
No.
（Business
License No.）
Company
No.
 Time of
Application

Vehicle
Model No.
 Name of
Vehicle
Model
 Start of
Production

Office of the Leading Group：

We have finalized the verification of the abovementioned vehicle model pursuant to the Administrative
Measures and the Verification Rules and conclude as follows:

1.Number of assemblies , of which there are _ imported parts such as

□ body (including cabin) □ engine

□ transmission □ drive axle □ non-drive axle □chassis □ steering system

□ braking system □ others： □ others： □ others： □ others：

2. Import percentage： %

According to Articles 21 section □(1) □(2) □(3) of the Administrative Measures and as of XXX (Date), this
vehicle model

□ uses imported parts characterized as Complete Vehicles □uses imported parts NOT characterized as
Complete vehicles

Attachment: Detail List of Parts for Verification of Complete Vehicle Character

The Center incumbent for the review (signature/seal)
Chief panelist of the review panel (signature/seal)
Members of the review panel (signatures/seals)