The Panel's "Alternative" Findings under Article II:1(a) and (b) of the GATT 1994

The Panel's "Alternative" Findings under Article II:1(a) and (b) of the GATT 1994

1. 
   Having found that the charge under the measures at issue falls within the scope of, and is inconsistent with, Article III:2, first sentence, and that China had not demonstrated that the measures are justified under Article XX(d) of the GATT 1994¹, the Panel reached the "alternative" claim raised by the complainants under Article II of the GATT 1994. The complainants claimed that, in the event that the Panel were to consider that the charge under the measures constituted an ordinary customs duty, then such ordinary customs duty would be inconsistent with China's obligations under Article II:1(a) and (b) because it was imposed in excess of the bound tariff rates for auto parts in China's Schedule of Concessions. The Panel decided to analyze this alternative claim, and set out several reasons for doing so², including to assist the Appellate Body in completing the analysis in the event that the Appellate Body were to disagree with the Panel's resolution of the threshold issue and its characterization of the charge as an internal charge falling within the scope of Article III:2.
   
2. 
   In examining this alternative claim, the Panel found that:
   

3. 
   This finding, regarding the interpretation of "motor vehicles" in China's Schedule of Concessions, was one of two findings upon which the Panel based its ultimate conclusion with respect to the "alternative" claims raised. The other finding on which its conclusion was based was that certain aspects of "the criteria for the essential character determination under Article 21(2) and (3) and Article 22 of Decree 125 ... necessarily lead to a violation" of Article II:1(a) and (b) of the GATT 1994.⁴
   
4. 
   These two findings led the Panel to conclude as follows:
   

(i) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article II:1(a) and Article II:1(b), first sentence of the GATT 1994 in that they accord imported auto parts treatment less favourable than that provided for in the appropriate Part of China's Schedule of Concessions.⁵ (original italics)

1. 
   China's appeal mainly concerns the first alternative finding above, namely the Panel's interpretation of the term "motor vehicles" in China's Schedule of Concessions. This part of China's appeal is linked to its claim that we should reverse the Panel's finding that the charge imposed under
   
2. 
   the measures at issue is an internal charge within the meaning of Article III:2 of the GATT 1994 and find, instead, that the charge imposed under the measures at issue is an ordinary customs duty. China considers that the Panel should not have examined GIR 2(a) and its application to multiple shipments "in the alternative", but as part of its examination of the threshold issue. Accordingly, China requests us to examine this part of the "alternative" analysis of the Panel, including its interpretation of GIR 2(a) and China’s Schedule of Concessions, in order to determine that the charge imposed under the measures at issue is properly characterized as an ordinary customs duty. China argues that we should also find that the ordinary customs duties imposed under the measures are based upon a valid classification of related shipments of parts as "motor vehicles", and that, because such duties are not in excess of the relevant tariff bindings under China's Schedule of Concessions, there is no inconsistency with Article II:1(a) or (b). In the event that we reverse the Panel on the threshold issue, China does not appeal the Panel's finding regarding the "essential character" criteria under Article 21(2) and (3) and Article 22 of Decree 125.⁶
   
3. 
   If, however, we uphold the Panel's finding that the charge under the measures is an internal charge within the meaning of Article III:2 of the GATT 1994, then China requests us to "find that the Panel's alternative reasoning and findings ... as well as the alternative conclusions and recommendations set forth in Section VIII of its Reports, are moot and of no legal effect."⁷ In other words, China requests us to declare both of these findings made by the Panel, as well as its ultimate conclusion, to be moot and of no legal effect. This is, explains China, because both of these findings, as well as the conclusion, were based on the Panel's "alternative assumption that the charge imposed under the challenged measures is an ordinary customs duty".⁸
   
4. 
   As indicated above, the appellees all request us to uphold the Panel's finding that the charge imposed under the measures at issue is an internal charge within the meaning of Article III of the GATT 1994. They all agree, as well, that if we uphold this finding, we should not accept China's request to declare the Panel's alternative findings to be moot and of no legal effect. Yet the appellees do not appear to share the same position on the question of whether we could or should examine the Panel's alternative findings under Article II:1(b) of the GATT 1994 in the event that we uphold the Panel's findings under Article III:2.
   
5. 
   At the oral hearing in this appeal, the European Communities invited us to address some of the troubling elements of the arguments made by China under Article II, so as to leave no doubt about the serious systemic implications of China's position, or as to the inconsistency of the measures at issue with WTO law from all possible angles. To do so would, in the estimation of the European Communities, help to secure a positive solution to the dispute in accordance with Article 3.7 of the DSU.
   
6. 
   Canada highlights that the reasoning used by the Panel to reach its alternative findings reveals that certain elements of the measures, such as the "essential character" criteria contained therein could, under a modified measure, be applied to auto parts at the border. Canada explained at the oral hearing that, for this reason, it would be useful for us to examine the alternative findings made by the Panel. Canada believes that maintaining the Panel's findings under Article II would assist in securing prompt settlement and a positive solution to this dispute, and in preventing or resolving any disagreement as to the measures that China might take to comply with its WTO obligations.
   
7. 
   The United States considers that, if we uphold the finding of the Panel that the charge imposed by China's measures is an internal charge, we need not examine the alternative findings of the Panel. At the oral hearing in this appeal, the United States agreed with the European Communities and Canada that the arguments made by China are troubling and would, if accepted, pose significant systemic concerns, but also pointed out that the Panel's alternative findings were expressly conditioned on an assumption that the charge is an ordinary customs duty. If we were to find that this assumption is false, then the Panel's alternative findings would no longer remain in place. The United States adds that the Panel nonetheless made a number of significant findings regarding Article II:1(b) of the GATT 1994 in its analysis of the threshold issue, and that these findings would remain in place if we uphold the Panel's resolution of the threshold issue.
   
8. 
   After finding that the charge imposed under the measures at issue is, indeed, an internal charge within the meaning of Article III:2, the Panel went on to make alternative findings on the assumption that the charge imposed under the measures at issue is an ordinary customs duty within the meaning of Article II:1(b). We note that none of the participants have appealed the Panel's decision to make these alternative findings, or suggested that the Panel acted inappropriately in doing so. It is not unprecedented for panels to make alternative findings⁹, and indeed this may be useful in resolving a dispute, particularly when, on appeal, the Appellate Body reverses other findings made by a panel.¹⁰
   
9. 
   The only issue before us is whether we should examine the Panel's alternative findings. The Panel made these findings on the assumption that it had erred in finding the charge to be an internal charge. Yet we have found that it made no such error. To the contrary, the Panel properly characterized the charge imposed under the measures at issue as an internal charge, and properly found the measures at issue to be inconsistent with China's obligations under the first sentence of Article III:2 of the GATT 1994. In these circumstances, we see no reason to examine the Panel's alternative findings under Article II:1(a) and (b). Nor do we see any reason to accede to China's request to declare them to be "moot and of no legal effect".
   
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