quotedluxurygoods

iiWorldTradeOrganizationWT/DS54/RWT/DS55/RWT/DS59/RWT/DS64/R2July1998(98-2505)Original:EnglishINDONESIA-CERTAINMEASURESAFFECTINGTHEAUTOMOBILEINDUSTRYREPORTOFTHEPANELThereportofthePanelonIndonesia-CertainMeasuresAffectingtheAutomobileIndustryisbeingcirculatedtoallMembers,pursuanttotheDSU.
Thereportisbeingcirculatedasanunrestricteddocumentfrom2爚JulypursuanttotheProceduresfortheCirculationandDerestrictionofWTODocuments(WT/L/160/Rev.
1).
MembersareremindedthatinaccordancewiththeDSUonlypartiestothedisputemayappealapanelreport.
AnappealshallbelimitedtoissuesoflawcoveredinthePanelreportandlegalinterpretationsdevelopedbythePanel.
ThereshallbenoexpartecommunicationswiththePanelorAppellateBodyconcerningmattersunderconsiderationbythePanelorAppellateBody.
NotebytheSecretariat:ThisPanelReportshallbeadoptedbytheDisputeSettlementBody(DSB)within60daysafterthedateofitscirculationunlessapartytothedisputedecidestoappealortheDSBdecidesbyconsensusnottoadoptthereport.
IfthePanelReportisappealedtotheAppellateBody,itshallnotbeconsideredforadoptionbytheDSBuntilafterthecompletionoftheappeal.
InformationonthecurrentstatusofthePanelReportisavailablefromtheWTOSecretariat.
-xvi--xvii--i-TABLEOFCONTENTSPageI.
INTRODUCTION1A.
Background11.
ComplaintofJapan12.
ComplaintoftheEuropeanCommunities13.
ComplaintoftheUnitedStates2B.
EstablishmentandCompositionofthePanel2C.
Information-GatheringProcedureunderAnnexVoftheSCMAgreement3D.
PanelProceedings3II.
FACTUALASPECTS3A.
TaxandTariffTreatmentinIndonesiaofImportedCompletelyBuilt-UpMotorVehicles4B.
MeasuresatIssue41.
1993Programme4(a)DecreeNo.
114/19935(b)DecreeNo.
645/19936(c)DecreeNo.
647/19937(d)DecreeNo.
223/19957(e)DecreeNo.
36/199792.
NationalCarProgramme9(a)"TheFebruary1996Programme"9(b)"TheJune1996Programme"123.
TheUS$690millionloantoTPN15C.
NotificationsbyIndonesiatoWTOCommittees15III.
FINDINGSANDRECOMMENDATIONSREQUESTEDBYTHEPARTIES15A.
Japan15B.
EuropeanCommunities16C.
UnitedStates18D.
Indonesia19PageIV.
REQUESTFORPRELIMINARYRULINGS19A.
ParticipationofPrivateLawyers191.
ObjectionoftheUnitedStates192.
ResponseofIndonesia20(a)GeneralprinciplesofinternationallawsupportIndonesia'ssovereignrighttoselectcounselofitschoiceandorganizeandpresentitsdefence22(b)PracticebeforeinternationaladjudicatorybodiesconfirmsIndonesia'sright23(c)TheWTOAppellateBodysupportsIndonesia'sright23(d)GATTpastpracticedoesnotandcannotcircumventIndonesia'ssovereignright24(e)PracticalandequitableconsiderationsmandatethatIndonesianotbedenieditsright25B.
PreliminaryobjectiontoUnitedStates'claimregardingtheUS$690millionloantoTPN261.
ObjectionbyIndonesia26(a)First,theloanwasnotraisedinthePanelrequestorthePanel'stermsofreference26(b)Second,theloanaroseafterthePanelwasestablished26(c)Third,theUnitedStatescannot"cure"itsomissionoftheloanfromitsPanelrequestbydiscussingtheloaninitsfirstsubmission272.
ResponseoftheUnitedStates27C.
BusinessProprietaryInformation281.
RequestofIndonesia282.
ResponseoftheUnitedStates29D.
RequestfromIndonesiaforTerminationofthePanelwithRespecttotheNationalCarProgramme301.
RequestfromIndonesia312.
ResponseofJapan32(a)ItisstillnotclearwhethertheNationalCarProgrammehasbeenfullyterminated32(b)TheGovernmentofIndonesiahasnotprovidedanyassurancesthatitwillnotintroducethemeasuresofthesamenatureastheNationalCarProgramme,i.
e.
discriminatorymeasurestobenefitspecificdomesticproducts32Page(c)Evenifmeasuresareeliminated,apanelcanandshouldruleonthem333.
ResponseoftheEuropeanCommunities334.
ResponseoftheUnitedStates34(a)ThemeasuresatissuearewithinthePanel'sTermsofReference35(b)EstablishedGATTandWTOPanelpracticeistomakefindingsonmeasuresthatarewithdrawnsubsequenttotheestablishmentofaPanel'sTermsofReference35(c)Itisnotestablishedthatthemeasureshave,infact,expired36(d)AterminationofthedisputewoulddiminishUSrightsundertheDSU37(e)Conclusion38V.
CLAIMSUNDERARTICLEIIIOFGATT199438A.
ClaimsunderArticleIII:2,FirstSentenceofGATT1994381.
ClaimsraisedbyJapan38(a)ArticleIII:2,firstsentencerequiresthatsalesofimportedproductsnotbetaxedatratesinexcessofratesimposedonlikedomesticproducts39(b)Luxurytaxisaninternaltax39(c)Nationalcarsaredomesticproducts39(d)Nationalcarsandimportedautomobilesare"like"products39(e)Importedproductsaretaxedlessfavourablythan"like"domesticproducts41(f)Insignificantmarketshareforimportedsedansisnotadefence422.
ClaimsraisedbytheEuropeanCommunities42(a)Thesalestaxonluxurygoodsisan"internaltax"43(b)Importedproductsare"like"thedomesticproductsexemptedfromthetax43(c)Importedmotorvehiclesaretaxedin"excessof"domesticlikemotorvehicles46(d)Importedpartsandcomponentsare'indirectly'taxed'inexcessof'likedomesticparts,componentsandmaterials473.
ClaimsraisedbytheUnitedStates48B.
ClaimsunderArticleIII:2,SecondSentenceofGATT1994481.
ClaimsraisedbyJapan48Page(a)NationalCarsandimportedautomobilesare"directlycompetitiveorsubstitutable"products49(b)Nationalcarsandimportedautomobilesarenot"similarlytaxed"49(c)Thetaxexemptionisaccorded"soastoaffordprotection"492.
ClaimsraisedbytheUnitedStates50C.
ClaimsunderArticleIII:4ofGATT1994511.
ClaimsraisedbyJapan51(a)ArticleIII:4ofGATT1994requireseachWTOMembertoguaranteeequalityofcompetitiveopportunitybetweendomesticgoodsandimportedgoods51(b)Importedpartsandcomponentsanddomesticpartsandcomponentsare"like"products52(c)Importedpartsandcomponentsareaccordedlessfavourabletreatmentthandomesticlikeproductsintworespects522.
ClaimsraisedbytheEuropeanCommunities54(a)Themeasuresatissueare"laws,regulationsorrequirements"55(b)Themeasures"affecttheinternaluse"ofpartsandcomponentsfortheassemblyofmotorvehicles56(c)Importedpartsandcomponentsanddomesticpartsandcomponentsare"like"products57(d)Themeasuresatissuegive"lessfavourabletreatment"toimportedpartsandcomponents57(e)LocalcontentrequirementshavealreadybeenfoundcontrarytoArticleIII:4ofGATT57(f)TheTRIMsAgreementconfirmsthatthemeasuresarecompatiblewithArticleIII:4oftheGATT573.
ClaimsraisedbytheUnitedStates58(a)Summaryofthemeasures58(b)Thetariffandtaxincentivesandthegovernment-directed$690millionloanareinconsistentwithArticleIII:463(c)Indonesia'sdiscriminatorytariffandtaxincentivesandthegovernment-directed$690millionloandonotconstituteadirectsubsidytodomesticproducerswithinthemeaningofArticleIII:8(b)65D.
GeneralResponsebyIndonesiatoClaimsunderArticleIIIofGATT1994-SCMAgreementprevails66Page1.
TheSCMAgreementisthelexspecialisforreviewofthe1993and1996subsidyprogrammes,whichIndonesia,asadevelopingcountry,ispermittedtomaintain67(a)The1993incentiveprogrammegrantsanexemptionfromorreductionsinimportdutiesandtheluxurytaxavailabletoallcompaniesintheautomotiveindustry68(b)TheFebruary1996NationalCarProgrammegrantsimportdutiesandluxurytaxexemptionstoproducersofaNationalCar68(c)TheGovernment'sgrantofexemptionsandreductionstoimportdutiesandtheluxurytaxtocertainmanufacturersandassemblersofautomobilesandautomotivepartsisasubsidy69(d)Article27.
3oftheSCMAgreementpermitsIndonesia,asadevelopingcountry,tomaintainthesubsidiesgrantedunderthe1993andFebruary1996programmes69(e)IntroductionoftheFebruary1996subsidyprogrammewasnotinconsistentwithIndonesia'sobligationsundertheSCMAgreement702.
Indonesia'sluxurytaxsubsidiestotheautomotiveindustryaregovernedbythedisciplinesoftheSCMAgreementandnotbyArticleIIIoftheGATT199470(a)Boththe1993incentiveprogrammeandtheFebruary1996NationalCarProgrammesubsidizecertainautomobileproducersbygrantingreducedluxurytax70(b)SubsidiesaregovernedbyandsubjecttothedisciplinesoftheSCMAgreement70(c)GeneralrulesoftreatyinterpretationprecludefindingthatasubsidypermissibleundertheSCMAgreementisproscribedbyArticleIIIoftheGATT199472(d)TheproperinterpretationofArticleIII:8(b)oftheGATT1994supportstheviewthatArticleIIIdoesnotoverridetheSCMAgreement73(e)InaconflictbetweentheSCMAgreementandArticleIIIoftheGATT1994,theSCMAgreementprevails76(f)TheSCMAgreementdefinessubsidiesandsetsoutalloftherightsandobligationspertainingtothem77(g)Thedefinitionof"subsidy"intheSCMAgreementisall-encompassing,contrarytotheUnitedStatesassertion77(h)ArticleVI:5oftheGATT1994isirrelevantandservestolimitaComplainant'sunilateralremedy77(i)TheUnitedStates'interpretationofArticle32.
1,footnote56,oftheSCMAgreementisflawed78(j)Indonesia'sright,asadevelopingcountry,tomaintaindomestic-contentsubsidiesissubjectonlytoIndonesia'sobligationnottocauseseriousprejudicetoalikeproduct79Page(k)TheapplicationtothisdisputeofArticleIIIoftheGATT1994,ascomplainantsadvocate,wouldrendertheSCMAgreementmeaningless79(l)Conversely,Indonesia'sinterpretationdoesnotrenderArticleIIIuseless,ascomplainantsmaintain,butconfinesitappropriately80(m)Complainants'assertionthattheSCMAgreementcannotbelexspecialisbecause,ifitwere,generallyavailableandArticle8subsidieswouldnotbeconstrained,isincorrect82(n)EveniftheUnitedStatesexamplewererelevant,thepointtheUnitedStatesseekstoadvanceisincorrectasamatteroflaw-theSCMAgreementaddressesgenerallyavailableandotherArticle882(o)Japan'sandtheUnitedStates'claimsthatIndonesia'smeasuresviolateArticleIII:2,secondsentenceareincorrect83(p)Japan'sviewthatIndonesia'sargumentrenderstheGeneralInterpretativeNotemeaninglessisincorrect83(q)Partsandcomponentsarenot"indirectly"taxedinexcessoflikedomesticgoods83E.
RebuttalstoIndonesia'sGeneralResponsetotheClaimsRaisedunderArticleIIIofGATT1994831.
RebuttalargumentsofJapan83(a)Indonesia'slexspecialisargumentdoesnothaveanymerit84(b)TheSCMAgreementwouldnotbereducedtoinutilitybyArticleIII:2ofGATT86(c)GATTArticleIIIdoesnot"conflict"withtheSCMAgreement87(d)GATTArticleIII:8(b)hasneverexcusedtaxdiscriminationandshouldnotbe"re-thought"toexcuseitnow902.
RebuttalargumentsoftheEuropeanCommunities92(a)GATTArticleIIIandtheSCMAgreementarenotmutuallyexclusive92(b)ThereisnoconflictbetweenGATTArticleIIIandtheSCMAgreement1013.
RebuttalargumentsoftheUnitedStates104(a)Thetariffandtaxincentivesunderthe1993ProgrammeandtheNationalCarProgrammeviolateArticleIIIofGATT1994104Page(b)Indonesia'sargumentthattheSCMAgreementoverridesArticleIIIisunsupportedbythetextoftheSCMAgreementandGATT1994,wouldresultintheeffectiverepealofArticleIII:2,andisinconsistentwiththenegotiatinghistoryoftheUruguayRound,establishedprinciplesofpublicinternationallaw,andWTOjurisprudence105(c)Thetaxincentivesunderthe1993ProgrammeandtheNationalCarProgrammearenotprotectedbyArticleIII:8(b)ofGATT1994118F.
AdditionalArgumentsRegardingtheClaimsunderArticleIII:4ofGATT1994PertainingtotheTariffMeasures1191.
SpecificresponsebyIndonesia119(a)ThecustomsimportdutiesschedulesforautomotivecompaniesusingdifferinglevelsofdomesticcontentareconsistentwithArticleIII:4ofGATT1994becausetheschedulesarebordermeasureswhicharenotsubjecttoArticleIII:4ofGATT1994andaresubsidiesIndonesiaispermittedtomaintain119(b)Indonesia'scustomsimportdutiessubsidydoesnotinvolvea"requirement"necessaryto"secureanadvantage"withinthescopeofArticleIII:4ofGATT19941202.
RebuttalofJapantoargumentsofIndonesia121(a)TheFebruary1996programmeviolatesGATTArticleIII:4122(b)Indonesia's"bordermeasure"defencehasnomerit122(c)Indonesia's"voluntarymeasure"defencehasnomerit1243.
RebuttaloftheEuropeanCommunitiestoargumentsofIndonesia1254.
RebuttalofUnitedStatestoargumentsofIndonesia126VI.
CLAIMSUNDERTHETRIMSAGREEMENT127A.
ClaimsRaisedbyJapan1271.
Indonesia'sProgrammesare"TRIMS"asdefinedintheTRIMSAgreement1282.
EvenifIndonesia'smeasuresweredeemedtoconstituteasubsidy,itisnonethelessalsoaTRIM1293.
Indonesiacannotenjoythebenefitofthetransitionalperiod129B.
ClaimsRaisedbytheEuropeanCommunities129C.
ClaimsRaisedbytheUnitedStates131D.
ResponsebyIndonesiatoclaimsundertheTRIMsAgreement1331.
Summary133Page2.
TheTRIMS"IllustrativeList"cannotalterthefactthatArticleIIIisinapplicable1333.
SubsidiesaregovernedbytheSubsidiesAgreementandarenotwithinthescopeoftheTRIMSAgreement1344.
CustomsimportdutysubsidiesarenotwithinthescopeoftheTRIMSAgreement1355.
IndonesiahasnotviolatedtheTRIMSAgreement:TheTRIMSAgreementdoesnotapply-itaddsnonewobligations,butmerelyputsaglossonArticleIIIofGATT1994135(a)TheTRIMSAgreement,unliketheSCMAgreement,isnotlexspecialis;itneitherdefines"TRIM"norsetsforthspecialremedies135(b)TheTRIMSAgreementdoesnotestablisha"newbalanceofrightsandobligations";rather,itmerelyelaboratesontheFIRAPanel'sdecisionregardingthecoverageofArticleIIIofGATT1366.
JapanisinError:theGovernmentmostcertainlydoesnotviewtheNationalCarProgrammeasaninvestmentprogramme1367.
Theunderlyingdecree,rulesandregulations,andIndonesia'sstatementstotheCommitteeonTRIMSestablishthattheNationalCarProgrammedoesnotinvolveaTRIM1378.
Themeasuresarenotinvestmentmeasuresbutsubsidiesgrantedtoanautomakertousedomesticpartsandcomponents1389.
ThemeasuresarenotTRIMSthatviolateArticleIII:2ofGATT199413910.
TheTRIMSAgreementisnotlexspecialistoanydispute139E.
ArgumentsmadeinrebuttaltoIndonesia'sresponsestotheclaimsundertheTRIMsAgreement1391.
RebuttalargumentsmadebyJapan139(a)TheFebruary1996ProgrammeviolatesTRIMSArticle2.
1139(b)TheSCMAgreementdoesnotexcuseIndonesia'sviolationsoftheTRIMSAgreement140(c)IncentivemeasuresarecoveredbytheTRIMSAgreement142(d)Indonesia'sargumentswouldrenderpartsoftheTRIMSAgreementvirtuallymeaningless1432.
RebuttalargumentsmadebytheEuropeanCommunities143(a)ThemeasuresatissueinfringeGATTArticleIIIandarethereforecontrarytoArticle2.
1oftheTRIMSAgreement144(b)Article2.
1oftheTRIMSAgreementlaysdownalegallydistinctobligation144Page(c)Evenifitwasfoundthatthereisa"conflict"betweenGATTArticleIIIandtheSCMAgreement,thatconflictwouldnotprecludeaviolationofArticle2oftheTRIMSAgreement144(d)TheTRIMSAgreementmayapplytosubsidies1453.
RebuttalargumentsmadebytheUnitedStates145(a)Thetariffandtaxincentivesunderthe1993ProgrammeandtheNationalCarProgrammeareinconsistentwithArticle2oftheTRIMSAgreement145(b)TheIndonesianmeasuresare"traderelatedmeasures"147(c)TheTRIMSAgreementimposedanewobligationonIndonesia147(d)ThenotionoflexspecialisisirrelevantinthiscasewithrespecttotherelationshipbetweenArticleIIIandtheTRIMSAgreement147VII.
ARTICLEI:1CLAIMS149A.
ClaimsRaisedbyJapan1491.
TheNationalCarProgrammeofFebruary1996149(a)ArticleI:1ofGATT1994requiresimmediateandunconditionalMFNtreatmentforimportedpartsandcomponents149(b)TheNationalCarProgrammeofFebruary1996inpracticegrantsbenefitsonlytoautomotivepartsandcomponentsimportedortobeimportedfromKoreainviolationofArticleI:1oftheGATT1994150(c)ThefactthatIndonesia'slegislationdoesnotexplicitlydiscriminateinfavourofKoreanproductscannotbeadefence152(d)ThefactthatonlyacertainportionofproductsfromKoreaaregrantedpreferentialtreatmentcannotbeadefenceeither1522.
TheExtendedNationalCarProgrammeofJune1996153(a)IndonesiagrantedbenefitssolelytoimportsofCBUsfromKorea(i.
e.
NationalCarsassembledattheKiafactoryinKorea)inviolationofArticleI:1ofGATT1994153(b)Thefactthatthepreviousauthorizationhasexpiredcannotbeadefence154B.
ClaimsRaisedbytheEuropeanCommunities1551.
MeasuresconcerningtheimportationofNationalCars155(a)Themeasuresprovide"advantages"coveredbyArticleI:1ofGATT155Page(b)Thecarscoveredbythemeasuresare"like"othercars156(c)ThemeasuresbenefitonlyandexclusivelyimportsofKiacarsoriginatinginKorea1562.
MeasuresconcerningtheassemblyofNationalCarsinIndonesia158(a)Themeasuresprovide"advantages"coveredbyArticleI:1ofGATT158(b)PartsandcomponentsmadeinSouthKoreaare"like"otherpartsandcomponents158(c)Themeasureswillbenefitmainly,ifnotexclusively,importsofpartsandcomponentsfromSouthKorea159C.
ClaimsRaisedbytheUnitedStates159D.
Indonesia'sresponsetotheclaimsraisedunderArticleI:1ofGATT19941611.
TheJune1996Programmeexpired30June1997,sotherecanbenopresentviolationofArticleIofGATT1994161(a)ThelegalauthorityfortheJune1996Programmeexpiredon30June1997161(b)Becausetheprogrammeandtheauthorityunderwhichitwasgrantedhaveterminated,thereisnobasisforanaffirmativedeterminationbythePanel162(c)PriorPaneldecisionssupporttherefusaltoruleonanexpiredmeasure1622.
IndonesiahasnotviolatedArticleIofGATT1994becauseitdidnotgrantanadvantagetoautomobilesorpartsoriginatinginonecountrythatitdidnotaccordtolikeproductsoriginatinginothercountries163(a)Indonesiadidnotgrantanadvantagetoautomobilesorpartsoriginatinginonecountry163(b)ThatTPNmadeacommercialdecision,withoutgovernmentinvolvement,toenterintoacommercialrelationshipwithaparticularcompanydoesnotconstituteadefactoviolationofArticleI163(c)TheTimorS515andcomponentsandpartsimportedforitarenot"like"anypassengervehicles,componentsorpartsimportedfromtheterritoriesofcomplainants1643.
TheJune1996Programmewasasubsidythatexpiredand,therefore,thereisnoviolationofArticleIofGATT1994165(a)TheJune1996Programmehasexpiredandwillnotberenewed165(b)AstounsoldTimors,thefactthattheluxurytaxisnotforgoneuntilsaleisaSubsidiesAgreementissue,notanArticleIissue165Page(c)EvenifthePanelfindsthatArticleIdoesapply,TPN,andnotKia,wasthebeneficiaryoftheimportdutyexemption,theprogrammewasnotcountry-specificandcomplainantsimportnolikeproduct,soArticleIwasnoviolated166E.
RebuttalstoIndonesia'sresponse1671.
RebuttalargumentsmadebyJapan167(a)Indonesia'sactionsinstructuring,adopting,andexpandingtheNationalCarProgrammeensuresthatKoreanproductsreceivetaxandtariffbenefitsdeniedtoJapaneseproductsand,thus,constitutetheviolationofGATTArticleI168(b)Indonesia'sbizarreassertionthatnogoodsarelikeTimororpartsandcomponentsforTimorsissimplywrong171(c)TheJune1996Programmeisstillinfullforceandeffect1742.
RebuttalargumentsmadebytheEuropeanCommunities176(a)ThefactthattheauthorizationgrantedtoPTTPNexpiredinJune1997doesnotpreventthePanelfromrulingonthecompatibilityofthatmeasurewithArticleI:1177(b)ItisirrelevantthattheIndonesianGovernmentdidnotmandateexpresslyPTTPNtoimportautomobilesorpartsoriginatinginKorea179(c)Theautomobilesandpartscoveredbythemeasuresarelikeanyotherautomobilesandparts1803.
RebuttalargumentsoftheUnitedStates181(a)Theone-yearexemptionisnota"deadmeasure"181(b)Indonesiaconferredanadvantagetoacountry182(c)ThepassengercarsinquestionarelikeproductstotheKiaSepiaSedan183VIII.
CLAIMSUNDERTHESCMAGREEMENT183A.
ExistenceofSpecificSubsidies1841.
Themeasuresatissuearesubsidies184(a)ArgumentsoftheEuropeanCommunities184(b)ArgumentsoftheUnitedStates185(c)ArgumentsofIndonesia1862.
Themeasuresatissuearespecific186(a)ArgumentsoftheEuropeanCommunities186(b)ArgumentsoftheUnitedStates187(c)ArgumentsofIndonesia190Page3.
Indonesia'sargumentsthatthemeasuresarespecificsubsidies190B.
SeriousPrejudiceClaims1901.
Summaryofclaims1902.
BasisforseriousprejudiceasacauseofactionagainstIndonesiaasadevelopingcountry191(a)ArgumentsoftheEuropeanCommunities191(b)ArgumentsoftheUnitedStates198(c)ArgumentsofIndonesiaregardingseriousprejudiceasacauseofactioninthisdispute2113.
Likeproduct212(a)Scopeof"like"models212(1)ArgumentsoftheEuropeanCommunities212(2)ArgumentsoftheUnitedStates217(3)Indonesia'sarguments228(b)CKDsas"like"finishedTimors238(1)ArgumentsoftheEuropeanCommunities239(2)ArgumentsoftheUnitedStates241(3)ArgumentsofIndonesia241(c)"Imports"from/"exports"bycomplainant242(1)ArgumentsoftheUnitedStates242(2)ArgumentsofIndonesia2434.
Article6.
3(a)oftheSCMAgreement-displacement/impedanceofimports244(a)ArgumentsoftheEuropeanCommunities244(b)ArgumentsoftheUnitedStates249(c)ResponsebyIndonesia2695.
Article6.
3(c)oftheSCMAgreement-Priceundercutting277(a)ArgumentsoftheEuropeanCommunity277(b)ArgumentsoftheUnitedStates280(c)ResponsesbyIndonesia2816.
Adjustmentsforfactorsaffectingpricecomparability282(a)ArgumentsofIndonesia282(b)ArgumentsoftheEuropeanCommunities282(c)ArgumentsoftheUnitedStates2857.
AdditionalECrebuttalstoIndonesia'sresponsestoseriousprejudiceclaims2868.
AdditionalUnitedStatesargumentsconcerningseriousprejudice-thegovernment-directed$690millionloan290Page9.
ClaimsofthreatofseriousprejudiceundertheSCMAgreement290(a)ClaimoftheEuropeanCommunities290(b)ClaimoftheUnitedStates290(c)ResponsebyIndonesia292C.
ClaimunderArticle28oftheSCMAgreement2961.
ClaimsraisedbytheUnitedStates2962.
ResponseofIndonesia299(a)IndonesiaissubjecttoArticle27.
3299(b)Article27.
3doesnotprecludetheintroductionorexpansionofdomesticcontentsubsidies299(c)ThedomesticcontentsubsidyisnotwithinthescopeofArticle27.
4becauseitisnotan"export"subsidyandIndonesiaisanAnnexVIIdevelopingcountry300(d)ThedomesticcontentsubsidyisnotwithinthescopeofArticle28.
2becauseitisnotinconsistentwiththeSCMAgreement300IX.
ARTICLEXCLAIMS301A.
ClaimsunderArticleX:3(a)ofGATT19943011.
ClaimsraisedbyJapan301(a)ArticleX:3(a)oftheGATT1994requiresuniform,impartialandreasonableadministrationofregulations301(b)IndonesiagrantedbenefitstoautomobilesimportedbyPTTimorinviolationofArticleX:3(a)ofGATT19943022.
ResponseofIndonesia302(a)Japan'scontentionthattheprovisionof"PioneerStatus"toTPNviolatedArticleX:3(a)ofGATT1994isincorrect302(b)IndonesiahascompliedfullywiththeletterandthespiritofArticleX,which,inanycase,doesnotestablishsubstantiveobligations303(c)TheGovernmentofIndonesiadidnotestablishtheNationalCarProgrammeforthesolebenefitofTPN304(d)TheGovernmentofIndonesiaisaddressingproperlytheissueofwhetherTPNhascompliedwiththerelevantdecrees:inanycase,thisisamatterofinternalenforcementofIndonesianlaw,notofcompliancewithArticleXofGATT19943043.
RebuttalargumentsmadebyJapan304PageB.
ClaimsunderArticleX:1ofGATT19943051.
ClaimsraisedbyJapan3052.
Indonesia'sresponsetotheclaimunderArticleX:13073.
RebuttalargumentsmadebyJapan307X.
ADDITIONALARGUMENTSREGARDINGWHETHERTHEJUNE1996PROGRAMMEISANEXPIREDMEASURE,ANDTHEIMPLICATIONSIFSO309A.
ArgumentsofIndonesia309B.
ArgumentsoftheUnitedStates310XI.
CLAIMSRAISEDUNDERTHETRIPsAGREEMENT311A.
ClaimsraisedbytheUnitedStates311B.
ResponsebyIndonesiatotheclaimsraised3131.
ThebrandnamerequirementisconsistentwiththenationaltreatmentobligationofArticle3oftheTRIPSAgreement3132.
ThebrandnamerequirementisconsistentwiththeobligationsofArticle20oftheTRIPSAgreement3133.
Article65exemptsIndonesiafromcertainprovisionsoftheTRIPSAgreement3144.
AUScarcompanywouldnothavebeenprecludedfrombeingaNationalCarproducer315C.
RebuttalargumentsmadebytheUnitedStates315XII.
THIRDPARTYARGUMENTS318A.
India318B.
Korea3181.
Preliminaryjurisdictionalissue3202.
Substantiveissues321XIII.
INTERIMREVIEW322XIV.
FINDINGS323A.
PreliminaryRulings3231.
Presenceofprivatelawyersasrepresentativesofapartytothedispute3232.
TheallegedloantoPTTPNasameasurecoveredbythetermsofreferenceofthispanel3243.
Businessproprietaryinformation3244.
WhethertheNationalCarprogrammehasexpiredandshouldthereforenotbeexaminedbythispanel325PageB.
Claims3261.
Claimsofthecomplainants3262.
Indonesia'sgeneraldefence328C.
IstheSCMAgreementtheonly"ApplicableLaw"tothisDispute3291.
Generalconsiderations3292.
IsthereageneralconflictbetweentheSCMAgreementandArticle爚IIIofGATT3303.
WouldtheapplicationofArticleIIIofGATTtothisdisputereducetheSCMAgreementto"inutility"3324.
ArticleIII:8(b)ofGATT3335.
IstheTRIMSAgreementapplicabletothisdispute3346.
Conclusion335D.
ClaimsofLocalContentRequirements3351.
TherelationshipbetweentheTRIMSAgreementandArticleIIIofGATT3433362.
TheapplicationoftheTRIMSAgreement337(a)AretheIndonesianmeasures"investmentmeasures"339(b)AretheIndonesianmeasures"trade-related"342(c)IllustrativeListoftheTRIMsAgreement3423.
ArticleIII:4ofGATT345E.
ClaimsofTaxDiscrimination3461.
IsthereaconflictbetweentheprovisionsoftheSCMAgreementandArticleIII:2ofGATT3462.
ArticleIII:2ofGATT347(a)ArticleIII:2,firstsentence348(b)ArticleIII:2,secondsentence3513.
ArticleIII:8(b)ofGATT352F.
ClaimsofMFNDiscrimination3531.
GeneraldefencesofIndonesia354(a)IstheSCMAgreementtheonlyagreementapplicabletothisdisputeattheexclusionofArticle爚IofGATT354(b)AretheClaimsRelatedtotheJune1996CarProgrammeMoot354Page2.
CriteriaforanArticleIofGATTviolation355(a)ArethetaxandcustomsdutybenefitsoftheFebruaryandJune1996carprogrammesadvantagesofthetypescoveredbyArticleI355(b)Aretheseadvantagesoffered"unconditionally"toall"likeproducts"356(i)"likeproducts"356(ii)"unconditionaladvantages"356G.
ClaimsofInadequatePublicationandPartialAdministration358H.
ClaimsofSeriousPrejudiceunderPartIIIoftheSCM爚Agreement3581.
Arethemeasuresspecificsubsidies3592.
MaythecomplainantsbringaseriousprejudiceclaimagainstIndonesia3603.
Likeproductanalysis361(a)TypesofCars362(b)TreatmentofCarsImportedUnassembled362(c)ProductsNotOriginatinginaComplainingMember3624.
ShouldthePanelconsidertheeffectsofsubsidiesprovidedpursuanttotheJune1996CarProgramme3745.
DisplacementandImpedance375(a)MarketShareData375(i)RelevanceofArticle6.
4375(ii)ActualSalesandMarketShareData376(b)Non-introductionofNewModels382(i)EC-OriginModels382(ii)US-OriginModels384(iii)Assessment385(c)Conclusion3866.
PriceUndercutting386(a)UnitedStates386(b)EuropeanCommunities3877.
ThreatofSeriousPrejudice392I.
ClaimsunderArticle28oftheSCMAgreement392J.
ClaimsundertheTRIPSAgreement3941.
Article爚3394Page(a)Acquisitionoftrademarks395(b)Maintenanceoftrademarks395(c)UseoftrademarksasspecificallyaddressedinArticle爚203962.
Article65.
5inConjunctionwithArticle爚20397XV.
CONCLUSIONSANDRECOMMENDATION397WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage4WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage3I.
INTRODUCTIONA.
Background1.
ComplaintofJapan1.
1On4October1996,JapanrequestedconsultationswithIndonesiapursuanttoArticle4oftheUnderstandingonRulesandProceduresGoverningtheSettlementofDisputes("DSU"),ArticleXXII:1oftheGeneralAgreementonTariffsandTrade1994("GATT1994")andArticle8oftheAgreementonTrade-RelatedInvestmentMeasures(the"TRIMsAgreement")regardingcertainmeasuresaffectingtheautomotiveindustryofIndonesia(WT/DS55/1).
1.
2On29November1996,JapanrequestedadditionalconsultationswithIndonesiaregardingtheNationalCarProgrammeunderArticles1and4oftheDSU,ArticleXXII:1ofGATT1994andArticles爚7and30oftheAgreementonSubsidiesandCountervailingMeasures(the"SCMAgreement")(WT/DS64/1).
1.
3On5Novemberand3December1996,JapanandIndonesiaheldtheconsultationsrequestedon4October1996.
On3December1996,alsoinGeneva,JapanandIndonesiaheldtheconsultationsrequestedon29November1996.
Nomutuallysatisfactorysolutionwasreached.
1.
4On17April1997,Japanrequestedtheestablishmentofapanel,pursuanttoArticles爚4.
7and6.
1oftheDSU,ArticleXXIII:2ofGATT1994,Article8oftheTRIMsAgreement,andArticle30oftheSCMAgreement.
JapanrequestedthepaneltoexaminetheconsistencyofvariousmeasuresundertheNationalCarProgrammewithArticlesI:1,III:2,III:4,X:1andX:3(a)ofGATT1994,Article爚2oftheTRIMSAgreement,andArticles3.
1(b)and28.
2oftheSCMAgreement.
2.
ComplaintoftheEuropeanCommunities1.
5On3October1996,theEuropeanCommunitiesrequestedconsultationswithIndonesiapursuanttoArticle4oftheDSU,ArticleXXIIofGATT1994,Article8oftheTRIMsAgreementandArticles爚7and30oftheSCMAgreement,withrespecttocertainmeasuresaffectingtheautomobileindustry(WT/DS54/1).
1.
6TheEuropeanCommunitiesandIndonesiaheldconsultationson6November爚1996andon5爚December1996.
Nomutuallysatisfactorysolutionwasreached.
1.
7On12May1997,theEuropeanCommunitiesrequestedtheestablishmentofapanelpursuanttoArticleXXIII:2ofGATT,Article6oftheDSU,Article8oftheTRIMsAgreement(totheextentthatitincorporatesbyreferenceArticleXXIIIofGATT)andArticles7.
4and30oftheSCMAgreement(totheextentthatArticle30incorporatesbyreferenceArticleXXIIIofGATT).
TheEuropeanCommunitiesrequestedthepaneltoexaminetheconsistencyofthemeasuresidentifiedwithArticles爚I:1,III:2andIII:4ofGATT1994,andArticle2oftheTRIMSAgreement.
TheEuropeanCommunitiesalsorequestedthepaneltoexamineitscomplaintthatthemeasuresidentifiedconstitute"specificsubsidies"withinthemeaningofArticles1and2oftheSCMAgreementwhichcause"seriousprejudice"totheCommunity'sinterestinthesenseofArticle6ofthatAgreement.
1.
8TheEuropeanCommunitiesalsorequested,inconjunctionwithitsrequestforestablishmentofapanel,thattheDisputeSettlementBodyinitiatetheprocedureprovidedinAnnexVoftheSCMAgreementpursuanttopoint2ofthatAnnex.
3.
ComplaintoftheUnitedStates1.
9On8October1996,theUnitedStatesrequestedconsultationswithIndonesiapursuanttoArticles爚1and4oftheDSU,ArticleXXII:1ofGATT1994,Article爚8oftheTRIMsAgreement(totheextentitincorporatesbyreferenceArticleXXIIoftheGATT1994),Articles7and30oftheSCMAgreement(totheextentArticle30incorporatesbyreferenceArticleXXIIoftheGATT1994),andArticle64oftheTRIPSAgreement(totheextentitincorporatesbyreferenceArticle爚XXIIoftheGATT1994)regardingcertainmeasuresaffectingtradeandinvestmentinthemotorvehiclesector(WT/DS59/1).
1.
10TheUnitedStatesandIndonesiaheldconsultationson4November1996and4December1996,butfailedtoreachamutuallysatisfactorysolution.
1.
11On12June1997,theUnitedStatesrequestedtheestablishmentofapanelpursuanttoArticle爚6oftheDSU,ArticleXXIII:2oftheGATT1994,Article8oftheTRIMsAgreement(totheextentitincorporatesbyreferenceArticleXXIIIoftheGATT1994),Articles7.
4and30oftheSCMAgreement(totheextentArticle30incorporatesbyreferenceArticleXXIIIoftheGATT1994),andArticle64oftheTRIPSAgreement(totheextentitincorporatesArticleXXIIIoftheGATT1994).
TheUnitedStatesrequestedthepaneltoexaminetheconsistencyofthemeasuresidentifiedwithArticles爚I:1,III:2,III:4andIII:7ofGATT1994,Articles3,20,and65oftheTRIPsAgreement,Article28.
2oftheSCMAgreement,andArticle2oftheTRIMSAgreement.
TheUnited爚Statesalsorequestedthepaneltoexamineitscomplaintthatthemeasuresidentifiedconstitute"specificsubsidies"withinthemeaningofArticles1and2oftheSCMAgreementwhichcause"seriousprejudice"totheUnitedStates'interestinthesenseofArticle6and27ofthatAgreement.
1.
12TheUnitedStatesalsorequested,inconjunctionwithitsrequestforestablishmentofapanel,thattheDisputeSettlementBodyinitiatetheprocedureprovidedinAnnexVoftheSCMAgreementpursuanttopoint2ofthatAnnex.
TheUnitedStatesnotedthatthisprocedurehadalreadybeeninvokedinthecontextoftheEuropeanCommunities'parallelrequestforestablishmentofapanel,andrequestedthattheinformation-gatheringprocessontheUnitedStatesandEuropeanCommunitiesclaimsbecombinedintoasingleexercise.
B.
EstablishmentandCompositionofthePanel1.
13Atitsmeetingon12June1997,theDSBestablishedapanelpursuanttorequestsbyJapanandtheEuropeanCommunities(WT/DS55/6-WT/DS64/4,andWT/DS54/6,respectively).
Atitsmeetingof30爚July爚1997,theDSBagreedtotheUnitedStates'requestforestablishmentofapanel(WT/DS59/6),andalsoagreed,asprovidedforinArticle9oftheDSUinrespectofmultiplecomplainants,thatthePanelestablishedon12June1997toexaminethecomplaintsbyJapanandtheEuropeanCommunitieswouldalsoexaminetheUnitedStates'complaint.
1.
14ThetermsofreferenceofthePanelarethefollowing:"Toexamine,inthelightoftherelevantprovisionsofthecoveredagreementscitedbyJapanindocumentWT/DS55/6-WT/DS64/4,bytheEuropeanCommunitiesindocumentWT/DS54/6,andbytheUnitedStatesindocumentWT/DS59/6,thematterreferredtotheDSBbyJapan,theEuropeanCommunitiesandtheUnitedStatesinthosedocumentsandtomakesuchfindingsaswillassisttheDSBinmakingtherecommendationsoringivingtherulingsprovidedforinthoseagreements".
1.
15PursuanttoajointrequestbyJapanandtheEuropeanCommunities,andasprovidedforinparagraph7ofArticle8oftheDSU,on29July1997theDirector-GeneralcomposedthePanelasfollows:Chairman:Mr.
MohamedMaamounAbdelFattahMembers:Mr.
OleLundbyMr.
DavidJohnWalker1.
16IndiaandKoreareservedtheirrightsasthirdpartiestothedispute.
C.
Information-GatheringProcedureunderAnnex爚VoftheSCMAgreement1.
17Atitsmeetingof12June1997,theDSBagreedtotheEuropeanCommunities'requestfortheinitiationoftheAnnex爚Vprocedure,andpursuanttoparagraph爚4ofAnnex爚V,designatedMr.
爚Stuart爚Harbinsonasitsrepresentativeforpurposesofthatprocedure.
1.
18The60-dayperiodfortheinformation-gatheringprocedureprovidedforinAnnexVtotheSCMAgreementwithrespecttotheEuropeanCommunities'complaintbeganonthedateofestablishmentofthePaneltoheartheEuropeanCommunities'andJapan'sclaims,12June1997,andendedon11爚August1997.
1.
19TheUnitedStatesalsoinvokedthe60-dayinformation-gatheringprocedureprovidedforinAnnexVtotheSCMAgreement.
BecausetheUnitedStatesjoinedthedisputeasapartyonlyon30爚July1997,the60-dayperiodrelatedtoitsclaimswasaseparate,laterperiod,whichended22爚September1997.
AllpartiesagreedthatfirstsubmissionsbycomplainantsshouldbeduefourweeksaftertheendofthesecondphaseoftheAnnex爚Vprocedure(relatedtotheUnitedStates'claims),sothatallinformationdevelopedthroughthatprocedurecouldbeusedinthepreparationofthefirstsubmissions.
Thispostponementofthedeadlineforfirstsubmissions,totakeaccountofbothphasesoftheAnnexVprocedure,necessitatedanequalpostponementoftherestofthePanel'stimetable.
D.
PanelProceedings1.
20ThePanelmetwiththepartieson3/4December1997andon13/15January1998.
ThePanelmetwiththethirdpartieson4December1997.
1.
21On11December1997,theChairmanofthePanelinformedtheDSBthatthePanelwouldnotbeabletoissueitsreportwithinsixmonthsofthecompositionandestablishmentofthetermsofreferenceofthePanel.
ThereasonsforthedelayarethepostponementofthescheduleduetotheAnnex爚Vprocedure,asdiscussedaboveandsetforthinWT/DS55/9-WT/DS64/7-WT/DS54/9-WT/DS59/8.
II.
FACTUALASPECTS2.
1ThisdisputeconcernsaseriesofmeasuresmaintainedbyIndonesiawithrespecttomotorvehiclesandpartsandcomponentsthereof.
ThefollowingisasummaryofthefactualinformationpresentedtothePanel,withrespecttothetaxandtarifftreatmentofimportedmotorvehiclesandpartsandcomponentsthereof,andwithrespecttothemeasuresatissue.
A.
TaxandTariffTreatmentinIndonesiaofImportedCompletelyBuilt-UpMotorVehicles2.
2CompletelyBuilt-Upmotorvehicles("CBUs")importedintoIndonesiaaresubjecttoluxurytaxassetforthinTable10below,aswellastoimportduties.
Indonesia'scurrentimportdutyratesonCBUsareasfollows:Table1ImportDutyRatesonCBUsVehicleCategoryImportDutyMotorVehiclesfortheTransportofPersonsSedan(Unit)200%CommercialMotorVehiclesThecommercialvehiclecategoriesaredefinedasfollows:IGrossVehicleWeightupto5tons,withsingledrive_axles.
IIGrossVehicleWeightexceeding5tonsupto10tons.
IIIGrossVehicleWeightexceeding10tonsupto24tons.
IVGrossVehicleWeightupto5tons,withdoubledrive_axles.
VGrossVehicleWeightexceeding24tons.
CategoryI(Unit)CategoryII/III(Unit)CategoryIV(Unit)CategoryV(Unit)80%70%105%5%B.
MeasuresatIssue2.
3Themeasuresatissuearethemeasurescomprising:(1)"the1993IncentiveSystem",whichwasamendedin1995and1996(referredtohereinasthe"1993programme"),(2)"theNationalCarProgramme",whichencompassestheso-called"February1996programme"and"theJune1996programme",and(3)a$US690millionloanThesedesignationsareusedinthisreportforconvenience.
TheUnitedStateshasarguedthattheNationalCarProgrammeisallasingleprogramme,comprisedoftheFebruary1996measures,theJune1996measuresandthe$US690millionloantoTPN.
Japan'sviewisthatmostofGovernmentRegulationNo.
20/1996andGovernmentRegulationNo.
36/1996arenotrelatedto"nationalmotorvehicles"andareoutsidethescopeofthe"NationalCarProgramme".
toPTTimorPutraNasional("PTTPN"or"TPN").
AllcomplainantsraiseclaimswithrespecttotheNationalCarProgramme,andtheEuropeanCommunitiesandtheUnitedStatesalsoraiseclaimswithrespecttothe1993programme.
Inaddition,theUnited爚Statesraisesclaimswithrespecttothe$US690millionloan.
Thesemeasurescanbesummarizedasfollows:1.
"1993Programme"2.
4In1993,Indonesiaadoptedtheso-called1993IncentiveSystem.
The1993IncentiveSystemconsistsof:(a)importdutyrelief(reductionsorexemptions)onimportsofautomotivepartsandaccessoriesbasedon(1)thepercentoflocalcontentofthefinishedmotorvehicleinwhichthepartsareused,and(2)thetypeofvehicleinwhichthepartsareused.
(b)importdutyreliefonimportsof"subparts"usedtomakeautomotivepartsandaccessoriesbasedon(1)thepercentoflocalcontentofthecompletedpartoraccessory,and(2)thetypeofmotorvehicleinwhichthepartoraccessoryisused.
(c)exemptionfromorreductionofluxurysalestaxongoodsforcertaincategoriesofmotorvehicles.
(a)DecreeNo.
114/19932.
5Thefirstdecreeinthe1993programmewasMinisterofIndustryDecreeNo.
爚114/M/SK/6/1993(June9,1993)("TheDeterminationofLocalContentLevelsofDomesticallyMadeMotorVehiclesorComponents").
IndonesiaExhibit8.
DecreeNo.
114/1993defines"localcomponents"or"localsubcomponents"as"partsorsubpartsofMotorVehicleswhicharedomesticallymadeandhaveLocalContentsatalevelofmorethan40爚percentfor[lightcommercialvehiclesandpassengercars]Asusedherein,theterm"lightcommercialvehicles"referstocommercialmotorvehicleswithagrossvehicleweightupto5tonswithsingleaxledrivesandcommercialmotorvehicleswithagrossvehicleweightupto5tonswithdoubleaxledrives,includingsuchvehiclesasjeeps,vans,minivans,sportsutilityvehicles,etc.
Theterm"passengercar"asusedhereinreferstosedansandstationwagons.
Thedecreesetsforthimportdutiesdependentonspecifiedlocalcontentratesforpassengercars,commercialvehicles,andautomotivepartsandcomponents.
2.
6Thelocalcontentratesandcorrespondingimportdutyratesapplicableunderthisdecreetopartsforpassengercarsaresetforthbelow:Table2PassengerCarPartsLocalContentRatesImportDutyRateslessthan20%100%20%to30%80%30%to40%60%40%to60%40%morethan60%0%Thus,ifthelocalcontentofapassengercarwaslessthan20percent,theimporterpaidanimportdutyof100percentonimportedparts,etc.
2.
7Thelocalcontentratesandcorrespondingimportdutyratesapplicableunderthisdecreetopartsforlightcommercialvehiclesaresetforthbelow:Table3LightCommercialVehiclePartsLocalContentRatesImportDutyRateslessthan20%40%20%to30%30%30%to40%20%morethan40%0%2.
8Thelocalcontentratesandcorrespondingimportdutyratesapplicableunderthisdecreetopartsforsubpartsforpassengercarsandlightcommercialvehiclesaresetforthbelow:Table4SubpartsofPassengerCarsandLightCommercialVehiclesLocalContentRatesImportDutyRateslessthan20%40%20%to30%30%morethan30%upto40%20%morethan40%0%(b)DecreeNo.
645/19932.
9Thepurposeoftheseconddecreeformingpartofthe1993Programme,MinisterofFinanceDecreeNo.
爚645/KMK.
01/1993(June10,1993)("TheReliefofImportDutyontheImportofCertainPartsandAccessoriesofMotorVehiclesforthePurposeofAutomotiveAssemblingand/orManufacture"),istoauthorizetheincentivesidentifiedaboveunderDecreeNo.
114/1993.
IndonesiaExhibit36.
(c)DecreeNo.
647/19932.
10Athirddecreeformingpartofthe1993Programme,MinisterofFinanceDecreeNo.
647/KMK.
04/1993(June10,1993)("TheKindsandTypesofMotorVehiclesSubjecttoSalesTaxonLuxuryGoods")providesreducedIndonesiansalestaxonluxurygoodsformotorvehicleswithspecifiedlocalcontentrates.
IndonesiaExhibit33.
Specifically,passengercarswithcylindercapacitiesof1600ccorlessandjeepsaresubjecttoaluxurytaxof20percentprovidedthattheirlocalcontentexceeds60percent.
Article3ofDecreeNo.
647/1993defines"jeeps"as"multi-purposefourwheeledmotorvehicles,withdoubledifferentialgears,chassis,totalg.
v.
w.
of5(five)tonsorlessandcapacityoftransportinglessthan10(ten)people.
(Anexceptionismadeformotorvehiclesusedforpublicpurposes,suchaspolicevans,ambulances,fire-engines,etc.
).
Ifthelocalcontentisnotinexcessof60percent,theapplicableluxurytaxrateis35percent.
2.
11Thelocalcontentratesandcorrespondingluxurytaxratesapplicableunderthisdecreetopassengercarswithcylindercapacitiesof1600ccorlessandjeepsaresetforthbelow:Table5PassengerCars20%endofthesecondyear>40%endofthethirdyear>60%(3)DecreeNo.
82/19962.
27ThethirdmeasureissuedonFebruary19,1996,wasDecreeoftheMinisterofFinanceNo.
82/KMK.
01/1996("TheImprovementoftheDecreeoftheMinisterofFinanceNo.
645/KMK.
01/1993ontheGrantofImportDutyRelieftoCertainPartsandComponentsofMotorVehiclesfortheAssemblyPurposesand/orManufactureofMotorVehiclesasPreviouslyImprovedbytheDecreeoftheMinisterofNo.
爚223/KMK.
01/1995").
IndonesiaExhibit21.
DecreeNo.
82/1996establishesthatpartsandcomponentsimportedbyaproducer/assemblerofNationalCars,forassemblyormanufactureofNationalCarsfulfillingthelocalcontentratesidentifiedabove,areexemptedfromimportduties.
(4)GovernmentRegulationNo.
20/19962.
28ThefinalmeasureissuedonFebruary19,1996,wasGovernmentRegulationNo.
20("TheAmendmentofGovernmentRegulationNo.
50of1994RegardingtheImplementationofLawNo.
爚8of1983onValueAddedTaxonGoodsandServicesandSalesTaxonLuxuryGoodsasAmendedbyLawNo.
11of1994").
IndonesiaExhibit20.
Bythisregulation,NationalCarsfulfillingthespecifiedrequirements,includinglocalcontentrates,wereexemptedfromluxurytax.
2.
29Thus,RegulationNo.
20/1996establishedthefollowingluxurytaxstructure:Table9LuxuryTaxRateScheduleTypeofMotorVehicleLuxuryTaxRatepassengercars>1600ccjeepswithlocalcontent60%35%lightcommercialvehicles(otherthanjeeps)usingdiesel25%passengercars1600ccjeepswithlocalcontent>60%lightcommercialvehicles(otherthanjeeps)usinggas20%nationalmotorvehicles0%(5)DecreeoftheStateMinisterforMobilizationofInvestmentFunds/ChairmanoftheInvestmentCoordinatingBoardNo.
01/SK/19962.
30On27February1996,IndonesiaissuedDecreeoftheStateMinisterforMobilizationofInvestmentFunds/ChairmanoftheInvestmentCoordinatingBoardNo.
01/SK/1996("InvestmentRegulationsWithintheFrameworkoftheRealizationoftheEstablishmentoftheNationalAutomobileIndustry").
IndonesiaExhibit4.
Thedecreeprovidedthat"torealisetheestablishmentof[a]nationalcarindustry,theinvestmentapprovalwillbeissuedtotheautomobileindustrysectorwithtaxfacilitiesinaccordancewithlegalprovisionsenactedspecificallyforthatpurpose.
"(6)MinistryofIndustryandTradeDecreeNo.
002/SK/DJ-ILMK/II/19962.
31On27February1996,DecreeNo.
002/SK/DJ-ILMK/II/1996oftheMinistryofIndustryandTradewasissued.
IndonesiaExhibit41.
ThisDecreedesignatedPTTimorPutraNasional("TPN")as"apioneernationalmotorvehicleenterprise.
"On5March1996,DecisionNo.
02/SK/1996oftheStateMinisterfortheMobilizationofInvestmentFunds/ChairmanoftheCapitalInvestmentCo-ordinatingBoardwasissued.
ThisdecisiondesignatedTPN"toestablishandproduceaNationalCar.
"2.
32TheNationalCar,the"Timor",wastobebasedonthedesignandothertechnologyoftheKiaSephia,modelproducedbyKiaMotorsofKorea.
TheTimorwastobeproducedinitiallyinknock-downforminKoreabyKiaMotors,forexporttoIndonesia,whereitwastobeassembledatTPN'sfacilityatKarawang,Indonesia.
(AtthetimethattheFebruary1996programmewasannounced,constructionofthisfacilityhadnotyetbegun.
)TPNwastograduallyincreasetheleveloflocalcontentoftheTimor.
(b)"TheJune1996Programme"2.
33Theso-calledJune1996programmecomprisesaseriesofdecreesissuedinJune1996.
(1)PresidentialDecreeNo.
42/19962.
34On4June1996,PresidentialDecreeNo.
42/1996("TheProductionofNationalCars")wasissued.
IndonesiaExhibit6.
ThisDecreeNo.
42/1996statedthat:NationalcarswhicharemadeoverseasbyIndonesiaworkersandfulfilthelocalcontentstipulatedbytheMinisterofIndustryandTradewillbetreatedequallytothosemadeinIndonesia.
Inotherwords,NationalCarsinfullybuilt-upformcouldbeimportedfreeofdutyandluxurytax,iftheyweremadebyIndonesianpersonnelandfulfilledthelocalcontentrequirementsfortheNationalCar.
2.
35ThisDecreealsoprovidedthatthistaxanddutyexemptionwouldbegrantedonlyonceforamaximumperiodofoneyear,andwouldinvolveatotalnumberofvehiclestobestipulatedbytheMinisterofIndustryandTrade.
InMinisterofIndustryandTradeDecreeNo.
1410/MPP/6/1996(30June1996)IndonesiaExhibit13.
,TPNwasauthorizedtoimport45,000TimorspursuanttoDecreeNo.
42/1996.
(2)RegulationNo.
36/19962.
36Alsoon4June1996,IndonesiaissuedGovernmentRegulationNo.
爚36/1996("TheAmendmentofGovernmentRegulationNo.
50of1994ontheImplementationofLawNo.
8of1983onValueAddedTaxonGoodsandServicesandSalesTaxonLuxuryGoodsasAmendedbyLawNo.
11of1994,asLastlyAmendedbyGovernmentRegulationNo.
20/1996").
IndonesiaExhibit3.
RegulationNo.
36/1996madefurtherrevisionstotheluxurytaxonmotorvehicles,which,asdiscussed,hadbeenmostrecentlyrevisedon19February爚1996,inRegulationNo.
20/1996.
2.
37RegulationNo.
36/1996establishedthefollowingluxurytaxschedule:Table10LuxuryTaxRateScheduleTypeofMotorVehicleLuxuryTaxRatepassengercars1600cc.
passengercarswithlocalcontent60%.
jeepswithlocalcontent60%.
buseswithlocalcontent60%.
35%combis,minibuses,vansandpick-upsusingdieselasfuel,withlocalcontent60%.
25%combis,minibuses,vansandpick-upsusinggasolineasfuelwithlocalcontent60%.
20%sedansandstationwagons60%.
combis,minibuses,vansandpick-upsusinggasolineordieselasfuel,manufacturedinIndonesiawithlocalcontentwithlocalcontent>60%.
busesmanufacturedinIndonesia.
motorcycles60%lightcommercialvehicles(dieselorgasoline)Withlocalcontent>60%nationalmotorvehicles0%Underthisschedule,allpassengervehiclesandlightcommercialvehicles(withtheexceptionofpassengercarswithacylindercapacitygreaterthanorequalto1600cc)areexemptfromtheluxurytaxprovidedthatthelocalcontentofthevehicleexceeds60percent.
Thus,theincentivetousedomestic,ratherthanimported,automotivepartsisevengreater.
And,ofcourse,nationalmotorvehiclesaresubjecttotheirownlocalcontentschedule,assetforthinDecreeNo.
爚31/1996.
(3)Thegovernment-directed$690millionloan5.
101Finally,thereisthegovernment-directed$690millionloantoTPN.
ThisloanconferredanadvantageonTPNbecauseof(1)theconcessionaltermsoftheloan;and(2)intheabsenceofthisinterventionbyIndonesia,TPNwouldnothavebeenabletoobtainsuchaloanduetoitsownfinancialsituation,thefinancialsituationofitspartner,KiaMotors,andtheoverallclampdownonlendingbytheIndonesianGovernment.
Inaddition,theevidenceisoverwhelmingthatIndonesiaorderedtheconsortiumofgovernment-ownedbanksandprivatebankstoprovidetheloanbecauseofTPN'sstatus爚asaparticipantintheproductionofa"nationalmotorvehicle".
TPN'sstatus,inturn,wascontingentuponsatisfactionofthelocalcontentrequirementsfora"nationalmotorvehicle"setforthinDecree爚No.
爚31/1996.
5.
102ThemostrecentcomponentoftheNationalMotorVehicleprogrammewasintroducedon11爚August爚1997,whenaconsortiumoffourgovernment-ownedbanksandtwelveprivatebanksdecidedtodisburseUS$650millioninten-yearloanstoTPNtocarryoutthenationalcarproject.
"16BankstoLend$690MillionforTimorCarProject",JakartaPost,12爚August1997(USExhibit爚14,pp.
爚161-162).
Althoughthetwelveprivatebankshavenotbeenidentifiedinfull,thefourgovernment-ownedbanksreportedlyareBankDagangNagara(BDN),BankExporImpor,BankRakyatIndonesia,andBankTabunganNegara.
Id.
BDNpreviouslyhaddisbursedaUS$40millionbridgingloantoTPN,bringingthetotalloanamounttoUS$690million.
Theloansreportedlywillcarryanannualinterestrateof3percentoverthe3-6monthdepositrate,amaturityof10years,andagraceperiodof3years.
Id.
Thefourgovernment-ownedbankswouldprovideone-halfofthe$650millionloan.
Id.
5.
103ThecircumstancessurroundingthisloanindicatethattheloanwasprovidedattheexpressdirectionoftheGovernmentofIndonesia,andthatbutfortheGovernment'sinvolvement,TPNneverwouldhaveobtainedtheloan.
5.
104On21April1997,nineeconomicsministerswereinstructedbythePresidenttocoordinateeffortstoimplementthecarprogramme.
"RItoFinishCarProgrammeby'99",TheJakartaPost,23April1997,p.
1(USExhibit14,pp.
爚105-107).
ThisgroupwasgivenamandatetoensurethattheKiaTimorventurehasalocalcontentof60percentby1999.
"TimorinTroubleatWTOandatHome",BusinessTimes(Singapore),25June1997(USExhibit爚14,pp.
爚143-145).
ThePresident'sdirectiveapparentlyresulted,amongotherthings,inadirectivefromtheMinisterofNationalDevelopmentPlanningthat"Allgovernmentbodiesandstate-ownedcompaniesshouldpurchasetheTimorwhentheyneednewsedans".
"TimorFacesRoughRoadatWTO;Indonesia'sGovernmentPromisestoBackVehicleProject",TheNikkeiWeekly,23June1997,p.
23(USExhibit14,pp.
140-142).
5.
105InMay,theCoordinatingMinisterforEconomyandFinanceannouncedthatIndonesiahad"ordered"13bankstolendUS$1.
3billiontoTPN.
"AnalystsWarns[sic]AboutLoansforTimorCar",JakartaPost,13August1997,p.
1(USExhibit爚14,pp.
爚163-165).
Theprivatebankshesitatedtodoso,butwereeventuallypersuadedtodoso.
"IndonBanksMayLandintheER",BusinessTimes(Singapore),15爚August1997,p.
7(USExhibit爚14,pp.
爚166-169);seealso"IndonesiaCompany:SuhartoClan'sBusinessActivities",EIUViewswire,28爚July爚1997(USExhibit14,pp.
154-157)("Thisyearthegovernmenttwistedbankers'armstoprocurea$690mloantofinance[TPN's]assemblyplant.
").
Apparently,whiletheGovernmentofIndonesiainitiatedthe"nationalmotorvehicle"programme,itlackedthemoneytopayforit.
Therefore,theinvolvementofprivatelenderswasnecessary.
"BRINotUnderPressuretoSupportNat'lCarProgramme,"ANTARA-TheIndonesianNationalNewsAgency,13June1997(USExhibit14,pp.
136-137).
Moreover,internationalbankshadrefusedtolendtoTPN.
"BumpyRoadAheadforMotoringPlan",SouthChinaMorningPost,8爚June爚1997,p.
7(USExhibit14,pp.
132-135).
Evenafterbeingpersuaded,theprivatebankswouldagreetoprovidenomorethanone-halfofthefinancing.
5.
106Inaddition,thedecisiontograntthe$690millionloanpackagecameatatimewhenIndonesia,duetothedepreciationoftherupiahandoverlyaggressivelendingbybanks,wasclampingdownoncreditandcancellinglargeprojects,therebymakingtheloantoTPNallthemoreextraordinary.
Asonecommentatornotedofthedecisiontograntthe$690millionloan,"Themoveappearstocontradictgovernmentpolicytoclampdownoncreditgrowth.
""JakartaPlansNew'National'Car",FinancialTimes(London),7爚May1997,p.
4(USExhibit14,pp.
110-111).
Indeed,thePresidentofIndonesia,inhisstateofthenationaddress,announced"thatallprojectsthatwerenotanationalprioritywouldbeshelvedgiventhe'newrealities'facingthecountry".
"TimorCarProjectNottoBeRescheduledinFaceofCurrencyCrunch"AgenceFrancePresse,20爚August爚1997(USExhibit14,pp.
170-171);seealso"TimorCarProjectWon'tBeRescheduled",JakartaPost,21爚August爚1997(USExhibit14,pp.
172-173),inwhichitwasreportedthat:PresidentSoeharto,inhisNationalDayAddresslastSaturday,calledonthebusinesscommunitytoselectprojectsforimplementationcarefullyinviewofthecurrencyupheavalcurrentlyconfrontingtheeconomy.
Soehartosaidthegovernmentandbusinessshouldreviewtheirinvestmentprojectstoascertainwhichshouldbegiventoppriorityandwhichshouldbepostponed.
Seealso,"Indonesia:JakartaPledgestoCutBigProjects",FinancialTimes(USA)(17爚September爚1997)(USExhibit15,pp.
3-4).
Asaresult,accordingtotheCoordinatingMinisterforEconomyandFinance,theGovernment"tookstockofprojectsaccordingtotheirscaleofpriority.
Obviously,highpriorityprogrammeswillnotbeaxed".
"MinistersReviewProjectsRescheduling",BusinessDaily,8爚Sepember爚1997(USExhibit14,pp.
174-175).
However,whenaskedbyreporterswhethertheTimorcarprojectwouldberescheduled,theCoordinatingMinisterrespondedthat"theterm'national'classifiesitasahighpriorityproject".
Id.
ThisfollowedanearlierstatementbytheCoordinatingMinisterthat"Everyonemustsupportthe[nationalcar]programme".
"13BanksOrderedtoFinanceTimorCarProject",TheJakartaPost,7May爚1997,p.
12(USExhibit爚14,pp.
爚112-114).
5.
107Likewise,theMinisterofIndustryandTradewasreportedasdeclaringthat,becausetheTimorcarprojectwasanationalproject,itwouldnotberescheduleddespitetherupiahplungethatpromptedthereschedulingofothermajorprojects.
"NationalCarProgrammeNotAffectedbyCurrencyCrisis",ANTARA-TheIndonesianNationalNewsAgency,10爚September1997(USExhibit14,pp.
176-178).
ThisfollowedearlierstatementsbyGovernmentofficialsstressingthecriticalimportanceoftheKiaTimorproject:"Thegovernment,asthefacilitator,willprovidewhateverassistancetheyneed,eitherinconstruction,licensingorotheraspectsoftheindustry.
""RItoFinishCarProgramby'99",TheJakartaPost,23April1997,p.
1(USExhibit14,pp.
105-107).
"Wehavetosupporttheprogrammefromallsidessotheprojectcanbefinishedassoonaspossible.
""GovernmentAgenciesUrgedtoBuyTimorNat'lCar",ANTARA-TheIndonesianNationalNewsAgency,5June1997(USExhibit14,pp.
129-131).
"Thegovernmenthasmoneytospend.
And,naturally,itisinthegovernment'sinteresttousethatmoneyforpriorityprogrammes,particularlyanationalprogramme".
"GovtOfficestoBeObligedtoBuyTimorCar",TheJakartaPost,4June1997,p.
1(USExhibit14,pp.
爚126-128).
5.
108BankingsourcesindicatedthatBankIndonesia,thecentralbank,wouldprovidesubsidizedliquiditycreditofupto70percentofthefundsneededforthecarproject.
"13BanksOrderedtoFinanceTimorCarProject"TheJakartaPost,7爚May1997,p.
12(USExhibit爚14,pp.
爚112-114).
Insummarizingthedecisiontograntthe$690millionloanpackage,oneeconomistcharacterizedtheloansas"specialcreditwhich'seemedtobeendorsedbythecentralbank'.
""AnalystsWarnAboutLoansforTimorCar"JakartaPost.
13August1997(USExhibit14,pp.
爚163_165).
However,aneditorialinTheJakartaPostbestcapturedthesituation:Quotedin"Indonesia'National'CarStalls"InternationalHeraldTribune,27May爚1997,p.
17(USExhibit爚14,pp.
123-125).
Giventhepowerofthegovernment,andinviewofthe"national"labelputontheTimorcarprogramme,thosebankswillhavenootherchoicebuttogivetherequiredloans,atthegreatriskofsufferingbadcredit.
5.
109Indeed,newspapersreportedthattheGovernorofBankIndonesia(theIndonesiancentralbank)wasopposedtostatebanksgrantingalargeloantoTPN.
"IndonesianNationalCarMarkertoGetLoansfromStateBanks",AgenceFrancePresse,29爚April爚1997(USExhibit14,pp.
108-109);seealso"MinisterSaysIndonesiatoSlashCredittoNationalCar",AgenceFrancePresse,14爚May1997(USExhibit14,pp.
119-120);"IndonesiaPreparingTeamtoDefendNat'lCarPolicyatWTO",ANTARA-TheIndonesianNationalNewsAgency,9爚May爚1997(USExhibit14,pp.
115-118);and"JakartaPlansNew'National'Car",FinancialTimes(London),7May1997,p.
4(USExhibit14,pp.
110-111).
However,theGovernorreportedlywasforcedtoapprovethedealfollowingameetingwiththePresident.
Id.
Seealso"13BanksOrderedtoFinanceTimorCarProject",TheJakartaPost,7May爚1997,p.
12(USExhibit14,pp.
112-114).
5.
110Finally,allindicationsarethatTPNwasnotperceivedasasoundcreditrisk,andthatthedecisiontogranttheUS$690millionloanpackagewasbasedonsomethingotherthancommercialconsiderations.
Reportedly,someoftheprivatebanksinvolvedwerewillingtoimmediatelywriteoffanycredittheywouldgivetoTPN.
"13BanksOrderedtoFinanceTimorCarProject",TheJakartaPost,7爚May1997,p.
12(USExhibit爚14,pp.
爚112-114).
Someanalystsregardedthedecision"asadoublestandardandaviolationofprudentbankingprinciples.
""IndonesiaTriestoHeadOffBankCrisis"TheNikkeiWeekly,4August1997,p.
20(USExhibit14,pp.
爚158-160).
Otheranalystsweremorespecific"AnalystsWarnAboutLoansforTimorCar",JakartaPost,13August1997(USExhibit14,pp.
163-165).
:EconomistFaisalBasrifromtheUniversityofIndonesiaandautomobileanalystSuhariSargodoubted[TPN's]capacitytorepaythedebtsinviewofthesmallsalestargetsetbythecompany.
"Anannualsalestargetof40,000vehiclesperannumistoosmalltoreachabreak-evenpoint,"FaisalwasquotedbyAntaraassaying.
FaisalalsodoubtedwhethertheUS$690millionloanswouldbesufficientfor[TPN]todevelopamanufacturingindustrywithaminimumlocalcontentof60percent,asrequiredbythegovernment.
AnalystSuhariforesawafinancialburdenofatleastUS$170millionayearfor[TPN]simplytoinstallandservicethedebtsbeginningin2000.
"Thisamountwillbeequivalentto15,000cars.
That'sveryhardfor[TPN]becauseithastoproduceandsell150,000vehiclesayeartogeta20percentprofitmargin,Hesaidbetween30,000and50,000sedansweresoldeachyear,or15percentto20percentofthecountry'stotalautomobilemarket.
5.
111Moreover,theKiaTimorprojectwasinsomuchtroublethattheGovernmentofIndonesiafinallywoundup"ropingintwoleadingdomesticautomakers,PTAstraInternationalandPTIndomobil.
""Astra,IndomobilRopedintoSpeedUpTimorCarProject"BusinessTimes(Singapore),16爚May爚1997,p.
1(USExhibit14,pp.
121-122).
OnesourcedescribedTPN'smanufacturingplansas"currentlyindisarray".
Id.
IndomobilwaschargedwithassemblingtheTimorKiaSephias,whiletheGovernmentaskedAstratoparticipatebysupervisingtheconstructionofassemblyfacilitiesandthenation-widedistributionofthecars.
Id.
Astra'sdecisionto"help"didnotcomeasasurprisetosomeobservers,becauseAstrais9.
3爚percentownedbytheNusambaGroup,aninvestmentcompanycontrolledbythreefoundationscontrolledbythePresident.
Id.
5.
112Tomakemattersworse,andthedecisiontogranttheloanpackageevenmorequestionable,thedecisionwasmadeinlightofthefactthatTPN'spartner,Kia,wasinextremelyperilousfinancialcondition.
KiawasresponsibleforputtingupUS$400milliontobuildtheassemblyplant.
"AFuriousFlapOverFavoritism",BusinessWeek,8July1996,p.
14(USExhibit14,pp.
92-95).
On15爚July爚1997,theKiaGroupwasplacedundercontrolofabankruptcyprotectioncommitteebybankersconcernedaboutthecompany'sdebtofnearlyUS$11billion.
"S.
KoreaBankruptcyPanelTakesControlofKia",LosAngelesTimes,16July1997(USExhibit爚14,pp.
爚146-148);seealso"SouthKorea:EmergencyLoansGiveBreathingSpacetoCarmakerKia",FinancialTimes(London),(16July1997(USExhibit14,pp.
149-150);and"KoreansPlaceKiaMotorsUnderBankruptcyShield"NewYorkTimes,16July1997(USExhibit14,pp.
151-153).
On22July1997,SouthKoreanbanksrefusedtomeetthefullfundingrequestedbytheKiaGroup,anddemandedthatKiaexecutivessurrendermanagementcontrol.
"SouthKorea:BanksRefuseFullFundingofKiaRescue",FinancialTimes(23July1997)(USExhibit15,pp.
1-2).
Subsequently,on22爚September爚1997,themainunitsoftheKiaGroup,includingKiaMotors,filedforspecialcourtprotection"inalast-ditchattempttopreventSouthKorea'seighth-largestconglomeratefrombeingdismantledanditsmanagementoustedbybankcreditors.
""Kia:Debt-HitMotorGroupSeeksCourtProtection",FinancialTimes(USA)(23爚September爚1997)(USExhibit15,p.
5).
5.
113Finally,inOctober1997,IndonesiaappealedtotheInternationalMonetaryFundandtheWorldBankforhelpinthefaceofa32percentdeclineintherupiahsinceAugust1997.
"Indonesia:IMFUrgedtoBackRescue",FinancialTimes(USA)(13爚October1997)(USExhibit15,pp.
8-9).
However,notwithstandingthiscrisis,andnotwithstandingcallsforfurtherbudgetcuts,newspapersreportedthat"[t]hegovernmenthasruledoutcutsinthecontroversialnationalcarprogramme.
.
.
.
""Indonesia:FundManagersUrgeGovernmenttoCutBudgetDeep",FinancialTimes(USA)(11爚October爚1997)(USExhibit15,pp.
6-7).
(b)Thetariffandtaxincentivesandthegovernment-directed$690millionloanareinconsistentwithArticleIII:45.
114ArticleIII:4statesthefollowing:Theproductsoftheterritoryofanycontractingpartyimportedintotheterritoryofanyothercontractingpartyshallbeaccordedtreatmentnolessfavourablethanthataccordedtolikeproductsofnationalorigininrespectofalllaws,regulationsandrequirementsaffectingtheirinternalsale,offeringforsale,purchase,transportation,distributionoruse.
Theprovisionsofthisparagraphshallnotpreventtheapplicationofdifferentialinternaltransportationchargeswhicharebasedexclusivelyontheeconomicoperationofthemeansoftransportandnotonthenationalityoftheproduct.
5.
115Indonesia'stariffandtaxincentivesforautomotivepartsandsubpartsandtheprovisionofthe$690millionloanareopenlydiscriminatoryandareinplaincontraventionofArticle爚III:4ofGATT1994.
First,theyeachconstituteregulationsorrequirementsthat"affect"thesale,purchase,transportationanddistributionofimportedanddomesticautomotivepartsandsubparts.
Second,importedautomotivepartsandsubpartsare"like"domesticautomotivepartsandsubparts.
Third,thetariffandtaxincentivesandthe$690millionloandiscriminateagainstimportedautomotivepartsandsubparts.
(1)Thetariffandtaxincentivesandthegovernment-directed$690millionloanareregulationsorrequirementsthataffecttheinternalsale,etc.
ofautomotivepartsandsubparts5.
116Indonesia'stariffandtaxincentivesare"regulations"or"requirements"thataffecttheinternalsale,offeringforsale,purchase,distributionoruseofautomotivepartsandsubpartsinIndonesia.
Manufacturersorassemblersofmotorvehicles(ormotorvehicleparts)payalowerdutyonimportedparts(orsubparts)ifthefinishedmotorvehicle(orthefinishedpart)satisfieslocalcontenttargetsdecreedbytheGovernment.
Assuch,thevariousIndonesianmeasuresclearlycreateanincentiveformanufacturersorassemblerstopurchasedomesticpartsorsubparts,asopposedtoimportedpartsorsubparts.
5.
117Moreover,while"adeterminationofwhethertherehasbeenaviolationofArticle爚III:4doesnotrequireaseparateconsiderationofwhetherameasure'afford[s]protectiontodomesticproduction'""EuropeanCommunities-RegimefortheImportation,SaleandDistributionofBananas",ReportoftheAppellateBody,WT/DS27/AB/R,adopted25September1997,para.
216(emphasisinoriginal).
,itisworthrecountingthatIndonesiahasmadenosecretofthefactthatthepurposeofthevariousmeasuresistoprotectthedomesticautomotivepartsindustry.
ThepreambletoDecreeNo.
爚114/1993(whichestablishesthelocalcontentthresholdsforthe1993programme)statesthattheobjectiveofthemeasureis"supportingandencouragingthedevelopmentoftheautomotiveindustryand/orthecomponentindustry.
.
.
".
Likewise,theElucidationtoRegulationNo.
20/1996(whichestablishedluxurytaxincentives)statesthatthepurposeoftheregulationwas"tospeeduptheachievement[of]thenationalmotorvehicleindustryusinglocalcomponents.
.
.
".
TheElucidationtoRegulationNo.
36/1996istothesameeffect.
Mostrecently,initsnotificationtotheSCMCommittee,Indonesiastatedthattheobjectiveofboththe1993andNationalMotorVehicleprogrammeswasthe"increaseduseofdomesticallyproducedcomponents".
G/SCM/N/16/IDN(13January1997),pp.
3and4.
5.
118IntheScrewdriverpanelreport,thepanelrecognizedthatrequirementsthatanenterprisevoluntarilyacceptstogaingovernment-providedadvantagesarenonetheless"requirements""EEC-RegulationonImportsofPartsandComponents",L/6657,adoptedon16May1990,BISD37S/132,197,para.
5.
21(emphasisinoriginal).
Seealso"Canada-AdministrationoftheForeignInvestmentReviewAct",L/5504,adoptedon7February1984,BISD30S/140,158,para.
5.
4.
:ThePanelnotedthatArticleIII:4refersto"alllaws,regulationsorrequirementsaffecting(the)internalsale,offeringforsale,purchase,transportation,distributionoruse".
ThePanelconsideredthatthecomprehensivecoverageof"alllaws,regulationsorrequirementsaffecting"theinternalsale,etc.
ofimportedproductssuggeststhatnotonlyrequirementswhichanenterpriseislegallyboundtocarryout,爚.
.
.
butalsothosewhichanenterprisevoluntarilyacceptsinordertoobtainanadvantagefromthegovernmentconstitute"requirements"withinthemeaningofthatprovision.
.
.
.
5.
119Indonesianproducersorassemblersofmotorvehicles(ormotorvehicleparts)thatseektotakeadvantageofthetariffandtaxincentivesofferedbytheGovernmentmustsatisfythelocalcontenttargetsoftherelevantmeasures.
Thesetargetsarerequirements-orregulations-withinthemeaningofArticle爚III:4.
5.
120Thesetariffandtaxincentivesalsoclearly"affect"thesaleofimportedautomotivepartsandsubparts,becausetheyprovideaclearincentivetoanIndonesianmanufacturerorassemblertoaugmentitspurchasesofIndonesian-madeparts.
Forexample,amanufactureroranassemblerofmotorvehiclescanobtainacompleteexemptionfromtariffsonimportedpartsandtheluxurytaxonfinishedmotorvehiclesifthelocalcontentofthevehicleexceeds60percent.
Inthecaseofaproducerofa"nationalmotorvehicle",suchasKiaTimor,thetargetisevenlower;20percentlocalcontentinthefirstyear.
Theseincentivesdirectlyaffect(anditistheirstatedpurposetoaffect)thecompetitiveconditionsunderwhichautomotivepartsandsubpartsaresoldtomanufacturersandassemblers.
Therefore,theseincentives"affect"thesaleofautomotivepartssubpartsinIndonesia.
See"ItalianAgriculturalMachinery",L/833,adopted23October1958,BISD7S/60,64,para.
12(".
爚.
爚.
[T]hetextofparagraph4referred爚.
爚.
爚.
tolawsandregulationsandrequirementsaffectinginternalsale,purchase,etc.
,andnottolaws,regulationsandrequirementsgoverningtheconditionsofsaleorpurchase.
Theselectionoftheword'affecting'wouldimply,intheopinionofthePanel,thatthedraftersoftheArticleintendedtocoverinparagraph4notonlythelawsandregulationswhichdirectlygovernedtheconditionsofsaleorpurchasebutalsoanylawsorregulationswhichmightadverselymodifytheconditionsofcompetitionbetweenthedomesticandimportedproductsontheinternalmarket.
"(Emphasisinoriginal)).
5.
121Asforthe$690millionloantoTPN,thisloanisnodifferentinkindfromthespecialcreditfacilitiesthatwerecondemnedbythepanelinItalianAgriculturalMachinery.
TPNreceivedthegovernment-directedloanbecauseofitsstatusasaparticipantintheKiaTimorjointventuretoproducea"nationalmotorvehicle".
KiaTimorachieveditsstatusbecauseofitscommitmenttosatisfythelocalcontentrequirementsofDecreeNo.
31/1996.
Assuch,theloan,justasmuchasthetariffandtaxincentives,adverselymodifiestheconditionsofcompetitionbetweendomesticandimportedautomotivepartsandsubpartsontheIndonesianmarket.
(2)Domesticandimportedautomotivepartsandsubpartsare"likeproducts"5.
122Althoughthereobviouslyarehundreds,ifnotthousands,ofindividualpartsthatgointoafinishedmotorvehicle,forpurposesofArticleIII:4,importedautomotivepartsandsubpartsare"like"automotivepartsandsubpartsmadeinIndonesia.
Domesticandimportedproductssharethesamephysicalcharacteristicsandcommercialuses.
Thus,whileaclutchandashockabsorbermaydifferfromeachother,adomesticandimportedclutchare"like"eachother,justasadomesticandimportedshockabsorberare"like"eachother.
InIndonesia,however,theGovernmentdiscriminatesagainsttheimportedclutchandshockabsorberbyprovidingincentivesthatfavourthepurchaseanduseoftheirdomesticcounterparts.
(3)Indonesia'stariffandtaxincentivesandthegovernment-directed$690millionloantoTPNprovidelessfavourabletreatmenttoimportedautomotivepartsandsubparts5.
123Indonesiaimposesprogressivelylowerimportdutiesonimportedautomotivepartsandsubpartsbasedonthelocalcontentofthefinishedmotorvehicleorthefinishedpart.
Similarly,Indonesiaexemptssalesofmotorvehiclesfromtheluxurytaxifthelocalcontentofthevehicleexceeds60percent.
Finally,theIndonesiangovernmentdirectedaconsortiaofbankstoextendspecialcreditfacilities,intheformofa$690millionloan,toTPNinordertoenablethejointventureinwhichitisthepredominantpartner,KiaTimor,toproducea"nationalmotorvehicle"thatwillsatisfylocalcontenttargets.
Eachofthesemeasuresaccordsmanifestlylessfavourabletreatmenttoimportedautomotivepartsandsubpartsincomparisontotheirdomestically-madecounterparts,andeachofthesemeasuresiscalculatedtoplaceimportedproductsatacompetitivedisadvantagebycreatinganincentiveforIndonesianmanufacturersorassemblersofmotorvehiclesormotorvehiclepartstouseIndonesian-madepartsorsubparts.
Indeed,IndonesiahasmadenosecretofthefactthattheexpresspurposeofthisdiscriminatorytreatmentistoincreasetheuseofIndonesian-madeparts.
Indonesia'sdiscriminatorymeasuresconstitutepreciselythetypeofprotectionistregulatorymeasuresthatArticleIII:4condemns.
(c)Indonesia'sdiscriminatorytariffandtaxincentivesandthegovernment-directed$690millionloandonotconstituteadirectsubsidytodomesticproducerswithinthemeaningofArticle爚III:8(b)5.
124Indonesia'sdiscriminatorytariffandtaxincentivesandthegovernment-directed$690millionloandonotconstitute"thepaymentofsubsidiesexclusivelytodomesticproducers"withinthemeaningofArticleIII:8(b),becausedomesticproducersofautomotivepartsorsubpartsdonotreceivesubsidypayments.
Inthecaseoftariffincentivesthatfavourtheuseofdomesticautomotiveparts,thesubsidiesgotodomesticproducersorassemblersofmotorvehiclesintheformoflower(orno)importdutiesonimportedautomotiveparts.
InthecaseofPresidentialDecreeNo.
42/1996,thesubsidytooktheformofanexemptionfromthe200爚percenttariffonimportsofcompletelybuilt-upKiaSephiasedans.
Inthecaseoftariffincentivesthatfavourtheuseofdomesticautomotivesubparts,thesubsidiesgotodomesticproducersorassemblersofautomotivepartsintheformoflower(orno)importdutiesonimportedsubparts.
Inthecaseoftaxincentivesthatfavourtheuseofdomesticautomotiveparts,thesubsidiesgotodomesticproducersorassemblersofmotorvehiclesintheformofanexemptionfromtheluxurytax.
UnderRegulationNo.
36/1996,therearenogradationsintermsoflocalcontentrates.
Iflocalcontentexceeds60爚percent,thevehicleisexemptfromtheluxurytax.
Ifnot,thevehicleissubjecttotheluxurytaxbasedontherateapplicabletothevehicletype.
Inthecaseofa"nationalmotorvehicle,"theapplicablelocalcontentratevariesbyyear.
Finally,inthecaseofthegovernment-directed$690millionloan,TPNreceivedtheloaninitscapacityasaproducerofthe"nationalmotorvehicle"andasuserofparts.
Attheriskofrepetition,TPNreceivedthegovernment-directedloanduetoitsstatusasaparticipantintheKiaTimorjointventuretoproducethe"nationalmotorvehicle.
"KiaTimor'sstatus,inturn,wasbasedonitsobligationtosatisfyspecificlocalcontenttargetsunderDecreeNo.
31/1996.
Assuch,thesediscriminatorymeasuresdonotconstitutepaymentsexclusivelytoIndonesianproducersofautomotiveparts(orsubparts);rather,theymodifytheconditionsofcompetitionbetweendomesticandimportedproductsincontraventionofArticle爚III:4.
5.
125ArticleIII:8(b)states:TheprovisionsofthisArticleshallnotpreventthepaymentofsubsidiesexclusivelytodomesticproducers,includingpaymentstodomesticproducersderivedfromtheproceedsofinternaltaxesorchargesappliedconsistentlywiththeprovisionsofthisArticleandsubsidieseffectedthroughgovernmentalpurchasesofdomesticproducts.
5.
126AseriesofGATT1947panelreportshaveinterpretedArticleIII:8(b)verynarrowlytoholdthattheonlysubsidiessubjecttoexclusionfromthenationaltreatmentobligationsofArticle爚IIIarethosesubsidiesthatarepaidexclusivelytodomesticproducers.
Thus,forexample,creditfacilitiesprovidedtopurchasers"ItalianAgriculturalMachinery",L/833,adopted23October1958,BISD7S/60,64,para.
16.
,andnotproducers,andpaymentswhosebenefitscouldbepartiallyretainedbyprocessors"EuropeanEconomicCommunity-PaymentsandSubsidiesPaidtoProcessorsandProducersofOilseedsandRelatedAnimal-FeedProteins",L/6627,adoptedon25January1990,BISD37S/86,para.
爚137.
,havebeenfoundnottoqualifyunderArticleIII:8(b).
5.
127OfparticularrelevanceisthepanelreportintheItalianAgriculturalMachinerycase.
Inthatcase,theItalianGovernmentprovidedspecialcreditfacilitiestopurchasersofItalianagriculturalmachinery.
InfindingthesefacilitiestobeinviolationofArticleIII:4,andnotexcludedbyArticle爚III:8(b),thepanel"agreed爚.
爚.
爚.
that爚.
爚.
爚.
theprovisionsofparagraph8(b)wouldnotbeapplicabletothisparticularcasesincethecreditfacilitiesprovidedundertheLawweregrantedtothepurchasersofagriculturalmachineryandcouldnotbeconsideredassubsidiesaccordedtotheproducersofagriculturalmachinery.
"BISD7S/60,64,para.
14.
WithrespecttotheIndonesiansubsidiesatissuehere,thesesubsidiesareprovidedtothepurchasersofautomotiveparts(or,insomecases,subparts)andcannotbeconsideredassubsidiesaccordedtotheproducersofautomotiveparts(orsubparts).
D.
GeneralresponsebyIndonesiatoclaimsUnderArticleIIIofGATT1994-SCMAgreementprevails5.
128Indonesiamakesageneralresponsetoalloftheclaimsraisedbythecomplainants,includingthoseunderArticleIII,byarguingthattheAgreementonSubsidiesandCountervailingMeasures("SCMAgreement")isthelexspecialis,andprevails,forreviewofthe1993and1996subsidyprogrammes,whichIndonesia,asadevelopingcountry,ispermittedtomaintain.
Inaddition,IndonesiarespondsspecificallytotheclaimsunderArticleIII:4regardingthetariffmeasures,byarguingthatthesearebordermeasuresandvoluntarymeasuresandthusnotgovernedbyArticleIII.
(SeeSectionV.
F.
1.
)Indonesiaalsorespondsspecificallytoalloftheclaims(includingthoseunderArticleIII)madewithrespecttotheJune1996measuresbyarguingthatthosemeasureshaveexpired.
(SeeSectionX.
A.
)ThefollowingareIndonesia'sgeneralresponsestotheArticleIIIclaimsraised.
1.
TheSCMAgreementisthelexspecialisforreviewofthe1993and1996subsidyprogrammes,whichIndonesia,asadevelopingcountry,ispermittedtomaintain5.
129TheprovisionsoftheSCMAgreementprevailoverthoseoftheGeneralAgreementintheinstantdisputebecausetheyaremorespecifictosubsidies.
SinclairSirIanSinclair,K.
C.
M.
Q.
,Q.
C.
,BencheroftheMiddleTemple,MemberoftheInternationalLawCommission,AssociatememberoftheInstitutdeDroitInternational,SometimeLegalAdvisortoH.
M.
ForeignandCommonwealthOffice.
describeslexspecialisas"theconceptthataspecificnormofconventionalinternationallawmayprevailoveramoregeneralnorm".
IanSinclair,TheViennaConventionontheLawofTreaties96(2nded.
1984).
Lexspecialisis"widelysupportedindoctrine"IanSinclair,TheViennaConventionontheLawofTreaties96(2nded.
1984)(citingY.
B.
oftheInt'lL.
Commission(1976-II),120.
andextendsbacktoGrotius.
WilfredJenks,TheConflictofLaw-MakingTreaties,1953Brit.
Y.
B.
Int'lL.
446.
"Amongagreementsthatareequalinrespecttothequalitiesmentioned,thatshouldbegivenpreferencewhichismorespecificandapproachesmorenearlytothesubjectinhand:forspecialprovisionsareordinarilymoreeffectivethanthosethataregeneral".
BookII,Cap.
XVI,sec.
xxix(1):translationbyKelseyinClassicsofInternationalLawedition,vol.
ii(1929)428.
citedinWilfredJenks,TheConflictofLaw-MakingTreaties,1953Brit.
Y.
B.
Int'lL.
446.
Furthermore,GATTpanelshaverecognizedlexspecialis.
Forexample,thePanelinEEC-RestrictionsonImportsofDessertApplies-ComplaintbyChileexaminedtherestrictivemeasuresatissueinthecontextofArticleXIIIinsteadofArticleIbecause,iffound,Article爚XIIIwaslexspecialis.
EEC-RestrictionsonImportsofDessertApples-ComplaintbyChile(22June1989),BISD36S/93,133,para.
12.
28.
5.
130The1993and1996subsidyprogrammesareoutofthescopeoftheprovisionsoftheGeneralAgreement.
Generaliaspecialbus,whichisrelatedtolexspecialis,"doesnotmerelyinvolvethatgeneralprovisionsdonotderogatefromspecificones,butalso,orperhapsasanalternativemethodofstatement,thatamattergovernedbyaspecificprovision,dealingwithitassuch,istherebytakenoutofthescopeofageneralprovisiondealingwiththecategoryofsubjecttowhichthatmatterbelongs,andwhichthereforemightotherwisegovernitaspartofthatcategory".
GeraldFitzmaurice,TheLawandProcedureoftheInternationalCourtofJustice1951-4:TreatyInterpretationandOtherTreatyPoints,1957Brit.
Y.
B.
Int'lL.
236(secondemphasisadded).
Sir爚Gerald爚Fitzmaurice,K.
C.
M.
Q.
,Q.
C.
,wasLegalAdvisortotheForeignOffice.
5.
131BecausetheSCMAgreementaddressessubsidiesinamannerfarmorespecificthantheGeneralAgreement,itislexspecialisforthisdispute.
5.
132ComplainantsseektomasktheirinabilitytoprovethatthetwoIndonesianprogrammesstillineffect(the1993incentiveprogrammeandtheFebruary1996nationalcarprogramme)arecausingadverseeffectstotheirinterests.
TheyunsuccessfullyattempttodosobyassertingthattheprogrammesareinconsistentwithArticleIIIoftheGATT1994(aswellasArticleIofGATT1994andArticle爚2andtheIllustrativeListoftheTRIMsAgreement.
)Aswillbediscussed,thethirdIndonesianprogrammesubjecttocomplaint--establishedbytheJune1996decreesandregulations--isnolongerineffect.
Byitstermsitexpired30June1997andhasnotbeen(andwillnotbe)renewed.
Theirattemptsfail.
BothprogrammesaresubsidymeasuresandsotheSCMAgreement(aswellasGATTArticleXVI)isthelexspecialis.
UnlikemanyotherWTOagreements,theSCMAgreementprovidessubstantialspecialanddifferentialtreatmentfordevelopingcountrieslikeIndonesia.
The1993andFebruary1996subsidyprogrammesfullyconformtoIndonesia'sobligations,asadevelopingcountry,undertheSCMAgreement.
ThePanel,therefore,shoulddismissallthreecomplaints.
(a)The1993incentiveprogrammegrantsanexemptionfromorreductionsinimportdutiesandtheluxurytaxavailabletoallcompaniesintheautomotiveindustry5.
133InJune1993,theGovernmentrecognizedthatitsexistingpolicyofseekingtohavemanufacturersandassemblersofautomobilesandautomotivecomponents,subcomponentsandpartsproducetheirproductsinIndonesiawasunsuccessful.
TheGovernmentthereforecreatedanewpolicy,the1993IncentiveProgramme.
Undertheprogramme,manufacturersandassemblersarefreetosourcewherevertheywish(inIndonesiaorabroad).
TheGovernment,however,grantsexemptionsfromorreductionsinimportdutiesandtheluxurytaxforcompaniesthatchoosetosourcespecifiedpercentagesoftheirpartsandcomponentsinIndonesia.
5.
134DecreeoftheMinisterofIndustryNo.
114/M/SK/6/1993(9June1993)grantedincentivesintheformofexemptionfromorreductioninimportdutiestoautomotivecomponentproducersandassemblersthatpurchaseIndonesianpartsandcomponents.
SeeIndonesiaExhibit8.
Thescheduleofincentivesgrantedhasbeenamendedseveraltimessince1993.
Since21January1997,pursuanttoDecreeoftheMinisterofFinanceNo.
36/KMK.
01/1997,theimportdutyonmajorcomponentshasrangedfrom65爚percentforproducersandassemblerswhosourcelessthan20爚percentoftheirpartsandcomponentsdomesticallyto0爚percentforthosewhosourcemorethan60爚percentdomestically.
SeeIndonesiaExhibit9.
Forsubcomponentsandparts,thedutyrangesfrom25爚percentforthosewhosourcelessthan20爚percentdomesticallyto0爚percentforthosewhosourcemorethan40爚percentdomestically.
5.
135Atpresent,pursuanttoDecreeoftheMinisterofFinanceNo.
272/KMK.
04/1995(28June爚1995),theluxurytaxrateis20爚percentfordomesticallyproducedsedansof1600ccorlessanddomesticcontentofmorethan60爚percent;itis35爚percentforothersedans.
SeeIndonesiaExhibit10.
(b)TheFebruary1996NationalCarProgrammegrantsimportdutiesandluxurytaxexemptionstoproducersofaNationalCar5.
136InstructionofthePresidentNo.
2/1996(19February1996)establishesthenationalcarprogrammeanddirectstheMinisterofFinancetograntexemptionfromimportdutiesregardingimportedpartsandcomponentsandfrompaymentofluxurytaxtocompaniesdesignatedasproducersofanationalcar.
SeeIndonesiaExhibit1.
TheexemptionfromimportdutiescurrentlyisimplementedbyArticle4ofDecreeoftheMinisterofFinanceNo.
36/KMK.
01/1997(21January1997)andtheexemptionfromtheluxurytaxisimplementedbyGovernmentRegulationNo.
36/1996(4June1996).
SeeIndonesiaExhibit9and3,respectively.
5.
137DecisionoftheStateMinisterfortheMobilizationofInvestmentFundsNo.
02/SK/1996(5爚March爚1996)designatedTimorPutraNasional(TPN)toproduceanationalcar.
SeeIndonesiaExhibit5.
UnderDecreeoftheMinisterofIndustryandTradeNo.
31/MPP/SK/2/1996(19February1996),TPN'sreceiptoftheimportdutyandluxurytaxexemptionsisconditionedon,amongotherthings,thesourcingofatleast20爚percentofthenationalcar'spartsandcomponentsdomesticallyattheendofthefirstyear,atleast40爚percentattheendofthesecondyearandatleast60爚percentattheendofthethirdyear.
Theprogrammeeffectivelyterminatesinthethirdyear.
SeeIndonesiaExhibit2.
(c)TheGovernment'sgrantofexemptionsandreductionsinimportdutiesandtheluxurytaxtocertainmanufacturersandassemblersofautomobilesandautomotivepartsisasubsidy5.
138Articles1and2oftheSubsidiesAgreementdefinespecificsubsidy.
Theyprovideinrelevantpartthat"asubsidyshallbedeemedtoexistif.
.
.
thereisafinancialcontributionbyagovernment"where:-"governmentrevenuethatisotherwisedueisforegoneornotcollected"(Article爚1.
1(a)(l)(ii));and-abenefitistherebyconferredthatis"specifictoanenterpriseorindustryorgroupofenterprisesorindustries"(Article2.
1).
5.
139Underthe1993incentiveprogramme,theGovernmentforgoesordoesnotcollectrevenuethatisotherwiseduebygrantinganexemptionfromorreductionintherateofimportdutiesonautomotivepartsandcomponents.
Thus,thereistherequisitefinancialcontributionbytheGovernment.
Aswillbediscussedinthenextsubsection,thesubsidyfallsundertheprovisionsofArticle3oftheSubsidiesAgreement.
Thus,byvirtueofArticle2.
3ofthatAgreement,thereistherequisitespecificity.
TheUnitedStatesGovernmentofficiallyhasrecognizedthatthe1993programmeisasubsidyprogramme.
InitsApril爚1997reportentitledIndonesia'sAutomotiveMarketSummary,theUSDepartmentofCommercedeclaredthat"[t]hispolicy[theFebruary1996nationalcarprogramme]representsanetincreaseintheamountofsubsidypaidunderthesystem".
(Emphasisadded.
)SeeIndonesiaExhibit11.
5.
140ThesameistruewithregardtotheFebruary1996nationalcarprogramme.
ItexemptscompaniesdesignatedbytheGovernmentasproducersofanationalcarfromthepaymentofeitherimportdutiesonautomotivepartsandcomponentsortheluxurytax.
TheGovernment,therefore,forgoesordoesnotcollectrevenueotherwiseduefromspecificenterprises.
5.
141Becausebothprogrammesindisputablyprovidesubsidies,theSCMAgreementisthelexspecialisandtheWTOconformityoftheprogrammesmustbeassessedpursuanttotheprovisionsofonlythisAgreement.
(d)Article27.
3oftheSCMAgreementpermitsIndonesia,asadevelopingcountry,tomaintainthesubsidiesgrantedunderthe1993andFebruary1996programmes5.
142Entitlementtothesubsidiesgrantedunderboththe1993andFebruary1996programmesandthelevelofthesubsidygrantedtoeachrecipientdependsuponthepercentageoflocallysourcedpartsandcomponentsinaparticularcarmodelorautomotivecomponent.
Therefore,thesesubsidiestechnicallyfallwithinthescopeofArticle3.
1(b)as"subsidiescontingent(whethersolelyorasoneofseveralotherconditions)upontheuseofdomesticoverimportedgoods".
5.
143Indonesiaisadevelopingcountry.
Accordingly,IndonesiaiswithintheambitofArticle27.
3oftheSubsidiesAgreement,whichprovidesthat"[t]heprohibitionofparagraph1(b)ofArticle3shallnotapplytodevelopingcountryMembersforaperiodoffiveyears.
.
.
fromthedateofentryintoforceoftheWTOAgreement[i.
e.
,until1January2000].
"Instead,theprovisionsofArticles5to爚7regarding"actionablesubsidies"apply.
(SeeSectionVIII.
B.
2(c)).
NoComplainanthas,asrequiredbyArticle爚6,demonstratedbypositiveevidencethattheIndonesianautosubsidiesresultin"seriousprejudice"toitsinterests.
(SeeSection爚VII.
B).
Therefore,thePanelshould:(1)rulethatthesubsidiesprovidedbyIndonesiaunderthe1993andFebruary1996programmesareconsistentwithIndonesia'sobligationsundertheSubsidiesAgreement;and(2)becausetheSubsidiesAgreementisthelexspecialis,dismissallthreecomplaints.
(e)IntroductionoftheFebruary1996subsidyprogrammewasnotinconsistentwithIndonesia'sobligationsundertheSCMAgreement5.
144IndonesiafurtherassertsthatIndonesia'sintroductionoftheFebruary1996programmewasconsistentwithitsobligationsunderArticles27.
3and28.
2oftheSubsidiesAgreement.
TheseargumentsaresetforthindetailinSectionVIII.
C,whichcoverstheclaimraisedbytheUnitedStatesunderArticle爚28oftheSCMAgreement,andIndonesia'sresponsestothisclaim.
2.
Indonesia'sluxurytaxsubsidiestotheautomotiveindustryaregovernedbythedisciplinesoftheSCMAgreementandnotbyArticleIIIoftheGATT19945.
145ThisisthefirstdisputeinvolvingtherelationshipbetweentheWTOAgreementonSubsidiesandCountervailingMeasuresandArticleIIIoftheGeneralAgreement.
Canadadidnotarguethatits"funded"postalratesforcertainperiodicalswasasubsidyunderthetermsof,andsubjecttothedisciplinesof,theSubsidiesAgreement.
ThisisacrucialdistinctionbetweentheinstantdisputeandCanada-CertainMeasuresConcerningPeriodicals,WT/DS31/R(14爚March爚1997).
PriortotheentryintoforceoftheWTOAgreements,nointernationallegaldefinitionofsubsidyexisted.
Therewasnoall-encompassingstructureofremediesapplicabletosubsidies.
SubsidydisciplinesappliedonlytoasmallnumberofGATTContractingPartiesandtherewasnoover-archingWTOagreementgoverningtherelationshipofthesubstantiveagreements.
Thus,therewasnobasisforclaimingthattheTokyoRoundSubsidiesCodewaslexspecialisininstancessuchasthosepresentedinthisdispute.
ThisallchangedwiththeentryintoforceoftheWTO.
SubsidiesaregovernedbyandsubjecttothedisciplinesoftheSubsidiesAgreement,notArticleIIIoftheGeneralAgreement.
(a)Boththe1993incentiveprogrammeandtheFebruary1996NationalCarProgrammesubsidizecertainautomobileproducersbygrantingreducedluxurytax5.
146Theluxurytaxrateforsedans(passengervehicles)is35爚percent.
SeeDecreeoftheMinisterofFinanceNo.
272/KMK.
04/1995(28June1995)atIndonesiaExhibit爚10.
DecreeNo.
272implementsthe1993IncentiveProgramme.
Article2(1)setsasubsidizedluxurytaxrateof20爚percentfordomesticallyproducedsedanswithanenginecapacityoflessthan1600ccandwithlocalcontentofgreaterthan60爚percent.
Also,theGovernmentforgoescollectionof15爚percentofthegenerallyapplied35爚percentluxurytaxratewithrespecttothoseenterprisesproducingautomobilesmeetingthesecriteria.
Therefore,themeasureisaspecificsubsidywithinthemeaningofArticles1.
1(a)(l)(ii)and2oftheSubsidiesAgreement.
5.
147Withrespecttoproducersofanationalcar,InstructionofthePresidentNo.
2/1996(19爚February爚1996)SeeIndonesiaExhibit1.
anditsimplementingregulationsanddecreesdeclarethatthe35爚percentluxurytaxis"bornebytheGovernment.
"Thus,theFebruary1996programmealsoprovidesasubsidywithinthemeaningofArticle1.
1(a)(1)(ii)oftheSubsidiesAgreementthatisspecificwithinthemeaningofArticle2.
TheUnitedStatesalsoarguesthattheAugust1997loanisinconsistentwithArticleIII:4oftheGeneralAgreement.
However,asdemonstratedabove,theloanisnotwithinthePanel'sTermsofReferenceandsoshouldnotbeexamined.
(b)SubsidiesaregovernedbyandsubjecttothedisciplinesoftheSCMAgreement5.
148Articles3through9oftheSCMAgreementsetoutthedisciplinesapplicabletodifferenttypesofsubsidiesandtheremediesapplicabletoeachtype.
Allsubsidiesfallintooneofthreecategories爚-prohibited,actionableornon-actionable.
TwotypesofsubsidiesareprohibitedbyvirtueofArticle爚3.
1爚-subsidiescontingentuponexportperformanceandsubsidiescontingentupontheuseofdomesticoverimportedgoods.
Fourtypesofsubsidiesarenon-actionable:subsidieswhichare"notspecificwithinthemeaningofArticle2"(Article8.
1(a));assistanceforcertainresearchactivities(Article8.
2(a));assistancetodisadvantagedregions(Article8.
2(b));andassistancetopromoteadaptationtonewenvironmentalrequirements(Article8.
2(c)).
AllsubsidieswhichareneitherprohibitedunderArticle爚3nornon-actionableunderArticle8areactionableandaregovernedbyArticles5through爚7oftheSCMAgreement.
Thus,allsubsidiesarecovered.
IftheyareoneofthetwosubsidiesidentifiedinArticle爚3theyareprohibited.
IftheyareoneofthefouridentifiedinArticles8,theyarenon-actionable.
IftheyarespecificsubsidieswithinthemeaningofArticles1and2butarenotamongthesubsidiesidentifiedinArticles3or8,thentheyfallintotheresidualcategoryofactionablesubsidies.
5.
149TheSCMAgreementalsosetsoutindetailtheremediesapplicabletothethreecategoriesofsubsidies.
FordevelopedcountryWTOMembers,theremedyapplicabletothetwotypesofsubsidiesidentifiedinArticle3.
1isthemandateto"withdrawthesubsidywithoutdelay"(Article4.
7).
Theonlyprerequisiteforsuchamandateistheprovenexistenceofaprohibitedsubsidy.
Thecomplainingpartyisnotrequiredtopleadorproveanyadverseeffects.
ForallWTOMembers,subsidiesthatmeetthecriteriaofArticle8are,asthetermindicates,non-actionable.
Theyaregenerallypermissibleandarenotsubjecttoremedialaction.
5.
150Fortheresidualcategoryofactionablesubsidies,includingthosenotprohibitedfordevelopingcountriesbyvirtueofArticle27,acomplainingpartymustestablishboththeexistenceofasubsidywithinthemeaningofArticles1and2andadverseeffectstoitsintereststhroughtheuseofthatsubsidy(Article5).
Whereboththesubsidyandtheadverseeffectsareestablished,theremedyisthatthedevelopingcountryMember"shalltakeappropriatestepstoremovetheadverseeffectsorshallwithdrawthesubsidy"(Article7.
8).
Inotherwords,theremedyistoeliminatetheharmtothetradeinterestsofthecomplainingMember.
Thesubsidizingcountrycanchoosetodosobyeliminatingthemeasure,butitisnotrequiredtodoso.
Itsonlyobligationthenistoeliminatetheadverseeffects.
5.
151ByvirtueofthespecialanddifferentialtreatmentprovidedbyArticle27,theprohibitionsofArticle3.
1donotapplytodevelopingcountryWTOMembers(Articles27.
2and27.
3).
Accordingly,theArticle7remedyprovisionsapplicabletoactionablesubsidiesapplyinsteadoftheremedialprovisionsofArticle4(Article27.
7).
Theeffectisthat,ashere(becauseIndonesiaisadevelopingcountry),ComplainantsmustpleadandprovenotonlytheexistenceofoneofthetwotypesofsubsidiesidentifiedinArticle3.
1Boththe1993andFebruary1996programmesimposethetypeoflocalcontenteligibilityrequirementscontemplatedbyArticle爚3.
1(b).
TheJune1996programmedoesnot,butisirrelevantbecauseitalreadyhasended.
,butalsothatthesubsidyallegedhascausedadverseeffectstotheirinterests(Article爚5).
5.
152Insum,theremedywhereboththesubsidyandtheadverseeffectsareprovenistheremedyapplicabletoactionablesubsidies-theadverseeffectsofthesubsidyshallberemoved.
Thesubsidizingdevelopingcountrycanchoosetodosobyeliminatingthemeasurebutitalsohastheoptionofmaintainingthemeasureandtakingactiontoeliminatetheadverseeffects.
(c)GeneralrulesoftreatyinterpretationprecludefindingthatasubsidypermissibleundertheSCMAgreementisproscribedbyArticleIIIoftheGATT19945.
153Undergeneralrulesoftreatyinterpretation,onemustgivemeaningandeffecttoalltermsofatreaty.
AsproperlyrecognizedbytheWTOAppellateBody:"Aninterpreterisnotfreetoadoptareadingthatwouldresultinreducingwholeclausesorparagraphsofatreatytoredundancyorinutility".
UnitedStates-StandardsforReformulatedandConventionalGasoline,WT/DS2/AB/R(20May1996)(p.
23)footnoteomitted).
SeealsoJapan-TaxesonAlcoholicBeverages,WT/DS/AB/R(4October1996)(p.
12);DSU,Article3.
2.
Therefore,ArticleIII:2oftheGeneralAgreementcannotcontrolthisdisputebecause,ifitdid,theentireSCMAgreementwouldbereducedtoinutility.
5.
154UnderArticleIII:2noimportedproductshallbesubjecttoaninternaltaxinexcessofthatappliedtoalikedomesticproduct.
Article3.
8oftheWTODisputeSettlementUnderstandingcodifieslong-standingGATTpracticethatinfringementofanobligationoftheGeneralAgreementsuchasthatofArticleIII:2isconsideredprimafacietoconstituteacaseofnullificationorimpairment.
Inotherwords,thecoveredpracticeisproscribedandthecomplainingpartyneednotpleadorproveadversetradeeffects.
InitsUruguayRoundTRIMssubmissionof6February1989,theUnitedStatesrecognizedthatcertainGATTprovisions(e.
g.
,ArticleI)proscribepractices,whileothers(e.
g.
,Article爚VI)remedyadversetradeeffects(MTN.
GNG/NG12/W/14atpp.
12-13).
GATTArticleXVIandtheSubsidiesAgreement,likeGATTArticleVI,remedytradeeffectsofactionablesubsidies.
5.
155TheIndonesianluxurytaxisaninternaltax.
Underthe1993IncentiveProgramme,passengersedanswithanenginecapacityoflessthan1600ccandanIndonesiancontentofmorethan60爚percentareobligedtopayasubsidizedluxurytaxofonly20爚percentiftheyareproducedinIndonesia,whiletheimportedlikeproduct(importedpassengersedanswithanenginecapacityoflessthan1600ccandanIndonesiancontentofmorethan60%)aresubjecttothenon-subsidizedluxurytaxrateof35爚percent.
UndertheFebruary爚1996nationalcarprogramme,theGovernmentexcusesTPNfrompaymentoftheluxurytaxonthe1500ccTimorS515(whichmeetstheapplicablelocalcontentlevel)whileimposingthenon-subsidizedrateof35爚percentonimportsoflikeproducts.
(Thereisnobanonimportsofsmall-engine-capacitysedansthatwouldbe"like"theTimor.
However,Complainantshavetheburdenofprovingthatthereactuallyaresuchimportsbecause,iftheydonotdoso,theyfailtoprove"seriousprejudice"withrespecttothe"actionable"subsidizationbyIndonesiaoftheluxurytaxrateforcertaindomesticsedans.
)5.
156IfArticleIII:2applied,thennomorewouldneedtobeestablished.
Complainantswouldnothavetopleadorprovethattheyhavesufferedadversetradeeffectsbyreasonofthesubsidizedluxurytaxrates.
DespitetheSubsidiesAgreement,whichpermitsactionablesubsidiestobemaintainedunlesstheyareproventocauseadversetradeeffects,themeasure--indeedallsuchactionablesubsidies爚-wouldbeproscribedunderArticleIII:2oftheGeneralAgreementmerelyuponashowingofdiscriminationduetoasubsidy.
SuchaholdingwouldrendermeaninglesstheprovisionsoftheSubsidiesAgreementrelatingtoactionablesubsidies.
5.
157InthisdisputetheissueislimitedtoArticleIII:2andtaxsubsidies.
Theimportdutysubsidiesrelatetobordermeasures,nottointernallawssubjecttoArticleIII:4oftheGeneralAgreement.
ThisrendersmuchofComplainants'argumentationirrelevant.
Howeverthesameinterpretationalproblemwouldarisewithrespecttovirtuallyallsubsidiesotherthansubsidizedimportdutiesandotherbordercharges.
Thepurposeofmostsubsidiesistoprovidefinancialassistancetoatargetedindustryorasmallgroupofindustries.
Bytheirverynatureandbydesign,subsidiesdiscriminateagainstproducersoflikeproducts(bothdomesticandimported)thatdonotreceivethesubsidy.
Totheextentthatasubsidyisnotprovidedtoanimportedproduct(whichisthecaseinvirtuallyeverysubsidyevergranted),thenitdoesnotprovidenationaltreatment.
Accordingly,onecannotgivemeaningandeffecttotheframeworkoftheSubsidiesAgreementrequiringproofofadversetradeeffectsastoactionablesubsidiesifArticleIIIoftheGeneralAgreementanditsnationaltreatmentprincipleisapplied.
5.
158Theimportanceoftheexistenceofalegaldefinitionofsubsidiesandanall-encompassingstructureofremediesisevidentbycontrastingthesubsidiesprovisionsapplicabletogoodswiththoseapplicabletoservices.
InitsExplanatoryNoteontheSchedulingofInitialCommitmentsinTradeinServicesMTN.
GNS/W/164(3September1993)atp.
6(emphasisadded).
(intendedtoassistcountriesinpreparingtheirservicescommitmentsintheUruguayRound),theGATTSecretariatstated:ArticleXVII[nationaltreatment]appliestosubsidy-typemeasuresinthesamewaythatitappliestoallothermeasures.
ArticleXV(Subsidies)merelyobligesMembersto"enterintonegotiationswithaviewtodevelopingthenecessarymultilateraldisciplines"tocounterthedistortiveeffectscausedbysubsidies.
Therefore,anysubsidywhichisadiscriminatorymeasurewithinthemeaningofArticle爚XVIIwouldhavetobeeitherscheduledasalimitationonnationaltreatmentorbroughtintoconformitywiththatArticle.
Subsidy-typemeasuresarealsonotexcludedfromthescopeofArticle爚II(MFN).
AnexclusionofsuchmeasureswouldrequirealegaldefinitionofsubsidieswhichiscurrentlynotprovidedforundertheGATS.
5.
159TheGATScontainsno"legaldefinitionofsubsidies",andsotheGATSrequirementsregardingnationaltreatment(whichpermitschedulingalimitationontheobligation)apply.
Inthegoodsarea,thereisalegaldefinitionintheSCMAgreement,therebywarrantingexclusionofsubsidiesfromapplicationofthenationaltreatmentobligationofGATTArticleIII.
5.
160TheonlyconceivableinterpretationoftherelationshipofsubsidiesandArticleIIIoftheGeneralAgreementthatwouldnotreducetheSCMAgreementtoredundancyorinutilityisthatsubsidieswhichmeetthecriteriaofArticles1and2oftheSCMAgreementaregovernedbyandaresubjecttothedisciplinesofonlytheSCMAgreement.
Actionablesubsidies(includingArticle3.
1subsidieswhichareactionablefordevelopingcountriesbyvirtueofArticle27)requireproofofadversetradeeffects.
ThatrequirementcannotbesubvertedmerelybyarguingthatthesubsidyviolatesArticle爚IIIoftheGATT1994bydenyingnationaltreatment.
(d)TheproperinterpretationofArticleIII:8(b)oftheGATT1994supportstheviewthatArticleIIIdoesnotoverridetheSCMAgreement5.
161InCanada-CertainMeasuresConcerningPeriodicals,WT/DS31/AB/R(30June1997),theAppellateBodydiscussedandruleduponArticleIII:8(b).
ThefactsofthedisputeshowthatCanadadidnotarguethatitsfundedpostalratesprogrammewasasubsidyunderthecriteriaofArticles1and2oftheSubsidiesAgreementand,therefore,wassubjecttothedisciplinesandremediesofonlythatAgreement.
Rather,Canadaarguedsimplythatitspracticewasexcused(i.
e.
,notsubjecttoanydisciplineorremedies)byvirtueofArticleIII:8(b)oftheGeneralAgreement.
5.
162TheUnitedStatesdisagreed,arguingthatthetransferoffundsfromonegovernmententitytoanotherdidnotfulfiltheconditionofArticleIII:8(b)regarding"thepaymentofsubsidiesexclusivelytodomesticproducers.
"ThePanelsidedwithCanada.
ThefindingofthePanelwithwhichtheAppellateBodydisagreedandwhichitreversedwas:Thus,wedonotfindthatCanadaPostretainsanyeconomicbenefitsfromthe"funded"rateschemeitappliestocertainCanadianperiodicals.
Thepaymentofthesubsidyismade"exclusively"toCanadianpublishersthatqualifyforthescheme.
SinceArticle爚III:8(b)explicitlyrecognizesthatsubsidiesexclusivelypaidtodomesticproducersarenotsubjecttothenationaltreatmentrulesofArticleIII,includingthoseunderArticle爚III:4,wefindthatCanada's"funded"rateschemeonperiodicalscanbejustifiedunderthisprovision.
WT/DS31/R(14March1997)(para.
5.
44).
5.
163InanalysingtheAppellateBody'sdiscussion,onemustconsiderthefollowingfacts.
TheAppellateBodywasrulingonwhetherthegovernmentpaidasubsidyexclusivelytodomesticproducersanditwasdoingsoinadisputeinwhichbothpartiesfocusedsolelyontheGeneralAgreement.
TheAppellateBodywasnotaskedtodecideanditdidnotaddressthequestionpresentedinthisdispute,whichiswhetherasubsidypermissibleundertheSCMAgreement(excepttotheextentitisproventocauseadversetradeeffects)canstillbeproscribedasaviolationofthenationaltreatmentprincipleofArticleIIIoftheGeneralAgreement.
5.
164Withthisinmind,letusanalyzethetext,draftinghistory,context,andobjectandpurposeofArticleIII:8(b).
TheChairmanoftheWorkingPartythatexaminedtheprovisionthatbecameArticle爚III:8(b)explainedthepurposeofandneedfortheprovisionasfollows:ThisprovisionhadbeenaddedtotheGenevadraft[oftheITOCharter]becauseitwasfeltthatifsubsidieswerepaidondomesticandnotonimportedproductsitmightbeconstruedthatMemberswerenotapplyingthe"nationaltreatment"rule.
E/CONF.
2/C.
3/A/W.
49,p.
爚2.
AttheHavanaConference,theReportoftheSub-CommitteethatexaminedArticle18ofthedraftITOCharter(thepredecessorofArticleIIIoftheGeneralAgreement)stated:Thissub-paragraph[ArticleIII:8(b)]wasredraftedinordertomakeitclearthatnothinginArticle18couldbeconstruedtosanctiontheexemptionofdomesticproductsfrominternaltaxesimposedonlikeimportedproductsortheremissionofsuchtaxes.
AtthesametimetheSub-Committeerecordeditsviewthatnothinginthissub-paragraphorelsewhereinArticle18wouldoverridetheprovisionsofSectionCofChapterIV[onSubsidies.
]ReportofCommitteesandPrincipalSub-committees,UnitedNationsConferenceonTradeandEmployment,heldatHavana,Cubafrom21November1947to24March1948,ICITOI/8(September爚1948)at66,para.
69(emphasisadded).
PreviousGATTpanelreportsaddressingArticleIII:8(b)havefocusedonthefirstportionofthisquotationfromtheHavanaReports.
However,neithertheynortheAppellateBodyinCanada-Periodicalsfocusedonoranalyzedtheportionemphasizedabove.
5.
165ThepanelreportmostrelevanttothisdisputeisUnitedStates-MeasuresAffectingAlcoholicandMaltBeverages(19June1992),BISD39S/206.
TwootherreportsdiscussingArticleIII:8(b)arenotofvalueinthisdisputebecausetheyaddresswhetherasubsidywasindeedpaidexclusivelytodomesticproducers,afactnotatissueinthisdispute.
ItalianDiscriminationAgainstImportedAgriculturalMachinery(23October1958),BISD7S/60;andEuropeanEconomicCommunity-PaymentsandSubsidiesPaidtoProcessorsandProducersofOilseedsandRelatedAnimal-FeedProteins(25January1990),BISD37S/86.
TheUSerroneouslyclaimsthattherequirementsetoutinItalianMachineryisnotmetwithregardtowhattheytermIndonesia'stariffandtaxincentivesforautomotivepartsandsubparts.
(SeeSectionV.
E.
3(b)).
Asdiscussedinthenextsectionofthissubmission,subsidizedcustomsimportdutiesarebordermeasures,notinternalmeasures,andthereforearenotwithinthescopeofArticleIII.
Theluxurytaxsubsidyappliestoassembledautomobilesandisprovidedexclusivelytotheproducersorassemblers,therebyfulfillingthecriterionsetoutinItalianMachinery.
UnitedStates-MeasuresAffectingtheImportation,InternalSaleandUseofTobacco(12August1994),DS44/R,alsoisnotrelevant.
There,thecomplainingpartiessoughtunsuccessfullytouseArticleIII:8(b)toarguethatUnitedStatesproducers(butnotimporters)benefittedfromasubsidyderivedfromtheproceedsofaninternaltaxwhichwasnotwithinthescopeofArticleIII:8(b)butwasinviolationofArticle爚III:2.
There,thepanel,asquotedbytheAppellateBodyinCanada-Periodicals,stated:ArticleIII:8(b)limitsthereforethepermissibleproducersubsidiesto"payments"aftertaxeshavebeencollectedorpaymentsotherwiseconsistentwithArticle爚III.
Thisseparationoftaxrules,e.
g.
ontaxexemptionsorreductions,andsubsidyrulesmakessenseeconomicallyandpolitically.
Eveniftheproceedsfromnon-discriminatoryproducttaxesmaybeusedforsubsequentsubsidies,thedomesticproducerlikehisforeigncompetitorsmustpaytheproducttaxesdue.
Theseparationoftaxandsubsidyrulescontributestogreatertransparency.
Italsomayrenderabusesoftaxpoliciesforprotectionistpurposesmoredifficult,asinthecasewhereproduceraidsrequireadditionallegislativeorgovernmentaldecisionsinwhichthedifferentinterestsinvolvedcanbebalanced.
BISD39S/206(para5.
10atp.
272)(emphasisadded).
ThefullimportofthisstatementisclearfromthefollowingfindingoftheUnitedStates-MeasuresAffectingAlcoholicandMaltBeveragesPanel:Thewords"paymentofsubsidies"referonlytodirectsubsidiesinvolvingapayment,nottoothersubsidiessuchastaxcreditsortaxreductions.
Id.
atp.
爚271-72,para.
爚5.
8(emphasisadded).
5.
166Onemustnote,however,thatUnitedStatesAlcoholicBeverageswasdecidedpriortothecompletionoftheUruguayRoundnegotiationsand,therefore,underthethen-existingGATTregime.
TheTokyoRoundSubsidiesCodedidnotcontainanall-encompassingdefinitionofsubsidies.
ItsmembershipwaslimitedtothoseContractingPartieswhochosetoadhereandtherelationshipoftheCodetotheGATTwasnotexpressedandwassubjecttodifferingviews.
Further,becausetheGATTandtheCodewereseparatelegalinstruments,provisionsofonecouldnotberaisedandanalyzedbyapanelinadisputeinvolvingtheother.
5.
167AllofthatchangedwiththeentryintoforceoftheWTOAgreements.
Article1oftheSCMAgreementidentifiesfourtypesofsubsidies:(i)爚directtransferoffunds;(ii)爚forgoingofrevenueotherwisedue;(iii)爚provisionofgoodsorservicesatnon-marketprices;and(iv)爚paymenttoafundingmechanismdirectedbyaprivatebody.
Onlythefirsttypeisa"directsubsidy.
"AllMembersoftheWTOadheretoboththeGeneralAgreementandtheSCMAgreementandbothagreementsareintegralpartsoftheAgreementEstablishingtheWorldTradeOrganization(seeArticleII.
2thereof).
Finally,disputesettlementpanelsaremandatedtoaddresstherelevantprovisionsofallWTOagreementscitedbythepartiestoadispute.
(Article7.
2oftheDisputeSettlementUnderstanding.
)5.
168Underthesecircumstances,generalrulesoftreatyinterpretationrequirerethinkingthescopeofArticleIII:8(b).
UndertheWTO,"thepaymentofsubsidies"languageinArticle爚III.
8(b)mustrefertoallsubsidiesidentifiedinArticle1oftheSCMAgreement,notmerelytothesubsetof"direct"subsidies.
Thisinterpretation,andonlythisinterpretation,avoidsrenderingtheSCMAgreementmeaningless.
Underthisinterpretation,anyandallsubsidiesprovidedexclusivelytodomesticproducersarenotgovernedbythenationaltreatmentprincipleofArticleIIIoftheGeneralAgreement(whichbydefinitiontheycouldnotmeet).
Rather,subsidiesthatfallwithinthescopeofArticles1and2oftheSCMAgreementandthatareactionableunderArticles爚5and6,aresubjectonlytothedisciplinesofArticle爚7oftheSCMAgreementand,eventhen,onlyiftheycauseadverseeffectstotheinterestsofotherMembers.
(e)InaconflictbetweentheSCMAgreementandArticleIIIoftheGATT1994,theSCMAgreementPrevails5.
169The"GeneralinterpretativenotetoAnnex1A"oftheAgreementEstablishingtheWorldTradeOrganizationstates:IntheeventofconflictbetweenaprovisionoftheGeneralAgreementonTariffsandTrade1994andaprovisionofanotheragreementinAnnex1AtotheAgreementEstablishingtheWorldTradeOrganization(referredtointheagreementsinAnnex爚1Aasthe"WTOAgreement"),theprovisionoftheotheragreementshallprevailtotheextentoftheconflict.
TheReportofthePanelinEuropeanCommunities-RegimefortheImportation,SaleandDistributionofBananas,WT/DS27/R/USA(22May1997),defines"conflict"asfollows:Asapreliminaryissue,itisnecessarytodefinethenotionof"conflict"laiddownintheGeneralInterpretativeNote.
Inlightofthewording,thecontext,theobjectandthepurposeofthisNote,weconsiderthatitisdesignedtodealwith(i)clashesbetweenobligationscontainedinGATT1994andobligationscontainedinagreementslistedinAnnex1A,wherethoseobligationsaremutuallyexclusiveinthesensethataMembercannotcomplywithbothobligationsatthesametime,and(ii)thesituationwherearuleinoneagreementprohibitswhataruleinanotheragreementexplicitlypermits.
However,weareoftheviewthattheconceptof"conflict"asembodiedintheGeneralInterpretativeNotedoesnotrelatetosituationswhererulescontainedinoneoftheAgreementslistedinAnnex1AprovidefordifferentorcomplementaryobligationsinadditiontothosecontainedinGATT1994.
Insuchacase,theobligationsarisingfromtheformerandGATT1994canbothbecompliedwithatthesametimewithouttheneedtorenounceexplicitrightsorauthorizations.
Inthislattercase,thereisnoreasontoassumethataMemberisnotcapableof,ornotrequiredtomeettheobligationsofbothGATT1994andtherelevantAnnex1AAgreement.
(Emphasisadded;footnoteomitted.
)5.
170IfthePanelweretoconcludethatitcannotreconcilethecoverageanddisciplinesoftheSCMAgreementandArticleIIIoftheGeneralAgreement(eitherbyreasonofgeneralrulesoftreatyinterpretationorthroughinterpretationofArticleIII:8(b)),thena"conflict"wouldexistbetweentheSubsidiesAgreementandArticleIIIoftheGeneralAgreement.
ByvirtueoftheGeneralInterpretativeNote,theprovisionsoftheSubsidiesAgreementwouldprevail.
5.
171TheSCMAgreementpermitsIndonesia,asadevelopingcountry,tosubsidizetheluxurytaxrateunlessthosesubsidiesareproventocauseadversetradeeffects.
ArticleIIIoftheGATT1994,ontheotherhand,wouldproscribethesesubsidiesonthegroundthattheydeniednationaltreatmentunderthetermsofArticleIII:2.
Adversetradeeffectswouldnotneedtobeproven.
Inotherwords,theSCMAgreementexplicitlypermitswhatArticleIIIoftheGATT1994wouldprohibit.
Indonesia'sobligationsunderthetwoprovisionswouldbemutuallyexclusive.
OnesimplycouldnotapplythegeneralprohibitionofArticleIII:2and,atthesametime,provideIndonesiaitsexplicitrightsundertheSCMAgreementregardingtheproofofadverseeffects.
Thisfallssquarelywithinthedefinitionof"conflict"intheGeneralInterpretativeNote.
Hence,theprovisionsoftheSCMAgreement(an"Annex爚1AAgreement")wouldprevailoverArticleIIIoftheGeneralAgreement.
5.
172ArticleIII:4ofGATT1994alsoconflictswiththeSCMAgreementinsofarasitprohibitsmeasureswhichtheSCMAgreementdoesnotprohibit.
Take,forexample,alawthatprovidesassistancetoanindustryinadisadvantagedregion(meetingtherequirementsArticle8.
2(b)oftheSCMAgreement)orother"greenlight"subsidies.
ThissubsidyispermittedbytheSCMAgreement,butwouldviolateArticleIII:4,ifitapplied.
Asimilarconflictarisesintheinstantcase,wheretheSCMAgreement,asIndonesiahasdemonstrated,permitsthemeasureswhichcomplainantsargueviolateArticleIII:4.
Also,evenifcomplainantswerecorrect,aconflictwouldexistandonlytheSCMAgreementwouldapply.
(f)TheSCMAgreementdefinessubsidiesandsetsoutalloftherightsandobligationspertainingtothem5.
173Articles1through9oftheSCMAgreementcomprehensivelysetoutthedefinitionsof,disciplinesonandremediesforsubsidies.
TheSCMAgreementcoversallsubsidies.
IfasubsidyisoneofthetwotypesofsubsidiesidentifiedinArticle3,itisaprohibitedsubsidy.
IfasubsidyisoneofthefourtypesofsubsidiesidentifiedinArticle8,itisanon_actionablesubsidy.
IfasubsidyisspecificwithinthemeaningofArticle2,butneitherprohibitedunderArticle3nornon_actionableunderArticle爚8,itfallsintotheresidualcategoryofactionablesubsidies.
5.
174Also,theSubsidiesAgreementcoversallremediesforsubsidies,withArticle27providingspecialanddifferentialtreatmentofdevelopingcountryMembers.
Ifasubsidyisaprohibitedsubsidy,acomplainantmustprovetheexistenceofaprohibitedsubsidyandtheremedyisthattheMember"withdrawthesubsidywithoutdelay"(Article4.
7).
Ifasubsidyisanactionablesubsidy,includinganotherwiseprohibitedsubsidygrantedormaintainedbyadevelopingcountry,acomplainantmustprovetheexistenceofasubsidywithinthemeaningofArticles1and2andadverseeffectstothecomplainant'sintereststhroughtheuseofthatsubsidy(Article5).
TheremedyisthattheMember"shalltakeappropriatestepstoremovetheadverseeffectsorshallwithdrawthesubsidy.
"(Article爚7.
8).
Proceduresandremediesforcertainnon_actionablesubsidiesaresetforthatArticle9.
(g)Thedefinitionof"subsidy"intheSCMAgreementisall_encompassing,contrarytotheUnitedStatesassertion5.
175TosupportitsargumentthatthedefinitionofsubsidyintheSCMAgreementisnotall_encompassing,theUnitedStatescitesArticle1.
1oftheSCMAgreementasstatingthatthedefinitionis"[f]orthepurposeofthisAgreement".
5.
176First,theUnitedStates'attempttousethislanguagetoconfinethedefinitionignoresthefactthatallWTOagreementsarepartofaunitarywhole.
TheSCMAgreementispartofthefamilyofWTOagreements.
ArticleII:2oftheAgreementEstablishingtheWorldTradeOrganizationstatesthat"[t]heagreementsandassociatedlegalinstrumentsincludedinAnnexes1,2and3areintegralpartsofthisAgreement,bindingonallMembers.
"PriortotheentryintoforceoftheWTOAgreements,nointernationallegaldefinitionofsubsidyexisted.
Therewasnoall_encompassingstructureofdefinitions,disciplinesandremedies,andtheSubsidiesCodeappliedtoonlyasmallnumberofGATTContractingParties.
WiththeentryintoforceoftheWTOagreements,theSCMAgreement'sdefinitionofsubsidybecamethesoledefinitionofsubsidyforthefamilyofWTOagreements.
5.
177Second,theUnitedStatesfailsto(andcannot)provideanalternativedefinitionofsubsidy.
Finally,themeasuresatissueclearlyfallwithinthedefinitionof"subsidy"setoutatArticles1.
1(a)(1)(ii)and2oftheSCMAgreement.
(SeeSectionsV.
D.
1andVIII.
A.
1and2).
(h)ArticleVI:5oftheGATT1994IsIrrelevantandServestoLimitaComplainant'sUnilateralRemedy5.
178TheUnitedStatescitesGATTArticleVI:5tosupportitsargumentthattheSCMAgreementwasnotintendedtobetheexclusiveremedyagainstmeasuresthatcanbecharacterizedassubsidies.
(SeeSectionV.
E.
3)However,ArticleVI:5isirrelevanttothiscase.
Ithasnothingtodowithwhetherasubsidycanbegrantedbythehostcountry(i.
e.
,whethertheobligationsofArticleIIIoftheGeneralAgreementapplyaswellasthoseoftheSCMAgreement)or,forthatmatter,withsubsidiesatall.
Rather,itpreventstheauthoritiesofanimportingcountryfromdoublecountingwhenimposingdutiesunderdomesticanti_dumpingorcountervailingdutylaws.
Insituationsinwhichthegrantingofasubsidyleadstoanexportpricethatisbelow"normalvalue"(thecomparablepriceforthelikeproductwhendestinedforconsumptioninthehomecountry'smarket),theauthoritiesoftheimportingcountrycould,absentArticleVI:5,imposebothanti_dumpingandcountervailingduties.
ArticleVI:5preventsthis.
(i)TheUnitedStates'interpretationofArticle32.
1,footnote56,oftheSCMAgreementisflawed5.
179TheUnitedStatescitesfootnote56ofArticle32oftheSCMAgreementasindicatingthatthedraftersdidnotintendfortheAgreementtobetheexclusiveremedyagainstmeasureswithintheAgreement'sdefinitionofsubsidy(SeeSectionV.
E.
3),andthusthereisno"conflict"betweentheSCMAgreementandtheGeneralAgreement.
Thisinterpretationisincorrect.
Article32.
1andfootnote56weretakenverbatimfromtheTokyoRoundSubsidiesCode,inwhichtheyappearasArticle19.
1andfootnote爚38.
AcompanionarticleandfootnoteappearintheTokyoRoundAnti_DumpingCode.
Onlythereferenceto"dumping",asopposedto"subsidy",differs.
ThetextofArticle16.
1oftheAnti_DumpingCodeandfootnote16follow(withdifferingtext,fromArticle19.
1andfootnote38oftheSubsidiesCode,includedwithinbrackets).
Article16.
1:"NospecificactionagainstdumpingofexportsfromanotherParty[asubsidyofanothersignatory]canbetakenexceptinaccordancewiththeprovisionsoftheGeneralAgreement,asinterpretedbythisAgreement.
"Footnote16:"ThisisnotintendedtoprecludeactionunderotherrelevantprovisionsoftheGeneralAgreement,as[where]appropriate.
"Thus,itisclearthatthedraftersoftheTokyoRoundCodesconsideredthatthesearticlesandtheirfootnotesappliedtoactionsbyauthoritiesofimportingcountriesunderdomesticcountervailingdutyoranti_dumpinglaws.
Inthiscontext"otherrelevantprovisions"oftheGeneralAgreementreferstootherpermissibleactionsbyimportingauthorities,suchassafeguardactionsunderArticleXIXoftheGeneralAgreement,whichare"appropriate"whentheconditionsforapplicationofthatremedyaresatisfied.
5.
180TherearetwoadditionalreasonswhytheUnitedStates'argumentisflawed.
First,theUnited爚States'argumentignoresthesignificanceofthewords"relevant"and"whereappropriate"infootnote56:ThisparagraphisnotintendedtoprecludeactionunderotherrelevantprovisionsofGATT1994,whereappropriate.
(Emphasisadded.
)TheUnitedStatesignorestheverytextitseekstointerpret.
OtherGATTprovisionsarenot"relevant"and,moreover,actionunderotherGATTprovisionsisnot"appropriate"andthereforeisprecluded,becausethemeasuresatissueareclearlycoveredbytheSCMAgreement,whichalsoprovidesremediesforthem.
5.
181Second,Article32.
1itselfstates:NospecificactionagainstasubsidyofanotherMembercanbetakenexceptinaccordancewiththeprovisionsofGATT1994,asinterpretedbythisAgreement.
(Emphasisadded;footnoteomitted.
)Thewords"asinterpretedbythisAgreement"confirmthesupremacyoftheSCMAgreementindefiningandprovidingremediesforsubsidies.
(j)Indonesia'sright,asadevelopingcountry,tomaintaindomestic_contentsubsidiesIssubjectonlytoIndonesia'sobligationnottocauseseriousprejudicetoalikeproduct.
5.
182BecauseIndonesiaisadevelopingcountryMember,"[t]heprohibitionofparagraph1(b)ofArticle3shallnotapplyforaperiodoffiveyearsfromthedateofentryintoforceoftheWTOAgreement[i.
e.
,until1January2000]"toitsdomestic_contentsubsidies(Article27.
3).
Instead,Articles爚5through7apply.
NoComplainanthas,asrequiredbyArticle6,demonstratedbypositiveevidencethatthedomestic_contentsubsidiesresultin"seriousprejudice"toalikeproduct.
(SeeSection爚VIII.
B.
)(k)TheapplicationtothisdisputeofArticleIIIoftheGATT1994,ascomplainantsadvocate,wouldrendertheSCMAgreementmeaningless5.
183IfArticleIII:2weretoproscribeactionablesubsidiesthatarenotproventocauseadverseeffects,theprovisionsoftheSubsidiesAgreementregardingactionablesubsidieswouldberenderedmeaningless.
(1)Virtuallyallsubsidiesareintendedto,andactuallydo,benefitonlydomesticproducts5.
184UndertheSCMAgreement,withregardtoanactionablesubsidy,acomplainantmustproveboththeexistenceofasubsidywithinthemeaningofArticles1and2andadverseeffectstothecomplainant'sintereststhroughtheuseofthatsubsidy(Article5).
Incontrast,accordingtoArticle爚3.
8oftheUnderstandingonRulesandProceduresGoverningtheSettlementofDisputes(DSU)aswellaslong_standingGATTpractice,ameasureinfringinguponArticleIII:2oftheGeneralAgreementisproscribedoutright.
UnderArticleIII:2,animportedproductshallnotbesubjecttoaninternaltaxinexcessofthatappliedtoalikedomesticproduct.
Acomplainantneednotproveadverseeffectstoitsinterestsresultingfromthatmeasure.
5.
185Bydefinition,subsidiesdiscriminateagainstlikeproducts,bothdomesticandimported,thatdonotreceivethesubsidy.
Totheextentthatasubsidyisnotprovidedtoanimportedproduct,whichisvirtuallyalwaysthecase,thesubsidywouldviolatethenationaltreatmentrequirementofArticle爚IIIifthatobligationwereapplicable.
(2)Undercomplainants'interpretation,Indonesia'sluxurytaxsubsidieswouldbecondemnedsolelybecauseoftheirdiscriminatorynatureandtheEuropeanCommunitiesandUnited爚Stateswouldnothavetoshowseriousprejudice5.
186Thesubsidyprovidedunderthe1993IncentiveProgrammebenefitspassengersedanswithanenginecapacityoflessthan1600ccandanIndonesiancontentofmorethan60爚percent.
Incontrast,importedpassengersedanswithanenginecapacityoflessthan1600ccandanIndonesiancontentofmorethan60爚percentaresubjecttoanon_subsidizedluxurytaxratethatisinexcessofthesubsidizedrate.
UndertheFebruary1996NationalCarProgramme,a1500ccTimorS515thatmeetstheapplicablelocalcontentlevelisnotsubjecttotheluxurytax,whereasasimilarimportedcarwouldbesubjecttoanon_subsidizedluxurytaxrateinexcessofthesubsidizedrate.
5.
187IfArticleIII:2wereappliedinsteadoftheSCMAgreement,Indonesia'sluxurytaxsubsidieswouldbecondemnedsolelybecauseoftheirinherentlydiscriminatorynature.
TheEuropeanCommunitiesandtheUnitedStateswouldnothavetomeettheSCMAgreement'srequirementofprovingseriousprejudice.
(l)Conversely,Indonesia'sinterpretationdoesnotrenderArticleIIIuseless,ascomplainantsmaintain,butconfinesitappropriately5.
188Indonesia'sinterpretationthatsubsidiesthatmeetthecriteriaofArticles1and2oftheSCMAgreementaregovernedsolelybytheSCMAgreementistheonlyreasonableinterpretationoftherelationshipbetweensubsidiesandArticleIIIthatwouldnotrendercrucialprovisionsoftheSCMAgreementmeaningless.
Moreover,contrarytoComplainants'assertions,Indonesia'sinterpretationdoesnotrenderArticleIIIuseless,butconfinesArticleIIItoitsappropriatesphere.
(1)A"conflict"exists_ArticleIIIoftheGeneralAgreementandtheSCMAgreementaremutuallyexclusiveandcannotbeappliedsimultaneously;theobligationsoftheSCMAgreementarenotadditional,supplementaryorcomplementarytoArticle爚IIIoftheGATT19945.
189AccordingtothePanelinEuropeanCommunities_RegimefortheImportation,SaleandDistributionofBananas,a"conflict"existswhen:(i)mutuallyexclusiveGATT1994andAnnex1AAgreementobligationsclash;and(ii)aruleinoneagreementprohibitswhataruleinanotheragreementexplicitlypermits.
ObligationsaremutuallyexclusivewhenaMembercannotcomplywithbothobligationsatthesametime.
EuropeanCommunities_RegimefortheImportation,SaleandDistributionofBananas(22爚May爚1997),WT/DS27/R/USA,321,para.
7.
159.
5.
190A"conflict"doesnotexistwhenrulesinanAnnex1AAgreementprovidefordifferentorcomplementaryobligationsinadditiontothoseinGATT1994becausetheAnnex1AandGATT1994obligations"canbothbecompliedwithatthesametimewithouttheneedtorenounceexplicitrightsorauthorizations.
"Id.
atpara7.
160(emphasisadded).
5.
191ContrarytotheassertionsoftheEuropeanCommunitiesandJapan(SeeSectionsV.
E.
1and2),Indonesia'sGATT1994andSCMAgreementobligationsaremutuallyexclusivebecausetheycannot"bothbecompliedwithatthesametimewithouttheneedtorenounce[the]explicitright[]orauthorization[]"tomaintainthesubsidiesatissueabsentseriousprejudicetoalikeproduct.
Furthermore,ArticleIIIwould"prohibit"whattheSCMAgreement"permits".
TheSCMAgreementspecificallydoesnotprohibitdevelopingcountriesfromgrantingasubsidyinvolvingdifferentialinternaltaxtreatmentonproducts.
Ontheotherhand,Article爚III:2ofGATT1994prohibitssuchdifferentialtaxtreatmentonproducts.
Thus,aconflictclearlyexistsintheinstantcase.
TheEuropeanCommunitiesandJapanalsoarguethattheSubsidiesAgreementdoesnotexplicitlyauthorizeorpermitIndonesiatoapplydiscriminatorymeasuresprohibitedbyArticleIII.
Asdiscussed,themeasuresatissuearenotprohibitedbyArticleIII.
TheEuropeanCommunitiesemphasizestheword"explicitly",implyingthattheSubsidiesAgreementisnotexplicitenough.
YettheSubsidiesAgreementisexplicitenoughthattheECitselfadmitsthat"Indonesiaisauthorisedtogrant'subsidies'undercertainconditions.
"Thoseconditionsaretheabsenceofseriousprejudicetoalikeproductandtheyaremetintheinstantcase.
5.
192InBananasIII,thePanelspecificallyaddressedthetypeofconflictwhichexistsintheinstantcaseinanexampledealingwiththerelationshipbetweenArticleXIandtheAgreementonTextilesandClothing(ATC):ArticleXI:1ofGATT1994prohibitswhatArticle2oftheATCpermitsinequallyexplicitterms.
ItistruethatMemberscouldtheoreticallycomplywithArticleXI:1ofGATT,aswellaswithArticle2oftheATC,simplybyrefrainingfrominvokingtherighttoimposequantitativerestrictionsinthetextilessectorbecauseArticle2oftheATCauthorizesratherthanmandatestheimpositionofquantitativerestrictions.
However,suchaninterpretationwouldrenderwholeArticlesorsectionsofAgreementscoveredbytheWTOmeaninglessandruncountertotheobjectandpurposeofmanyagreementslistedinAnnex1AwhichwerenegotiatedwiththeintenttocreaterightsandobligationswhichinpartsdiffersubstantiallyfromthoseoftheGATT1994.
EuropeanCommunities_RegimefortheImportation,SaleandDistributionofBananas(22爚May爚1997),WT/DS27/R/USA,321,n.
403(emphasisadded).
5.
193ContrarytoJapan'sassertion(SeeSectionV.
E.
1(3)(c)),therelationshipbetweenArticleIIIandtheSCMAgreementisanalogoustotherelationshipbetweenArticleXIandtheATC_aconflictexistsregardlessofwhetherIndonesia"couldtheoreticallycomplywith"bothArticleIIIandtheSCMAgreement"simplybyrefrainingfrominvokingtheright"tomaintainthesubsidiesatissueabsentseriousprejudicetoalikeproduct.
ThisisbecausetheSCMAgreement"authorizesratherthanmandates"maintenanceofsuchsubsidies.
Findingthataconflictdoesnotexist"wouldrender"theprovisionsoftheSCMAgreementregardingactionablesubsidies"meaningless.
"5.
194Furthermore,suchafindingwould"runcountertotheobjectandpurpose"oftheSCMAgreement.
SpecialanddifferentialtreatmentofdevelopingcountryMembersisoneoftheobjectsandpurposesoftheSubsidiesAgreementasevidencedbyArticle27,whichdetailsthattreatment,andbythelanguageofArticle27.
1("MembersrecognizethatsubsidiesmayplayanimportantroleineconomicdevelopmentprogrammesofdevelopingcountryMembers.
").
5.
195ThePanelinBananasIIIrecognizedthat"manyagreementslistedinAnnex1AwerenegotiatedwiththeintenttocreaterightsandobligationswhichinpartsdiffersubstantiallyfromthoseoftheGATT1994.
"Indonesia'srighttomaintainthesubsidiesatissueabsentseriousprejudicetoalikeproductispreciselythistypeofright.
It"differ[s]substantiallyfromthoseoftheGATT1994"anditispartofthecompromisenegotiatedbetweenthedevelopedandthedevelopingcountries.
5.
196TheDSUprohibitsthediminishmentofIndonesia'srighttomaintainthesubsidiesatissueabsentseriousprejudicetoalikeproduct.
"RecommendationsandrulingsoftheDSBcannotaddtoordiminishtherightsandobligationsprovidedinthecoveredagreements.
"(DSUArticle3.
2.
)Furthermore,theDSUnotonlyprohibitsthenullificationorimpairmentofIndonesia'sbenefits,itprohibitstheimpedanceofanobjectiveoftheSubsidiesAgreementexpressedinArticle爚27.
1("MembersrecognizethatsubsidiesmayplayanimportantroleineconomicdevelopmentprogrammesofdevelopingcountryMembers".
).
"AllsolutionstomattersformallyraisedundertheconsultationanddisputesettlementprovisionsofthecoveredagreementsshallnotnullifyorimpairbenefitsaccruingtoanyMemberunderthoseagreements,norimpedetheattainmentofanyobjectiveofthoseagreements"(DSUArticle爚3.
5).
5.
197TheUnitedStateswronglycriticizesthePanelinBananasIIIandIndonesiafornotfullysupportingthepropositionthataconflictexistsifobligationsarenotmutuallyexclusive.
(SeeSection爚V.
E.
3).
First,asdiscussedabove,theobligationsaremutuallyexclusive.
Furthermore,thenegotiatinghistoryoftheSCMAgreementsupportstheviewthataconflictexistswherea"right"grantedbyoneAgreementis"precluded"byaprovisioninanotherAgreement.
Annex1AAgreements,includingtheSCMAgreement,were"negotiatedwiththeintenttocreaterightsandobligationswhichinpartsdiffersubstantiallyfromthoseoftheGATT1994.
"SeeEuropeanCommunities_RegimefortheImportation,SaleandDistributionofBananas(22爚May1997),WT/DS27/R/USA,321,n.
403.
Theoppositeview,asdiscussedabove,"wouldrenderwholeArticlesorsectionsofAgreementscoveredbytheWTOmeaninglessandruncountertotheobjectandpurposeofmanyagreementslistedinAnnex1A.
"Seeid.
(2)Paragraph8(b)ofArticleIIIoftheGATT1994isinapposite,exceptclarifyingthatArticleIIIappliestodiscriminatoryinternaltaxesonlikeproducts5.
198ArticleIIIappliestodiscriminatoryinternaltaxesonlikeproducts.
Theimportdutysubsidiesarebordermeasures,notinternalmeasures,andthereforeareoutsidethescopeofArticleIII.
(SeeSectionV.
F.
1).
TheluxurytaxsubsidyisprovidedexclusivelytoproducersorassemblersofautomobilesandthereforeisallowedunderArticleIII:8(b)andisinaccordancewithItalianDiscriminationAgainstImportedAgriculturalMachinery.
ItalianDiscriminationAgainstImportedAgriculturalMachinery(23October1958),BISD7S/60.
TheEuropeanCommunities'sandJapan'sargumentsregardingtheinterpretationofArticleIII:8(b)inUnitedStates_MeasuresAffectingAlcoholicandMaltBeveragesUnitedStates_MeasuresAffectingAlcoholicandMaltBeverages(19June1992),BISD39S/206.
andCanada_CertainMeasuresConcerningPeriodicalsCanada_CertainMeasuresConcerningPeriodicals(30June1997),WT/DS31/AB/R.
areaddressedinSection爚V.
D.
2.
Moreover,evenifthePanelfindsthattheluxurytaxsubsidyisnotallowedunderArticleIII:8(b),thereisstillnolikeproductintheinstantcase.
InquotingthereportoftheSub_CommitteeoftheHavanaConference,theEuropeanCommunitiesitselfrecognizesthattheremustbealikeproduct.
Article爚III:8(b)wasredrafted"inordertomakeitclearthatnothinginArticle[III]couldbeconstruedtosanctiontheexemptionofdomesticproductsfrominternaltaxesimposedonlikeimportedproductsortheremissionofsuchtaxes.
"ReportofCommitteesandPrincipalSub_committees,UnitedNationsConferenceonTradeandEmployment,heldatHavana,Cubafrom21November1947to24March1948,ICITOI/8(September1948)at66,para.
69(emphasisadded).
(m)Complainants'assertionthattheSCMAgreementcannotbelexspecialisbecause,ifitwere,generallyavailableandArticle8subsidieswouldnotbeconstrained,isincorrect5.
199TheexamplemadebytheUnitedStates(SeeSectionV.
E.
3(a)(2))involvesdifferentialinternaltaxationsubjecttoArticleIIIandisirrelevanttotheinstantcase.
Theimportdutysubsidiesarenotinternalmeasures(SeeSectionV.
F.
1.
),theluxurytaxsubsidyisallowedunderArticleIII:8(b)andtherearenolikeproductsinvolvedintheinstantcase.
(n)EveniftheUnitedStatesexamplewererelevant,thepointtheUnitedStatesseekstoadvanceisincorrectasamatteroflaw-theSCMAgreementaddressesgenerallyavailableandotherArticle8subsidies5.
200Articles1through9oftheSCMAgreementarecomprehensiveandexplicitinsettingoutthedefinitionsof,disciplinesonandremediesforsubsidies.
TheabsenceofanSCMAgreementremedyfornon_specificsubsidies,suchastheonedescribedbytheUnitedStates,doesnotindicatethattheSCMAgreementfailstoprovideanall_encompassingstructureofremedies.
Instead,thisabsenceispartofthatall_encompassingstructureofremedies.
ThedetailandexplicitnessoftheremedyprovisionsoftheSCMAgreementindicatethatthisresultwasintendedbythedrafters.
Inparticular,theremedyprovisionsofArticle9clearlydonotapplytonon_specificsubsidies(Article8.
1(a)),onlytoothernon_actionablesubsidies(Article8.
1(b)).
Inanyevent,theUnitedStatesexampleisirrelevantintheinstantcasebecausethemeasuresatissueareactionablesubsidies.
(o)Japan'sandtheUnitedStates'claimsthatIndonesia'smeasuresviolateArticleIII:2,secondsentenceareincorrect5.
201Japan'sandtheUnitedStates'claimsthatIndonesia'smeasuresviolateArticleIII:2,secondsentenceareincorrect.
TheSCMAgreementislexspecialisand,inthealternative,insofarasaconflictexists,controlstheresolutionofthisdispute,includingclaimsunderArticleIII:2.
(p)Japan'sviewthatIndonesia'sargumentrenderstheGeneralInterpretiveNotemeaninglessisincorrect5.
202Japanarguesthat"Indonesia's'lexspecialis'theorywouldrendertheGeneralInterpretativeNotecompletelyunnecessaryandwouldseverelyweakentheGATT'sfundamentalobligations".
(SeeSectionV.
E.
1).
JapanhasmischaracterizedIndonesia'sposition.
5.
203Indonesia'slexspecialisargumentdoesnot"rendertheGeneralInterpretativeNotecompletelyunnecessary.
"Rather,Indonesia'sargumentissupportedbytheGeneralInterpretativeNote.
Becausea"conflict"exists,theGeneralInterpretativeNotemandatesthattheprovisionsoftheSubsidiesAgreement"prevailtotheextentoftheconflict.
"NordoanyofIndonesia'sarguments"severelyweakentheGATT'sfundamentalobligations.
"Asdiscussedabove,Indonesia'sinterpretationthatsubsidiesthatmeetthecriteriaofArticles1and2oftheSCMAgreementaresolelygovernedbytheSCMAgreementistheonlyreasonableinterpretationoftherelationshipbetweensubsidiesandArticleIIIthatwouldnotrendertheSCMAgreementmeaningless.
Thisinterpretationdoesnot"severelyweaken"ArticleIII,butconfinesArticleIIItoitsappropriatesphere.
(q)Partsandcomponentsarenot"indirectly"taxedinexcessoflikedomesticgoods5.
204Partsandcomponentsarenot"indirectly"taxedinexcessof"thelikedomesticgoods".
First,therearehardlyany"like"partsandcomponents.
Second,importersofthesepartsandcomponentscontinuetopaythetaxinadirectmannerandintheamountsandattheratestheyhavebeenpayingforyears.
Notreceivingbenefitsreceivedbyanothercompanydoesnotatall,eitherdirectlyorindirectly,increasethetaxonpartiesthatdonotreceivethebenefit.
E.
RebuttalstoIndonesia'sgeneralresponsetotheclaimsraisedunderArticleIIIofGATT19941.
RebuttalargumentsofJapan5.
205ThefollowingareJapan'sargumentsrebuttingIndonesia'sgeneraldefencetotheclaimsraisedunderArticleIIIofGATT1994:5.
206IndonesiaarguesthatGATTArticleIIIdoesnotapplytothisdispute.
Thatviewiswrong,however.
5.
207Regardingtheluxurytaxexemption,whileIndonesiahasnotmadeothercounter_arguments,suchasthoseithasmadeconcerningtheimportdutyexemption.
Therefore,itisundisputedthatthelocalcontentrequirement,atleastinconnectionwiththeluxurytaxexemption,constitutesaprimafacieviolationofGATTArticleIII:4bytreatingdomesticpartsandcomponentsmorefavourablythanlikeimportsandtheonlyquestioniswhethertheapplicationofGATTArticleIII:4totheluxurytaxexemptionisdeniedbyvirtueoftheSCMAgreement.
5.
208IndonesiaarguesthatitsmeasuresinquestionareactionablesubsidiesundertheSCMAgreement,andspecificallythattheyaresubsidiescontingentontheuseofdomesticproductsthatwouldbeprohibitedbySCMArticle3.
1(b)butaremadeactionableinsteadbyvirtueofArticle爚27.
3.
ThereisnodisputethatIndonesia'sdiscriminatorytaxpoliciesfallwithintheSCMAgreement'sdefinitionof"subsidy"andtheyareactionableonatransitionalbasisunderpartIIIoftheSCMAgreement.
Theonlyimplicationofthisanalysisisthat,undertheSCMAgreement,suchsubsidiesaresubjecttotheremedialprovisionsstipulatedbyArticle7,justlikeothersubsidiesincludingtaxexemptionsondomesticproductsactionableundertheSCMAgreement,insteadofArticle4,whichprovidestheextremelyexpeditiousproceduresforprohibitedsubsidies.
Therefore,theissueiswhetherthenationaltreatmentobligationsofGATTArticleIIIalsoapplytoactionablesubsidies.
5.
209IndonesiafurtherarguesthatthenationaltreatmentobligationsofGATTArticleIIIdonotapplytoactionablesubsidies,regardlessoftheirnature,contendingthatsuchsubsidiesaregovernedsolelybytheSCMAgreement.
Inordertosupportthatposition,IndonesiamentionedfourmainargumentsinitsFirstSubmission:theSCMAgreementisthelexspecialisfor"subsidies"withinitsdefinition;applyingGATTArticleIII:2to"subsidies"wouldreducetheSCMAgreementtoinutility;GATTArticle爚IIIandtheSCMAgreement"conflict"witheachother;andGATTArticleIII:8(b)shouldbe"re_thought"inlightoftheSCMAgreement.
5.
210NoneofIndonesia'sargumentshavemerit.
BothGATTArticleIIIandtheSCMAgreementareapplicabletotheNationalCarProgramme,thereisno"conflict"betweenthem,andGATTArticle爚IIIprohibitstheIndonesianmeasures.
ToacceptIndonesia'sargument,thatis,tofailtoapplyGATTArticleIII:2to"subsidies"wouldrenderoneoftheGATT'scoreprovisionsmeaningless.
UnderIndonesia'sinterpretation,discriminatoryimpositionofinternaltaxeswouldbeallowedinthenameof"subsidy",butthatwoulddepriveArticleIII:2ofalllifeandpurpose,becauseitssolefunctionistoprohibitthediscriminatoryimpositionofinternaltaxes.
ThefollowingdiscussiondemonstratestheflawsintheargumentsmadebyIndonesiatosupportitsincorrecttheoryoftherelationshipbetweenGATTArticleIIIandtheSCMAgreement.
(a)Indonesia'slexspecialisargumentdoesnothaveanymerit5.
211Indonesiaarguesthat"[t]hisdisputeinvolvessubsidiesandsoisgovernedbythe[SCM]Agreement,andnotbythe[GATT]orthe[TRIMsAgreement]".
IndonesiafurtherarguesthattheSCMAgreement"isthelexspecialisandtheWTOconformityoftheprogrammesmustbeassessedpursuanttotheprovisionsofonlythisAgreement".
(SeeSectionV.
D.
)(1)Indonesia'slexspecialisargumentisunsupported5.
212Indonesia'slexspecialisargumentlacksanylegalfoundation.
IndonesiaessentiallyconcedesthisbyfailinginitsFirstSubmissiontociteasingletextualprovisioninsupportofitsassertionthatonlytheSCMAgreementappliestodiscriminatorytaxbreaksandothersubsidymeasures.
Thisfailureisunsurprising,ofcourse,becausetheresimplyisnoWTOrulethatprovidesforspecificagreements,suchastheSCMAgreement,toapplytothecompleteexclusionofgeneralWTOobligations,suchasnationaltreatment.
ThelackoftextualsupportaloneisenoughtorejectIndonesia'spositionSeeViennaConventionontheLawofTreaties,art.
31;Seealso,UnitedStates_StandardsforReformulatedandConventionalGasoline("US_Gasoline"),WT/DS2/AB/R,adoptedon20爚May爚1996,pp.
16_17.
,butitisonlycompoundedbythefurtherabsencefromIndonesia'sargumentsofanycitationtothedraftinghistory,aPaneldecision,orevenatreatiseinitssupport.
(2)Indonesia'slexspecialisargumentiswrong5.
213Indonesia'slexspecialisargumentisalsowrong.
ItisinconsistentwiththetextoftheWTOAgreements.
5.
214Asmentioned,noWTOruleprovidesforspecificagreementstoapplytothecompleteexclusionofgeneralWTOobligations.
Tothecontrary,theWTOAgreementsexpresslyprovideforadifferent爚_andmuchnarrower_ruleoflaw.
Specifically,theGeneralInterpretativeNotetoAnnex1AoftheAgreementEstablishingtheWTO(the"GeneralInterpretativeNote")provides:IntheeventofaconflictbetweenaprovisionoftheGeneralAgreementonTariffsandTrade1994andaprovisionofanotheragreementinAnnex1A[oftheWTOAgreement],theprovisionoftheotheragreementshallprevailtotheextentoftheconflict.
5.
215TheexistenceoftheGeneralInterpretativeNotethoroughlyunderminesIndonesia'slexspecialisargument.
TheGeneralInterpretativeNoteexplicitlyspecifiestheconsequencesifa"conflict"shouldarisebetweentheGATTandcertainotheragreements,includingtheSCMAgreement,anditprovidesforpreemptiononly"totheextentoftheconflict.
"ButiftheSCMAgreementwerethelexspecialisthatappliedtothecompleteexclusionoftheGATT,asIndonesiaargues,thenno"conflict"couldeveroccurbetweenthetwo.
ItisobviousthattheWTOMembership,byadoptingtheGeneralInterpretativeNote,formallyacknowledgedthepossibilityof"conflict".
Thus,theGeneralInterpretativeNote,byitsveryexistence,disprovesIndonesia'slexspecialistheory.
5.
216Inaddition,Indonesia'stheoryisdisprovedbytheexistenceoffootnote56totheSCMAgreement,whichspecifiesthattheSCMAgreementdoesnot"precludeactionunderotherrelevantprovisionsofGATT1994,whereappropriate.
"AswiththeGeneralInterpretativeNote,footnote56definitivelyshowsthattheSCMAgreementdoesnotapplytothecompleteexclusionoftheGATT.
ViennaConventionontheLawofTreaties,art.
26.
5.
217IndonesiaassertsthattheSCMAgreementcreatesthe"soledefinitionofsubsidyforthefamilyofWTOAgreements".
However,thereisnoreasontoignoretheplainlanguageofArticle1.
1oftheSCMAgreement,whichexpresslystatesthatthedefinitionis"forthepurposeofthisAgreement".
Oneshouldinterpretthatarticleingoodfaithinaccordancewiththeordinarymeaningtobegiventoitsterms,astheViennaConventionguidesustodo.
5.
218Indonesiaalsoclaimsits"rightasadevelopingcountrytomaintaindomestic-contentsubsidies"absentseriousprejudicetoalikeproduct.
Asmentionedalready,themeasuresinquestionarenotprohibitedundertheSCMAgreement,butmadeactionableonatransitionalbasisbyvirtueofSCMArticle27.
3.
However,thisdoesnotmeanthatdevelopingcountriesaregrantedrightsforexemptionnotonlyfromSCMArticle3.
1(b)butalsofromallotherWTOprovisions,includingGATTArticleIII.
Inthecontextofdiscriminatoryimpositionofinternaltaxes,themeasuresinquestionareatthesametimesubjecttoGATTArticleIII.
(3)Indonesia'slexspecialisargumenthasseriouslydamagingimplicationsfortheWTOsystem5.
219Ifadopted,Indonesia'slexspecialisargumentwouldcreateloopholesintheGATTlargeenoughtounderminetheWTO'sfundamentalpurposeoftradeliberalization.
InIndonesia'sviewoftheWTOsystem,sanitarymeasures,technicalstandards,andentirecategoriesofothermeasureswouldbelargelyexemptedfromtheGATTandothergeneralWTOdisciplines.
Thisresultwouldoccur,perversely,despitethefactsthatsuchmeasureswereundeniablysubjecttotheGATTbeforetheUruguayRoundandthattheclearpurposeoftheUruguayRoundwastostrengthen_notweaken_multilateraldisciplines.
5.
220ThedamagetotheWTOsystemthatwouldresultfromadoptionofIndonesia'slexspecialisargumentiswellillustratedbythiscase,sinceitwouldexcuseIndonesia'sviolationsofGATTArticles爚I:1,X:1,andX:3,althoughnothingabouttheSCMAgreementcomesanywhereclosetowaivingtheMFNobligation,excusingIndonesia'sfailuretopublishitsprogrammes,orallowingittoadministeritsprogrammesunreasonablyandpartially.
(b)TheSCMAgreementwouldnotbereducedtoinutilitybyArticleIII:2ofGATT5.
221AsnotedbytheAppellateBodyandpreviousPanels,undergeneralrulesoftreatyinterpretation,onemustgivemeaningandeffecttoalltermsofatreatyandmustnot"adoptareadingthatwouldresultinreducingwholeclausesorparagraphsofatreatytoredundancyorinutility.
"AppellateBodyReportonUS_Gasoline,p.
23;AppellateBodyReportonJapan_TaxesonAlcoholicBeverages("Japan_AlcoholicBeveragesII"),WT/DS8/AB/R,WT/DS10/AB/R,WT/DS11/AB/R,adoptedon1November1996,p.
12.
IndonesiainvokesthisprincipleinanattempttoprovethatGATTArticleIII:2doesnotapplytotheNationalCarProgramme,contendingthatapplicationofArticleIII:2wouldreducetheentireSCMAgreementtoinutility.
(SeeSectionV.
D.
2).
Thatargumentisnotonlywrong,butbackwards,anditshouldberejected.
5.
222Infact,theSCMAgreementwillcontinuetoimposeavarietyofsubstantiveandproceduraldisciplinesonsubsidiesandcountervailingmeasuresregardlessoftheapplicabilityofGATTArticle爚III:2.
ThereexistvarioussubsidieswhicharesubjecttotheSCMAgreementandarenotproscribedbyGATTArticleIII:2.
Forexample,exemptingdomesticenterprisesfromcertaininternaltaxesorcharges,suchasregistrationtaxes,wouldnotviolateGATTArticleIII:2,whenthosetaxesorchargesarenotappliedinconnectionwithimportedproducts.
However,suchmeasuresstillfallintothescopeofArticle爚1(a)(1)(ii)andArticle2.
1oftheSCMAgreementandthereforethesemeasuresaresubjecttothedisciplinesoftheSCMAgreementtotheirfullestextent.
5.
223Further,theSCMAgreementisnotmeaningless,eventhoughGATTArticleIII,asawhole,appliestosubsidies.
ThetextofGATTArticleIIIsupportsthisobservation,becausethe"subsidies"coveredbyGATTArticleIII:8(b)arenotpreventedbyGATTArticleIII,buttheymaystillbesubjecttotheprovisionsoftheSCMAgreement.
Thus,itisplainlywrongtosaythattheSCMAgreementwouldbereducedtoinutilityifthePanelrulesthatGATTArticleIII:2,ortheentireGATTArticle爚III,appliestothiscase.
5.
224Bycontrast,GATTArticleIII:2wouldbereducedtoinutilityifoneacceptedIndonesia'sviewoftheSCMAgreement.
Underthatview,SCMArticle27.
3grantsdevelopingcountryMembersalicencetoimposediscriminatorytaxesonimportedgoodsinclearcontraventionofGATTArticleIII:2.
ThatviewwouldfurtherleadtoanabsurdconclusionthatevendevelopedcountryMemberscouldengageinsuchdiscriminatorytaxation,providedonlythatsuchdiscriminationwasnotcontingentontheuseofdomesticoverimportedproducts,sincenothingintheSCMAgreementprohibitssuchkindsofsubsidies.
ItshouldbeapparentthatIndonesia'sapproachwouldeviscerateGATTArticleIII:2.
AlldiscriminatoryinternaltaxationthathadpreviouslybeenregardedasviolationsofGATTArticleIII:2wouldbesuddenlyrecastas"subsidies"exemptfromGATTArticleIII:2disciplines.
TherewouldbenoGATTArticleIII:2,becauseitssolefunctionistoprohibitdiscriminatoryinternaltaxesandtheywouldallbeexemptfromitsdisciplines.
ThereasoningoftheUS_MaltBeveragesPanelisexactlyonpoint;thatPanelrejectedanargumentlikeIndonesia's,declaringthat"suchaninterpretationwouldvirtuallyeliminatetheprohibitioninArticleIII:2ofdiscriminatoryinternaltaxationbyenablingcontractingpartiestoexemptalldomesticproductsfromindirecttaxes.
"SeePanelReportonUnitedStates_MeasuresAffectingAlcoholicandMaltBeverages("US爚_MaltBeverages"),DS23/R,adoptedon19June1992(BISD39S/206),para.
5.
12.
5.
225Thus,theAppellateBody'swarningthatWTOprovisionscannotbeconstruedinamannerthatdeprivesthemofallforceandeffectprecludesgivingtheSCMAgreementsuchabroadconstructionastoessentiallyrepealGATTArticleIII:2.
See,e.
g.
,AppellateBodyReportonJapan_AlcoholicBeveragesII,p.
12.
ThereisnodangerofGATTArticleIII:2reducingtheSCMAgreementtoinutility,but,asUS_MaltBeveragesrecognized,adoptionofIndonesia'sargumentwouldmostcertainlyhavethateffectonGATTArticleIII:2.
PanelReportonUS_MaltBeverages,para.
5.
12.
5.
226OtherconsiderationsalsostronglydictatethattheSCMAgreementmustbeconstruedtoavoidthisresult.
First,WTOcasesthathaveaddressedpotentialareasofconflictoroverlapbetweenWTOAgreementshavefavouredapplicationofeachagreementinaccordancewithitsterms,ratherthanallowingoneagreementtooverrideanotherunnecessarily.
PanelReportonCanada_CertainMeasuresConcerningPeriodicals("Canada_Periodicals"),WT/DS31/R,adoptedon30July1997,asmodifiedbytheAppellateBody,paras.
5.
17_5.
18.
AppellateBodyReportonCanada_Periodicals,WT/DS31/AB/R,adoptedon30July1997,p.
18.
Second,numerousPanelsovertheyearshaverecognizedGATTArticleIII:2'scriticalimportancebothinitsownrightandinmaintainingtheeffectivenessofArticlesI(MFN)andII(tariffbindings).
See,e.
g.
,PanelReportonUS_MaltBeverages,paras.
5.
9,5.
12.
Finally,thereisnodoubtthatbeforetheUruguayRoundArticleIII:2prohibiteddiscriminatoryinternaltaxesanditwouldbeperversetoconstrueaUruguayRoundAgreementinamannerthatunderminedanessentialGATTdiscipline.
(c)GATTArticleIIIdoesnot"conflict"withtheSCMAgreement5.
227IndonesiaalsoarguesthattheSCMAgreementconflictswithGATTArticle爚III:2and,pertheGeneralInterpretativeNote,theSCMAgreementprevailsintheconflict.
Thatargumentcannotbesupportedbecausethereisnosuchconflict.
5.
228TheBananasIIIPanelconstruedtheterm"conflict"intheGeneralInterpretativeNotetoincludebothcasesof"mutuallyexclusive"obligationsandcaseswheretheGATTprohibitswhatanAnnex爚1AAgreement"explicitlypermits,"butnottocaseswherethetwoagreementsprovidefor"differentorcomplementaryobligations.
"AstheUnitedStateshasobserved,theBananasIIIPanelconstruedtheterm"conflict"ratherbroadly.
(SeeSectionV.
E.
3).
Afindingthata"conflict"arisesonlywheretwoagreementsestablish"mutuallyexclusive"obligationswouldbemoreinkeepingwiththedraftinghistoryoftheGeneralInterpretativeNote(SeeSectionV.
E.
1)andwithearlierdecisionsthathavesoughttominimizepotentialconflictsbetweenWTOagreements.
See,e.
g.
,ReportoftheAppellateBodyonCanadaPeriodicals,p.
18.
TheWTOSecretariatpresenteditsviewsontheconceptof"conflict"betweentwointernationalagreementsinconnectionwiththenegotiationoftheMultilateralAgreementonInvestment.
TheWTOSecretariatstatedthat,inthestrictsenseoftheterm,aconflictoflawariseswhereanactobligatedunderoneagreementisprohibitedunderanother.
TheWTOSecretariatalsodifferentiatedtheconceptof"conflict"fromtheconceptof"overlap.
""RelationshipofProposedMAIProvisionstotheWTO_NotebytheWTOSecretariat,"DAFFE/MAI/RD(96)37(JapanExhibit68,p.
2).
Seealso"TheRelationshipbetweentheMAIandtheWTOAgreements(NotebytheChairman),"DAFFE/MAI/(96)21(JapanExhibit69).
Evenifoneacceptsthebroadviewof"conflict"fromBananasIII,however,thereisno"conflict"betweentheSCMAgreementandGATTArticleIII:2.
(1)TheobligationsofGATTArticleIII:2andtheSCMAgreementarenot"mutuallyexclusive"5.
229ItissoclearthataMembermaycomplywiththeobligationsofbothGATTArticleIIIandtheSCMAgreementsimplybynotengagingintaxdiscriminationthatIndonesiadoesnotevenseriouslyarguethatthetwoare"mutuallyexclusive.
"Indonesia'sdoesstatethatits"obligationsunderthetwoprovisionswouldbemutuallyexclusive,"butthatcannotberegardedasaseriousargument,becauseIndonesiadidnot(andcouldnot)identifyasingleobligationoftheSCMAgreementthatrequiresconductinviolationofGATTArticleIII:2.
Instead,itappearsthatIndonesiahasconfusedthetwoprongsofBananasIII.
(2)TheSCMAgreementdoesnot"explicitlypermit"taxdiscriminationinviolationofGATTArticleIII:25.
230Indonesia'sentire"conflict"argumentdependsonafindingthattheSCMAgreement"explicitlypermits"violationsofArticleIII:2.
ButIndonesiafailstopointthePaneltoanysuch"explicit"languageinthetext.
Itwouldbeimpossibletodoso.
TheresimplyisnolanguageintheSCMAgreementthat"explicitlypermits"taxdiscriminationinviolationofGATTArticleIII.
TheTextilesandClothingAgreementexplicitlyauthorizedanexemptionfromtheobligationtoeliminatequantitativerestrictionsprovidedbyGATTArticleXI.
LackinganylanguageintheSCMAgreement,equivalenttothatunderArticlesIandIIoftheATC,onecannotjumptotheconclusionthattherelationshipbetweenArticleIIIandtheSCMAgreementis"analogoustotherelationshipbetweenArticleXIandtheATC.
"5.
231Lackingtextualsupport,Indonesianeverthelesssoldiersonbyadvancingalengthy,elaborate,andratherconvolutedargumentabout"actionablesubsidies.
"5.
232Butstill,nothingaboutIndonesia'sargumentshowsthattheSCMAgreementauthorizes_explicitlyorimplicitly_"actionablesubsidies"thatviolateGATTArticleIII:2.
Indonesiaconcludesthat"theSCM[Agreement]specificallydoesnotprohibitdevelopingcountriesfromgrantingasubsidyinvolvingdifferentialinternaltaxtreatmentonproductsand.
.
.
,ontheotherhand,ArticleIII:2ofGATT1994prohibitssuchdifferentialinternaltaxtreatmentonproducts",andthatthissituationis"conflict".
(SeeSectionV.
D.
).
Indonesiaappearstobeattempting,subsilentio,tostretchthedefinitionof"explicitlypermits".
IndonesiawouldhavethePanelbelievethatsomethingtheSCMAgreement"doesnotprohibit"is"explicitlypermitted".
Silenceontaxdiscriminationcannevermean"explicitpermission",however.
Therefore,thePanelshouldrejectIndonesia'sattempttoequatesilencewith"explicitpermission".
5.
233TheIndonesianargumentseemstostemfromamisunderstandingofArticle27.
3oftheSCMAgreement.
Byitsterms,SCMArticle27.
3providesdevelopingcountryMembersatemporaryexemptionfromoneobligationoftheSCMAgreement,specifically,fromSCMArticle3.
1(b)'sprohibitionofsubsidiesconditionedupontheuseofdomesticoverimportedgoods.
FordevelopingcountryMembers,duringthefiveyeartransitionalperiod,subsidiesconditionedupontheuseofdomesticoverimportedgoodsarenotdeemedtobeprohibitedsubsidiesunderPartIIoftheSCMAgreement,butarestillactionablesubsidiesunderPartIIIbyvirtueofArticle27.
3.
However,areactionablesubsidies"explicitlypermitted"toignoreGATTArticleIIITheanswerisobviouslynegative.
Asdemonstratedsofar,GATTArticleIIIdoesandshouldapplytosubsidiesundertheSCMAgreement,includingactionablesubsidies.
ThereisnoreasontoreadanexemptionfromSCMArticle3.
1(b)asanexemptionfromGATTArticleIII,orfromanyotherWTOobligation.
Tothecontrary,exceptionsfromGATTprincipleshavetraditionallybeeninterpretednarrowlybyGATTandWTOpanels,andasalreadydiscussed,footnote56totheSCMAgreementprovidesthattheSCMAgreementdoesnot"precludeactionunderotherrelevantprovisionsofGATT1994,whereappropriate.
"(3)TheSCMAgreementandGATTArticleIII:2create"differentorcomplementary"obligations5.
234ThePanelshouldrecognizethattheSCMAgreementandGATTArticleIII:2create"differentorcomplementaryobligations".
AsdescribedbytheBananasIIIPanel,twoprovisionsare"differentorcomplementary",anddonotconflict,if"bothcanbecompliedwithatthesametimewithouttheneedtorenounceexplicitrightsorauthorizations".
GATTArticleIII:2andtheSCMAgreementcanbothbecompliedwithandIndonesiahasfailedtoshowthatsuchcompliancewouldrequireittorenounceany"explicitrights".
5.
235Itshouldberecalledherethatwhattriggerstheluxurytaxexemptionisnotmerelytheuseofadomesticproduct(i.
e.
,partsandcomponents)byadomesticproducer,itisthesaleofadomesticproduct(i.
e.
,anautomobile)withdomesticcontenttothefinalconsumer.
WethereforedonothavehereonlythetypeofdiscriminationaddressedbyArticle3.
1(b)oftheSCMAgreement(i.
e.
,asubsidytoaproducercontingentuponuseofadomesticproduct),butalsoatypeofdiscriminationgovernedonlybyGATTArticleIII:2(i.
e.
,internaltaxdiscriminationbetweenimportedanddomesticproducts).
ThishighlightsthefactthatGATTArticleIIIandSCMArticle3.
1(b)haveclearlydifferentpurposes,coverage,andremedies.
5.
236Further,withregardtoremedies,theSCMAgreementallowsbothdisputesettlementproceduresunderArticle4orArticle7andcountervailingmeasuresinaccordancewithPartVoftheAgreement,whileremediesforviolationsofGATTArticleIII:2areprovidedunderGATTArticleXXIIandArticle爚XXIII.
Inthisrespect,IndonesiaattachestoomuchemphasistothehigherburdenofproofundertheSCMAgreement.
However,Indonesia'spropositionthattheSCMAgreementismorefavourabletodefendingpartiesthanGATTArticleIIIintermsofremedialprocedures,andthusprovidesdefendingpartiessomeproceduralrights,isquestionable.
TheremedialprocessunderArticle7oftheSCMAgreementismuchmoreexpeditiousthanthoseundertheDisputeSettlementUnderstanding.
ComplainingpartiesarerequiredtoproveadversetradeeffectsbuttheycansecureremediesunderArticle7oftheSCMAgreementmuchearlierthaninthecaseofaclaimconcerningtheinfringementoftheGATTobligationsundertheDSU.
Inotherwords,complainingpartiesbeartheburdenofprovingadversetradeeffectsinexchangeforamoreexpeditiousremedy.
Indonesiaalsostressesthat,underArticle7oftheSCMAgreement,theonlyremedyrequiredistoeliminate"theadverseeffects".
However,wedonotseeanysubstantialdifferencebetweentheobligationstoeliminatetheadverseeffectsandthosetobringthemeasuresintoconformitywiththeGATTobligations.
ItshouldalsobenotedthatunderArticle7oftheSCMAgreement"appropriatestepstoremovetheadverseeffects"havetobetakenwithin6monthsfromthedateofadoptionoftherecommendationsbytheDSB,only2/5ofthe15monthsguidelineforthe"reasonableperiodoftime"toimplementtheDSBrecommendationsstipulatedbyArticle21.
3oftheDSU.
Therefore,eventhoughArticleIIIoftheGATT1994isapplicable,complainingpartiesmaychoosetoresorttoArticle7oftheSCMAgreement,astheUnitedStatesandtheEuropeanCommunitiesdointhiscase.
(4)"Conflict"shouldbenarrowlyinterpreted5.
237InkeepingwiththefundamentalobjectiveandpurposeoftheWTOsystem-tradeliberalization_WTOcasesthathaveaddressedpotentialareasofconflictandoverlapbetweentheWTOagreementshavefavouredapplicationofeachagreementinaccordancewithitstermstothemaximumextentpossible,ratherthanunnecessarilyallowingoneagreementtooverrideanother.
See,e.
g.
,ReportoftheAppellateBodyonCanada_Periodicals,page19.
5.
238GiventhatundertheWTOsystem,waiversandexceptions"havetobeinterpretednarrowly"AsnotedintheGATTpanelreportonUS_CountervailingDutiesonFresh,ChilledandFrozenPorkfromCanada,provisionsthatconstitute"anexceptiontobasicprinciplesoftheGeneralAgreementhadtobeinterpretednarrowly.
"BISD38S/30,para.
4.
4,adopted11July1991.
SeealsoNorway_ProcurementofTollCollectionEquipment,GPRDS2/R,para.
4.
5,adopted13May1992("SinceArticleV:16(3)[oftheGovernmentProcurementAgreement]wasanexceptionsprovision,itsscopehadtobeinterpretednarrowly");Canada_ImportRestrictionsonIceCreamandYoghurt,BISD36S/68,para.
59,adopted4December1989(Thepanel"noted,ashadpreviouspanels,thatexceptionsweretobenarrowlyinterpreted.
").
,thewaiveroftheprohibitionunderArticle3.
1(b)oftheSCMAgreementcannotreasonablybeinterpretedasalicensetoviolateanyandallotherobligationsundertheWTOagreements.
Japan'sclaimunderArticleIIIofGATT1994isnotthattheProgrammeeprovidesaprohibitedsubsidy,butthatitviolatesnationaltreatment,includingIndonesia'sobligationunderGATTArticleIII:2totaxdomesticandimportedlikeproductsatthesamerate.
IftheWTOMembershadintendedtowaivetheobligationsunderGATTArticleIII:2entirelyfordevelopingcountries,theywouldhavedonesoexplicitly,giventhat"[t]heMFNrequirementinArticleI,andalsotariffbindingsunderArticleII,wouldbecomeineffective"withoutenforcementoftheArticleIII:2prohibitionondiscriminatorytaxmeasures,includingdiscriminatorytaxexemptions.
US_MaltBeverages,paras.
5.
9,5.
12.
5.
239Thedraftinghistoryoftheterm"conflict"intheGeneralInterpretativeNoteinthe"thirdtrack"negotiatinggroupalsoconfirmsthatthetermsuggestsanirreconcilabledifference.
TheinitialdiscussionontherelationshipbetweenGATT1994andtheotherWTOagreementsoccurredduringthedraftingoftheUnderstandingonRulesandProceduresGoverningtheSettlementofDisputes("DSU")inthe"thirdtrack"negotiatinggroupchairedbyMr.
JulioLacarte.
ThedelegationofCanadathensubmittedon14October1993aproposalentitled"ConflictofSubstantiveProvisions"thatincludedtheadditionofthefollowing"HeadnotetoAnnex1AintheMTOAgreement":IntheeventofaconflictbetweenaprovisionoftheGATT(1993)andaprovisionofanotheragreementinAnnex1A,theprovisionoftheotheragreementshalltakeprecedencetotheextentoftheinconsistency.
"CanadianProposal"ConflictofSubstantiveProvisions"dated14October1993(JapanExhibit64).
5.
240Atthesessionof19October1993,thedelegationofJapanproposedtodeletetheterm"inconsistency"andreplaceitwiththeterm"conflict".
Otherdelegationsapprovedthisamendment,anditwasincorporatedinaworkingpaperdated6December1993preparedbythesecretariattorecordtheresultsofthissessionandtofacilitatefuturediscussionsamongthenegotiatinggroup.
DraftpreparedbytheGATTSecretariatdated6December1993(JapanExhibit65).
ThedelegationsthataddressedthisamendmentatthesessiongenerallyconcurredthatitwasintendedtoclarifythelimitednumberofinstancesinwhichtheNotewouldapply.
Whereas"inconsistency"wasopentoabroadinterpretation,"conflict"referredonlytoirreconcilabledifferencesbetweenanobligationunderGATT1994andanobligationunderanotherWTOagreement,suchthattheprovisionsofthetwoagreementsweremutuallyexclusiveandcouldnotbothbeenforcedatthesametime.
(d)GATTArticleIII:8(b)hasneverexcusedtaxdiscriminationandshouldnotbe"re_thought"toexcuseitnow(1)GATTArticleIII:8(b)hasneverexcusedtaxdiscrimination5.
241ArticleIII:8(b)providesthatArticleIII"shallnotpreventthepaymentofsubsidiesexclusivelytodomesticproducers,includingpaymentstodomesticproducersderivedfromtheproceedsofinternaltaxesorchargesappliedconsistentlywiththeprovisionsofthisArticle.
.
.
.
"5.
242Asisevidentfromthetextualreferenceto"payments.
.
.
derivedfromtheproceedsofinternaltaxes,"thescopeofArticleIII:8(b)islimitedtodirectpaymentstoproducers.
Othermeasuresthatmaybecharacterizedas"subsidies,"suchasdiscriminatorytaxbreaksfordomesticproducts,arenotcovered.
5.
243ThisplainunderstandingofArticleIII:8(b)wasconfirmedbytheGATTPanelinUS_MaltBeverages.
PanelReportonUS_MaltBeverages,paras.
5.
7_5.
12.
ThatPanelunequivocallyrejectedtheargumentthatdiscriminatorytaxbreakswere"subsidies"protectedbyArticleIII:8(b),declaringthatsuchanargumentwascontrarytothetext,"context,declaredpurposeanddraftinghistoryofArticleIII.
"Id.
atpara.
5.
9.
Thedraftinghistorycouldhardlybemoreclearaboutthispoint;theHavanaConferencerejectedanalternativetoArticleIII:8(b)proposedbytheCubandelegatethatwouldhaveexpresslypermitted"theexemptionofdomesticproductsfrominternaltaxesasameansofindirectsubsidization.
.
.
.
"Id.
atpara.
5.
11.
ThisevidencefromthedraftinghistoryconfirmstheplaintextofArticleIII:8(b)inshowingthatitislimitedtodirectpaymentstoproducers.
DiscriminatorytaxbreaksforproductshaveneverbeencoveredbyArticleIII:8(b),andareinconsistentwithGATTArticleIII:8(b).
TheUS_MaltBeveragesdecisionwasfollowedbytheGATTPanelinUS_TobaccoanditwasreaffirmedinCanada_Periodicals,bytheAppellateBodywhichdeclaredthatArticleIII:8(b)"wasintendedtoexemptfromtheobligationsofArticleIIIonlythepaymentofsubsidieswhichinvolvetheexpenditureofrevenuebyagovernment.
"PanelReportonUnitedStates_MeasuresAffectingtheImportation,InternalSaleandUseofTobacco,DS44/R,adoptedon4October1994,para.
109¬e;ReportoftheAppellateBodyonCanada_Periodicals,pp.
31_33(emphasisadded).
5.
244Therefore,itisbeyonddoubtthatthewell_settledunderstandingofArticleIII:8(b)isthatitcoversdirectpaymentsofsubsidies,butnotdiscriminatorytaxbreaks.
Indonesiadoesnotdisputethis.
Instead,itadmitsthatitspositionisinconsistentwiththeprevailingunderstandingofArticleIII:8(b)byadvocatinga"re_thinking"ofthatArticle.
(SeeSectionV.
D.
)5.
245Also,evenifthediscriminatorytaxbreakscouldbeconsideredas"subsidies"underGATTArticleIII:8(b),theyarenotdirected"exclusivelytodomesticproducers".
Thedirectbeneficiariesoftheluxurytaxexemptionareconsumers,nottheproducerofNationalCarsorproducersofitspartsandcomponents.
SeePanelReportonItalianAgriculturalMachinery,para.
14(holdingthatArticleIII:8(b)doesnotapplytopaymentsgrantedtopurchasersofagriculturalmachinery,becausesuchpaymentscannotberegardedassubsidiestotheproducersofthemachinery).
SeealsoEuropeanEconomicCommunity_PaymentsandSubsidiespaidtoProcessorsandProducersofOilseedsandrelatedAnimal_FeedProteins("EEC_Oilseeds"),L/6627,adoptedon25January1990,37S/86,para.
137(holdingthatsubsidypaymentsthateconomicallybenefitoilseedprocessors,andnotonlyoilseedproducers,arenotsubsidiespaid"exclusivelytodomesticproducers"underArticleIII:8(b)).
(2)GATTArticleIII:8(b)shouldnotbe"re_thought"toexcusetaxdiscrimination5.
246IndonesiaarguesthatGATTArticleIII:8(b)shouldbe"re_thought"toexempt"allsubsidiesidentifiedinArticle1oftheSCMAgreement"fromtheobligationsofGATTArticleIII.
(SeeSection爚V.
D).
Inotherwords,IndonesiaarguesthattheSCMAgreement'sdefinitionof"subsidy"shouldbereadintoArticleIII:8(b).
BecausetheSCMAgreement'sdefinitionof"subsidy"includesforegoing"governmentrevenuethatisotherwisedue",IndonesiaarguesthatthisPanelshouldrejectUS_MaltBeverages.
5.
247ItisIndonesia'sargumentthatshouldberejected.
TheSCMAgreementitselfrejectsthenotionthatitsdefinitionof"subsidy"shouldbeappliedtootherWTOAgreements.
SCMArticle1.
1expresslystatesthatthedefinitionof"subsidy"isprovided"[f]orthepurposeofthisAgreement.
"ThereisnosuggestionanywhereintheWTOtextthattheSCMdefinitionof"subsidy"shouldbeappliedtoGATTArticleIII.
5.
248Indonesia'sargumentisalsounderminedbythefactthattheAppellateBodyreaffirmedUS爚_MaltBeveragesinCanada_Periodicals.
AppellateBodyReportonCanada_Periodicals,pp.
32_34.
IftheAppellateBodyconsideredthatthescopeofArticle爚III:8(b)hadtobe"re_thought"inlightoftheSCMAgreement,itcouldhaveandshouldhavedonesoinCanada_Periodicals.
Butitdidnot"re_think"ArticleIII:8(b);itreaffirmedtheacceptedunderstanding.
Facedwiththisglaringflawinitsargument,IndonesiaarguesweaklythatCanadadidnotargueforapplicationoftheSCMAgreementinthatcase.
ButwhatCanadadidordidnotargueinapreviouscaseiswhollyirrelevanthere.
WhatmattersisthattheAppellateBodyhasconsideredthescopeofArticleIII:8(b)andhasdecidedthatitappliesonlytodirectsubsidypayments,nottodiscriminatorytaxbreaks.
Indonesia'spositionisatoddswiththeAppellateBody'sinterpretationofArticleIII:8(b),anditshouldberejected.
5.
249Moreover,therationaleofUS_MaltBeveragesremainseverybitasvalidtodayasitwaswhenadopted.
ItisstillthecasethatincludingtaxdiscriminationwithinthescopeofArticleIII:8(b)iscontrarytothetext,context,declaredpurpose,anddraftinghistoryofArticleIII.
Italsoremainstruethat"theprohibitionofdiscriminatoryinternaltaxesinArticleIII:2wouldbeineffectiveifdiscriminatoryinternaltaxesonimportedproductscouldbegenerallyjustifiedassubsidiesforcompetingdomesticproducersintermsofArticleIII:8(b).
"PanelReportonUS_MaltBeverages,para.
5.
9.
Thus,theAppellateBody'sadmonitionagainstreducingWTOprovisionstoinutilityprecludesany"re_thinking"ofArticleIII:8(b)thatwouldrenderArticleIII:2ineffective.
And,onceagain,thereisnoreasonwhatsoevertobelievethat,bystrengtheningmultilateraldisciplinesonsubsidies,theUruguayRoundessentiallyrepealedArticle爚III:2'sprohibitionondiscriminatorytaxation.
AsstressedinthebeginningofthisPart,weakeningArticleIIIbyabandoningitsestablishedinterpretationandadoptingIndonesia'sproposed"re_thinking"wouldcausegraveharmtothecoreWTOdisciplinesofMFN,tariffbindings,andnationaltreatment.
Id.
paras.
5.
9,5.
12.
5.
250Forallthesereasons,theGovernmentofJapansubmitsthatthereisnoreasonforthePaneltoabandonawell_establishedandrecentlyreaffirmedinterpretationofakeyGATTprovision.
2.
RebuttalargumentsoftheEuropeanCommunities5.
251ThefollowingaretheEuropeanCommunities'argumentsrebuttingIndonesia'sgeneralresponsetotheclaimsraisedunderArticleIIIofGATT1994:(a)GATTArticleIIIandtheSCMAgreementarenotmutuallyexclusive5.
252IndonesiadoesnotevenattempttoarguethatthetaxincentivesidentifiedinSectionIII.
BareconsistentwithGATTArticlesIII:2,firstsentence,andIII:4.
Instead,Indonesiacontendsthatthosemeasuresare"subsidies"withinthemeaningoftheSCMagreementand,assuch,notsubjecttoGATTArticleIIIbutonlyandexclusivelytotheSCMAgreement.
5.
253TheEuropeanCommunitiesdoesnotdisputethatthemeasuresatissuearesubsidies.
Indeed,theEuropeanCommunitiesclaimsthatthosemeasuresare"specificsubsidies"withinthemeaningoftheSCMAgreementwhichcause"seriousprejudice"toitsinterests,contrarytoIndonesia'sobligationsunderthatAgreement.
Nevertheless,theEuropeanCommunitiesisoftheviewthatGATTArticleIIIandtheSCMAgreementarenotmutuallyexclusiveand,therefore,canbeappliedsimultaneouslytothesamemeasures.
(1)GATTArticleIII:8(b)confirmsthatArticleIIIappliestosubsidies5.
254ArticleIII:8(b)ofGATTreadsasfollows:(b)TheprovisionsofthisArticleshallnotpreventthepaymentofsubsidiesexclusivelytodomesticproducers,includingpaymentstodomesticproducersderivedfromtheproceedsofinternaltaxesorchargesappliedconsistentlywiththeprovisionsofthisArticleandsubsidieseffectedthroughgovernmentalpurchasesofdomesticproducts.
5.
255ArticleIII:8(b)doesnotcreateanexceptiontotheotherprovisionsofArticleIII.
Rather,thepurposeofArticleIII:8(b)istoclarifythattheotherprovisionsofArticleIIIdonotapplytocertaintypesofsubsidies.
AsnotedbythePanelReportonUnitedStates_MeasuresaffectingAlcoholicandMaltBeverages(adoptedon19爚June爚1992,BISD39S/206,atpara5.
8)".
.
.
incontrasttoArticleIII:8(a),whereitisstatedthat'thisArticleshallnotapplyto.
.
.
[governmentprocurement]',theunderlinedwordsarenotrepeatedinArticleIII:8(b).
TheordinarymeaningofthetextofArticleIII:8(b),especiallythewords'shallnotprevent',thereforesuggeststhatArticleIIIdoesapplytosubsidies,andthatArticleIII:8(b)onlyclarifiesthattheproduct_relatedrulesinparagraph1through7ofArticleIII'shallnotpreventthepaymentofsubsidiesexclusivelytodomesticproducers'[emphasisaddedbythePanel]ThosesubsidieswhicharenotcoveredbyArticleIII:8(b)arenotcontrarypersetotheotherprovisionsofArticleIII.
Nonetheless,ArticleIII:8(b)hastheclearimplicationthatmeasuresnotfallingwithinthatprovisionarenotexemptfromtheotherprovisionsofArticleIIIsimplybecausetheycanbecharacterizedas"subsidies".
5.
256Theuseoftheterm"payment"inthephrase"paymentofsubsidies"clearlyindicatesthatthescopeofArticleIII:8(b)islimitedtosubsidiesinvolvinganactualtransferoffundsfromtheGovernmenttodomesticproducers.
Exemptionsorreductionsfromanindirectsalestaxonproductsdonotinvolveanysuchtransferoffunds.
Therefore,thattypeofsubsidiesisnotcoveredbyArticle爚III:8(b).
Thesamereasoningappliesinthecaseofsubsidiesintheformofanexemptionorreductionofimportduties.
5.
257ThedraftinghistoryofGATTprovidesfurtherconfirmationthatArticleIII:8(b)wasnotintendedtocoverexemptionsorreductionsfromindirecttaxesonproducts.
TheReportoftheSub_CommitteeattheHavanaConferencewhichexaminedthisprovisionsnotedthat:Thissubparagraphwasre_draftedinordertomakeitclearthatnothingin[ArticleIII]couldbeconstruedtosanctiontheexemptionofdomesticproductsfrominternaltaxesimposedonlikeimportedproductsortheremissionofsuchtaxes.
AtthesametimetheSub_Committeerecordeditsviewthatnothinginthissub_paragraphorelsewherein[ArticleIII]wouldoverridetheprovisionsofSectionCofChapterIV[onsubsidies]IndonesiacontendsthatneitherpreviousGATTPanelReportsnortheAppellateBodyReportonCanada_CertainMeasuresConcerningPeriodicals(adoptedon30June1997,WT/DS31/AB/R)havefocusedoranalysedthelastsentenceofthiscitation.
Thisisarguablytruebutirrelevant.
ThatsentenceconfirmsthepropositionthatArticleIIIandArticleXVIarenotmutuallyexclusive:themerefactthatameasureisasubsidyfallingwithinArticleXVIdoesnotexcludetheapplicationofArticle爚IIIand,conversely,theapplicationofArticleIIIdoesnotexcludetheapplicationofArticleXVI.
.
5.
258Furthermore,thedraftersofArticleIIIexplicitlyrejectedaproposalbyCubaattheHavanaConferencetoamendthatArticletoread:TheprovisionsofthisArticleshallnotprecludetheexemptionofdomesticproductsfrominternaltaxesasameansofindirectsubsidizationinthecasescoveredunderArticle[XVI].
E/CONF.
2/C.
3/6,p.
17;E/CONF.
2/C.
3/A/W.
32,page2.
5.
259Thisviewisalsosupportedbythe1992PanelReportonUS_MeasuresAffectingAlcoholicandMaltBeverages.
Inthatcase,theUnitedStatesarguedthattheapplicationofalowerexcisetaxtosmallUnitedStatesproducersofbeerwasallowableasasubsidyunderArticleIII:8(b).
ThisdefencewascategoricallyrejectedbythePanel:5.
12ThePanelfound,therefore,thattheexpansiveinterpretationofArticleIII:8(b)suggestedbytheUnitedStatesisnotsupportedbythetext,context,declaredpurposeanddraftinghistoryofArticleIII,andifcarriedtoitslogicalconclusion,suchaninterpretationwouldvirtuallyeliminatetheprohibitioninArticleIII:2ofdiscriminatoryinternaltaxationbyenablingcontractingpartiestoexemptalldomesticproductsfromindirecttaxes.
ThePanelaccordinglyfoundthatthereducedfederalexcisetaxratesonbeerarenotcoveredbyArticleIII:8(b).
PanelReportonUnitedStates_MeasuresaffectingAlcoholicandMaltBeverages,adoptedon19June1992,BISD39S/206,atpara5.
12.
5.
260IndonesiacontendsthatthePanelReportonUS_MeasuresaffectingAlcoholicandMaltBeverageswasadoptedundertheGATT1947andthatitisnecessaryto"re_think"thescopeofArticle爚III:8(b)inlightoftheWTOAgreement,andinparticularoftheSCMAgreement.
Moreprecisely,accordingtoIndonesia,"undertheWTO,the'paymentofsubsidies'languageinArticle爚III:8(b)mustrefertoallsubsidiesidentifiedinArticle1oftheSubsidiesAgreement".
(SeeSectionV.
D.
)5.
261Yet,intherecentcaseCanada_CertainmeasuresconcerningPeriodicalsAppellateBodyReportonCanada_CertainMeasuresconcerningPeriodicals,adoptedon20爚June爚1997,WT/DS31/AB/R.
,theAppellateBodyhasendorsedexpresslythePanelReportonUS_MeasuresAffectingAlcoholicandMaltBeverages,thusconfirmingthattheinterpretationofArticleIII:8(b)ofGATTmadebythatPanelremainsstillvalidunderGATT1994.
5.
262TheissueindisputeinCanada_CertainmeasuresconcerningPeriodicalswaswhethertheapplicationbyCanadaPostofareducedpostalratetocertaindomesticperiodicalswasasubsidycoveredbyArticleIII:8(b).
Followingacarefulexaminationofthetext,thecontextandthedraftinghistoryofthatprovisioninlinewiththeanalysismadeintheprecedingparagraphs,theAppellateBodyconcludedasfollows:Wedonotseeareasontodistinguishareductionoftaxratesonaproductfromareductionintransportationorpostalrates.
Indeed,anexaminationofthetext,context,andobjectandpurposeofArticleIII:8(b)suggeststhatitwasintendedtoexemptfromtheobligationsofArticle爚IIIonlythepaymentofsubsidieswhichinvolvestheexpenditureofrevenuebyagovernment"Id.
,atp.
34.
[emphasisadded].
5.
263TheAppellateBodythenwentontoexpressitsagreementwiththefollowingpassageofthePanelReportonUS_MeasuresaffectingAlcoholicandMaltBeverages:5.
10ArticleIII:8(b)limits,therefore,thepermissibleproducerssubsidiesto'payments'aftertaxeshavebeencollectedorpaymentsotherwiseconsistentwithArticleIII.
Thisseparationoftaxrules,e.
g.
ontaxexemptionsorreductions,andsubsidyrulesmakessenseeconomicallyandpolitically.
Eveniftheproceedsfromnon_discriminatoryproducttaxesmaybeusedforsubsequentsubsidies,thedomesticproducer,likehisforeigncompetitors,mustpaytheproducttaxesdue.
Theseparationoftaxandsubsidyrulescontributestogreatertransparency.
Italsomayrenderabusesoftaxpoliciesforprotectionistpurposesmoredifficult,asinthecasewhereproduceraidsrequireadditionallegislativeorgovernmentaldecisionsinwhichthedifferentinterestscanbebalanced.
PanelReportonUnitedStates_MeasuresaffectingAlcoholicandMaltBeverages(adoptedon19June1992,BISD39S/206,atpara5.
10),reproducedinAppellateBodyReportonCanada_CertainMeasuresconcerningPeriodicals,WT/DS31/AB/R,p.
34.
5.
264Thus,contrarytothesuggestionsadvancedbyIndonesia,inCanada_CertainmeasuresconcerningPeriodicalstheAppellateBodymadeitveryclearthatasubsidyintheformofanexemptionorreductionoftaxratesonaproductdoesnotfallwithinArticleIII:8(b).
TheAppellateBodyReportonCanada_CertainmeasuresconcerningPeriodicalscannotbeexplainedawaysimplybysayingthatCanadadidnotraisetheargumentthatthemeasuresatissueweresubsidiescoveredbytheSCMAgreement.
(SeeSectionV.
D).
GATTArticleIII:8(b)cannothavedifferentmeaningsdependingontheargumentsraisedbythepartiestoadispute.
IftheSCMAgreementhadchangedthemeaningofGATTArticleIII:8(b),theAppellateBodyshouldhavetakenintoaccountthatnewmeaning,evenifitwasnotinvokedbyCanada.
(2)TheSCMAgreementisnotlexspecialis5.
265Asapreliminaryremark,theEuropeanCommunitiesnotesthatitmaybequestionablewhetherthelexspecialisprinciplequalifiesasa"customaryruleofinterpretationofpublicinternationallaw"inthesenseofArticle3.
2oftheDSU.
Thedefendanthasnotprovidedanyevidencetothateffect.
Furthermore,theEuropeanCommunitiesnotesthatsuchprincipleisnowherementionedintheViennaConventionontheLawoftheTreaties.
5.
266Assumingthatthelexspecialisrulewasinfactacustomaryruleofpublicinternationallaw,theGeneralInterpretativeNotetoAnnex1AwouldexcludeitsapplicationbetweentheGATTandtheotherAnnex1AAgreements.
TheclearintentionoftheWTOdrafterswasthattherelationshipbetweentheGATT1994andtheotherAgreementsincludedinAnnex1AshouldbegovernedonlyandexclusivelybytherulecontainedintheGeneralInterpretativeNotetoAnnex1A.
ThewordingofthatNotewascarefullychosensoastorestrictthenumberofinstanceswheretheotherAgreementsincludedinAnnex爚1AwouldprevailoverGATT1994.
(SeeSectionV.
E.
1.
)ThosecautionswouldhavebeenunnecessaryifthedraftershadenvisagedtheapplicationofthelexspecialisrulebetweenGATTandtheotherAnnex1Agreements.
ThelexspecialisrulehasneverbeeninvokedbypriorPanelsorbytheAppellateBodyinordertodecideontherelationshipbetweenGATT1994andanotherAgreementcontainedinAnnex1A.
ThePanelReportsonEC_RegimefortheImportation,SaleandDistributionofBananas,examinedtherelationshipbetweentheGATT,ontheonehand,andtheTRIMsAgreementandtheAgreementonImportLicensingProcedures,ontheotherhand,exclusivelyinlightoftheGeneralInterpretativeNote,eventhough,havingregardtothegreaterdegreeofspecificityoftheobligationstheyimpose,thetwolatteragreementsarearguablylexspecialiswithrespecttotheGATT.
AccordingtothePanel,thosetwoagreementsandtheGATTwere"equallyapplicable"tothemeasuresatissueintheabsenceofa"conflict"withinthemeaningoftheGeneralInterpretativeNote.
(Seee.
g.
WT/DS27/R/USA,adoptedon25September1997,atparas7.
152.
_7.
158)TheReportoftheAppellateBodyinthesamecase(WT/DS27/AB/R,adoptedon25爚September爚1997,atpara204)holdthat:"AlthoughArticleX:3(a)oftheGATT1994andArticle1.
3oftheLicensingAgreementbothapply,thePanel,inourview,shouldhaveappliedtheLicensingAgreementfirst,sincethisagreementdealsspecifically,andindetail,withtheadministrationofimportinglicensingprocedures.
IfthePanelhaddoneso,thentherewouldhavebeennoneedforittoaddresstheallegedinconsistencywithArticleX:3(a)oftheGATT1994)"[emphasisadded]Thus,theAppellateBodyruledthat"both"ArticleXofGATTandtheLicensingAgreementappliedtothemeasuresandthatthelattershouldhavebeenapplied"first",andnot"insteadof"GATTArticle爚X,asthelexspecialisrulewouldhaverequired.
5.
267Inanyevent,IndonesiahasnotshownthattheSCMAgreementisthelexspecialisinthisdispute.
UnlikeGATTArticleIII:2,whichisspecificallyconcernedwithindirecttaxation,theSCMAgreementdoesnotcontainanyruledealingspecificallywithindirecttaxes.
Moreover,whilstvirtuallyallmeasuresfallingwithinArticleIII:2maybeconstruedas"subsidies"withinthemeaningofArticle1oftheSCMAgreement,theoppositeisclearlynottrue:mostsubsidiessubjecttotheSCMAgreementdonotfallwithineitherArticleIII:2oranyoftheotherprovisionsofArticleIII.
Thus,ifthelexspecialisprinciplewasdeemedapplicable,ArticleIII:2andnottheSCMAgreementwouldhavetobeconsideredastherelevantlexspecialiswithrespecttothetaxexemptionsandreductionsgrantedbyIndonesia.
AswillbeshownbelowGATTArticleIII:4andtheSCMAgreementoverlap.
Some(butbynomeansall)measurescoveredbyArticleIII:4arealsocoveredbytheSCMAgreement.
Thus,itcannotbesaidthatanyoneofthemislexspecialiswithrespecttotheother.
TherelationshipbetweenGATTArticleIII:4andtheSCMAgreementissimilartothatbetweentheGATTandtheGATSasdescribedbytheAppellateBodyinthefollowingpassageofitsReportonEC_RegimefortheImportation,SaleandDistributionofBananas(WT/DS27/AB/R,adoptedon25September1997,atpara爚221):"Giventherespectivescopeofapplicationofthetwoagreements,theymayormaynotoverlap,dependingonthenatureofthemeasuresatissue.
CertainmeasurescouldbefoundtofallexclusivelywithinthescopeofGATT1994,whentheyaffecttradeingoodsasgoods.
CertainmeasurescouldbefoundtofallexclusivelywithinthescopeoftheGATS,whentheyaffectthesupplyofservicesasservices.
ThereisyetathirdcategoryofmeasuresthatcouldbefoundtofallwithinthescopeofboththeGATTandtheGATS(.
.
.
)Inallsuchcasesinthisthirdcategory,themeasureinquestioncouldbescrutinisedunderboththeGATT1994andtheGATS.
However,whilethesamemeasurecouldbescrutinizedunderbothagreements,thespecificaspectsofthatmeasureexaminedundereachagreementcouldbedifferent.
UndertheGATT1994,thefocusisonhowthemeasureaffectsthegoodsinvolved.
UndertheGATS,thefocusisonhowthemeasureaffectsthesupplyoftheserviceortheservicesuppliersinvolved.
WhetheracertainmeasureaffectingthesupplyofaservicerelatedtoaparticulargoodsisscrutinizedundertheGATT1996ortheGATS,orboth,isamatterthatcanonlybedeterminedonacase_by_casebasis".
(3)TheapplicationofGATTArticleIIItosubsidiesdoesnotrendertheSCMAgreementredundant5.
268Indonesia'scontentionthatvirtuallyallsubsidiesotherthansubsidizedimportdutiesarecontrarytoGATTArticleIIIisbasedonagrossmisinterpretationofthescopeofthatprovision.
Moreover,itignoresthattheremediesprovidedbytheSCMAgreementaredifferentfromtheremediesavailableincaseofbreachoftheGATT.
5.
269Article1oftheSCMAgreementidentifiesthreedifferentwaysinwhichaGovernmentcanprovideasubsidyInaddition,ArticleA.
1(a)(1)(iv)oftheSCMAgreementreferstothehypothesiswhereaGovernmentmakespaymentstoafundingmechanismorentrustsordirectsaprivatebodytocarryoutoneormoreofthetypesoffunctionsillustratedin(i)to(iii).
:(i)bymakingadirecttransferoffunds(e.
g.
grants,loans,anequityinfusion);(ii)byforegoingornoncollectinggovernmentrevenuethatisotherwisedue(e.
g.
fiscalincentivessuchastaxcredits);and(iii)byprovidinggoodsorservices,orbypurchasinggoods.
5.
270DirecttransfersoffundsarenotcoveredbyGATTArticleIII:2,whichisconcernedonlywiththeapplicationofindirecttaxesonproducts.
Moreover,loans,grantsorequityinfusionsarenot"laws,regulationsorrequirements"which"affect"assuchtheinternalsale,offeringforsale,purchase,transportation,distributionoruseofproducts.
E/CONF.
2/C.
3/6,p.
17;E/CONF.
2/C.
3/A/W.
32,p.
2.
Forthatreason,thegrantingofthiscategoryofsubsidiescannotbreachbyitselfGATTArticleIII:4.
AsshownbypreviousPanelReports,thistypeofsubsidiesmaybecontrarytoArticleIII:4onlytotheextentthattheyarelinkedtoameasurewhichaffectstheinternalsale,purchase,use,etc.
ofdomesticgoods.
Forexample,inItalianAgriculturalMachineryPanelReportonItalianAgriculturalMachinery,adoptedon23October1958,7S/60.
,thePanelfoundthatanItalianlawprovidingspecialcredittermstofarmersforthepurchaseofagriculturalmachineryconditionaluponthepurchaseofmachineryproducedinItalywas,byvirtueofthatcondition,contrarytoGATTArticleIII:4.
Asdiscussedabove,thatsubsidiesintheformofdirecttransferoffundsarenotcaughtbyGATTArticleIIIisfurtherconfirmedbyGATTArticleIII:8(b).
5.
271Theaboveconsiderationsareequallyapplicableinthecaseofsubsidiesfallingwithincategory(iii),evenifGATTArticleIII:8(b)doesnotrefertotheprovisionofgoodsandservicestoadomesticproducer.
Thus,forinstance,theprovisionofrawmaterialsbytheGovernmentatasubsidizedpricewouldnotbecontrarytoeitherArticleIII:2orArticleIII:4,becauseitdoesnotaffectassuchtheinternalsale,offeringforsale,etcofgoods.
Ontheotherhand,theprovisionbytheGovernmentof,forexample,servicesoftransportationordistributionatsubsidizedratesonlyfordomesticgoodswouldbecontrarytoArticlesIII:4Thus,forinstance,inCanada_Certainmeasuresconcerningperiodicals,theapplicationbyCanadaPostofmorefavourablepostageratesfordomesticperiodicalswasfoundtoviolateArticleIII:4.
(PanelReportWT/DS31/R,atparas5.
31_5.
44,asmodifiedbytheAppellateBodyReport,WT/DS31/AB/R,adoptedon20June1997,atpp.
32_35).
and/orIII:2.
5.
272Category(ii)includes,inessence,threedifferenttypesofsubsidies:subsidiesgrantedinrespectofindirecttaxesonproducts;subsidiesgrantedinrespectofimportduties;andsubsidiesgrantedinrespectofdirecttaxes.
5.
273Ifthetaxesareindirect,GATTArticleIII:2mayapply.
Incontrast,subsidiesgrantedinrespectofdirecttaxesarenotcoveredbyArticleIII:2which,torepeat,isconcernedonlywithindirecttaxes.
NorarethosesubsidiessubjecttoGATTArticleIII:4.
First,becausedirecttaxesarenotappliedon"products"andthereforedonot"affect"assuchtheirsale,offeringforsale,etc.
Moreover,areductionorexemptionfromadirecttaxcouldneverbeconsideredtogive"morefavourabletreatment"inthesenseofArticleIII:4,giventhatforeignproducers(andindirectlytheirproducts)arenotsubjecttothosetaxesinthefirstplace.
Likethesubsidiesfallingwithinthecategory(i),subsidiesgrantedinrespectofdirecttaxesmayinfringeArticleIII:4onlytotheextentthattheyarelinkedtootherconditionswhichfavourtheuse,purchase,etc.
ofdomesticproducts.
5.
274Subsidiesgrantedinrespectofimportdutiesarenotcovered,inprinciple,byArticleIIIsinceimportdutiesarebordermeasures.
Nevertheless,thistypeofsubsidiesmayviolateArticleIII:4where,asinthepresentdispute,itsgrantingisconditionaluponcompliancewithameasure,suchasalocalcontenttarget,whichaffectstheinternaluseofproducts(seeSectionV.
F.
3).
5.
275Insum,whilstGATTArticleIIIandtheSCMAgreementmayoverlapinrespectofcertainmeasures,mostsubsidiescoveredbytheSCMAgreementdonotfallwithinthescopeofGATTArticle爚III.
5.
276Moreover,Articles4and7oftheSCMAgreementprovidespecificremedieswhicharemorerigorousforthesubsidisingMemberthantheordinaryremediesavailableundertheDSUincaseofbreachofGATTArticleIII.
5.
277Theimportanceofthisdifferenceisperfectlyillustratedbythepresentdispute.
IfthePanelfindsthatIndonesiahasviolatedArticleIIIofGATT,Indonesiawillberequired"tobringthemeasureintoconformitywith"theGATT(cf.
Article19oftheDSU).
Inpractice,thismeansthatIndonesiawillhavetoamendorrepealthemeasures,butonlyforthefuture.
5.
278Incontrast,ifthePanelfoundthatthosemeasuresconstitutesubsidieswhichhavecaused"seriousprejudice"totheinterestsoftheEC,Indonesiawouldberequired,inaccordancewithArticle7.
8oftheSCMAgreement,to"withdraw"thesubsidiesorto"remove"its"adverseeffects".
ThismayimplytheobligationforIndonesianotjusttorepealoramendthemeasuresbutinadditiontorecovertheunpaiddutiesandtaxesonmotorvehicleswhichhavealreadybenefitedfromthoseexemptions,totheextentthatthosesubsidiescontinuetocause"adverseeffects".
(4)Thenon_applicationofGATTArticleIII:2tosubsidieswouldrenderGATTArticles爚III:2andIII:8(b)superfluous5.
279Whilst,forthereasonsexplainedabove,theapplicationofGATTArticleIIItosubsidieswouldbynomeansrendertheSCMAgreementredundant,itsnon_applicationwouldreduceGATTArticle爚III:2toinutility.
Ineffect,anymeasurefallingwithinGATTArticleIII:2canbeconstruedas"revenueforegone"withinthemeaningofArticle1.
1(a)(1)(ii)oftheSCMAgreementandthereforeasa"subsidy".
5.
280AsnotedbythePanelReportonUS_MeasuresaffectingAlcoholicandMaltBeverages:.
.
.
Asanyfiscalburdenimposedbydiscriminatoryinternaltaxesonimportedgoodsislikelytoentailatrade_distortingadvantageforimport_competingdomesticproducers,theprohibitionofdiscriminatoryinternaltaxesonimportedproductscouldbegenerallyjustifiedassubsidiesforcompetingdomesticproducersintermsofArticleIII:8(b).
PanelReportonUnitedStates_MeasuresaffectingAlcoholicandMaltBeverages(adoptedon19June1992,BISD39S/206,atpara5.
9.
.
.
.
carriedtoitslogicalconclusion,[theUnitedStatesinterpretation]wouldvirtuallyeliminatetheprohibitioninArticleIII:2ofdiscriminatoryinternaltaxationbyenablingcontractingpartiestoexemptalldomesticproducersfromindirecttaxes.
.
.
Id.
,atpara5.
125.
281Furthermore,Indonesia'slexspecialisargumentalsowouldreducetoinutilityGATTArticle爚III:8(b).
Infact,iftheSCMwaslexspecialiswithrespecttoArticleIII:2wheneverasubsidyisinvolved,therewouldbenoneedtoclarifyintheGATTthatcertaincategoriesofsubsidiesarenotcoveredbyGATTArticleIII.
(5)TheSCMAgreementhasnotmodifiedtherelationshipbetweentherulesonsubsidiesandtherulesonnationaltreatmentwhichexistedunderGATT19475.
282UnderGATT1947,therewasnoquestionthatArticleXVIwaslexspecialisvis_郳_visArticle爚IIItotheextentthat"subsidies"wereconcerned;orthattherewasa"conflict"betweenthosetwoprovisionssimplybecauseArticleXVIdidnotprohibitcertaintypesofmeasuresthatwereprohibitedbyArticle爚III.
5.
283Indonesiadoesnot,apparently,disputethatunderGATT1947ArticleIIIandArticleXVIwerenotmutuallyexclusive.
Yet,Indonesiacontendsthat"allofthatchangedwiththeentryintoforceoftheWTO".
Indonesiagivestworeasonsforthat"change".
ThefirstreasonisthattheSCMAgreementprovidesan"allencompassingstructureofremedies"againstsubsidies.
ThesecondreasonisthattheSCMAgreementcontainsadefinitionof"subsidy".
Aswillbeshownbelow,bothreasonsarefarfromcompelling.
5.
284ArticleXVIofGATT1947didcontainalsoan"allencompassingstructureofremediesapplicabletosubsidies",inthesensethatitprovidedremedieswithrespecttoallsubsidies.
SectionAlaiddownaremedyforall"subsidiesingeneral";whereasSectionBprovidedadditionalremediesforexportsubsidies.
TheremediesprovidedinSectionAofArticleXVIinrespectofthetypeofsubsidiesatissueinthisdisputearelessrigorousforthesubsidisingMemberthanthoseprovidedintheSCMAgreement.
Buttheyarenoless"encompassing".
Formally,therelationshipbetweentheSCMAgreementandArticleIIIofGATT1994isidenticaltotherelationshipbetweenArticleXVIofGATT1947andArticleIIIofGATT1947.
ThemerefactthattheremediesagainstsubsidieshavebeenstrengthenedintheSCMAgreementisnotasufficientreasontoconcludethatArticleIIInolongerappliestosubsidies.
5.
285ThefactthattheSCMAgreementcontainsadefinitionofsubsidiesisalsoirrelevant.
Theabsenceofadefinitionof"subsidy"inGATT1947didnotmakeArticleXVIinapplicable,northereforepreventeditfromapplyingconcurrentlywithArticleIIItothesamemeasures.
Furthermore,Article爚1.
1oftheSCMAgreementstatesveryclearlythatthedefinitionofsubsidycontainedthereinisonlyforthepurposesofthatAgreement.
(6)Article32.
1junctoFootnote56oftheSCMAgreementconfirmsthattheSCMAgreementdoesnotexcludetheapplicationofGATTArticleIIItosubsidies5.
286If,asclaimedbyIndonesia,theWTOAgreementhadrenderedGATTArticleIIIinapplicabletosubsidies,onewouldexpecttofindsomeindicationintheSCMAgreementofthedrafters'intentiontointroducesuchafundamentalchangewithrespecttothesituationexistingunderGATT1947.
Yet,theSCMAgreementdoesnotcontaintheslightesttraceofsuchintention.
5.
287Tothecontrary,Article32.
1junctoFootnoteNo56oftheSCMAgreementindicatesthatthedraftersoftheWTOAgreementexpresslyenvisagedthecontinuedapplicationofGATTArticleIIItosubsidiescoveredbytheSCMAgreement.
5.
288Article32.
1oftheSCMAgreementreadsasfollows:NospecificactionagainstasubsidyofanothermembercanbetakenexceptinaccordancewiththeprovisionsofGATT1994,asinterpretedbythisAgreement.
5.
289FootnoteNo56tothisparagraphthenstatesthat:ThisparagraphisnotintendedtoprecludeactionunderotherrelevantprovisionsofGATT1994,whereappropriate.
5.
290TheobviouspurposeofArticle32.
1istopreventMembersfromtakingactionagainstsubsidiesonthebasisofGATTArticlesVI(totheextentthatitsprovisionsconcernsubsidies)orXVI,independentlyfromthemorepreciseruleslaiddownintheSCMAgreement.
GATTArticleIIIisnotaprovision"interpreted"bytheSCMAgreementbut,instead,oneofthe"otherrelevantprovisions"towhichreferenceismadeinfootnoteNo56.
Thus,inconformitywiththatfootnotetheSCMAgreementdoesnotprecludetheCommunityfromtakingactionunderArticleIIIagainstasubsidycoveredbytheSCMAgreement.
Article32.
1andfootnoteNo56oftheSCMAgreementreproducethewordingofArticle19.
1oftheTokyoRoundCodeandfootnoteNo1tothatArticle,withtheonlydifferencethatthereferencesinthelatteragreementto"theGeneralAgreement"havebeenreplacedbyreferencestothe"GATT1994".
TheofficialtitleoftheTokyoRoundCodewas"AgreementontheInterpretationandApplicationofArticlesVI,XVIandXXIIIofGATT".
MoreoveroneoftherecitalsincludedinthePreambletotheCodereferredexpresslytothedesireoftheparties"toapplyfullyandtointerprettheprovisionsofArticlesVI,XVIandXXIII".
Thus,itwasindisputablethattheprovisionsreferredtoinArticle19.
1oftheTokyoRoundCodeasbeing"interpreted"bytheCodewereArticlesVI,XVIandXXIII;andthatthe"otherrelevantprovisions"ofGATTreferredtointhefootnoteincludedinteraliaArticleIII.
DuringthelastphasesoftheUruguayRound,thetitleoftheSCMAgreementwaschangedfrom"AgreementontheInterpretationandApplicationofArticlesVI,XVIandXXIII"tothecurrentonebecauseitwasthoughtthattheSCMAgreementcreatedrightsandobligationswhichwentbeyondmerely"interpreting"and"applying"thoseprovidedinGATTArticlesVIandXVI(seeAppellateBodyReportonBrazil_MeasuresaffectingdesiccatedCoconut,adoptedon20March1997,WT/DS22/AB/R,atp.
17).
Furthermore,unliketheTokyoRoundCode,theSCMAgreementhasnoPreamble.
Article32.
1andfootnoteNo56werenotadaptedtotakeintoaccountthosechanges,whichhasrenderedtheirmeaningsomewhatlessclearthanintheTokyoRoundCode.
Yet,thereisnoindicationinthedraftinghistorythatthenegotiatorsintendedtogiveadifferentmeaningtoArticle32.
1andfootnoteNo56fromthatwhichArticle19.
1andfootnoteNo1tothatArticlehadundertheTokyoRoundCode.
AccordingtotheEC'srecollectionofthenegotiations,Article32.
1andfootnoteNo56wereaddedtotheDunkelTextbytheSecretariat,togetherwiththeotherFinalprovisions,andadoptedbythenegotiatorswithoutdiscussion.
(7)Indonesia'sinterpretationwouldleadtoanunjustifiedrelaxationoftherulesontaxdiscriminationexistingunderGATT1947,contrarytotheobjectandpurposeoftheWTOAgreement5.
291TheWTOAgreementispremisedonthepreservationoftheleveloftradeliberalizationalreadyachievedunderGATT1947.
ThisisapparentalreadyfromthePreambletotheWTOAgreement,whichreadsinpertinentpartasfollows:Resolved,therefore,todevelopanintegrated,moreviableanddurablemultilateraltradingsystemencompassingtheGeneralAgreementonTariffsandTrade,theresultsofpasttradeliberalizationefforts,andalloftheresultsoftheUruguayRoundofMultilateralTradeNegotiations,Determinedtopreservethebasicprinciplesandtofurthertheobjectivesunderlyingthismultilateraltradingsystem.
5.
292ThesameobjectiveofpreservingtheGATT"acquis"alsounderliestheincorporationintoGATT1994ofthetextofGATT1947,togetherwithallthelegalinstrumentsadoptedunderthatagreementSeeparagraph1ofAnnex1A.
,aswellastheprovisionmadeinArticleXVI.
1oftheWTOAgreementtotheeffectthattheWTOshallbeguidedbythe"decisions,proceduresandcustomarypractices"followedunderGATT1947,exceptasotherwiseprovided.
5.
293Forthatreason,theinstanceswheretheWTOAgreementpermitsmeasureswhichwouldhavebeencontrarytoGATT1947arefewandexceptional.
Suchderogationshavegenerallyatemporarycharacterand/orarerestrictedtoareaswheretheGATT1947wasnotenforceddefacto(e.
g.
thetextilesectornowcoveredbytheAgreementonTextilesandClothing)and/orwheretheapplicabilityoftheGATT1947wasunclearoratleasthadbeendisputedbysomeMembers(e.
g.
inthecaseofTRIMsnowcoveredbytheTRIMsAgreementorinthecaseofVERsandother"greyarea"importrestrictionsnowexpresslysubjecttotheAgreementonSafeguards).
5.
294Incontrast,Indonesia'slexspecialisargumentwouldlead,ifacceptedbythePanel,tothepermanentnullificationofabasicGATTrulewhichwaslargelynoncontroversialunderGATT1947andwhichwasneverthesubjectofspecificdiscussionsduringtheUruguayRound.
5.
295UnderGATTArticleIII:2,firstsentence,theapplicationofaninternaltaxtoanimportedproducts"inexcessof"thatappliedtoalikedomesticproductisalwaysprohibited.
Thisprohibitionisnotconditionalonatradeeffectstestnorisitqualifiedbyademinimisstandard.
AsnotedbytheAppellateBodyinJapan_TaxesonAlcoholicBeverages,"eventhesmallestamountof'excess'istoomuch".
AppellateBodyReportonJapan_TaxesonAlcoholicBeverages,WT/DS8/AB/R,WT/DS10/AB/R,WT/DS11/AB/R,adopted1November1996,atp.
23.
5.
296IftheSCMAgreementexcludedtheapplicationofArticleIII:2tosubsidies,taxdiscriminationbetweenlikeproductswouldnolongerbeprohibitedArticle3.
1(b)oftheSCMAgreementonlyprohibitssubsidiescontingentupontheuseofdomesticoverimportedgoodsbutnotsubsidieswhicharegrantedonlyupontheproductionorsaleofdomesticproducts,totheexclusionofimportedproducts.
.
Instead,thecomplainantwouldhavetoprovethatthemeasurecauses"adverseeffects"toitsinterests.
SeeArticle5oftheSCMAgreement.
Furthermore,ifthetaxexemptionorreductionwasgrantedtoalldomesticproducers,itcouldnotbeconsideredasa"specific"subsidywithinthemeaningofArticle2oftheSCMAgreementand,therefore,wouldnobe"actionable"atall.
SeeArticle8.
1(a)oftheSCMAgreement.
5.
297TheconsequenceswouldbeevenlessacceptableinthecaseofArticleIII:2,secondsentence.
Inaccordancewiththatprovision,aMemberispreventedfromapplyingdifferenttaxestotwoproductswhichare"directlycompetitiveorsubstitutable"soastoaffordprotectiontoitsdomesticproduction.
Thus,forexample,twopreviousPanels(oneunderGATT1947PanelReportonJapan_CustomsDuties,TaxesandLabellingPracticesonImportedWinesandAlcoholicBeverages,adoptedon10November1987,BISD34S/83.
andoneunderGATT1994PanelReportonJapan_TaxesonAlcoholicBeverages,WT/DS8/R,WT/DS10/R,WT/DS11/R,asmodifiedbytheAppellateBodyReport,WT/DS8/AB/R,WT/DS10/AB/R,WT/DS11/AB/R,adopted1爚November1996.
)havefoundthatbyapplyingalowerexcisetaxtolocalshochuthantoimportedwhisky(acompetingproduct)Japanaffordedprotectiontoitsdomesticproductionofshochu,therebyinfringingGATTArticleIII:2,secondsentence.
IfIndonesia'slexspecialisargumentprevailed,Japancouldarguethatthetaxdifferentialconstitutesasubsidytoitsdomesticshochuproducers,whichisthereforesubjecttotheSCMAgreementandnottoGATTArticleIII.
Yet,theSCMAgreementisconcernedonlywiththe"adverseeffects"causedbyasubsidywithrespecttoimportsofa"likeproduct".
Itprovidesnoremedyinthosecaseswherethesubsidycauses"seriousprejudice"toacompetingimportingproduct.
Inaddition,totheextentthatthesubsidyisgrantedtoallJapaneseshochuproducers,Japancouldarguethatthesubsidyisnot"specific"withinthemeaningofArticle2oftheSCMAgreement.
Thus,Indonesia'sargumentwouldhavetheconsequencethatataxsystemwhichhasalreadybeencondemnedtwicewouldhavetobetoleratedinthefuture.
IndonesiamighttrytoarguethattheSCMAgreementisnotlexspecialiswithrespecttoArticleIII:2,secondsentence,butthiswouldleadtoanequallyanomalousresults:theremedywouldbemorerigorousinthecaseofdiscriminatorytaxationbetweencompetingproductsthaninthecaseofdiscriminatorytaxationbetweenlikeproducts.
(b)ThereisnoconflictbetweenGATTArticleIIIandtheSCMAgreement5.
298Inthealternative,IndonesiaarguesthatthePanelshouldfindthatthereisa"conflict"inthesenseoftheGeneralInterpretativeNotetoAnnex1AbetweentheSCMAgreementandGATTArticle爚III.
5.
299AsrecalledpertinentlybyJapan(SeeSectionV.
E.
1),thedraftinghistoryofthatNoteindicatesclearlythattheterm"conflict"mustbeinterpretednarrowly.
Thedraftersdistinguishedconsciouslythatnotionfrombroadernotionssuchas"inconsistency"ormere"difference".
TherewasageneralconsensusamongthenegotiatorsthatinpracticetheapplicationoftherulelaiddownintheNoteshouldberestrictedtotheverylimitednumberofinstancesinwhichtheobligationsundertheGATTandanotherAnnex1Aagreementaretrulyirreconcilable.
Clearly,thepresentcaseisnotoneofthoseinstances.
5.
300AsnotedbythePanelReportonEC_RegimefortheImportation,SaleandDistributionofBananas,thereisno"conflict"where,asinthepresentcase:.
.
.
therulescontainedinoneoftheAgreementslistedinAnnex1AprovidefordifferentorcomplementaryobligationsinadditiontothosecontainedinGATT1994.
Seee.
g.
PanelReportonEC_RegimefortheImportation,SaleandDistributionofBananas,adopted25爚September爚1997,WT/DS27/R/USA,atpara7.
155.
5.
301Instead,accordingtothatPanelreport,theconceptof"conflict"isdesignedtodealwiththefollowingtwosituations:.
.
.
(i)clashesbetweenobligationscontainedinGATT1994andobligationscontainedinAgreementslistedinAnnex1A,wherethoseobligationsaremutuallyexclusiveinthesensethataMembercannotcomplywithbothobligationsatthesametime,and(ii)thesituationwherearuleinoneagreementprohibitswhataruleinanotheragreementexplicitlypermitsId.
,para7.
154.
[emphasisadded].
5.
302Noneofthesetwosituationsoccursinthepresentcase.
5.
303Clearly,Indonesiaisnotsubjecttotwomutuallyexclusiveobligations,becausethereisnothingintheSCMAgreementwhichrequiresIndonesiatograntthesubsidiesatissue.
5.
304NordoestheSCMAgreement"permitexplicitly"whattheGATTArticleIIIprohibits.
IncannotbeconsideredthataprovisioninanAnnex1AAgreement"permitsexplicitly"whatGATTprohibitsunlessitstatesinpositivetermsarighttodoit(e.
g.
"MembersmayapplyormaintainmeasureX"),asopposedtomerelyabstainfromprohibitingit.
Inaddition,theremustbeidentitybetweentheprohibitedmeasuresandtheexplicitlypermittedmeasures.
Anincidentaloverlapbetweentwoprovisionswhichfocusontwodifferenttypesofmeasuresdoesnotconstitutea"conflict".
Asshownbelow,noneofthesetwoconditionsismetinthepresentcase.
5.
305Byitsownwords,Article27.
3oftheSCMAgreementislimitedtostipulateatemporaryexceptiontotheprohibitioncontainedinArticle3.
1(b)ofthesameagreementinfavourofdevelopingMembers.
Itdoesnot"authoriseexplicitly"developingMemberstodeviatefromanyotherobligation,eitherintheSCMAgreement,suchasArticle5,orinotheragreements,suchasGATTArticlesIII:2and爚III:4.
5.
306FromthemerefactthatArticle3oftheSCMAgreementdoesnotprohibitacertaintypeofsubsidies,itcannotbeinferredacontrariothatMembershavean"explicitright"tograntthattypeofsubsidiesinviolationofadifferentobligationcontainedinanotheragreement,suchasGATTArticle爚III.
Forinstance,thefactthatArticle3oftheSCMdoesnotprohibitthegrantingofsubsidiesintheformofanexemptionfromanindirecttaxonlyfordomesticgoods(irrespectiveoftheirlocalcontentlevel),doesnotmeanthatMembershavebeengrantedtherebyan"explicitauthorization"totaximportedproductsinexcessofdomesticlikeproducts,contrarytotheprohibitioncontainedinGATTArticle爚III:2.
Bythesametoken,thefactthatArticle3.
1(b)junctoArticle27.
3oftheSCMAgreementdoesnotprohibit,onatemporarybasis,thegrantingoflocalcontentsubsidiesbydevelopingMemberscannotbeconstruedasan"explicitauthorization"forthoseMemberstoviolateGATTArticlesIII:2and爚III:4.
5.
307Article5oftheSCMAgreementlaysdownanobligationnottocause"adverseeffects"throughthegrantingof"actionablesubsidies".
Clearly,thisdoesnotamounttoan"explicitauthorization"totakeanymeasurewhichmaybecharacterizedasan"actionablesubsidy"andwhichdoesnotcause"adverseeffects",evenifsuchmeasureiscontrarytotheprovisionsofGATT.
5.
308Finally,Article8oftheSCMAgreementprovidesthatcertaintypesofsubsidiesshallbeconsideredasnon_actionable.
Thismeanssimplythatthosesubsidiesarenon_actionableunderParts爚IIIorVoftheSCMAgreement.
ItdoesnotmeanthatMembershavean"explicitright"totakemeasureswhichviolateGATTArticleIII.
5.
309Furthermore,inthepresentcasetherecanbeno"conflict"becausetherequiredidentitybetweentheprohibitedandtheallegedlypermittedmeasuresdoesnotexist.
ArticleIIIprohibitsmeasureswhichdiscriminatebetweenimportedanddomesticproducts,whereasthemeasuresallegedlypermittedbytheSCMAgreementaresubsidies.
Thesetwocategoriesofmeasuresareconceptuallydifferent,evenifcertainindividualmeasuresmayfallsimultaneouslywithinbothcategories.
Giventhelackofidentitybetweenthetwocategoriesofmeasures,itcannotbesaidthattheSCMAgreementauthorises"explicitly"whatisprohibitedbyGATTArticleIII.
5.
310InEC_RegimefortheImportation,SaleandDistributionofBananas,thePanelelaboratedonitsinterpretationofthenotionof"conflict"intheNotebyidentifyingasanexampleofsuch"conflict"therelationshipbetweenGATTArticleXI:1andArticle2oftheAgreementonTextilesandClothing(the"ATC"):Forinstance,ArticleXI:1ofGATTprohibitstheimpositionofquantitativerestrictions,whileArticleXI:2ofGATTcontainsaratherlimitedcatalogueofexceptions.
Atthesametime,Article2oftheAgreementonTextilesandClothingauthorisestheimpositionofquantitativerestrictionsinthetextilesandclothingsector,subjecttoconditionsspecifiedinArticle2:1_21oftheATC.
Inotherwords,ArticleXI:1ofGATTprohibitswhatArticle2oftheATCpermitsinequallyexplicitterms.
ItistruethatMemberscouldtheoreticallycomplywithArticleXI:1ofGATT,aswellaswithArticle2oftheATC,simplybyrefrainingfrominvokingtherighttoimposequantitativerestrictionsinthetextilessectorbecauseArticle2oftheATCauthorisesratherthanmandatestheimpositionofquantitativerestrictions.
However,suchaninterpretationwouldrenderwholeArticlesorsectionscoveredbytheWTOmeaninglessandruncountertotheobjectandpurposeofmanyagreementslistedinAnnex1AwhichwerenegotiatedtocreaterightsandobligationswhichinpartsdiffersubstantiallyfromthoseoftheGATT1994.
Id.
atfootnoteNo390.
5.
311TherelationshipofArticle2oftheATCtoGATTArticleXIisreadilydistinguishablefromtherelationshipoftheSCMAgreementtoGATTArticleIII:-Article2oftheATCgrantsapositiverighttodosomething,namelytomaintainquantitativerestrictions.
Onthecontrary,theSCMAgreementdoesnotconferapositiverighttograntsubsidies.
Itsonlypurposeistocreateremediesagainstcertaincategoriesofsubsidies.
-ThereistotalidentitybetweenthemeasuresprohibitedbyGATTArticleXIandthoseauthorizedbyArticle2oftheATC(quantitativerestrictionsinbothcases).
TheSCMagreementandGATTArticleIII,ontheotherhand,areconcernedeachwithadifferenttypeofmeasures(subsidiesandmeasureswhichdonotaffordnationaltreatmenttoimportedproducts,respectively),evenifthetwocategoriesmayoverlapinrespectofcertainindividualmeasures.
-AccordingtothePanel,theapplicationofGATTArticleXI:1tomeasurescoveredbyArticle爚2oftheATCwouldhaverenderedthelatterArticle"meaningless".
Incontrast,theapplicationofArticleIIItosubsidiesdoesnotrendertheSCMAgreementredundant.
Quitetothecontrary,itsnon_applicationwouldreduceGATTArticlesIII:2andIII:8(b)toinutility.
-AccordingtothePanel,theATCwasnegotiatedwiththeobjectandpurposetoderogatefromtheGATT.
Infact,thatintentionissetoutexplicitlyinArticle1.
1oftheATCAgreement.
Incontrast,thereisnoindicationeitherinthetextorinthedraftinghistoryoftheSCMAgreementthatitwasnegotiatedwiththeintentionofderogatingfromtheGATTrulesonnationaltreatment.
Moreover,unlikeinthecaseoftheATCAgreementwithrespecttoGATTArticleXI,therewouldbenoapparentrationaleforsuchderogation.
Inparticular,giventhatsuchderogationwouldbe,againunlikeinthecaseoftheATCwithrespecttoGATTArticle爚XI,permanentandnotjusttemporary.
5.
312TheabsenceofaconflictbetweentheSCMagreementandGATTArticleIIIisfurtherconfirmedbyArticle32.
1junctofootnote56oftheSCMAgreement,whichasalreadydiscussedadmitsexpresslythepossibilitythatactionagainstsubsidiesmayalsobetakenunderotherGATTprovisions,includingArticleIII.
5.
313Toconclude,itmustberecalledthattherelationshipoftheSCMAgreementtoGATTArticle爚IIIisformallyidenticaltotherelationshipofGATTArticleXVItoGATTArticleIII.
TheSCMAgreementdoesnot"permitexplicitly"subsidieswhicharecontrarytoGATTArticleIIIanymorethanArticle爚XVIdidunderGATT1947.
Thus,toholdthatthereisa"conflict"betweentheSCMAgreementandGATTArticleIIIwouldbetantamounttoadmittingthattherewasalsoan"internalconflict"withinGATT1947.
Yet,itisclearthattheonlypurposeoftheGeneralInterpretativeNotetoAnnex1AwastosolvethepotentialconflictsbetweenGATTandthenewagreementsontradeingoodsnegotiatedduringtheUruguayRoundwhichbuildupontheprovisionsofGATT.
ItwasnotthepurposeoftheNotetosolveanyinherited"internalconflicts"withinGATTitselfwhich,somehow,wouldhavegoneunnoticedforalmost50years.
3.
RebuttalArgumentsoftheUnitedStates5.
314ThefollowingaretheUnitedStates'argumentsrebuttingIndonesia'sgeneralresponsetotheclaimsraisedunderArticleIIIofGATT1994:(a)Thetariffandtaxincentivesunderthe1993ProgrammeandtheNationalCarProgrammeviolateArticleIIIofGATT19945.
315Thetariffandtaxincentivesunderthe1993ProgrammeandtheNationalCarProgrammeviolateArticleIII:4ofGATT1994because:(1)theyeachconstituteregulationsorrequirementsthat"affect"thesale,purchase,transportationanddistributionofimportedanddomesticautomotivepartsandsubparts;(2)importedautomotivepartsandsubpartsare"like"domesticautomotivepartsandsubparts;and(3)theyeachdiscriminateagainstimportedautomotivepartsandsubparts.
Inaddition,thetaxincentivesundertheNationalCarProgrammeviolateArticleIII:2,firstsentence,ofGATT1994,becausetheyresultintheimpositionoftaxesonimportedproductsthatareinexcessofthoseappliedtolikedomesticproducts.
Alternatively,thesetaxincentivesviolateArticleIII:2,secondsentence,ofGATT1994because:(1)importedpassengercarsanddomesticpassengercarsaredirectlycompetitiveorsubstitutableproductsthatareincompetitionwitheachother;(2)thedirectlycompetitiveorsubstitutableimportedordomesticpassengercarsarenotsimilarlytaxed;and(3)thedissimilartaxationisappliedsoastoaffordprotection.
5.
316IndonesiahasnotdisputedanyoftheseconclusionsthatmakeuptheelementsofaviolationofArticleIII:2andArticleIII:4.
Instead,IndonesiaarguesthatArticleIIIdoesnotapplytothetaxincentivesbecause:(1)theseincentivesconstitute"subsidies";and(2)theSCMAgreementoverridesArticleIII.
Inaddition,andnotwithstandingarulingoftheAppellateBodytothecontrary,IndonesiaarguesthatthetariffincentivesarenotgovernedbyArticleIII:4becausetheyconstitute"bordermeasures".
AstheUnitedStateswilldemonstrate,notonlyarebothargumentswrongasamatteroflaw,but,ifaccepted,theywouldhavefar-reachinganddangerousimplicationsfortheworldtradingsystem.
(b)Indonesia'sargumentthattheSCMAgreementoverridesArticleIIIisunspportedbythetextoftheSCMAgreementandGATT1994,wouldresultintheeffectiverepealofArticleIII:2,andisinconsistentwiththenegotiatinghistoryoftheUruguayRound,establishedprinciplesofpublicinternationallaw,andWTOjurisprudence5.
317Inthecaseofthetaxincentivesprovidedunderthe1993ProgrammeandtheNationalCarProgramme,IndonesiadoesnotdisputethatthemeasuresviolateArticleIII.
Instead,itarguesthatArticleIIIisinapplicablebecausethemeasuresconstitutesubsidies,and,thus,accordingtoIndonesia,aregovernedsolelybytheprovisionsoftheSCMAgreement.
AccordingtoIndonesia,because,underArticle27.
3oftheSCMAgreement,Indonesiahasatime-limitedexemptionfromtheprohibitionagainsttheuseoflocalcontentsubsidiescontainedinArticle3.
1(b)ofthatagreement,onlytheprovisionsoftheSCMAgreementapply.
Anyotherresult,accordingtoIndonesia,resultsina"conflict"withinthemeaningoftheGeneralInterpretativenotetoAnnex1AoftheMarrakeshAgreementEstablishingtheWorldTradeOrganization("WTOAgreement"),becauseArticle爚IIIprohibitswhatArticle27.
3allegedlypermits.
Indonesia'sargumentiswrongforavarietyofreasons.
(1)Indonesia'sargumentisunsupportedbythetextoftheSCMAgreementandGATT19945.
318Indonesia'sargumentispremisedontheexistenceofwhatitreferstoas"anall-encompassingdefinitionofsubsidies"intheSCMAgreementthatappliesacrosstheWTOagreements.
However,thedefinitionintheSCMAgreementisnot"all-encompassing".
WhenonelooksatthetextoftheSCMAgreement,asonemustundertheViennaConventionontheLawofTreaties("ViennaConvention"),Article爚1.
1statesveryclearlythatthedefinitionof"subsidy"containedthereinis"ForthepurposeofthisAgreement爚.
.
.
.
"Inotherwords,thedefinitionof"subsidy"islimitedtotheSCMAgreement.
5.
319Second,Indonesia'sargumentisalsopremisedonwhatitreferstoonpage91ofitsfirstsubmissionas"anall-encompassingstructureofremedies爚.
.
.
爚".
Again,however,thereisnosuchstructure.
Consideragaintheactualtextofthetreaty.
Article32.
1oftheSCMAgreementprovidesasfollows:NospecificactionagainstasubsidyofanotherMembercanbetakenexceptinaccordancewiththeprovisionsofGATT1994,asinterpretedbythisAgreement.
Moreover,Article32.
1containsafootnote56,whichreadsasfollows:ThisparagraphisnotintendedtoprecludeactionunderotherrelevantprovisionsofGATT1994,whereappropriate.
5.
320TherecanbenoclearerindicationthatthedraftersdidnotintendthattheSCMAgreementbetheexclusiveremedyagainstameasurethathappenstofallwithinthatagreement'sdefinitionofasubsidy.
5.
321Indonesiaarguesthatthecomplainants'interpretationofnote56iswrongbecausetheysomehowignorethewords"relevant"and"appropriate".
AccordingtoIndonesia,becausethemeasuresatissuearecoveredbytheSCMAgreement,otherGATTprovisionsareneither"relevant"nor"appropriate".
5.
322Thisisaclassicexampleoftautologicalreasoningthatassumestheanswertothequestionposed.
AccordingtoIndonesia,becausetheSCMAgreementislexspecialis,nootherprovisionofGATTcanbe"relevant"or"appropriate"withinthemeaningofnote56.
5.
323However,itisIndonesiathatignoresthetextofnote56,andessentiallyrendersthatprovisionsuperfluous,inviolationofestablishedprinciplesoftreatyinterpretation.
Indeed,iftheSCMAgreementtrulywerelexspecialis,therewouldbenoreasonfornote56.
5.
324OtherprovisionssupporttheconclusionthattheSCMAgreementwasnotintendedtobetheexclusivemechanismforchallengingmeasuresthatcanbecharacterizedassubsidies.
Forexample,ArticleVI:5ofGATT1994providesasfollows:Noproductoftheterritoryofanycontractingpartyimportedintotheterritoryofanyothercontractingpartyshallbesubjecttobothanti-dumpingandcountervailingdutiestocompensateforthesamesituationofdumpingorexportsubsidization.
ArticleVI:5recognizesthatexportsubsidiesmaybecharacterizedasaproblemofdumpingorsubsidization,andsimplyprecludesMembersfromimposingbothremediesinthecaseofasingleactofsubsidization.
Article爚VI:5beliesIndonesia'sclaimthattheremediesintheSCMAgreementareexclusiveorall-encompassing.
5.
325Moregenerally,ithaslongbeenrecognizedthattheGATTprovisionsthatdealexplicitlywithsubsidiesarenottheonlyprovisionsthatarerelevanttosubsidies.
Inthisregard,thefollowingstatementbyProf.
JohnJacksonisworthnoting:J.
Jackson,WorldTradeandtheLawofGATT,15.
4,page377(1969)(Emphasisadded).
However,therearecertainmeasuresinotherarticlesofGATT[otherthanArticle爚XVI]thatbearonthefreedomofanationtosubsidizeandthatofferameasureofremedyforaGATTmemberthatisharmedbyanother'ssubsidy.
FourotherarticlesinparticularmustberelatedtoArticleXVI.
TheseareArticle爚VIonanti_dumpingandcountervailingduties,ArticleXIXregardingincreasesofimportsthatthreatenseriousinjury(the"escapeclause"),Article爚XXIIIregardingnullificationandimpairment,andArticleIIIregardingnationaltreatment.
5.
326Inshort,Indonesia'sargumentiscontradictedbythetextoftherelevantagreements,andmustberejectedforthatreason.
(2)Indonesia'sargumentwouldresultintheeffectiverepealofArticleIII:25.
327AsidefromthefactthatIndonesia'slexspecialisargumentignoresthetextoftherelevantagreements,theflawsinitsargumentcanbestbeappreciatedwhenoneconsidershowIndonesia'stheoryoperateswithrespecttoArticleIII:2ofGATT1994.
5.
328Inthiscase,IndonesiaarguesthatthetaxdiscriminationinfavourofIndonesianmotorvehiclesisasubsidybecauseitconstitutesforegonegovernmentrevenuewithinthemeaningofArticle爚1.
1(a)(1)(ii)oftheSCMAgreement.
AccordingtoIndonesia,becausethistaxdiscriminationconstitutesasubsidy,itcanberemediedonlyundertheSCMAgreement.
5.
329However,considertheconsequencesofIndonesia'sargument.
SupposethataMemberdiscriminatesagainstimportsacrosstheboard,sothatalldomesticproductsaretaxedatonerate,andallimportedproductsaretaxedatahigherrate.
Assumealsothatnolocalcontentrequirementsareinvolved.
BasedonIndonesia'slogic,thistaxdiscriminationconstitutesasubsidyintheformofrevenueforegonethatisprovidedtoallproducersofdomesticproductsandthatcanberemediedonlyundertheSCMAgreement.
Yet,whenoneturnstotheSCMAgreement,onefindsthatthereisnoremedy.
ThisisbecauseundertheSCMAgreement,asubsidythatisavailabletoalldomesticproductsisnotspecificwithinthemeaningofArticle2oftheSCMAgreement,and,assuch,isnon-actionableunderArticle8.
1(a)oftheSCMAgreement.
5.
330Thus,theconsequenceofIndonesia'sargumentisthatArticleIII:2effectivelyhasbeenrepealedandMembersarefreetoengageineconomy-widetaxdiscriminationagainstimportedproducts.
Article爚III:2nolongerapplies,becauseithasbeenoverriddenbytheSCMAgreement,buttheSCMAgreementprovidesnoredressbecausethe"subsidy"isnon-actionable.
5.
331ThereisnottheslightestbitofevidencethattheUruguayRoundnegotiatorsintendedsuchadramaticanddangerousoutcome.
Moreover,thedraftinghistoryofGATT1947indicatesthatthedraftersexpresslyrejectedsuchanoutcome.
Inparticular,duringtheHavananegotiations,thedraftersofArticleIIIrejectedthefollowingproposalbyCuba:TheprovisionsofthisArticleshallnotprecludetheexemptionofdomesticproductsfrominternaltaxesasameansofindirectsubsidizationincasescoveredunderArticle爚XVI.
TheabsurdconsequencesofIndonesia'sargumentrevealexactlyhowerroneousthatargumentis.
(3)Indonesia'sargumentiscontradictedbytheUruguayRoundnegotiatinghistory5.
332InlightofthemanifestlyabsurdresultsgeneratedbyIndonesia'sargument,oneshouldconsiderthenegotiatinghistoryoftheTRIMsAgreementandtheSCMAgreement.
WhilewearetalkingaboutArticleIIIofGATT1994atthemoment,IndonesiahasarguedthattheTRIMsAgreementimposesnoadditionalsubstantiveobligations,butinsteadmerelyinterpretsArticle爚III(SeeSectionVI.
D).
TheUnitedStatesdoesnotagreewithIndonesia'scharacterizationoftheTRIMsAgreement,but,forthesakeofargument,letusassumethatIndonesiaiscorrect.
5.
333IndonesiacitestoareportoftheChairmanoftheNegotiatingGrouponTrade-RelatedInvestmentMeasures(SeeSectionVI.
D).
MTN.
GNG/NG12/W/27(19July1990).
ThereportcontainedabracketedChairman'stext,ArticleA2(c)(iii)ofwhichreadasfollows:(c)Aninvestmentmeasureis"applied"when:.
.
.
.
(iii)itisaconditionfor,orafactorindeterminingeligibilityfor,receiptofanadvantagefromacontractingpartyoravoidingwithdrawalofanadvantage.
Abracketedfootnote2toclause(iii)furtherprovidedthefollowing:Anadvantagecanincludetheprovisionofasubsidy,andattentionwillbepaidtothenegotiationsintheNegotiatingGrouponSubsidiestoensurenoconflict.
5.
334AsIndonesiacorrectlynotes,thequestionofwhetherTRIMswouldinclude"incentive-based"measures,includingmeasuresthatcouldbecharacterizedassubsidies,wasaboneofcontentionduringtheRIMsnegotiations,asreflectedbythebracketsaroundtheabove-quotedlanguage.
5.
335However,Indonesialeavesthedraftinghistoryatthat,andfailstomentionwhathappenedthereafter.
Intheso-calledDunkelDraft,issuedinDecember,1991,theTRIMsAgreementappearedinwhatwas,forsubstantivepurposes,itsfinalform.
MTN.
TNC/W/FA,pageN.
1etseq(UnitedStatesExhibit爚26).
IntheDunkelDraft,paragraph1oftheIllustrativeListofTRIMscovered,asdoesitscounterpartinthefinalTRIMsAgreement,TRIMs"compliancewithwhichisnecessarytoobtainanadvantage爚.
.
.
爚.
"Thus,thebattleovertheinclusionofincentive-basedmeasureshadbeenresolvedinfavouroftheirinclusion,albeitbyusingdifferentlanguagefromthatintheChairman'sdraft.
5.
336Inaddition,thenotificationrequirementsandtransitionalarrangementscontainedinArticle爚5oftheTRIMsAgreementalsohadreachedtheirfinalformintheDunkelDraft.
UnderArticle5oftheDunkelDraft,countrieshad90daysinwhichtonotifyexistingnon-conformingTRIMs,andweregrantedaperiodoftimeinwhichtoeliminatethem.
Developingcountrieshadfiveyears,whileleast-developedcountrieshadsevenyears.
Inaddition,countrieswereprecludedfromintroducingnewnon-conformingTRIMs.
5.
337NowletusturntotheversionoftheSCMAgreementintheDunkelDraft,and,inparticular,Article27.
MTN.
TNC/W/FA,pagesI.
33-35(UnitedStatesExhibit27).
ThereonefindsnoexemptionfordevelopingcountryMembersfromtheprohibitioninArticle3.
1(b)againsttheuseoflocalcontentsubsidies.
Instead,Article27.
3oftheDunkelDraftconsistedofwhatultimatelybecameArticle27.
4,theprovisiondealingwithdevelopingcountryMemberphaseoutsofexportsubsidies.
5.
338Thus,intheDunkelDraft,totheextenttherewasa"conflict"betweentheSCMAgreement,ArticleIII:4,andtheTRIMsAgreement,the"conflict"wasexactlytheoppositeofthe"conflict"allegedbyIndonesia.
UnderthedraftSCMAgreement,developingcountryMemberswereprohibitedfromusinglocalcontentsubsidies,butundertheTRIMsAgreement,developingcountryMemberscouldusesuchsubsidiesforalimitedperiodoftime,providedthattheynotifiedtheminatimelymanner.
5.
339Ofcourse,asIndonesiacorrectlynotes,thenegotiatorswereawareoftheoverlapbetweentheTRIMsAgreementandtheSCMAgreement,andtheysubsequentlyproceededtodealwithit.
OnDecember15,1993,theTradeNegotiatingCommitteeissuedadraftFinalAct.
InthedraftSCMAgreement,anewprovisionappeared,Article27.
2bis.
MTN/FAII-13,page32(United爚StatesExhibit爚28).
Thisprovision,whichultimatelywasrenumberedasArticle27.
3,granteddevelopingandleastdevelopedcountryMembersatime-limitedexemptionfromtheprohibitionagainstlocalcontentsubsidiesinArticle爚3.
1(b)oftheSCMAgreement.
5.
340WiththeadditionofArticle27.
2bis,the"conflict"betweenArticleIII:4,theTRIMsAgreement,andtheSCMAgreementintheDunkelDraftwaseliminated.
InthecaseofdevelopingandleastdevelopedMembers,thoseTRIMsthatwerepermittedbyArticle5oftheTRIMsAgreementduringthetransitionperiodnolongerwereprohibitedbytheSCMAgreement.
5.
341WhatthisdraftinghistoryshowsisthatitwasnottheintentofthenegotiatorsthattheSCMAgreementoverrideArticleIII:4ortheTRIMsAgreement.
Instead,aswasthecaseunderGATT爚1947,therewastobeoverlapping,ifnotidentical,treatmentoflocalcontentincentivesunderthesedifferentregimes.
5.
342Whatthisdraftinghistoryalsohighlightsisthatthe"conflict"allegedbyIndonesiainthiscaseisanartificialone.
IfIndonesiahadnotifieditspre-WTOTRIMsinaccordancewiththeprovisionsofArticle5.
1oftheTRIMsAgreement,theywouldhavebeenprotectedunderboththeTRIMsAgreementandtheSCMAgreement.
AsforIndonesia'spost-WTOTRIMs,itwasnevertheintentionofthedrafterstopermitsuchmeasuresunderArticleIII:4ortheTRIMsAgreement,eventhoughtheymightbetemporarilyexemptfromthespecialremediesoftheSCMAgreement.
(4)Indonesia'sargumentisinconsistentwithestablishedprinciplesofpublicinternationallaw5.
343IndonesiacitesthereportofthepanelintheBananasIIIcaseforthepropositionthata"conflict"existswherearuleinoneagreementprohibitswhataruleinanotheragreementexplicitlypermits.
EuropeanCommunities-RegimefortheImportation,SaleandDistributionofBananas,WT/DS27/R,ReportofthePanel,asmodifiedbytheAppellateBody,adoptedon25September1997,para.
7.
159.
However,Indonesia'srelianceonBananasIIIismisplacedforseveralreasons.
Amongotherthings,thepanel'sstatementconcerningthedefinitionofa"conflict"wasdictainasmuchasthepanelfoundthatnoconflictexisted.
Unfortunately,becausethisaspectofthepanelreportwasnotappealed,theAppellateBodywasnotpresentedwiththeopportunitytocorrectthepanel'serror.
5.
344First,neithertheBananasIIIpanelnorIndonesiacitesanysupportforthepropositionthata"conflict,"withinthemeaningofpublicinternationallaw,canexistinasituationwherearuleinoneagreementexplicitlypermitswhataruleinanotheragreementprohibits,Theabsenceofanycitationisduetothefactthattheruleunderpublicinternationallawisclear:aconflictexistsonlyinsituationswhereobligationsaremutuallyexclusive;i.
e.
,"whentwo(ormore)treatyinstrumentscontainobligationswhichcannotbecompliedwithsimultaneously.
"7爚EncyclopediaofPublicInternationalLaw(North-Holland1984),page468.
5.
345Moreover,evenassumingforpurposesofargumentthatthestatementbytheBananas爚IIIpaneliscorrect,therestillisnoconflictbetweentherulesofArticleIIIandtherulesoftheSCMAgreement.
Thisisbecause,aspreviouslynoted,footnote56oftheSCMAgreementexpresslycontemplatesthatsubsidypracticesmaybeactionableunderotherrelevantprovisionsofGATT1994.
5.
346Inaddition,againassumingforpurposesofargumentthatthestatementbytheBananasIIIpanelwascorrect,thereisnoconflictbecausetheSCMAgreementdoesnot"explicitlypermit"localcontentsubsidies.
Indeed,allthatArticle27.
3doesistoexemptdevelopingcountryMembers,foraperiodoftime,fromtheprohibitionofArticle3.
1(b).
Moregenerally,totheextentthat"permit"isasynonymfor"authorize,"theauthoritytoprovidesubsidiesdoesnotflowfromtheSCMAgreement,butinsteadfromaMember'ssovereignty.
TheSCMAgreementsimplyspecifiesthecircumstancesunderwhichoneMemberthathassufferedadversetradeeffectsmayseekredressagainstsubsidiesprovidedbyanotherMember.
Inaddition,theSCMAgreementalsoprohibitscertaintypesofsubsidies,andprovidesaremedyagainstthem,becausetheyareconsideredtobepresumptivelydistortiveandacauseofadversetradeeffects.
5.
347Inaddition,simplyasatextualmatter,itisimpossibletoconcludethatatime-limitedexemptionfromaprohibition(whichiswhatArticle27.
3provides)constitutesapositiveconferralofan"explicitright"todosomething.
5.
348FinallythefactthattheSCMAgreementmaynotprohibitacertaintypeofsubsidycannotbeconstruedastheconferralofanexplicitrighttoviolateadifferentobligationcontainedinadifferentWTOagreement.
Forexample,astheUnitedStatesdemonstratedatthefirstmeetingofthePanel,anexemptiononlyfordomesticproductsfromanindirecttaxwouldbeanon-specific(generallyavailable)subsidyundertheSCMAgreement.
Assuch,itwouldbeanon-actionablesubsidy.
However,thefactthatsuchasubsidyisnotprohibitedby,orevenactionableunder,theSCMAgreementdoesnotmeanthatMembersare"explicitlypermitted"totaximportedproductsinexcessofdomesticlikeproductsinviolationofArticleIII:2.
Likewise,thefactthatdevelopingcountryMembersaretemporarilyexemptedfromtheprohibitioninArticle3.
1(b)doesnotmeanthattheyare"explicitlypermitted"toviolateArticle爚III:2andArticleIII:4.
5.
349Finally,itmustbeemphasizedthatunderpublicinternationallaw"[t]hereisapresumptionagainstconflictsinthatpartiesdonotnormallyintendtoincurconflictingobligations".
7爚EncyclopediaofPublicInternationalLaw(North-Holland1984),page470.
Thispresumptionflowslogicallyfromthebasicmaximutresmagisvaleatquampereat,aprinciplethatisembodiedintheViennaConvention,andwhichrequiresthatatreatyshallbeinterpretedingoodfaithinaccordancewiththeordinarymeaningtobegiventoitstermsinthecontextofthetreatyandinthelightofitsobjectandpurpose.
Morespecifically,whatthismeansisthefollowing1966YearbookoftheInternationalLawCommission,Vol.
IIat219;Seealso,UnitedStates爚-StandardsforReformulatedandConventionalGasoline,WT/DS2/AB/R,ReportoftheAppellateBodyadopted20May1996,pages24-25("Oneofthecorollariesofthe'generalruleofinterpretation'intheViennaConventionisthatinterpretationmustgivemeaningandeffecttoallthetermsofatreaty.
Aninterpreterisnotfreetoadoptareadingthatwouldresultinreducingwholeclausesorparagraphsofatreatytoredundancyorinutility.
");andJapan-TaxesonAlcoholicBeverages,WT/DS8/AB/R,ReportoftheAppellateBodyadopted1November1996),pages11-12.
:Whenatreatyisopentotwointerpretationsoneofwhichdoesandtheotherdoesnotenablethetreatytohaveappropriateeffects,goodfaithandtheobjectsandpurposesofthetreatydemandthattheformerinterpretationshouldbeadopted.
Asdiscussedabove,Indonesia'sargumentutterlyfailstocomplywiththisfundamentalprinciple,becausetheIndonesianargumentwouldrenderArticleIII:2anullity.
5.
350Twocorollaryprinciplesflowfromthisfundamentalprinciple.
First,theburdenisonIndonesia,asthepartyallegingaconflict,todemonstrateconvincinglythataconflictexists.
Indonesiahasfailedtosatisfythisburden.
5.
351Second,thePanelmust,totheextentpossible,interprettherelevantprovisionssoastoavoidaconflict.
Asdiscussedbelow,existingWTOjurisprudenceprovidesavehicleforavoidingaconflict.
(5)ExistingWTOjurisprudencerecognizesthatthesubjectmatteroftheWTOagreementscanoverlap5.
352ExistingWTOjurisprudencerecognizesthatthesubjectmatteroftheWTOagreementscanoverlap.
TheAppellateBodyacknowledgedthispointmostrecentlyinBananasIII,whereitstatedthefollowingEuropeanCommunities-RegimefortheImportation,SaleandDistributionofBananas,WT/DS27/AB/R,ReportoftheAppellateBodyadopted25September1997,para.
221(footnoteomitted).
:ThesecondissueiswhethertheGATSandtheGATT1994aremutuallyexclusiveagreements.
TheGATSwasnotintendedtodealwiththesamesubjectmatterastheGATT1994.
TheGATSwasintendedtodealwithasubjectmatternotcoveredbytheGATT1994,thatis,withtradeinservices.
Thus,theGATSappliestothesupplyofservices.
Itprovides,interalia,forbothMFNtreatmentandnationaltreatmentforservicesandservicesuppliers.
Giventherespectivescopeofapplicationofthetwoagreements,theymayormaynotoverlap,dependingonthenatureofthemeasuresatissue.
CertainmeasurescouldbefoundtofallexclusivelywithinthescopeoftheGATT1994,whentheyaffecttradeingoodsasgoods.
CertainmeasurescouldbefoundtofallexclusivelywithinthescopeoftheGATS,whentheyaffectthesupplyofservicesasservices.
ThereisyetathirdcategoryofmeasuresthatcouldbefoundtofallwithinthescopeofboththeGATT1994andtheGATS.
Thesearemeasuresthatinvolveaservicerelatingtoaparticulargoodoraservicesuppliedinconjunctionwithaparticulargood.
Inallsuchcasesinthisthirdcategory,themeasureinquestioncouldbescrutinizedunderboththeGATT1994andtheGATS.
However,whilethesamemeasurecouldbescrutinizedunderbothagreements,thespecificaspectsofthatmeasureexaminedundereachagreementcouldbedifferent.
UndertheGATT1994,thefocusisonhowthemeasureaffectsthegoodsinvolved.
UndertheGATS,thefocusisonhowthemeasureaffectsthesupplyoftheserviceortheservicesuppliersinvolved.
WhetheracertainmeasureaffectingthesupplyofaservicerelatedtoaparticulargoodisscrutinizedundertheGATT1994ortheGATS,orboth,isamatterthatcanonlybedeterminedonacase_by_casebasis.
ThiswasalsoourconclusionintheAppellateBodyReportinCanada-Periodicals.
5.
353LiketherelationshipbetweenGATT1994andGATSdiscussedinBananasIII,thecoverageofArticleIIIandtheSCMAgreementoverlap,butthefocusofeachisdifferent.
ThefocusoftheSCMAgreementisonsubsidies,whichinthecontextofthiscase,happentobespecific(oractionable)becausetheirreceiptismadecontingentonthebasisofdiscriminationagainstimportedgoods.
Bycontrast,thenationaltreatmentprovisionsofArticleIIIfocusonthediscrimination.
5.
354ThisdifferenceinfocuscanbeappreciatedbyconsideringtheremedyapplicabletoprohibitedsubsidiesundertheSCMAgreement.
UnderArticle4.
7oftheSCMAgreement,ifapanelfindsameasuretobeaprohibitedlocalcontentsubsidy,thepanelmust"recommendthatthesubsidizingMemberwithdrawthesubsidywithoutdelay".
UnderArticle1.
2andAppendix2oftheDSU,Article4.
7isaspecialoradditionalruleorprocedurethatprevailsoverthegeneralrulesoftheDSU.
ApanelisnotallowedtorecommendthatthesubsidizingMembereliminatethelocalcontentcontingencyofthesubsidy.
5.
355Moregenerally,ifaMemberweretoviolateArticleIII:4bymakinguseofdomesticinputsaconditionforthereceiptofasubsidy,themeasurewouldcontinuetobeaviolationofArticleIII:4ifthesubsidyelementwerereplacedwithsomeotherformofincentiveordisincentive.
Ontheotherhand,ifthelocalcontentaspectofasubsidyweredropped,thesubsidywouldcontinuetobesubjecttotheSCMAgreement,althoughthenatureoftherelevantdisciplineundertheSCMAgreementmightbeaffected.
5.
356Thus,thePanelcanavoida"conflict"bysimplyrecognizingthatArticle爚IIIandtheSCMAgreementhaveoverlappingcoverage,butadifferentfocus.
Insodoing,thePanelwillhavecompliedwithitsobligationunderpublicinternationallawprinciplestoavoidinterpretingArticleIIIandtheSCMAgreementinamannerthatgivesrisetoaconflict.
(6)GATTandWTOPanelsandtheAppellateBodyhavenotreliedontheconceptoflex爚specialistodeterminethatoneWTOagreementtakesprecedenceoveranother5.
357InresponsetoaquestionfromthePanelconcerningGATT/WTOpanelreports,theUnitedStatesstatedthattheconceptoflexspecialishadbeendiscussedinthefollowingreports.
5.
358InEECRestrictionsonImportsofApplesfromChile,L/5047,ReportofthePaneladopted10爚November1980,BISD27S/98,althoughthetermlexspecialiswasnotused,theEuropeanCommunitiesarguedthatwithrespecttoChile'sclaimunderArticleIofGATT1947,theEuropeanCommunities"action,beingaquantitativerestriction,shouldbeexaminedinconnectionwiththemost_favoured_nationtypecommitmentcontainedinArticle爚XIII.
"Para.
3.
2.
ThepanelagreedwiththeEuropeanCommunities.
Para.
4.
1.
However,thiscaseinvolvedtherelationshipbetweendifferentprovisionsofasingleagreement,GATT1947,asopposedtotherelationshipbetweendifferentagreements.
5.
359InEuropeanEconomicCommunity_RestrictionsonImportsofDessertApples_ComplaintbyChile,L/6491,ReportofthePaneladopted22June1989,BISD36S/93,thesameissuearose,andthistimetheEuropeanCommunitiesdidinvokeexpresslytheconceptoflexspecialis.
Para.
5.
2.
Asinthepriorcase,thepanelagreedwiththeEuropeanCommunities,statingasfollows:"[Article爚XIII]dealswiththenon_discriminatoryadministrationofquantitativerestrictionsandisthusthelexspecialisinthisparticularcase.
"Para.
爚12.
28.
Again,however,thiscaseinvolvedtherelationshipbetweendifferentprovisionsofasingleagreement.
5.
360InPanelonImport,DistributionandSaleofAlcoholicDrinksbyCanadianProvincialMarketingAgencies,L/6304,ReportofthePaneladopted22March1988,BISD35S/37,CanadaarguedthatArticle爚IIIofGATT1947wasnotrelevanttothecasebecauseArticleXVIIcontainedtheonlyobligationrelatedtostatetrading.
Para.
3.
47.
TheEECarguedinresponsethatArticleXVIIwasnotalexspecialisexemptingstate_tradingfromallotherprovisionsofGATT1947.
Para.
3.
48.
ThepaneldeclinedtoreachtheissuebecauseitalreadyhadfoundthatthemeasuresinquestionviolatedArticle爚XI.
Para.
4.
26.
Indicta,however,thepanelopinedthatArticleIII:4wasalsoapplicabletostate_tradingenterprises,atleastincertainsituations.
Id.
Althoughthepaneldidnotaddresstheissue,thiscase,too,involvedtherelationshipbetweendifferentprovisionsofasingleagreement.
5.
361InBananasIII,theconceptoflexspecialiswasraisedinseveraldifferentways.
European爚Communities_RegimefortheImportation,SaleandDistributionofBananas,WT/DS27/R/USA,ReportofthePanel,asmodifiedbytheAppellateBody,adopted25爚September爚1997.
First,thepanelruledthatArticleXIII:2(d)waslexspecialisvis_-visArticleXIII:1.
Para.
爚7.
75.
Thisissueinvolvedtherelationshipbetweendifferentparagraphsofasinglearticleofaparticularagreement.
5.
362InBananasIII,theconceptoflexspecialisalsowasraisedinconnectionwiththerelationshipbetween(1)theLicensingAgreementandArticleXIII;and(2)theTRIMsAgreementandArticle爚III.
TheissuerelatingtotheLicensingAgreementwasdescribedasfollows:TheComplainingpartiesdidnotconsidertheconceptoflexspecialistoberelevantinthisinstanceregardingtherelationbetweentheLicensingAgreementandArticle爚XIIIofGATT.
Twoseparateagreementswereinvolved,eachofwhichweregivenequalforceundertheMarrakeshProtocolunlesstherewasconflictbetweentheirprovisions.
Sincetherewasnoconflictbetweentheprovisionsatissue,itwasentirelypermissibletoassertabreachofArticle爚XIIIobligationsintandemwiththeLicensingAgreementviolationsdiscussedabove.
Para.
3.
14.
5.
363TheissuerelatingtotheTRIMsAgreementwasdescribedasfollows:Second,Article2.
1alsomadeitclearthataMemberdidnotcedeanyofitsrightsunderArticle爚IIIbyraisingaclaimundertheTRIMs.
Thus,aMemberwasnotrestrictedtoarguingthatameasureviolatedtheTRIMsAgreementwhentherewasanindependentargumentunderArticleIII.
SuchmeasureswerecoveredbyboththeTRIMsandtheGATT,andnotonlybytheTRIMsAgreementaslexspecialis.
Para.
爚445.
5.
364InresolvingtheseissuesconcerningtherelationshipbetweenGATT1994andtheAnnex1Aagreements,thepaneldidnotrelyontheconceptoflexspecialis.
Instead,thepanelreliedontheGeneralInterpretativeNotetoAnnex1AoftheWTOAgreement,thenotethatdealswithconflictsbetweenGATT1994andtheotherAnnexlAagreements.
Paras.
7.
157_7.
163.
TheUnitedStateswillnotreiterateitspriorargumentsconcerningthisaspectoftheBananasIIIreport,butinsteademphasizesthefollowingpoints.
First,ifthepanelhadthoughtthattheconceptoflexspecialisgovernedtherelationshipbetweenGATT1994andtheotherAnnex1Aagreements,therewouldhavebeennoneedtoresorttotheGeneralInterpretativeNote.
Second,iftheconceptoflexspecialisoperatedinthemannersuggestedbyIndonesia,theGeneralInterpretativeNotewouldbesuperfluous,becausetherecanbenoconflictwhere,byvirtueoflexspecialis,asingleagreementcontrols.
5.
365TheconceptoflexspecialisalsowasinvokedintheBananasIIIappeal.
WT/DS27/AB/R,ReportoftheAppellateBodyadopted25September1997.
TheEuropeanCommunitieschallengedthepanel'sparticularapplicationofArticle1.
3oftheLicensingAgreement,arguingthatArticle1.
3islexspecialisfortheadministrationofimportlicensingprocedures,whileArticleX:3(a)ofGATT1994islexgeneralisfortheadministrationofall"laws,regulations,decisions,andrulings.
.
.
".
Para.
32.
Inresponse,thecomplainantsarguedthatonlyintheeventofaconflictbetweenGATT1994andaprovisionofanotherAnnex1Aagreement(suchastheLicensingAgreement)wouldtheprovisionofthelatteragreementprevail.
Para.
70.
5.
366TheAppellateBodyconcludedthatArticleX:3(a)andArticle1.
3bothappliedinthesensethatbothprovisionsgaverisetoseparateanddistinctobligations.
Para.
204.
However,theAppellateBodystatedthatthepanelshouldhaveappliedtheLicensingAgreementfirstsincethisagreementdealsspecifically,andindetail,withtheadministrationofimportlicensingprocedures.
IfthePanelhaddoneso,thentherewouldhavebeennoneedforittoaddresstheallegedinconsistencywithArticleX:3(a)oftheGATT1994.
Id.
TheAppellateBodydidnotfindthatoneagreementtrumpedtheotheronthebasisoflexspecialis.
5.
367Finally,theconceptoflexspecialiswasinvokedbytheUnitedStatesinECMeasuresConcerningMeatandMeatProducts(Hormones),WT/DS26/R/USA,ReportofthePanelcirculated18爚August爚1997,forthepropositionthatthepanelshouldbeginitsanalysiswiththeSPSAgreement.
Para.
IV.
5.
WithoutexpresslyendorsingtheUnitedStatesinvocationoflexspecialis,thepaneldecidedtofirstexamineclaimsraisedundertheSPSAgreement.
Para.
8.
42.
Thepanel'sdecisiononthisparticularpointwasnotraisedonappeal.
WT/DS26/AB/R,ReportoftheAppellateBodycirculated16January1998.
5.
368Thus,whiletheconceptoflexspecialishasbeeninvokedfromtimetotime,innoinstancehasapanelortheAppellateBodyreliedonthisconcepttodeterminethatoneWTOagreementtrumpsanother.
Tothecontrary,suchrelationshipshavebeenresolvedbyapplyingtheGeneralInterpretativeNote,whichdealswithconflictsbetweenGATT1994andotherAnnex1Aagreements.
AstheUnited爚Statespreviouslyhasdemonstrated,however,thereisnoconflictbetweentheprovisionsofGATT1994andtheSCMAgreement.
5.
369WithrespecttoJapan'spointregardingtheGeneralInterpretativeNote,IndonesiafailstorebutJapan'sargument.
Japan'sargument,astheUnitedStatesunderstandsit,isthatiftheSCMAgreementtrulywerelexspecialis,itwouldcontrolautomatically,whetherornota"conflict"existed,andtherewouldbenoneedfortheGeneralInterpretativeNote.
Putdifferently,totheextentthatthereisaruleoflexspecialisintheWTOAgreement,itisfoundintheGeneralInterpretativeNote.
(7)WhetherIndonesia'sargumentischaracterizedaslexspecialisorconflict,ifaccepted,itwouldrenderArticleIII:2ofGATT1994anullity5.
370WhetherIndonesia'sargumentischaracterizedasonebasedonlexspecialisor"conflicts",Indonesiahasnotbeenabletoexplainhow,underitsargument,ArticleIII:2ofGATT1994doesnotbecomeanullity.
Likewise,IndonesiahasnotofferedascintillaofevidencethattheUruguay_Roundnegotiatorsintendedsuchanoutcome.
(8)Indonesia'serroneousassertionregardingthespecificityofsubsidiesindicatesthatIndonesiawaswellawareoftheflawsinitsargument5.
371Finally,onthesubjectoflexspecialisand"conflicts",theUnitedStateswouldliketoelaboratewithrespecttothequestionofwhetherornotmostsubsidiesarespecific.
Bywayofbackground,oneofthemosttroublingaspectsofIndonesia'sargumentsisthestatementthat:"Thepurposeofmostsubsidiesistoprovidefinancialassistancetoatargetedindustryorasmallgroupofindustries.
"(SeeSectionV.
D.
2(c).
)5.
372Thereasonwhythissentencewassotroublingisasfollows.
SeveralmembersoftheUnited爚Statesinteragencyteamworkingonthisdisputehavespentmostoftheircareersinthesubsidies/countervailingdutyareaandareconsideredasexpertsinthearea.
Inparticular,theywereintimatelyinvolvedinthedevelopmentandevolutionoftheso_called"specificitytest"undertheUnited爚Statescountervailingdutylaw,andonememberoftheteamcanclaim,withsomejustification,tobetheauthorofArticle2.
1oftheSCMAgreement.
Whilethereisnoglobal"census"ofallgovernmentmeasuresthatsatisfytheSCMAgreement'sdefinitionof"subsidy",theseindividualsknew,basedontheirexperience,thatmostsubsidyprogrammesarenot,infact,targetedtoasmallgroupofindustries.
Instead,mostsubsidyprogrammesinvolvetheprovisionofsmallamountsoffinancialassistancetonumerousindustrygroupsorsectors.
Theveryreasonforaspecificitytestistoavoidhavingtosubjectsuchprogrammestounilateralormultilateralsubsidyremedies.
5.
373Moreover,thesetypesofgenerallyavailablesubsidyprogrammesdonotshowupinnotificationstotheSCMCommittee,because,underArticle25.
2oftheSCMAgreement,onlyspecificsubsidiesmustbenotified.
Likewise,sincethespecificitytestbecamefirmlyestablishedasapartoftheUnited爚Statescountervailingdutylawinthemid_'80's,thesetypesofgenerallyavailablesubsidyprogrammesalsohavelargelydisappearedfromcountervailingdutyproceedings,becausepetitioningdomesticindustriesknowthattheU.
S.
investigatingauthoritieswillfindsuchprogrammestobenon_specificand,thus,non_countervailable.
Inotherwords,thespecificsubsidiesthatshowupinnotificationstotheSCMCommitteeorcountervailingdutyproceedingsareonlythe"tipofthesubsidiesiceberg".
5.
374Thus,themembersoftheUnitedStatesteamweretroubledbytheabove_quotedsentencebyIndonesia.
TheUnitedStatesteamconcludedthatIndonesiamusthaveinsertedthesentenceinquestionforareason,andthetaskwastodeterminewhatthatreasonwas.
Ultimately,theriddlewassolvedbyaskingandansweringthefollowingseriesofquestions:QuestionWhywouldIndonesiamakeanassertionregardingthespecificityofsubsidiesthatis,atworst,inaccurateand,atbest,unsupportedbyempiricalevidenceAnswerIndonesiadoesnotwantthePaneltothinkaboutnon_specificsubsidies.
QuestionWhydoesIndonesianotwantthePaneltothinkaboutnon_specificsubsidiesWhatisitaboutnon_specificsubsidiesthatmakesthemdifferentfromspecificsubsidiesAnswerNon_specificsubsidiesarenon_actionablebyvirtueofArticle8.
1(a).
QuestionWhyisthenon_actionabilityofnon_specificsubsidiesrelevanttoIndonesia'sargumentthattheSCMAgreementoverridesprovisionsofGATT1994AnswerItmustbethecasethatiftheSCMAgreementtrumpsGATT,thenmeasurescurrentlyconsideredtobeviolativeofoneormoreprovisionsofGATT1994wouldbecomepermissibleifcharacterizedasnon_specificsubsidies.
QuestionWhattypesofmeasureswouldbemostlikelytobecomepermissibleifcharacterizedasnon_specificsubsidiesAnswerDiscriminatorytaxmeasuresthatviolateArticleIII:2.
5.
375TheupshotofallthisisthatwithrespecttoIndonesia'sargumentconcerningthesupremacyoftheSCMAgreement,theUnitedStatessuspectsthatIndonesiawasawareofthefatalflawinitstheory(i.
e.
,thefactthat,underitstheory,ArticleIII:2becomesanullity)longbeforethecomplainantshaddiscoveredit.
Indonesia'sassertionregardingtheallegedspecificityofmostsubsidieswassimplyasmokescreenintendedtodivertthePanel'sattentionfromtheconsequencesofIndonesia'sargument.
5.
376Inthefinalanalysis,whetherornotmostsubsidiesarespecificisnotrelevanttothisdispute.
WhatisrelevantisthefactthatifIndonesia'sargumentisaccepted,anyMemberwillbeabletoconstructandmaintainataxsystemthatdiscriminatesagainstimportswithoutrunningafoulofitsobligationsunderArticleIII:2.
AllthataMemberhastodoisensurethatthebeneficiariesofsuchasystemconstituteasufficientlylargesegmentoftheeconomysoastorenderthesystemnon_specific.
UnderIndonesia'stheory,ifthesystemisnon_specific,itisnotactionableundertheSCMAgreementandArticleIII:2nolongerapplies.
(9)Indonesia'sassertionthatitwouldnothavesignedtheWTOAgreementifArticle爚IIIappliedtolocalcontentsubsidiesislegallyirrelevantandfactuallysuspect5.
377Atbottom,Indonesia'sargumentthattheSCMAgreementoverridesArticleIIIisbasedonitsclaimthatneitherIndonesianoranyotherdevelopingcountrywouldhavesignedtheWTOAgreementifArticleIIIcontinuedtoapplytolocalcontentsubsidies.
AlthoughIndonesiahasyettomakethisassertioninwriting,oneofIndonesia'srepresentativesmadetheassertioninhisoralpresentationatthefirstmeetingofthePanel.
ThewrittenversionofIndonesia'sstatementsdifferfromtheoralpresentations,and,unfortunately,panelsdonotpreparetranscriptsoftheirmeetings.
However,themembersoftheUnitedStatesdelegationdistinctlyrecallIndonesiamakingtheassertioninquestion.
However,thisassertionislegallyirrelevantandfactuallysuspect.
5.
378Asamatteroflaw,itisirrelevantthataMember,withthebenefitofhindsight,feelsthatitmayhavemadeabadbargain,becauseneitherpanelsnortheAppellateBodyhavetheauthoritytorenegotiatethebargainsreflectedinthetextoftheWTOagreements.
AstheAppellateBodyhasstated,panelsandtheAppellateBodymustrespectthebalanceofrightsandobligationsreflectedinthelanguageoftheWTOagreements.
UnitedStates-MeasureAffectingImportsofWovenWoolShirtsandBlouses,WT/DS33/AB/R,ReportoftheAppellateBodyadopted23May1997,page19.
Morerecently,intheIndiaMailboxcase,theAppellateBodychastizedapanelforattemptingtoreadintotheTRIPSAgreementwordsthatarenottherebasedonthe"legitimateexpectations"ofMembers.
India-PatentProtectionforPharmaceuticalandAgriculturalChemicalProducts,WT/DS50/AB/R,ReportoftheAppellateBodyissued19December1997,para.
45.
Inthatcase,theAppellateBodystatedthefollowing:Id.
Thedutyofatreatyinterpreteristoexaminethewordsofthetreatytodeterminetheintentionsoftheparties.
ThisshouldbedoneinaccordancewiththeprinciplesoftreatyinterpretationsetoutinArticle31oftheViennaConvention.
Buttheseprinciplesofinterpretationneitherrequirenorcondonetheimputationintoatreatyofwordsthatarenotthereortheimportationintoatreatyofconceptsthatwerenotintended.
5.
379Asdemonstratedabove,whentheprinciplesofArticle31oftheViennaConventionareapplied,Indonesia'salleged"conflict"disappears.
ThefactthatIndonesiawishesthatArticleIIIandtheSCMAgreementsaidsomethingotherthanwhattheyinfactsayislegallyirrelevant.
5.
380Inaddition,thefactofthematteristhatIndonesiadidbenefitfromthelastminuteinsertionofArticle27.
3intothetextoftheSCMAgreement,andtheevidencesuggeststhatIndonesiaiswellawareofthenatureandthevalueofthisbenefit.
5.
381BecauseIndonesiaistemporarilyexemptfromtheprohibitioninArticle3.
1(b),therehasbeenlittlediscussioninthiscaseregardingtheproceduresinArticle4oftheSCMAgreementforchallengingprohibitedsubsidies.
Itisappropriateatthispointtorecallwhatthoseproceduresare.
SufficeittosaythattheprocessunderArticle4israpid-veryrapid.
5.
382UnderArticle4.
4oftheSCMAgreement,acomplainantmayrequesttheestablishmentofapanelwithin30daysoftherequestforconsultations,asopposedtothestandardperiodof60daysunderArticle4.
7oftheDSU.
UnderArticle4.
6oftheSCMAgreement,apanelistocirculateitsfinalreporttoallMemberswithin90daysofthedateofthecompositionandtheestablishmentofthepanel'stermsofreference,withnoprovisionmadeforextensions.
UnderArticle12.
8oftheDSU,apanelnormallyhassixmonths(180days)withinwhichtoissueitsreport,butmaytakeuptoninemonths(270days).
5.
383UnderArticle4.
8oftheSCMAgreement,followingtheissuanceofapanelreport,theDSBmustadoptthereport(oroneofthepartiesmustnotifyitsdecisiontoappeal)within30days,asopposedtothestandardperiodof60daysunderArticle16.
4oftheDSU.
Ifareportisappealed,underArticle爚4.
9oftheSCMAgreement,theAppellateBodynormallymustissueitsreportwithin30daysofthenoticeofappeal,butmaytakeupto60days.
UnderArticle17.
5oftheDSU,theAppellateBodynormallyhas60daysinwhichtoissueitsreport,butmaytakeupto90days.
5.
384Finally,underArticle4.
7oftheSCMAgreement,ifameasureisfoundtobeaprohibitedsubsidy,thesubsidizingMembermustwithdrawthesubsidy"withoutdelay.
"Bycontrast,underArticle爚21.
3oftheDSU,aMemberhas"areasonableperiodoftime"inwhichtocomplywithaDSBrecommendationorruling,thebenchmarkforwhich,pursuanttoArticle21.
3(c),is15monthsfromthedateofadoptionofapanelorAppellateBodyreport.
5.
385WhatallofthismeansisthatifIndonesiahadnotbeenexemptedbyArticle27.
3fromtheprohibitionofArticle3.
1(b)andtheremediesofArticle4,thisPanelwouldnotbehere.
Ifthecomplainantsinthiscase,includingtheUnitedStates,hadbeenabletobringacomplaintunderArticle爚3.
1(b)andArticle4,andassumingthatapanelwascomposedonthesamedayasthisPanelwas(30July1997),thepanelwouldhaveissueditsrulingontheArticle3.
1(b)claimnolaterthan28爚October爚1997.
Althoughthisissuehasneverbeendefinitivelydecided,presumablyanArticle3.
1(b)claimwouldhavetobepursuedseparatelyfromotherclaimsifthecomplainantwishedtotakeadvantageoftheacceleratedtimetableofArticle4.
Indonesiawouldhavefileditsappealnolaterthan27November1997.
ItwouldbeIndonesiaappealing,ofcourse,becausethereisnoquestionthatthesubsidiesinquestionfallunderArticle3.
1(b).
Indonesiawouldhavefileditsappellantsubmissionon2爚December,andthecomplainantsinthiscasewouldhavefiledtheirappelleesubmissionson9爚December.
Annex1(TimetableforAppeals),WorkingProceduresforAppellateReview,WT/AB/WP/3(28爚February1997).
TheoralhearingbeforetheAppellateBodywouldhavetakenplaceon12爚December,andtheAppellateBody'sreportwouldbedueon27爚December.
Id.
Again,becausethereisnoquestionthattheIndonesiansubsidiesfallunderArticle3.
1(b),therewouldbenoneedfortheAppellateBodytoextenditsdeadlineof30days.
ThepanelandAppellateBodyreportswouldbeadoptedbytheDSBnolaterthan22爚January1998,thenextscheduledmeetingoftheDSB.
Followingadoption,Indonesiathenwouldhavetowithdrawthesubsidies"withoutdelay"underArticle4.
7oftheSCMAgreement.
Whilethephrase"withoutdelay"hasyettobeconstrued,presumablyitmustmeanatimeperiodfarshorterthanthe"reasonableperiodoftime"referredtoinArticle21.
3oftheDSUorthesix-monthperiodforwithdrawalsetforthinArticle7.
9oftheSCMAgreementwithrespecttoadverseeffectscases.
Thus,ifArticle3.
1(b)andArticle4oftheSCMAgreementwereapplicabletotheIndonesiansubsidies,thecomplainantscouldexpectawithdrawalofthesubsidiessometimeinthefirsthalfof1998.
5.
386Asthingsnowstand,however,thePanelhasindicatedthatitwillnotbeissuingitsreportuntiltheendofApril1998.
Eventhen,inalllikelihood,theissuanceofthereportsimplywilltriggeranappealbyIndonesiathatwillfurtherdelaythewithdrawalofthemeasuresinquestion.
OncetheAppellateBodyrulesincomplainants'favourandthePanelandAppellateBodyreportsareadoptedbytheDisputeSettlementBody,thenifitisimpracticableforIndonesiatocomplyimmediately,Indonesiawillhavea"reasonableperiodoftime"inwhichtobringitsmeasuresintoconformitywithitsobligations.
WithrespecttotheUnitedStatesclaimofseriousprejudice,underArticle7.
9oftheSCMAgreement,Indonesiawouldhavesixmonthsinwhichtowithdrawthesubsidiesorremovetheadverseeffects.
Inshort,themeasuresinquestionmaynotbewithdrawnuntilsometimein1999.
TheUnitedStatesassumesthatIndonesiawillabidebyitscommitmenttotheIMFtowithdrawthemeasuresoncetheDSBhasruledagainstit.
5.
387IntheviewoftheUnitedStates,Indonesiahasreceivedquiteabargain.
IfIndonesiaweresubjecttoArticle3.
1(b)andArticle4,wewouldbeveryclosetothepointatwhichthepartieswouldbediscussingthetimingofIndonesia'swithdrawalofitslocalcontentsubsidies.
However,becauseIndonesiaisexemptfromthoseprovisions,thepartieswillnotreachthatstageuntilsometimeinlate1998.
5.
388Moreover,theevidenceindicatesthatIndonesiaunderstandsfullwellthenatureofthebenefitsitenjoysbyvirtueofitsexemptionfromtheexpeditedproceduresforprohibitedsubsidies.
Throughoutthehistoryofthisdispute,officialsofbothIndonesiaandTPNrepeatedlyhavemadestatementstothepublicandthepressthattheNationalCarProgrammeisnotinanyjeopardy,becausebythetimetheWTOdisputesettlementprocessrunsitscourse,theobjectivesoftheNationalCarProgrammewillhavebeenaccomplishedandTPN(orKiaTimor,dependingonwhoonebelieves)willbefirmlyestablishedasabonafide(albeitsubsidized)autoproducer.
"RItoFinishCarProgramby'99",JakartaPost,23April1997(USExhibit14,p.
爚105);"IndonesiaPreparingTeamtoDefendNat'lCarPolicyatWTO",ANTARA,9May1997(USExhibit爚14,p.
117);"Astra,IndomobilRopedintoSpeedUpTimorCarProject,"BusinessTimes(Singapore),16爚May1997(USExhibit14,p.
121);"BumpyRoadAheadforMotoringPlan",SouthChinaMorningPost,8爚June1997(USExhibit14,p.
132)(quotingaTPNofficialasstatingthattheWTOdispute"willnotimpactouractivities.
TheWTOtakestime.
");and"TimorinTroubleatWTOandatHome",BusinessTimes(Singapore),25爚June1997(USExhibit14,p.
144)("Jakartaisgamblingthatithastimeonitsside.
").
Recently,evenofficialsfromKiaMotorshavetakenuptherefrain,statingthatitwill"takeatleastfromtwotothreeyearsfortheWTOtocomeupwithmediation-craftedmeasures".
"TimorPresident'sResignationWon'tAffectKiainIndonesia",AsiaPulse,4爚November1997(USExhibit24,p.
爚25).
5.
389Moreover,whenonestepsbackabit,itisclearthatataminimum,IndonesiaisnoworseoffthanitwasbeforetheentryintoforceoftheWTOAgreement.
UnderGATT1947,thetaxincentivesinquestionwereprohibitedbyArticleIII:2andArticleIII:4,andalsowereactionableundertheseriousprejudiceprovisionsofArticleXVI.
BecauseofArticle27.
3,however,nothinghasreallychangedinthatregard.
ThetaxincentivescontinuetobeprohibitedbyArticleIII:2andArticleIII:4ofGATT爚1994andcontinuetobesubjecttoaseriousprejudiceclaimundertheSCMAgreement.
Thus,itisincredibleforIndonesiatoclaim,asithasviaDr.
Makarim,thatitwouldnothavesignedtheWTOAgreementifithadknownthatitslocalcontentsubsidieswouldbesubjecttoArticleIII.
IfthattrulywereIndonesia'sbelief,thenitwouldnothavebeenaContractingPartyofGATT1947.
5.
390Insummary,thePanelshouldbeextremelyscepticalofassertionsbyIndonesiathatitsomehowgotarawdealbysigningontoapackageunderwhichlocalcontentsubsidiesareprohibitedbyvirtueofArticleIII.
Asdiscussedabove,IndonesiabenefitsfrombeingtemporarilyexemptfromtheacceleratedproceduresofArticle4oftheSCMAgreement.
Ataminimum,itisnoworseoffthanitwasunderGATT1947.
(c)Thetaxincentivesunderthe1993ProgrammeandtheNationalCarProgrammearenotprotectedbyArticleIII:8(b)ofGATT19945.
391Indonesiaappearstoarguethatthetaxincentivesprovidedunderthe1993ProgrammeandtheNationalCarProgrammeareprotectedbyArticleIII:8(b)becausethetax"subsidies"arereceivedbyproducersorassemblersofautomobiles.
(SeeSectionV.
D.
)Thisargumentmissesthepoint,andmisstatesthemeaningofArticleIII:8(b)andtheprecedentsrelatingthereto.
5.
392InsofarasArticleIII:4isconcerned,Article爚III:8(b)providesthattheprovisionofasubsidyexclusivelytoaproducerofalikedomesticproductandnottoaforeignproducerdoesnotviolatethenon-discriminationrequirementsofArticleIII:4.
However,insofarasArticleIII:4isconcerned,inthecaseofIndonesia'staxincentives,theimportedproductsdiscriminatedagainstthroughthelocalcontentrequirementsareautomotivepartsandsubparts,notfinishedautomobiles.
Thus,thefactthatthesetaxincentivesmayconstitutesubsidiestopurchasersofIndonesianautomotivepartsandsubparts(i.
e.
producersoffinishedautomobilesorfinishedparts)doesnotexcusethediscriminatorytreatmentaccordedtoimportedautomotivepartsandsubparts.
ItalianAgriculturalMachinery,L/833,ReportofthePaneladopted23October1958,BISD7S/60,64,para.
14.
5.
393Moreover,ArticleIII:8(b)doesnotinsulatetheIndonesiantaxincentivesfromtherequirementsofArticleIII:2.
IntheCanadaPeriodicalscase,theAppellateBodyaffirmedthatArticleIII:8(b)"wasintendedtoexemptfromtheobligationsofArticleIIIonlythepaymentofsubsidieswhichinvolvestheexpenditureofrevenuebyagovernment".
Canada-CertainMeasuresConcerningPeriodicals,WT/DS31/AB/R,ReportoftheAppellateBodyadopted30July1997,page34.
Insoruling,theAppellateBodyquotedwithapprovalthefollowingpassagefromtheUnitedStates-MaltBeveragescase:Id.
quotingfromBISD39S/206,para.
5.
10,adopted19June1992.
Article爚III:8(b)limits,therefore,thepermissibleproducersubsidiesto"payments"aftertaxeshavebeencollectedorpaymentsotherwiseconsistentwithArticle爚III.
Thisseparationoftaxrules,e.
g.
ontaxexemptionsorreductions,andsubsidyrulesmakessenseeconomicallyandpolitically.
Eveniftheproceedsfromnon_discriminatoryproducttaxesmaybeusedforsubsequentsubsidies,thedomesticproducer,likehisforeigncompetitors,mustpaytheproducttaxesdue.
Theseparationoftaxandsubsidyrulescontributestogreatertransparency.
Italsomayrenderabusesoftaxpoliciesforprotectionistpurposesmoredifficult,asinthecasewhereproduceraidsrequireadditionallegislativeorgovernmentaldecisionsinwhichthedifferentinterestsinvolvedcanbebalanced.
5.
394Indonesia'staxincentivesdonotinvolvetheexpenditureofrevenuebyIndonesia.
Forthatreason,also,theyarenotprotectedbyArticleIII:8(b).
Indonesia'sargumenttothecontraryisthattheintroductionoftheSCMAgreementeffectivelyhasamendedthescopeofArticle爚III:8(b).
ThisisnothingmorethanarecycledversionofIndonesia's"conflicts"argument,whichtheUnitedStateshasaddressedpreviouslyandexposedasaspeciousargumentthatisunsupportedbythetextoftheagreements,theirdraftinghistory,publicinternationallawprinciples,andWTOjurisprudence.
F.
AdditionalargumentsregardingtheclaimsunderArticleIII:4ofGATT1994pertainingtothetariffmeasures1.
SpecificresponsebyIndonesia5.
395InadditiontoitsgeneralresponseconcerningalloftheclaimsunderArticleIIIofGATT1994,IndonesiamakesaspecificresponsewithrespecttotheclaimsthatthetariffmeasuresatissueviolateArticleIII:4ofGATT1994.
ThefollowingareIndonesia'sargumentsinthisregard:(a)ThecustomsimportdutiesschedulesforautomotivecompaniesusingdifferinglevelsofdomesticcontentareconsistentwithArticleIII:4ofGATT1994becausetheschedulesarebordermeasureswhicharenotsubjecttoArticleIII:4ofGATT1994andaresubsidiesIndonesiaispermittedtomaintain5.
396Customsdutiesare,bydefinition(ArticleI:1ofGATT1994),"imposedonorinconnectionwithimportation"andhencearebordermeasuresratherthaninternalregulations.
ThereforetheyarenotcoveredbyArticleIII:4(oranyofArticleIII)ofGATT1994which,asthetitletotheArticleitselfnotes,islimitedto"NationalTreatmentonInternalTaxationandRegulation.
"TheUnitedStates'argumentthattheimportdutyincentivesarewithinthescopeofArticle爚III:4(SeeSectionV.
C.
3andV.
F.
4)issimplywrong.
5.
397Aspreviouslydiscussed,underthe1993IncentiveProgramme,theleveloftheimportdutyimposedonimportedautomobilesandautomotivepartsissetbyreferencetotheproportionofpartsandcomponentsproducedinIndonesiathatareusedineachparticularautomobilemodel.
Similarly,undertheFebruary1996nationalcarprogramme,producersdesignatedasproducersofanationalcarandmeetingthecriteriaforthatprogrammeareexemptfromimportdutiesonimportedpartsandcomponents.
Bothprogrammesgrantexemptionsfromcustomsimportduties,whichare-irrefutably-bordermeasures.
Therecanbenoseriousargumentthatinternalregulationisinvolved.
Therefore,ArticleIIIoftheGeneralAgreement,includingArticleIII:4,isinapplicable.
5.
398ThisconclusionisnotaffectedbytheReportofthePanelinCanada-AdministrationoftheForeignInvestmentReviewAct(FIRA)(7February1984),BISD30S/140,whichistheleadingGATTdecisionregardinglocalcontentregimes.
InFIRAcorporateundertakingstopurchasegoodsofCanadianoriginbecamepartoftheconditionsunderwhicheachproposedinvestmentwasapproved,andderogationstherefromcouldbelegallyenforced.
Thislegalobligationtopurchasedomesticgoodswasa"requirement"affectingtheinternalsaleofaproductandthuswaswithinthescopeofArticle爚III:4.
Nobordermeasureswereinvolved.
5.
399ForsimilarreasonstheReportofthePanelinEEC-RegulationonImportsofPartsandComponents(16May1990),BISD37S/132,isinapposite.
There,suspensionbytheEuropeanCommunitiesofananti-dumpingcircumventionproceedingdependedontheundertakingoftheJapaneserespondentcompaniestochangetheirsourcingfromimportedpartsandmaterialstopartsandmaterialsproducedintheEuropeanCommunities.
Neitherthe"advantage"foundbythePanel(suspensionofanEECadministrativeproceeding)northeundertakingtouseEECgoodswasabordermeasure.
ThesameistruewithrespecttotheReportoftheAppellateBodyinEuropeanCommunities-RegimefortheImportation,SaleandDistributionofBananas,WT/DS27/AB/R(9September1997).
AstheAppellateBodystated:Atissueinthisappealisnotwhetheranyimportlicensingrequirement,assuch,iswithinthescopeofArticleIII:4,butwhethertheEuropeanCommunitiesproceduresandrequirementsforthedistributionofimportlicencesforimportedbananasamongeligibleoperatorswithintheEuropeanCommunitiesarewithinthescopeofthisprovision.
Id.
atpara.
211(emphasisadded).
The"advantage"withinthescopeofArticleIII:4wasthedistributionoflicencesamongeligibleoperators(aninternalmeasure)andnotthebordermeasure(thelicensingrequirement)itself.
5.
400Intheinstantcase,thereisnoclassiclocalcontentrequirementobligatingacompanytopurchaselocally.
TheUnitedStatesGovernmentofficiallyacknowledgesthisintheApril1997reportentitledIndonesia'sAutomotiveMarketSummarypreparedbytheUnitedStatesDepartmentofCommerce(seeIndonesiaExhibit11)TheDepartmentdeclaresthat"localcontentrequirementsarenotexplicit"inthe1993IncentiveProgramme.
Allautomotivecompaniesarefreetochoosewheretosourceautomotivepartsandcomponents.
Eachcompanymakesacorporatedecisionaboutwhetheritwishestobenefitfromthesubsidizationofcustomsimportdutiesgrantedtothosechoosingtousespecifiedlevelsofdomesticallyproducedpartsandcomponents.
EventheUnitedStatesrecognizesthatIndonesia'ssystemofslidingtariffratesisnotalocalcontentregimeasthattermhasbeenunderstoodandusedintheWTOandtheGATT.
Duringthe26爚October爚1989meetingoftheUruguayRoundnegotiatinggrouponTRIMs,theUnitedStatesdefinedlocalcontentas"abarrierthatcouldnotbeovercomenomatterhowmuchbetteranimportedproductmightbe.
"(MTN.
GNG/NG12/13atpara.
43.
)TheIndonesiansubsidyprogrammes,unliketheundertakingsinFIRAorEEC-PartsandComponents,donotpresentabarrierthatcannotbeovercome.
EachcompanycanchoosewhetheritisinitscommercialinteresttosourceacertainamountlocallyandpayonerateofdutyonimportedpartsortosourcelessinIndonesiaandpayadifferentdutyrate.
(b)Indonesia'scustomsimportdutiessubsidydoesnotinvolvea"requirement"necessaryto"secureanadvantage"withinthescopeofArticleIII:4ofGATT19945.
401ComplainantserroneouslycontendthatIndonesia'ssubsidizedcustomsimportdutiesarewithinthescopeofArticleIII:4oftheGeneralAgreement.
Theyclaimthattheissueis"notthereductionofduties,assuch,butconditioningsuchreductiononthepurchaseofdomesticpartsandcomponents.
"5.
402Theflawincomplainants'positionisfundamental_thescopeofArticleIIIislimitedtointernallaws,regulationsandrequirements;subsidizedcustomsimportdutiesarebordermeasures,notinternallaws,regulationsorrequirements.
NoWTOorGATTprecedentsupportsexpandingthescopeofArticle爚IIItocoverbordermeasures.
Indeed,theprecedentsComplainantscite-ItalianMachinery,ItalianDiscriminationAgainstImportedAgriculturalMachinery(23October1958),BISD7S/60.
EEC爚-爚PartsandComponentsEEC_RegulationonImportsofPartsandComponents(16May1990),BISD37S/132.
,EEC-OilseedsEuropeanEconomicCommunity_PaymentsandSubsidiesPaidtoProcessorsandProducersofOilseedsandRelatedAnimal_FeedProteins(25January1990),BISD37S/86.
,Bananas爚IIIEuropeanCommunities_RegimefortheImportation,SaleandDistributionofBananas(9爚September爚1997),WT/DS27/AB/R.
andFIRACanada_AdministrationoftheForeignInvestmentReviewAct(FIRA)(7February1984),BISD爚30S/140.
爚_爚disprovetheircontention.
5.
403ItalianMachineryinvolvedcreditfacilitiesavailableonlytopurchasersofdomestictractors_clearlyinternalmeasures.
ThePanel'sidentificationofthescopeofArticleIIIwassimpleandunambiguous:"theintentionofthedraftersof[ArticleIIIoftheGeneral]Agreementwasclearlytotreatimportedproductsinthesamewayasthelikedomesticproductsoncetheyhadbeenclearedthroughcustoms.
"ItalianDiscriminationAgainstImportedAgriculturalMachinery(23October1958),BISD7S/60,64,para.
11(emphasisadded).
5.
404EEC_PartsandComponentsinvolved:(i)"anti_circumventionduties"imposedonfinishedproductsassembledintheEuropeanCommunities(notonimportedparts);and(ii)thesuspensionofEuropeanCommunitiesadministrativeproceedingswherecompaniesagreedtolimittheiruseofimportedparts.
Bothclearlyareinternalmeasures,notbordermeasures.
AfterstatingthattheEuropeanCommunities's"anti_circumventionduties"wereneitherconditionedupontheimportationofaproductnorimposedatthetimeofimportation,thePanelsaid:"theimpositionof'ordinarycustomsduties'forthepurposeofprotectionisallowedunlesstheyexceedtariffbindings.
Bycontrast,internaltaxesthatdiscriminateagainstimportedproductsareprohibited.
"EuropeanEconomicCommunity_RegulationonImportsofPartsandComponents(16May1990),BISD37S/132,192,para.
5.
4.
5.
405Oilseedsinvolvedpaymentstoprocessorsofdomesticoilseeds.
TheprincipletheEuropeanCommunitiesbelievesrelevantappearstobethat"theexposureofaparticularimportedproducttoariskofdiscriminationconstitutes,byitself,aformofdiscrimination.
"EuropeanEconomicCommunity_PaymentsandSubsidiesPaidtoProcessorsandProducersofOilseedsandRelatedAnimal_FeedProteins(25January1990),BISD37S/86,125,para.
141(firstemphasisadded).
Onceagain,asthefirstemphasizedportionofthequotedemonstrates,themeasureatissuewasaninternalmeasureaffectingaproductthatalreadyhadbeenimported,notabordermeasure.
5.
406WhatofBananasIIIThere,too,theAppellateBodyexpresslydeclared:Atissueinthisappealisnotwhetheranyimportlicensingrequirement,assuch,iswithinthescopeofArticleIII:4,butwhethertheEuropeanCommunitiesproceduresandrequirementsforthedistributionofimportlicencesforimportedbananasamongeligibleoperatorswithintheEuropeanCommunitiesarewithinthescopeofthisprovision.
EuropeanCommunities_RegimefortheImportation,SaleandDistributionofBananas(9爚September爚1997),WT/DS27/AB/R,85,para.
211(emphasisadded).
The"advantage"withinthescopeofArticleIII:4wasthedistributionoflicencesamongeligibleoperators,somethingthatoccurredafterimportationandthuswasaninternalmeasure.
The"importlicensingrequirement,assuch",_thebordermeasure_wasnotaddressedbecause,asabordermeasure,itcouldnotbewithinthescopeofArticleIII.
5.
407Lastly,theFIRAdecision,addressedatpages99to100ofIndonesia'sFirstSubmission,providesComplainantsnosuccour.
Inthis,theleadingGATTdecisionregardinglocalcontentregimes,thePanelfoundthatcorporateundertakingstopurchasegoodsofCanadianorigin,aninternalrequirement,werewithinthescopeofArticleIII:4.
Canada_AdministrationoftheForeignInvestmentReviewAct(FIRA)(7February1984),BISD爚30S/140.
AsintheothercasesComplainantscite,nobordermeasurewasinvolved.
5.
408ComplainantshavenotpointedtoanyprecedentdeclaringthatArticleIIIappliestobordermeasures.
Theycannot.
NosuchprecedentexistsbecauseArticleIIIappliesonlytomeasuresregardingimportedgoodsthathaveclearedcustoms.
5.
409WhatofthelinkageofthelevelofcustomsimportdutiestothelevelofdomesticcontentRatherthanseekingtotransformabordermeasureintoaninternalmeasuresoastoapplyArticleIII,theproperapproachistoanalyzewhetherthisdomesticcontentsubsidyisconsistentwithIndonesia'sobligations,asadevelopingcountry,undertheSCMAgreement.
2.
RebuttalofJapantoArgumentsofIndonesia5.
410Japanargues,inrebuttaltoIndonesia'sresponsetotheclaimunderArticleIII:4pertainingtothetariffmeasures,thattheFebruary1996programmeviolatesGATTArticleIII:4andcannotescapereviewasapurported"bordermeasure"or"voluntarymeasure.
"ThefollowingareJapan'srebuttalargumentsinthisregard:(a)TheFebruary1996programmeviolatesGATTArticleIII:45.
411TheFebruary1996programmewaivespaymentofthe35爚percentluxurytaxandimportdutiesofupto65爚percentonautomotivepartsandcomponentsinconnectionwiththeNationalCar,conditionedontheNationalCarmeetingcertainlocalcontentrequirements.
Thus,itcreatesstrongincentivesfortheNationalCarmanufacturertofavourIndonesianpartsandcomponentsoverlikeimportedpartsandcomponents,inclearviolationofGATTArticleIII:4.
(SeeSectionV.
C.
1.
)(b)Indonesia's"bordermeasure"defencehasnomerit5.
412Regardingthelocalcontentrequirementinconnectionwiththeimportdutyexemption,Indonesiaarguesthatitisa"bordermeasure,"because"[c]ustomdutiesare,bydefinition(ArticleI:1oftheGeneralAgreement),'imposedonorinconnectionwithimportation.
'"Indonesiafurtherarguesthatitfollowsthatsuchameasurecannotbean"internalregulation"subjecttoArticleIII:4.
However,boththetextofGATTArticleIII:4andtheGATT/WTOprecedentcasesdisprovethisassertion.
(1)ThetextofGATTArticleIII:4showsthatitappliesto"all"measures"affecting"conditionsofinternalsale5.
413First,thetextofGATTArticleIII:4providesthattheArticleshallbeapplied"inrespectofalllaws,regulationsandrequirementsaffecting[imports']internalsale,offeringforsale,purchase,transportation,distributionoruse.
"Nothinginthetextrequiressuchlaws,regulations,andrequirementstoaffectonlywhollyinternalmatters,orinotherwords,nottohaveanyconnectionwhatsoeverwiththeborder.
NoristhereanytextualbasisfortherigiddistinctionthatIndonesiahasattemptedtodrawbetween"bordermeasures"and"internalmeasures".
Rather,ArticleIII:4,byitsterms,appliesto"all"measures"affecting[imports']internalsale,[etc.
],"regardlessofhowIndonesiachoosestodescribeitsmeasuresforpurposesoftheseproceedings.
IndonesiaseemstorelyonthetitleofGATTArticleIII,underscoringtheword"internal"inthetitlelanguage"NationalTreatmentonInternalTaxationandRegulation.
"However,theGovernmentofIndonesiamakesmistakesininterpretingthetitle,asisobviousfromthetextofGATTArticleIII:4.
AregulationissubjecttoGATTArticleIII:4ifitaffectsconditionsofinternalsale.
5.
414Intheinstantcase,theissueisnotthereductionofimportdutiesassuch.
TheGovernmentofJapanisnotchallengingthedutiesofupto65爚percentthatIndonesiamaintainsonimportsofautomotivepartsandcomponents.
Instead,theissuehereconcernstheincentives,includingtheimportdutyincentive,createdbyIndonesiatoencouragethepurchaseofdomesticautomotivepartsandcomponentsoverlikeimports.
ProvidinganIndonesianautomakerwithincentivestopurchasedomesticpartsandcomponentsclearly"affects"theconditionsof"internalsale.
"Moreover,whatisencouragedbythismeasureisapurelyinternalactivity(i.
e.
purchaseofdomesticpartsandcomponents),whichhaslittleconnectionwith"borders.
"Thus,regardlessofwhethertheincentivesinvolve"bordermeasures"suchasimportduties,they"affect"conditionsofinternalsaleforimportedautomotivepartsandcomponentsandarecoveredbytheplaintextofGATTArticleIII:4.
5.
415Itshouldlikewisebenotedthat,inconnectionwiththeluxurytaxexemption,theissueforpurposesofArticleIII:4isnottheluxurytaxexemptionassuch.
ThediscriminatoryluxurytaxexemptionassuchviolatesArticle爚III:2.
WhatmattersforpurposesofArticleIII:4isthelocalcontentrequirementswhichmustbesatisfiedtoobtaintheluxurytaxexemption.
BycreatingincentivestopurchaseIndonesianpartsandcomponents,thelocalcontentrequirementsaccordIndonesianproductsmorefavourabletreatmentthanlikeimportedproducts,inviolationofArticleIII:4.
(2)TheGATT/WTOprecedentsalsoshowthatGATTArticleIII:4appliesto"bordermeasures"thataffectconditionsofinternalsale5.
416Indonesia'sargumentisalsoinconsistentwiththelong_standingconstructionofArticleIII:4thathasbeenacceptedbyGATTandWTOpanelssince1958.
TheearlyGATTprecedentinItalianDiscriminationAgainstImportedAgriculturalMachinery,whichhasbeencitedapprovinglymanytimessince,statedthatArticleIII:4appliestolaws"affectinginternalsale,purchase,etc.
"andnotonlytolaws"governingtheconditionsofsaleorpurchase.
"ThePanelfurtherelaborated,"theselectionoftheword'affecting'wouldimplythatthedraftersoftheArticleintendedtocoverinparagraph4notonlythelawsandregulationswhichdirectlygovernedtheconditionsofsaleorpurchasebutalsoanylawsorregulationswhichmightadverselymodifytheconditionsofcompetitionbetweenthedomesticandimportedproductsontheinternalmarket.
"PanelReportonItalianDiscriminationAgainstImportedAgriculturalMachinery("ItalianAgriculturalMachinery"),L/833,adoptedon23October1958,7S/60,64,para.
12.
(Emphasisinoriginal.
)5.
417Other,morerecentdecisionsareevenmoredirectlyonpointinspecificallyholdingthatmeasuresinvolving"bordermeasures"and"affecting"theconditionsof"internalsale"orpurchasefallwithinthecoverageofGATTArticleIII:4.
Forexample,thePanelinUnitedStates_Section337oftheTariffActof1930heldthatthe"factthatSection337isusedasameansfortheenforcementofUnitedStatespatentlawattheborderdoesnotprovideanescapefromtheapplicabilityofArticleIII:4.
"PanelReportonUnitedStates_Section337oftheTariffActof1930("US_Section337"),L/6439,adoptedon7November1989,BISD36S/345,385_386,para.
5.
10.
SeealsoPanelReportonEEC_RegulationonImportsofPartsandComponents,L/6657,adoptedon16May1990,BISD爚37S/132,197.
5.
418ThisconclusionwasmostrecentlyreaffirmedbyboththePanelandtheAppellateBodyinEC_RegimefortheImportation,SaleandDistributionofBananas("BananasIII").
PanelReportonEC_RegimefortheImportation,SaleandDistributionofBananas("Bananas爚III"),WT/D2S7/R/USA,adoptedon25September1997,asmodifiedbytheAppellateBody.
AppellateBodyReportonBananasIII,WT/DS27/AB/R,adoptedon25September1997.
Inthatcase,theEuropeanCommunitiesargued,toboththePanelandtheAppellateBody,thatthemeasureatissuewasabordermeasure,notaninternalmeasuresubjecttoGATTArticleIII:PanelReportonBananasIII,paras.
4.
265_4.
271.
AppellateBodyReportonBananasIII,paras,爚33_36.
,butthatargumentwasnotaccepted.
Instead,thePanelfoundthattheEuropeanCommunities'measuresviolatedGATTArticle爚III:4inthattheyaffectedinternalsalesconditions,byallocatingacertainportionofthelicencesrequiredtoimportbananasatareduceddutyrateexclusivelytooperatorswhomarketedcertainquantitiesofdomesticbananas.
ThePanelexpresslyheldthat"bordermeasuresmaybewithinthepurviewofthenationaltreatmentclause"ofArticleIII:4.
PanelReportonBananasIII,para.
7.
176.
Itfurtherstated,"ifthemerefactthattheEuropeanCommunitiesregulations.
.
.
.
includeorarerelatedtoabordermeasuresuchasalicensingrequirementwouldmeanthattheArticleIIIcannotapply,itwouldnotbedifficulttoevadetheGATTnationaltreatmentobligation.
"Id.
,para.
7.
177.
ThePanel'sfindingwasexaminedandupheldbytheAppellateBody.
AppellateBodyReportonBananasIII,paras.
209_211.
Thus,itisclearthatthePanelandtheAppellateBodyReportonBananasIIIrejectedanargumentidenticaltoIndonesia'sinaverysimilarcontext.
5.
419Indonesia'scuriousattempttoclaimthattheAppellateBody'sreportinBananasIIIsupportsitspositionnotonlyfails,butundercutstheheartofitsargument.
IndonesiaquotestheAppellateBodyasstating:Atissueinthisappealisnotwhetheranyimportlicensingrequirement,assuch,iswithinthescopeofArticleIII:4,butwhethertheEuropeanCommunitiesproceduresandrequirementsforthedistributionofimportlicencesforimportedbananasamongeligibleoperatorswithintheEuropeanCommunitiesarewithinthescopeofthisprovision.
But,farfromsupportingIndonesia'sposition,thisquotationhighlightsitserror.
ThequotationdemonstratesthatGATTArticleIII:4doesinfactapplytomeasures,suchasIndonesia'simportdutyincentive,that"affect"internalsalesconditionsforimportsregardlessofwhethersuchmeasuresalsohavesomerelationshipwiththeborder.
Indeed,theAppellateBody'sstatementsoundercutsIndonesia'spositionandsupportsJapan'sthatitmaybereformulatedeasilytoapplytothiscaseasfollows:Atissueinthiscaseisnotwhetheranyimportduty,assuch,iswithinthescopeofArticle爚III:4,butwhetherIndonesia'srequirementswhichencourageinternalpurchaseofdomesticautomotivepartsandcomponentswithinIndonesiaarewithinthescopeofthisprovision.
5.
420TheothertwocasescitedbyIndonesialikewisefailtosupportitsargument.
Whileitmaybetrue,asIndonesiasays,thatthemeasuresatissueinCanada_AdministrationoftheForeignInvestmentReviewActwerenotbordermeasures,nothingaboutthatdecisionsupportstheallegedinterpretationthatanymeasurerelatedtobordermeasurescannotbesubjecttoGATTArticleIII:4.
ThatPanelsimplydidnotaddressthisissue.
Finally,asforEEC_RegulationonImportsofPartsandComponents,Indonesia'sassertionthatthemeasuresatissuetheredidnotinvolvebordermeasuresissimplyincorrect.
The"advantage"foundbythatPaneltoviolateArticleIII:4concernedthesuspensionofproceedingsundertheanti_circumventionprovisionoftheanti_dumpinglegislation,which,contrarytoIndonesia'scharacterization,obviouslyimplicatesbordermeasures.
Infact,theEuropeanCommunitiesarguedinthatdisputethatthemeasures"werenotinternalmeasureswithinthemeaningof[GATTArticleIII]"PanelReportonEEC_PartsandComponents,para.
3.
43.
,whichthePanelrejected.
5.
421Therefore,Indonesia's"bordermeasure"defenceisinconsistentwithboththeplaintextofArticle爚III:4anditswell_establishedunderstanding.
(c)Indonesia's"voluntarymeasure"defencehasnomerit5.
422Indonesiaalsoseemstoarguethat,sincethemeasuresatissueinthiscasearenotmandatorymeasuresbutmeasureswithwhichthecompanymaycomplyvoluntarilytoobtainabenefit,theyarenotcoveredbyGATTArticleIII:4(seeSectionV.
F.
1).
However,thatargumentdoesnothaveanymerit.
5.
423Indonesia'sargumentisinconsistentwiththefirmlyestablishedinterpretationofGATTArticle爚III:4thathasbeenaffirmedbymanyGATT/WTOpanels.
Thesedecisionsestablishthatwherecompliancewithacertainmeasureisnecessarytosecurean"advantage,"suchameasureiscoveredbyGATTArticleIII:4.
Forexample,thePanelinItalianAgriculturalMachineryfoundinconsistentwithGATTArticleIII:4anItalianlawthatcreatedvoluntaryincentivesforfarmerstopurchasedomesticagriculturalmachinerybyprovidingspecialcredittermstofarmersforthepurchaseofdomesticmachinery,butnotforimports.
PanelReportonItalianAgriculturalMachinery,paras.
11_12.
Seepara.
3.
07above.
OthersimilarexamplesincludethePanelReportonEEC_PartsandComponentsPanelReportonEEC_PartsandComponents,para.
5.
21.
Seepara.
3.
11above.
andtherecentPanelandAppellateBodyReportsonBananasIII.
PanelReportonBananasIII,para.
7.
178.
AppellateBodyReportonBananasIII,paras.
211_214.
Seeparas.
3.
09_3.
10above.
5.
424Thewell_establishedconclusionthatGATTArticleIII:4coversnotonlymandatorymeasuresbutalsovoluntarymeasuresisreinforcedbytheIllustrativeListoftheTRIMsAgreement,whichexplicitlyprovidesthat"TRIMsthatareinconsistentwith.
.
.
.
[GATTArticleIII:4]includethose.
.
.
.
compliancewithwhichisnecessarytoobtainanadvantage.
.
.
.
"(SeealsoSectionVI.
A.
)3.
RebuttalofEuropeanCommunitiestoargumentsofIndonesia5.
425TheEuropeanCommunitiesargues,inrebuttaltoIndonesia'sresponsetotheclaimunderArticle爚III:4pertainingtothetariffmeasures,thatimportdutyreliefcontingentonlocalcontentrequirementsviolatesGATTArticle爚III:4andcannotescapereviewasapurported"bordermeasure"or"voluntarymeasure".
ThefollowingaretheEuropeanCommunities'rebuttalargumentsinthisregard:5.
426IndonesiaarguesthatArticleIII:4doesnotapplytothemeasuresmentionedinnumbers(v)and(vi)ofpart(b)oftheEuropeanCommunities'claims(SeeSectionIII.
B),becausetheyarebordermeasures.
5.
427TheEuropeanCommunitieswouldagreethattheapplicationofareducedorzerocustomsdutyrateonimportsofautomotivepartsandcomponentsisa"bordermeasure"which,ifappliedinisolation,wouldfalloutsidethescopeofGATTArticleIII:4.
Inthepresentcase,however,thegrantingofthattariffadvantageisconditionaluponthemotorvehiclesintowhichtheimportedpartsandcomponentsareassembledreachingacertainpercentageoflocalcontent.
Inordertoreachthatpercentage,localassemblersmustuselocalpartsandcomponentsinsteadofimportedones.
Therefore,itisindisputablethatthemeasure"affects"theinternalusewithinIndonesiaofpartsandcomponentswithinthemeaningofGATTArticleIII:4.
5.
428ItisawellestablishedprinciplethatGATTArticleIII:4doesnotapplyonlyto"mandatory"measuresbutalsowherecompliancewithacertainmeasure(suchasthelocalcontenttargetsatissueinthepresentcase)isnecessaryinordertosecureanadvantageorbenefit(suchasthepossibilitytoimportinputsatareducedorzerorate).
AsnotedbythePanelReportonEEC_RegulationonImportsofPartsandComponents:.
.
.
thecomprehensivecoverageof'alllaws,regulationsorrequirementsaffecting[emphasisaddedbythePanel]theinternalsale,etc.
ofimportedproductssuggeststhatnotonlyrequirementswhichanenterpriseislegallyboundtocarryout,suchasthoseexaminedbytheFIRAPanel.
.
.
.
butalsothosewhichanenterprisevoluntarilyacceptsinordertoobtainanadvantagefromthegovernmentconstitute'requirements'withinthemeaningofthatprovisionsPanelReportonEuropeanCommunities_RegulationonimportsofPartsandComponents,adoptedon16May1990,37S/132,197,para5.
21.
ThisprinciplehasbeenappliedalsobyotherPanels.
Thus,thePanelReportonItaliandiscriminationagainstImportedAgriculturalMachinery(adoptedon23October1958,BISD爚7S/60,64,para12)foundthatanItalianlawprovidingespecialcredittermstofarmersforthepurchaseofagriculturalmachineryconditionalonthepurchasebythefarmersofItalianmachinerywascontrarytoArticleIII:4.
Similarly,thePanelReportonEEC_PaymentsandsubsidiespaidtoProcessorsandProducersofOilseedsandRelatedAnimalFeedProteins(adoptedon25January1990,BISD37S/86,124_125)concludedthatthepaymentbytheCommunityofsubsidiestotheprocessorsofoilseedswhopurchasedoilseedsofCommunityoriginwascontrarytoArticleIII:4.
"[emphasisadded].
5.
429The"advantage"inquestionmayconsistofabenefitgrantedwithrespecttoabordermeasure,suchasforinstanceatariffexemptionorreduction.
ThishasbeenconfirmedbytherecentPanelreportsonEC_RegimefortheImportation,SaleandDistributionofBananas.
Seee.
g.
PanelReportonEC_RegimefortheImportation,SaleandDistributionofBananas,WT/DS27/R/GTM,WT/DS27/R/HND,adoptedon25September1997,atparas7.
171_7.
182,7.
216_7.
219and7.
244_7.
250.
5.
430Oneofthemeasuresindisputeinthatcaseweretheso_called"operatorcategoryrules"fortheallocationoflicencestoimportof"thirdcountry"bananasatlowertariffrateswithinatariffquota.
Inaccordancewiththoserules,30percentofthetariffquotawasreservedforoperatorswhohadmarketedduringaprecedingthree_yearperiodbananasofEuropeanCommunitiesoriginoroftraditionalACPsources.
5.
431ThePanelfoundthattherequirementtomarketbananasofEuropeanCommunitiesoriginaffordedmorefavourabletreatmenttothosebananasthantolikeimportedbananasandthereforeviolatedArticle爚III:4ofGATT.
InreachingthisconclusionthePanelrejectedexpresslyanargumentsubmittedbytheEuropeanCommunitiestotheeffectthatthemeasureswerebordermeasuresandassuchnotsubjecttoArticleIII:4.
ThePanelrestatedtheviewofaprevious(unadopted)PanelReportdealingwiththesamematterthat".
.
.
arequirementtopurchaseadomesticproductinordertoobtaintherighttoimportaproductatalowerrateofdutyunderatariffquotaisthereforearequirementaffectingthepurchaseofaproductwithinthemeaningofArticleIII:Id.
atpara7.
179,quotingthePanelReportonEEC_ImportregimeforBananas,issuedon11February1994(notadopted),DS38/R,para146.
".
5.
432Thesituationisidenticalinthepresentcase.
Inordertoobtaintherighttoimportpartsandcomponentsatalowerrateofduty,theassemblersofmotorvehiclesarerequiredtouse(andpurchasepreviouslyiftheydonotmanufacturetheminternally)domesticpartsandcomponents,therebyaffordingmorefavourabletreatmenttothosepartsandcomponentsthantolikeimportedpartsandcomponents.
5.
433ThefindingsofthePanelReportsonEC_RegimefortheImportation,SaleandDistributionofBananaswithrespecttotheoperatorcategoryruleswereupheldbytheAppellateBodyonappeal.
AppellateBodyreportonEC_RegimefortheImportation,SaleandDistributionofBananas,WT/DS27/AB/R,adoptedon27September1997,atpara211.
IndonesiamisreadsthefindingsoftheAppellateBody.
TheobviousmeaningofthepassageoftheAppellateBodyreportcitedbyIndonesiainitssubmission(SeeSectionV.
F.
1)isthatwhile,inprinciple,importlicensingrequirementsarenotwithinthescopeofArticleIII:4,therequirementsappliedbytheEuropeanCommunitieswent"farbeyondthemereimportlicencerequirementsneededtoadministerthetariffquota"andaffectedthe"internalsale,offeringforsale.
.
.
etc"ofbananas.
Bythesametoken,inthepresentcase,thelocalcontenttargetsgobeyondwhatisnecessarytoapplyatariffreduction/exemptionandaffecttheinternaluseofpartsandcomponentswithinthemeaningofArticle爚III:4.
4.
RebuttalofUnitedStatestoargumentsofIndonesia5.
434TheUnitedStatesarguesthatIndonesia'sargumentthatIndonesia'stariffincentivesdonotviolateArticle爚III:4ofGATT1994becausetheyare"bordermeasures"hasbeenrejectedbytheAppellateBody.
ThefollowingaretheUnitedStates'argumentsinthisregard:5.
435Indonesiaarguesthatthetariffincentivesunderthe1993ProgrammeandtheNationalCarProgrammedonotviolateArticleIII:4ofGATT1994becauseArticleIII:4doesnotaddress"advantages"thatareconferredintheformofbordermeasures.
AccordingtoIndonesia,"Therecanbenoseriousargumentthatinternalregulationisinvolved.
Therefore,ArticleIIIoftheGeneralAgreement,includingArticleIII:4,isinapplicable.
".
5.
436Tothecontrary,therecanbenoseriousargumentthatinternalregulationisnotinvolved.
Indonesia'sargumentconsistsofadiscussionofpaneldecisionsthatfoundviolationsofArticle爚III:4,butthatdidnotinvolvebordermeasures.
Fromthis,IndonesiaconcludesthatArticleIII:4doesnotcoveradvantagesconferredintheformofbordermeasures.
5.
437Thisisaclassicnonsequitur.
ThefactthatthesepanelswerenotdealingwithbordermeasuresdoesnotprovethatadvantagesconferredintheformofbordermeasuresarenotcoveredbyArticle爚III:4.
Allitprovesisthatthesepanelsdidnotaddressthequestion.
5.
438However,theAppellateBodyhasaddressedandrejectedtheveryargumentadvancedherebyIndonesia.
InBananasIII,inconnectionwiththeEuropeanCommunities'slicensingregime,theEuropeanCommunitiesarguedthat(1)thepanelerredinfindingthelicensingregimetobeaninternalmeasuresubjecttoArticle爚III:4,andnotabordermeasure,and(2)thepanelmisunderstoodthenotionofinternalmeasuresinGATT1994.
Id.
atpara.
33.
However,theAppellateBodyflatlyrejectedthisargument.
OfparticularrelevanceisthefollowingdiscussionoftheAppellateBodyregardinghurricanelicencesId.
atpara.
213-214.
:Hurricanelicencesallowforadditionalimportsofthird-country(andnon-traditionalACP)bananasatthelowerin-quotatariffrate.
Althoughtheirissuanceresultsinincreasedexportsfromthosecountries,wenotethathurricanelicencesareissuedexclusivelytoEuropeanCommunitiesproducersandproducerorganizations,ortooperatorsincludingordirectlyrepresentingthem.
Wealsonotethat,asaresultoftheEuropeanCommunitiespracticerelatingtohurricanelicences,theseproducers,producerorganizationsoroperatorscanexpect,intheeventofahurricane,tobecompensatedfortheirlossesintheformof"quotarents"generatedbyhurricanelicences.
Thus,thepracticeofissuinghurricanelicencesconstitutesanincentiveforoperatorstomarketEuropeanCommunitiesbananastotheexclusionofthird-countryandnon-traditionalACPbananas.
ThispracticethereforeaffectsthecompetitiveconditionsinthemarketinfavourofEuropeanCommunitiesbananas.
.
.
.
Forthesereasons,weagreewiththePanelthattheEuropeanCommunitiespracticeofissuinghurricanelicencesisinconsistentwithArticleIII:4oftheGATT1994.
5.
439LikethehurricanelicencesinBananasIII,thetariffincentivesprovidedbyIndonesiamayconstitutebordermeasures.
However,themannerinwhichtheyareawardedconstitutesanincentivetofavourIndonesianautomotivepartsandsubpartsoverimportedpartsandsubparts,therebyaffectingthecompetitiveconditionsintheIndonesianmarketinfavourofIndonesianpartsandsubparts.
Assuch,theyviolateArticleIII:4.
VI.
CLAIMSUNDERTHETRIMSAGREEMENTA.
ClaimsRaisedbyJapan6.
1JapanarguesthattheNationalCarProgramme(seeSection爚III.
A)violatesArticle2oftheTRIMsAgreement.
ThefollowingareJapan'sargumentsinsupportofthisclaim:6.
2Article2:1oftheTRIMsAgreementprovidesthat"noMembershallapplyanyTRIMthatisinconsistentwiththeprovisionsofArticleIIIorArticleXIofGATT1994.
"Theissuesbeforethispanel,therefore,aretwofold:(i)whetherornottheNationalCarProgrammeisa"TRIM",and(ii)爚whetherornotitviolateseitheroftherelevantGATTarticles.
Aswehavedemonstrated,theexemptionfromtheluxurytaxandtheimportdutyonthebasisoflocalcontentisinviolationofArticle爚III:4.
Consequently,thesecondoftheabovehasbeenmet,andthefocusoftheanalysishereisonthefirstofthetwoissues.
1.
Indonesia'sProgrammesare"TRIMs"asdefinedintheTRIMsAgreement6.
3ThereisnodoubtthatIndonesia'sprogrammesconstitute"investmentmeasuresrelatedtotrade".
TRIMsAgreementArticle1.
First,inthecontextofGATT/WTO,a"measure"isinterpretedbroadly.
Forexample,inthecaseofGATS,itisexpresslystatedthat"'measure'meansanymeasurebyaMember,whetherintheformoflaw,regulation,rule,procedure,decision,administrativeaction,oranyotherform".
94GATSArticleXXVIII(a).
InlightoftheusageofthetermwithinthecontextoftheTRIMsAgreement,thenotionofa"measure"shouldbeinterpretedsimilarly.
Governmentregulationsrequiringcertainlocalcontenttoobtainanexemptionfromaluxurytaxorspecifyinglevelsofimportdutythusconstitute"measures"withinthemeaningoftheTRIMsAgreement.
6.
4Second,Indonesia'sprogrammesareall"trade_relatedinvestmentmeasures".
TheNationalCarProgrammehasbeenestablishedspecifically"withaviewtosupportingthedevelopmentoftheautomotiveindustry.
"GovernmentRegulationNo.
36/1996(JapanExhibit25),preamble.
ThecentralaspectoftheNationalCarProgrammeistodevelopthedomesticmanufacturingcapabilityofautomobilesandautomotivepartsandcomponents.
ThefactthattheProgrammeincludes"investmentmeasures"isalsoobviousfromthefactthatoneofitsimplementingregulationsisentitled"InvestmentProvisionsforRealizationoftheNationalAutomobileIndustry.
"DecreeoftheStateMinisterforMobilizationofInvestmentFunds/ChairmanoftheInvestmentCoordinatingBoardNo.
01/SK/1996(JapanExhibit29).
TheProgrammeindeedimpactsontheautomobileindustryinIndonesiawhereforeign_ownedmanufacturersareactivelyparticipating.
Furthermore,theseareall"trade_related"sincetheProgrammeisconditionedonlocalcontentsrequirementsandthusnaturallyaffectstrade.
6.
5IndonesiahasessentiallyconfirmedthispointinpriormeetingsoftheWTOCommitteeonTrade_RelatedInvestmentMeasures.
IntheMinutesoftheMeetingHeldon30Septemberand1爚November1996,therepresentativeofIndonesiastated:[T]heNationalCarProgrammewasintendedtobringaboutmajorstructuralchangesintheIndonesianautomotivesectorsothatitcoulddevelopintoaworldstandardindustry.
.
.
.
Thesepolicieswereexpectedtoencouragecarcompaniestoincreasetheirlocalcontent,resultinginarapidgrowthofinvestmentsintheautomotivecomponentindustry.
(Emphasisadded)G/TRIMS/M/5(JapanExhibit63),para.
24,27November1996.
6.
6Inaddition,theIllustrativeListintheAnnextotheTRIMsAgreement,paragraph1,specificallyincludeslocalcontentrequirementsasTRIMsthatareinconsistentwithArticleIII:4:TRIMsthatareinconsistentwiththeobligationofnationaltreatmentprovidedforin[Article爚III:4]includethose.
.
.
compliancewithwhichisnecessarytoobtainanadvantage,andwhichrequire:(a)thepurchaseorusebyanenterpriseofproductsofdomesticorigin.
.
.
specifiedintermsofaproportionofvolumeorvalueofitslocalproduction.
.
.
.
Indonesia'smeasures,whicharecontingentoncompliancewithlocalcontentrequirements,thusclearlyconstituteprohibitedTRIMsassetforthintheIllustrativeList.
6.
7Furthermore,JapanconsidersthatanyTRIMswhichviolateGATTArticleIII,includingbothArticle爚III:2andArticleIII:4,areinconsistentwithArticle2.
1oftheTRIMsAgreement.
JapanbelievesthattheFebruary爚1996ProgrammeviolatesGATTArticleIII,isa"trade-relatedinvestmentmeasure",andthusviolatesTRIMsArticle2.
1.
2.
EvenifIndonesia'smeasuresweredeemedtoconstituteasubsidy,itisnonethelessalsoaTRIM6.
8Indonesiaclaimsthatthemeasureisa"subsidy"ratherthana"TRIM".
SeeNotificationunderArticle5.
1oftheAgreementonTrade_RelatedInvestmentMeasures,IndonesiaAddendum(G/TRIMS/N/1/IDN/1/Add.
1)(JapanExhibit18);Subsidies/RepliestoQuestionsposedbyJAPANConcerningtheUpdatingNotificationofINDONESIA(G/SCM/Q2/IDN/9)(JapanExhibit20),2.
(iii).
However,theconceptsofaTRIMandsubsidyarenotmutuallyexclusive.
Nothinginthetext,objectiveorpurposeoftheTRIMsAgreementwouldsupportthecontentionthataTRIMisnolongeraTRIMsimplybecausethelocaladministeringauthoritypreferstocallitasubsidyratherthanaTRIM.
3.
Indonesiacannotenjoythebenefitofthetransitionalperiod6.
9NorcanIndonesiaenjoythebenefitofthefive_yeartransitionalperiodfordevelopingcountriesstipulatedinTRIMsAgreement,Article5.
2,inlightofIndonesia'sfailuretocomplywithitsnotificationandstandstillobligations.
TheTRIMsAgreement,Article5.
2requiresnotificationforMemberstobenefitfromthetransitionalperiod,andArticle5.
4imposesastandstillobligationduringtheperiod.
Indonesiahascompliedwithneitherprovision.
First,thereisnonotification.
Indonesiasubmittedanotificationon23May1995NotificationunderArticle5.
1oftheAgreementonTrade_RelatedInvestmentMeasures,Indonesia(G/TRIMS/N/1/IDN/1)(JapanExhibit17).
,whichspecifiescertainautomotiverelatedmeasures,butthenotificationwaswithdrawninOctober1996.
NotificationunderArticle5.
1oftheAgreementonTrade_RelatedInvestmentMeasures,IndonesiaAddendum(G/TRIMS/N/1/IDN/1/Add.
1)(JapanExhibit18).
Second,evenifthenotificationhadnotbeenwithdrawn,itscontentisirrelevanttotheNationalCarProgramme.
WhilethemeasuresappearedinthenotificationmaybetangentiallyrelatedtotheNationalCarProgramme,theProgrammeitselfwasnotspecifiedinthenotification.
Moreover,theNationalCarProgramme,whichwasintroducedin1996,couldhaveneverbeennotifiedinthenotification,whichwasduewithin90daysafterthedateofentryintoforceoftheWTOAgreement(i.
e.
,1January1995)andwasactuallymadebyIndonesiainMay1995.
Therefore,IndonesiacannotenjoythebenefitofthetransitionalperiodunderArticle5.
2.
oftheTRIMsAgreement.
B.
ClaimsRaisedbytheEuropeanCommunities6.
10TheEuropeanCommunitiesclaimsthatIndonesiahasviolateditsobligationsunderArticle爚2.
1oftheTRIMsAgreement,asthefollowingmeasures(SeeSectionIII.
B)areTRIMsinconsistentwithArticleIIIofGATT1994:(1)theexemptionfromtheSalesTaxonLuxuryGoodsoflocallymanufacturedcombines,minibuses,vansandpick_upswithmorethan60爚percentlocalcontent;(2)theexemptionfromtheSalesTaxonLuxuryGoodsoflocallymanufacturedsedansandstationswagonsoflessthan1,600ccwithmorethan60爚percentlocalcontent;(3)theexemptionfromtheSalesTaxonLuxuryGoodsofNationalCarsassembledinIndonesiabyPioneerCompaniesmeetingcertainlocalcontentrequirements;(4)theexemptionfromtheSalesTaxonLuxuryGoodsofNationalCarsassembledinKoreaby"overseasproducers"meetingcertaincounter_purchasingobligations;(5)thegrantofdutyrelieftopartsandcomponentsusedintheassemblyofmotorvehicles(orofotherpartsandcomponentsfortheassemblyofmotorvehicles)inIndonesiabasedonthefinishedvehicles(orthepartsandcomponents)meetingcertainlocalcontentrequirements;and(6)theexemptionofimportdutiesforpartsandcomponentsusedfortheassemblyofNationalCarsinIndonesiabyPioneerCompaniesmeetingcertainlocalcontentobligations.
6.
11ThefollowingaretheEuropeanCommunities'argumentsinsupportofthisclaim:6.
12Article2.
1oftheTRIMsAgreementprovidesthat:WithoutprejudicetootherrightsandobligationsunderGATT1994,noMembershallapplyanyTRIMthatisinconsistentwiththeprovisionsofArticleIIIorArticle爚XIofGATT.
6.
13ThenotionofTRIM("TradeRelatedInvestmentMeasure")isnotdefinedintheTRIMsAgreement.
Nevertheless,theAnnextotheTRIMsAgreementcontainswhatArticle2.
2ofthatAgreementdescribesas:AnIllustrativeListofTRIMsthatareinconsistentwiththeobligationofnationaltreatmentprovidedforinparagraph4ofArticleIIIofGATT1994andtheobligationofgeneraleliminationofquantitativerestrictionsprovidedforinparagraph1ofArticle爚XI.
6.
14Theabovemeasuresare"investmentmeasures"becausetheyarespecificallydesignedtopromoteinvestmentintotheautomotivesectorwiththepurposeofachieving"fullmanufacturing"ofmotorvehiclesinIndonesia.
Further,themeasuresare"traderelated"becausetheyencouragetheuseofdomesticpartsandcomponentsoverimportedones.
Finally,asdemonstratedabove,themeasuresareinconsistentwithArticleIII:4and,insomecases,alsowithArticleIII:2,firstsentence.
6.
15TheaboveanalysisisconfirmedbytheIllustrativeListannexedtotheTRIMsAgreement.
Indeed,themeasuresatissuefallsquarelywithinthecategorydefinedinItem1(a)oftheIllustrativeList,whichreadsasfollows:1.
TRIMsthatareinconsistentwiththeobligationofnationaltreatmentprovidedforinparagraph4ofArticleIIIofGATT1994includethose[.
.
.
.
]compliancewithwhichisnecessarytoobtainanadvantage,andwhichrequire:(a)thepurchaseorusebyanenterpriseofproductsofdomesticoriginorfromanydomesticsource[.
.
.
]intermsofaproportionofvolumeorvalueofitslocalproduction.
6.
16Article5.
2oftheTRIMsAgreementprovidesatemporaryderogationfromtheobligationcontainedinArticle2inrespectofTRIMswhichwereinforceatleast180daysbeforetheentryintoforceoftheWTOAgreementandwhichhavebeendulynotifiedbytheMemberconcernedwithin90爚daysfromtheentryintoforceoftheWTOAgreement,asrequiredbyArticle5.
1oftheTRIMsAgreement.
InthecaseofdevelopingcountryMembers,suchasIndonesia,thistemporaryderogationhasadurationoffiveyears.
6.
17On23May1995,IndonesiamadeanotificationunderArticle5.
1oftheTRIMsAgreementG/TRIMS/N/1/IDN/1,dated1June1995.
.
Thisnotification,however,doesnotentitleIndonesiatoinvokethetemporaryarrangementprovidedinArticle5.
2withrespecttothemeasuresatissue.
6.
18Inthefirstplace,Indonesia'snotificationwasmademorethan90daysaftertheentryintoforceoftheWTOAgreement.
Accordingly,itdoesnotconstituteavalidnotificationunderArticle爚5.
1.
6.
19Moreover,Indonesia'snotificationcoveredonlythemeasuresprovidedinDecree645/93.
ThetaxbenefitsprovidedinGovernmentRegulation36/96andtheincentivesgrantedundertheNationalCarProgrammewereintroducedbyIndonesiaonlyaftertheentryintoforceoftheWTOAgreement.
Forthatreason,theywerenot,andcouldnothavebeen,notifiedunderArticle5.
1.
6.
20On28October1996(i.
e.
immediatelybeforethefirstroundofconsultationswiththeCommunitytookplace)Indonesiawithdrewformallyitsnotification.
Allegedlybecause,basedonafurtheranalysisofthemeasuresconcerned,ithadconcludedthatthemeasureswerenotTRIMsG/TRIMS/N/1IDN/1/Add.
1,dated31October1996.
.
Inreality,however,theobviousreasonforwithdrawingthenotificationwasIndonesia'sbelatedrealisationthatthenotificationwouldnotonlyfailtoprovidetheexpectedimmunityforthenotifiedmeasures,but,inaddition,wouldrepresentanopenadmissionthatboththenotifiedmeasuresandthenon_notifiedonesarecontrarytoArticlesIII:4ofGATTand2oftheTRIMsAgreement.
C.
ClaimsraisedbytheUnitedStates6.
21TheUnitedStatesclaimsthatIndonesia'ssystemoftariffandtaxincentivesandthegovernment-directed$690millionloantoTPN(SeeSectionIII.
C)areinconsistentwithArticle爚2oftheTRIMsAgreement.
ThefollowingaretheUnitedStates'argumentsinsupportofthisclaim:6.
22Indonesia'ssystemoftariffandtaxincentivesandthegovernment-directed$690millionloantoTPNarebasedupontheachievementofdesignatedlocalcontenttargetsand,assuch,discriminateagainstimportedautomotiveparts(andsubparts)infavouroftheirdomesticcounterparts.
InadditiontoviolatingArticleIII:4ofGATT1994,thesemeasuresalsoviolateArticle2oftheTRIMsAgreement.
6.
23Article2oftheTRIMsAgreements,inpertinentpart,statesthefollowing:1.
WithoutprejudicetootherrightsandobligationsunderGATT1994,noMembershallapplyanyTRIMthatisinconsistentwiththeprovisionsofArticle爚III爚ofGATT1994.
2.
AnillustrativelistofTRIMsthatareinconsistentwiththeobligationofnationaltreatmentprovidedforinparagraph4ofArticleIIIofGATT1994爚匼~iscontainedintheAnnextothisAgreement.
6.
24Paragraph1(a)oftheIllustrativeList,inturn,providesasfollows:1.
TRIMsthatareinconsistentwiththeobligationofnationaltreatmentprovidedforinparagraph4ofArticleIIIofGATT1994includethosewhicharemandatoryorenforceableunderdomesticlaworunderadministrativerulings,orcompliancewithwhichisnecessarytoobtainanadvantage,andwhichrequire:(a)thepurchaseorusebyanenterpriseofproductsofdomesticoriginorfromanydomesticsource,whetherspecifiedintermsofparticularproducts,intermsofvolumeorvalueofproducts,orintermsofaproportionofvolumeorvalueofitslocalproduction.
.
.
.
(emphasisadded).
6.
25ThetariffandtaxincentivesprovidedbyIndonesiafallsquarelywithintheexampleofaTRIMinparagraph1(a)oftheIllustrativeList.
Thetaxandtariffincentivesunderthe1993ProgrammeandtheNationalCarProgrammerequire,withinthemeaningofArticle1(a)oftheIllustrativeList,"thepurchaseorusebyanenterpriseofproductsofdomesticoriginorfromanydomesticsource.
.
.
".
"Compliance"withtheserequirements"isnecessarytoobtainanadvantage"withinthemeaningofArticle1oftheIllustrativeList.
Assuch,theseincentivesfallsquarelywithintheIllustrativeList.
Underboththe1993programmeandtheNationalMotorVehicleprogramme,inordertoobtainthe"advantage"oftariffortaxreductionsorexemptions,an"enterprise"must"comply"withtherequirementto"use.
.
.
productsofdomesticorigin".
Likewise,theprovisionofthegovernment-directed$690millionloantoTPNwasbasedonTPN'sstatusasaparticipantintheproductionofa"nationalmotorvehicle",astatuswhich,inturn,wasbasedoncompliancewiththerequirementtosatisfythelocalcontentrequirementsfora"nationalmotorvehicle".
Therefore,thetariffandtaxincentivesandtheprovisionofthegovernment-directed$690millionloanconstituteTRIMsthatareprohibitedbyArticle2.
1oftheTRIMsAgreement.
6.
26Withrespecttothe1993programme,Indonesia,asadevelopingcountry,couldhavetakenadvantageofthenotificationandtransitionalarrangementsofArticle5oftheTRIMsAgreement.
Paragraphs1and2ofArticle5provide,inpertinentpart:1.
Members,within90daysofthedateofentryintoforceoftheWTOAgreement[i.
e.
,by31爚March1995],shallnotifytheCouncilforTradeinGoodsofallTRIMstheyareapplyingthatarenotinconformitywiththeprovisionsofthisAgreement.
SuchTRIMsofgeneralorspecificapplicationshallbenotified,alongwiththeirprincipalfeatures.
2.
EachMembershalleliminateallTRIMswhicharenotifiedunderparagraph爚1爚withinfiveyears[ofthedateofentryintoforceoftheWTOAgreement]inthecaseofadevelopingcountryMember.
.
.
.
(footnoteomitted).
6.
27Indonesiadidnotify,pursuanttoArticle5.
1,thatportionofthe1993programmeprovidingtariffincentives.
However,thatnotificationwasuntimely,becauseitwasmadeon23爚May1995,wellafterthedeadlinefornotifyingTRIMsunderArticle5.
1hadclosed.
G/TRIMS/N/IDN/1(1June1995).
Moreover,thenotificationdidnotcoverthatportionofthe1993programmeprovidingtaxincentives.
Id.
Subsequently,Indonesiawithdrewthatportionofitsnotificationpertainingtothetariffincentivesformotorvehicles.
G/TRIMS/N/IDN/1/Add.
1(31October1996).
Asaresult,IndonesiahasnotnotifiedanyoftheTRIMsdescribedabove,and,thus,isineligibletotakeadvantageofthetransitionalarrangementsinArticle5.
2.
Ofcourse,IndonesiacouldnothavenotifieditsTRIMsundertheNationalMotorVehicleprogramme,becauseIndonesiadidnotintroducethoseTRIMsuntilafterthe90-daynotificationwindowofArticle5.
1hadclosed.
D.
ResponsebyIndonesiatoClaimsundertheTRIMsAgreement6.
28Indonesiaargues,inresponsetotheclaimsundertheTRIMsAgreement,thattheTRIMsAgreementinterpretsArticleIIIoftheGATT1994,andaddsnonewobligations;thusitcannotalterthefactthatArticleIIIisnotapplicable.
ThefollowingareIndonesia'sargumentsinthisregard.
1.
Summary6.
29AtthestartoftheUruguayRoundnegotiations,theUnitedStates,theEuropeanCommunities,Japanandotherdevelopedcountrieshadgrandplansforanagreementthatwouldbroadlydisciplineinvestmentmeasures.
Throughoutthenegotiations,however,thedevelopedcountries'effortswerecounteredbyvirtuallyalldevelopingcountries.
Toavoidtheabsenceofanyagreementatall,theagreed-uponTRIMstextprovidesthatthetypeoflocalcontentmeasurefoundtobeinconsistentwithArticleIIIoftheGeneralAgreementinCanada-AdministrationoftheForeignInvestmentReviewAct(7February1994),BISD30S/140,(aswellasanothertypeofmeasurepreviouslyfoundtobeinconsistentwithArticleXI)shouldalsobeproscribedasaTRIM.
Inotherwords,tobeaTRIM,ameasuremustbeinconsistentwithGATTArticlesIIIorXI.
6.
30Article2.
1oftheTRIMsAgreementstates:WithoutprejudicetootherrightsandobligationsunderGATT1994,noMembershallapplyanyTRIMthatisinconsistentwiththeprovisionsofArticleIIIorArticle爚XIofGATT1994.
(Emphasisadded.
)TheTRIMsAgreementdoesnotaddanynewobligations;itmerelyinterpretsArticleIII.
ThiswasrecognizedintheReportofthePanelonEuropeanCommunities-RegimefortheImportation,SaleandDistributionofBananas,WT/DS27/R/USA(22May1997),whichdeclaresatparagraph爚7.
185:Inconsideringthesearguments,wefirstexaminetherelationshipoftheTRIMsAgreementtotheprovisionsofGATT.
WenotethatwiththeexceptionofitstransitionprovisionstheTRIMsAgreementessentiallyinterpretsandclarifiestheprovisionsofArticleIII(andalsoArticleXI)wheretrade-relatedinvestmentmeasuresareconcerned.
ThustheTRIMsAgreementdoesnotaddtoorsubtractfromthoseGATTobligations,althoughitclarifiesthatArticleIII:4maycoverinvestment-relatedmatters.
(Emphasisadded;footnoteomitted.
)6.
31Asdemonstrated(SeeSectionV.
D),Indonesia'sluxurytaxsubsidyisnotinconsistentwithArticleIIIoftheGeneralAgreement.
Therefore,theTRIMsAgreementisnotgermanetothisdispute.
2.
TheTRIMs"IllustrativeList"cannotalterthefactthatArticleIIIisinapplicable6.
32ComplainantsseektousetheTRIMsIllustrativeListasthetailtowagtheArticleIIIdog,claimingthattheIndonesianmeasuresfallwithinthescopeofparagraph1(a)oftheListandhenceareTRIMs.
6.
33DuringtheUruguayRoundnegotiations,theUnitedStatesclearlyindicatedthesubordinatenatureoftheIllustrativeList.
Theofficialminutesofthe10-11July1989meetingoftheTRIMsnegotiatinggrouprecordthefollowingexchange:Oneparticipantaskedforclarificationonthenatureofandtherolethatwouldbeassignedto"illustrativelists";weretheyonlyconceptswithintheframeworkofthenegotiations,wouldtheyremainillustrativeratherthandefinitiveinanyfinalagreementandwouldtheybeopen-endedsothattheycouldbeaddedtoatalaterstage.
.
.
TherepresentativeoftheUnitedStatessaidthatthelistsshouldbepurelyillustrative.
DisciplinesshouldbebasedongeneralcriteriasuchastheinherentlytradedistortingnatureofTRIMsandillustrativelistscouldthenbedrawnupwithspecificexamplesofTRIMsthatweresubjecttospecificdisciplines.
Inthatwayanynewmeasurethatwasdevisedcouldstillbecaughtbythedisciplineevenifitdidnotappearonanillustrativelist.
MTN.
GNG/NG12/11atpara.
55(emphasisadded).
6.
34TheUnitedStates,theEuropeanCommunities,JapanandotherdevelopedcountrieshadextensivenegotiatinggoalsfortheTRIMsAgreement,butattheendofthenegotiationthepartiescouldnotevenagreeuponbasicdefinitionssuchas"investment"measureand"trade-related.
"Theonly"generalcriteria"thatsurvivedthenegotiatingprocessandwasreflectedinthefinaltextoftheTRIMsAgreementwasthataTRIMmustbeinconsistentwiththeobligationsofeitherArticleIIIorXIoftheGeneralAgreement.
Insum,becausetheluxurytaxsubsidyisnotinconsistentwithArticle爚III,itcannotbeproscribedbytheTRIMsAgreement.
3.
SubsidiesaregovernedbythesubsidiesagreementandarenotwithinthescopeoftheTRIMsAgreement6.
35OneofthemanyfundamentalissuesonwhichthereweremajordifferencesofopinionamongtheparticipantsintheUruguayRoundTRIMsnegotiatinggroupwaswhethersubsidiesweregovernedsolelybytheSubsidiesAgreementoralsocouldbeconsideredtobean"incentive"ora"conditionforreceiptofanadvantage"andthusgovernedbytheTRIMsAgreement.
TheUnitedStatesandJapanarguedthatsubsidiescouldalsobeTRIMs.
Argentina,Hungary,India,theNordics,thePhilippines(forASEAN),Polandandothersdisagreed.
Argentinaandotherdevelopingcountriesdeclaredthat"anysuggestionthatinvestmentmeasuresthemselves,includingincentives,shouldbeprohibitedisnotonlyinappropriatebutunrealisticandunacceptable.
"MTN.
GNG/NG12/W/25atpara.
4(emphasisadded).
Hungary".
.
.
wanteditspelledoutthataTRIMsagreementwouldnotestablishdifferentdisciplinesoninvestmentincentivesorsubsidiestothoseagreedtointheSubsidiesNegotiatingGroup.
"MTN.
GNG/NG12/22atpara.
7.
Indiasaidthatitcouldnotbepresumedthatinvestmentmeasuresconstituteaformofsubsidization.
MTN.
GNG/NG12/W/18atpara.
52.
TheNordicsdeclaredexplicitlythat"incentives"werecoveredbytheSubsidiesAgreement,nottheTRIMsAgreement.
MTN.
GNG/NG12/W/23atpara.
10.
Theyalsosaid"thereappearedtobeaconsensusemergingintheGroup.
.
.
thatincentiveslayoutsidetheambitofthisGroupandremediestotheiradversetradeeffectscouldbefoundinGATTdisciplinesonsubsidies.
"MTN.
GNG/NG12/14atpara.
100.
AccordingtothePhilippines,"incentivescontingentuponinvestmentmeasuresshouldbeoutsidethescopeoftheTRIMsnegotiations.
"MTN.
GNG/NG12/20atpara.
2.
PolandsaidthatincentiveslinkedtoTRIMsaresubsidiesandshouldbedisciplinedbyGATTArticleXVIandtheSubsidiesAgreement.
MTN.
GNG/NG12/14atpara.
75.
SodidtheEuropeanCommunities,whichincludedthefollowinginits13November1989submissiontotheTRIMsnegotiatinggroup:[G]overnmentincentives,includingsubsidies,arebeingaddressedintheNegotiatingGrouponSubsidies;suchincentivesarethereforenotthesubjectofthecurrentnegotiationsonTRIMs.
MTN.
GNG/NG12/W/22atpara.
A.
3.
6.
36Thedisagreementremainedthroughoutthelifeofthenegotiatinggroup.
Inthe"Chairman'sReportontheStatusofWorkintheNegotiatingGroup"(MTN.
GNG/NG12/W/27),theparagraphandaccompanyingfootnoteassertingthatsubsidiescouldbeTRIMswasinbrackets,therebysignifyinglackofagreementwiththeproposition.
Seeid.
atpara.
A2(c)(iii)andnote2.
Inits1997ReporttotheWTOCouncilforTradeinGoods,theTRIMsCommitteestated:"[d]ifferingviewscontinuetobeexpressedonissuessuchas.
.
.
therelationshipoftheprovisionsofthe[TRIMs]AgreementtothoseofotherWTOagreements,includingtheAgreementonSubsidiesandCountervailingMeasuresandtheAgreementonAgriculture.
"G/L/193(15October1997)atpara.
5.
EventheUnitedStateshasacknowledgedthat"[o]therissuesthatappeartorequireadditionalfollow[sic]include:.
.
.
therelationshipoftheTRIMsAgreementwiththeAgreementonSubsidiesandCountervailingMeasures.
""UnitedStatesPaperonWTOAgenda"para.
C.
4,reprintedinInsideUSTradeat10(18爚April爚1997).
6.
37Theforegoingclarifiesthatnoconsensusexiststhatsubsidymeasuresalsoaresubjecttothedisciplines(whatevertheymightbe)oftheTRIMsAgreement.
Theluxurytaxreductionsandexemptionunderthe1993IncentiveProgrammeandtheFebruary1996nationalcarprogrammearenotTRIMs;theyaresubsidies.
TheyaregovernedbyandsubjecttothedisciplinesoftheSubsidiesAgreement.
4.
CustomsimportdutysubsidiesarenotwithinthescopeoftheTRIMsAgreement6.
38TheTRIMsAgreementmerelyinterpretsArticleIIIoftheGeneralAgreement.
Itdoesnotaddnewobligations.
Therefore,where,ashere,ArticleIIIisnotapplicable,theTRIMsAgreementisnotapplicable.
The"IllustrativeList,"therefore,isirrelevant.
CustomsdutysubsidiesaregovernedbytheSubsidiesAgreementandarenotwithinthescopeoftheTRIMsAgreement.
5.
IndonesiahasnotviolatedtheTRIMsAgreement:TheTRIMsAgreementdoesnotapply_itaddsnonewobligations,butmerelyputsaglossonArticle爚IIIofGATT1994(a)TheTRIMsAgreement,unliketheSCMAgreement,isnotlexspecialis;itneitherdefines"TRIM"norsetsforthspecialremedies6.
39TheTRIMsAgreementdifferssubstantiallyfromtheSCMAgreement.
UnliketheSCMAgreement,whichislexspecialisforthisdispute,theTRIMsAgreementisnotlexspecialisforthisor,forthatmatter,anydispute.
ThisisbecausetheTRIMsAgreement:-first,doesnotdefine"TRIM"(infact,itdoesnotcontainevenalimiteddefinitionof"TRIM");and-second,doesnotsetforthspecialremediesformeasuresfoundtobeTRIMs(infact,itsetsforthnoremediesatall).
ToIndonesia'sknowledge,thesefactsconcerningtheTRIMsAgreementarenotindispute.
(b)TheTRIMsAgreementdoesnotestablisha"newbalanceofrightsandobligations";rather,itmerelyelaboratesontheFIRAPanel'sdecisionregardingthecoverageofArticleIIIofGATT6.
40TheUnitedStatesassertsthattheTRIMsAgreementestablishesa"newbalanceofrightsandobligations,"andthatIndonesiaignoresit(SeeSectionVI.
E.
3).
Theseallegationsareunfounded.
Itshouldgowithoutsayingthatanycontract,memorandumofunderstandingortradeagreementestablishesa"balanceofrightsandobligations".
Therealquestion,however,is:whatwasagreedtoIndonesiahasdemonstratedconclusivelythatthedevelopingcountriessuccessfullycounteredthedevelopedstates'drivetoincreasethescopeofwhatbecametheTRIMsAgreement.
6.
41AsIndonesiahasdemonstrated,theTRIMsAgreementwasconceivedofanddraftedinordertofurtherspecifytheapplicationofArticleIIIoftheGATTtotrade_relatedinvestmentmeasures.
NoprovisionoftheTRIMsAgreementbringsIndonesia'ssubsidieswithinthescopeoftheAgreement.
6.
42InfurtherspecifyingArticleIII,theTRIMsAgreementelaboratesonthedecisionofthePanelinCanada_AdministrationoftheForeignInvestmentReviewAct(FIRA)(7February1994),BISD30S/140.
TheUnitedStates,indiscussingthisfact,attemptstoundercutIndonesia'sargumentbyfocusingontheword"essentially"inthefollowingpassagefromparagraph7.
185ofBananas爚III:theTRIMsAgreementessentiallyinterpretsandclarifiestheprovisionsofArticle爚III(andalsoArticleXI)wheretrade_relatedinvestmentmeasuresareconcerned.
TheUnitedStatesassertsthat"essentially"indicatesthattheTRIMsAgreementmustcoverotheritems(SeeSectionVI.
E.
3).
ButtheUnitedStatesignores,asitmust,theverynextsentencefromthePanelreport,whichclarifiesthatthePaneldidnotuse"essentially"toindicatethatthephrasefollowingitisfalseorincomplete:ThustheTRIMsAgreementdoesnotaddtoorsubtractfromthoseGATTobligations,althoughitclarifiesthatArticleIII:4maycoverinvestment_relatedmeasures.
Thisquotationprettymuchsumsitup.
ItisaprecisestatementofIndonesia'sposition.
6.
43Thus,theUnitedStates,initsarguments,runsafouloftheverycriticismitleviesagainstIndonesia.
Itiscomplainants,notIndonesia,thatcomebeforethisPanelseekingtorevisitandrewritetheTRIMsAgreementbyhavingthePaneladoptinterpretationsexplicitlyrejectedduringthenegotiations.
6.
JapanisinError;theGovernmentmostcertainlydoesnotviewtheNationalCarProgrammeasaninvestmentprogramme6.
44ThetwomeasureswhichmakeuptheNationalCarProgrammearesubsidies.
ThishasbeentheconsistentviewofIndonesiasincethisdisputebegan.
Whenthemeasuresinitiallywereintroduced,theIndonesianGovernment,onthebasisofanincompleteandunsoundanalysisofthelegalnatureofthesubsidiesundertheWTOAgreements,notifiedthemasTRIMs.
Uponamoreexactinglegalanalysis,theGovernmentrealizeditsmistake,withdrewitsTRIMsnotificationandnotifiedthemeasuresassubsidies.
6.
45Fromtimetotime,someIndonesianofficialshavereferredtothemeasuresasrelatingtoindustrialdevelopment,trade,investment,etc.
Thesereferencesdonotandcannotalterthenatureofthemeasures.
NordothestatementsofvariousofficialsfromcompetingbureaucracieschangetheGovernment'spositionthatthemeasuresaresubsidies.
Asdemonstrated,themeasuresaresubsidiestoadomesticindustrytoencourageitsdevelopment.
Alternativedescriptionsorcharacterizationscannotalterthisfact.
7.
Theunderlyingdecree,rulesandregulations,andIndonesia'sstatementstotheCommitteeonTRIMsestablishthattheNationalCarProgrammedoesnotinvolveaTRIM6.
46JapanclaimsthatbecauseoneimplementingdecreeDecreeoftheStateMinisterfortheMobilizationofInvestmentFunds/ChairmanoftheInvestmentCoordinatingBoardNo.
01/SK/1996regardingInvestmentRegulationswithintheFrameworkoftheRealizationoftheEstablishmentoftheNationalAutomobileIndustry(27February1996).
containstheword"investment"initstitle(which,accordingtoJapan,meansthatitaddressesthemeasureasaninvestmentmeasure),thesubsidymustbeaTRIM.
Thisisincorrect.
OfthelargenumberofregulationsanddecreesregardingtheNationalCarProgramme,Japanselectedasingleregulationonthebasisofitsheading.
Japanthenarbitrarilyaffixedthedesignation"key"tothatsingleregulationand,finally,promotedittotherankofevidencethattheNationalCarProgrammeisan"investmentmeasure.
"6.
47TheseminalregulationfortheFebruary1996measureisPresidentialInstructionNo.
2/1996of19February1996.
ItsimplyinstructstwoMinisters,theMinisterofIndustry&Trade(MIT)andtheMinisterofFinance(MOF),toperformdetailedactivities.
ItalsochargestheMinisterfortheMobilizationofInvestmentFunds/ChairmanoftheInvestmentCoordinatingBoard(BKPM)withtheverygeneraltaskof"safeguarding"thedevelopmentofthenationalcarindustry.
6.
48On19February1996,thesamedaythatPresidentialInstructionNo.
2/1996wasissued,bothMITandMOFissuedtheirimplementationdecrees.
MITimplementedthePresidentialInstructionbyissuingDecreeNo.
31/MPP/SK/2/1996;MOFissuedimplementingDecreeNo.
爚82/KMK.
01/1996.
MITandMOFhadbeeninclosecoordinationwiththeOfficeofthePresidentintheplanninganddraftingoftheregulationsgivingbirthtothenationalcar.
Thatiswhytheirimplementingregulationsappearedthesamedayastheregulationtheyareintendedtoimplement.
6.
49TheBKPMimplementingregulationappearedeightdayslater,on27February1996.
BKPMhadtowaituntilfurtherimplementingregulationswereissuedbythetwoprincipalministriesbeforeascertainingwhatsecondarysupportingregulationwasappropriateforittopromulgate.
Theprincipalimplementingregulation(supplementingthetwodecreescitedabove)wasissuedbyMIT'sDirectorGeneralfortheMetal,Machinery&ChemicalIndustries(DecreeNo.
爚002/SK/DJ_ILMK/II/1996),appointingaPioneerMotorVehicleIndustrialEnterprise.
OnlyaftertheDirectorGeneralissuedthisdecreedidBKPMissuetheInvestmentProvisionsfortheRealizationoftheNationalAutomobileIndustry.
Eventhen,oncloserscrutiny,the"InvestmentProvisions"turnouttobemerelyarehashoftheearlierMITDecree(No.
31/MPP/SK/2/1996).
6.
50WhydidBKPMhavetoissuearegulationatallIthadtoissuetheregulationbecauseTPNisaDomesticCapitalInvestmentCompany(aPMDN),andallPMDNcompaniesoperateundertheauspicesofBKPM.
BKPMDecreeNo.
01/SK/1996isnota"keyimplementingregulation.
"ItismerelyanadministrativeandproceduralregulationthatcouldnotbeissuedpriortotheMITandMOFdecrees.
Moreover,itsimplyrepeatsanotherMinisterialdecree.
Again,theFebruary1996nationalcarmeasureisasubsidyandComplainants'misrepresentationsdonotbringitundertheTRIMsAgreement.
6.
51JapansimilarlymisusesIndonesia'spresentationatthe30September1996meetingoftheCommitteeonTRIMs.
Atthismeeting,IndonesiarespondedtoquestionsposedbythedelegationofJapanandmentionedatleastsevenobjectivesoftheNationalCarProgramme:-toimprovethecompetitivenessoflocalcompaniesandstrengthenoverallindustrialdevelopment;-topromotethecompetitivenessofIndonesia'sautomotiveproduction;-todevelopthecapacityofmultiple_sourceautopartsandcomponents;-toencouragethedevelopmentoftheautomotiveindustryandtheautomotivecomponentindustry;-tobringaboutmajorstructuralchangesintheIndonesianautomobileindustry;-toencouragethetransferoftechnologyandcontributetolarge_scalejobcreation;and-toencouragecarcompaniestoincreasetheirlocalcontent,resultinginarapidgrowthofinvestmentintheautomobilecomponentindustry.
6.
52LikeJapan'sselectiveuseofIndonesia'sregulationstobuttressitsassertionthatIndonesia'snationalcarpolicyisaninvestmentmeasure,Japanagainhasactedarbitrarilyhere.
IthaschosenoneofthesevenobjectivestocarryitsallegationthattheFebruary1996nationalcarmeasureisaTRIMand,eventhen,itsconclusiondoesnotreflectthefacts.
6.
53ThesinglesentenceusedbyJapanasevidencethatthenationalcarmeasureisaTRIMisinitem4ofpage2ofIndonesia'sresponse:Thesepoliciesareexpectedtoencouragecarcompaniestoincreasetheirlocalcontent,resultinginarapidgrowthofinvestmentsintheautomotivecomponentindustry.
ButJapan'sinterpretationevenofthisone(ofseven)goalsisinaccurate.
Theexpectationand,therefore,theobjectiveisdirectedtowardcarcompaniesincreasingtheirlocalcontent.
Themeasureisasubsidyconditionedupontheincreasinguseoflocalcontent.
The"rapidgrowthofinvestments"isnotanobjectiveofthenationalcarmeasure;itisonlyasideproductofsuchobjective.
8.
Themeasuresarenotinvestmentmeasuresbutsubsidiesgrantedtoanautomakertousedomesticpartsandcomponents6.
54TheIndonesianmeasuresarenotinvestmentmeasures,butsubsidiesgrantedtoanautomakertousedomesticpartsandcomponents,forthefollowingreasons:1.
ThesubsidiesaregrantedbytheMinisterofFinance.
2.
TheregulatingauthorityovertheautomakervestswiththeMinisterofIndustryandTrade.
3.
TheinvolvementoftheMinisterfortheMobilizationofInvestmentFunds/ChairmanoftheCapitalInvestmentCoordinatingBoardispurelyadministrativeandisrequiredonlybecausetheautomakerhappenstobeadomesticcapitalinvestmentcompany.
4.
Theconsiderablenumberofregulationsprovidingandimplementingthesubsidydonotoncereferto"investments".
5.
Althoughsubsidiesmayattimesindirectlyaffectinvestmentdecisionsoftherecipientofthesubsidyorotherparties,thesedecisionsarenottheobject,butrathertheunintendedresult,ofthesubsidy.
Indeed,increasedinvestmentindirectlyresultsfrommanysubsidies.
6.
Moreover,eveniftheTRIMsAgreementdidapply,thesubsidiesarenotinconsistentwithArticleIIIofGATT1994.
9.
ThemeasuresarenotTRIMsthatviolateArticleIII:2ofGATT19946.
55ThegovernmentmeasuresarenotTRIMs.
Specificsubsidiesbydefinitiondiscriminatebetweenproductsbenefitingfromthesubsidiesandthosethatdonot.
IfGATTArticleIII:2andArticleIII:4wereappliedeverytimeaspecificsubsidycameup,virtuallyallactionablesubsidiesgrantedbydevelopingcountrieswouldbeundonebyGATTArticlesIII:2andIII:4andtheTRIMsAgreement.
Article32.
1oftheSCMAgreementunequivocallyprovidesthatGATTactionsagainstsubsidiesaretoberesolvedundertheSCMAgreement.
ItistheSCMAgreementthatdealswithactionablesubsidiesunderArt.
27.
3,nottheGATT.
10.
TheTRIMsAgreementisnotlexspecialistoanydispute6.
56UnliketheSCMAgreement,theTRIMsAgreementisnotlexspecialistoanydispute.
Byitsverytermsitcannotbe.
Forexample,Article2.
1oftheTRIMsAgreementstatesthattheTRIMsAgreementoperates"[w]ithoutprejudicetootherrightsandobligationsunderGATT1994".
6.
57TheArticlecontinues,stating,"noMembershallapplyanyTRIMthatisinconsistentwiththeprovisionsofArticleIIIorArticleXIofGATT1994".
(ThispassagebreathesnewlifeintoArticleIIIofGATT1994which,complainantsassert,Indonesia'slexspecialisandconflictargumentswouldrendermoribund.
)ThustheTRIMsAgreementitselfstatesthatitisnaughtbutageneralagreementthatdependsupontheGeneralAgreementtohaveanymeaningwhatsoever.
6.
58Giventhis,otherAnnex1Aand1CAgreementscanapplyand,moreimportantly,inthecaseofthoseagreementswhicharelexspecialis,suchastheSCMAgreement,controlcertaindisputes,suchasthisone,tothecompleteexclusionoftheTRIMsAgreement.
E.
ArgumentsmadeinrebuttaltoIndonesia'sresponsestotheclaimsundertheTRIMsAgreement1.
RebuttalargumentsmadebyJapan6.
59JapanmakesthefollowingargumentsinrebuttaltoIndonesia'sresponsestotheclaimsundertheTRIMsAgreement:(a)TheFebruary1996ProgrammeviolatesTRIMsArticle2.
16.
60Asdemonstrated(SeeSectionVI.
A),theFebruary1996ProgrammeviolatesGATTArticle爚III,isa"trade_relatedinvestmentmeasure,"andthusviolatesTRIMsArticle2.
1.
6.
61IndonesiaarguesthattheTRIMsAgreementonlyinterpretsGATTArticleIIIandGATTArticleIIIisnotapplicabletotheFebruary1996Programme.
Asdiscussed(SeeSectionVI.
D),GATTArticleIIIdoesapplyandtheProgrammeisinconsistentwithit.
TheGovernmentofIndonesiamisunderstandsthenatureoftheTRIMsAgreement.
ContrarytoIndonesia'sassertionthatthe"TRIMsAgreementdoesnotaddanynewobligations;itmerelyinterpretsArticleIII,"itinfactcontainsavarietyofproceduralandsubstantiveobligations.
ThefactthatTRIMsArticle2.
1referencesGATTArticleIIIdoesnotmeanthattheTRIMsAgreement"merelyinterprets"ArticleIII,asIndonesiawouldhaveit.
Instead,theprincipleofpactasuntservandarequiresthattheTRIMsAgreementmustapplyinaccordancewithitstermstoallmeasureswithinitsscope(i.
e.
,toallTRIMs).
ThelanguagefromBananasIIIquotedbyIndonesiafailstosupportitsposition.
ThatlanguageshowsthattheBananasIIIPanelcorrectlynotedthatTRIMsArticle2.
1neitheraddstonordetractsfromGATTobligations.
Allthatsignifies,however,isthatArticle2.
1doesnotmodifythescopeoftheGATTprovisionsincaseswherethoseprovisionsapply.
6.
62IndonesiaalsoattemptstoevadeitsviolationoftheTRIMsAgreementbyarguingthattheIllustrativeListoftheTRIMsAgreementis"purelyillustrative"andthattheListcannotalterthe"fact"thatGATTArticleIIIisinapplicable.
Onceagain,however,theGovernmentofJapanhasamplydemonstratedthatArticleIIIdoesinfactapply.
Itappears,moreover,thatIndonesiamisunderstandsJapan'sargument.
TheGovernmentofJapandoesnotarguethattheNationalCarProgrammeviolatesTRIMsArticle2becauseitisontheIllustrativeList,butthatitviolatesTRIMsArticle2becauseitisaTRIManditisinconsistentwithGATTArticleIII.
Thus,Indonesia'sargumentaboutthenatureoftheListisirrelevant.
6.
63Therefore,theFebruary1996ProgrammeisinconsistentwiththeTRIMsAgreementandtheGovernmentofIndonesia'scontraryargumentlacksanymerit.
(b)TheSCMAgreementdoesnotexcuseindonesia'sviolationsoftheTRIMsAgreement6.
64IndonesiaseemstoarguethatthereisaconflictbetweenSCMArticle27.
3andTRIMsArticle爚2.
1,suchthatSCMArticle27.
3excusestheviolationsofTRIMsArticle2.
1.
However,thatargumentalsolacksanymerit.
TheseprovisionsdonotconflictandIndonesia'sassumptionthattheSCMAgreementwouldprevailinahypotheticalconflictisunfounded.
6.
65Asdiscussed(SeeSectionV.
E.
1),theBananasIIIPanelfoundthataconflictbetweentwoWTOAgreementscanonlyariseifthetwoestablish"mutuallyexclusive"obligationsorone"explicitlypermits"whatanotherprohibits.
AsalreadyshownwithrespecttoGATTArticleIII,however,theSCMAgreementneithercreatesobligationsthatare"mutuallyexclusive"withTRIMsArticle2.
1nor"explicitlypermits"violationsofTRIMsArticle2.
1.
6.
66Rather,theTRIMsandSCMAgreementscreate"differentorcomplementaryobligations.
"TheTRIMsAgreementappliestoTRIMsregardlessofwhethersuchTRIMsarealso"subsidies"undertheSCMAgreementandtheSCMAgreementappliesto"subsidies"regardlessofwhethersuch"subsidies"arealsoTRIMs.
AWTOMembercan,andthereforemust,complywiththeprovisionsofbothAgreementswithrespecttoameasurethatisbotha"subsidy"undertheSCMAgreementandaTRIMundertheTRIMsAgreement.
Nothinginthetext,context,objectorpurposeoftheTRIMsAgreementsupportstheIndonesiancontentionthataTRIMisnolongeraTRIMsimplybecausetheadministeringauthoritypreferstocallitsomethingelse.
6.
67ThisconclusionisstrengthenedbyareviewoftheTRIMsandSCMprovisionsthatestablishthetransitionperiodsfordevelopingcountryMembers.
SCMArticle27.
3allowsdevelopingcountriesaperiodoftime(fiveyearsforIndonesia)beforetheymustcomplywiththeprohibitiononsubsidiescontingentontheuseofdomesticoverimportedproducts.
TRIMsArticle5.
1likewisealsoallowsdevelopingcountryMemberstimebeforetheymustcomplywiththeTRIMsArticle爚2provisionsonlocalcontentrequirementswhichareinconsistentwithGATTArticleIII,providedthatthemeasureexistedwhentheWTOAgreementsenteredintoforce(i.
e.
,on1爚January爚1995)andthattheMembernotifiedthemeasurewithinninetydaysofsuchentryintoforce(i.
e.
,by1爚April爚1995).
Inthisconnection,India,athirdparty,statedatthefirstmeetingthat"[w]hileweagreethatdelayinnotifyingmeasuresshouldideallynotoccur,itmustatthesametimealsoberealizedthatsmalldelegationsoftenhaveconstraintsofresourceswhichattimesleadstoanunintendeddelayinthenotificationoftheirmeasures.
"ThispointisirrelevanttoourargumentsanditisnotnecessaryforthisPaneltodecidetheproceduralquestionraisedbyIndia.
ItisclearthattheissueinthisdisputeisnotmerelyproceduralbecausetheGovernmentofIndonesiaintroducedtheNationalCarProgrammeaftertheentryintoforceoftheWTO,evenafterthedeadlinespecifiedbyArticle5.
1oftheTRIMsAgreement,anditcouldneverhavenotifiedthemeasureinaccordancewithArticle5.
1,needlesstosay,regardlessofhowlargeadelegationithasinGeneva.
ForTRIMsthatarealso"subsidies"undertheSCMAgreement,itisclearlypossiblefordevelopingcountryMemberstoreceivethebenefitsofthetransitionalarrangementsunderbothAgreementsbyactinginaccordancewiththetermsofeachAgreement.
Moreover,ifsuchTRIMsshouldbesubjectonlytotheSCMAgreement,itwouldrenderthespecificallycraftednotificationrequirementundertheTRIMsAgreement,forthesubstantialpartofitscoverage,meaningless.
6.
68Finally,ifaconflictmaysomedayarisebetweentheTRIMsandSCMAgreements,thereisnoreasontoassume_asIndonesiaapparentlydoes_thattheSCMAgreementwouldprevailinsuchaconflict.
Indonesia'sfaultyassumptionseemstoresultfromitsmistakenequatingoftheGATTandtheTRIMsAgreement,discussedabove.
TheplaintextoftheGeneralInterpretativeNoterefutesthisassumption.
ThatNoteexpresslyprovidesthatAnnex1AAgreements_includingboththeTRIMsAgreementandtheSCMAgreement_prevailovertheGATTtotheextentofaconflict.
TheGeneralInterpretativeNotethusgivestheTRIMsandSCMAgreementsalikeahierarchicalstatusabovetheGATTintheeventofaconflict,butitdoesnotestablishanyhierarchybetweenthetwo.
RecentAppellateBodyReportsalsosupporttheconclusion.
AppellateBodyReportonCanada_Periodicals,pp.
18_19.
AppellateBodyReportonBananas爚III,paras.
221_222.
Forexample,inCanada_CertainMeasuresConcerningPeriodicals,aWTOpanelfirmlyrejectedanargumentbyCanadathatthescopeoftheGATSandtheGATTweremutuallyexclusive,holdingthat:TheordinarymeaningofthetextsofGATT1994andGATSaswellasArticle爚II:2oftheWTOAgreement,takentogether,indicatesthatobligationsunderGATT1994andGATScanco_existandthattheonedoesnotoverridetheother.
IftheconsequencessuggestedbyCanadawereintended,therewouldhavebeenprovisionssimilartoArticleXVI:3oftheWTOAgreementortheGeneralInterpretativeNotetoAnnex1AinordertoestablishhierarchicalorderbetweenGATT1994andGATS.
TheabsenceofsuchprovisionsbetweenthetwoinstrumentsimpliesthatGATT1994andGATSarestandingonthesameplainintheWTOAgreement,withoutanyhierarchicalorderbetweenthetwo.
"ReportofthePanelonCanada_Periodicals,WT/DS31/R,para.
5.
17.
TheWTOAppellateBodyapprovedthisaspectofthepaneldecisioninthePeriodicalscase,quotingtheabovereasoningbythepanelandnotingthat:"TheentryintoforceoftheGATS.
.
.
doesnotdiminishthescopeofapplicationofGATT1994".
ReportoftheAppellateBodyonCanada_Periodicals,page19.
SinceGATSisnotcoveredbytheGeneralInterpretativeNote(whichgivesWTOagreementsinAnnex1AotherthanGATTprecedenceoverGATTintheeventofaconflict),GATSisonequalfootingwithGATT.
Inthesameway,theTRIMsAgreementisonequalfootingwiththeSCMAgreement.
Thus,thePanelshouldnot,withoutanytextualbasis,elevateoneAnnex1AAgreementovertheothers.
(c)IncentivemeasuresarecoveredbytheTRIMsAgreement6.
69TheGovernmentofIndonesiaalsocontendsthat"noconsensusexist[ed]thatsubsidymeasuresalsoaresubjecttothedisciplinesoftheTRIMsAgreement,"thatitsincentivestoencouragepurchasesofdomesticgoodsoverimports"arenotTRIMs;theyaresubsidies",andthus"theyaresubjecttothedisciplinesoftheSubsidiesAgreement".
(SeeSectionVI.
D).
6.
70However,Indonesia'sallegationcontradictsthetextoftheTRIMsAgreement.
ThetextoftheAgreementrequiresonlytwoelementsforameasuretoconstituteaviolationofTRIMsArticle2.
1:first,themeasureisan"investmentmeasurerelatedtotradeingoods";andsecond,themeasureis"inconsistentwiththeprovisionsof[GATT]ArticleIIIorArticleXI".
Asdescribedinparagraph3.
14above,ithasbeenfirmlyestablishedthatGATTArticleIII:4appliesnotonlytomandatorymeasuresbutalsotomeasureswithwhichacompanymaycomplyvoluntarilytoobtainabenefit.
Therefore,itisclearthatTRIMsArticle2.
1alsoappliestosuchvoluntarymeasures,orincentivemeasures,aslongastheyfallwithintheconceptof"TRIMs".
6.
71TheIllustrativeListintheAnnexoftheTRIMsAgreementalsodemonstratesthattheFebruary1996ProgrammeisaTRIM.
ThatlistexplicitlyprovidesthatprohibitedTRIMsincludeanylocalcontentrequirement"compliancewithwhichisnecessarytoobtainanadvantage".
6.
72BecausethetextoftheTRIMsAgreementclearlyandunambiguouslyestablishesthatitappliesnotonlytomandatorymeasuresbutalsotomeasures"compliancewithwhichisnecessarytoobtainanadvantage",thereisnoneedtoresorttothedraftinghistorytounderstandthispoint.
ViennaConventionontheLawofTreaties,arts.
31_32.
Infact,however,areviewofthepreparatoryworkoftheTRIMsAgreementconfirms爚-unsurprisingly,inviewoftheplaintext_thatthenegotiatorsdecidedtoincludeso_called"incentivemeasures"intheTRIMsAgreement.
6.
73Althoughthepreparatoryworkshowsactivediscussionaboutthedefinitionofa"TRIM"throughoutthenegotiationsandawidevarietyofviewswereexpressedSeeSubmissionbyJapan(MTN.
GNG/NG12/W/12)dated9June1988;SubmissionbyJapan(MTN.
GNG/NG12/W/20)dated13September1989;SubmissionbyIndia(MTN.
GNG/NG12/W/18)dated11September1989;SubmissionbytheEuropeanCommunities(MTN.
GNG/NG12/W/22)dated16November1989;SubmissionbytheNordicCountries(MTN.
GNG/NG12/W/23)dated22爚November爚1989;andCommunicationfromtheUnitedStates(MTN.
GNG/NG12/W/24)dated24爚January1990.
,atthefinalstageaconsensuswascreated,asdiscussedbelow.
6.
74LateintheTRIMsnegotiations(i.
e.
,October1991through20爚December爚1991),theChairmandistributedtextsforthepurposeofdiscussion.
Thekeyphraseconcerningincentivemeasures(i.
e.
,"TRIMs.
.
.
.
compliancewithwhichisnecessarytoobtainadvantage")wasincludedintheChairman'sfirstdraft,removedintherevisedtextof25爚November爚1991atthebehestofIndiaandotherdevelopingcountries,andrevivedintheChairman'sseconddraftafterdevelopedcountriesobjectedtotheearlierdeletion.
Ultimately,thisphrasewasfinallyadopted,withthedevelopingcountriesacceptingitinexchangeforthedevelopedcountries'acceptanceofthefive_yeartransitionperiod.
Indeed,thenegotiatinggrouprejectedaproposalbyoneMemberthatwouldhaveexpresslylimitedTRIMstomandatorymeasures.
6.
75ItisalsorelevanttonotethatthefinalTRIMsAgreementdidnotincorporateapositionadvancedbysomedevelopingcountriesthatwouldhaveprovidedforonlythedisciplinesoftheSCMAgreementtoapply,whena"subsidy"(asdefinedintheSCMAgreement)wasgrantedcontingentonmeetingcertainrequirements,suchaslocalcontentrequirements.
Thatpositionwasrejected,becausemostMembersrecognizedthatitwouldcreatetoolargealoopholeintheTRIMsAgreement.
ThisloopholewasavoidedbyleavingboththeSCMAgreementandtheTRIMsAgreementsilentabouttheirrelationship,therebyensuringthatthedisciplinesofbothwouldapplytomeasuresthatwerebothTRIMsand"subsidies.
"6.
76Thus,itisclearthatthepositionsadvancedinthequotationsfromthepreparatoryworkcitedinIndonesia'sFirstSubmissionwerenotadoptedinthefinaltextoftheTRIMsAgreement.
Ofcourse,itisthetextofatreatyitselfthatgovernsandanyviewsexpressedduringthenegotiationsthatdonotcomportwiththetextcarrynoweight.
SeeViennaConventionontheLawofTreaties,arts.
31_32.
SeealsoAppellateBodyReportonJapan_AlcoholicBeveragesII,pp.
10_12.
6.
77Finally,subsequentpracticeundertheWTO,whichisrelevanttoitsinterpretationSeeViennaConventionontheLawofTreaties,art.
31(3)(b).
,confirmsthatTRIMsthatfallwithintheSCMdefinitionof"subsidy"haveneverthelessbeenunderstoodtoalsobesubjecttotheTRIMsAgreement.
ThisisdemonstratedbythefactthatevenmanydevelopingcountryMembershaveincludedsuchmeasuresintheirnotificationstotheTRIMsCommitteeunderArticle5.
Incentivemeasureswerenotified,forexample,byVenezuela,on12April1995,G/TRIMS/N/1/VEN/1,bySouthAfrica,on8May1995,G/TRIMS/N/1/ZAF/1,andbytheDominicanRepublic,on10May1995,G/TRIMS/N/1/DOM/1.
Infact,theGovernmentofIndonesiaitselfnotifiedtheTRIMsCommitteeoftheincentivemeasuresinits1993automobileprogrammes,althoughitdidsolateandlaterwithdrewthenotification,apparentlyinconnectionwiththeseproceedings.
NotificationunderArticle5.
1oftheAgreementonTrade_RelatedInvestmentMeasures,Indonesia(G/TRIMS/N/1/IDN/1)(JapanExhibit17).
NotificationunderArticle5.
1oftheAgreementonTrade_RelatedInvestmentMeasures,IndonesiaAddendum(G/TRIMS/N/1/IDN/1/Add.
1)(JapanExhibit18).
(d)Indonesia'sargumentswouldrenderpartsoftheTRIMsAgreementvirtuallymeaningless6.
78Finally,itshouldalsobenotedthatIndonesia'sargumentthatincentivemeasuresshouldbegovernedonlybytheSCMAgreement,notbytheTRIMsAgreement,wouldrenderpartsoftheTRIMsAgreementvirtuallymeaningless.
6.
79Asdiscussed(SeeSectionVI.
A),thetextoftheTRIMsAgreementclearlyshowsthatanincentivemeasure,orameasure"compliancewithwhichisnecessarytoobtainanadvantage",iswithinthecoverageoftheAgreement.
ItappearsthataTRIMthatisanincentivemeasurewouldveryoftenalsobea"subsidy"undertheSCMAgreement.
Therefore,ifaninterpretationweretakenthatameasure,whichconstitutesbotha"TRIM"undertheTRIMsAgreementanda"subsidy"undertheSCMAgreement,shallbegovernedonlybytheSCMAgreement,thatwouldnegateasubstantialpartoftheTRIMsAgreementcoverage.
6.
80Accordingly,a"TRIM"undertheTRIMsAgreementshouldnotbeexcludedfromthecoverageoftheTRIMsAgreement,onlybecauseitconstitutesa"subsidy"undertheSCMAgreement.
2.
RebuttalargumentsmadebytheEuropeanCommunities6.
81ThefollowingaretheEuropeanCommunities'rebuttalargumentstoIndonesia'sresponsestotheclaimsundertheTRIMsAgreement:(a)ThemeasuresatissueinfringeGATTArticleIIIandarethereforecontrarytoArticle爚2.
1oftheTRIMsAgreement6.
82IndonesiaarguesthatthemeasuresatissuedonotinfringeArticle2.
1oftheTRIMsAgreementbecausetheyarenotwithinthescopeof,andthereforecannotbe"inconsistent"with,ArticleIII.
TheEuropeanCommunitieshasshown(seeSectionsV.
A.
2andV.
C.
2)thatthemeasuresatissueareinconsistentwithGATTArticlesIII:2and/orIII:4.
Therefore,theyarecontraryalsotoArticle爚2.
1oftheTRIMsAgreement.
(b)Article2.
1oftheTRIMsAgreementlaysdownalegallydistinctobligation6.
83IndonesiaclaimsthattheTRIMsAgreement"interpretsGATTArticleIIIanddoesnotaddnewobligations".
IndonesiareliesforthispropositiononthefollowingpassageofthePanelReportsonECregimeconcerningtheImportation,SaleandDistributionofBananas:withtheexceptionofitstransitionalprovisions,theTRIMsAgreement,essentiallyinterpretsandclarifiestheprovisionsofArticleIII(andalsoArticleXI)weretrade_relatedinvestmentmeasuresconcerned.
ThustheTRIMsAgreementdoesnotaddtoorsubtractfromthoseGATTobligations,althoughitclarifiesthatArticle爚III:4maycoverinvestmentmattersSeee.
g.
WT/DS27/R/USA,adopted25September1997,atpara7.
185.
.
6.
84Properlyinterpreted,thispassagemeansthat,insubstance,theTRIMsAgreementislimitedtorestateandclarifytheobligationslaiddownGATTArticleIII.
Formally,however,Article2.
1oftheTRIMsAgreementlaysdownanobligationwhichisdistinctfromtheobligationcontainedinGATTIII.
ThisisconfirmedbythepriorfindinginthesamePanelReportthattheprovisionsofGATTandtheTRIMsAgreementwere"equallyapplicable"totheEuropeanCommunities'simportlicensingprocedures.
Id.
atpara7.
158.
Furthermore,ifArticle2.
1oftheTRIMsdidnotprovideforanadditionalanddistinctobligation,itwouldhavebeensuperfluoustostipulateinArticle3oftheTRIMsAgreementthatallexceptionsunderGATT1994shallapplyalsototheprovisionsoftheTRIMsAgreement.
Likewise,itwouldhavebeenunnecessarytosateinArticle4oftheTRIMsAgreementthatdevelopingMembersshallbefreetodeviatefromArticle2"totheextentandinsuchmanner"asArticleXVIIIofGATTandotherrelatedlegalinstrumentspermitthoseMemberstodeviatefromGATTArticlesIIIandXI.
(c)Evenifitwasfoundthatthereisa"conflict"betweenGATTArticleIIIandtheSCMAgreement,thatconflictwouldnotprecludeaviolationofArticle爚2oftheTRIMsAgreement6.
85TheGeneralInterpretativeNotetoAnnex1AonlyappliestoconflictsbetweenGATTandtheotherAnnex1AAgreements.
ItdoesnotapplytoconflictsbetweentheTRIMsAgreementandtheSCMAgreement.
Accordingly,evenifitwasfoundbythePanelthatthereisa"conflict"betweenGATTArticleIIIandtheSCMAgreement,such"conflict"wouldnotprecludeaviolationofthelegallydistinctobligationcontainedinArticle2oftheTRIMsAgreement.
Infact,theexistenceofa"conflict"betweentheSCMAgreementandGATTArticleIIIwouldnotmakethemeasuresconcerned"consistent"withGATTArticleIIIbutmerelyexcludetheapplicationofthatprovision.
Quitetothecontrary,theexistenceofa"conflict"betweentheSCMAgreementandGATTArticleIIIwouldpresupposenecessarilythatthemeasuresare"inconsistent"withthelatter.
(d)TheTRIMsAgreementmayapplytosubsidies6.
86TheTRIMsAgreementappliestoanytraderelatedinvestmentmeasurewhichisinconsistentwithGATTArticleIII.
GiventhatGATTArticleIIImayapplytomeasureswhichare"subsidies"withinthemeaningoftheSCMAgreement,itfollowsthattheTRIMsAgreementmayalsoapplyto"subsidies".
ThisisconfirmedbytheIllustrativeList.
Inaccordancewithitsordinarymeaning,theterm"advantage"usedintheIllustrativeListmayincludealso"subsidies"withinthemeaningoftheSCMAgreement.
AsrecalledbyIndonesia,oneoftheissuesdiscussedduringthenegotiationsoftheTRIMsAgreementwaswhetherthedefinitionofTRIMsshouldcoversubsidies.
AllthenegotiatingpositionscitedinIndonesia'ssubmissioncorrespondtothisphaseofthenegotiations.
Eventually,however,noagreementcouldbereachedtoprohibit(orotherwiselimittheuse)ofanyotherTRIMsbeyondthosealreadyprohibitedbyArticlesIIIandXIofGATT1947.
Inviewofthat,itwasnolongerconsiderednecessarytodefinethenotionofTRIMs,withtheconsequencethatthequestionwhetherornottoincludesubsidiesinthatdefinitionbecamemoot.
Itisworthnotingthat,despitethe"lackofconsensus"allegedbyIndonesia,amajorityoftheMemberswhichhavemadenotificationsunderArticle5.
1oftheTRIMsAgreement(15outofatotalof24,accordingtotheEuropeanCommunities'sownestimate)haveincludedthereinTRIMslinkedtotaxandtariffbenefitswhichprimafaciearesubsidieswithinthemeaningofArticle1oftheSCMAgreement.
Namely,thelistofsuchMembersincludeArgentina,Chile,Colombia,CostaRica,DominicanRepublic,Egypt,Indonesia(withdrawn),Malaysia,Pakistan,Poland,Romania,Thailand,Uruguay,VenezuelaandSouthAfrica.
Someofthenotifiedschemesareremarkablysimilartotheonesatissueinthisdispute.
Forinstance,SouthAfricagrantsarebatefromanexcisetaxtomotorvehicleswhichattainaminimumlocalcontent(G/TRIMS/N/1/ZAF/1),whereasVenezuelaappliesalowerimportdutyonimportsofautomotivepartsandcomponentsbycarassemblerswhichmeetcertainlocalcontentrequirements(G/TRIMS/N/1/VEN/1).
3.
RebuttalArgumentsmadebytheUnitedStates6.
+87NotingthatitagreeswiththepointsmadebyJapanandtheECatthesecondmeetingofthePanel,and,inparticular,theargumentsmadebytheEuropeanCommunities(SeeSectionVI.
E.
2(b)),theUnitedStatesmakesthefollowingargumentsinrebuttaltoIndonesia'sresponsestotheclaimsundertheTRIMsAgreement:(a)Thetariffandtaxincentivesunderthe1993ProgrammeandtheNationalCarProgrammeareinconsistentwithArticle2oftheTRIMsAgreement6.
88WithrespecttoIndonesia'sviolationsofArticle2oftheTRIMsAgreement,IndonesiaarguesthattheTRIMsAgreementimposesnonewobligations,butismerelyaninterpretationofArticleIIIofGATT1994.
Indonesia,ofcourse,mustadvancethisargumentinlightofits"conflict"argument(theflawsinwhichwehaveaddressed(SeeSectionV.
E.
III)),becausetheGeneralinterpretativeheadnotetoAnnex1Aaddressesonlyalleged"conflicts"betweentheGATT1994andtheprovisionsofanotherAnnex1Aagreement,notalleged"conflicts"betweentwoormoreAnnex1AagreementsotherthanGATT1994.
6.
89Inadvancingitsargument,IndonesiareliesonastatementmadebythepanelintheBananasIIIcaseatpara.
7.
185ofthereport.
EuropeanCommunities-RegimefortheImportation,SaleandDistributionofBananas,WT/DS27//R,ReportofthePanel,asmodifiedbytheAppellateBody,adopted25September1997,para.
7.
185.
IndonesiaarguesthatthepanelruledthattheTRIMsAgreementdoesnotaddanynewobligations.
However,thatisnotwhattheBananas爚IIIpanelsaid.
WhilethepanelsaidthattheTRIMsAgreement"essentially"interpretsArticleIIIandArticle爚XIofGATT1994,thepanelalsonotedthattheTRIMsAgreementclarifiedthoseobligationsandgrantedtransitionprovisions.
Moreover,thepanel'sholdingsimplywasthatinthecontextofthatparticularcase,thepaneldidnotneedtomakeaspecificrulingundertheTRIMsAgreement,becauseitalreadyhadfoundthemeasuresinquestiontobeviolativeofArticleIII:4.
ThatlimitedholdingisfardifferentfromholdingthattheTRIMsAgreementdoesnot,initself,imposeobligations.
6.
90Indeed,theBananasIIIpanelitselfrecognizedthattheTRIMsAgreementreflectedanewbalanceofrightsandobligations;namely,atrade-offbetweentheclarificationofobligationsandthegrantoftransitionperiods.
Anadditionaltrade-offthatthepaneldidnotmentionwastheadditionoftransparencyrequirementsintheformofthenotificationprovisionsinArticle5.
ForpurposesofourAutosdispute,themostimportantclarificationwasthat"incentive-based"measures,suchasIndonesia'slocalcontentincentives,arecovered.
6.
91AstheAppellateBodystatedintheWoolShirtscase,page16,whereanagreementreflectsacarefullydrawnbalanceofrightsandobligationsofMembers,"[t]hatbalancemustberespected".
UnitedStates-MeasuresAffectingImportsofWovenWoolShirtsandBlouses,WT/DS33/AB/R,ReportoftheAppellateBodyadopted23May1997,page19.
RatherthanrespectingthebalancereflectedintheTRIMsAgreement,IndonesiawouldhavethisPanelignoreit.
6.
92Indonesia'sotherargumentisthatthedraftinghistoryoftheTRIMsAgreementsomehowdemonstratesthattheTRIMsAgreementwasnotintendedtoimposeanewbalanceofrightsandobligations.
Thisargument,too,iseasilydisposedof.
6.
93IndonesiacitestoastatementmadebytheUnitedStatesduringtheTRIMsnegotiationsthatallegedlydemonstratesthesubordinatenatureoftheTRIMsIllustrativeList.
However,thestatementinquestionwasmadeinthecontextofaUnitedStatesproposalthatwasnotadopted,and,thus,isoflimited,ifany,relevance.
6.
94Second,Indonesiareferstothefactthatanissueinthenegotiationswaswhethersubsidiescouldbeconsideredan"incentive"ora"conditionforreceiptofanadvantage"and,thus,subjecttotheTRIMsAgreement.
AsdiscussedpreviouslyinconnectionwithIndonesia's"conflicts"argument,thedraftinghistoryoftheTRIMsAgreementdemonstrates:(1)thatlocalcontentsubsidiesarecoveredbytheTRIMsAgreement;and(2)thatArticle27.
3oftheSCMAgreementwasaddedatthelastminutetoensurethatsubsidiespermittedbythetransitionalprovisionsoftheTRIMsAgreementwouldnotbeprecludedbytheSCMAgreement.
Indeed,theveryfactthatArticle爚27.
3wasaddedtotheSCMAgreementdemonstratesthatthedraftersintendedthatlocalcontentsubsidieswouldbecoveredbytheTRIMsAgreement.
6.
95Third,Indonesiareferstoadocument,"USPaperonWTOAgenda"USExhibit40.
,whichstatesthat"[o]therissuesthatappeartorequireadditionalfollow[sic]include:.
.
.
therelationshipoftheTRIMsAgreementwiththeAgreementonSubsidiesandCountervailingMeasures.
"Thedocumentwasdraftedfortheso-called"InvisiblesCommittee"(seniorCapital-BasedOfficials),whichfunctionsasanadhocandunofficialsteeringgroupofsorts.
OtherparticipantsintheCommitteehadaskedtheUnitedStatestodraftthepaperasameansof"kick-starting"acollectiveassessmentoftheSingaporeMinisterialandtheensuingandcontinuingworkacrossthespectrumofWTOactivities.
Thus,thepaperwasadiscussionpaper,andwasintendedtoprovidearepresentativemixofMembers'actualorperceivedthoughtsaboutwheretheWTOhasbeenandwhereitoughttogo.
ItdefinitelywasnotintendedtoconveyUSpositionsonparticularissues.
6.
96WithrespecttothediscussionoftheTRIMsAgreement,thepaperdrawsnoconclusionsaboutthelegalrelationshipsbetweentheagreementscited,nordoesitevensuggestthatthereareconflictsamongthem.
Instead,itmerelyexpressesthecommonsenseandobviouspointthatinconsideringthefutureworkoftheTRIMsCommittee,itmightbeappropriatetolookathowthethreeagreementsrelatetooneanothergiventheirobviousoverlap.
GiventheviewsthatIndonesiaalreadyhadarticulatedintheTRIMsCommitteeandtheSCMCommittee,itishardlysurprisingthatthisissuewouldbeidentifiedasoneforfurtherdiscussion.
Also,bythetimethepaperwasdrafted,therealreadyhadbeenseveral"sleightsofhand"byseveralMembersthatweremakingmultiplenotificationsundertheTRIMsandSCMAgreementsandthenlater"withdrawing"some.
BecauseameasurecanbebothaTRIMandasubsidyinsubstance,theitalicized"QuestionforDiscussion"inthepaperappropriatelysuggeststhatMembersshouldtakealookatallofthenotificationprovisionstoseewheregapsfromonecouldfillinforanother,orwhereimprovementsareneededinordertomonitorphase-outobligationsacrossagreements.
6.
97Thus,evenifthisPanelshouldfindincorrectlythatArticleIII:4ofGATT1994doesnotapplytotheIndonesiantaxandtariffincentivesduetoanalleged"conflict"withtheSCMAgreement,thosemeasuresnonethelessviolateArticle2oftheTRIMsAgreement.
(b)TheIndonesianmeasuresare"traderelatedinvestmentmeasures"6.
98IndonesiaalsoarguesthatthemeasuresinquestiondonotviolateArticle2.
1oftheTRIMsAgreementbecausetheyarenot"investment"measures.
IntheviewoftheUnitedStates,ifameasuredescribedintheIllustrativeListoftheTRIMsAgreementisbeingapplied,nothingmoreneedbeshowntoestablishanArticle2violation.
IfanyMember,inwhatevercontext,requiresthepurchasebyanenterpriseofadomesticproductinordertoobtainanadvantage,thatrequirementbydefinitionhasinvestmentconsequencesforsuchanenterprise,puttingthemeasurewithinthecoverageoftheTRIMsAgreement.
TheUnitedStatesisunawareofanythinginthenegotiatinghistoryoftheTRIMsAgreementthatwouldwarrantadifferentconclusion.
6.
99.
Moreover,eveniftheidentificationofarelationshiptoaninvestmentwerenecessarytoproveaninconsistencywiththeTRIMsAgreement,theIndonesianmeasuresinquestionfulfilsuchacondition,becausetheynecessitateaninvestmentinIndonesia(eitherasaproducerofmotorvehiclesormotorvehicleparts)toqualifyforthevarioustaxandtariffincentives.
(c)TheTRIMsAgreementimposedanewobligationonIndonesia6.
100Indonesia'sargumentthatbecausetheTRIMsAgreementallegedlymerelyrestatesArticle爚III,theTRIMsAgreementdoesnotgiverisetoaseparateobligation,reflectsafundamentalmisperceptionofthesignificanceoftheTRIMsAgreement.
Itistruethat,toanextent,theTRIMsAgreementcodifiestheGATT1947paneljurisprudenceconcerningArticleIII:4arisingoutofsuchcasesasItalianTractors,ECPartsandComponents,andFIRA.
However,becausepaneldecisionswerenot,andarestillnot,staredecisis,Indonesiawasnotboundbythisjurisprudence.
Japan_TaxesonAlcoholicBeverages,WT/DS8/AB/R,ReportoftheAppellateBodyadopted1November1996,pages爚14_16.
BysigningtheWTOAgreement,Indonesiadidbecomeboundbythisjurisprudence,ascodifiedintheTRIMsAgreement.
Thus,theTRIMsAgreementimposedanewobligationonIndonesia.
(d)ThenotionoflexspecialisisirrelevantinthiscasewithrespecttotherelationshipbetweenArticleIIIandtheTRIMsAgreement6.
101Insofarastheissuesinthisdisputeareconcerned,becauseIndonesiadidnotnotifythemeasuresinquestionpursuanttoArticle5.
1oftheTRIMsAgreement,therearenoconflictingobligationsbetweenArticleIIIandtheTRIMsAgreement.
Thus,thenotionoflexspecialisisirrelevant.
6.
102Havingsaidthat,however,theUnitedStatesshouldnotethatintheBananasIIIcase,thePanelfound,atpara.
7.
158,thatintheabsenceofa"conflict"betweenGATT1994andtheTRIMsAgreement,bothagreementsappliedequally.
ThisfindingwouldnothavebeennecessaryifthePanelhadconsideredthattheTRIMsAgreementwaslexspecialisinrelationshiptoGATT1994.
6.
103.
Moregenerally,ArticleIII:2,ArticleIII:4,andtheTRIMsAgreementeachimposelegallydistinctobligationsonMembers,andasinglemeasuremaybefoundtobeinconsistentwithallthree.