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REPERTORY OF APPELLATE BODY REPORTS

Tariff Concessions


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Article II of the GATT 1994. See also Agreement on Agriculture, Article 4.2 and Footnote 1 (A.1.9-13)
Relationship between Article II and Article III:2 of the GATT 1994
Interpretation and clarification of Members’ Schedules of tariff concessions. See also GATS, Schedules, Interpretation of Schedules (G.1.2.1)
Relationship between Schedules of concessions and the GATT 1994
Relationship between Members’ Schedules and the Agreement on Agriculture. See also Agreement on Agriculture, Relationship between the Agreement on Agriculture and the GATT 1994 (A.1.37)
Modification of Schedules


T.1.1 Article II of the GATT 1994. See also Agreement on Agriculture, Article 4.2 and Footnote 1 (A.1.9-13)     back to top

T.1.1.1 Argentina — Textiles and Apparel, para. 45
(WT/DS56/AB/R, WT/DS56/AB/R/Corr.1)

 

… Paragraph (a) of Article II:1 contains a general prohibition against according treatment less favourable to imports than that provided for in a Member’s Schedule. Paragraph (b) prohibits a specific kind of practice that will always be inconsistent with paragraph (a): that is, the application of ordinary customs duties in excess of those provided for in the Schedule. Because the language of Article II:1(b), first sentence, is more specific and germane to the case at hand, our interpretative analysis begins with, and focuses on, that provision.

 

T.1.1.2 Argentina — Textiles and Apparel, para. 55
(WT/DS56/AB/R, WT/DS56/AB/R/Corr.1)

 

We conclude that the application of a type of duty different from the type provided for in a Member’s Schedule is inconsistent with Article II:1(b), first sentence, of the GATT 1994 to the extent that it results in ordinary customs duties being levied in excess of those provided for in that Member’s Schedule. In this case, we find that Argentina has acted inconsistently with its obligations under Article II:1(b), first sentence, of the GATT 1994, because the DIEM regime, by its structure and design, results, with respect to a certain range of import prices in any relevant tariff category to which it applies, in the levying of customs duties in excess of the bound rate of 35 per cent ad valorem in Argentina’s Schedule.

 

T.1.1.3 Canada — Dairy, para. 134
(WT/DS103/AB/R, WT/DS113/AB/R, WT/DS103/AB/R/Corr.1, WT/DS113/AB/R/Corr.1)

 

… Under Article II:1(b) of the GATT 1994, the market access concessions granted by a Member are “subject to” the “terms, conditions or qualifications set forth in [its] Schedule” (emphasis added). In our view, the ordinary meaning of the phrase “subject to” is that such concessions are without prejudice to and are subordinated to, and are, therefore, qualified by, any “terms, conditions or qualifications” inscribed in a Member’s Schedule. … The phrase “terms and conditions” is a composite one which, in its ordinary meaning, denotes the imposition of qualifying restrictions or conditions. A strong presumption arises that the language which is inscribed in a Member’s Schedule under the heading, “Other Terms and Conditions”, has some qualifying or limiting effect on the substantive content or scope of the concession or commitment.

 

T.1.1.4 US — Softwood Lumber V (Article 21.5 — Canada), para. 115
(WT/DS264/AB/RW)

 

… Article II of the GATT 1994 was not at issue in previous appeals relating to zeroing and there is no basis in the Appellate Body’s analysis of certain provisions of the Anti-Dumping Agreement in those appeals for the United States to draw the implications for Article II and WTO Members’ tariff Schedules that it seeks to draw. We also note that WTO Members’ Schedules base their product categorization on the Harmonized Commodity Description and Coding System (the “Harmonized System”) and specify their tariff commitments by product subheadings. There is no indication in previous Appellate Body reports addressing the Anti-Dumping Agreement or in the Harmonized System to indicate that levying tariffs in excess of a bound rate on the importation of a product could be “offset” or justified by levying tariffs below the bound rate on another importation of that product. Nor is there any basis for an analogy between establishing the margin of dumping for the “product as a whole” under Article VI:2 of the GATT 1994 and the Anti-Dumping Agreement, on the one hand, and the application of a tariff on a product above the bound rate within the meaning of Article II of the GATT 1994, on the other hand.

 

T.1.1.5 India — Additional Import Duties, paras. 150-151, 153
(WT/DS360/AB/R)

 

The first sentence of Article II:1(b) provides that products described in a Member’s Schedule of Concessions shall be exempt from “ordinary customs duties” that are “in excess of” those duties set out in the Schedule. Thus, the principal obligation in the first sentence of Article II:1(b) requires a Member to refrain from imposing OCDs on imported products in excess of those provided for in that Member’s Schedule.

 

The second sentence of Article II:1(b) stipulates further that such imported products shall be exempt from “all other duties or charges of any kind” that are imposed “on or in connection with” importation, to the extent that such duties or charges exceed amounts imposed on the date of entry into force of the GATT 1994 (or which are directly and mandatorily required to be imposed by legislation in force on that date), as recorded and bound in the Schedules of Concessions annexed to the GATT 1994. As the Panel acknowledged, the duties and charges covered by the second sentence of Article II:1(b) are “defined in relation to” duties covered by the first sentence of Article II:1(b), such that ODCs encompass only duties and charges that are not OCDs.

 

 

The chapeau to Article II:2 thus makes reference to “this Article”, that is, Article II in its entirety. Article II:1(b) clarifies that the tariff binding in the relevant column of a Member’s Schedule of Concessions provides an upper limit on the amount of OCDs and ODCs that may be imposed. Article II:2, in turn, clarifies that nothing in Article II, including Article II:1(b), shall prevent a Member from imposing on the importation of a product: (i) a charge equivalent to an internal tax imposed consistently with Article III:2 in respect of a like domestic product; (ii) an anti-dumping or countervailing duty applied consistently with Article VI; or (iii) fees or other charges commensurate with the cost of services rendered. The chapeau of Article II:2, therefore, connects Articles II:1(b) and II:2(a) and indicates that the two provisions are inter-related. Article II:2(a), subject to the conditions stated therein, exempts a charge from the coverage of Article II:1(b). The participants agree that, if a charge satisfies the conditions of Article II:2(a), it would not result in a violation of Article II:1(b). Thus, we consider that, in the context of this case involving the application of duties that are claimed to correlate to certain internal taxes, Article II:1(b) and Article II:2(a) are closely related and must be interpreted together.

 

T.1.1.6 India — Additional Import Duties, paras. 157-160
(WT/DS360/AB/R)

 

We do not agree with the Panel that Article II:1(b) “strongly suggests” that OCDs and ODCs are “of the same kind”. As the Panel itself observed, the two sets of charges are described and disciplined in separate sentences of Article II:1(b), and may, by their terms, not pertain to the same event of importation. While both sentences of Article II:1(b) relate to duties or charges applied “on the importation” of certain products, the second sentence of Article II:1(b) also uniquely covers charges imposed “in connection with the importation” of such products. Moreover, the second sentence of Article II:1(b) refers to duties or charges “of any kind”, which suggests that, while in some instances ODCs may be of a similar kind to OCDs, in other instances they may be of a different kind. Accordingly, we do not find the language of Article II:1(b) read in its context to be conclusive as to whether OCDs and ODCs are necessarily of a similar or dissimilar kind.

 

We also disagree with the Panel that duties and charges within the meaning of Article II:1(b) must always be considered to “inherently discriminate against imports”. We do not see a textual or other basis for the Panel’s conclusion that “inherent discrimination” is a relevant or necessary feature of charges covered by Article II:1(b). Article II:1(b) does not set out a specific rationale for imposing duties or charges, and there exist rationales other than “inherent discrimination” for applying such duties or charges. The Panel observed that OCDs “are typically applied so as to afford protection to domestic production” and concluded from this that OCDs are inherently discriminatory. This rationale, however, would not seem to apply in situations where there is no domestic production (or even expectations of future domestic production) to protect. OCDs may be applied for a variety of reasons unrelated to domestic production, including, as the United States observes, the raising of revenue. India argues that the United States fails to appreciate that the Panel’s standard of inherent discrimination relates to the effect, not the purpose, of a duty. Even if this were so, we do not consider that the language and context of Article II:1(b) provide a basis for concluding that all duties and charges falling under Article II:1(b) are inherently discriminatory. Moreover, as the United States contends, the language of the second sentence of Article II:1(b) could be read to suggest that, even if OCDs inherently discriminate against imports, ODCs cover all duties or charges of any kind imposed on or in connection with importation other than OCDs, including those duties or charges that do not inherently discriminate against imports.

 

We also have concerns with the Panel’s characterization of duties or charges under Article II:1(b) as “inherently discriminatory”, insofar as this may suggest that the mere application of a tariff by a Member on imports of another Member is somehow unfair or prejudicial. Such a connotation would, in our view, be at odds with negotiations by Members of tariff concessions that allow for the imposition of duties up to a bound level. Tariffs are legitimate instruments to accomplish certain trade policy or other objectives such as to generate fiscal revenue. Indeed, under the GATT 1994, they are the preferred trade policy instrument, whereas quantitative restrictions are in principle prohibited. Irrespective of the underlying objective, tariffs are permissible under Article II:1(b) so long as they do not exceed a Member’s bound rates.

 

Moreover, we disagree with the Panel that Articles II:2(b) and II:2(c) provide contextual support for the proposition that duties and charges falling under Article II:2 do not “inherently discriminate against imports”. The Panel may have referred to Articles II:2(b) and II:2(c) in order to suggest that charges falling under Article II:2(a) are not “inherently discriminatory” because they are functionally equivalent to certain internal taxes. However, for anti-dumping and countervailing duties under Article II:2(b), there is nominally no domestic charge that would serve as the counterpart to which such duties would correspond. Likewise, charges under Article II:2(c) are, as the Panel admits, imposed exclusively on imports, and also do not have an obvious domestic counterpart. Thus, we do not find contextual support in Articles II:2(b) and II:2(c) for considering Article II:2 duties and charges as universally non-discriminatory in respect of imports.

 

T.1.1.7 India — Additional Import Duties, paras. 170-172, 175
(WT/DS360/AB/R)

 

In our view, these two concepts [in Article II:2(a)] — “equivalence” and “consistency with Article III:2” — cannot be interpreted in isolation from each other; they impart meaning to each other and need to be interpreted harmoniously. By contrast, the Panel’s interpretation was predicated on its understanding that, because the term “equivalent” refers to the border charge, and the phrase “imposed consistently with the provisions of paragraph 2 of Article III” refers to the internal tax, Article II:2(a) draws a distinction between the two concepts. We are not persuaded that the phrase “imposed consistently with the provisions of paragraph 2 of Article III” relates exclusively to the words “internal tax”. Determining whether a charge is imposed consistently with Article III:2 necessarily involves a comparison of a border charge with an internal tax in order to determine whether one is “in excess of” the other. Yet, the Panel’s statement that the “term ‘imposed’ in Article II:2(a) relates to the internal tax and not the border charge” leaves nothing with which the internal tax can be compared.

 

Moreover, we disagree with the Panel’s conclusion that the term “equivalent” does not require any quantitative comparison of the charge and internal tax. This would mean that a border charge that is significantly greater in amount than an internal tax could still be deemed “equivalent” under Article II:2(a), provided that the two were functionally equivalent. We find that such a result would be incompatible with a proper interpretation of Article II:2(a).

 

To give meaning and effect to the phrase “imposed consistently with the provisions of paragraph 2 of Article III”, we consider it necessary, in the light of the structure and context of Article II:2, to read this phrase in a manner that imparts meaning to the assessment of whether the charge and internal tax are “equivalent”. We disagree with the Panel that understanding the term “equivalent” as requiring a quantitative comparison would make redundant the reference to consistency with Article III:2. Indeed, as we see it, the reference in Article II:2(a) to consistency with Article III:2 suggests that the concept of equivalence includes elements of “effect” and “amount” that necessarily imply a quantitative comparison.

 

 

We thus consider that the term “equivalent” calls for a comparative assessment that is both qualitative and quantitative in nature. Such an assessment is not limited to the relative function of a charge and an internal tax, but must also include quantitative considerations relating to their effect and amount. For the foregoing reasons, we find that the Panel erred in attributing an overly narrow meaning to the term “equivalent”.

 

T.1.1.8 India — Additional Import Duties, para. 180
(WT/DS360/AB/R)

 

We consider that Article II:2(a) should not be interpreted in a manner that reads out the significance, for purposes of an Article II:2(a) inquiry, of the element of “consistency with Article III:2” or, at most, ascribes to it the purpose of “acknowledg[ ing], and call[ing] attention to, the existence of relevant requirements stipulated elsewhere in the GATT 1994”. Rather, as we have indicated, we believe that the requirement of “consistency with Article III:2” must be read together with, and imparts meaning to, the requirement that a charge and internal tax be “equivalent”. We recall that Article II:2(a) refers to “a charge equivalent to an internal tax imposed consistently with the provisions of paragraph 2 of Article III in respect of the like domestic product”. We also recall that the first sentence of Article III:2 prohibits the imposition on imported products of “internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products”. We therefore consider that whether a charge is imposed “in excess of” a corresponding internal tax is an integral part of the analysis in determining whether the charge is justified under Article II:2(a). Contrary to what the Panel suggests, a complaining party is not required to file an independent claim of violation of Article III:2 if it wishes to challenge the consistency of a border charge with Article III:2.

 

T.1.1.9 US — Zeroing (Japan) (Article 21.5 — Japan), para. 209
(WT/DS322/AB/RW)

 

The United States has not challenged the Panel’s interpretation of Article II and we need not engage in an extensive analysis of this provision. We note that, in India — Additional Import Duties, the Appellate Body examined the relationship between paragraphs 1(b) and 2 of Article II. Although that appeal focused on paragraph 2(a) of Article II, the Appellate Body’s remarks provide general guidance on the relationship between paragraphs 1(b) and 2:

 

The chapeau of Article II:2, therefore, connects Articles II:1(b) and II:2(a) and indicates that the two provisions are inter-related. Article II:2(a), subject to the conditions stated therein, exempts a charge from the coverage of Article II:1(b). The participants agree that, if a charge satisfies the conditions of Article II:2(a), it would not result in a violation of Article II:1(b). Thus, we consider that, in the context of this case involving the application of duties that are claimed to correlate to certain internal taxes, Article II:1(b) and Article II:2(a) are closely related and must be interpreted together. (footnote omitted)

 

The Panel understood Article II:2(b) as providing a “safe harbour” to Article II:1 to the extent that the anti-dumping duties are applied consistently with Article VI of the GATT 1994 and the Anti-Dumping Agreement. Thus, the Panel’s approach is coherent with the Appellate Body’s interpretation of the relationship between Articles II:1(b) and II:2(a) quoted above.

 
T.1.1A Relationship between Article II and Article III:2 of the GATT 1994     back to top

T.1.1A.1 India — Additional Import Duties, footnote 304 to para. 153
(WT/DS360/AB/R)

 

… The Panel and the participants also agree that the Additional Duty and the Extra-Additional Duty are border charges subject to the terms of Article II, and that they are not disciplined by the provisions of Article III as “internal taxes”. The Ad Note to Article III provides that “any internal tax or other internal charge” that applies to both domestic and imported products, but which is “collected or enforced” in respect of the imported product “at the time or point of importation”, is “nevertheless to be regarded” as subject to the provisions of Article III. Whether a measure is a “charge” to which Article II:2(a) applies, or an “internal tax or other internal charge” referred to in the Ad Note to Article III, has to be decided in the light of the characteristics of the measure and the circumstances of the case.

 

T.1.1A.2 China — Auto Parts, paras. 139, 141 and footnote 209
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)

 

… as the Appellate Body has previously observed, the “fundamental structure and logic” of a covered agreement may require panels to determine whether a measure falls within the scope of a particular provision or covered agreement before proceeding to assess the consistency of the measure with the substantive obligations imposed under that provision or covered agreement. We consider this to be just such a case, particularly in the light of the Panel’s observation — with which China expressly agrees — 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”. If, as the Panel considered, the charge imposed on automobile manufacturers could fall within the scope of either the first sentence of Article II:1(b) or Article III:2, then the Panel had to begin its analysis by ascertaining which of these provisions applied in the circumstances of this dispute.

 

 

It seems to us that an examination of whether a particular charge is an internal charge or a border measure involves consideration of all three types of charges, that is: ordinary customs duties under the first sentence of Article II:1(b); other duties and charges under the second sentence of Article II:1(b);209 and internal charges and taxes under Article III:2. This should assist a panel in understanding the relationship among these fundamental GATT provisions. In this case the Panel could have undertaken a more complete analysis of the architecture of Article III:2 and both sentences of Article II:1(b) of the GATT 1994. However, its resolution of the threshold question was not affected by the fact that the Panel did not do so. We note that China has recorded “0” in the “Other Duties and Charges” column of its Schedule of Concessions in respect of the products at issue in this dispute.

 

T.1.1A.3 China — Auto Parts, paras. 153, 155, 158
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)

 

The other terms contained in the first sentence of Article II:1(b) shed some light on the scope and meaning of “ordinary customs duties” and indicate, for example, that an ordinary customs duty is a charge imposed on products, on their importation. The Panel recognized both of these elements as immediate context for the term “ordinary customs duties” in the first sentence of Article II:1(b), and attached particular significance to the second of these elements. Thus, the Panel emphasized the temporal limits of the first sentence of Article II:1(b), and underlined that a key criterion for a charge to constitute an ordinary customs duty under Article II:1(b) is that it accrue at the moment of importation.

 

 

… The Harmonized System categorizes products, and the characteristics of particular products are relevant to how they are categorized. We recognize, as China argues, that classification, and hence the tariff rate applied, might, in some circumstances, vary depending on the condition of goods at the moment of importation. Since different categories of products are subject to different bound and applied tariff rates, the classification of a given product may affect the amount of the duty imposed. Accordingly, classification issues have some bearing on the question of whether a Member applying such a duty is in conformity with its obligation, under Article II:1(b), not to impose duties in excess of the bound rate set out in the Member’s Schedule for the product concerned. Yet this issue (whether a duty applied to a product by virtue of its classification is consistent with Article II:1(b)) is separate from the issue of whether a charge falls under the first sentence of Article II:1(b) at all (as opposed to under Article III:2). It is not evident to us how classification rules are relevant to the latter issue. While it is true, as China argues, that the “classification of the product necessarily precedes the determination of which ‘ordinary customs duty’ applies”, it is not the case that classification of the product (even if properly done) necessarily precedes a determination of whether the charge that applies is an ordinary customs duty.

 

 

… we fail to see how the Panel erred in not relying on GIR 2(a) in resolving the threshold issue of whether the charge imposed under the measures at issue is an ordinary customs duty or an internal charge. The right of a WTO Member to impose a customs duty, and the obligation of an importer to pay such a duty, accrue at the very moment the product enters the customs territory of that Member and by virtue of the event of importation. In contrast, the classification rules according to which customs authorities determine under which tariff heading the “product” concerned falls, depending on its “status” or “condition”, are not relevant to the nature of the “duty” itself because they do not determine the moment at which the obligation to pay accrues, but only the amount of that duty. Similarly, as all of the participants agree, the moment at which a charge is collected or paid is not determinative of whether it is an ordinary customs duty or an internal charge. Ordinary customs duties may be collected after the moment of importation, and internal charges may be collected at the moment of importation. For a charge to constitute an ordinary customs duty, however, the obligation to pay it must accrue at the moment and by virtue of or, in the words of Article II:1(b), “on”, importation.

 

T.1.1A.4 China — Auto Parts, paras. 164-166
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)

 

In sum, we see the Harmonized System as context that is most relevant to issues of classification of products. The Harmonized System complements Members’ Schedules and confirms the general principle that it is “the ‘objective characteristics’ of the product in question when presented for classification at the border” that determine their classification and, consequently, the applicable customs duty. The Harmonized System, and the product categories that it contains, cannot trump the criteria contained in Article II:1(b) and Article III:2, which distinguish a border measure from an internal charge under the GATT 1994. Among WTO Members, it is these GATT provisions that prevail, and that define the relevant characteristics of ordinary customs duties for WTO purposes. Thus, even if the Harmonized System and GIR 2(a) would allow auto parts imported in multiple shipments to be classified as complete vehicles based on subsequent common assembly, as China suggests, this would not per se affect the criteria that define an ordinary customs duty under Article II:1(b). In any case, the Panel did not accept the broad interpretation of GIR 2(a) suggested by China. Rather, the Panel remarked that its findings on the meaning of “as presented” in GIR 2(a) did not appear to contradict its finding as to the meaning of “on their importation” in Article II:1(b).

 

In our view, accepting that a charge imposed on auto parts following, and as a consequence of, their assembly into a complete motor vehicle can constitute an ordinary customs duty would significantly limit the scope of “internal charges” that fall within the scope of Article III:2 of the GATT 1994. We also share the concerns expressed by the Panel to the effect that the security and predictability of tariff concessions would be undermined if ordinary customs duties could be applied based on factors and events that occur internally, rather than at the moment and by virtue of importation, and that this, in turn, would upset the carefully negotiated and balanced structure of key GATT rights and obligations, including the different disciplines imposed on ordinary customs duties and internal charges.

 

Based on all of the above, we consider that a determination of whether a particular charge falls under Article II:1(b) or Article III:2 of the GATT 1994 must be based on a proper interpretation of these two provisions. The Harmonized System does not provide context that is relevant to the threshold question or to the assessment of the respective scope of application of “ordinary customs duties” in the first sentence of Article II:1(b) and “internal charges” in Article III:2 of the GATT 1994 that must be undertaken in answering that question. It follows that the Panel did not err in interpreting the term “ordinary customs duties” in the first sentence of Article II:1(b) of the GATT 1994 without relying on the rules of the Harmonized System, in general, or GIR 2(a), in particular.

 

T.1.1A.5 China — Auto Parts, para. 171
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)

 

… a panel’s determination of whether a specific charge falls under Article II:1(b) or Article III:2 of the GATT 1994 must be made in the light of the characteristics of the measure and the circumstances of the case. In many cases this will be a straightforward exercise. In others, the picture will be more mixed, and the challenge faced by a panel more complex. A panel must thoroughly scrutinize the measure before it, both in its design and in its operation, and identify its principal characteristics. Having done so, the panel must then seek to identify the leading or core features of the measure at issue, those that define its “centre of gravity” for purposes of characterizing the charge that it imposes as an ordinary customs duty or an internal charge. It is not surprising, and indeed to be expected, that the same measure may exhibit some characteristics that suggest it is a measure falling within the scope of Article II:1(b), and others suggesting it is a measure falling within the scope of Article III:2. In making its objective assessment of the applicability of specific provisions of the covered agreements to a measure properly before it, a panel must identify all relevant characteristics of the measure, and recognize which features are the most central to that measure itself, and which are to be accorded the most significance for purposes of characterizing the relevant charge and, thereby, properly determining the discipline(s) to which it is subject under the covered agreements.

 

T.1.1A.6 China — Auto Parts, paras. 177-178
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)

 

In contrast, regarding the characteristics of the measures at issue that might suggest that the charge imposed there under is an ordinary customs duty … Ultimately, the Panel considered that none of these factors, nor all of them taken together, was determinative of the issue of the legal characterization of the charge imposed under the measures at issue in this case.

 

We see no error in the Panel’s approach. Taking each of these criteria in turn, we first observe that the way in which a Member’s domestic law characterizes its own measures, although useful, cannot be dispositive of the characterization of such measures under WTO law. Secondly, “the intent, stated or otherwise, of the legislators is not conclusive” as to such characterization. …Yet the Panel also found that there is no physical confinement or any other restriction by customs authorities on the use of these auto parts in the internal market so that the bond requirement is in the nature of a financial guarantee. Lastly, with respect to the administration of the measures at issue by customs authorities, we recall that, in addition to the CGA, other agencies within the Chinese Government have a role under those measures. … In addition, as the Panel recognized, and as is the case with all of the criteria we have just mentioned, a degree of caution must be exercised in attributing decisive weight to characteristics that fall exclusively within the control of WTO Members, “because otherwise Members could determine by themselves which of the provisions would apply to their charges”.

 

T.1.1A.7 China — Auto Parts, para. 243
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)

 

Thus, it appears to us that the Panel considered that there were distinct charges imposed under Decree 125, and that it could characterize the “charge” imposed on imports of CKD and SKD kits under Article 2(2) of Decree 125 differently, as an ordinary customs duty. However, the Panel did not explain why this was so. Earlier in our analysis, we expressed the view that, in dealing with the threshold issue, the Panel properly scrutinized the key characteristics of the charge, evaluated the significance of those characteristics, and determined that the charge imposed under the measures at issue was an internal charge. In contrast, the Panel did not explain how or why the characteristics of the “charge” imposed on imports of CKD and SKD kits under Article 2(2) differed from those that it had earlier identified in its resolution of the threshold issue. Nor did it explain why such characteristics required characterization of the “charge” imposed on CKD and SKD kits imported under Article 2(2) as an ordinary customs duty. This does not seem to us to have been a proper approach to the characterization of this “charge”.

 
T.1.2 Interpretation and clarification of Members’ Schedules of tariff concessions.
See also GATS, Schedules, Interpretation of Schedules (G.1.2.1)     back to top

T.1.2.1 EC — Computer Equipment, para. 84
(WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R)

 

The purpose of treaty interpretation under Article 31 of the Vienna Convention is to ascertain the common intentions of the parties. These common intentions cannot be ascertained on the basis of the subjective and unilaterally determined “expectations” of one of the parties to a treaty. Tariff concessions provided for in a Member’s Schedule — the interpretation of which is at issue here — are reciprocal and result from a mutually advantageous negotiation between importing and exporting Members. A Schedule is made an integral part of the GATT 1994 by Article II:7 of the GATT 1994. Therefore, the concessions provided for in that Schedule are part of the terms of the treaty. As such, the only rules which may be applied in interpreting the meaning of a concession are the general rules of treaty interpretation set out in the Vienna Convention.

 

T.1.2.2 EC — Computer Equipment, paras. 89-90
(WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R)

 

… We believe, however, that a proper interpretation of Schedule LXXX should have included an examination of the Harmonized System and its Explanatory Notes. …

 

… we consider that in interpreting the tariff concessions in Schedule LXXX, decisions of the WCO may be relevant …

 

T.1.2.3 EC — Computer Equipment, para. 92
(WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R)

 

… In the light of our observations on “the circumstances of [the] conclusion” of a treaty as a supplementary means of interpretation under Article 32 of the Vienna Convention, we consider that the classification practice in the European Communities during the Uruguay Round is part of “the circumstances of [the] conclusion” of the WTO Agreement and may be used as a supplementary means of interpretation within the meaning of Article 32 of the Vienna Convention.…

 

T.1.2.4 EC — Computer Equipment, para. 93
(WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R)

 

… The purpose of treaty interpretation is to establish the common intention of the parties to the treaty. To establish this intention, the prior practice of only one of the parties may be relevant, but it is clearly of more limited value than the practice of all parties. In the specific case of the interpretation of a tariff concession in a Schedule, the classification practice of the importing Member, in fact, may be of great importance. However, the Panel was mistaken in finding that the classification practice of the United States was not relevant.

 

T.1.2.5 EC — Computer Equipment, para. 95
(WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R)

 

… Consistent prior classification practice may often be significant. Inconsistent classification practice, however, cannot be relevant in interpreting the meaning of a tariff concession.…

 

T.1.2.6 EC — Computer Equipment, para. 97
(WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R)

 

… we conclude that the Panel erred in finding that the “legitimate expectations” of an exporting Member are relevant for the purposes of interpreting the terms of Schedule LXXX and of determining whether the European Communities violated Article II:1 of the GATT 1994…

 

T.1.2.7 EC — Computer Equipment, paras. 109-110
(WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R)

 

… Tariff negotiations are a process of reciprocal demands and concessions, of “give and take”. It is only normal that importing Members define their offers (and their ensuing obligations) in terms which suit their needs. On the other hand, exporting Members have to ensure that their corresponding rights are described in such a manner in the Schedules of importing Members that their export interests, as agreed in the negotiations, are guaranteed. There was a special arrangement made for this in the Uruguay Round. For this purpose, a process of verification of tariff schedules took place from 15 February through 25 March 1994, which allowed Uruguay Round participants to check and control, through consultations with their negotiating partners, the scope and definition of tariff concessions. Indeed, the fact that Members’ Schedules are an integral part of the GATT 1994 indicates that, while each Schedule represents the tariff commitments made by one Member, they represent a common agreement among all Members.

 

… We consider that any clarification of the scope of tariff concessions that may be required during the negotiations is a task for all interested parties.

 

T.1.2.8 US — Gambling, para. 233
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

 

… the chapeau to Article XVI:2 … contemplates circumstances in which a Member’s Schedule includes a commitment to allow market access, and points out that the function of the sub-paragraphs in Article XVI:2 is to define certain limitations that are prohibited unless specifically entered in the Member’s Schedule. Plainly, the drafters of sub-paragraph (a) had in mind limitations that would impose a maximum limit of above zero. Similarly, Article II:1(b) of the GATT 1994 prohibits Members from imposing duties “in excess of” the bound duty rate. Such bound duty rate will usually be above zero. Yet this does not mean that Article II:1(b) does not also refer to bound rates set at zero.

 

T.1.2.9 EC — Chicken Cuts, para. 262
(WT/DS269/AB/R, WT/DS286/AB/R, WT/DS269/AB/R/Corr.1, WT/DS286/AB/R/Corr.1)

 

We agree … that each WTO Member has its own individual Schedule of tariff concessions and that the tariff commitments bound for specific products in those Schedules vary between different WTO Members. Nevertheless, it must be borne in mind that, during the course of the Uruguay Round, tariff commitments were negotiated on the basis of the Harmonized System. …

 

T.1.2.10 EC — Chicken Cuts, paras. 265-266
(WT/DS269/AB/R, WT/DS286/AB/R, WT/DS269/AB/R/Corr.1, WT/DS286/AB/R/Corr.1)

 

We acknowledge that we are concerned here with the interpretation of a tariff commitment contained in the WTO Schedule of the European Communities that, according to Article II:7 of the GATT 1994, forms an “integral part” of the WTO Agreement, as do all Members’ WTO Schedules. In EC — Computer Equipment [at paragraph 109], the Appellate Body found that:

 

… the fact that Members’ Schedules are an integral part of the GATT 1994 indicates that, while each Schedule represents the tariff commitments made by one Member, they represent a common agreement among all Members. (original emphasis)

 

The Appellate Body also stated [at paragraph 93] in that appeal that:

 

The purpose of treaty interpretation is to establish the common intention of the parties to the treaty. To establish this intention, the prior practice of only one of the parties may be relevant, but it is clearly of more limited value than the practice of all parties. In the specific case of interpretation of a tariff concession in a Schedule, the classification practice of the importing Member, in fact, may be of great importance. However, the Panel was mistaken in finding that the classification practice of the United States was not relevant. (original emphasis)

 

The Appellate Body made these statements in the context of an interpretation pursuant to Article 32 of the Vienna Convention, but, as the Panel put it, these statements “confirm the importance of the classification practice of the importing Member whose schedule is being interpreted [but] also indicate …that the classification practice of other WTO Members, including the exporting Member’s practice, may be relevant”. In our view, these statements cannot be read to justify exclusive reliance on the importing Member’s classification practice. Therefore, we fail to see how the Panel’s finding that it was “reasonable to rely upon EC classification practice alone in determining whether or not there is ‘subsequent practice’ that ‘establishes the agreement’ of WTO Members within the meaning of Article 31(3)(b)” can be reconciled with these statements of the Appellate Body in EC — Computer Equipment.

 

T.1.2.11 EC — Chicken Cuts, para. 270
(WT/DS269/AB/R, WT/DS286/AB/R, WT/DS269/AB/R/Corr.1, WT/DS286/AB/R/Corr.1)

 

In our view, as the Panel examined only a subset of salted meat products classifiable under heading 02.10, and it did not examine classification practice with respect to alternative headings such as heading 02.07, it could not draw valid conclusions as to the existence of “subsequent practice” establishing the agreement of the parties within the meaning of Article 31(3)(b) with respect to all salted meat products potentially covered by the tariff commitment under heading 02.10 of the EC Schedule.

 

T.1.2.12 EC — Export Subsidies on Sugar, paras. 166-167
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)

 

A preliminary question for our consideration is what rules apply in interpreting export subsidy commitments specified in a Member’s Schedule under the Agreement on Agriculture. We observe that Article II:7 of the General Agreement on Tariffs and Trade 1994 (the “GATT 1994”) provides that the “Schedules annexed to this Agreement are hereby made an integral part of Part I of this Agreement.” Furthermore, Article 3.1 of the Agreement on Agriculture provides that “export subsidy commitments in Part IV of each Member’s Schedule … are hereby made an integral part of [the] GATT 1994”.

 

The applicable rules for interpreting the provisions of the GATT 1994 are the “customary rules of interpretation of public international law”. The Appellate Body has held that these rules are codified in the Vienna Convention on the Law of Treaties (the “Vienna Convention”). As provisions of a Member’s Schedule are “part of the terms of the treaty”, they are subject to these same rules of treaty interpretation.…

 

T.1.2.13 EC — Bananas III (Article 21.5 — Ecuador II) / EC — Bananas III (Article 21.5 — US), para. 442
(WT/DS27/AB/RW2/ECU, WT/DS27/AB/RW/USA, WT/DS27/AB/RW2/ECU/Corr.1, WT/DS27/AB/RW/USA/Corr.1)

 

The introduction to the Modalities Paper states that it is “being re-issued for the purpose of completing draft Schedules of concession and commitments in the agricultural negotiations and for facilitating the verification process leading to the establishment of formal Schedules to be annexed to the Uruguay Round Protocol”. In our view, this introductory language and the content of the Modalities Paper make clear that it qualifies as “preparatory work of the treaty” within the meaning of Article 32 of the Vienna Convention. The Modalities Paper explicitly states that it “shall not be used as a basis for dispute settlement proceedings”; this means that it does not in itself confer on WTO Members rights and obligations enforceable in dispute settlement. However, this does not preclude reference to the Modalities Paper when interpreting the WTO agreements and Members’ Schedules of Concessions that were prepared in accordance with these modalities. Therefore, we consider that it is not inappropriate to refer to the Modalities Paper as supplementary means of interpretation to confirm our interpretation of the European Communities’ Schedule of Concessions and of the Bananas Framework Agreement.

 

T.1.2.14 China — Auto Parts, para. 149
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)

 

The negotiators of the WTO Agreement used the Harmonized System as the basis for negotiating Members’ Schedules of Concessions, and included express references to the Harmonized System in certain covered agreements for purposes of defining product coverage of those agreements or specific provisions thereof. It follows that the Harmonized System is context for purposes of interpreting the covered agreements, in particular for the classification of products under Schedules of Concessions and for defining the product coverage of certain covered agreements. This is what the Appellate Body found in EC — Chicken Cuts. Yet this does not answer the question of whether the Harmonized System is context that is relevant to the determination of whether a charge is an ordinary customs duty or an internal charge.

 

T.1.2.15 China — Auto Parts, paras. 151-152
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)

 

… for a particular provision, agreement or instrument to serve as relevant context in any given situation, it must not only fall within the scope of the formal boundaries identified in Article 31(2), it must also have some pertinence to the language being interpreted that renders it capable of helping the interpreter to determine the meaning of such language. Because WTO Members’ Schedules of Concessions were constructed using the nomenclature of the Harmonized System, the Harmonized System is apt to shed light on the meaning of terms used in these Schedules. It does not, however, automatically follow that the Harmonized System was context relevant to the interpretative question faced by the Panel in its analysis of the threshold issue in this dispute.

 

… the interpretative task of the Panel was to identify the scope and meaning of Article II:1(b) and Article III:2 of the GATT 1994, including ascertaining the meaning of the term “ordinary customs duties” in order to appreciate the types of charges that can constitute such ordinary customs duties.

 
T.1.3 Relationship between Schedules of concessions and the GATT 1994     back to top

T.1.3.1 EC — Bananas III, paras. 154-155
(WT/DS27/AB/R)

 

The market access concessions for agricultural products that were made in the Uruguay Round of multilateral trade negotiations are set out in Members’ Schedules annexed to the Marrakesh Protocol, and are an integral part of the GATT 1994. By the terms of the Marrakesh Protocol, the Schedules are “Schedules to the GATT 1994”, and Article II:7 of the GATT 1994 provides that “Schedules annexed to this Agreement are hereby made an integral part of Part I of this Agreement”. With respect to concessions contained in the Schedules annexed to the GATT 1947, the panel in United States — Restrictions on Importation of Sugar (“United States — Sugar Headnote”) found that:

 

… Article II permits contracting parties to incorporate into their Schedules acts yielding rights under the General Agreement but not acts diminishing obligations under that Agreement.

 

This principle is equally valid for the market access concessions and commitments for agricultural products contained in the Schedules annexed to the GATT 1994. The ordinary meaning of the term “concessions” suggests that a Member may yield rights and grant benefits, but it cannot diminish its obligations. This interpretation is confirmed by paragraph 3 of the Marrakesh Protocol which provides:

 

The implementation of the concessions and commitments contained in the schedules annexed to this Protocol shall, upon request, be subject to multilateral examination by the Members. This would be without prejudice to the rights and obligations of Members under Agreements in Annex 1A of the WTO Agreement. (emphasis added)

 

The question remains whether the provisions of the Agreement on Agriculture allow market access concessions on agricultural products to deviate from Article XIII of the GATT 1994. The preamble of the Agreement on Agriculture states that it establishes “a basis for initiating a process of reform of trade in agriculture” and that this reform process “should be initiated through the negotiation of commitments on support and protection and through the establishment of strengthened and more operationally effective GATT rules and disciplines”. The relationship between the provisions of the GATT 1994 and of the Agreement on Agriculture is set out in Article 21.1 of the Agreement on Agriculture:

 

The provisions of GATT 1994 and of other Multilateral Trade Agreements in Annex 1A to the WTO Agreement shall apply subject to the provisions of this Agreement.

 

Therefore, the provisions of the GATT 1994, including Article XIII, apply to market-access commitments concerning agricultural products, except to the extent that the Agreement on Agriculture contains specific provisions dealing specifically with the same matter.

 

T.1.3.2 EC — Poultry, para. 98
(WT/DS69/AB/R)

 

… The ordinary meaning of the term “concessions” suggests that a Member may yield or waive some of its own rights and grant benefits to other Members, but that it cannot unilaterally diminish its own obligations…

 

T.1.3.3 EC — Poultry, para. 99
(WT/DS69/AB/R)

 

Therefore, the concessions contained in Schedule LXXX pertaining to the tariff-rate quota for frozen poultry meat must be consistent with Articles I and XIII of the GATT 1994.

 

T.1.3.4 EC — Bananas III (Article 21.5 — Ecuador II) / EC — Bananas III (Article 21.5 — US), paras. 416, 418
(WT/DS27/AB/RW2/ECU, WT/DS27/AB/RW/USA, WT/DS27/AB/RW2/ECU/Corr.1, WT/DS27/AB/RW/USA/Corr.1)

 

While it is unusual that a tariff concession inscribed in a Member’s Schedule would be limited in time, such limitation does not appear to be precluded by the wording of Article II:1(b), which refers to “terms, conditions or qualifications” set forth in a Member’s Schedule.…

 

 

Insofar as a temporal limitation does not diminish obligations or reduce commitments under other provisions of the covered agreements, scheduling a temporal limitation to a tariff concession does not seem incompatible with the findings of the Appellate Body in EC — Bananas III and the GATT panel in US — Sugar.

 

T.1.3.5 EC — Bananas III (Article 21.5 — Ecuador II) / EC — Bananas III (Article 21.5 — US), paras. 422-423
(WT/DS27/AB/RW2/ECU, WT/DS27/AB/RW/USA, WT/DS27/AB/RW2/ECU/Corr.1, WT/DS27/AB/RW/USA/Corr.1)

 

We start by noting that all terms and conditions in the European Communities’ Schedule should be given meaning and effect, regardless of the column in which they are inscribed, or whether they are contained in an annex that is cross-referenced in one of the columns.

 

We observe that the global tariff quota of 2.2 million mt and the in-quota rate of €75/mt bound in columns 3 and 4 of Section I-B are restated in paragraphs 1 and 7 of the Bananas Framework Agreement. In our view, meaning must be given to the fact that the tariff quota quantity and the in-quota rate are inscribed in columns 3 and 4 of the Schedule and restated in paragraphs 1 and 7 of the Bananas Framework Agreement. We are not persuaded by the conclusion that the same concession has been stated twice with the same meaning, first in the Schedule and then in the Bananas Framework Agreement. We consider that the Bananas Framework Agreement performs a different function to that of the Schedule and that the Agreement does not subsume the terms and conditions contained in columns 3 and 4 of the Schedule. It is the “other terms and conditions” in the Bananas Framework Agreement that should be read in the light of the commitments in columns 3 and 4 of the Schedule. The tariff quota quantity and the in-quota rate, which are committed in the Schedule, are restated in paragraphs 1 and 7 of the Bananas Framework Agreement for the purpose of allocating the tariff quota. As such, therefore, paragraphs 1 and 7 of the Bananas Framework Agreement do not establish the tariff quota concession.

 
T.1.4 Relationship between Members’ Schedules and the Agreement on Agriculture.
See also Agreement on Agriculture, Relationship between the Agreement on Agriculture and the GATT 1994 (A.1.37)     back to top

T.1.4.1 EC — Export Subsidies on Sugar, paras. 220-223
(WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R)

 

… we find no provision under the Agreement on Agriculture that authorizes Members to depart, in their Schedules, from their obligations under that Agreement. Indeed, as we have noted, Article 8 requires that, in providing export subsidies, Members must comply with the provisions of both the Agreement on Agriculture and the export subsidy commitments specified in their Schedules. This is possible only if the commitments in the Schedules are in conformity with the provisions of the Agreement on Agriculture. Thus, we see no basis for the European Communities’ assertion that it could depart from the obligations under the Agreement on Agriculture through the claimed commitment provided in Footnote 1.

 

In any event, we note that Article 21 of the Agreement on Agriculture provides that: “[t]he provisions of [the] GATT 1994 and of other Multilateral Trade Agreements in Annex 1A to the WTO Agreement shall apply subject to the provisions of this Agreement.” In other words, Members explicitly recognized that there may be conflicts between the Agreement on Agriculture and the GATT 1994, and explicitly provided, through Article 21, that the Agreement on Agriculture would prevail to the extent of such conflicts. Similarly, the General interpretative note to Annex 1A to the WTO Agreement states that, “[i]n the event of conflict between a provision of the [GATT 1994] and a provision of another agreement in Annex 1A…, the provision of the other agreement shall prevail to the extent of the conflict.” The Agreement on Agriculture is contained in Annex 1A to the WTO Agreement.

 

As we noted above, Footnote 1, being part of the European Communities’ Schedule, is an integral part of the GATT 1994 by virtue of Article 3.1 of the Agreement on Agriculture. Therefore, pursuant to Article 21 of the Agreement on Agriculture, the provisions of the Agreement on Agriculture prevail over Footnote 1…

 

As a separate matter, we note that the European Communities asserts that Footnote 1 was “negotiated” with its partners in the Uruguay Round negotiations and that it has been “respected”. Accordingly, Footnote 1 forms part of the treaty ratified by the WTO Members. Similarly, the ACP Countries allege that Footnote 1 “was negotiated and agreed upon” or acquiesced in by the Complaining Parties before the end of the Uruguay Round. The Panel found, however, that “[t]he evidence and submissions produced by all parties show that the Complainants did not agree to any European Communities’ deviations from the Agreement on Agriculture.” The Panel concluded that “participants in the Uruguay Round and WTO Members did not agree to the European Communities’ inclusion of Footnote 1 as an agreed departure from the European Communities’ basic obligations under the Agreement on Agriculture”. Accordingly, we see no basis in the Panel Reports for the contention of the European Communities and the ACP Countries that the Complaining Parties or the WTO Members negotiated or agreed to Footnote 1 as a departure from the European Communities’ obligations under the Agreement on Agriculture.

 
T.1.5 Modification of Schedules     back to top

T.1.5.1 EC — Bananas III (Article 21.5 — Ecuador II) / EC — Bananas III (Article 21.5 — US), paras. 450-451
(WT/DS27/AB/RW2/ECU, WT/DS27/AB/RW/USA, WT/DS27/AB/RW2/ECU/Corr.1, WT/DS27/AB/RW/USA/Corr.1)

 

We note that Article XXVIII, entitled “Modification of Schedules”, states that a Member “may … modify or withdraw a concession”, without specifying whether “modify” refers only to a reduction in the scope of the concession (such as an increase in the tariff binding). The ordinary meaning of the term “modify” appears to include both the situation in which the scope of a concession is reduced (for example, a tariff increase) and when the scope is expanded (for example, a tariff reduction). In fact, whether the proposed modification actually constitutes a reduction or an expansion of the concession may only become clear in the course of the renegotiations and will determine whether and to what extent the modifying Member owes compensatory adjustment within the meaning of Article XXVIII:2.

 

We also find support for the argument that any modification of the scope of a concession would require initiation of Article XXVIII procedures in the Decision on the Procedures for Modification and Rectification of Schedules of Tariff Concession adopted by the GATT Ministerial Conference on 26 March 1980. These procedures identify two types of changes to the authentic texts of Schedules, which can be adopted by Members by means of certification. The first are “changes in the authentic texts of Schedules annexed to the General Agreement which reflect modifications resulting from action under Article II, Article XVIII, Article XXIV, Article XXVII or Article XXVIII”; the second are “changes in the authentic texts of Schedules … made when amendments or rearrangements which do not alter the scope of a concession are introduced in national customs tariffs in respect of bound items”.

 

209. We are also mindful that such duties and charges are permitted only when their nature and level are recorded in a Member’s Schedule, they do not exceed the level recorded in such Schedule, and they existed on the relevant date specified in the Understanding on Article II:1(b) of the General Agreement on Tariffs and Trade 1994.     back to text


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