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REPERTORY OF APPELLATE BODY REPORTS

Harmonized System


ON THIS PAGE:

Japan — Alcoholic Beverages, II p. 22, DSR 1996:I, p. 97 at 114—115
EC — Computer Equipment, paras. 89—90
EC — Chicken Cuts, para. 195
EC — Chicken Cuts, paras. 197—199
EC — Chicken Cuts, para. 224
EC — Chicken Cuts, para. 230
EC — Chicken Cuts, para. 246
China — Auto Parts, para. 149
China — Auto Parts, paras. 151—152
China — Auto Parts, para. 155
China — Auto Parts, paras. 164, 166


H.1.1 Japan — Alcoholic Beverages II, p. 22, DSR 1996:I, p. 97 at 114-115
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)     back to top

Uniform classification in tariff nomenclatures based on the Harmonized System (the “HS”) was recognized in GATT 1947 practice as providing a useful basis for confirming “likeness” in products. However, there is a major difference between tariff classification nomenclature and tariff bindings or concessions made by Members of the WTO under Article of the GATT 1994. …

 

… tariff bindings that include a wide range of products are not a reliable criterion for determining or confirming product “likeness” under Article III:2.

 
H.1.2 EC — Computer Equipment, paras. 89-90     back to top
(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 …

 
H.1.3 EC — Chicken Cuts, para. 195     back to top
(WT/DS269/AB/R, WT/DS286/AB/R, WT/DS269/AB/R/Corr.1, WT/DS286/AB/R/Corr.1)

The Harmonized System is not, formally, part of the WTO Agreement, as it has not been incorporated, in whole or in part, into that Agreement. Nevertheless, the concept of “context”, under Article 31, is not limited to the treaty text — namely, the WTO Agreement — but may also extend to “any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty”, within the meaning of Article 31(2)(a) of the Vienna Convention, and to “any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty” within the meaning of Article 31(2)(b) of the Vienna Convention. …

 
H.1.4 EC — Chicken Cuts, paras. 197-199     back to top
(WT/DS269/AB/R, WT/DS286/AB/R, WT/DS269/AB/R/Corr.1, WT/DS286/AB/R/Corr.1)

We note that, in 1983, the GATT Contracting Parties took a Decision setting out guidelines and “special procedures” to facilitate the “wide adoption of the Harmonized System”; later, in 1991, they took a Decision on Procedures to Implement Changes in the Harmonized System. The close link between the Harmonized System and the WTO agreements is also clear. A number of WTO agreements that resulted from the Uruguay Round negotiations use the Harmonized System for specific purposes; the Agreement on Rules of Origin (in Article 9), the Agreement on Subsidies and Countervailing Measures (in Article 27), and the Agreement on Textiles and Clothing (in Article 2 and the Annex thereto) refer to the Harmonized System for purposes of defining product coverage of the agreement or the products subject to particular provisions of the agreement.

 

This close link to the Harmonized System is particularly true for agricultural products. Annex 1 to the Agreement on Agriculture, which forms an integral part of that Agreement, defines the product coverage of that Agreement by reference to headings of the Harmonized System, both at the level of whole chapters and at the four-digit level in respect of specific products. Moreover, it is undisputed that the Uruguay Round tariff negotiations for agricultural products were held on the basis of the Harmonized System and that all WTO Members have followed the Harmonized System in their Schedules to the GATT 1994 with respect to agricultural products.

 

The above circumstances confirm that, prior to, during, as well as after the Uruguay Round negotiations, there was broad consensus among the GATT Contracting Parties to use the Harmonized System as the basis for their WTO Schedules, notably with respect to agricultural products. In our view, this consensus constitutes an “agreement” between WTO Members “relating to” the WTO Agreement that was “made in connection with the conclusion of” that Agreement, within the meaning of Article 31(2)(a) of the Vienna Convention. As such, this agreement is “context” under Article 31(2)(a) for the purpose of interpreting the WTO agreements, of which the EC Schedule is an integral part. In this light, we consider that the Harmonized System is relevant for purposes of interpreting tariff commitments in the WTO Members’ Schedules.

 
H.1.5 EC — Chicken Cuts, para. 224     back to top
(WT/DS269/AB/R, WT/DS286/AB/R, WT/DS269/AB/R/Corr.1, WT/DS286/AB/R/Corr.1)

… we agree with Thailand that the Panel incorrectly characterized the Note to Chapter 16 as an “Explanatory Note”, rather than as a “Chapter Note”. We also agree with the general proposition that the Chapter Notes to the Harmonized System, which are binding, may have greater probative value than the Explanatory Notes to the Harmonized System, which are non-binding. However, we do not believe that the inaccurate characterization of the Note “undermin[es]” the Panel’s overall analysis of the Notes to the Harmonized System, as claimed by Thailand. Indeed, Thailand has not explained how the Panel’s analysis would have been different had the Panel correctly characterized the Note at issue as a “Chapter Note”. Nor is it clear to us how the Panel’s conclusion with respect to the term “salted” in heading 02.10 would have changed by assigning greater weight to the Chapter Note to Chapter 16.

 
H.1.6 EC — Chicken Cuts, para. 230     back to top
(WT/DS269/AB/R, WT/DS286/AB/R, WT/DS269/AB/R/Corr.1, WT/DS286/AB/R/Corr.1)

Before the Panel, the question arose as to the permissibility of using the criterion of preservation in Members’ Schedules. In this respect, we note that the [World Customs Organization], in a letter to the Panel, stated that “[w]hen goods are classified in the Harmonized System, it is always done on the basis of the objective characteristics of the product at the time of importation.” We believe, therefore, that it is possible to apply the criterion of “preservation”, provided that is discernible as an objective characteristic at the time of the importation of the product. In this context, we note that there are instances in the Harmonized System where the criterion of “provisional preservation” is used, suggesting that the criterion of “preservation” is not intrinsically objectionable under the Harmonized System. As a result, we are of the view that the Harmonized System does not, in principle, rule out the concept of “preservation” under the term “salted” in heading 02.10. The question whether the tariff commitment in heading 02.10 of the EC Schedule is characterized exclusively by the concept of “preservation” is a separate question which we address below. In that respect, we observe that, within the parameters required by the Harmonized System, Members have certain flexibility to structure and negotiate further specifications in their particular tariff commitments.

 
H.1.7 EC — Chicken Cuts, para. 246     back to top
(WT/DS269/AB/R, WT/DS286/AB/R, WT/DS269/AB/R/Corr.1, WT/DS286/AB/R/Corr.1)

We agree with the Panel that, in characterizing a product for purposes of tariff clas-sification, it is necessary to look exclusively at the “objective characteristics” of the product in question when presented for classification at the border. At the same time, we note that the European Communities provides examples indicating that product descriptions including a criterion of “preservation” may qualify as “objective characteristics” under the Harmonized System. The European Communities considers that, accordingly, the criterion of preservation is not intrinsically uncertain, given its use in other parts of the Harmonized System. In this sense, we consider that the Harmonized System does not preclude the use of a criterion of preservation, as such, provided that the conditions mentioned in paragraph 230 above are met. Therefore, the application of such a criterion would not necessarily be in conflict with the objectives of security and predictability of the WTO Agreement and the GATT 1994 (including Schedules of tariff commitments).

 
H.1.8 China — Auto Parts, para. 149     back to top
(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.

 
H.1.9 China — Auto Parts, paras. 151-152     back to top
(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.

 

If the question before the Panel were whether auto parts could, consistently with China’s Schedule of Concessions, be classified as complete motor vehicles, then the Panel would have been required to interpret the relevant entries in China’s Schedule, and the Harmonized System would have been context relevant to that task. However, this was not the question before the Panel, at least not at this stage of its analysis. Rather, in dealing with the threshold question, 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.

 
H.1.10 China — Auto Parts, para. 155     back to top
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)

… 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.

 
H.1.11 China — Auto Parts, paras. 164, 166     back to top
(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).

 

 

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.

 


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