World Trade Organization

• Author: International Law Group, PLLC
• Pages: 206-207

Page 206

On December 15, 2008, the Appellate Body of the World Trade Organization (WTO) issued its reports in the dispute over China's taxation of auto parts, and largely affirmed the prior Panel Report. The complaints allege that China's taxes unfairly discriminate against the use of imported auto parts, and discourage auto manufacturers in China from using imported parts. They also put pressure on auto parts manufacturers to relocate manufacturing facilities to China.

The dispute began with complaints by the U.S., Canada and the European Communities. They requested WTO consultations in March and April of 2006, claiming that China's tax measures affected their exports. The disputed tax measures included: (a) China's Policy on Development of Automotive Industry (Order No. 8 of the National Development and Reform Commission, May 21, 2004); (b) Measures for the Administration of Importation of Automotive Parts and Components for Complete Vehicles (Decree No. 125), which entered into force on April 1, 2005); and [C]) Rules for Determining Whether Imported Automotive Parts and Components Constitute Complete Vehicles (General Administration of Customs Public Announcement No. 4, which entered into force on April 1, 2005, as well as their respective amendments and revisions.

The U.S. argued that the Chinese measures penalize manufacturers for using imported auto parts in the manufacture of vehicles for sale in China. Although China's tariffs for auto parts are lower than those for complete vehicles, China assesses charges on imported auto parts that are effectively equal to the tariff on complete vehicles, if the imported parts exceed certain thresholds. These measures are inconsistent with the following WTO provisions: (1) Article 2 of the TRIMs Agreement; (2) Articles II (including ¶ 1) and III (including ¶¶ 2, 4 and 5) of the GATT 1994; and (3) Article 3 (including ¶¶ 1 and 2) of the SCM Agreement. Further, these tax measures nullify or impair the benefits accruing to the U.S.

Various other countries, including Japan and Mexico, joined the consultations. The consultations failed to produce a resolution, and in October 2006 the WTO Dispute Settlement Body established a single Panel to decide the matter. The Reports of the Panel were issued in July 2008.

As to the U.S. Complaint (WT/DS340), the Panel concluded that: (I) Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article III:2, first sentence of the GATT 1994 in that...