Characterization of the Charge Imposed under the Measures at Issue

Characterization of the Charge Imposed under the Measures at Issue

1. 
   Before the Panel, the complainants challenged the consistency of the measures at issue with various provisions of the GATT 1994, the TRIMs Agreement, the SCM Agreement, China's Accession Protocol and China's Accession Working Party Report.¹ The Panel decided to begin its analysis with the claims under Article III of the GATT 1994.² Before proceeding to examine the substance of these Article III claims, the Panel stated that it would "preliminarily determine" whether, as contended by the complainants, the charge imposed on automobile manufacturers under the measures at issue constitutes an "internal charge" under Article III:2, or, as contended by China, an "ordinary customs duty" under Article II:1(b).³ The Panel observed that "a charge cannot be at the same time an 'ordinary customs duty' under Article II:1(b) of the GATT 1994 and an 'internal tax or other internal charge' under Article III:2 of the GATT".⁴
   

1. The Panel's Findings on the Preliminary Issue of Whether the Charge Imposed Under the Measures at Issue is an Internal Charge or an Ordinary Customs Duty

2. 
   The Panel saw its task of resolving this threshold issue as necessarily involving interpretation of both the terms "internal charges" in Article III:2 and "ordinary customs duties" in Article II:1(b). Beginning with the former, the Panel looked at its ordinary meaning⁵, the immediate context provided by the term "imported into the territory" in Article III:2⁶ and the context provided by the Ad Note to Article III.⁷ The Panel also referred to GATT and WTO jurisprudence which it considered to be supportive of its interpretation.⁸ Turning to the term "ordinary customs duties" in Article II:1(b), the Panel examined its ordinary meaning⁹, the immediate context supplied by the term "on their importation" in the first sentence of Article II:1(b)¹⁰, and the context provided by the
   
3. 
   phrase "on or in connection with the importation"—relating to "other duties or charges"—in the second sentence of Article II:1(b).¹¹ The Panel also opined that China had not established any relevant subsequent practice, within the meaning of Article 31(3)(b) of the Vienna Convention, that would support its interpretation of the term "ordinary customs duties".¹²
   
4. 
   The Panel then juxtaposed its interpretations of the relevant terms in Articles II:1(b) and III:2, respectively, as follows:
   

In contrast to ordinary customs duties, the obligation to pay internal charges does not accrue because of the importation of the product at the very moment it enters the territory of another Member but because of the internal factors (e.g., because the product was re-sold internally or because the product was used internally), which occurs once the product has been imported into the territory of another member. The status of the imported good, which does not necessarily correspond to its status at the moment of importation, seems to be the relevant basis to assess this internal charge.¹⁴ (original emphasis)

5. 
   The Panel determined that its interpretations of "ordinary customs duties" and "internal charges" were consistent with each other, as well as with the approach of the GATT panel in EEC – Parts and Components.¹⁵ As a last step, the Panel observed that, to achieve the object and purpose of Articles II and III of the GATT 1994 and the WTO Agreement, Members must respect the boundaries between Article II and Article III.¹⁶
   
6. 
   The Panel then summarized its understanding of "ordinary customs duties" and "internal charges" as follows:
   

1. 
   Next, the Panel identified certain characteristics of the charge imposed under the measures at issue as having particular significance for legal characterization purposes. The Panel highlighted that the obligation to pay the charge accrues internally after the auto parts have been assembled into motor vehicles within China.¹⁸ The Panel also attached importance to the fact that the charge is imposed on automobile manufacturers rather than on importers in general, and to the fact that the imposition of the charge on specific imported parts is based upon what other imported or domestic parts are used together with those imported parts in assembling a vehicle model, rather than upon the specific parts at the moment of importation.¹⁹ In addition, the Panel considered significant the fact that identical imported parts imported at the same time in the same container or vessel can be subject to different charge rates depending on whether or not the vehicle model into which they are later assembled meets the criteria set out in the measures.²⁰
   
2. 
   Based on these characteristics of the measures at issue, the Panel concluded that the charge imposed on automobile manufacturers is an internal charge within the meaning of Article III:2 of the GATT 1994.²¹ The Panel excluded from the scope of this finding the "charge" imposed on CKD and SKD kits imported under Article 2(2) of Decree 125, which it considered to be an ordinary customs duty.²²
   
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