Issues Raised in This Appeal

Issues Raised in This Appeal

1. 
   The following issues are raised in this appeal:
   
   1. 
      Whether the Panel erred in finding that the charge imposed under the measures at issue is not an ordinary customs duty within the meaning of Article II:1(b), and in finding instead that the charge is an internal charge within the meaning of Article III:2 of the GATT 1994;
      
   2. 
      Whether the Panel erred in finding:
      
      1. 
         that the charge imposed under the measures at issue is inconsistent with Article III:2, first sentence, of the GATT 1994; and
         
      2. 
         that the measures at issue are inconsistent with Article III:4 of the GATT 1994;
         
   3. 
      If the Appellate Body reverses the Panel's finding that the charge imposed under the measures at issue is an internal charge and, instead, finds that the charge is an ordinary customs duty within the meaning of Article II:1(b), then whether the Panel erred in its "alternative" finding that the measures at issue are inconsistent with Article II:1(a) and (b) of the GATT 1994;
      
   4. 
      Whether the Panel erred in finding that the measures at issue are inconsistent with the conditional commitment made by China in paragraph 93 of its Accession Working Party Report ("China's Accession Working Party Report") and, more specifically:
      
      1. 
         whether the Panel erred in construing the measures at issue as imposing a charge on completely knocked down ("CKD") and semi-knocked down ("SKD") kits imported under Article 2(2) of Decree 125;
         
      2. 
         whether the Panel ruled on a claim for which neither Canada nor the United States had made out a prima facie case and, thereby, acted inconsistently with Article 11 of the DSU; and
         
      3. 
         in the alternative, whether the Panel erred in finding that China had fulfilled the condition underlying the commitment in paragraph 93 of China's Accession Working Party Report to apply tariff rates of no more than 10 per cent to imports of CKD and SKD kits and, in particular:
         

- whether the Panel erred in finding that China created separate tariff lines for CKD and SKD kits at the ten-digit level.

4. Background and Overview of the Measures at Issue

   1. Introduction

      1. 
         This dispute concerns measures taken by China that: (i) impose a "charge" (referred to in the measures as a "tariff" or "duty")¹ on imported auto parts "characterized as complete motor vehicles" based on specific criteria in the measures; and (ii) prescribe administrative procedures associated with that charge.² These measures—the measures at issue in this dispute—comprise three legal instruments enacted by China, namely: Policy on Development of the Automotive Industry (Order of the National Development and Reform Commission (No. 8)) ("Policy Order 8"); Administrative Rules on Importation of Automobile Parts Characterized as Complete Vehicles (Decree of the People's Republic of China, No. 125) ("Decree 125"); and Rules on Verification of Imported Automobile Parts Characterized as Complete Vehicles (Public Announcement of the Customs General Administration of the People's Republic of China, No. 4 of 2005) ("Announcement 4").³
         
      2. 
         Policy Order 8⁴ entered into force on 21 May 2004 and provides the legal basis for the introduction of Decree 125 and Announcement 4, both of which entered into force on 1 April 2005. ⁵ Policy Order 8 directs the General Administration of Customs (the "CGA"), jointly with other relevant governmental departments⁶, to promulgate specific management rules for the import of whole vehicles and auto parts.⁷ These rules were implemented through Decree 125—which establishes procedures for the supervision and administration of auto parts that are imported and then assembled into certain models of automobiles, and specifies criteria for characterizing such auto parts as complete vehicles—and Announcement 4, which provides further details on the procedural requirements and criteria referred to in Decree 125.⁸
         
      3. 
         The measures at issue set up a regulatory regime and impose a charge with respect to imported⁹ auto parts used in the production or assembly¹⁰ of certain models of motor vehicles that are sold in the Chinese domestic market. The measures at issue prescribe thresholds regarding the type or value of imported auto parts used to assemble specific vehicle models. If the imported parts used in a given vehicle model meet or exceed these thresholds, then all of the imported parts used to assemble that model are "characterized as complete vehicles" and subject to the charge under the measures at issue. The charge is imposed following assembly of the vehicles, and the measures set out a number of procedural and administrative steps designed to determine whether the charge applies, and ensure tracking and reporting of the imported auto parts, along with payment of the charge, in respect of the relevant auto parts. The amount of the charge imposed corresponds to the tariff rate applicable to complete vehicles, that is, 25 per cent on average. Imported auto parts that are not "characterized as complete vehicles" under the measures at issue are subject to duties at the tariff rates for auto parts in China's Schedule of Concessions¹¹, that is, 10 per cent on average. The measures at issue are more fully explained below, and in detail in paragraphs 7.1 through 7.81 of the Panel Reports.
         
      4. 
         China's Schedule of Concessions provides separate tariff headings for complete motor vehicles (headings 87.02, 87.03 and 87.04), certain intermediate categories of auto parts (chassis fitted with engines under tariff heading 87.06, and bodies for motor vehicles under tariff heading 87.07), and parts and components of motor vehicles (parts and accessories of motor vehicles under tariff heading 87.08, and parts that fall under a variety of headings in other chapters, such as engines, which fall within chapter 84). It is not disputed that the bound tariff rates in China's Schedule of Concessions are higher for complete motor vehicles (25 per cent on average) than for other auto parts and components (10 per cent on average).¹²
         
      5. 
         Before the Panel, the complainants argued that the measures at issue encourage the use of domestic parts in auto part and vehicle manufacturing in China, through the use of (volume or value) "domestic content" thresholds specified in the measures.¹³ China, on the other hand, explained that the measures ensure "substance over form" in the administration of China's national customs law in that they allow customs authorities to classify, as complete motor vehicles, groups of auto parts and components that have the essential character of a complete vehicle, irrespective of how an importer chooses to structure the importation of these parts. China contended that the measures thereby prevent the "circumvention" of China's tariff headings for motor vehicles.¹⁴ In the course of its analysis under Article XX(d) of the GATT 1994, the Panel rejected China's arguments relating to tariff "circumvention"¹⁵, and made certain observations regarding the operation of the automotive industry in general. The Panel explained that the evidence before it suggested an increasing standardization of auto parts, such that many parts can be used interchangeably among different vehicle models. According to the Panel, manufacturers may realize economies of scale by manufacturing "families" of vehicle models, which share platforms, parts, and components, reaching up to 60 or 70 per cent of common parts. The Panel recognized, nonetheless, that some auto parts, which have a specific function or performance, have more limited interchangeability.¹⁶
         
   2. 
      
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