Indaudaluxurygoods

WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage149VII.
ARTICLEI:1CLAIMSA.
ClaimsraisedbyJapan1.
TheNationalCarProgrammeofFebruary19967.
1JapanclaimsthattheNationalCarProgrammeofFebruary1996(SeeSectionIII.
A)violatesArticleI:1ofGATT1994.
ThefollowingareJapan'sargumentsinsupportofthisclaim:(a)ArticleI:1ofGATT1994requiresimmediateandunconditionalMFNtreatmentforimportedpartsandcomponents7.
2TheNationalCarProgrammeintroducedinFebruary1996accordsaspecialadvantageincludingexemptionfromcustomsdutytoautomotivepartsandcomponentsimportedortobeimportedfromKoreaforuseinassemblingNationalCars.
ThisadvantageconstitutesaviolationofArticleI:1ofGATT1994whichrequiresthe"immediateandunconditional"extensionofgeneralmost-favoured-nationtreatmenttoimportsfrommembercountriesrelativetothetreatmentofimportsoflikeproductsfromanyothercountry.
7.
3Asthe12December1995letterfromthePresidentDirectorofTPNtotheStateMinisterfortheMobilizationofInvestmentCoordinatingBoardshowsclearly,TPN,whichiscurrentlytheonlyNationalCarproducer,hasexpresseditsintentiontorelyonKiaMotors,Korea.
Inparticular,thePresidentDirectorofTPNstatedplainlythatthecompanyappliedtoobtainapprovalto"(1)[m]anufacturefour-wheeledmotorvehicleswiththe'TIMOR'brandnameattheKIAMotorsCorp.
,SouthKoreafactorywhicharethentobedeliveredtoIndonesiainSKDformwithalocalproductionof65,000unitsfrom1996,1997,and1998;[and](2)[m]anufacturefour-wheeledmotorvehicleswiththe'TIMOR'brandnameatthirdparty's/parties'licensedassemblyplant(s)inIndonesiawithitsprimarymaterialimportedfromoverseas(KIAMotorsCorp.
)startingfromfull-CKDandgraduallydecreasingbytheuseoflocalcomponents/partswithatotalproductionfrom1997,1998,and1999of125,000units.
"(Italicsadded.
)ThecorrespondencebetweenthePresidentDirectorandtheStateMinistershowsthatbothofthemunderstoodthatmostofthepartsandcomponentsforassemblingnationalcarsinIndonesiawouldbeimportedfromKoreaatleastintheinitialstagesandthattheyintendedtoeffectuatethisunderstanding.
Accordingly,TPNisexpectedtoimportmanyofthepartsandcomponentsforthepurposeofassemblingNationalCarsonlyfromKia.
ThepreferentialtreatmentforNationalCars,includingtheduty-freetreatmentofimportedpartsandcomponentsinparticular,islikelytoleadtobenefitsforimportsofpartsandcomponentsfromKorea,comparedwiththosefromothercountries.
7.
4ArticleI:1oftheGATTprovidesasfollows:"Withrespecttocustomsdutiesandchargesofanykindimposedonorinconnectionwithimportationorexportationorimposedintheinternationaltransferofpaymentsforimportsorexportsandwithrespecttothemethodoflevyingsuchdutiesandcharges,andwithrespecttoallrulesandformalitiesinconnectionwithimportationandexportation,andwithrespecttoallmattersreferredtoinparagraph2and4ofArticleIII,anyadvantage,favour,privilegeorimmunitygrantedbyanycontractingpartytoanyproductoriginatinginordestinedforanyothercountryshallbeaccordedimmediatelyandunconditionallytothelikeproductoriginatinginordestinedfortheterritoriesofallotherparties.
"7.
5InEC-BananasIII,arecentWTOpanelarticulatedthefollowingthree-parttesttodeterminewhetheranimportmeasureviolatesArticleI:1:WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage150[animportmeasure]isinconsistentwiththeEuropeanCommunities'obligationsunderArticleI:1[if]itconstitutes[1]anadvantage[2]ofthetypecoveredbyArticleIthatisaccordedto[productsfromonecountryorgroupofcountries]but[3]whichisnotaccordedtolikeproductsfromallMembers.
.
.
333(emphasisadded).
TheNationalCarProgrammemustbeevaluatedunderthesamethree-parttest.
ItviolatesArticleI:1becausethecustomsdutyandluxurytaxexemptions(1)confersanadvantage,(2)ofthetypecoveredbyArticleI:1,(3)toimportsofautomotivepartsandcomponentsfromKoreabutnottoimportsoflikeproductsfromotherWTOmembers.
7.
6Inaddition,ArticleI:1requiresthatMFNtreatmentbeaccorded"immediatelyandunconditionally",buttheNationalCarProgrammealsoviolatesthisrequirement.
(b)TheNationalCarProgrammeofFebruary1996inpracticegrantsbenefitsonlytoautomotivepartsandcomponentsimportedortobeimportedfromKoreainviolationofArticleI:1oftheGATT19947.
7TheFebruary1996ProgrammegrantsbenefitsonlytoautomotivepartsandcomponentsfromKorea.
Assuch,itimpermissiblyprovidesadvantagestoKoreanpartsandcomponentsthatarenotaccordedtopartsandcomponentsfromotherWTOMembers,inviolationofArticle1(regardlessofwhetherornottheProgrammeconstitutesasubsidy).
Inaddition,suchadvantagescanbeaccordedtoimportedpartsandcomponentsfromothercountriesonlyiftheyareforuseinNationalCars,inviolationoftheArticleI:1requirementof"unconditional"mostfavourednationtreatment.
ThediscriminationinpracticeinfavourofpartsandcomponentsfromKoreaispreciselythesortofdiscriminationthatprecedingpanelshavelongheldtobeinconsistentwithArticleI:1.
(1)IndonesiagrantsbenefitssolelytoimportsfromKorea7.
8WhileNationalCarsarerequiredtomeetcertainlocalcontentlevels,thebalanceofthepartsandcomponentsnecessarytoassembleNationalCarsisimported.
IndonesiaprovidesthesoleNationalCarproducer,PTTimor,withthebenefitsofdutyfreetreatmentofsuchpartsandcomponents.
7.
9WhilethereisnoreferencetoKoreaoraKoreancompanyinIndonesia'sregulationswhichestablishandregulatetheNationalCarProgramme,theintendedbeneficiaryoftheProgramme,PTTimor,hasintended,sinceevenpriortotheformalestablishmentoftheProgramme,toimportpartsandcomponentsforassemblyofNationalCarsonlyfromaKoreancompany.
EvenbeforetheinitiationoftheProgramme,theStateMinisterfortheMobilizationofInvestmentCoordinatingBoardsupportedthisintentandIndonesiaeffectuateditthroughPresidentialInstructionNo.
2/1996.
334Accordingly,onlycertainautomobilepartsandcomponentsfromKoreaaregranteddutyfreetreatment,whilepartsandcomponentsfromanyothercountryincludingJapanarenot.
7.
10IndonesiaalsoprovidesaluxurytaxexemptionforNationalCars.
Onitsface,thismeasuregivesadvantagestothesalesofNationalCars.
Inaddition,theluxurytaxexemptionalso333ReportofthePanelonEC-BananasIII,para.
7.
194.
334Letterdated27December1995fromMr.
SanyotoSastrowardoyo,StateMinisterfortheMobilizationofInvestmentCoordinatingBoardtoMr.
HutomoMandalaPutra,PresidentDirectorofPT.
TimorPutraNasional(JapanExhibit35).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage151indirectlybenefitspartsandcomponentsimportedortobeimportedfromKoreaforthepurposeofassemblingNationalCars.
TheincreaseoftheNationalCars'marketshare,thankstotheluxurytaxexemption,wouldnaturallyexpandsalesandprofitsofKia.
AspartsandcomponentsforassemblyofNationalCarsareimportedonlyfromKia,suchindirectbenefitsaretobeexclusivelygrantedtoKia'spartsandcomponents.
Accordingly,onlycertainpartsandcomponentsfromKoreaaregrantedindirectbenefitsoftheluxurytaxexemption,whilepartsandcomponentsfromanyothercountryincludingJapanarenot.
(2)ThebenefitsforimportsfromKoreaconstituteanadvantagethatiscoveredbyArticleI:17.
11Thedutyfreetreatmentisan"advantage"prohibitedunderArticleI:1becausedutyfreetreatmentobviouslyisanadvantagewithrespectto"customsdutiesandchargesofanykindimposedonorinconnectionwithimportation.
Theluxurytaxexemptionisalsoan"advantage"prohibitedunderArticleI:1becausetheexemptionrelatesto"internaltaxesorotherinternalcharges"thatare"mattersreferredtoinparagraph2.
.
.
ofArticleIII.
"Accordingly,thefirstandsecondpartoftheEC-BananasIIIthree-parttestaresatisfied.
(3)Theadvantageisnotaccordedto"likeproducts"fromanycountryotherthanKorea7.
12ArticleI:1ofGATT1994obligestheGOItoaccordtheadvantageto"likeproducts"fromallWTOMembers,notonlyfromKorea.
7.
13Withrespecttothe"likeness",thediscussionintermsofArticleIIIshouldapplywithequalforce.
First,theReportoftheWorkingPartyonBoarderTaxAdjustments335suggeststhatthecriteria,suchas"theproduct'sendusers,consumers'tastesandhabits,andtheproduct'sproperties,natureandquality",shouldbeused"forinterpreting'likeorsimilarproducts'generallyinthevariousprovisionsofGATT1947".
336AlsointheSpain-TariffTreatmentsofUnroastedCoffeethepanelfoundwhethertheproductsintheirend-useare"regardedasawell-definedandsingleproduct"toberelevantindeterminingwhethertheyare"likeproducts"337,forthepurposeofArticleI:1.
7.
14Undertheprecedingcriteria,partsandcomponentsimportedfromJapan,oranyothercountry,andthoseimportedfromKoreaforassemblyofNationalCarsconstitute"likeproducts"forthepurposeofArticleI:1.
PartsandcomponentsfromJapanandthoseimportedfromKoreaforassemblyofNationalCarsareintheirend-useregardedasasingleproduct,thatis,partsandcomponentsforuseintheassemblyofautomobiles.
Similarly,automotivepartsandcomponentsimportedfromKoreaandthoseimportedfromJapanandothercountriessharethesameorsimilarproperties,natureandquality.
Thus,thethirdpartoftheEC-BananasIIIthree-parttestissatisfied.
335WorkingPartyReportonBorderTaxAdjustment,para.
18.
336ReportoftheAppellateBodyonJapan-AlcoholicBeveragesII,p.
20.
337Spain-TariffTreatmentofUnroastedCoffee,L/5135,adopted11June1981(BISD28S/102)para.
4.
7.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage152(4)Theadvantageisnotaccorded"unconditionally"7.
15ArticleI:1ofGATT1994alsoobligestheGOItoaccordalladvantages"unconditionally".
7.
16UnderIndonesia'sProgramme,inordertobenefitfromthedutyfreetreatmentandtheindirecteffectoftheluxurytaxexemption,partsandcomponentsmustmeetcertainprerequisites;i.
e.
,theymustbefortheassemblyofNationalCars.
Accordingly,theProgrammeestablishes"conditionalmost-favoured-nation"treatmentand,therefore,violatesArticleI:1.
338(c)ThefactthatIndonesia'slegislationdoesnotexplicitlydiscriminateinfavourofKoreanproductscannotbeadefence7.
17Indonesiamaycontendthatitsregulationsonlyestablishrequirementsforpreferentialtreatment,butwithoutpreferenceforanyspecificcountry,and,therefore,areconsistentwithArticleI:1.
339However,thisdefencecannotprevailforthefollowingreasons.
7.
18First,intheprecedentcases,includingtheBelgianFamilyAllowances340,SpainCoffee,andEEC-ImportsofBeeffromCanada341cases,thepanelshavefoundthatmeasuresareinconsistentwithArticleIeveniftheydonotexplicitlymandatediscriminationbetweencountries,aslongastheyintroducediscriminationbetweencountries.
Inthiscase,Indonesia'smeasuresobviouslyhaveintroduceddiscriminationbetweenKoreanproductsandothercountries'products.
Moreover,Indonesiaestablishedthemeasures,wellknowingthattheywouldhavesucheffects.
Therefore,Indonesia'smeasuresappeartointendtodiscriminate,andinpracticedodiscriminate,betweenproductsfromthosecountries.
7.
19InUnitedStatesStandardsforReformulatedandConventionalGasoline,theAppellateBodyemphasizedtherelevanceofsuch"knowledge"inthecontextofArticleIII:4violation:Inourview,[thefailuretomitigateregulatoryimpactonforeignsuppliers]go[es]wellbeyondwhatwasnecessaryforthePaneltodeterminethataviolationofArticleIII:4hadoccurredinthefirstplace.
Theresultingdiscriminationmusthavebeenforeseen,andwasnotmerelyinadvertentorunavoidable.
342SincethetextofArticleI:1isnolessstringentthanthatofArticleIII:4,thepriorrecognitionandtheimpactofdiscriminationshouldbeprimafacieevidenceofanArticleI:1violation.
ThusalthoughIndonesiamayarguethatthepioneercompanyisfreetoimportfromanyone,anywhere,Indonesiaobviouslyknewhowthebenefitsoftheprogrammewouldbedistributedamongtheirtradingpartnersandassistedtheexecutionoftheplan.
Insum,thisisacaseofactiveintervention,whichviolatestheArticleI:1ofGATT1994.
338Inthe1973WorkingPartyReportonthe"AccessionofHungary,"theGATTsecretariatstatedthat"theprerequisiteofhavingaco-operationcontract[betweentheHungariangovernmentandimportingcompanies]inorder[forimportingcompanies]tobenefitfromcertaintarifftreatmentappearedtoimplyconditionalmost-favoured-nationtreatmentandwould,therefore,notappeartobecompatiblewiththe[GATT].
"(BISD20S/34)(1974),at36para.
12adopted30July1973.
339Infact,IndonesiahaspresentedthissortofargumentinitsrepliestoquestionsposedbyJapaninthecontextoftheupdatedsubsidiesnotification.
SeeSUBSIDIES/RepliestoQuestionsposedbyJapanconcerningtheUpdatingNotificationofINDONESIA[G/SCM/Q2/IDN/9](JapanExhibit20).
340BelgianFamilyAllowances,G132(BISD1S/59,2S/18and7S/68),adopted7November1952.
341EEC-ImportsofBeeffromCanadaL/5099(BISD28S/92),adopted10March1981.
342ReportoftheAppellateBodyonUnitedStates-StandardsforReformulatedandConventionalGasoline(WT/DS2/AB/R)p.
28.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1537.
20Second,asdiscussed,ArticleI:1prohibits"conditional"most-favoured-nationtreatment.
Therefore,eveniftheregulationssetoutnopreferenceforanyspecificcountry,theyare"conditional,"andthusinconsistentwithArticleI:1.
(d)ThefactthatonlyacertainportionofproductsfromKoreaaregrantedpreferentialtreatmentcannotbeadefenceeither7.
21Indonesiamaycontendthatonlyacertainportion,ornotall,ofpartsandcomponentsfromKoreaaregrantedpreferentialtreatment,andthat,therefore,themeasureisnotinconsistentwithArticleI:1.
However,thisdefencealsofails,forthefollowingreasons.
7.
22First,thetextofArticleI:1requiresthatanyadvantageto"anyproduct"originatinginanycountryshallbeaccordedtothelikeproductsfromotherMembersoftheWTO.
Thetextdoesnotprohibitadvantagesonlywhentheyaregrantedto"allproducts"or"mostproducts"fromaparticularcountry.
Thus,theGOI'spossiblecontentionmustfailbecauseitignoresthetextofArticleI.
IndeedtherecentWTOpaneldecisionintheEC-BananasIIIcaseconfirmedthat"ArticleI:1obligesaMembertoaccordanyadvantagegrantedtoanyproductoriginatinginanycountrytothelikeproductoriginatingintheterritoriesofallotherMembers,inrespect[e.
g.
]ofmattersreferredtoinArticleIII:4.
"3437.
23Further,the1989GATTpanelreportonUS-Section337oftheTariffActof1930statedasfollows:The'nolessfavourable'treatmentrequirement[is]anexpressionoftheunderlyingprincipleofequalityoftreatmentofimportedproductsascomparedtothetreatmentgiveneithertootherforeignproducts,underthemostfavourednationstandard,ortodomesticproducts,underthenationaltreatmentstandardofArticleIII.
.
.
.
The'nolessfavourabletreatment'requirementofArticleIII:4[and,byanalogy,Article1.
1]hastobeunderstoodasapplicabletoeachindividualcaseofimportedproducts.
344InthecontextoftheArticleIII:2violation,theWTOAppellateBodyquotedthislanguagefromtheSection337panelreporttosupportitsownconclusionthat"dissimilartaxationofevensomeimportedproductsascomparedtodirectlycompetitiveorsubstitutabledomesticproductsisinconsistentwiththeprovisionsofthesecondsentenceofArticleIII:2".
345(Emphasisadded.
)ThesamereasoningwasfollowedbyotherGATT/WTOpanels(orAppellateBody)reportsincludingtheUSBeveragespanelwhichconcludedthat,withregardtoArticleIII,thefactthatonlycertaindomesticproductsaretreatedpreferentiallydoesnotcureanArticleIIIinconsistency.
ThereisnoreasontoapplyadifferentrulewithrespecttoArticleI:1.
343ReportofthePanelonEC-BananasIII,para.
7.
194.
344UnitedStates-Section337oftheTariffActof1930,L/6439(BISD36S/345),paras.
5.
11,5.
14,adopted7November1989.
345ReportoftheAppellateBodyonCanada-Periodicals,page28.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1542.
TheExtendedNationalCarProgrammeofJune19967.
24JapanclaimsthattheextendedNationalCarProgrammeofJune1996(SeeSectionIII.
A)violatesArticleI:1ofGATT1994.
ThefollowingareJapan'sargumentsinsupportofthisclaim:(a)IndonesiagrantedbenefitssolelytoimportsofCBUsfromKorea(i.
e.
,NationalCarsassembledattheKiafactoryinKorea)inviolationofArticleI:1ofGATT1994(1)IndonesiagrantedbenefitssolelytoimportsfromKorea7.
25IndonesiagrantedthedutyfreetreatmentandtheluxurytaxexemptionsolelytoCBUs(i.
e.
NationalCarsassembledatthefactoryofKia)importedfromKorea.
7.
26AlthoughitisnotknownwhethertheapplicationfortheauthorizationspecifiedthattheimportscamefromKorea,infactallTimorcarsimportedundertheJuneProgrammehavecomefromKiainKorea,asIndonesiahasconfirmed.
Itisnotatalladventitious,sinceSedan/S515-1500ccisacopyofKia'sSephiamodeland,therefore,noforeigncompany,otherthanKia,mayproducetheS515.
Further,thisfactwasalsoeasilypredictableduetothestatementinthe12December1995letterofthepresidentdirectorofTPNtotheStateMinisterfortheMobilizationofInvestmentCoordinationBoard.
ThisletterstatedthatTPNwishedto"manufacturefour-wheeledmotorvehicleswiththe'TIMOR'brandnameattheKIAMotorsCorp.
,SouthKoreanfactorywhichisthentobedeliveredtoIndonesiainSKDform.
.
.
"(italicsadded)intheinitialthreeyearsand,therefore,substantialproductionorinvolvementofKiaatleastattheinitialstagewasexpectedfromtheoutset.
(2)IndonesiaviolatesArticleI:1oftheGATT19947.
27Asdiscussedwithregardtothe"February1996"Programme(SectionVII.
A.
1),thedutyfreetreatmentandluxurytaxexemptionsareadvantagesaccordedonlytoimports(inthiscase,importedCBUs)fromKoreabutnottoimports(ofCBUs)fromJapanoranyothercountry.
AsIndonesiaadmitted,thestatusofa"pioneer"companyisnotgrantedautomatically.
Indeedafteroveroneandahalfyears,PTTimorisstilltheonlycompanywhichhasbeengrantedthisprivilegedstatus.
ItisevenconceivablethatPTTimorwillremaintheexclusivebeneficiaryoftheProgramme,becauseitishardtoimaginethattherewillbemany"National"cars,grantingunconditionallymostfavouredtreatmenttoalltradingpartnersintheend.
Inlightofthemagnitudeoftheprivilege,itisdifficulttobelievethatthepresentstatusismerelyaccidental.
Inaddition,thefactthatthe25percentcounter-purchaserequirementisimposed,whichinherentlylimitsthenumberofqualifiedexportingcompaniesorcountries,isexpectedtobringbenefitsonlytotheKoreancompanyorKorea.
Thus,thisdiscriminatorytreatmentclearlyconstitutestheviolationofArticleI:1oftheGATT1994.
TheargumentsmadeinthecontextoftheFebruary1996Programme(SeeSectionVII.
A.
1)areequallyapplicabletotheadvantagesgiventotheimportsofCBUsfromKorea.
(b)Thefactthatthepreviousauthorizationhasexpiredcannotbeadefence7.
28IndonesiamaycontendthattheauthorizationmadeinJune1996expiredon30June1997and,therefore,theGovernmentofJapanhasnolegalinterestincontestingthisauthorization.
7.
29However,PresidentialDecreeNo.
42/1996remainsineffect.
(SeeSectionX).
IndonesiamaydesignateothermodelstobeimportedasNationalCars,underPresidentialDecreeNo.
42/1996.
Further,atleastonemorevehiclemodelmanufacturedbyKiahasbeenreportedtobeWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage155includedintheNationalCarprogrammeandtobeeligibletoreceiveauthorizationforimportationasaNationalCar.
On5November1996,KiaannouncedinSeoul,Koreathat"thecompanyplanstomanufacture50,000utilityvansayearinIndonesiabeginningin1998.
'AfterdiscussionswithourjointventurepartnerPTTimorPutraNasionalandtheIndonesianGovernment,wehaveagreedtoincludeproductionofutilityvansinIndonesia'snational-carproject,'Kia'sExecutiveVicePresidentKimSeung-ahnsaid.
"APTTimorspokesmanconfirmedthat"Yes,wedohavesuchaplanandIthinkitwillbeincluded(inthenationalcarprogramme).
"346InMay1997,Mr.
SoemitroSoerachmad,chiefexecutiveofPTTimor'sdistributionsubsidiary,said"'thecompany[PTTimor]hadagreedwithKiaMotorsofSouthKoreatoimporttheSportage,asmallsportutilityvehicle,fromearly1998.
'.
.
.
.
TheSportage,alightweightsportsutilityvehicle,calledtheJ520iinIndonesia,will.
.
.
.
.
qualifyforthesametaxandtariffbreaksenjoyedbytheTimor.
.
.
.
However,Mr.
SoemitroindicatedearlybatchesofthenewmodelmighthavetobeimportedfromKoreaincompletelybuilt-upformpendingcompletionofanewplant.
"347Therefore,theGovernmentofJapanfacesatangiblethreatoffurther,renewedharmbyreasonofIndonesia'sstandingregulations.
7.
30Moreover,someprecedingpanelshaveexaminedmeasuresandpresentedcompletereportseventhoughtherelevantmeasureswereterminatedduringthepanelprocess,evenpriortotheformationofthepanel.
348Therefore,thefactthattheauthorizationmadeinJune1996expiredon30June1997isirrelevanttothisproceeding.
B.
ClaimsRaisedbytheEuropeanCommunities7.
31TheEuropeanCommunitiesclaimsthatthefollowingmeasuresareinconsistentwithIndonesia'sobligationsunderArticleI:1ofGATT:(1)theexemptionfromcustomsdutiesonimportsofNationalCars;(2)theexemptionfromtheSalesTaxonLuxuryGoodsforimportedNationalCars;(3)theexemptionfromtheSalesTaxonLuxuryGoodsforNationalCarsassembledinIndonesia;and(4)theexemptionfromcustomsdutiesonimportsofpartsandcomponentsfortheassemblyofNationalCarsinIndonesia.
7.
32ThefollowingaretheEuropeanCommunities'argumentsinsupportoftheseclaims:7.
33ArticleI:1ofGATTisexpressedasfollows:Withrespecttocustomsdutiesandchargesofanykindimposedonorinconnectionwithimportation.
.
.
andwithrespecttoallmattersreferredtoinparagraphs2and4ofArticleIII,anyadvantage,favour,privilegeorimmunitygrantedbyanycontractingpartytoanyproductoriginating.
.
.
inanyothercountry346TheIndonesianObserver,"PTTimorplanstomanufactureutilityvans",6November1996,(JapanExhibit54).
347FinancialTimes,"JakartaPlansNewNationalCar",May1997(JapanExhibit55).
348EECMeasuresonAnimalFeedProteins,L/4599,adopted14March1978(BISD25S/49);Seealso,UnitedStates-ProhibitionofImportsofTunaandTunaProductsfromCanada,L/5198,adoptedon22February1982(BISD29S/91).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage156shallbeaccordedimmediatelyandunconditionallytothelikeproductoriginatingin.
.
.
.
allothercontractingparties.
1.
MeasuresconcerningtheimportationofNationalCars7.
34Exemptions(1)and(2)infringeArticleI:1becausetheyprovidean"advantage"whichdefactobenefitsonlyimportsofmotorvehiclesoftheKiabrandoriginatinginKorea,totheexclusionofimportsof"like"motorvehiclesoriginatinginotherMembers.
(a)Themeasuresprovide"advantages"coveredbyArticleI:1ofGATT7.
35GATTArticleI:1applies,interalia,toanyadvantagegrantedbyaMember"withrespecttocustomsduties.
.
.
imposedonorinconnectionwithimportation.
.
.
.
".
Accordingly,theexemptionfromcustomsdutiesonimportsofNationalCarsisameasurecoveredbyArticleI:1.
7.
36ArticleI:1ofGATTalsoappliestoanyadvantagegrantedwithrespectto"allmattersreferredtoinparagraph2.
.
.
ofArticleIII".
ArticleIII:2refersto"internaltaxesorotherinternalcharges".
Asshownabove,theSalesTaxonLuxuryGoodsisan"internaltax"withinthemeaningofArticleIII:2.
Therefore,theexemptionfromtheSalesTaxonLuxuryGoodsisalsoanadvantagecoveredbyArticleI:1.
(b)Thecarscoveredbythemeasuresare"like"othercars7.
37Asshownabove,thedefinitionof"NationalCars"isnotbasedonanyfactorwhichmayaffectpersethephysicalcharacteristicsofthosecarsortheirenduses.
Consequently,inprincipleNationalCarsimportedfromKoreaare"like"anymotorvehicleimportedfromotherMembers.
(c)ThemeasuresbenefitonlyandexclusivelyimportsofKiacarsoriginatinginKorea7.
38ArticleI:1ofGATTdoesnotprohibitonlymeasureswhichdiscriminateformallyandopenlyaccordingtothecountryoforiginoftheimportedgoods.
Measureswordedingenerallyapplicable,originneutraltermshavealsobeenfoundtoinfringeArticleI:1ininstanceswheredefactotheybenefitedonlyormainlyimportsfromacertainMember.
ThishasbeenrecentlyconfirmedbytheAppellateBodyinEC-RegimefortheImportation,SaleandDistributionofBananas,whereitstatedthat:ArticlesIandIIoftheGATThavebeenapplied,inpastpractice,tomeasuresinvolving'defacto'discrimination.
349349AppellateBodyReportonEC-RegimefortheImportation,SaleandDistributionofBananas,adoptedon25September,WT/DS27/AB/R,para232.
Inthesamereport,theAppellateBodyaffirmedthePanel'sfindingsthatthe"operatorcategoryrules",the"activityfunctionrules"andthe"hurricanelicencerules"appliedbytheCommunityinordertoallocatelicencesforimportingbananasunderatariffquotaviolatedtheMost-Favoured-NationobligationcontainedinArticleIIofGATSbecauseinrespectofeachofthosemeasuresamajorityoftheservicesuppliersofACPoriginfellwithinthe"morefavoured"categoryofsuppliersand/oramajorityofthe"like"suppliersoftheComplainants'originwerefoundinthe"lessfavoured"category.
Inreachingthisconclusion,theAppellateBodyrejectedanargumentbytheCommunitytotheeffectthatthemeasurespursueda"legitimatepolicy"andwerenot"inherentlydiscriminatory".
AccordingtotheAppellateBody,the"aims"ofameasurearenot"relevant"inordertoestablishwhetheritaffordsdefactoMost-Favoured-Nationtreatment(atparas.
240-248).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1577.
39Asexamplesofthatpractice,theAppellateBodyreferredtothePanelreportsonSpain-TarifftreatmentofUnroastedCoffee350;EEC-ImportsofBeeffromCanada351;andJapan-TariffonImportsofSpruce-Pine-Fir(SPF)DimensionLumber352.
7.
40PresidentialDecree42/96hasbeencarefullydraftedsoastoavoidanyappearanceofdiscriminationamongMembers.
Onpaper,PresidentialDecree42/96allowsPioneerCompaniestoimportdutyfreeandtaxfreeNationalCarsfromanycountryintheworld.
Defacto,however,allthecarswhichhavesofarbenefitedfromPresidentialDecree42/96wereofKoreanorigin.
Thisisnotfortuitous.
PresidentialDecree42/96wasconceivedandappliedfromtheoutsetbytheIndonesianauthoritieswiththedeliberateandsolepurposeofpermittingtheimportationdutyfreeandtaxfreebyPTTPNofKiacarsmadeinKoreaonly,andnoothercars.
7.
41TheIndonesianauthoritieshaveacknowledgedpubliclythatitistheirpolicytoreservethebenefitsoftheNationalCarProgrammeexclusivelyforPTTPN.
Atapressconferenceheldon15March1996,Indonesia'sMinisterofIndustryandTrade,Mr.
TunkyAriwibowo,announcedtheIndonesianGovernment'spolicyofreservingthebenefitsoftheNationalCarProgrammeforPTTPN.
Sincethen,thispolicyhasbeenreiteratedbyMr.
Ariwibowoandotherseniorofficialsonmanyoccasions.
353Thatpolicyisconfirmedbythefactthat,asofdate,PTTPNremainstheonlycompanywhichhasbeengrantedPioneerstatus,eventhoughotherIndonesiancarproducershavealsorequestedthatstatus.
Thus,inpractice,PresidentialDecree42/96,evenifdraftedingenerallyapplicableterms,hadbutasingleaddresseeandbeneficiary:PTTPN.
350InSpain-TariffTreatmentofUnroastedCoffee(adoptedon11June1981,BISD28S/102,111-112).
thePanelconcludedthatbyapplyingdifferenttariffratestodifferentvarietiesofcoffeewhichhadbeenpreviouslyfoundtobe"like",SpainhadinfringeditsobligationsunderArticleI:1ThePanelnotedthatthecomplainant,Brazil,exportedtoSpainmainlythosevarietiesthatweresubjecttohigherimportduties.
Thus,eveniftheapplicationbySpainofdifferenttariffratestodifferentcoffeevarietieswasformallyoriginneutral,importsfromBrazilwerediscriminateddefactovis-à-visimportsfromothercountriesthatexportedmainlythevarietiessubjecttothelowerdutyrates.
351InEEC-ImportsofBeeffromCanada(adoptedon10March1981,BISD28S/92,113)thePanelexaminedatariffconcessionforhighqualitybeefgrantedbytheCommunityduringtheTokyoRound.
ThePaneldidnotconsidernecessarytojudgewhetherthetermsoftheconcessionwereinthemselvesdiscriminatory.
ThePanellimiteditselftonotethataregulationimplementingtheconcessionrequiredacertificateofauthenticityissuedandendorsedbyoneoftheauthoritiesincludedinanannextothatregulation.
TheannexinquestionlistedonlyaUSagency,itbeingspecifiedthatthisagencywasempoweredtocertifyonlymeatofUSorigin.
Inlightofthis,thePanelconcludedthatthemeasuresatissue".
.
.
intheirpresentformhadtheeffectofpreventingaccessoflikeproductsfromotheroriginthantheUnitedStates,thusbeinginconsistentwiththemostfavourednationprincipleinArticleIoftheGeneralAgreement"[emphasissupplied](atpara4.
10).
352Japan-TariffonImportsofSpruce-Pine-Fir(SPF)DimensionLumber,adoptedon19July1989BISD36S/167.
353"IndonesiabacksitsTradePolicyforAutoMakers",AsianWallStreetJournal,Jakarta,18March1996(ECExhibitC-1);"Jakarta'staxbreaksforcarfirmunfair:Japan",TheStraitTimes,Singapore,24March1996(ECExhibitC-2);"Theprospectsfornationalcars",BusinessNews,Jakarta,18April1996(ECExhibitC-3).
"GovtnottograntincentivesforBimantaracars",TheJakartaPost,Jakarta,1June1996(ECExhibitC-4);"AnotherSuhartosonlaunchesIndonesiacar",Reuters,Jakarta,23July1996(ECExhibitC-7);"NationalcarplanpressesoninIndonesia",FinancialTimes,9July1996(ECExhibitC-6);"Bimantara'srequestforcarpolicyreviewrefused",TheJakartaPost,Jakarta,6June1996(ECExhibitC-5);"Onlyonecarfirmtogetprotection",TheJakartaPost,Jakarta,15November1996(ECExhibitC-8);"Onlyonecarfirmtogetprotection",TheJakartaPost,Jakarta15November1996(ECExhibitC-8);"IndonesiabacksitsTradePolicyforautomakers"AsianWallStreetJournal,18March1996(ECExhibitC-1);"Onlyonecarfirmtogetprotection",TheJakartaPost,Jakarta,15November1996(ECExhibitC-8).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1587.
42ThedecisionoftheIndonesianauthoritiestoreservethebenefitsoftheNationalCarProgrammeforPTTPNentailedalsoaconscious,evenifnotexplicit,decisionbythoseauthoritiestograntthebenefitsprovidedbyPresidentialDecree42/96onlywithrespecttoimportsofcarsmanufacturedbyKiainKorea.
7.
43WhenadoptingPresidentialDecree42/96,theIndonesianauthoritiescouldnothaveignoredthatPTTPNwouldtakeadvantageofthatmeasureinordertoimportexclusivelymotorvehiclesmadebyKiainKorea.
Inparticular,sincetheywellwereawarethat:-MrHutomoMandalaPutra,theownerofPTTPN,hadsetupajointventurewithKiafortheassemblyofKiacarsinIndonesiaalreadyin1993;-thefirstNationalCarwhichPTTPNplannedtoassembleinIndonesia(theTimorS-515)isaversionofanalreadyexistingKiamodel,theSephia;-Kia'smainoperatingfacilitiesfortheassemblyoftheSephiaarelocatedinKorea.
7.
44Indeed,thereisevidenceintherecordshowingthatPresidentialDecree42/96wasadoptedinresponsetoapreciserequestfromPTTPNtobeallowedtoimportspecificallymotorvehiclesmanufacturedbyKiainKorea,andnootherkindofmotorvehicles.
Asdiscussedinthefactualpart,inaletterdated12December1995,PTTPNaskedtheapprovaloftheIndonesianauthoritiesforinteralia:1.
Manufacturefourwheeledmotorvehicleswiththe"TIMOR"brandnameattheKiaMotorscorp.
,SouthKoreanfactorywhichisthentobedeliveredtoIndonesiainSKDform[.
.
].
3.
ImportvehiclesinSKDresultingfromproductionreferredtoinpoint1usingdomestic(Indonesian)components/partsexportedtotheKiaMotorsCorp.
planwithexemptionofImportDuty,AdditionalImportDutyandTaxonLuxuryGoods(PpnBM)forsuchvehicles.
7.
45ThesubsequentimplementationofPresidentialDecree42/96providesfurtherconfirmationthatthismeasurewasdevisedwiththeexclusivepurposeofpermittingtheimportationdutyfreeandtaxfreebyPTTPNofcarsmanufacturedbyKiainKorea.
7.
46On7June1996,PTTPNwasauthorisedonthebasisofPresidentialDecree42/96toimport45,000cars.
ThisauthorizationremainstodatetheonlyoneissuedpursuanttoPresidentialDecree42/96.
Theauthorizationspecifiesthe"kind/type"ofthecarstobeimportedinthefollowingterms:"sedanS/515-1500cc".
ThetechnicalspecificationsoftheS-515arethesameasthoseofKia'smodel"Sephia".
Thus,eveniftheauthorizationdidnotdirectexpresslyPTTPNtopurchasethecarsfromanyparticularsource,itwasimplicitinitstermsthatitcoveredonlycarsmadebyKiainKorea.
7.
47Inlightoftheaboveconsiderations,itcomesasnosurprisethateachandeveryoneofthe39,727carsimportedbyPTTPNunderPresidentialDecree42/96asof30June1997,thedateonwhichtheaforesaidauthorizationexpired,weremanufacturedbyKiaandimportedfromKorea.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1592.
MeasuresconcerningtheassemblyofNationalCarsinIndonesia7.
48Exemptions(3)and(4)violateArticleI:1ofGATTbecausetheyprovidean"advantage"whichdefactobenefitsmainly,ifnotexclusively,importsofpartsandcomponentsoriginatinginKorea,tothedetrimentofimportsof"like"partsandcomponentsfromotherMembers.
(a)Themeasuresprovide"advantages"coveredbyArticleI:1ofGATT7.
49Asdiscussed,GATTArticleI:1appliestoanyadvantagegrantedbyaMemberwithrespecttotheimpositionofcustomsdutiesonorinconnectionwiththeimportationofgoods.
Thus,theexemptionfromcustomsdutiesonimportsofpartsandcomponentsfortheassemblyofNationalCarsisan"advantage"coveredbyArticleI:1.
7.
50ArticleI:1alsoappliestoanyadvantagegrantedwithrespectto"allmattersreferredto.
.
.
inparagraph2.
.
.
ofArticlesIII".
TheSalesTaxonLuxuryGoodsisaninternaltaxand,therefore,a"matter"referredtoinArticleIII:2.
TheexemptionfromthattaxofthesalesofNationalCarsassembledinIndonesiarepresentsan"advantage"notonlyfortheNationalCarsassuchbut,indirectly,alsoforthepartsandcomponentsassembledtherein.
Thatindirect"advantage"isalsocoveredbyArticleI:1.
(b)PartsandcomponentsmadeinSouthKoreaare"like"otherpartsandcomponents7.
51ThemerefactofbeingmanufacturedinKoreadoesnotconfertopartsandcomponentsanyspecificphysicalcharacteristicsorenduseswhichmakethem"unlike"partsandcomponentsmanufacturedelsewhere.
(c)Themeasureswillbenefitmainly,ifnotexclusively,importsofpartsandcomponentsfromSouthKorea7.
52ThefirstNationalCartobeassembledinIndonesiabyPTTPN(theTimorS-515)isbutare-badgedreplicaofKia'smodelSephia.
MostofthepartsandcomponentsassembledbyKiaintoitsmodelSephiaaremanufacturedinKoreabyKiaitselforitsaffiliatesorbyindependentpartmakerslinkedtoKiabylongstandingsupplyrelationships.
7.
53ForPTTPN,itwouldmakenocommercialsensetotryandimportthepartsandcomponentsforassemblingtheTimorS-515fromothersuppliersestablishedinthirdcountries.
ThiswasalreadyanticipatedbyPTTPNinitsletterof12December1995,inwhichitrequestedtheapprovaloftheIndonesianauthoritiesfor:2.
Manufacturefour-wheeledvehicleswiththe"TIMOR"brandnameatthirdparty's/partieslicensedassemblyplant(s)inIndonesiawithitsprimarymaterialimportedfromoverseas(KiaMotorsCorp.
)startingfromfull-CKDandgraduallydecreasingbytheuseoflocalcomponents[.
.
.
]7.
54Asaresult,defactothetariffandtaxbenefitsfortheassemblyofNationalCarsinIndonesiawillbenefitpredominantly,ifnotexclusively,importsofpartsandcomponentsoriginatinginKorea,therebyinfringingArticleI:1ofGATT.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage160C.
ClaimsRaisedbytheUnitedStates7.
55TheUnitedStatesclaimsthatIndonesia'sexemptionofCBUKiaSephiasedansimportedfromKoreafromimportdutiesandtheluxurytaxviolatesArticleI:1ofGATT1994.
ThefollowingaretheUnitedStates'argumentsinsupportofthisclaim:7.
56UnderPresidentialDecreeNo.
42/1996,"nationalmotorvehicles"producedabroadwere"grantedthesametreatmentasthatofnationalautomobilesproducedinIndonesia".
ThismeantthatCBUKiaSephiasedanscouldbeimportedfromKoreawithoutbeingsubjectto(a)the200percenttariffonimportedCBUpassengercars;and(b)the35percentluxurytax.
ThispreferentialtreatmentaccordedtomotorvehiclesimportedfromKoreaviolatesArticleI:1ofGATT1994.
7.
57ArticleI:1provides,inpertinentpart:Withrespecttocustomsdutiesandchargesofanykindimposedonorinconnectionwithimportation.
.
.
andwithrespecttothemethodoflevyingsuchdutiesandcharges,andwithrespecttoallrulesandformalitiesinconnectionwithimportation.
.
.
,andwithrespecttoallmattersreferredtoinparagraphs2and4ofArticleIII,anyadvantage,favour,privilegeorimmunitygrantedbyanycontractingpartytoanyproductoriginatingin.
.
.
anyothercountryshallbeaccordedimmediatelyandunconditionallytothelikeproductoriginatingin.
.
.
theterritoriesofallothercontractingparties.
7.
58Theexclusiveexemptionfromthe200percenttariffandthe35percentluxurytaxofKiaSephiasedansimportedfromKoreaclearlyconstitutesan"advantage,favour,privilegeorimmunity"withinthemeaningofArticleI:1thatisnot"accordedimmediatelyandunconditionallytothelikeproductoriginatingin.
.
.
theterritoriesofallothercontractingparties".
ImportsofCBUpassengercarsthatare"like"theKiaSephiaareineligibleforthesametreatment.
Instead,theyareputatacompetitivedisadvantagebybeingsubjecttothe200percenttariffandthe35percentluxurytax.
Assuch,thisexemptionviolatesArticleI:1.
7.
59IndonesiahasgoneonrecordasassertingthatthistariffandtaxexemptiondoesnotviolateArticleI:1"becauseitdoesnotdirectrecipientsofthesubsidytoimportautomobilesfromanyparticularcountry.
Privatepartiesdesignatedasnationalcarcompaniesarefreetoimportqualifyingautomobilesfromanycountry".
3547.
60ThisattemptedjustificationofsuchablatantlyWTO-inconsistentmeasureisdisingenuous,atbest.
AtthetimePresidentialDecreeNo.
42/1996wasissued,theGovernmentofIndonesiaalreadyhadapprovedtheKiaTimorjointventureasthesoleproducerofa"nationalmotorvehicle"andthesolebeneficiaryofbenefitsundertheNationalMotorVehicleprogramme.
Thisprojectcalledfortheproduction/assemblyinIndonesiaofKiaSephiasedans,toberenamedtheTimorS515andS515isedans.
Indeed,Indonesiahasclaimedthatitwillnotextend"nationalmotorvehicle"benefitstoanyothervehicletobeproducedbytheKiaTimorjointventure.
355354G/SCM/Q2/IDN/9(23May1997),p.
3.
355InrespondingtoaquestionundertheAnnexVprocedure,Indonesiastated,"[T]heGovernmentdoesnotintendtograntNationalCarbenefitstoPT.
TimorPutraNasional('TPN')forothermodels".
(AV/14,p.
4,Question#10(a))and"InaccordancewithManufacturingLicenceforTPN,TPNalsoplanstoproduceorandassembleTimorcommercialcars(CategoryIandIV).
However,theGovernmentofIndonesiamaintainsitspositionthattheonlynationalcarproducedinIndonesiaistheS515imodelsedan.
"(AV/16,p.
3,Question#12/28(b)).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage161Therefore,therewasonecar,andonlyonecar,thatcouldbeimportedasa"nationalmotorvehicle",andthatwasaKoreancar,theKiaSephiasedan.
7.
61Moreover,theGovernmentofIndonesiaprovidedtheone-yearexemptionfromimportdutiesandtheluxurytaxtofacilitatetheproduction/assemblyinIndonesiaoftheTimorKiaSephiasedan.
AsstatedbytheMinisterofIndustryandTrade:"ThisaimsatacceleratingtheproductionprocessofTimorsothat[thecar]canquicklyenterthemarket.
ThegovernmentgivesPTTimorPutraNasionalaperiodof12months,fromJune1996throughJune1997,toassemblethecarsinKia'sfactoryinKorea.
"3567.
62Inlightofthis,itsimplyisincredibletoclaim,asdoesIndonesia,thatprivateparties,eitherTPNorKiaTimor,were"freetoimportqualifyingautomobilesfromanysource".
Theobjectiveoftheone-yeartariffandtaxexemptiononimported"nationalmotorvehicles"wastofacilitatetheentryintotheIndonesianmarketoftheTimorKiaSephiasedan-theonlydesignated"nationalmotorvehicle"atthetime.
ThisobjectivecouldnothavebeenaccomplishedifKiaTimororTPNwerefreetoimportanyvehiclefromanysourcetheychose,suchasanOpelOptimaoraFordEscort.
Therefore,inreality,onlyKiaSephiasedansfromKoreawereeligibleforthepreferentialtreatmentaccordedbyPresidentialDecreeNo.
42/1996.
7.
63Indeed,thiscaseisanalogoustotheEECBeefcase,inwhichthepanelfoundaviolationofArticleIinasituationwhere"exportsoflikeproductsofotheroriginthanthatoftheUnitedStateswereineffectdeniedaccesstotheEuropeanCommunitiesmarketconsideringthattheonlycertifyingagencyauthorizedtocertifythemeat.
.
.
wasaUnitedStatesagencymandatedtocertifyonlymeatfromtheUnitedStates".
357JustasonlyUSDA-certifiedbeefwaseligibleforaccesstotheEuropeanCommunitiesmarketinEECBeef,intheinstantcase,theonlymotorvehicle"certified"fortariff-andtax-freetreatmentunderPresidentialDecreeNo.
42/1996wastheKiaSephiasedanfromKorea.
D.
Indonesia'sresponsetotheclaimsraisedunderArticleI:1ofGATT19947.
64ThefollowingareIndonesia'sargumentsinresponsetotheclaimsraisedunderArticleI:1ofGATT1994:1.
TheJune1996Programmeexpired30June1997,sotherecanbenopresentviolationofArticleIofGATT1994(a)ThelegalauthorityfortheJune1996Programmeexpiredon30June19977.
65Byitsterms,theJune1996programmewasaone-time,one-yearprogramme.
Article2ofDecreeofthePresidentNo.
42/1996(4June1996)358,whichprovidedtheunderlyingauthorityfortheprogramme,declaredexpressly:TheequaltreatmentcontemplatedinArticle1isonlygrantedonceforamaximumperiodofoneyearandforamountsstipulatedbytheMinisterofIndustryandTrade.
(Emphasisadded.
)356"Indonesia's'NationalCar'toBeBuiltinS.
Korea",TheReuterAsia-PacificBusinessReport,5June1996(USExhibit14,pp.
62-63).
357"EEC-ImportsofBeeffromCanada,L/5099,ReportofthePaneladopted10March1981,BISD28S/92,para.
4.
2(a).
358IndonesiaExhibit6.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage162Thelimitationtoaone-time,one-yeargrantisreaffirmedinDecreeoftheMinisterofIndustryandTradeNo.
142/MPP/Kep/6/1996(5June1996),whichimplementedthePresidentialDecree.
359Article1thereofstates:Withintheframeworkofpreparationstheproductionofnationalcarscanbecarriedoutoverseasforaone-timemaximumperiodof1(one)yearontheconditionthatIndonesianmadepartsandcomponentsareused.
(Emphasisadded.
)7.
66TheselimitationsarereflectedintheauthorizationforTPNtoimportTimorS515sedansunderauthorityoftheJune1996programme.
The"RecognitionofRegisteredImporter/SoleAgent(IT/AT),"filenumber1410/MPP/6/1996,signedbytheMinisterofIndustryandTradeon7June1996,notesinitstitlethatitisvalidthrough30June1997.
360Itincludesthefollowinglimitationinparagraph1ofitstermsandconditions:"Onlytoimportatotalof45,000unitsofsedanwithimportationperiodlimitedto30June1997"(emphasisadded).
3617.
67On30June1997,thelegalauthorityfortheJune1996programmeexpiredasscheduledandtheimportationauthorityprovidedby"Recognition"number1410/MPP/6/1997ceasedtobevalid.
362Nocomparableprogrammehasbeenorwillbeauthorized.
Therefore,notonlydidtheimportswhichComplainantsclaimviolateArticleIoftheGeneralAgreementceaseoverfour-and-one-halfmonthsago,thereisnolegalauthorityunderwhichtheycouldresume.
TheJune1996programmehasendedand,asdemonstratedbelow,hasnorelevancetotheseproceedings.
(b)Becausetheprogrammeandtheauthorityunderwhichitwasgrantedhaveterminated,thereisnobasisforanaffirmativedeterminationbythePanel7.
68Article19.
1oftheDSUprovidesthat:[w]hereapanelortheAppellateBodyconcludesthatameasureisinconsistentwithacoveredagreement,itshallrecommendthattheMemberconcernedbringthemeasureintoconformitywiththatagreement.
(Footnoteomitted.
)Article3.
7oftheDSUconfirmsthatthisforward-lookingremedy-eliminationofaninconsistentmeasure-istheonlyWTO-consistentremedy.
(Compensationisexpresslyrecognizedas"atemporarymeasurependingthewithdrawalofthemeasurewhichisinconsistentwithacoveredagreement.
")7.
69ThemeasurehasbeeneliminatedbecausetheJune1996programmeandthelegalauthorityunderwhichitwasgrantedexpiredon30June1997.
Therefore,evenifthemeasurehadbeeninconsistentwithaprovisionoftheWTO(whichIndonesiadoesnotaccept),thereisnothingfurthertoremedy.
Undersuchcircumstances,itwouldbeinappropriateforthePaneltodomorethannotetheexpiryoftheprogrammeanddeclarethatnodeterminationiswarrantedastotheclaimedinconsistencyoftheexpiredprogramme.
359IndonesiaExhibit7.
360IndonesiaExhibit13.
361IndonesiaExhibit13.
362Id.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage163(c)PriorPaneldecisionssupporttherefusaltoruleonanexpiredmeasure7.
70InThailand-RestrictionsonImportationofandInternalTaxesonCigarettes(7November1990),BISD37S/200,thecomplaintincludedallegationsregardinganexcisetaxandabusinessandmunicipaltax.
Priortothepanel'sdecision,Thailandissuedregulationsapplyingasingleexcisetaxrateforallcigarettes(importedanddomestic)andremovingcigarettesfromtheproductssubjecttothebusinessandmunicipaltax.
Eventhoughtheunderlyingauthoritytoreimposediscriminatorytaxesremainedineffect,thepanelconcludedthatthecurrentregulationswereconsistentwithThailand'sGATTobligations.
ThemerefactthatbysubsequentregulationThailandconceivablycouldreintroducetaxesthatdiscriminatedagainstimportswasinsufficienttowarrantarulingofinconsistency.
(Seeid.
paras.
84-86and88atpp.
227-28.
)7.
71InThaiCigarettesthefactthatthemeasuresastheyexistedatthetimeofthepanel'sdecisionwerenotinconsistentwiththeGeneralAgreementwassufficienttowarrantanegativerulingbythepanel.
Intheinstantcase,theJune1996programmehasendedandtheveryauthorityunderwhichitwaspromulgatedhasexpired.
7.
72Thedecisionofthe1989panelinChile'scomplaintwithrespecttoEEC-RestrictionsonImportsofDessertApples(22June1987),BISD36S/93,alsoisinstructive.
ChileurgedthepaneltorulethattheEuropeanCommunitiesshouldoffercompensationtoChilebecausearulingthatthemeasuresshouldbewithdrawnwouldbemeaninglessbecausethemeasureshadlapsed.
Thepanelrefusedtomakeafindingof"retroactiveprejudice"andtorecommendcompensation.
(Seeid.
para.
12.
35atp.
137.
)3637.
73Insum,priorpaneldecisionsalsosupporttheconclusionthatwhere,ashere,aprogrammeanditsunderlyinglegalauthorityhaveexpired,thepanelshoulddeclarethatnodecisiononthemeritsoftheallegedinconsistencywithArticleIoftheGeneralAgreementisappropriate.
2.
IndonesiahasnotviolatedArticleIofGATT1994becauseitdidnotgrantanadvantagetoautomobilesorpartsoriginatinginonecountrythatitdidnotaccordtolikeproductsoriginatinginothercountries(a)Indonesiadidnotgrantanadvantagetoautomobilesorpartsoriginatinginonecountry7.
74ComplainantsconcedethatnothingintheregulationsordecreesestablishingeithertheFebruary1996ortheJune1996programmes364mandatespreferentialtreatmentofautomobiles,componentsorpartsfromanyparticularcountry.
365DecreeoftheStateMinisterfortheMobilisationofInvestmentFundsNo.
01/SK/1996(27February1996)366expresslystatesthatanationalcarproducerhasthefreedomtodeterminethesourcesoftechnologyandofcomponentsandparts.
Further,the7June1996"RecognitionofRegisteredImporter/SoleAgent(IT/AT),"filenumber1410/MPP/6/1996,thedocumentinwhichonewouldmostexpecttofindsuchdirection,363TheGovernmentProcurementpanelinNorway-ProcurementofTollCollectionEquipmentfortheCityofTrondheim(13May1992),GPR/DS2/R,reachedthesameconclusion.
Seeid.
,paras.
4.
17-4.
26.
364AsdemonstratedinSectionIII,above,therecanbenoviolationofArticleIwithrespecttotheJune1996programmesinceitexpiredon30June1997.
However,eveniftheprogrammewerestillineffect(whichitisnot),itwouldnotbeinconsistentwithArticleIforthereasonssetoutinthissection.
365SeeSectionsVII.
AandB.
SeealsoIndonesia'sStatementtotheCommitteeonSubsidiesandCountervailingMeasuresinresponsetoquestionsposedbyJapan(G/SCM/Q2/IDN/9(23May1997)atp.
3).
366IndonesiaExhibit4.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage164containsnosuchlimitation.
367Indeed,thereisnothingintheRecognition(orinanyotherofficialdocument)thatevenimpliessuchanintention.
(b)ThatTPNmadeacommercialdecision,withoutgovernmentinvolvement,toenterintoacommercialrelationshipwithaparticularcompanydoesnotconstituteadefactoviolationofArticleI7.
75Everyautomotivecompanyaroundtheworldmakescorporatedecisionsastoitssuppliers,someofwhicharelocatedindifferentcountries.
ThemerefactthatacompanylikeTPNreceivesasubsidydoesnotconstituteadefactoviolationofArticleIoftheGeneralAgreement.
TPNisfreetoimportautomobiles,componentsandpartsfromwhateversourcesitchooses.
InallofthepanelreportscitedbyComplainants,therespondinggovernmenthadestablishedalegalstructurewhichinfactcompelledorledtoaparticularresult.
7.
76InSpain-TariffTreatmentofUnroastedCoffee(11June1981),BISD28S/102,thegovernment'sdifferentialtarifftreatmentof"mild"coffeeandothervarietiesofcoffeewasfoundtobediscriminatory.
InEuropeanEconomicCommunity-ImportsofBeeffromCanada(10March1981),BISD28S/92,theonlyagencyauthorizedbytheEuropeanCommunitiesregulationtocertifybeefashigh-qualitybeefwasaUnitedStatesGovernmentagencythemandateofwhichwaslimitedtocertificationofUnitedStatesbeef.
Also,JapanmiscitestheReformulatedGasolinecase368asstandingforthepropositionthatmeasuresviolateArticleIifthey"introduce"discrimination.
Thischaracterizationisincorrect.
Rather,thedecisiondeclaresthatUnitedStatesauthoritiesmusthaveforeseenthatthetwoseparateregulatoryregimesthattheyhadestablishedwerediscriminatory.
7.
77Ineachofthethreeabove-citedcases,despitetheabsenceofexplicitdiscrimination,aparticularresultwasmandatedbygovernmentaction.
Innoneofthemwasthechoiceofsuppliermadebytheprivate-partyrecipientofthesubsidyfoundtoconstitutegovernment-mandateddefactodiscrimination.
7.
78EvenifcertainGovernmentofficialswereawareofTPN'scorporateintentiontouseKiaasasupplier,thelegalstructureofthenationalcarprogrammedidnotcompelorleadtothisprivate-partydecisionortoimportsfromKorea.
Theessentialfactremainsthataprivate-sectorchoice,notgovernmentdirection,wasthereasonwhytherewereimportsfromKorea.
SuchaprivatechoiceisnotwithinthescopeofArticleIoftheGeneralAgreement.
(c)TheTimorS515andcomponentsandpartsimportedforitarenot"like"anypassengervehicles,componentsorpartsimportedfromtheterritoriesofcomplainants7.
79The"likeproduct"conceptisusedinseveralGATTarticles.
Asconfirmedbydraftinghistory,precedentandlegalscholars,themeaningofthephrasedependsonthecontextinwhichitappears.
WithregardtoitsuseinArticleI,theworld'sleadingGATTscholar,ProfessorJohnJackson,states:[T]herewerescattereddiscussionsinthepreparatorymeetingsthatyieldedsomeillustrationsofthemeaningoflikeproducts,particularlyasusedintheMFN367IndonesiaExhibit13.
368ReportoftheAppellateBody,UnitedStates-StandardsforReformulatedandConventionalGasoline,WT/DS2/AB/R(29April1996).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage165clause.
Atonepointitwasaskedwhether"allcerealswouldbeconsidered'likeproducts'oronlywheat"andananswergivenwasthatonlywheat"wouldbeconsideredasa'likeproduct.
'"Atalaterconference,itwasaskedwhetherautosunder1,500kilogramswouldbelikeproductstothoseover1,500kilograms,inthecaseofatariffclassificationthatdrewthisdistinction,andtheinquirerwasassuredthatthiswouldnotbethecase.
Theterm"likeproducts,"asusedinArticleI(MFN),canprobablybeconsideredinthelightoftheabovepreparatoryconcepts.
3697.
80Thenarrowscopeofthe"likeproduct"conceptinArticleIisemphasizedbyTheAustralianSubsidyonAmmoniumSulphateandtheEEC-MeasuresonAnimalFeedProteinspanelreports,whichnotethat,unlikeArticleIII:2,inwhicheffectsonboth"likeproducts"and"directlycompetitiveorsubstitutableproducts"arerelevant,theMFNobligationofArticleIislimitedto"likeproducts".
3707.
81Passengervehiclesarehighlydifferentiated;numerousphysicalandnonphysicalcharacteristicsdetermineeachmodel'sproperties,natureandqualityand,thus,consumers'tastes,habitsandpreferences.
Thesedefiningcharacteristicsincludequality,reputation,price,rideandcomfort,standardfeatures,safetyfeatures,availableoptions,exteriorsize,interiorspace,enginesize,technology,fueltypeandfuelefficiency.
Complainantshavefailedtoestablishthatthereisany"likeproduct"totheTimorS515intheirunsuccessfuleffortstoestablishseriousprejudice,andtheymustalsofailinthecontextofArticleI.
TheresimplyisnocarthatmatchestherequisitephysicalandnonphysicalcharacteristicsoftheTimorS515tobeconsidereda"likeproduct"toit.
7.
82ThesamefailingistruewithregardtoComplainants'argumentsregardingautomotivecomponentsandparts.
Governmentexpertshavecalculatedthat93percent(byvalue)ofthecomponentsandpartsoftheTimoraretailor-madetothespecificationsofthatbrand.
Thesameistrue(likelywithslightvariationsinthepercentage)withrespecttoallbrandsandtypes.
(Onedoesnotandcannot,forexample,useGMcomponentsinBMWsedansorMercedescomponentsinToyotasedans.
)Tailor-madecomponentsandpartsthatcannotbeusedinothermakesandmodelsarenot"likeproducts".
Indeed,theyarenoteven"directlycompetitiveorsubstitutable".
Thus,forassembledTimorsandTimorcomponentsandparts,therecanbenoviolationofGATTArticleIsincethereareno"likeproducts"whicharediscriminatedagainst.
3.
TheJune1996Programmewasasubsidythatexpiredand,therefore,thereisnoviolationofArticleIofGATT1994(a)TheJune1996ProgrammeHasExpiredandWillNotBeRenewed7.
83AsIndonesiahasstatedadnauseam,theJune1996Programmehasexpiredandwillnotberenewed.
Onewouldthinkthesestatementswouldsuffice.
ButJapan,ignoringIndonesia'snumerous,directpronouncements,insiststhat,duringtheconsultations,Indonesiastatedthatthe"June1996PresidentialDecree'isstillineffect…'".
Well,ofcoursethatiswhatIndonesiasaid.
369JohnJackson,WorldTradeandtheLawofGATT(1969)§11.
4(emphasisadded)(footnotesomitted).
370ReportoftheWorkingPartyonTheAustralianSubsidyonAmmoniumSulphate(3April1950),BISDII/188(para.
8atp.
191).
ReportofthePanelonEEC-MeasuresonAnimalFeedProteins(14March1978),BISD25S/49(para.
4.
20atp.
68).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage166Alloftheconsultationsoccurredwellbefore30June1997,thedatethemeasureterminated.
TheJune1996subsidyhasendedandallofComplainants'argumentationregardingitismoot.
(b)AstoUnsoldTimors,theFactThattheLuxuryTaxIsNotForgoneUntilSaleIsaSubsidiesAgreementIssue,NotanArticleIIssue7.
84InJune1996,pursuanttoPresidentialDecreeNo.
42/1996371,TPNreceivedaone-yearsubsidyfornationalcarsmadeoverseas.
ThistreatmentwasnecessarybecauseTPNneededtoimportbuilt-upTimorstoestablishtherequiredmarketingnetworkandintroduceanationalcartotheIndonesianbuyingpublicpriortothetimethatdomesticproductionfeasiblycouldbegin.
Thepolicycontainedonequantityandtwotemporallimitations:thesubsidywasgrantedonlyforthequantityofautosspecifiedbytheMinisterofIndustryandTrade(45,000units);thesubsidywaslimitedtooneyear;andthesubsidywasgrantedonlyonce.
7.
85ComplainantsaccuratelyrepeatIndonesia'sreportthatnotalloftheTimorsimportedundertheJune1996subsidyhaveyetbeensold.
372TheynotethattheGovernmentdoesnotforgotheluxurytaxuntileachcarissold.
Thisalsoistrue.
7.
86Theproblemwithcomplainants'argumentsisthattheyfailtoacceptthattheJune1996measureisasubsidy.
Thus,regardlessofwhetherornotitstillisineffect(itisnotineffect),itisasubsidyand,assuch,issubjecttotheSubsidiesAgreement,notArticleI.
7.
87Indonesia,inresponsetoaquestionfromthepanel,subsequentlyfurtherarguedasfollowsregardingtheprocessofimportationandcustomsclearance373:7.
88Article2ofCustomsLawNo.
10/1995374providesthataproductisconsidered"imported"whenitarrivesinthecustomsterritoryofIndonesia(i.
e.
theterritoryoftheRepublicofIndonesia).
AtranslationoftherelevantsectionsoftheCustomsLawisattached.
371IndonesiaExhibit6.
SeealsoDecreeoftheMinisterofIndustryandTradeNo.
142/MPP/Kep/6/1996(IndonesiaExhibit7),dated5June1996and,perArticle5thereof,effectiveonthatdate.
ThisdecreewaspublishedpromptlyintheStateGazette,asistrueregardingalldecreesoftheMinisterofIndustryandTrade.
372TheGovernment'smostcurrentdataisthat,asof31October1997,only17,507Timorsimportedunderthesubsidyremainedunsold.
373Indonesiamadethefollowingadditionalargumentsonthispoint:"AlsowithrespecttoclaimsunderArticleIofGATT1994,thecomplainantsarguedthattheJune1996measureswerestillineffectbecausetheluxurytaxwouldnotbeforegoneontheunsoldcarsuntiltheyweresold.
Thisisnotcorrect.
Thetaxisduewhenthedutiesaredueandthentheconsumerreimbursesthecompanyatthetimeofsale(TPN,ofcourse,wasexemptfromthisrequirement).
Secondly,TPNfailedtheSucofindoaudit(SeeSectionX)and,thus,noneoftheremainingcarswillreceivetheluxurytaxexemption.
So,evenacceptingcomplainants'position,theJune1996measureshaveterminated.
Thus,thePanelshouldrejectcomplainants'ArticleIarguments.
"374IndonesiaExhibit50.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1677.
89Theimporteroftheproductisresponsibleforpaymentoftheappropriatecustomsimportduties,VAT,salesluxurytax,andadvancepaymentofincometaxatthemomentofimportation.
Inthiscase,theimporterisTPN.
7.
90Theimporterisentitledtocustomsclearanceuponpresentationtothecustomsauthoritiesofacustomsdeclarationandproofofpaymentofthedutiesandtaxesowing.
UnderArticle42oftheCustomsLaw,thisobligationmaybesatisfiedbypaymentofcashordepositofsecurityacceptabletoCustoms.
Inthiscase,underauthorityofMinisterofFinanceDecreeNo.
404andGovernmentRegulationNo.
36,TPNwasrequiredtodepositaguaranteetocoverthevalueofthecustomsimportdutiesandluxurysalestaxfromwhichitwouldbeexemptifitsatisfiedtherequirementsoftheNationalCarProgramme.
TPNalsowasobligatedtopayment,incash,oftheVATandincometax.
7.
91Afterimportationandbeforecompletionofthecustomsclearanceprocedure,aproductmaybekeptin"bondedstorage".
(SeeArticle44oftheCustomsLaw.
)Bondedstorageareasareoperatedbyprivateentities,theimporterorsomeoneelsewithwhomtheimporterhasmadeacommercialarrangement,buttheyareunderthecontrolofCustoms.
Theprivatepartypaysallcostsassociatedwiththefacilityandstorageofthegoodsthere.
(Inthiscase,then,TPNisincurringallcostsassociatedwithstorageoftheimportedCBU'swhichhavenotreceivedcustomsclearance.
)(c)EvenifthePanelfindsthatArticleIdoesapply,TPN,andNotKia,wasthebeneficiaryoftheimportdutyexemption,theprogrammewasnotcountry-specificandcomplainantsimportnolikeproduct,soArticleIwasnotviolated(1)TPN,andNotKia,wasthebeneficiaryoftheJune1996Programme7.
92AsIndonesiahasdemonstrated,TPNwasthebeneficiaryoftheJune1996subsidy.
TPNwastheimporterofrecordforalloftheTimors.
TPNisa100percentIndonesian-ownedentity.
KiareceivednobenefitfromtheProgramme,otherthanbeingpaidbyTPNasoneofitssuppliers.
Thus,evenifthePanelfindsthatArticleIdoesapply,nocountrywas"advantaged"or"favoured"withinthemeaningofArticleI.
(2)TheJune1996ProgrammeWasNotCountrySpecific7.
93ComplainantsconcedethatnothingintheregulationsordecreesestablishingtheFebruaryandJune1996programmesmandatesorevenexpresslyprovidesforpreferentialtreatmentofimportsfromaparticularcountry.
Theyclaim,though,thatIndonesia'santicipationthatTPNwouldassociatewithKiatransformstheotherwisebenignProgrammeintoonethatviolatesArticleIbecausetheGovernment,theyassert,knewthatthebenefitswouldgotoKia,aKoreancompany.
7.
94Thisargumentisflawedformanyreasons,asaglimpsethroughtheprismofcommercialrealitymakesclear.
First,complainants'assertionsreducetotheunderstandableplaintthattheylostacontest.
TPNcouldhaveandlikelywouldhavepreferredtoselectanyofcomplainants'producersforthisventure,includingcompaniessuchasFiat,RenaultorMazda.
TPNneedstechnologyandstabilityintheNationalCarProgramme,twoattributeswhichKialacks.
So,inadditiontohavingahugeincentivetoselectoneofcomplainants'makers,TPNhadseveraldisincentivestoselectKia.
Why,then,diditselectKiaItselectedKiaforonereasonandonereasononly:unlikecomplainants'makers,whichguardeventheircast-offtechnologies,Kiawaswillingtotransfertechnology(includingproductiontechnologyandtraining)toTPN,andtodosoforacommerciallyreasonableprice.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1687.
95TheUnitedStatesstoutlystatesthat"theironyofthisdisputeisthattheUnitedStatesautomanufacturerssoughttohelpIndonesiaachieveitsobjective,buthavebeenprecludedfromdoingso"bytheNationalCarProgramme.
Thisisutternonsense.
HadasingleUnitedStatesmanufacturercomeupwithareasonableoffer,theIndonesianfirmsseekingpioneerstatuswouldhavejumpedatthechancetohaveanarrangementwithsuchaprestigiouspartner.
7.
96ThesameistrueofJapanandtheEuropeanCommunities.
Eachofthethreecomplainantsnowcomplainsaboutlosingacontestitneverevenenteredinearnest.
7.
97Second,ofcourseIndonesiaknewthatTPNhadatechnicalservicesarrangementwithKia.
Wellawareofthelackoftechnologyandknow-howinIndonesia,theGovernmentofIndonesiawouldnothavefavourablyentertainedTPN'sapplicationifitwerenotadvisedofthetechnicalandtechnologicalsupportforwhichTPNhadcontracted.
Withoutthechecksandbalancescomplainantscriticize,theGovernmentcouldnotensurethelegitimacyandstrengthoftheproposeddevelopment.
IndonesianeedsarealnationalcarindustrymakingrealcarsthatthemajorityofIndonesianscanafford.
Thelackofprojectoversightcomplainantsadvocateissimplyirresponsible.
7.
98Asdiscussedabove,TPNcouldhaveselectedanycompanyitwishedtodevelopanationalcar;itmadeacommercialdecisiontoselectKia.
Complainantshavenotandcannotcounterthesefacts.
(3)Complainantsimportnolikeproduct7.
99ComplainantsconcedethatArticleIisviolatedonlyif,amongotherthings,complainants'likeproductsaredisadvantagedordisfavoured.
Here,therecanbenoviolationofArticleIbecause,amongotherreasons,complainantsimportnolikeproduct,asdiscussedabove.
E.
RebuttalstoIndonesia'sresponse1.
RebuttalArgumentsmadebyJapan7.
100ThefollowingareJapan'srebuttalargumentstoIndonesia'sresponsestotheclaimsunderArticleI:1ofGATT1994:7.
101TheFebruary1996ProgrammeandtheJune1996ProgrammeprovidebenefitstocertainKoreanautomotivepartsandcomponentsandtocertainKoreanCBUs,respectively,thatarenotprovidedtolikeJapaneseproducts,inviolationofthemost-favoured-nationobligationofGATTArticleI:1.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage169(a)Indonesia'sactionsinstructuring,adopting,andexpandingtheNationalCarProgrammeensuresthatKoreanproductsreceivetaxandtariffbenefitsdeniedtoJapaneseProductsand,thus,constitutetheviolationofGATTArticleI(1)NewevidencestrengthenstheGovernmentofJapan'spositionthatIndonesianGovernmentmeasuresdenyMFNTreatmenttoJapaneseproducts7.
102IndonesiaarguesthattheNationalCarProgrammedoesnotexplicitlydiscriminatebetweenKoreanproductsandotherimports,andthatanyadvantagegiventoKoreanproductsresultsfromaprivatecommercialarrangementandnotfromgovernmentalaction.
7.
103TheIndonesianargumentiswrongasafactualmatter,becauseitistheIndonesianregulatoryregimewhichcreatedthediscriminationagainstJapaneseproducts.
ItisirrelevantforthesepurposesthatthediscriminationisnotexpressonthefaceofIndonesianGovernmentdocuments.
ThediscriminationisplainlyevidentuponexaminationofthegovernmentalmeasuresandisanintegralpartoftheNationalCarProgramme.
InreceivingPTTimor'sseveralapplications,respondingtothem,anddeveloping,implementing,andexpandingtheNationalCarProgramme,IndonesiahasnotonlyknownthattheProgrammewouldbenefitKoreanproductsandnootherimports,buthasalsoensuredthatthiswouldhappen.
7.
104TheIndonesianGovernment'scentralandessentialroleinthediscriminatorymeasureshasalreadybeenshown(SeeSectionVII.
A).
TheJapaneseargumenthasbeenfurtherstrengthenedbynewevidencethathascometolight.
7.
105TheFebruary1996ProgrammewasdesignedandintendedtoaccordbenefitsexclusivelytoPTTimorandKiaproducts.
ThiswasclearfromPTTimor'sapplicationforIndonesianGovernmentassistanceinOctober1995andfromsubsequentcorrespondencebetweenPTTimorandtheStateMinisterfortheMobilizationofInvestmentCoordinatingBoard.
3757.
106Inparticular,the"NationalCarProgramme"begantobediscussedatthelatestinOctober1995.
376Inparticular,theseproceedingshaveshownthatMr.
HutomoMandalaPutra,presidentdirectorofPTTimor,sentalettertoMr.
SanyotoSastrowardoyo,StateMinisterfortheMobilizationofInvestmentCoordinatingBoardon12December1995andrequestedimportdutyandluxurytaxexemptionsforPTTimor.
377Tothisrequest,MinisterSanyotoSastrowardoyorespondedbyletterof27December1995"wefullysupportyourplantoimmediatelyrealizethe375SeeApplicationLetterdated19October1995fromMr.
HutomoM.
P.
,PresidentDirectorofPT.
TimorPutraNasionaltoMr.
SanyotoSastrowardoyo,StateMinisterfortheMobilizationofInvestmentFunds/ChairmanoftheCapitalInvestmentCo-ordinatingBoard.
(Englishtranslation)(JapanExhibit-33,IndonesiaExhibit25);Letterdated12December1995fromMr.
HutomoM.
P.
,PresidentDirectorofPT.
TimorPutraNasionaltoMr.
SanyotoSastrowardoyo,StateMinisterfortheMobilizationofInvestmentFunds/ChairmanoftheCapitalInvestmentCoordinatingBoard.
(Englishtranslation)(JapanExhibit34);Letterdated27December1995fromMr.
SanyotoSastrowardoyo,StateMinisterfortheMobilizationofInvestmentFunds/ChairmanoftheCapitalInvestmentCo-ordinatingBoardtoMr.
HutomoMandalaPutra,PresidentDirectorofPT.
TimorPutraNasional.
(Englishtranslation)(JapanExhibit35).
376ApplicationLetterdated19October1995fromMr.
HutomoM.
P.
,PresidentDirectorofPT.
TimorPutraNasionaltoMr.
SanyotoSastrowardoyo,StateMinisterfortheMobilizationofInvestmentCoordinatingBoard.
(Englishtranslation)(JapanExhibit33).
377Letterdated12December1995fromMr.
HutomoM.
P.
,PresidentDirectorofPT.
TimorPutraNasionaltoMr.
SanyotoSastrowardoyo,StateMinisterfortheMobilizationofInvestmentCoordinatingBoard.
(Englishtranslation)(JapanExhibit34).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage170project.
"378ItismadeevenmoreclearbytheStateMinister's"DomesticInvestmentApproval"of9November1995(No.
607/I/PMDN/1995(11/09/95)),whichtheGovernmentofIndonesiaprovidedtothePanel.
379Thatdocument,anditsattachments,revealthattheGovernmentofIndonesiaapprovedPTTimor'sproductionofautomobilesinIndonesiamorethanthreemonthsbeforetheannouncementoftheFebruary1996Programmeandexpresslystatedthat"Kiatechnology[was]tobedevelopedintolocaltechnology".
7.
107AnotherresultoftheadvancecoordinationbetweenPTTimorandtheIndonesianGovernmentisthatonlyPTTimorwasinapositiontoapplyinatimelymannerforPioneerstatusundertheFebruary1996Programme.
PTTimorappliedforPioneerstatuson28February1996380,justonedayaftertheGovernmentofIndonesiaenactedDecreeoftheStateMinisterforMobilizationofInvestmentFunds/ChairmanoftheCapitalInvestmentCo-ordinatingBoardNo.
01/SK/1996381,whichformallyestablishedtheFebruary1996Programme.
Onthesameday,theGovernmentofIndonesiafirstdisclosedtheFebruary1996Programmebywayofpressreleasetothepublicandotherautomobilecompanies.
382AtthefirstPanelmeeting,theGovernmentofIndonesiarevealedforthefirsttimethedecreegrantingPioneerstatustoPTTimor(MinistryofIndustryandTradedecreeNo.
002/SK/DJ-ILMK/II/1996),which,oddly,wasdated27February1996,onedaybeforePTTimor'sapplication.
AlthoughtheGovernmentofIndonesiasubmittedthecoverletterofthePTTimor'sapplicationasAttachmentNo.
14ofitsFirstSubmission,itfailedtoincludetheattachmentsthereto,which,accordingtothecoverletter,setforththedetailsofPTTimor'sworkingproposals,whichcoversuchmattersasshareownership,designandengineering,sourceoftechnology,developmentofproductionfacilities,useofcomponents,etc.
383ThePanelshouldinferfromIndonesia'sfailuretosubmitPTTimor'sworkingproposalsthattheyfurtherconfirmthat,fromthebeginning,theIndonesianGovernmentandPTTimorworkedhand-in-handtodevelopmeasuresthatwouldfunnelbenefitsexclusivelytoPTTimorandimportsfromKorea.
7.
108TheJune1996ProgrammewasalsodesignedandintendedtoaccordbenefitsexclusivelytoPTTimorandKia.
TheGovernmentofIndonesiaessentiallyconcedesthispointinitsFirstSubmission,admittingthattheJune1996Programme"wasnecessarybecause[PTTimor]neededtoimportbuilt-upTimorstoestablishtherequiredmarketingnetworkandintroduceanationalcar378Letterdated27December1995fromMr.
SanyotoSastrowardoyo,StateMinisterfortheMobilizationofInvestmentCoordinatingBoardtoMr.
HutomoMandalaPutra,PresidentDirectorofPT.
TimorPutraNasional.
(Englishtranslation)(JapanExhibit35).
379IndonesiaExhibit15.
380SeeLetter(No.
071/PD/TPN/II/96)dated28February1996fromMr.
HutomoM.
P.
,PresidentDirectorofPT.
TimorPutraNasionaltoStateMinisterfortheMobilizationofInvestmentFunds/ChairmanoftheCapitalInvestmentCo-ordinatingBoard.
(IndonesiaExhibit14).
381JapanExhibit29.
382IndonesianObserver,"Govtunveilsnewnationalcarprogramme"(29February1996)(JapanExhibit70);TheAsianWallStreetJournal,"SuhartoProjectForNationalCarshocksIndustry-versionofaKiaSedantobeCalledTimor,Son'sFirmBenefits"(29February1996)(JapanExhibit71);JakartaPost,"PTTimorgiventaxexemptions"(29February1996)(JapanExhibit40);IndonesianObserver"CarProducers'surprised'bynewgovtruling(29February1996)(JapanExhibit41);andBisnisIndonesia,"Tunky:PT.
TimorhasAdaptedImpres02/1996,(29February1996).
Allofthesenewsarticlesindicatedthatthepressreleaseannouncingthisprogrammewasmadeon28February1996.
On27February1996,twodaysbefore,anewspaperarticlereportedtheproductionofKia-TimorcarsinIndonesia,butthisarticledidnotrefertotheNationalCarProgrammeatall.
(JakartaPost,KiaofS.
KoreatoproducecarsinIndonesia(27February1996)(JapanExhibit72).
383Indonesiasubmittedtheworkingproposalson12January1998,inresponsetoarequestfromJapan.
(IndonesiaExhibit46).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage171totheIndonesianbuyingpublicpriortothetimethatdomesticproductionfeasiblycouldbegin".
(SeeSectionII.
B.
2).
Evenmoretothepoint,IndonesiahassubmittedaletterdatedMay28,1996,fromPTTimortotheIndonesianMinisterofIndustryandTrade,whichclearlystatesthatPTTimorappliedfortheproductionof"motorvehiclesunderTimorS515trademarkatKiaMotorsCo.
SouthKorea,tobeshippedtoIndonesia,totalling65,000unitsofmotorvehiclesfor1996-1997.
"384TheGovernmentofIndonesia,underMinistryofIndustryandTrade'sRecognitionasRegisteredImporter/SoleAgent(IT/AT)ofMotorVehicles(Number:1410/MPP/6/1996)dated7June1996,approvedPTTimor'srequest,specificallydesignatingtheTimorS515,withdetailedspecificationsinitsattachment,asthecarthatcouldbeimportedandsoldfreeofdutiesandluxurytaxes.
385Intakingthisaction,theIndonesianGovernmentfullyknewthatthedesignatedmodelwasandwouldbemanufacturedsolelyattheKiafacilitiesinKoreaandestablishedalegalregimethatensuredthatonlyKoreanproductswouldbenefitfromtheJune1996Programme.
(2)TheNationalCarProgrammedeniesunconditionalMFNtreatmenttoJapaneseproductsandensuresthatKoreanproductsreceivetaxandtariffbenefitsdeniedtoJapaneseproducts7.
109TheIndonesianargumentisalsowrongasamatteroflaw.
CertainKoreanautomobilesandautomotivepartsandcomponentshavebeenimportedinto,andsoldin,IndonesiaatfavourabletariffandtaxratesthatarenotavailabletootherimportsunderIndonesianlaw.
ThatistheverydefinitionofadenialofMFNtreatment.
7.
110TheIndonesianargumentthatthediscriminationresultsfromdecisionsofPTTimorisclearlywrong,becauseitisthegovernment,notaprivatecompany,thatsetsthediscriminatorytariffandluxurytaxrates.
PTTimoroperatesinthediscriminatoryenvironmentcreatedbytheIndonesianGovernment.
Moreover,itisclearlytheGovernmentofIndonesia,notPTTimor,thatestablishedthePresidentialDecreethataccordsadvantagestoimportedautomobilesontheconditionsthattheexportingenterprisepurchasecertainamountsofIndonesianpartsandcomponentsandemployIndonesianworkers.
Asdiscussed(SeeSectionVII.
A),GATTArticleI:1requiresanyadvantagetobeaccordedunconditionally.
Astheprecedentcasesshow386,grantingthiskindofadvantageconditioneduponcertainrequirementsisclearlya"conditional"advantagewithinthemeaningofGATTArticleI:1.
Thismeansthat,eveniftheadvantageaccordedtoproductsfromKoreawereanadvantageavailabletolikeproductsfromallotherWTOMembers,subjecttothesameconditions,theNationalCarProgrammewouldstillviolateGATTArticleI:1.
(3)ThePrecedentGATT/WTOCasesSupportJapan'sArgument7.
111IndonesiaallegesthattheprecedentpanelcasesdonotsupportJapan'sargumentthatsuchgovernmentalactionsconstituteaviolationofGATTArticleI:1.
Inreality,theGATTandWTOprecedentsalsoundercuttheGovernmentofIndonesia'sposition.
7.
112First,itshouldbenotedthatIndonesiaitselfconcedesthatpreviouspanelshavefoundviolationsofArticleI:1incircumstanceswhere"despitetheabsenceofexplicitdiscrimination,aparticularresultwasmandatedbygovernmentaction"orwherealegalstructure"infactcompelled384Letterdated28May1996fromMr.
HutomoM.
P.
,PresidentDirectorofPT.
TimorPutraNasionaltoMinisterofIndustryandTradeoftheRepublicofIndonesia(IndonesiaExhibit18).
385Therecognitionofregisteredimporter/soleagent(IT/AT)ofmotorvehicle(number:1410/MPP/6/1997)anditsattachment(IndonesiaExhibit13).
386PanelReportonBelgianFamilyAllowances,G/32,adoptedon7November1952,BISDIS/94.
WorkingPartyReportonAccessionofHungary,adoptedon30July1973,BISD20S/34.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage172orledtoaparticularresult.
"Asdemonstrated(SeeSectionVII.
A),theNationalCarProgrammeprovidesexactlysuchalegalstructurethatcompelsorleadstoaparticularresult,namely,grantingadvantagesonlytoKoreanproducts.
Therefore,initsattempttorebutJapan'sarguments,Indonesiahasinsteadconcededthepoint.
3877.
113ItshouldbealsorecalledthattheAppellateBodyrecentlyreconfirmedtheimportanceofdefactoaswellasdejurenon-discrimination.
InBananasIII,theAppellateBodyexplicitlystated,"ArticleIandIIoftheGATT1994havebeenapplied,inpastpractice,tomeasuresinvolvingdefactodiscrimination,"referringtothepanelreportinEuropeanEconomicCommunity-ImportsofBeeffromCanada.
388(b)Indonesia'sbizarreassertionthatnogoodsarelikeTimorsorpartsandcomponentsforTimorsissimplywrong7.
114Indonesiacontendsthatthecomplainants,includingJapan,havefailedtoestablishforpurposesofArticleIthatthereareanylikeproductstotheTimorsedansandtheautomotivepartsandcomponentsusedtoassemblethem.
Indonesia'sdiscussionofboththefactualsimilaritiesandtherelevantlegalprecedentismisleadingandincorrect.
(1)JapanesecompaniesproducecarslikeimportedNationalCarsfromKorea7.
115Asdiscussed(SeeSectionV.
A.
1),itisalsovirtuallymeaninglesstodiscuss"likeness"inthiscase.
TheNationalCarProgrammediscriminatesbetweencertainKoreangoodsandallotherimportsbasedonwhetherornottheycouldbequalifiedas"NationalCars,"thusfavouringonlyKoreanproducts,anddoesnotbaseitsdiscriminationonanyothercharacteristicsoftheproducts.
EvenifaproductthatismanufacturedinJapanisidenticaltoaproductmanufacturedinKoreainconnectionwiththeNationalCarProgramme,theKoreanproductwouldreceivemorefavourabletariffandinternaltaxtreatmentthantheJapaneseproduct.
Identicalproductsareunquestionablylikeproducts,sothereisnoreasonforfurtheranalysisofwhatcharacteristicsmakeproductslike,whenthemeasureatissueevendiscriminatesbetweenidenticalproducts.
7.
116IndonesiaattemptstoobfuscatetheverycleardiscriminationembeddedinitsNationalCarProgrammebyarguingforanovelandextraordinarilynarrowdefinitionof"likeproduct.
"IndonesiawouldhavethisPanelbelievethattheTimorS-515sedanissouniqueastobe"unlike"everyotherautomobileintheworld.
Ifthatpositionwereadopted,Indonesiawouldbefreetoimposeanydiscriminatorytaxesorotherdiscriminatorypoliciesitsawfitagainstimportedautomobiles.
7.
117Indeed,thelogicoftheIndonesianpositionisthateverycarmodelisunique,soeachandeveryWTOMemberwouldbefreetodiscriminateagainstanyandallimportedmodels.
ThatpositionwouldeffectivelyeliminatethecoreGATTdisciplinesofMFNtreatmentandnational387TheGovernmentofIndonesiaalsostatesthatJapan"miscites"theUS-Gasolinecase,since"thedecisiondeclaresthatUnitedStatesauthoritiesmusthaveforeseenthatthetwoseparateregulatoryregimesthattheyhadestablishedwerediscriminatory.
"Itfurtherstates,"[e]venifcertainGovernmentofficialswereawareofTPN'scorporateintentiontouseKiaasasupplier,thelegalstructureofthenationalcarprogrammedidnotcompelorleadtothisprivate-partydecisionortoimportsfromKorea.
"However,again,ithasalreadybeenfullydemonstratedthattheIndonesianauthoritiesmusthaveforeseenthediscriminatoryresultsandalsothatthelegalstructureoftheNationalCarsProgrammedidcompelandleadtotheresults.
Therefore,theGovernmentofIndonesiaessentiallyadmitsitsviolationofGATTArticleI.
388AppellateBodyReportonBananasIII,para.
232.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage173treatmentfromtheautomotivesector.
Suchanarrowviewof"likeness"couldalsodrasticallylimittheapplicationofthoseGATTdisciplinestoallothermanufacturedproducts.
(2)JapanesecompaniesproduceautomotivepartsandcomponentslikethoseimportedfromKoreaforassemblyofNationalCars7.
118Indonesiaevengoessofarastoclaimthat"thereareno'likeproducts'"to"Timorcomponentsandparts.
"ThisclaimisbasedonIndonesia'stheorythatnoproductcanbelikeacustomizedcomponent.
Themerefactthatapartorcomponentiscustomizedforassemblyinaparticularcarmodeldoesnotmeanthatitisipsofactounlikeotherautomotivepartsandcomponents.
Therealityisthatapartorcomponentmaybecustomizedonlyinaveryminorrespectandthatamanufacturercanreadilyadaptasinglestandardpartorcomponenttocustomizeitforavarietyofcarmodels.
7.
119BasedontheGovernmentofJapan'sgeneralunderstandingofthenatureofautomotivepartsandcomponents,itistruethatautomobilemakersveryoftenprovidespecificationsforpartsandcomponentsthatareappliedonlyforonemodel.
Amongautomobilesofthesametypeorinthesameclass,however,power-relatedpartsandcomponents(suchasengines,transmissions,andbrakes),tires,batteries,wheels,lamps,seats,etc.
areofteninterchangeablewithonlyminoradjustments.
Accordingly,whenthespecificationsforthepartsandcomponentsforparticularmodelsaredetermined,asinglemanufacturermayproduceandsupplypartsandcomponentsadaptedtothespecificneedsofavarietyofmodels.
7.
120Underthesecircumstances,itisclearthat,regardlessofwhetherpartsorcomponentsare"tailor-made"foraparticularmodel,thereoftenaremany"like"productswithinacategoryofpartsandcomponents(suchasengines,transmissions,brakes,etc.
)thatareproducedbythesameorothermanufacturersforothermodels.
7.
121TheGovernmentofIndonesiamayarguethatthepartsandcomponentsusedfortheassemblyofTimorsaredifferentfromthisgeneralcharacterizationandarenotinterchangeablewithminoradjustmentsfrompartsandcomponentsusedinothermodels.
Evenifthatweretrue,however,itwouldnotmeanthatsuchproductsarenecessarily"unlike"allotherproductswithinthemeaningofGATTasallegedbyIndonesia.
Moreover,itwouldconfirmJapan'sargumentthatdefactotheNationalCarProgrammeonlybenefitsthosepartsandcomponentsimportedfromKiaMotorsinKorea.
7.
122Thus,Japanesemanufacturersmayproduceandshiptheexactsamepartsandcomponentswiththenecessarycustomization.
However,theIndonesianmeasureswouldneverthelessprovidelessfavourabletreatmenttotheJapaneseproducts,whichcannotbeusedforassemblingNationalCars,thantheyaccordtocertainKoreanproducts.
Inanyevent,theGovernmentofIndonesia'stheoryregardingcustomizedpartsandcomponentsmustfailtoexcuseallofthediscriminationagainstimports,becausebyIndonesia'sownadmissiontheTimorS-515doesusesomenon-customizedpartsandcomponents.
(SeeSectionVII.
D.
)(3)Indonesia'sExtremelyNarrowViewof"LikeProducts"HasNoSupportintheGATT/WTOPrecedents7.
123Indonesiaoffersnoserioussupportforitsextremelynarrowconceptionoflikeness.
TheonlytwoGATTPaneldecisionscitedarewhollyirrelevant.
TheGovernmentofIndonesiacitesWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage174AustralianSubsidyonAmmoniumSulphateandEEC-MeasuresonAnimalFeedProteins389,forthepropositionthattheArticleIconceptof"likeproducts"isnarrowerthantheArticleIIIconceptof"like"or"directlycompetitiveorsubstitutableproducts,"whichisperfectlyobviousandhasnothingtodowiththescopeofthe"likeproducts"conceptitself.
Thus,thosecasesdealtwithcompletelydifferentsituationsfromtheinstantcase.
(4)ThelimitedsalesofforeignCBUsintheIndonesianMarketDoNotJustifyIndonesia'sdiscriminatorymeasures7.
124IndonesiaindicatesthatsalesofforeignCBUsarelimitedintheIndonesianmarket,andthusJapanhasnogroundsforclaimingharm.
(SeeSectionVII.
D.
)However,infact,allthatthesoledataindicatesishoweffectiveIndonesia'smeasureshavebeeninimpedingtheentryofimportedsedanstoIndonesia.
Indonesiabannedallsedanimportsuntil1993.
ThecurrenttariffrateonCBU'sisstillprohibitiveat200percentadvalorem.
7.
125Needlesstosay,Japanesecarmanufacturersdoproduce,andhavethecapacitytoexport,varioustypesofsedanswhicharealmostthesameas,andcertainly"like",theTimorineveryrelevantrespect,includingenginedisplacement,dimensions,maximumpowerandsoon.
7.
126ItistruethatfewoftheseproductswereexportedtoIndonesiaasof1997,whichisquiterationalconsideringIndonesia'sprotectivetradepolicies,suchasthe200percenttariffrate.
IfevertheGovernmentofIndonesiashouldstopimposingprohibitivelyhighimporttariffsandluxurytaxesontheseimportedsedans,asitactuallydoesforcertainKoreansedansundertheJune1996Programme,JapanesecarmanufacturerscanandwillcertainlystartexportingthemtoIndonesia.
7.
127ThismeansthatthesmallnumberoflikeimportedproductshasbeencreatedbytheGovernmentofIndonesiaitself.
Inotherwords,whattheGovernmentofIndonesiaisattemptingtodoinitssubmissionistojustifyitsdiscriminatoryNationalCarProgrammebyvirtueofthesmallvolumeofimports,whenthatcircumstancehasbeencausedbytheGovernmentofIndonesia'sownlong-standingprotectivetradepolicies.
UnderIndonesia'sreasoning,aWTOMemberthatmaintainsanimportbanwouldbeallowedtomaintainitforever,becausetherewouldbenoimportsandsonootherMemberwouldhavelegalstandingtochallengetheimportban.
7.
128Asamatterofcourse,previousPanelsunderGATTorWTOhaveneverpermittedthiskindofjustification.
GATTPanelshaveheldthata"demonstrationthatameasureinconsistentwith[GATTArticles]hasnoorinsignificanteffectswould.
.
.
notbeasufficientdemonstrationthatthebenefitsaccruingunderthatprovisionhadnotbeennullifiedorimpaired"390,whichhasbeenreaffirmedbytheAppellateBodyintheBananasIIIcase.
391Moreover,intheCanada-PeriodicalscasewhereataxpolicywasexaminedunderGATTArticleIII:2,butimportsoflikeproductsdidnotexistinthemarketbecauseoftheimportprohibition,theAppellateBody,aswellasthePanel,389PanelReportonAustralianSubsidyonAmmoniumSulphate,adoptedon3April1950,GATT/CP.
4/39;andPanelReportonEEC-MeasuresonAnimalFeedProteins,L/4599,adoptedon14March1978,25S/49.
390See,inparticular,PanelReportonUnitedStates-TaxesonPetroleumandCertainImportedSubstances,L/6175,adoptedon17June1987,BISD34S/136,para.
5.
1.
9.
391AppellateBodyReportonBananasIII,paras.
252-253.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage175foundthat"hypotheticalimports.
.
.
havetobeconsidered.
"392TheonlyalternativewastodeclinetoexaminetheGATTArticleIIIissuebecauseofthenon-existenceofimports.
7.
129Inthepresentcase,itisquiteapparentthata"hypothetical"viewpointshouldalsobetakenforthesakeofexaminingGATTArticleI,insteadofallowingtrade-impedingmeasurestohelpGATT-inconsistentmeasurestoevadeWTOreview.
7.
130Finally,itshouldbealsonotedthatIndonesia'sargumentisirrelevantwithrespecttoautomotivepartsandcomponents,asJapanesecompaniesexportsubstantialquantitiesofthoseproductstoIndonesia.
393(c)TheJune1996ProgrammeisstillvalidandeffectiveandcanandshouldbereviewedbythePanel7.
131Japanmakesthefollowingarguments,whicharenotlimitedtothecontextofArticleI:1,butrebutIndonesia'sargumentsingeneral.
7.
132IndonesiaseekstoremovetheentireJune1996ProgrammefromthePanel'sscrutinybyclaimingthattheProgrammehasexpired.
WhileIndonesiacontendsthattheJune1996Programmeasawholeendedon30June1997,thefactsareclearthatonlytheauthorizationtoPTTimortoimportNationalCarsdutyfreeexpiredthen.
TheProgrammeitself,includingtheluxurytaxexemptionforcustomersofPTTimor,remainsinfullforceandeffect,withtheGovernmentofIndonesiafreeatanytimetomakefurtherauthorizations.
Moreover,eveniftheProgrammeactuallyexpiredattheendofJuneasalleged,thisPanelhasfullauthoritytoaddresstheGovernmentofJapan'schallengestotheProgramme.
ThePanelshouldexerciseitsauthority,becausenotrulingherewouldencourageWTOMemberstoenact"one-time"measures,ordeclarethatgeneralmeasureshaveexpired,toescapeWTOreview.
(1)TheJune1996Programmeisstillinfullforceandeffect7.
133IndonesiahasconcededthatPresidentialDecreeNo.
42andDecreeofMinisterofIndustryandTradeNo.
142/96"havenotbeenrepealedby[any]positiveactionoftheIndonesianGovernment".
AccordingtoIndonesia'sadmission,thesedecrees"weredraftedingeneraltermsandappliedtoanynationalcarcompany".
Asimplereviewofthedecreesconfirmsthattheyhavenotexpiredbytheirterms,sotheymustremainineffectuntil"repealedby[a]positiveaction".
7.
134EvenwithrespecttoPTTimor,themeasuresstillremainineffect.
Becausetheluxurytaxiscollectedatthetimeofsale,notatthetimeofimportation,admittedbytheGovernmentofIndonesia,PTTimorwillcontinuetobenefitfromtheluxurytaxexemptionforitscustomersatleastuntilsuchtimeasall40,000ImportedNationalCarshavebeensold.
TothebestknowledgeoftheGovernmentofJapan,therearestillthousandsofImportedNationalCarswhichremainunsold.
7.
135Further,theJune1996ProgrammealsoshouldberegardedasremainingineffectfromtheviewpointthattheGovernmentofIndonesiahasnotcompleteditscomplianceauditfortheProgramme,accordingtoitsadmissionatthefirstPanelmeeting.
394392PanelReportonCanada-Periodicals,para.
5.
23.
AppellateBodyReportonCanada-Periodicals,p.
19.
393JapanExhibit76.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1767.
136Inshort,theJune1996Programmeisstilloperationalandhasnotexpired,contrarytotheGovernmentofIndonesia'srecentallegation.
7.
137Indonesiaallegesthatitsownpreviousstatementthatthe"June1996PresidentialDecreeisstillineffect.
.
.
"isirrelevantbecauseitwasmadebefore30June1997.
Thatargumentiswrong.
PerhapsIndonesiahasforgottenthatitmadethisstatementon15September1997-nearlythreemonthsafterIndonesianowclaimsthattheprogrammeexpired.
7.
138Evenmorestriking,Indonesiahasmadeanadmissionthatcompletelyundercutsitsownargument.
Byconcedingthatover17,000TimorsimportedfromKorearemaintobesoldandthat"theGovernmentdoesnotforegotheluxurytaxuntileachcarissold,"IndonesiahasadmittedthattheJune1996Programme,atleastinthecontextoftheluxurytaxexemption,isstillineffecttoday.
(2)EveniftheJune1996ProgrammeexpiredattheendofJune1997,thePanelcanandshouldruleonit7.
139IthasbeentheusualpracticeofGATT/WTOpanelstorule,atleast,onmeasuresthatwereeffectiveatthetimethepanel'stermsofreferencewerefixed,evenifsuchmeasureslaterbecameineffectivebeforethepanelrendereditsruling.
3957.
140ThisPanelwasestablishedon12June1997,andthetermsofreferenceweredeterminedonthesamedate,inaccordancewiththerequestsoftheGovernmentofJapanandtheEuropeanCommunities.
TheGovernmentofJapan'srequestfortheestablishmentofapanelspecificallyreferredtotheJune1996ProgrammeandIndonesiahasneverexpressedanyobjectiontothetermsofreferenceofthisPanel.
AlthoughthetermsofreferencewereslightlyrevisedinJuly1997,thatrevisionwasmadeonlytoaccommodatetheparticipationoftheUnitedStates,andthatrevisiondoesnotaffectthetermsofreferenceofthisPanelasfarasthespecificmeasuresreferredtobytheGovernmentofJapanareconcerned.
7.
141Therefore,eveniftheJune1996Programmeexpiredon30June1997,asIndonesianewlyalleges,itisundisputedthattheProgrammewasineffectwhenthePanel'stermsofreferencewere394AsindicatedinSectionX.
A,IndonesiahassubmittedevidenceallegedtodemonstratethatTPNfailedtheaudit.
(IndonesiaExhibit47).
395Severalpanelshaveadjudicatedclaimsinvolvingmeasuresthathadexpiredorwerenolongerbeingapplied,butthathadbeenappliedwhenthepanel'stermsofreferencewerefixed.
See,PanelReportonUnitedStates-MeasuresAffectingImportsofWovenWoolShirtsandBlouses,WT/DS33/R,upheldbytheAppellateBody,WT/DS33/AB/R,adoptedon23May1997(rulingonameasurethatwasrevokedafterthePanelwasestablished);PanelReportonEEC-MeasuresonAnimalFeedProteins,adoptedon14March1978,BISD25S/49(rulingondiscontinuedmeasuresthathadterminatedafterthetermsofreferenceofthePanelhadalreadybeenagreed);PanelReportonUnitedStates-ProhibitionsonImportsofTunaandTunaProductsfromCanada,adoptedon22February1982,BISD29S/91,106,para.
4.
3.
(rulingontheGATTconsistencyofameasurewithdrawnafterestablishmentofthePanelbutbeforeagreementonthePanel'stermsofreference);andPanelReportonEEC-RestrictionsonImportsofApplesfromChile,adoptedon10November1980,BISD27S/98(rulingonameasurewhichhadterminatedbeforeagreementonthePanel'stermsofreferencebutwasspecificallyincludedinthetermsofreference).
AllthesecasesshowthatthePanelmayruleontheconsistencywithWTOagreementsofthemeasuresthatexpiredaftertheestablishmentofaPanel.
TheUS-GasolinePanelalsosupportsthispositionbystating"ithadnotbeentheusualpracticeofapanelestablishedundertheGeneralAgreementtoruleonmeasuresthat,atthetimethepanel'stermsofreferencewerefixed,werenotandwouldnotbecomeeffective,"atpara.
6.
19.
(Emphasisadded).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage177fixedon12June1997.
Therefore,thePanelcanandshouldruleontheProgramme'sinconsistencywithIndonesia'sWTOobligations.
(3)NoneoftheprecedentcasescitedbyIndonesiasupportsitsargument7.
142IndonesiacitedthreeGATTPaneldecisionsinsupportofitscontentionthatthePanelmaynotruleon"expired"measures.
However,itscitationsarebothmisleadingandinaccurate.
7.
143IndonesiacitesEEC-RestrictionsonImportsofDessertApples-ComplaintbyChileandNorway-ProcurementofTollCollectionEquipmentfortheCityofTrondheim396foritscontentionthatPanelsmaynotreviewtheWTOconsistencyofexpiredmeasures.
Infact,bothPaneldecisionsflatlycontradicttheGovernmentofIndonesia'sposition.
BothPanelsreviewedtheexpiredmeasuresandconcludedthatsuchmeasuresviolatedobligationsunderGATTandtheAgreementonGovernmentProcurement,respectively.
ItshouldbeespeciallynotedthattheTrondheimPanelstated:[T]hepanelalsobelievedthat,incasesconcerningaparticularpastaction,apanelfindingofnon-compliancewouldbeofsignificanceforthesuccessfulparty:wheretheinterpretationoftheAgreementwasindispute,panelfindingsonceadoptedbytheCommittee,wouldconstituteguidanceforfutureimplementationoftheAgreementbyParties.
ItwasonlyafterreachingtheseconclusionsthatthePanelsdeclinedtorecommendcompensationfortheexpiredmeasures.
Butcompensationisnotatissuehere.
Rather,whatJapanisaskingthisPanelis,liketheDessertApplesandTrondheimPanels,tofindthatIndonesia'smeasuresareinconsistentwithitsWTOobligations.
7.
144TheotherPanelReportcitedbyIndonesia,Thailand-RestrictionsonImportationofandInternalTaxesonCigarettes,397alsofailstosupportitsposition.
ThepassagecitedbyIndonesiadoesnotdiscusstheissueofwhetheraPanelmayreviewsuchmeasures.
Instead,incircumstanceswhereaMemberrepealeditsGATT-inconsistentmandatorylegislation,whileleavingdiscretionarylegislationthatmaybeappliedinaGATT-inconsistentmanner,thePaneldeclinedtofindthediscretionarylegislationtobeinconsistentwithGATTaslongasitwasnotappliedinaGATT-inconsistentmanner.
ThePaneldidnotreachanydecisionwithrespecttotheexpiredlegislation.
ButthatiscompletelydifferentfromIndonesia'sassertionthatpanelscannotorshouldnotreviewexpiredmeasures.
7.
145Insum,noneoftheGATTpanelprecedentscitedbyIndonesiasupportitsposition.
(4)Indonesia'sattempttocircumventthisPanel'sreviewshouldnotbeallowed7.
146Finally,thePanelshouldrejectIndonesia'sattempttoescapeitsreviewbyrecastingtheJune1996Programmeasaone-time-onlymeasurethathasexpired.
Otherwise,thedisciplinesestablishedthroughthepastfiftyyearefforttoliberalizeglobaltradewouldbeseverelyweakened.
396PanelReportonEEC-RestrictionsonImportsofDessertApples-ComplaintbyChile(DessertApples"),L6491,adoptedon22June1989,36S/93.
Norway-ProcurementofTollCollectionEquipmentfortheCityofTrondheim("Trondheim"),(GPR.
DS2/R)adoptedbytheCommitteeonGovernmentProcurementon13May1992.
397PanelReportonThailand-RestrictionsonImportationofandInternalTaxesonCigarettes,DS10/R,adopted7November1990,37S/200.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage178IfapanelcouldnotruleontheWTOconsistencyofameasurethatwasineffectwhenthepanel'stermsofreferencewereestablishedmerelybecauseaMemberinformedthepanelthatthemeasurehad"expired",withoutsomuchasformallyrevokingit,theabilityofWTOmemberstoevadeWTOreviewisalltooobvious.
Ifthissortofevasionistolerated,theUruguayRound'shistoricefforttocreateaneffectivesystemforresolvingtradedisputeswillbecrippled,theWTOdisciplinesthemselveswillbegravelyweakened,andthegoalsoftheWTOwillbefrustrated.
2.
RebuttalArgumentsmadebytheEuropeanCommunities7.
147ThefollowingaretheEuropeanCommunities'rebuttalargumentstoIndonesia'sresponsestotheclaimsunderArticleI:1ofGATT1994:(a)ThefactthattheauthorisationgrantedtoPTTPNexpiredinJune1997doesnotpreventthePanelfromrulingonthecompatibilityofthatmeasurewithArticleI:17.
148AccordingtoIndonesia,theauthorisationgrantedtoPTTPNforimportingdutyfreeandtaxfree45,000passengercarsfromKoreaexpiredasof30June1996.
Onthatground,IndonesiahasrequestedthePaneltorefrainfromrulingonthecompatibilityofthatmeasurewithGATTArticleI:1.
TheEuropeanCommunitiesopposesthatrequestandrespectfullyurgesthePaneltoruleonthisclaim,likeonalltheotherclaimscontainedinitstermsofreference.
7.
149Althoughtheabovementionedauthorisationhasexpired,PresidentialDecree42/96,onthebasisofwhichthatauthorisationwasissued,stillremainsinforce.
Furthermore,bothPresidentialDecree42/1996anditsimplementingmeasureDecree142/1996aregenerallyapplicableregulations.
Therefore,newauthorisationsmaybegrantedinrespectofotherNationalCars.
3987.
150Indonesiaclaimsthat"nocomparableprogrammehasbeenorwillbeauthorised".
Yet,thewordingofPresidentialDecree42/96andDecree142/1996suggeststhattheIndonesianGovernmenthasnodiscretiontodenythisbenefitonceacarhasbeencertifiedasaNational398IndonesiadisclosedtheexistenceofaletterfromtheMinistryofIndustryandTrade"denyingNationalCarbenefitsforaSportage-typevehicle".
(SeeSectionVII.
)Thebasisforthatdecisionisdoubtful.
ItwouldappearthataPioneerCompanyisnotrequiredtohaveeachofitsmodelsrecognisedasaNationalCarbymeansofaspecificdecision.
Attheveryleast,IndonesiahasnotdisclosedanysuchdecisionrecognisingtheTimorS-515asaNationalCar.
TherecordonlycontainsadecisionoftheDirectorGeneralforMetal,MachineryandChemicalIndustriesNo002/SK/DJ-Ilmk/II/1996(IndonesiaExhibit41)appointingPTTPNasaPioneerCompanyandasubsequentdecisionoftheStateMinisterforMobilisationofInvestmentFunds(Decree02/SK/1996,ECExhibitA-11)confirmingthatappointment.
IndonesiahasadmittedthatnoformaldecisionrecognisingtheTimorS-515asaNationalCarhadbeenissued.
Nevertheless,IndonesiamadetheextraordinaryargumentthatthedecisiontolimitthegrantofNationalCarstatustotheTimorS-515is"inherent"inthetitleofDecree02/SK/1996which,accordingtothetranslationofthatdecreeprovidedbyIndonesia,reads"ThedeterminationofPTTimorPutraNasionaltoEstablishandProduceANationalCar".
Inthisregard,itisworthnotingthataccordingtothetranslationofthatDecreesubmittedbytheEuropeanCommunities(ExhibitECA-11),whichwasmadeintemporenonsuspectobywhatIndonesiadescribeselsewhereasa"privateentity",thetitleofDecree02/SK/1996is"StipulationofPTTimorPutraNasionaltodevelopandproduceNationalCars".
IdenticalformulaisusedinArticle1ofthesameDecree.
NotealsothatIndonesia'sowndescriptionofthedocumentintheIndexofAttachmentsofitsFirstSubmissionreads"ConfirmationofPTTimorPutraNasionalastheCompanytoDevelopandProduceNationalAutomobiles.
"EveniftheSportagewasnotgrantedNationalCarbenefits,othermodelsproducedbyPTTPNorbyBimantara(whoseapplicationforPioneerstatusisstillunderconsideration)canstillbegrantedthosebenefits.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage179Car.
399Moreover,theseassurancesappeartobecontradictedbythefactthatneitherPresidentialDecree42/96norDecree142/1996havebeenrepealed.
7.
151Furthermore,itisimportanttonotethat,inaccordancewithArticle2ofDecree42/96anyfurtherauthorisationswillhave,liketheonegrantedinrespectoftheTimorS-515,adurationofonlyoneyear.
Therefore,anysuchauthorisationwillhaveexpiredbeforeanewPanelhastimetoruleonit.
7.
152TheEuropeanCommunities'srequestthatthePanelruleontheexpiredmeasureissupportedbypriorPaneldecisions.
UnderGATT1947,severalpanels400consideredmeasuresthatwerenolongerinforceincaseswhere,asinthepresentcase,themeasureswerestillinforceatthetimethePanelwasestablished401andthetermsofreferencesetand/orwheretherewasathreatofrecurrence.
7.
153ThispracticehascontinuedundertheWTOAgreement.
InUS-StandardsforReformulatedGasoline402,thePaneldecidednottoruleonadiscontinuedmeasure,butonlybecausethemeasurehadbeenterminatedbeforethetermsofreferencewereestablishedandwasunlikelytoberenewed.
InUS-MeasuresaffectingimportsofWovenWoolShirtsandBlousesfromIndia,thePaneldecidedthat:399Article1ofPresidentialDecree42/96readsasfollows:"NationalcarswhicharemadeoverseasbyIndonesianworkersandfulfilthelocalcontentstipulatedbytheMinisterofIndustryandTradewillbetreatedequallytothosemadeinIndonesia".
ThiswordingonlyleavesdiscretiontotheMinisterofIndustryandTradeforstipulatingtheleveloflocalcontent.
ThereisnoindicationthattheIndonesianauthoritiesmayrefusethebenefittoacarpreviouslycertifiedasaNationalCar(assumingthatsuchcertificationisnecessary.
Seethepreviousfootnote)Article2ofPresidentialDecree42/1996isalsodraftedinmandatoryterms:"TheequaltreatmentcontemplatedinArticle1isgrantedonlyonceforamaximumperiodofoneyearandforamountstobestipulatedbytheMinisterofIndustryandTrade"Again,theMinisterofIndustryandTradeisleftdiscretiontostipulatethe"amounts",butthereisnoindicationthatthebenefitcanberefused.
Theterm"once"isambiguous.
ItcouldmeanthatthebenefitisgrantedonlyonceinrespectofeachNationalCaroronlyoncetoeachPioneerCompany.
TheinterpretationnowmadebyIndonesia,accordingtowhich"once"meansthattheGovernmentofIndonesiawillgrantnonewauthorisationtoimportNationalCarsdutyandtaxfreeiscontrivedandunconvincing.
Itsufficestonotethatthelastdayoftheone-yearperiod(30June1997)wasnotspecifiedinPresidentialDecree42/1996orinanyothergenerallyapplicablemeasureknowntoallpotentialbeneficiariesofPresidentialDecree42/1996butonlyintheimportauthorisationgiventoPTTPNinthe"RecognitionofRegisteredImporter/SoleAgent,filenumber1410/MPP/6/1996".
400SeeforinstancethePanelReportonEEC-RestrictionsonImportsofDessertApples,ComplaintbyChile,adoptedon22June1989,BISD36S/93;thePanelReportonEEC-RestrictionsonImportsofApples,ComplaintbytheUnitedStates,adoptedon22June1989,BISD36S/135;thePanelonUnitedStates-ProhibitionofImportsofTunaandTunaProductsfromCanada,adoptedon22February1982,BISD29S/91;thePanelReportonEEC-RestrictionsonImportsofApplesfromChile,adoptedon10November1980,BISD27S/98;andthePanelReportonEEC-MeasuresonAnimalFeedProteins,adoptedon14March1978,BISD25S/49.
Althoughthedefendantclaimsthat"priorPaneldecisionssupporttherefusaltoruleonanexpiredMeasure",itcanpointbuttoasingleinstancewhereaPaneldecidednottoruleonameasurewithdrawnaftertheestablishmentofthePanel,namelythePanelReportonThailand-RestrictionsonImportationofandInternalTaxesonCigarettes,adopted7November1990,BISD37S/200.
ThatPanelreportstandsoutasanaberrationandsubsequentdecisionsbyWTOPanelsdealingwiththesameissuedonotrefertoit.
401ThePanelrequestedbytheEuropeanCommunitieswasestablishedbytheDSBatitsmeetingof12June1997(seeWT/DS55/7,WT/DS64/5andWT/DS54/7).
402PanelreportonUnitedStates-StandardsforReformulatedGasoline,WT/DS2/R,adoptedon20May1996,para6.
19WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage180intheabsenceofanagreementbetweenthepartiestoterminatetheproceedings,wethinkthatitisappropriatetoissueourfinalreportregardingthemattersetoutinthetermsofreferenceofthisPanelinordertocomplywithourmandate[.
.
.
.
]notwithstandingthewithdrawaloftheUnitedStatesrestraint"403404(b)ItisirrelevantthattheIndonesianGovernmentdidnotmandateexpresslyPTTPNtoimportautomobilesorpartsoriginatinginKorea7.
154ThereisampleandindisputableevidencethattheIndonesianGovernment(andnotmerely"certainofficials")(SeeSectionVII:D)wasperfectlyawarethatPTTPNwouldtakeadvantageofthemeasuresindisputetoimporttheTimorS-515(andsubsequentlypartsandcomponentsthereof)fromKorea,andnotanyotherpassengercarfromanyotherMember:-thesoleownerofPTTPNhadsetupajointventurewithKIAtoassembleKIAcarsinIndonesiaalreadyin1993.
ThatjointventureobtainedaninvestmentpermitfromtheIndonesianGovernment.
405-theinvestmentapprovalissuedtoPTTPNbytheIndonesianGovernmenton9November1995statesexpresslythatthepassengercarstobeassembledatKarawangPlant"willuseKIAtechnologytobedevelopedintolocaltechnology".
406-byletteraddressedtotheStateMinisterfortheMobilisationofInvestmentFundson12December1995,PTTPNrequestedapprovalofaprogramme"torealisethenationalautomobileproject".
ThatprogrammeenvisagedinteraliatheimportationofmotorvehiclesmanufacturedbyKIAinKoreaaswellastheimportation,atasubsequentstage,ofpartsandcomponentssuppliedbyKIAfortheassemblyofcarsinIndonesia.
407-byletterdated28May1996,PTTPNrequestedauthorisationto"producemotorvehiclesunderTimorS-515trademarkatKIAMotorCo.
SouthKorea,tobeshippedtoIndonesia.
.
.
"408-the"RecognitionofRegisteredImporter/SoleAgent"409issuedtoPTTPNon7June1996doesnotspecifythesourceoftheimports.
Nevertheless,thatrecognitionwasissuedinresponsetoPTTPN'sletterof28May1997.
Moreover,403PanelreportonUnitedStates-MeasuresAffectingImportsofWovenWoolShirtsandBlousesfromIndia,adoptedon23May1997,WT/DS33/R,para6.
2404InArgentina-CertainmeasuresaffectingImportsofFootwear,Textiles,ApparelandOtherItems(WT/DS56/R,atpp83-86,unadopted)thePaneldecidednottoruleonameasurewhichwasrevokedafterthecirculationoftherequestfortheestablishmentofaPanelbutbeforethePanelwasestablished.
ThePanelalsonotedthattherewasnoevidencethatthemeasurewouldbere-introduced.
405TheEuropeanCommunitieshasneverreferredtoPTTPNasajointventurewithKIA.
TheEuropeanCommunitiesnotesthatMrHutomoMandala,thesoleownerofPTTPN,andKIAhadestablishedajointventurein1993calledPTIndaudaPutraNasionalMotors.
DuringthefirstmeetingwithPanel,theGovernmentofKoreaadmittedtheexistenceofsomekindofjointventurearrangementbetweenKIAandPTTPN.
(SeeSectionXII.
B).
406IndonesiaExhibit15.
407IndonesiaExhibit24408IndonesiaExhibit18.
409IndonesiaExhibit13WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage181thespecificationsattachedtotheRecognitioncorrespondtothoseoftheKIASephia.
7.
155ItisofcourseimpossiblefortheEuropeanCommunitiestoascertainwhether,inadditiontobeingawareofPTTPN'schoiceandofitsconsequences,theIndonesianGovernmentdirectedorinfluencedthatchoice.
GiventheimportanceattachedbytheGovernmentofIndonesiatotheNationalCarProgramme,itishardtobelievethatithadnosayinginsuchacrucialissueasthechoiceofKIA.
Furthermore,thefactsofthiscasewhichhavebeendiscloseduntilnowbyIndonesiaevidencethatthroughouttheprocessofconceptionandimplementationoftheNationalCarProgramme,privateandgovernmentactionhavebeensotimelyandharmoniouslyconcertedastobealmostindistinguishable.
PTTPNrequestedapprovalfordevelopingaNationalCarbeforesuchaprogrammeexisted.
410WhentheNationalCarProgrammewaseventuallyapproved,itprovidedbenefitswhichcorrespondedpreciselytothoserequestedbyPTTPNseveralmonthsbefore.
Evenmoreextraordinary,PTTPNwasgrantedPioneerStatusbytheMinistryofIndustryandTrade411justafewdaysaftertheadoptionoftheProgramme412andbeforePTTPNhadtimetofileitsformalrequest.
413AsimilarsequenceoffactstookplaceinMay/June1996.
On28May1996PTTPNaskedauthorisationto"produce"NationalCarsinKorea.
414On6June1996,theGovernmentapprovedPresidentialDecree42/96creatingthatpossibility.
Thenextday,theMinistryofTradeandIndustrygrantedPTTPN'srequestof28May1996.
4157.
156Inanyevent,whetherornotPTTPN'schoicewasfreeorwasinfluencedbytheIndonesianGovernmentisultimatelyirrelevant.
ThemeasureattackedbytheEuropeanCommunitiesisnotPTTPN'schoicebutthelegalconsequencesknowinglyandwillinglyattachedbytheIndonesianGovernmenttothatchoice.
TheexistenceofadefactoviolationofGATTArticleI:1isnotdependentuponthecontentofPTTPN'schoice.
Ifinsteadofteaming-upwithKIA,PTTPNhadchosenaJapanesepartner,theschemeputinplacebytheIndonesianGovernmentwouldstillhavelednecessarilytothesameconsequencethatonlyimportsfromaMemberwouldhavebenefitedfromthetariffandtaxpreferences.
416410IndonesiaExhibit24411IndonesiaExhibit41.
ThisdecisionwasdisclosedbyIndonesiaonlyduringtheFirstMeetingwiththePanel.
AccordingtoIndonesia,itwas"overlookedincludingitinthelistoftranslateddocuments".
Infact,however,theexistenceofthisdecisionhadnotbeenmentionedbyIndonesia.
IndonesiainsteadsaidthatPTTPNwasdesignatedasaPioneerCompanyon5March1997bymeansofDecree02/SK/1996.
412Incontrast,Bimantara'sapplicationisstillawaitingaformalreply,morethanoneyearafteritwasfiled.
PTMultimotorFrance'srequestwasneveranswered.
413IndonesiaExhibit14414IndonesiaExhibit18415IndonesiaExhibit13416Indonesia'sattempttodistinguishthepresentcasefromEC-ImportsofBeeffromCanada(adopted10March1981,BISD28S/92)andSpain-TariffTreatmentofUnroastedCoffee(adoptedon11June1981,BISD28S/102)fails.
Itisobviousthat"innoneofthemwasthechoiceofthesuppliermadebytheprivatepartyrecipientofthesubsidyfoundtoconstitutegovernment-mandateddefactodiscrimination",sincenoneofthosetwocasesinvolvedanysubsidy!
Instead,itismorerelevanttonotethattheSpanishGovernmentdidnothavemore"direction"overthevarietiesofcoffeegrownbythefavouredColombianproducersthantheIndonesianGovernmenthadoverPTTPN'sallegedlyprivatechoice.
Inbothcases,theGovernmentreliedonafactwhichwasnotunderitscontrolbutwhichwasknowntoitinordertoapplyameasurethathadthenecessaryresultofbenefitingonlyimportsfromacertainsource.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage182(c)Theautomobilesandpartscoveredbythemeasuresarelikeanyotherautomobilesandparts7.
157Indonesia'sallegationthattheTimorS-515isnotlikeanyofthecarsimportedfromtheEuropeanCommunitiesisnotonlyfactuallyincorrect(SeeSectionV.
A.
2)butalsototallyirrelevant.
InordertoestablishaviolationofGATTArticleI:1theEuropeanCommunitiesisnotrequiredtoshowthatthemeasureconcernedhashadanyactualeffectsonitsexportstoIndonesia.
Instead,itissufficientfortheEuropeanCommunitiestoshowthatifa"like"producthadbeenexportedfromtheEuropeanCommunitiesitwouldhavenotbenefitedfromthesameadvantagesastheTimorsS-515importedfromKorea.
7.
158ThetariffsandtaxbenefitsgrantedbyIndonesiatotheTimorsS-515importedfromKoreaarebasedonthreeconditions:-first,thecarsmustbeNationalCarsmanufacturedby,oratleastfor,aPioneercompany;-second,theymusthavebeenmanufacturedwiththeparticipationofIndonesiannationals;-third,theymustincorporateacertainpercentageofcounter-purchasedpartsandcomponentsimportedfromIndonesia.
7.
159ItisobviousthatnoneoftheabovethreeconditionsaffectspersethephysicalcharacteristicsoftheNationalCars,northereforemakesthosecarsunlikeanyothercarswhichareormaybeexportedfromtheEuropeanCommunities.
ApassengercarmanufacturedintheEuropeanCommunitieswhichisidenticalinallrespects(andthereforeindisputably"like")totheTimorsS-515importedbyPTTPNwouldstillberefusedthetariffandtaxexemptionsprovidedbypresidentialDecree42/1996,simplybecauseitisnotaNationalCarmanufacturedby/forPTTPN.
7.
160Indonesiaalsoallegesthat93percentofthepartsfortheTimorS-515aretailormadeforthatmodel.
Hence,accordingtoIndonesia,theyarenot"like"partsforothercars,whicharealsocustomised.
Thisargumentcannotbeaccepted.
Itwouldleadtotheabsurdresultthateveniftwocarswere"like"whenimportedinassembledstate,theirindividualpartsandcomponentscouldneverbeconsideredas"like"whenimportedseparately.
Ifupheld,Indonesia'sargumentwouldmakepossibleforaMembertoapplyasmanydifferentimportdutyratesonacertaintypeofpartsasmodelsofcarsareassembledwithinitsterritory.
Carriedtoitslogicalconclusion,Indonesia'sreasoningwouldhavetheeffectofplacingallthetradeoncustomisedpartsandcomponentsbeyondthereachofthenumerousWTOrules,includingsomeofthemostbasicones,whichrelyuponthenotionof"likeproduct".
Forthatreason,theECconsidersthatcustomisedpartsandcomponents,includingthosefortheassemblyofcars,mustbedeemed"like"iftheyaresufficientlysimilarintermsofphysicalcharacteristicsandenduses,eveniftheyarenotinterchangeable.
Forthesepurposes,twocustomisedpartsshouldbeconsideredashavingsufficientlysimilarend-useswhentheyareintendedforuseinproductswhicharethemselves"like".
3.
RebuttalArgumentsoftheUnitedStates7.
161Asdemonstrated(SeeSectionVII.
C)IndonesiaviolatedArticleI:1ofGATT1994whenitauthorized,foraperiodofoneyear,theimportationandsaleinIndonesiaofcompletelybuilt-upWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage183KiaSephiasedansfreeofIndonesia's200percenttariffand35percentluxurytax.
417Initsfirstsubmission,Indonesiaofferedthreeargumentsinresponse,noneofwhichhasmerit.
(a)TheOne-YearExemptionIsNota"DeadMeasure"7.
162Indonesia'sfirstargumentisthattheone-yearauthorizationhasexpiredbecauseTPNmaynotimportanyadditionaltax-andduty-freeSephias.
Thus,accordingtoIndonesia,theone-yearauthorizationhasexpired(or,intradelawjargon,isa"deadmeasure")andtheArticleI:1claimismoot.
7.
163Asafactualmatter,thisargumentisincorrect.
AlthoughitmaybetruethatTPNisnotauthorizedtoimportadditionaltax-andduty-freeSephiasforthemoment,thisdoesnotmeanthattherelevantmeasuresarenolongerineffect.
WithrespecttotheexemptionoftheseSephiasfromtheluxurytax,thereareahostofSephiasthatwereimportedundertheone-yearauthorization,butthatremainunsold.
InitsAnnexVresponse,IndonesiastatedthattheseSephiaswouldbeexemptfromtheluxurytaxwhentheyaresold.
4187.
164Likewise,thetariffincentivesarestillineffect.
Ithasbeenwidelyreportedthatasaconditionforreceivingtheone-yearauthorization,TPNwasrequiredtosatisfythefirst-year20percentlocalcontentrequirementoftheNationalCarProgramme.
419Inaddition,TPNwasrequiredtopostabankguaranteetotheDirectoratGeneralofCustomstoguaranteerepaymentoftheforegonedutiesiftheKiaTimorventurefailedtomeetthe20percentrequirement.
ThesereportsareconsistentwithDecree82/1996andDecree36/1997,bothofwhichrefertopossiblerepaymentbythenationalcarcompanyiflocalcontentlevelsarenotmetandtoarequirementtosubmitabankguaranteetoIndonesiaauthoritiestoensuresuchrepayment.
4207.
165AstatementinIndonesia'sinitialAnnexVresponsereferstothebankguarantee,andstatesthat"thesubsidywillbegrantedaftertheauditingoflocalcontent[is]achieved.
"421Inaddition,atthefirstmeetingofthePanel,theIndonesianrepresentativesconfirmedthattheaudithadnotbeencompleted.
WhatthismeansisthatasofDecember4,1997,wellafterthisPanelwasestablished,theone-yeartariffincentivesconferredonTPNremainedconditional,andcouldberecoupedbytheGovernmentifTPNandKiaTimorfailedtheaudit.
7.
166Inshort,themeasuresauthorizingtheone-yeartax-andtariff-incentivesarestilloperationalandhavenotexpired.
7.
167Moreover,Indonesia'sassertionthatitwillnotgrantsuchexemptionsinthefutureiscarefullyworded.
Initsresponsestoquestions3(1)and3(2)fromJapan(IndonesiaExhibit43),IndonesiasaysthatitwillnotgrantanyfuturetariffandtaxexemptionsunderPresidentialDecreeNo.
42/96.
Theseresponsesdonotruleouttheauthorizationoffuturetariffandtaxexemptionsnewdecrees.
Giventheapparenteasewithwhichsuchdecreescanbeissued,thePanelshouldruleonthecomplainants'ArticleIclaimstoensurethatIndonesiaisputonnoticethattheauthorizationofsimilarexemptionsinthefutureconstitutesaviolationofArticleI.
417TheUnitedStatesnotedthatwithrespecttoIndonesia'sviolationofArticleI:1,theUnitedStates,atthesecondmeetingofthePanel,agreedwiththepointsmadebyJapanandtheEuropeanCommunities.
418AV/15,UnitedStatesfollow-upquestion#12/27,andIndonesia'sresponsetheretoinAV/16.
419USExhibit23.
420IndonesiaExhibits21and9.
421AV/14,AttachmentU-16/1.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1847.
168Moreover,asalegalmatter,previouspanelshavereviewedtheconsistencyofmeasuresthatceasedtobeeffectiveafterthedateonwhichapanelanditstermsofreferencewereestablished.
422Inthiscase,themeasuresinquestioncontinuetobeeffectivewellafterthedateonwhichthisPanelanditstermsofreferencewereestablished.
(b)Indonesiaconferredanadvantagetoacountry7.
169IndonesiaalsoarguesthatitdidnotviolateArticleI:1becauseitallegedlydidnotgrantanadvantagetoautomobilesoriginatinginKorea.
Instead,accordingtoIndonesia,TPNwasfreetoimportduty-andtax-freecarsfromwhateversourceitchose.
7.
170Thisassertionsimplyiscontradictedbythefacts.
Thedocumentauthorizingtheseimportations,DecreeNo.
1410/MPP/6/1996,didnotpermitTPNtoimportanypassengercaritchose,butinsteadexpresslyauthorizedonlytheimportationofthe"TIMORSedan/S515-1500cc.
".
Moreover,asIndonesiaadmits:ThistreatmentwasnecessarybecauseTPNneededtoimportbuilt-upTimorstoestablishtherequiredmarketingnetworkandintroduceanationalcartotheIndonesianbuyingpublicpriortothetimethatdomesticproductioncouldbegin.
423ThisobjectivecouldbeaccomplishedonlybytheimportationofKiaSephiasfromTPN'sjointventurepartner,KiaMotorsofKorea.
Itcouldnothavebeenaccomplishedbyimportingandselling,forexample,GMOpels,FordEscorts,orChryslerNeons.
ToparaphraseIndonesia'sownstatementregardingtheReformulatedGasolinecase,theIndonesianauthoritiesmusthaveforeseenthattheregimetheywereestablishingwasdiscriminatory.
7.
171Inthisregard,theAppellateBodyrecentlyreaffirmedtheimportanceoftheprincipleofdefacto,aswellasdejure,non-discrimination.
InBananasIII,theAppellateBodystatedthefollowinginconnectionwiththeMFNobligationunderArticleIIofGATS:"Moreover,ifArticleIIwasnotapplicabletodefactodiscrimination,itwouldnotbedifficult.
.
.
todevisediscriminatorymeasuresaimedatcircumventingthebasicpurposeofthatArticle.
".
424Here,Indonesiahasattemptedtocircumventthebasicnon-discriminationprincipleofArticleIofGATT1994.
7.
172OneissuethatJapanandtheEuropeanCommunitiesdidnotaddressisIndonesia'sargumentthatTPN,notKia,wasthebeneficiaryofDecreeNo.
42/96,andthatKiareceivednobenefitotherthanbeingpaidbyTPNasoneofitssuppliers.
First,theUnitedStateswouldnotethatArticleIappliestoproducts,notbusinessentities.
Nevertheless,intheviewoftheUnitedStates,beingpaidforproductsonesuppliesconstitutesanadvantage,favour,orprivilegewithinthemeaningofArticleI:1,particularlywhentheabilitytobepaidisattributabletoaspecialexemptionfromtariffsandtaxesthatisnotextendedtosuppliersfromothercountries.
AcceptingIndonesia'sargumentswouldopenupatremendousloopholeinArticleI,becauseonealwayscouldarguethatthoseadvantagedbynon-MFNbehaviourareimportersratherthansuppliers.
(c)ThepassengercarsinquestionarelikeproductstotheKiaSepiaSedan422UnitedStates-MeasuresAffectingImportsofWovenWoolShirtsandBlousesfromIndia,WT/DS33/R,ReportofthePaneladoptedon23May1997,para.
8.
1;andEEC-MeasuresonAnimalFeedProteins,ReportofthePaneladoptedon14March1978,BISD25S/49.
423SeesectionVII.
D.
3(b).
424EuropeanCommunities-RegimefortheImportation,SaleandDistributionofBananas,WT/DS27/AB/R,ReportoftheAppellateBodyadopted25September1997,para.
233.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1857.
173Finally,IndonesiaassertsthatthecomplainantshavefailedtoestablishforpurposesofArticleIthatthereisany"likeproduct"totheTimorKiaSephiasedan.
Arguingthatpassengervehiclesarehighlydifferentiated,Indonesiaassertsthat:"TheresimplyisnocarthatmatchestherequisitephysicalandnonphysicalcharacteristicsoftheTimorS515tobeconsidereda'likeproduct'toit.
"(SeesectionVII.
D.
2(c).
)7.
174Tothecontrary,theUnitedStatesprovidedmorethanenoughevidenceinitsfirstsubmissiontoestablishthatGMOpels,FordEscorts,andChryslerNeonsare"likeproducts"totheTimorKiaSephia.
Indonesiahasnotprovidedanyevidencetothecontrary,butsimplyhasassertedthatthereisnopassengercar"identical"totheSephia.
However,productidentityisnotrequiredforpurposesofa"likeproduct"analysisunderArticleI,especiallyinthecaseofconsumerproducts,suchaspassengercars,thatbytheirverynaturewillbedifferentiatedfromoneanotherforreasonsofproductcompetition.
Ifproductidentitywererequired,ArticleIwouldbeadeadletterinthecaseofconsumerproducts.
425VIII.
CLAIMSUNDERTHESCMAGREEMENT8.
1TheEuropeanCommunitiesand,initsrequestfortheestablishmentofapanel,theUnitedStates,bothclaimthatthemeasuresunderthe1993programmeandtheNationalCarprogrammecauseseriousprejudicetotheirinterestsinthesenseofArticle6oftheSCMAgreement.
However,initsfirstsubmission,theUnitedStatesclarifiedthatitwaslimitingitsclaimofseriousprejudicetosubsidiesprovidedundertheNationalCarprogramme.
Inaddition,theUnitedStatesclaimsthat,inmodifyingthe1993programme,andadoptingtheNationalCarprogramme,IndonesiahasviolatedArticle28.
2oftheSCMAgreement.
8.
2Inthisdispute,allpartiesmakingargumentsconcerningseriousprejudice(i.
e.
,theEuropeanCommunitiesandtheUnitedStatesintheirclaims,andIndonesiainitsresponses)agreethatthetariffandtaxmeasuresunderthe1993programmeandtheNationalCarprogrammearespecificsubsidies.
TheUnitedStatesandIndonesiadisagreeastowhetherthe$690millionloanisaspecificsubsidy.
Thefollowingarethepartiesargumentsinthisregard:A.
Existenceofspecificsubsidies1.
Themeasuresatissuearesubsidies(a)ArgumentsoftheEuropeanCommunities8.
3ThefollowingaretheEuropeanCommunities'argumentsthatthemeasuresatissuesare"subsidies"withinthemeaningofArticle1oftheSCMAgreement:8.
4Article1.
1oftheSCMAgreementstatesintherelevantpartthat:ForthepurposesofthisAgreement,asubsidyshallbedeemedtoexistif:425Inthisregard,inJapan-TaxesonAlcoholicBeverages,WT/DS8/AB/R,ReportoftheAppellateBodyadopted1November1996,p.
24,theAppellateBodyaffirmedthepanel'sfindingthatshochuandvodkaare"likeproducts"forpurposesofArticleIII:2,firstsentence,aprovisionthattheAppellateBodystatedshouldbenarrowlyconstrued.
Anyonewhohastastedshochuandvodkaknowsthatthosetwobeveragesarenot"identical.
"WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage186(a)(1)thereisafinancialcontributionbyaGovernmentoranypublicbodywithintheterritoryoranybodywithintheterritoryofaMember.
.
.
.
i.
e.
where:(ii)governmentrevenuethatisotherwisedueisforegoneornotcollected(e.
g.
fiscalincentivessuchastaxcredits);and(b)abenefitistherebyconferred8.
5Themeasuresatissueprovideforthegrantingofthreetypesofincentives:-customsdutyreliefforpartsandcomponentsintendedforassemblyintoNationalcars;-exemptionfromtheSalesTaxonLuxuryGoodsforNationalCars;and-customsdutyreliefforNationalCarsimportedfromKorea.
8.
6BoththecustomsimportdutiesandtheSalesTaxonLuxuryGoodsareimposed,collected,andappropriatedbytheIndonesianGovernment.
Accordingly,theyconstitute"Governmentrevenue".
8.
7TheimportationintoIndonesiaofmotorvehiclesandofpartsandcomponentsthereofislegallysubjecttothepaymentofcustomsduties.
Likewise,salesofpassengercarsarelegallysubjecttothepaymentoftheSalesTaxonLuxuryGoods.
Thus,bygrantingtheincentivesunderconsideration,theGovernmentofIndonesiais"foregoingrevenue"thatwouldotherwisebe"due".
8.
8Themeasuresprovideadirect"benefit"tothosepersonsandentitiesthat,intheabsenceoftheincentives,wouldberesponsibleforthepaymentoftheduties/taxes,i.
e.
toPTTPN.
Fortheabovereasons,itmustbeconcludedthattheincentivesprovidedundertheNationalCarProgrammeconstitute"subsidies"inthesenseofArticle1oftheSCMAgreement.
(b)ArgumentsoftheUnitedStates8.
9TheUnitedStatesarguesthatthetariffandtaxincentivesandthegovernment-directed$690millionloanundertheNationalMotorVehicleprogrammeconstitutesubsidieswithinthemeaningofArticle1.
1oftheSCMAgreement.
ThefollowingaretheUnitedStates'argumentsinthisregard:8.
10Thetariffandtaxincentivesandthegovernment-directed$690millionloantoTPNundertheNationalMotorVehicleprogrammeconstitutesubsidieswithinthemeaningofArticle1.
1oftheSCMAgreement,becausetheyeachentail(1)afinancialcontribution;and(2)theconferralofabenefit.
8.
11Withrespecttothetariffandtaxincentives,theGovernmentofIndonesiaadmitsthattheseincentivesconstitutesubsidies.
(Seee.
g.
,SectionVII.
C.
)However,independentofthisadmission,thesetariffandtaxincentivesmeetthedefinitionofasubsidyunderArticle1.
1.
Theexemptionfromimportdutiesonpartsusedtoproducethe"nationalmotorvehicle"(theTimorKiaSephiasedan),theone-yearexemptionfromdutiesofCBUKiaSephiasedansimportedfromKorea,andtheeffectiveexemptionfromtheluxurytaxonsalesofTimorKiaSephiasedans(whetherWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage187importedinCBUformfromKoreaorassembledinIndonesia)clearlyconstitute"governmentrevenuethat.
.
.
isforegone"withinthemeaningofArticle1.
1(a)(1)(ii)oftheSCMAgreement.
Assuch,theyconstitutea"financialcontribution.
"Moreover,theyconferabenefitbyloweringtherecipient'scostsandallowingtheproductinquestion,theTimorKiaSephiasedan,tobesoldatalowerpricethanwouldbethecaseabsentthetariffandtaxexemptions.
8.
12Withrespecttothegovernment-directed$690millionloan,theloanfallsunderArticle1.
1(a)(1)(iv),whichdefinesa"financialcontribution"asexistingwhere:agovernmentmakespaymentstoafundingmechanism,orentrustsordirectsaprivatebodytocarryoutoneormoreofthetypeoffunctionsillustratedin(i)to(iii)abovewhichwouldnormallybevestedinthegovernmentandthepractice,innorealsense,differsfrompracticesnormallyfollowedbygovernments.
.
.
.
(emphasisadded).
Asdescribedabove,theevidenceisoverwhelmingthattheGovernmentofIndonesiadirectedtheconsortiumofgovernment-ownedandprivatebankstoprovidethe$690millionloantoTPN.
Insodoing,theGovernmentwasdirectingaprivatebodytocarryoutthefunctionillustratedinArticle1.
1(a)(i);i.
e.
,toprovideaconcessionalloan.
Suchconcessionalfinancingnormallyisprovidedbygovernmentlendinginstitutionsorotherpublicbodies.
8.
13Finally,thegovernment-directedloanconferredabenefitonTPN.
ByorderingthebankstolendtoTPN,theGovernmentconferredtwotypesofbenefitsonTPN:(a)TPNreceivedfinancingthatitotherwisewouldnothavebeenabletoobtain;and(b)evenassumingthatTPNcouldhavereceivedfinancingofacomparablesize,thetermsofthefinancingweremorefavourablethanthetermsthatTPNwouldhavereceivedabsenttheGovernment'sinvolvement.
(SeeSectionV.
C.
3).
426426Indonesiadisputesthefactthatthe$690milliongovernment-directedloantoTPNisasubsidy,buthasnotprovidedanyevidencethattheloanisnotasubsidy.
Instead,IndonesiamakesthebareassertionthattheGOIhadnoroleinthegrantingoftheloan,butthattheGOIsincehasdoneanindependentinvestigationanddeterminedthattheloanwasgrantedoncommercialterms.
However,IndonesiadoesnotofferanyevidencetosupportitsassertionsortorebuttheevidenceprovidedbytheUnitedStatesinitsfirstsubmission.
Inthisregard,whilethePanelhasruledthattheUSclaimsconcerningtheloanareinadmissible,theloanremainsrelevanttothiscase.
Cf.
,Argentina-MeasuresAffectingImportsofFootwear,Textiles,ApparelandOtherItems,WT/DS56/R,ReportofthePanelissued25November1997,para.
6.
15.
IndonesiaassertedatthefirstmeetingofthePanelthatafterTPN'sstartupphase,the"marketwilldeterminethewinnersandthelosers,asitshould".
IndonesiaStatementtothePanel,page2.
ThisstatementissimplycontradictedbythefactthattheGOIorderedaconsortiumofbankstoprovidea$690millionloantoTPNonpreferentialterms.
Theloanisasubsidy,and,witha10-yearterm,hasa10-yearallocationperiod.
Inotherwords,TPNwillbedeemedtobereceivingsubsidiesfromtheloanforthenexttenyears.
TheexistenceoftheloanbeliesIndonesia'sclaimthat,asof1999,the"market"willdeterminethewinnersandlosers.
Moreover,Indonesia'sclaimthattheGOIplayednoroleintheprovisionoftheloanissoatoddswiththereportedfactsthatitcallsintoquestionthecredibilityofotherfactualassertionsmadebytheGOIinthiscase.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage188(c)ArgumentsofIndonesia8.
14IndonesiaalsoarguesthatthemeasuresatissuearesubsidiesinthesenseofArticle1oftheSCMAgreement.
TheseargumentsaresetforthinpartinSectionV.
D.
SeealsoIndonesia'sfurtherargumentsinthisregardinSectionVIII.
A.
3,below.
2.
Themeasuresatissuearespecific(a)ArgumentsoftheEuropeanCommunities8.
15TheEuropeanCommunitiesarguesthatthesubsidiesarecontingentuponcompliancewithlocalcontentrequirementsand,accordingly,are"specific"inthesenseofArticle2oftheSCMAgreement.
ThefollowingaretheEuropeanCommunities'argumentsinthisregard:8.
16Article1.
2oftheSCMAgreementstipulatesthat:Asubsidyasdefinedinparagraph1shallbesubjecttotheprovisionsofPartIIorshallbesubjecttotheprovisionsofPartIIIorVonlyifsuchasubsidyisspecificinaccordancewiththeprovisionsofArticle2.
8.
17AccordingtoArticle2.
3oftheSCMAgreement,AnysubsidyfallingundertheprovisionsofArticle3shallbedeemedtobespecific.
8.
18Article3.
1oftheSCMAgreementthenstatesthat:3.
1.
.
.
.
thefollowingsubsidieswithinthemeaningofArticle1,shallbeprohibited:(b)subsidiescontingent,whethersolelyorasoneofseveralotherconditionsupontheuseofdomesticoverimportedgoods8.
19Thegrantofdutyreliefonimportsofpartsandcomponentsiscontingentuponthefinishedvehicleorthepartsandcomponentsintowhichtheimportedgoodsareassembledreachingaminimumlocalcontentpercentage.
Similarly,thegrantoftheexemptionsfromtheSalesTaxonLuxuryGoodsisconditionaluponthemotorvehiclesconcernedmeetingcertainlocalcontentrequirements.
Finally,thegrantofdutyreliefforimportsofNationalCarsisconditionalupontheoverseasmanufacturerofthecarspurchasingacertainamountofIndonesianpartsandcomponentsandincorporatingthemintotheproductsexportedtoIndonesia.
427Thus,threetypesofincentivesatissueare"contingentupontheuseofdomesticoverimportedgoods"withinthemeaningofArticle3.
1(b)and,accordingly,mustbedeemed"specific"inthesenseofArticles1.
2and2oftheSCMAgreement.
8.
20Evenifthesubsidiesatissuewerenotcontingentupontheuseofdomesticoverimportedgoods,theywouldstillbe"specific"pursuanttoArticle2.
1oftheSCMAgreement,sinceeligibilityislimitedtocertainenterprisesbelongingtoacertainindustryandwhichmeetcertainnonobjectivecriteria.
Furthermore,thedecisionwhethertograntthesubsidiesisadiscretionaryoneand,inpractice,thebenefitshavebeengrantedtoonlyoneenterprise:PTTPN.
427ThisincentivecouldalsobecharacterisedasasubsidycontingentuponexportperformanceofthetypeprohibitedbyArticle3.
1(a)oftheSCMAgreement.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1898.
21Indonesiadoesnotdisputethatthemeasuresare"specificsubsidies"subjecttotheprovisionsoftheSCMAgreement.
Indeed,themeasureswerenotifiedbyIndonesiapursuanttoArticleXVI:1oftheGATTandArticle25oftheSCMAgreementon28October1996,simultaneouslywithIndonesia'swithdrawalofitspreviousnotificationofsomeofthemeasuresundertheTRIMsAgreement.
428Furthermore,inconnectionwiththisdispute,Indonesiaadmitsthatthemeasuresatissueconstitutesubsidiescontingentuponlocalcontent.
8.
22TheEuropeanCommunitiesalsoarguesthatIndonesiaadmittedduringconsultationsthattheJune1996programmeaswellastheFebruary1996programmearespecificsubsidies.
429(b)ArgumentsoftheUnitedStates8.
23TheUnitedStatesarguesthatthetariffandtaxbenefitsandthegovernment-directed$690millionloanundertheNationalMotorVehicleprogrammearespecificwithinthemeaningofArticle2oftheSCMAgreement.
ThefollowingaretheUnitedStates'argumentsinthisregard:8.
24UnderArticle1.
2oftheSCMAgreement,inorderforasubsidytobeactionableunderPartIIIoftheSCMAgreement,thesubsidymustbe"specificinaccordancewiththeprovisionsofArticle2".
Thetariffandtaxsubsidiesandthegovernment-directed$690millionloanundertheNationalMotorVehicleprogrammemeetthespecificityrequirementsofArticle2.
8.
25First,eachofthesesubsidiesisspecificunderArticle2.
3,whichprovides:"AnysubsidyfallingundertheprovisionsofArticle3shallbedeemedtobespecific".
BecausethetariffandtaxsubsidiesundertheNationalMotorVehicleprogrammearecontingentonsatisfyingthelocalcontentrequirementsfora"nationalmotorvehicle",thesesubsidiesfallunderArticle3.
1(b)oftheSCMAgreement,whichrefersto"subsidiescontingent,whethersolelyorasoneofseveralotherconditions,upontheuseofdomesticoverimportedgoods".
Likewise,thegovernment-directed$690millionloanalsofallsunderArticle3.
1(b),becausetheevidenceoverwhelminglydemonstratesthattheGovernmentorderedtheprovisionoftheloanduetoTPN'sstatusasaparticipantintheproductionofa"nationalmotorvehicle.
"Thisstatus,inturn,wascontingentonthesatisfactionofthelocalcontentcriteriaoftheNationalMotorVehicleprogramme.
8.
26Second,thesesubsidiesalsoarespecificunderArticle2.
1oftheSCMAgreement,whichsetsforthcriteriafordeterminingspecificitywithrespecttosubsidiesotherthanprohibitedsubsidiesandregionalsubsidies.
430Article2.
1providesasfollows:428G/SCM/N/16/IDN.
SeealsoG/SCM/Q2/IDN/9dated23May1997429Thus,forinstance,inreplytoawrittenquestionfromtheCommunity,Indonesiastatedthat:UnderboththeFebruary1996andtheJune1996decrees,instructionsandregulations,companiesthatsatisfythedesignatedcriteriaareexemptedfromtheluxurytaxandcustomsimportduties.
Alloftherequisiteelementsofasubsidyareinvolved:afinancialcontributionbythegovernmentbyvirtueofrevenueforegone;abenefittotherecipientsbyvirtueofexemptionfromtheluxurytaxandcustomsimportduties,andspecificity,byvirtueoflimitationofthesubsidytothosecompaniesthatmeetthecriteriaoftheFebruary1996andtheJune1996decrees,instructionsandregulations.
AmongthecriteriaforreceiptofsubsidiesundertheFebruary1996andtheJune1996decrees,instructionsandregulationsistheobligationtoachievedesignatedratesoflocalcontent.
Thisconstitutes'subsidiescontingent.
.
.
.
upontheuseofdomesticoverimportedgoods'withinthemeaningofArticle3.
1(b)oftheSCMAgreement.
SeealsoIndonesia'srepliestoquestionsfromtheCommunity,dated25November1995,atpoints2.
a,5.
h,5.
I,and6.
l.
(ECExhibitB-4)430RegionalsubsidiesaredealtwithinArticle2.
2.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage190Inordertodeterminewhetherasubsidy,asdefinedinparagraph1ofArticle1,isspecifictoanenterpriseorindustryorgroupofenterprisesorindustries(referredtointhisAgreementas"certainenterprises")withinthejurisdictionofthegrantingauthority,thefollowingprinciplesshallapply:(a)Wherethegrantingauthority,orthelegislationpursuanttowhichthegrantingauthorityoperates,explicitlylimitsaccesstoasubsidytocertainenterprises,suchsubsidyshallbespecific.
(b)Wherethegrantingauthority,orthelegislationpursuanttowhichthegrantingauthorityoperates,establishesobjectivecriteriaorconditionsgoverningtheeligibilityfor,andtheamountof,asubsidy,specificityshallnotexist,providedthattheeligibilityisautomaticandthatsuchcriteriaandconditionsarestrictlyadheredto.
Thecriteriaorconditionsmustbeclearlyspelledoutinlaw,regulation,orotherofficialdocument,soastobecapableofverification.
(c)If,notwithstandinganyappearanceofnon-specificityresultingfromtheapplicationoftheprincipleslaiddowninsubparagraphs(a)and(b),therearereasonstobelievethatthesubsidymayinfactbespecific,otherfactorsmaybeconsidered.
Suchfactorsare:useofasubsidyprogrammebyalimitednumberofcertainenterprises,predominantusebycertainenterprises,thegrantingofdisproportionatelylargeamountsofsubsidytocertainenterprises,andthemannerinwhichdiscretionhasbeenexercisedbythegrantingauthorityinthedecisiontograntasubsidy.
Inapplyingthissubparagraph,accountshallbetakenoftheextentofdiversificationofeconomicactivitieswithinthejurisdictionofthegrantingauthority,aswellasofthelengthoftimeduringwhichthesubsidyprogrammehasbeeninoperation.
(footnotesomitted).
8.
27Withrespecttothetariffandtaxsubsidies,thesearespecificunderparagraph(a),becausePresidentialInstructionNo.
2/1996andthevariousimplementingdecreesandregulationslimitaccesstothesesubsidiestoproducersofmotorvehicles.
Inotherwords,thesubsidiesarelimitedtoasingleindustry,theautomotiveindustry.
8.
28Finally,thetariffandtaxsubsidiesarespecificunderparagraph(c).
ThesesubsidiesareusedonlybyKiaTimorandTPN,whichclearlyconstitute"alimitednumberofcertainenterprises"withinthemeaningofparagraph(c),secondsentence.
Moreover,thedecisiontolimitthesesubsidiestoKiaTimorandTPNconstitutestheexerciseofdiscretionwithinthemeaningofparagraph(c),secondsentence.
TheonlyexplanationgivenforlimitingthesesubsidiestoKiaTimorandTPNisthatitistheGovernmentofIndonesia'spolicytodoso.
Iftrue,thistypeofexerciseofagovernment'spolicyprerogativesistheparadigmofadiscretionarydecision.
8.
29Withrespecttothegovernment-directed$690millionloan,theevidencedemonstratesthatthisloanwas"specialcredit"providedtoasinglefirm,TPN.
431AtatimewhentheGovernment431"AnalystsWarnAboutLoansforTimorCar",JakartaPost,13August1997(USExhibit14,pp.
163-165).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage191ofIndonesiawasclampingdownoncreditandcancellingotherlargeprojects432,TPNwasabletoobtainamassiveloanpackageonveryfavourabletermsthatwouldnothavebeenavailabletosimilarlysituatedfirms.
Clearly,theprovisionofthisloanisspecificwithinthemeaningofArticle2.
1(c).
8.
30Moreover,puttingasidetheevidencetheUnitedStateshasprovided,itshouldbeemphasizedthat,intheAnnexVprocess,IndonesiarefusedtoprovideinformationthatwouldhavepermittedamorethoroughanalysisofthespecificityoftheloanunderArticle2.
1(c).
InQuestion29(b)ofAV/15,theUnitedStatessoughtinformationrelatingtothespecificityofthegovernment-directed$690millionloan.
Inparticular,theUnitedStatesaskedthefollowing:"Pleasedescribeotherrecentprojectsfinancedbystatebank-ledconsortia,includingtheamountoffinancingprovidedandthetermsofthefinancing.
"Indonesiarefusedtorespond,statingthatit"question[ed]therelevanceofthisrequesttotheAnnexVprocess.
"4338.
31Clearly,informationrelatingtothespecificityofasubsidyisrelevanttotheAnnexVprocess,which,pursuanttoparagraph2ofAnnexV,isaimedatobtaining"suchinformationfromthegovernmentofthesubsidizingMemberasnecessarytoestablishtheexistenceandamountofsubsidization.
.
.
"InlightofIndonesia'snon-cooperationwithrespecttoinformationconcerningtheloan,thePanelshoulddrawanadverseinferencepursuanttoparagraph7ofAnnexVandfindthegovernment-directed$690millionloantobespecific.
(c)ArgumentsofIndonesia8.
32IndonesiaalsoarguesthattheGovernment'sgrantofexemptionsandreductionsinimportdutiesandtheluxurytaxtocertainmanufacturersandassemblersofautomobilesandautomotive432Thedecisiontograntthe$690millionloanpackagecameatatimewhentheGovernmentofIndonesia,duetothedepreciationoftherupiahandoverlyaggressivelendingbybanks,wasclampingdownoncreditandcancelinglargeprojects,therebymakingtheloantoTPNallthemoreextraordinary.
Asonecommentatornotedofthedecisiontograntthe$690millionloan,"Themoveappearstocontradictgovernmentpolicytoclampdownoncreditgrowth.
"("JakartaPlansNew'National'Car,"FinancialTimes(London),7May1997,p.
4(USExhibit14,pp.
110-111).
)Indeed,thePresidentofIndonesia,inhisstateofthenationaddress,announced"thatallprojectsthatwerenotanationalprioritywouldbeshelvedgiventhe'newrealities'facingthecountry.
"("TimorCarProjectNottoBeRescheduledinFaceofCurrencyCrunch,"AgenceFrancePresse,20Aug.
1997(USExhibit14,pp.
170-171)).
Itwasfurtherreportedthat:PresidentSoeharto,inhisNationalDayAddresslastSaturday,calledonthebusinesscommunitytoselectprojectsforimplementationcarefullyinviewofthecurrencyupheavalcurrentlyconfrontingtheeconomy.
Soehartosaidthegovernmentandbusinessshouldreviewtheirinvestmentprojectstoascertainwhichshouldbegiventoppriorityandwhichshouldbepostponed.
("TimorCarProjectWon'tBeRescheduled,"JakartaPost,21August1997(USExhibit14,pp.
172-173);Seealso,"Indonesia:JakartaPledgestoCutBigProjects,"FinancialTimes(USA)(17September1997)(USExhibit15,pp.
3-4).
)Asaresult,accordingtotheCoordinatingMinisterforEconomyandFinance,theGovernment"tookstockofprojectsaccordingtotheirscaleofpriority.
Obviously,highpriorityprogramswillnotbeaxed.
"However,whenaskedbyreporterswhethertheTimorcarprojectwouldberescheduled,theCoordinatingMinisterrespondedthat"theterm'national'classifiesitasahighpriorityproject.
"("MinistersReviewProjectsRescheduling,"BusinessDaily,8Sept.
1997(USExhibit14,pp.
174-175).
)ThisfollowedanearlierstatementbytheCoordinatingMinisterthat"Everyonemustsupportthe[nationalcar]program.
"("13BanksOrderedtoFinanceTimorCarProject,"TheJakartaPost,7May1997,p.
12(USExhibit14,pp.
112-114)).
433AV/16,p.
3.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage192partsarespecificinthesenseofArticle2oftheSCMAgreement.
TheseargumentsaresetforthinpartinSectionV.
D.
SeealsoIndonesia'sfurtherargumentsinthisregardinthefollowingsection.
(3)Indonesia'sargumentsthatthemeasuresarespecificsubsidies8.
33ThefollowingareIndonesia'sfurtherarguments(inadditiontothoseinSectionV.
D)thatthemeasuresatissuearespecificsubsidies:8.
34Articles1and2oftheSubsidiesAgreementdefineaspecificsubsidy.
Theyprovideintherelevantpartthat"asubsidyshallbedeemedtoexistif.
.
.
thereisafinancialcontributionbyagovernment"where:"governmentrevenuethatisotherwisedueisforegoneornotcollected"(Article1.
1(a)(l)(ii));andabenefitistherebyconferredthatis"specifictoanenterpriseorindustryorgroupofenterprisesorindustries"(Article2.
1).
8.
35Underthe1993incentiveprogramme,theGovernmentforegoesordoesnotcollectrevenuethatisotherwiseduebygrantinganexemptionfromorreductionintherateofimportdutiesonautomotivepartsandcomponents.
Thus,thereistherequisitefinancialcontributionbytheGovernment.
8.
36TheFebruary1996nationalcarprogrammeexemptscompaniesdesignatedbytheGovernmentasproducersofanationalcarfromthepaymentofeitherimportdutiesonautomotivepartsandcomponentsortheluxurytax.
TheGovernment,therefore,foregoesordoesnotcollectrevenueotherwiseduefromspecificenterprises.
(SeealsosectionV.
D.
2(a).
)8.
37Inaddition,thesubsidyunderthe1993incentiveprogrammefallsundertheprovisionsofArticle3oftheSubsidiesAgreement.
Thus,byvirtueofArticle2.
3ofthatAgreement,thereistherequisitespecificity.
ThesameistrueoftheFebruary1996programme.
8.
38IndonesiaalsoindicatesatseveralpointsinitsargumentsthattheJune1996programmeis(orwas)aspecificsubsidy.
(See,e.
g.
,SectionVII.
D.
3andSectionX.
A).
SeealsotheargumentsoftheEuropeanCommunities,above,quotinganIndonesianresponsetoawrittenquestioninconsultations.
B.
SeriousPrejudiceClaims1.
Summaryofclaims8.
39TheEuropeanCommunitiesandtheUnitedStatesnotethattheNationalCarProgrammeprovidesthreetypesofbenefitsforNationalCarsinIndonesia:exemptionfromimportdutiesonpartsandcomponentsusedfortheassemblyofNationalCars;exemptionfromimportdutiesonNationalCarsimportedfromKorea;andexemptionfromtheSalesTaxonLuxuryGoodsonNationalCars,whetherimportedfromKoreaorassembledinIndonesia.
Theseincentivesconstitute"specificsubsidies"withinthemeaningofArticles1and2oftheSCMAgreement.
434434TheCommunityconsidersthatthebenefitsgrantedfortheassemblyofothermotorvehiclesandpartsandcomponentsthereofunderthe1993DeregulationPackageandundertheNationalCarProgrammeWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1938.
40TheEuropeanCommunitiesandtheUnitedStatesobservethatthesubsidiesarecontingentupontheuseofdomesticoverimportedpartsandcomponents.
Assuch,theywouldbeprohibitedbyArticle3.
1(b)oftheSCMAgreement,wereitnotbecause,asadevelopingcountryMember,IndonesiabenefitsfromthetemporaryexceptiontothatprohibitionprovidedinArticle27.
3oftheSCMAgreement.
8.
41TheEuropeanCommunitiesandtheUnitedStatesclaimthat,nonetheless,thesubsidiescause"adverseeffects"totheirrespectiveinterestsintheformof"seriousprejudice"withinthemeaningofArticles6and27oftheSCMAgreement.
Specifically,thesubsidizationoftheNationalCarshascausedseriousprejudiceby(i)displacingorimpedingimportsofmotorvehiclesofEuropeanCommunitiesandUnitedStatesmanufacturersintotheIndonesianmarket;and(ii)resultinginsignificantpriceundercuttingofmotorvehiclesofEuropeanCommunitiesandUnitedStatesmanufacturersintheIndonesianmarket.
Therefore,Indonesiaisrequired,inaccordancewithArticle7.
8oftheSCMAgreement,towithdrawthemortotakeappropriatestepstoremovetheiradverseaffects.
2.
BasisforseriousprejudiceasacauseofactionagainstIndonesiaasadevelopingcountry8.
42TheEuropeanCommunitiesandtheUnitedStatesargue,andIndonesiaacknowledgesthatseriousprejudicecanbeacauseofactionagainstIndonesiainthisdispute.
TheEuropeanCommunitiesandtheUnitedStatesarguethatsuchclaimscanberaisedonlyifoneofthesituationsdescribedinArticle6.
1(a)oftheSCMAgreementexists.
Indonesiaindicatesthat6.
1(a)situationscanbeabasisforseriousprejudiceclaimsagainstdevelopingcountries,butthatseriousprejudiceasacauseofactionagainstdevelopingcountriesalsocanbereacheddirectlywherethesubsidiesinquestionfallundertheprovisionsofArticle3oftheAgreement.
ThefollowingaretheargumentsoftheEuropeanCommunities,theUnitedStates,andIndonesiainthisregard.
(a)ArgumentsoftheEuropeanCommunities(1)ThesubsidiesareactionableunderPartIIIoftheSCMAgreement.
Thesubsidieswouldbe"prohibited"byArticle3.
1(b)oftheSCMAgreementbutforthetemporaryexceptionfordevelopingcountriesprovidedinArticle27.
3oftheSCMAgreement.
8.
43Article3.
1(b)oftheSCMAgreementprohibitssubsidiesthatare:".
.
.
contingent,whethersolelyorasoneofseveralotherconditions,upontheuseofdomesticoverimportedgoods".
8.
44ThisprohibitionissubjecttothetemporaryexceptionprovidedinArticle27.
3oftheSCMagreement,whichstatesthat:Theprohibitionofparagraph1(b)ofArticle3shallnotapplytodevelopingcountrymembersforaperiodoffiveyears,andshallnotapplytoleastdevelopedcountryMembersforaperiodofeightyearsfromthedateofentryintoforceoftheWTOAgreement.
arealso"specificsubsidies"withinthemeaningofArticles1and2oftheSCMAgreement.
Nevertheless,theCommunityhasdecidednototakeactionagainstthosesubsidiesunderPartIIIoftheSCMAgreementwithintheframeworkofthecurrentdispute.
TheCommunityreservesitsrighttodosointhefuture,ifnecessary.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1948.
45Asshownabove,thesubsidiesatissuearecontingentuponcompliancewithlocalcontentrequirementsand,accordingly,fallwithintheprohibitionlaiddowninArticle3.
1(b).
8.
46Nevertheless,givenIndonesia'sstatusasa"developingcountryMember",theprohibitionofArticle3.
1(b)willnotapplytothemeasuresindisputeforaperiodoffiveyearsfromtheentryintoforceoftheWTOAgreement,i.
e.
until1January2000.
(2)Article27.
3doesnotprecludethe"actionability"ofthesubsidiesunderPartIIIoftheSCMAgreement8.
47Byitsownwords,Article27.
3oftheSCMAgreementexcludestheapplicationoftheprohibitioncontainedinArticle3.
1(b)only,andofnootherprovisionoftheSCMAgreement.
Therefore,Article27.
3doesnotconferimmunityagainstactionsbasedonotherprovisionsoftheSCMAgreementand,inparticular,againstactionunderPartIIIoftheSCMAgreement.
8.
48ThisisfurtherconfirmedbytheexpresswordingofArticle5oftheSCMAgreement,whichprovidesthat:NoMembershouldcause,throughtheuseofanysubsidyreferredtoinparagraphs1and2ofArticle1,adverseeffectstotheinterestsofotherMembers.
.
.
[emphasisadded]8.
49Thus,Article5applieswithrespecttoallspecificsubsidieswithinthemeaningofparagraphs1and2ofArticle1oftheSCMAgreement,includingthosewhichareprohibitedbyArticle3.
Asdemonstratedabove,themeasuresatissuearespecificsubsidies.
Consequently,IndonesiaissubjectinrespectofthosemeasurestothedisciplineslaiddowninArticle5oftheSCMAgreement.
(3)Thesubsidiescause"adverseeffects"totheinterestsoftheCommunityintheformof"seriousprejudice"8.
50Article5oftheSCMAgreementliststhreedifferenttypesof"adverseeffects":seriousinjurytothedomesticindustryofanotherMember;nullificationorimpairmentofbenefitsaccruingdirectlyorindirectlytootherMembersunderGATT1994,inparticularthebenefitsofconcessionsboundunderArticleIIofGATT1994;prejudicetotheinterestofanotherMember.
8.
51Footnote13tosubparagraph(c)ofArticle5oftheSCMAgreementspecifiesthat:"Theterm'seriousprejudicetotheinterestsofanotherMember'isusedinthisAgreementinthesamesenseasitisusedinparagraph1ofArticleXVIofGATT1994andincludesthreatofseriousprejudice".
8.
52TheCommunityclaimsandwilldemonstratebelowthatthesubsidiesatissuecause"adverseeffects"toitsinterestsintheformof"seriousprejudice".
(4)TheEuropeanCommunitiesisnotprecludedbyArticle27.
9oftheSCMAgreementfrominvoking"seriousprejudice"WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1958.
53Article27.
9oftheSCMAgreementprovidesthat,whereasubsidyisgrantedbyadevelopingcountryMember,"seriousprejudice"canonlybeinvokedifthesubsidyinquestionfallswithinoneofthecategories"referredto"inArticle6.
1oftheSCMAgreement.
8.
54Article6.
1"refers",interalia,tosubsidieswherethetotaladvaloremsubsidizationoftheproductconcernedexceeds5percentonthevalueofsales(or15percentonthevalueofthetotalinvestedfundsinthecasewheretherecipientisinastart-upsituation).
Asshownbelow,inthepresentcasetheamountofsubsidisationiswellabovethatpercentagebyanypossiblemeasurement.
Accordingly,Article27.
9oftheSCMAgreementdoesnotpreventtheCommunityfrominvoking"seriousprejudice"withrespecttothesubsidiesindispute.
(5)Thesubsidieswouldbepresumedtocause"seriousprejudice"totheCommunity'sinterestsbutforIndonesia'sstatusasadevelopingcountryMember8.
55Article6.
1providesthatseriousprejudiceinthesenseofArticle5shallbedeemedtoexistwherethetotaladvaloremsubsidisationoftheproductsconcernedexceeds5percentontherelevantsalesvalue(or15percentonthevalueofinvestedfundswhereapplicable).
Asdemonstratedbelow,inthepresentcasetheamountofsubsidizationexceedsbyfarthatthreshold.
Thus,inaccordancewithArticle6.
1,thesubsidiesatissuewouldhavetobedeemedtocause"seriousprejudice"totheEuropeanCommunities.
8.
56Nevertheless,Article27.
8oftheSCMAgreementstipulatesthatthepresumptionofArticle6.
1shallnotapplywhere,asinthepresentcase,thesubsidyisgrantedbyadevelopingcountryMember.
Article27.
8furtherstatesthat,inthatcase,seriousprejudicemustbedemonstratedbypositiveevidence,inaccordancewiththeprovisionsofparagraphs3through8ofArticle6oftheSCMAgreement.
(6)Thesubsidizationismassive8.
57TheEuropeanCommunitieshavecalculatedtheamountoftotaladvaloremsubsidizationonthebasisofdatasuppliedbyIndonesiaandinaccordancewiththeprovisionscontainedinAnnexIVoftheSCMAgreement.
Theresultsofthatcalculationaresummarizedinthetablebelow:ProductSubsidizationratePeriodTimorS-515219-225%Start-upperiodallcars(basedonNov1995-April1999estimatedinvestedfunds)TimorS-515156-460%Oct.
1996-June1997importedfromKorea(basedonvalueofsales)TimorS-51549-61%May1998-Dec.
1998assembledinIndonesia(basedonestimatedvalueofsales)40-50%1999WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1968.
58Adetailedexplanationofthecalculationoftheamountofsubsidizationisprovidedbelow:(a)Methodology8.
59InaccordancewithParagraph1ofAnnexIVoftheSCMAgreement,theamountofthesubsidiesmustbecalculated"intermsofcosttothegrantinggovernment".
8.
60Inthepresentcase,the"costtothegrantinggovernment"istheamountoftheimportdutiesandoftheSalesTaxonLuxuryGoodsnotcollectedbytheIndonesianGovernmentpursuanttotheNationalCarProgramme.
4358.
61Inprinciple,therateofadvaloremsubsidizationmustbecalculatedbyexpressingthesubsidyamountasapercentageofthesalesvalueoftheproductsbenefitingfromthesubsidy.
Nevertheless,bywayofexception,Paragraph4ofAnnexIVprovidesthatwheretherecipientfirmisinastart-upsituationthefollowingruleshallapplyinstead:Wheretherecipientfirmsisinastart-upsituation,seriousprejudiceshallbedeemedtoexistiftheoverallrateofsubsidisationexceeds15percentofthetotalfundsinvested.
Forpurposesofthisparagraph,astart-upperiodisdeemednottoextendbeyondthefirstyearofproduction.
8.
62AccordingtoFootnote65,start-upsituationsinclude"instanceswherefinancialcommitmentsforproductdevelopmentorconstructionoffacilitiestomanufactureproductsbenefitingfromthesubsidyhavebeenmade,eventhoughproductionhasnotbegun".
8.
63TheincentivesprovidedinrespectofthefinishedcarsimportedfromKoreaandinrespectofthecarsassembledatTambunPlantaretransitionalmeasuresuntilPTTPNstartsitsownproductionatKarawangPlant.
Inviewofthis,itmaybeconsideredthatPTTPNisstillina"start-upsituation"inthesenseofParagraph4,whichsituationbeganwiththeincorporationofPTTPNinNovember1995andwillrununtiloneyearafterproductionstartsatKarawangPlant(i.
e.
untiltheendofApril1999).
Onthatassumption,therateofadvaloremsubsidisationreceivedbyPTTPNwouldhavetobecalculatedbyexpressingthetotalamountofthesubsidiestobereceivedbyPTTPNduringthesaidstart-upperiodasapercentageofPTTPN'sestimatedtotalinvestedfunds.
8.
64IfitwasconsideredthatPTTPNisnotina"start-upsituation"withinthemeaningofParagraph4,theadvaloremsubsidisationratewouldhavetobecalculatedbyexpressingtheamountofeachsubsidyasapercentageoftherelevantsalesvalueinaccordancewiththerulescontainedinParagraphs2and3ofAnnexIV.
8.
65InthecaseoftheexemptionfromtheSalestaxonLuxuryGoods,thiscalculationseemsunnecessary.
SincetheSalesTaxonLuxuryGoodstakestheformofanadvaloremtaxonthenet435IntheReportbytheInformalGroupofExpertstotheCommitteeonSubsidiesandCountervailingmeasures(G/SCM/W/415)itisrecommendedthat:thecosttothegovernmentoftaxexemptions,deductions,holidaysandanysimilarmeasuresbecalculatedastheamountofrevenuethatthegovernmentotherwisewouldhavecollected"(recommendation12,atparaA.
1)WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage197salesvalueofthecars,theadvaloremrateofsubsidisationmaybeconsideredtoequaltherateatwhichthattaxisgenerallyappliedtothecategoryofproductsconcerned,i.
e.
35percent.
8.
66Asregardsthesubsidyintheformofimportdutyrelief,Paragraph3ofAnnexIVprovidesthatwhereasubsidyistiedtotheproductionorsaleofagivenproduct,therelevantsalesdenominatorforthecalculationoftherateofadvaloremsubsidisationshallbe:"thetotalvalueoftherecipientfirmsale'softhatproductinthemostrecent12-monthperiod,forwhichsalesdataisavailable,precedingtheperiodinwhichthesubsidyisgranted".
8.
67Inthepresentcase,however,PTTPNdidnotsellanymotorvehiclesintheperiodprecedingthegrantingofthesubsidies.
ThismakesitimpossibletoestablishthesalesdenominatorinaccordancewiththerulecontainedinParagraph2.
Inviewofthis,itisconsideredappropriatetouseinsteadthesalesdatamadeavailablebyIndonesiafortheperiodOctober1996-June1997.
8.
68ThegenerallyapplicableimportdutyrateonCBUpassengercarsishigherthantheapplicableimportdutyrateonimportsofpartsandcomponents,includingCKDkits.
Furthermore,itcanbeexpectedthatthecustomsvalueoftheCBUTimorsS-515importedfromKoreawillbehigherthanthecustomsvalueofthepartsandcomponentsimportedfromKoreaforassemblyinIndonesia.
Asaresult,theadvaloremsubsidisationofthecarsimportedfromKoreabyPTTPNandsoldduringtheperiodOctober1996-June1997islikelytobehigherthantherateofsubsidizationofthecarsassembledatTambunPlantasfromJune1997andatKarawangPlantasfromMay1998.
8.
69Fortheabovereasons,itseemsappropriatetocalculateseparatelythesubsidizationrateofthecarsimportedfromKoreaandthesubsidisationrateofthecarsassembledinIndonesia.
SinceproductionatKarawangPlanthasnotstartedyetandIndonesiahasnotmadeavailablethenecessarydatawithrespecttotheproductionatTambunPlant,thecalculationofthesubsidizationrateofthecarsassembledinIndonesiamustnecessarilybebasedontheestimatesfortheamountofsubsidizationandforthesalesvalueofthecarstobeassembledatKarawangPlantprovidedbyIndonesiaintheframeworkoftheAnnexVProcedure.
(b)Calculationbasedoninvestedfundsduringthe"start-up"period8.
70AccordingtoPTTPN'sinvestmentpermit,theestimatedtotalinvestmentbyPTTPNisRp.
975,800million.
8.
71ThetotalamountofsubsidizationreceivedbyPTTPNduringthestart-upperiodmaybeestimatedasfollows:SubsidiesoncarsRp.
1,914,252million*importedfromSouthKoreaSubsidiesoncarsn.
aassembledatTambunPlantSubsidiesoncarstobeassembledRp.
104,304-131,904million**atKarawangPlantduring1998SubsidiesoncarstobeassembledRp.
118,888-148,688million**.
atKarawangPlantduringJan-Apr1999TotalRp.
2,137,444-2,194,844millionWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage198*Totalamountofuncollecteddutiesascalculatedin3.
1+35percentoftotalsalesvaluementionedunderpoint3.
1**BasedonAttachmentA-288.
72Thus,onthisbasis,theadvaloremamountofsubsidizationwouldbe:2,137,444million-2,194,688million/975,800millionx100=219%-225%(c)Calculationbasedonvalueofsales(i)Subsidiesonimportedpassengercars8.
73TheamountofsubsidizationofthecarsimportedbyPTTPNfromKoreaequalstheamountofcustomsdutiesnotcollecteduponimportationintoIndonesiaplustheamountofuncollectedluxurytaxes.
8.
74TheapplicablecustomsdutyonimportsofCBUpassengercarsis200percent.
436Thus,theamountofuncollectedcustomsdutieswillbetheamountthatresultsfromapplyingthatpercentagetothetotalimportvalueofthecars.
8.
75AccordingtoIndonesia'sResponsetotheEuropeanCommunitiesQuestionnaireintheAnnexVProcedure437,theimportvalueofthecarswasthefollowing:June-December1996US$131,242,800January-June1997US$237,210,266TotalUS$368,453,0668.
76Theamountofuncollectedimportdutiesmaythusbeestimatedasfollows:JuneDecember1996US$262,485,600(=Rp.
629,965,440,0004438)JanuaryJune1997US$474,420,532(=Rp.
1,138,609,277,800)TotalUS$736,906,132(=Rp.
1,768,574,716,800)8.
77Inturn,accordingtoIndonesia'sResponse439,thesalesvalueoftheimportedcarswasthefollowing:October-December1996Rp.
153,002,850,000January-June1997Rp.
263,218,585,000October1996-June1997Rp.
416,221,435,000436AV/3,atpoint23.
437Id.
atpoint21.
438AllamountsinUS$havebeenconvertedintoRpattherateUS$1=Rp.
2,400.
439AV/3atpoint22.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage1998.
78Theadvaloremsubsidisationratecorrespondingtothenoncollectionofimportdutiesisthusthefollowing:October-December1996412%January-June1997433%October1996-June1997425%8.
79ThetotaladvaloremsubsidizationrateswhichresultfromaddingtheabovepercentagestotherateofsubsidizationcorrespondingtotheexemptionfromtheSalesTaxonLuxuryGoods(35percent)are:October-December1996447%January-June1997468%Total460%8.
80Theabovecalculationdoesnotmakeanyadjustmentforthefactthatasof30June1997,28,391carshadnotbeensoldyetoutof39,727carsimported.
Inviewofthat,itisperhapsmoreappropriatetocalculatetheamountofadvaloremsubsidizationonthebasisoftheaverageunitimportvaluefortheperiodJune1996/June1997andtheaverageunitsalesvaluefortheperiodOctober1996/June1997.
8.
81OnthebasisofthedataprovidedinIndonesia'sResponse,theunitimportvaluefortheperiodJune1996/June1997wasUS$9,275.
8.
82Accordingly,theuncollectedamountofimportdutiesperunitwasUS$9,275x200%=US$18,550(=Rp.
44,520,000).
8.
83Inturn,theunitsalesvaluefortheperiodOctober1996/June1997wasRp.
36,716,781.
8.
84Onthisbasis,theadvaloremrateofsubsidizationresultingfromthenoncollectionofimportdutieswouldbe:(44,518,560/36,761,782)x100=121%8.
85Thispercentage,addedtothesubsidizationratecorrespondingtotheexemptionfromtheSalesTaxofLuxuryGood,resultsinatotaladvaloremsubsidizationrateof:121%+35%=156%(ii)SubsidiesonPassengercarsassembledatKarawangPlant8.
86IntheAttachmentA-28toitsResponseintheAnnexVProcedure(AV/3),IndonesiahasestimatedtheamountofthesubsidiestobegrantedinrespectoftheassemblyofpassengercarsatKarawangPlantasfollows:19981999ImportdutyUS$15.
99-23.
12millionUS$51.
80-74.
89millionLuxuryTaxUS$27.
47-31.
84millionUS$96.
81-110.
97millionTotalUS$43.
46-54.
96millionUS$148.
61-185.
86millionWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2008.
87InthesameAttachment,Indonesiagivesthefollowingestimateofthesalesvalueofthosecars:1998US$89.
56million1999US$373.
18million8.
88Onthebasisoftheaboveestimates,thetotalrateofadvaloremsubsidisationwouldbethefollowing:199848.
5-61.
4%199939.
8-49.
8%8.
89InresponsetoaquestionfromtheUnitedStates,Indonesiahasstatedthat"Items3to8ofAttachmentA-28arealsoapplicabletotheTambunPlant".
440Accordingly,theabovecalculationmaybeconsideredtoconstitutealsoanaccurateestimateofthetotalsubsidisationrateofthecarsassembledatTambunPlant.
(b)ArgumentsoftheUnitedStates(1)BecausethesubsidiesprovidedundertheNationalMotorVehicleprogrammeexceed5percentadvalorem,thesubsidiesfallunderArticle6.
1(a)oftheSCMAgreementandareactionableunderArticles27.
8and27.
98.
90Forpurposesofthisdispute,theUnitedStatesassumesthatIndonesiaisadevelopingcountry.
Therefore,underArticles27.
8and27.
9oftheSCMAgreement,aseriousprejudicecasemaybebroughtagainstIndonesiaonlyiftheIndonesiansubsidiesareofatypedescribedinArticle6.
1.
Article6.
1(a)referstosubsidieswhere"thetotaladvaloremsubsidizationofaproductexceed[s]5percent".
(Footnoteomitted).
WithrespecttothesubsidiesprovidedundertheNationalMotorVehicleprogramme,thesubsidiesvastlyexceed5percent.
Therefore,aseriousprejudicecasemaybebroughtagainstIndonesia.
(2)Theone-yearauthorizationtoimportKorean-madeKiaSephiasedansfreeofIndonesia's200percenttariffonCBUpassengercars,alone,resultsinasubsidyinexcessof5percent8.
91Asshownbelow,thesubsidiesprovidedasaresultofPresidentialDecreeNo.
42/1996,alone,arewellabovethe5percentthreshold.
TheauthorizationtoimportCBUKiaSephiasedansfreeofIndonesia's200percenttariffonCBUpassengercarsresultedinasubsidyof122percent,assumingthattheentireamountofthesubsidyisattributedsolelytotheone-yearperiodin1996-97forwhichtheauthorizationwasineffect.
4418.
92However,itwouldnotbeappropriatetoallocatethissubsidysolelytothisone-yearperiod,becauseofthetremendoussizeofthesubsidyandthefactthattheone-yearauthorizationisa"non-recurring"subsidy.
Therefore,thissubsidymustbeallocatedoverseveralyears.
TheUnitedStatessubmitsthatintheabsenceofspecificguidanceintheSCMAgreementregardingthemechanicsofsubsidyallocationovertime,therecommendationsmadebytheInformalGroupof440AV/16atpoint12.
28.
c441SeeTable13.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage201ExpertsestablishedundertheauspicesoftheSCMCommitteeofferareasonablebasisfordealingwiththisissue.
4428.
93Bywayofbackground,footnote14toArticle6.
1(a)providesthat"[t]hetotaladvaloremsubsidizationshallbecalculatedinaccordancewiththeprovisionsofAnnexIV".
AnnexIVtotheSCMAgreementisentitled"CalculationoftheTotalAdValoremSubsidization(Paragraph1(a)ofArticle6)".
AlthoughAnnexIVcontainssomegeneralprinciplesregardingsubsidycalculation,footnote62toAnnexIVprovides:"AnunderstandingamongMembersshouldbedeveloped,asnecessary,onmatterswhicharenotspecifiedinthisAnnexorwhichneedfurtherclarificationforpurposesofparagraph1(a)ofArticle6.
"Tothatend,on13June1995,theSCMCommitteeestablishedanInformalGroupofExperts("IGE")tomakerecommendationsconcerningcalculationrulesforpurposesofAnnexIVandArticle6.
1(a).
443On25July1997,theIGEsubmittedtotheSCMCommitteeitsrecommendations.
4448.
94Recommendation1oftheIGEReportdealswiththequestionof"expensing"(allocatingsubsidiestotheyearofreceipt)versus"allocating"(allocatingsubsidiesovertwoormoreyears).
Paragraph2ofRecommendation1statesthat"non-recurringsubsidiesshouldbepresumptivelyallocated.
.
.
".
TheIGEprovidedthefollowingexplanationforthisrecommendation:445Thefrequencyandsizeofasubsidyweredeemedrelevanttothequestionofexpensingversusallocating.
Justasitisrecommendedthatrecurringand/orsmallsubsidiesbeexpensed,soisitrecommendedthatnon-recurringand/orlargesubsidiesgenerallybeallocated.
Oneconsiderationinthiscontextisthatitmightbeillogicaltoexpenseverylargesubsidiesduetothelikelysubstantialimpactthatsuchsubsidieswouldhaveontherecipientcompaniesbeyondtheyearinwhichtheywerereceived.
Forexample,itislikelythatnon-recurringlargesubsidieswouldbeusedtopurchasefixedassets,orevenifnotsoused,wouldfreeupacomparableamountofcompanyfundsforthispurpose.
8.
95TheSCMCommitteehasnotyetadoptedtherecommendationsoftheIGE,andthoserecommendations,ofcourse,arenotbindingonthisPanel.
However,inlightofAnnexIV,paragraph7,aswellastheTokyoRoundCommitteeGuidelines,theIGE'srecommendationsregardingtheallocationofnon-recurringsubsidiesmakesense,andshouldbefollowedinthiscase.
Theone-yeartariffexemptionprovidedtoTPNonimportsofKorean-madeKiaSephiasedanswasahugesubsidy,theGovernmentofIndonesiahasassertedthatthissubsidywillnotrecur,andthistremendousgiftofmoneyfreesupacomparableamountofTPN'sfundstopurchaseassetsforitsIndonesianproduction/assemblyfacility.
8.
96Thenextquestionishowtoallocatetheone-yeartariffexemptionovertime.
Inthisregard,Recommendation2,paragraph1,oftheIGEReportstates:"Asageneralprinciple,theaverageusefullifeofassetsshouldbeusedastheallocationperiodforsubsidiessubjectto442AlthoughAnnexIVdoesnotprovidedetailedcalculationrulesonthisparticularpoint,itclearlycontemplatestheallocationofsubsidiesovertime,becauseparagraph7refersto"[s]ubsidies.
.
.
thebenefitsofwhichareallocatedtofutureproduction.
.
.
.
"Inaddition,theTokyoRoundSubsidiesCodeCommitteeadopted"GuidelinesonAmortizationandDepreciation"thatalsocalledfortheallocationofcertainsubsidiesovertime.
BISD32S/154.
443G/SCM/5(22June1995).
444ReportbytheInformalGroupofExpertstotheCommitteeonSubsidiesandCountervailingMeasures,G/SCM/W/415("IGEReport").
445IGEReport,p.
5,para.
11.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage202allocation.
"Paragraph2ofRecommendation2thensetsoutahierarchyofbasesfromwhichtodeterminetheaverageusefullifeofassets,rangingfrom"Informationfortheindividualfirmorfirmsreceivingthesubsidy"to"Informationforotherfirmsproducingtheproductoutsidethecountryinquestion.
"Paragraph3ofRecommendation2setsforthaformulaforcalculatingtheaverageusefullifeofassets.
8.
97TheUnitedStatesdoesnothaveinformationforthefirmsinquestion,andhasnotbeenabletodevelopinformationbasedontheformulasetforthinparagraph3ofRecommendation2.
Therefore,asareasonablesurrogate,theUnitedStateshasuseda12-yearallocationperiodbasedontheclasslifeofassetsformanufacturersofmotorvehiclesassetforthintheregulationsoftheUSInternalRevenueService.
446Usinga12-year,straightlineallocationmethod,thisresultsinasubsidyof10.
18percentfortheone-yearperiodduringwhichtheduty-freeauthorizationwasineffect.
(Seebelow.
)Althoughthismethodunderestimatesthesizeofthesubsidy447,theamountisstillwellinexcessofthe5percentthreshold.
(3)TheinclusionoftheothersubsidiesprovidedundertheNationalMotorVehicleprogrammesimplyincreasestheamountbywhichthetotaladvaloremsubsidizationexceeds5percent8.
98Asdemonstrated,aconsiderationofmerelyonecomponentoftheNationalMotorVehicleprogrammeestablishesthatthelevelofsubsidizationisinexcessof5percentandthataseriousprejudicecasemaybebroughtagainstIndonesia.
However,forthesakeofcompleteness,theUnitedStatesnotes,asshownbelow,thattheexemptionoftheTimorKiaSephiafromtheluxurytaxresultsinasubsidyof44percentfor1997448andanestimatedsubsidyof35percentfor1998and1999.
449TheexemptionundertheNationalMotorVehicleprogrammefromimportdutiesonpartsresultsinanestimatedsubsidyof14percentfor1998and9percentfor1999.
450Finally,thegovernment-directed$690millionloanresultsinaconservativelycalculatedestimatedsubsidyof7.
1percentin1998,28.
95percentin1999,and5.
3percentin2000.
451(4)Calculationofsubsidizationfromtheone-yeartariffexemptiononCBUimportsoftheKiaSephiafromKorea8.
99Ifthesubsidyattributabletotheone-yeartariffexemptiononCBUimportsoftheKiaSephiafromKoreais"expensed"(allocatedtotheyearofreceipt),theresultingsubsidyis122.
18percentadvalorem.
Thisfigureisderivedasfollows:446SeeTable14andaccompanyingnote.
447Thismethodunderestimatesthesubsidyattributabletotheone-yeartariffexemption,becauseRecommendation3,paragraph1,oftheIGEReportprovidesthefollowing:"Itisrecommended,wheresubsidiesareallocatedovertime,thatsubsidyamountsbeadjustedfullyforinflationandincludeaportionofthe'real'interestrate.
"Ifthisadjustmentweremade,theamountofthesubsidywouldincrease.
448SeeTable15.
449SeeTable16.
450SeeTable17.
451SeeTable21.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage203Table13One-YearTariffExemption(Expensed)Step1DeterminetheUS$valueofimportationsduringtheone-yearperiod(1996-97).
BasedonAttachmentU-12toAV/14,thisfigureisUS$368,453,066.
Step2Multiplythevalueofimportationsby200%toarriveatthetotalsubsidyamountinUS$.
($368,453,066x200%=$736,906,132).
Step3Determinethetotalsalesvalueduringthesameperiod.
BasedonAttachmentU-12,thisfigureisRp.
418,221,435,000.
Step4DividethetotalsalesvaluebythetotalnumberofunitssoldtoarriveatanaveragesalesvalueinRp.
ofcarssold.
(418,221,435,000/11,336=Rp.
36,893,210.
57).
Step5MultiplytheaveragesalesvaluebythenumberofunitsimportedtoarriveatthetotalsalesvalueinRp.
ofthecarsimported.
(36,893,210.
57x39,727=1,465,656,576,238.
97).
Step6ConverttheRp.
salesvalueintodollarsbydividingby2430(theconversionrateprovidedbyIndonesiainAttachmentA-28toAV/14.
(1,465,656,576,238.
97/2430=$603,150,854.
42).
Step7Dividethetotalsubsidyamountbythetotalsalesvaluetoarriveatthesubsidypercentage.
($736,906,132.
00/$603,150,854.
42=122.
18%).
8.
100Ifthesubsidyattributabletotheone-yeartariffexemptiononCBUimportsoftheKiaSephiafromKoreais"allocatedovertime",asitshouldbe,theresultingsubsidyis10.
18percentadvalorem.
Thisfigureisderivedasfollows:452452Notethatthiscalculationdoesnotadjustforthe"timevalueofmoney".
Ifsuchanadjustmentweremade,astheUnitedStatesbelievesitshouldbe,thesubsidywouldincrease.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage204Table14One-YearTariffExemption(Allocated)Step1ThetotalsubsidyamountcalculatedinStep2,Table13($736,906,132)isdividedby12,thenumberofyearsoverwhichthesubsidyshouldbeallocated.
453Thisresultsinanallocatedsubsidyamountfor1996-97.
($736,906,132/12=$61,408,844.
33).
Step2Dividetheallocatedsubsidyamountfor1996-1997bythetotalsalesfiguretoarriveatthesubsidypercentage($61,408,844.
33/$603,150,854.
42=10.
18%).
(5)Calculationofsubsidizationfromtheexemptionfromthe35percentluxurysalestax8.
101Fortheperiod1996-97,thesubsidyattributabletotheexemptionoftheTimorKiaSephiafromthe35percentluxurytaxis44.
43percent.
454Thisfigureisderivedasfollows:453Theperiodof12yearsisbasedontheclasslife(inyears)formanufactureofmotorvehiclessetforthintheClassLivestablesoftheModifiedAcceleratedCostRecoverySystemoftheU.
S.
InternalRevenueService.
1997USMasterTaxGuide[CCH],190.
BecausetheUnitedStateswasunabletodevelopinformationconcerningtheactuallifeofassetsforKiaTimororfortheautomotiveindustryasawhole(eitherinIndonesiaorworldwide),ithasusedtheClassLivestablesasthebestinformationotherwiseavailabletoit.
454ThisfigurerelatestosalesofimportedCBUKiaSephiasfromKoreaduringtheone-yearperiodauthorizedunderPresidentialDecreeNo.
42/1996.
Although,afterJune,1997,KiaTimorbegantoassembleTimorKiaSephiasinIndonesia,thedataprovidedbyIndonesiainitsAnnexVresponsesdoesnotpermitthecalculationofthepreciseamountofsubsidizationattributabletotheexemptionfromtheluxurytaxofcarsassembledinIndonesiaduringthesecondhalfof1997.
However,giventhenatureofthesubsidy,onecanassumethattheamountwasaround35percentadvalorem.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage205Table15LuxuryTaxExemption(1996-97)Step1AttachmentU-12toAV/14statesthattheluxurysalestaxiscalculatedonthebasisofcostofgoodssold.
However,Indonesiadidnotprovideavalueforcostofgoodssold,nordiditprovidesalesinformationforthe28,391importedKiaSephiasthat,accordingtoIndonesia,hadnotyetbeensold.
However,AV/16,p.
3,indicatesthatalloftheimportedKiaSephiaswillbeexemptfromtheluxurytaxwhensold.
Therefore,thecalculationmustbebasedontheestimatedsalesvalueofcarsthatwereimportedduring1996-97.
Step2DeterminetheUS$valueofimportationsduringtheperiod(199697).
BasedonAttachmentU-12toAV/14,thisfigureis$368,453,066.
Step3UsingAttachmentA-30/1toAV/14asaguide,itisassumedthatthevalueofimportationsequalstheCIFpricereferredtointhatattachment.
Step4AttachmentA-30/1showsthattheamountofluxurysalestaxisequalto146.
6259percentoftheCIFprice.
However,thisfigureisbasedontheassumptionthatimportedCBUcarsaresubjecttothe200percenttariff,anassumptionwhichdoesnotholdfortheKiaSephiasimportedunderPresidentialDecreeNo.
42/1996.
Therefore,byeliminatingtheeffectofthe200percenttariff,thefactorfortheluxurytaxisreducedto72.
6percent.
Step5MultiplythetotalCIFvalueby72.
6percenttoarriveattheUS$valueoftheluxurytaxexempted.
($368,453,066x.
726=$267,496,925.
90).
Step6Determinethetotalsalesvalueforthesameperiod.
BasedonAttachmentU-12,thisfigureisRp.
418,221,435,00.
00.
Step7DividethetotalsalesvaluebythetotalnumberofunitssoldtoarriveatanaveragesalesvalueinRp.
ofcarssold.
(Rp.
418,221,435,000/11,336=Rp.
36,893,210.
57).
Step8MultiplytheaveragesalesvaluebythenumberofunitsimportedtoarriveatthetotalsalesvalueinRp.
ofimportations.
(Rp.
36,893,210.
57x39,727=Rp.
1,465,656,576,238.
97).
Step9ConverttheRp.
salesvalueintodollarsbydividingby2430(theconversionrateprovidedinAttachmentA-28)(Rp.
1,465,656,576,238.
97/2430=$603,150,854.
42).
Step10Dividethetotalamountofthetaxexemptedbythetotalsalesvaluetoarriveatthesubsidypercentage.
($267,496,925.
90/$603,150,854.
42=44.
43%.
8.
102For1998and1999,theestimatedadvaloremsubsidyrateattributabletotheluxurytaxexemptionis35.
20percent.
Thisfigureisderivedasfollows:WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage206Table16LuxuryTaxExemption(1998-99)Step1AccordingtoAttachmentU-12,AV/14,theluxurytaxiscalculatedbasedonthecostofgoodssold.
Again,IndonesiadidnotprovidethisvalueinitsAnnexVresponses.
Step2UsingAttachmentA-30/2,AV/14,asaguide,weknowthattheluxurysalestaxamountis96.
8793%oftheCIFvalue.
TheCIFvaluecanbeobtainedthroughinformationprovidedinAttachmentA-28,AV/14.
Step3IndonesiadidnotindicatehowthevaluesinAttachmentA-28relatetothevaluesinAttachmentA-30/2.
Therefore,certainassumptionshavetobemade.
Logically,itseemsthatthe"dealerprice"inA-28isthesameasthe"soleagentsalesprice"inA-30/2.
AttachmentA-30/2showsthatthe"soleagentsalesprice"is426.
3768percentoftheCIFprice.
Giventhisassumption,calculatetheaveragedealer'sprice(withoutsubsidy-sincewearetryingtodeterminewhatpartofthatpriceisattributabletotheluxurysalestax).
[($22,170+$24,085)/2=$23,127.
50]Step4CalculatetheaverageCIFpricebydividingtheaveragedealer'spriceby426.
3768percent.
[$23,127.
50/426.
3768%=$5,424.
19]Step5Next,determinetheestimatednumberofunitstobesold.
[AttachmentA-28].
In1999,therearesalesestimatedinboththedomesticandexportmarkets.
Assumingthattheluxurysalestaxwouldnotbepaidonexportedcars,useonlythenumberofunitssolddomesticallyinthecalculation.
[1998-6,000][1999-25,000]Step6MultiplythenumberofunitssoldbytheaverageCIFpricetodeterminethetotalCIFvalueofsales.
[1998-6,000x$5,424.
19=$32,545,157.
24][1999-25,000x$5,424.
19=$135,604,821.
84]Step7MultiplythetotalCIFvalueby96.
8793percenttoarriveatthetotalamountofluxurytaxexempted.
[1998-$32,545,157.
24x96.
8793%=$31,529,520.
52][1999-$135,604,821.
84x96.
8793%=$131,373,002.
16]Step8Determinethetotalvalueofsalesfortheperiod.
[AttachmentA-28][1998-$89,560,000.
00][1999-$373,180,000.
00(domesticonly)]Step9Dividethetotalamountoftaxexemptedbythetotalsalestoarriveatthe%ofsubsidization.
[1998-$31,529,520.
52/$89,560,000.
00=35.
20%][1999-$131,373,002.
16/$373,180,000.
00=35.
20%]WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage207(6)Calculationofsubsidizationfromtheexemptionfromimportdutiesonimportedautomotiveparts8.
103AccordingtoIndonesia,TPN'sone-yearauthorizationtoimportCBUKiaSephiasfromKoreaduty-freehasexpired,andKiaTimorisnowassemblingTimorKiaSephiasinIndonesia.
UndertheNationalMotorVehicleprogramme,astheproducerofa"nationalmotorvehicle",KiaTimorbenefitsfromthetariffexemptiononimportedautomotiveparts.
For1998and1999,theestimatedadvaloremsubsidyrateattributabletotheexemptionfromimportdutiesonautomotivepartsis14.
17percentand9.
45percent,respectively.
455Thisfigureisderivedasfollows:Table17TariffExemptiononParts(1998-99)Step1Todeterminetheimportdutyexemption,wemustknowthetotalvalueofimportations.
ThisvaluewasnotprovidedinIndonesia'sAnnexVresponses.
Therefore,wemustextrapolatethevaluefromwhatIndonesiadidprovide.
Step2Determinetheamountoflocalcontentinthecarssold.
[AttachmentA-28,AV/14][1998–40%][1999-60%]Step3Fromthis,assumethattheamountofimportedcontentis:[1998-60%][1999–40%]Step4TodeterminetheCIFvalueofthecompletedcar,followthestepsdescribedaboveinconnectionwiththeluxurytaxsubsidyfor1998-99,Table16,toarriveattheaverageCIFvalueof$5,424.
19.
Step5MultiplytheaverageCIFvaluebythepercentageofimportedpartstoobtaintheaverageCIFvalueofimportations.
ThenmultiplythatamountbythenumberofcarssoldtoarriveatthetotalCIFvalueofimportations.
[1998-$5,424.
19x60%x6000=$19,527,094.
34][1999-$5,424.
19x40%x25000=$54,241,928.
74](Note-Forthenumberofunitssold,thenumbersoldsolelyintheIndonesianmarketwasusedbecauseimportdutyexemptiononpartsincorporatedintoanexportedproductarguablywouldnotbeconsideredanactionablesubsidy.
)Step6Multiplythevalueofimportationsby65percenttoarriveattheamountofimportdutyexemption.
[1998-$19,527,094.
34x65%=$12,692,611.
32][1999-$54,241,928.
74x65%=$35,527,253.
68]455Again,thedataprovidedbyIndonesiainitsAnnexVresponsedonotpermitthecalculationofasubsidyrateforthoseTimorKiaSephiasassembledinIndonesiaduringthelatterpartof1997.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage208Step7Dividethetotalvalueofimportdutyexemptionsbythetotalsalesvaluetoarriveatthe%ofsubsidization.
[1998-$12,692,611.
32/$89,560,000.
00=14.
17%][1999-$35,527,253.
68/$373,180,000.
00=9.
45%](7)Calculationofsubsidizationfromthegovernment-directed$690millionloan8.
104Withrespecttothegovernment-directed$690millionloantoTPN,theUnitedStatesestimatestheamountofthesubsidytobe7.
1percentin1998,28.
95percentin1998,and5.
3percentin2000.
TheUnitedStatescalculatedthesepercentagesinthefollowingmanner.
8.
105Asnotedabove,newspaperreportsindicatedthatthetermsoftheloanwere3percentoverthe3-6monthdepositrate,amaturityof10years,andagraceperiodof3years.
Thus,thefirsttaskistodeterminetheinterestratetobepaidbyTPN,whichisbasedonthe3-6monthdepositrate.
BecauseIndonesiadidnotprovidethisrateinitsAnnexVresponses,theUnitedStateswasforcedtorelyonothersources.
ThemostrecentinformationavailabletotheUnitedStatesisfromTheEconomistIntelligenceUnitLimited(April1997)(EIU)456,whichindicatesthatasoftheendofFebruary1997,theaveragerateonBankIndonesiacertificateswas8.
75percent.
457Adding3percenttothisfigureresultsinaninterestrateonthe$690millionloanof11.
75percent.
8.
106Thenexttaskistodeterminethe"benchmark"interestrateagainstwhichTPN'sinterestrateshouldbejudged.
BecausetheGovernmentofIndonesiadidnotprovidetheloantoTPNdirectly,butinsteaddirectedbankstoprovidetheloan,itwouldbeinappropriatetousetheGovernment'scostasthebenchmark.
Instead,onemustusethecostoftheactuallender;inthiscase,thebanks.
Thecosttoabankisreflectedintheinterestratethatitwouldchargeacomparablecommercialborrower.
Again,becausetheGovernmentofIndonesiarefusedtoproviderelevantinformationinitsAnnexVresponses,theUnitedStateshasbeenforcedtoestimatethebenchmarkinterestratebasedonthebestinformationotherwiseavailabletoit.
8.
107TheUnitedStatesbeganwiththerateona10-year"YankeeBond"thattheIndonesianGovernmentbegantoissueinJuly1996.
458AccordingtoEIU,therateonthisUS$denominatedbondwassetat7.
825percent,1percentagepointabovethe10-yearTreasurybondrate.
459TheuseofaUS$denominatedbenchmarkisappropriate,becauseinAV/16,p.
4,Answer13,IndonesiareferredtoaUS$denominatedrate.
8.
108TheUnitedStatesaddedaspreadofsevenpercenttotheYankeeBondrateof7.
825percent.
AccordingtoEIU,p.
28(Exhibit16),Indonesianbankspreadsrangefromthreetosevenpercentagepoints,dependingonthereputationoftheclient.
Asdiscussedabove,TPNwasnota456USExhibit16.
457AccordingtoEIU,thesecertificatesaretheprimarytoolsusedbyBankIndonesiatocontrolinterestratesandmoneysupply.
458SeeEIU,p.
3(USExhibit16).
459BecauseitishighlyunlikelythatanyonebuttheUSGovernmentisinthebusinessofissuingUS$denominatedTreasurybonds,theUnitedStatesassumedthatthereferenceinEIUtothe10-yearTreasurybondrateistothe10-yearUSTreasurybondrate.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage209reasonablecreditriskforaloanofthemagnitudeof$690million.
460Therefore,abankwouldhavechargedthemaximumspreadtoacommercialborrowercomparabletoTPN.
Adding7percenttotheYankeeBondrateresultsinaninterestrateof14.
825percent.
8.
109Finally,theUnitedStatesaddedona"riskpremium"tomoreaccuratelyreflectthefactthatTPNwasanunsoundcreditrisk.
Inotherwords,abanklendingtoaborrowercomparabletoTPNwouldhavechargedmorethan14.
825percentinordertocoverits(thebank's)costs.
Intheabsenceofanyotherinformation,theUnitedStatesreliedonthemethodologyusedbytheUSDepartmentofCommercetocalculateariskpremiumundertheUScountervailingdutylaw.
Underthismethodology,inthecaseofacompanyconsideredtobe"uncreditworthy,"theDepartmentofCommerceaddstothe"benchmark"interestrateanamountequalto12percentoftheprimerateinthecountryinquestion.
Here,theUnitedStatesused10.
825percentastheprimerate.
ThiswasbasedontheYankeebondrate(7.
825)plus3percent,3percentbeingthelowspreadforbanklending.
46112percentof10.
825equals1.
29percent.
Adding1.
29percenttothebenchmarkrateof14.
825resultsinafinalbenchmarkrateof16.
124.
8.
110HavingdeterminedtheinterestratepaidbyTPN(11.
75percent)andthecosttothebanks(16.
124percent),wenextmustcalculatea"grantequivalent"ofthebenefitreceivedbyTPNfromtheloan.
ThefirststepinthisprocessistocalculatethenetpresentvalueofpaymentsundertheloantoTPNandthebenchmarkloan.
Thedifferenceinpaymentsbetweenthetwoloansconstitutesthesubsidy.
8.
111Assumingthattherewillbeinterest-onlypaymentsduringthe3-yeargraceperiod,andassumingan11.
75percentinterestrate,thepaymentschedulefortheloantoTPNisasfollows:Table18PaymentScheduleforLoantoTPNYearBeginningBalanceAdd:InterestLess:PaymentEndingBalance000(690,000,000)690,000,0001690,000,00081,075,00081,075,000690,000,0002690,000,00081,075,00081,075,000690,000,0003690,000,00081,075,00081,075,000690,000,0004690,000,00081,075,000149,994,645621,080,3555621,080,35572,976,942149,984,645544,062,6526544,062,65263,927,362149,994,645457,995,368460Inthisregard,theUnitedStatesemphasizesthatintheAnnexVprocess,IndonesiarefusedtoanswerquestionsregardingTPN'sfinancialsituation.
SeeAV/15,Question12/29(d)andAV/16,Question12/29(d).
461EIU,p.
28(USExhibit16).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2107457,995,36853,814,456149,994,645361,815,1798361,815,17942,513,284149,994,645254,333,8179254,333,81729,884,224149,994,645134,223,39610134,223,39615,771,249149,994,645(0)8.
112Using16.
124percentastheinterestrate,thepaymentscheduleforthebenchmarkloanisasfollows:WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage211Table19APaymentScheduleforBenchmarkLoanYearBeginningBalanceAdd:InterestLess:PaymentEndingBalance000(690,000,000)690,000,0001690,000,000111,255,600111,255,600690,000,0002690,000,000111,255,600111,255,600690,000,0003690,000,000111,255,600111,255,600690,000,0004690,000,000111,255,600171,477,239629,778,3615629,778,361101,545,463171,477,239559,846,5846559,846,58490,269,663171,477,239478,639,0087478,639,00877,175,754171,477,239384,337,5238384,337,52361,970,582171,477,239274,830,8669274,830,66644,313,729171,477,239147,667,35510147,667,35523,809,884171,447,23908.
113HavingcalculatedpaymentschedulesforboththeloantoTPNandthebenchmarkloan,wenowmustcalculatethenetpresentvalueofthepaymentdifferentials.
Thisresultsinthefollowingschedule,usingastandardnetpresentvaluecalculationandadiscountrateof16.
124percent:WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage212Table19BPaymentDifferentialYearTPNLoanPaymentBenchmarkLoanPaymentPaymentDifferentialNPVofPmt.
Diff.
00000181,075,000111,255,60030,180,60025,989,976281,075,000111,255,60030,180,60022,381,227381,075,000111,255,60030,180,60019,273,5594149,994,645171,477,23921,482,59411,614,0495149,994,645171,477,23921,482,59410,173,6506149,994,645171,477,23921,482,5948,761,0237149,994,645171,477,23921,482,5947,544,5418149,994,645171,477,23921,482,5946,496,9709149,994,645171,477,23921,482,5945,594,85510149,994,645171,477,23921,482,5944,818,001Total240,919,960122,847,8508.
114Havingcalculateda"grantequivalent"oftheloanpaymentdifferentialofUS$122,847,850,thenextstepistotranslatethislumpsumintoannualbenefits.
Forthispurpose,theUnitedStateshasproratedtheamountofthe"grantequivalent"overa10-yearperiodbasedonthelifeoftheloantoTPN.
Anamountisaddedtoeachannualallocationtoaccountforthetimevalueofmoneyoftheremainingunallocatedportion,usingadiscountrateof16.
124percent.
Usinga"decliningbalance"formula,thesetwoamountsareaddedtogetheranddividedbyoneplusthediscountratetoobtaintheamountofthe"grantequivalent"allocabletoanyoneyear.
Thisresultsinthefollowingscheduleofannualbenefits:WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage213Table20AnnualBenefitfromLoanYearBenefittoYear00127,636,640225,930,879324,225,117422,519,355520,813,594619,107,832717,402,070815,696,308913,990,5471012,284,7858.
115Thefinalcalculationstepistotranslatetheannualsubsidyamountintoanadvalorempercentage:Table21AnnualSubsidyRateforLoan(1998-2000)199819992000BenefitsinUS$27,636,64025,930,87924,225,117SalesinUS$387,569,043446289,560,000453,180,000Subsidy7.
1%28.
95%5.
3%462TheUnitedStateshasassumedthatpaymentontheTPNloanwillnotbeginuntil1998,thusrendering1998"Year1"oftheloan.
Inaddition,pursuanttoparagraphs2and3ofAnnexIVoftheSCMAgreement,thedenominatorintheadvaloremsubsidycalculationisbasedonsalesintheprecedingyear.
Accordingly,thedenominatorforthe1998subsidyisbasedon1997sales,thesubsidyforthe1999subsidyon1998sales,andthesubsidyforthe2000subsidyon1999sales.
Thefiguresfor1998and1999sales(Column1999andColumn2000)weretakenfromAttachmentA-28,AV/14.
Thefigurefor1997sales(Column1998)wasestimatedbasedondatainAttachmentU-12,AV/14.
TheUnitedStatescalculatedthetotalsalesvalueofcarsimportedduringaparticularyearbycalculatinganaveragesalesprice.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage214(c)ArgumentsofIndonesiaregardingseriousprejudiceasacauseofactioninthisdispute8.
116ThesubsidiesatissuetechnicallyfallwithinthescopeofArticle3.
1(b)as"subsidiescontingent(whethersolelyorasoneofseveralotherconditions)upontheuseofdomesticoverimportedgoods".
AsIndonesiaisadevelopingcountry,itiswithintheambitofArticle27.
3oftheSCMAgreement,whichprovidesthat"[t]heprohibitionofparagraph1(b)ofArticle3shallnotapplytodevelopingcountryMembersforaperiodoffiveyears.
.
.
fromthedateofentryintoforceoftheWTOAgreement(i.
e.
,until1January2000)".
Instead,theprovisionsofArticles5to7regarding"actionable"subsidiesapply.
8.
117Subsidieswhicharenot"prohibited"maybeeither"actionable"or"non-actionable.
"ThesubsidiesinvolvedinthisdisputedonotmeetthecriteriaofArticle8oftheAgreement,andsomustfallintotheresidualcategoryof"actionable"subsidies.
ThisrationaleforapplicationofArticles5to7mustbeusedbecausethelanguageofArticle27.
7isambiguous.
Itstatesthat:The[remedial]provisionsofArticle4shallnotapplytoadevelopingcountryMemberinthecaseofexportsubsidieswhichareinconformitywiththeprovisionsofparagraphs2through5.
Therelevant[remedial]provisionsinsuchacaseshallbethoseofArticle7.
(Emphasisadded.
)8.
118"Export"subsidiesand"domesticcontent"subsidiesarenotsynonymous.
TheformerarecoveredbyArticle3.
1(a)andAnnexIoftheAgreement,whilethelatterarecoveredbyArticle3.
1(b).
GiventhecontextofArticle27.
7(includingitscitationtoArticle27.
3),thedraftersoftheAgreementclearlymeantArticle27.
7tocoverdomesticcontentsubsidies,aswellasexportsubsidies.
Thisisconfirmedbytheanalysisabove.
UnderArticle32oftheViennaConventionontheLawofTreaties,recoursetosupplementalmeansofinterpretationispermissibleinthisinstanceduetotheambiguityofthetextofArticle27.
7.
8.
119TheEuropeanCommunitiesandtheUnitedStatesassertthattheactualandallegedsubsidiesoftheNationalCarprogrammebestowedbytheJune1996programme,theFebruary1996programmeandthe$US690millionloanexceedthe5/15percentadvaloremthresholdsestablishedbyArticle6.
1(a)oftheSubsidiesAgreement.
Theyproperlyrecognize,however,thatArticle27.
8stipulatesthatseriousprejudiceintermsofArticle6.
1(a)shallnotbepresumedwhere,ashere,thesubsidyisgrantedbyadevelopingcountryMember.
Rather,insuchacase,acomplainantmustdemonstrateseriousprejudicebypositiveevidenceinaccordancewiththeprovisionsofparagraphs3through8ofArticle6.
8.
120Thus,whetherproceedingonthebasisofArticle6.
1(a)orindependentlyonthebasesofArticle6.
3,complainantsmustdemonstrateseriousprejudicebypositiveevidenceinaccordancewiththeprovisionsofparagraphs4through8ofArticle6beforetheremedialpowersofArticle7.
8maybeapplied.
8.
121InresponsetoaquestionfromthePanel,IndonesiaindicatedthattheapproximateadvaloremamountofsubsidizationconferredontheTimorbytheexemptionfromtheluxurytaxwasasfollows:CBUsimportedfromKorea29.
54%TimorsassembledatTambun26.
20%TimorsproducedatKarawang18.
68%WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2153.
Likeproduct(a)Scopeof"like"models(1)ArgumentsoftheEuropeanCommunities8.
122TheEuropeanCommunitiesassertsforpurposesofitsseriousprejudiceclaimsthatallpassengercarsmustbeconsideredas"like"products.
ThefollowingaretheEuropeanCommunities'argumentsinthisregard:8.
123Inordertoassesstheeffectsofthesubsidiesunderconsiderationitisnecessarytodefinefirstthescopeoftherelevantcategoryof"likeproducts".
8.
124Forthatpurpose,footnote46toArticle15.
1oftheSCMAgreementprovidesthefollowingguidance:Throughoutthisagreementtheterm"likeproduct"("produitsimilaire")shallbeinterpretedtomeanaproductwhichisidenticali.
e.
alikeinallrespectstotheproductunderconsideration,orintheabsenceofsuchaproduct,anotherproductwhich,althoughnotalikeinallrespectshascharacteristiccloselyresemblingthoseoftheproductunderconsideration8.
125Allmotorvehiclesfallingwithinthecategoryof"passengercars",asdefinedinIndonesia'sregulations,constituteasinglecategoryof"likeproducts"forthepurposesoftheSCMAgreementgiventhattheyallsharethesamebasicphysicalcharacteristicsandserveanidenticalend-use.
Thus,thepassengercarsexportedfromtheEuropeanCommunitiesareliketheTimorS-515.
8.
126Indonesiatakesanundulyrestrictiveviewofwhatconstitutesa"likeproduct".
ToparaphrasetheAppellateBody,Indonesiahassqueezedthe"accordionoflikeness"toapointwhereitcannolongersoundanynote.
8.
127Presently,therearemorethan60differentmodelsofpassengercarsbeingsoldintheIndonesianmarket.
Yet,IndonesiawouldhavethePaneltobelievethattheTimorS-515issouniquethatnoneofthemis"like"theTimorS-515.
Bythesametoken,itcouldbeclaimedthateachoftheothermodelsofpassengercarssoldinIndonesiaconstitutesalsoacategoryoflikeproductsonitsown.
IfupheldbythePanel,Indonesia'sapproachwouldrendertheprovisionsofPartIIIandPartVoftheSCMAgreementinapplicableexceptinthosecaseswheresubsidiesaregrantedwithrespecttocommoditiesorsimilarlyhomogeneousproducts.
8.
128ThestartingpointfordeterminingwhetherthecarsexportedfromtheEuropeanCommunitiesare"like"theTimorS-515mustbethedefinitionoftheterm"likeproduct"containedinfootnoteNo46oftheSCMAgreement.
Thatdefinitionmakesitperfectlyclearthatinordertobe"like",twoproductsneednotbeidentical.
Intheabsenceofidenticalproducts,twoproductshaving"closelyresemblingcharacteristics"mustbeconsideredas"like"products.
ItisevidentthattheTimorS-515andthepassengercarsexportedfromtheEuropeanCommunitiesarenotidentical.
Yet,theyhavesufficientlyresemblingcharacteristicstobeconsideredas"like".
8.
129TheEuropeanCommunitiesagreeswiththepropositionthattheterm"likeproducts"mustbeconstruednarrowlyinthecontextoftheSCMAgreement.
Nevertheless,theEuropeanCommunitiesconsiderthatthedefinitionof"likeproduct"containedinfootnoteNo46ofthatWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage216SCMAgreementalreadyembodiessuchanarrowinterpretation.
Anevennarrowerinterpretationofthedefinitionitselfisunwarranted.
4638.
130Itistruethat,withinthecategoryofpassengercars,therearevirtuallylimitlessvariationsinrespectoffactorssuchassize,weight,enginetype,cylindercapacity,enginepower,transmissionsystem,equipment,bodydesign,colour,etc.
464Nevertheless,thosevariationsdonotaffecttheessentialsimilarityofallpassengercarsnorpreventthemfrombeing"like"products.
8.
131Anyattempttodefinetwoormoresub-categoriesof"likeproducts"withinthecategoryofpassengercarsonthebasisofanyofthosecriteriawouldunavoidablyyieldarbitraryresults.
Firstofall,itwouldrequiretomakeanecessarilyarbitrarychoiceamongallpossiblecriteria,theonlyalternativebeingtocombineseveralcriteriasimultaneouslyattheriskofmultiplyingadinfinitumthecategoriesof"like"products.
Furthermore,inrespectofmanyofthosecriteria(e.
g.
sizeorcylindercapacity),thereisafullcontinuumofproducts.
Drawingalinewithinthatcontinuumwouldbearbitrary,regardlessofwherethelineisdrawn.
Thus,forinstance,adistinctionbetween"large"and"small"passengercarswouldbearbitrarybecausetherewouldalwaysbemore"likeness"betweenthesmallestlargecarandthelargestsmallcarthanbetweenproductsateitherendofeachofthetwocategories.
8.
132If,despitetheabove,thePaneltooktheviewthatnotallpassengerscarsare"likeproducts",theEuropeanCommunitiessubmitthat,attheveryleast,theOpelOptimaandthePeugeot306mustbeconsideredasbeing"like"theTimorS-515.
Thetablebelowcontainsanexhaustivecomparisonoftheirphysicalcharacteristics.
ThatcomparisonconfirmsbeyonddoubtthattheTimorS-515andtheEuropeanCommunitiesmodelsconcerned,albeitnotalikeinallrespects,havecloselyresemblingcharacteristics.
TheEuropeanCommunitiesalsohassubmittedsalesbrochuresoftheTimorS-515,thePeugeot306andtheOpelOptima.
463Indonesia'sclaimthatthenotionof"likeproduct"shouldbeconstruedevenmorenarrowlyinthecontextofanexceptiongrantedinfavourofdevelopingMembersissimplynon-sensical.
Thenotionof"likeproduct"isanobjectiveoneandcannothavedifferentmeaningsdependingontheGDPlevelofthesubsidisingcountryMember.
464SomeofthecriteriaenumeratedbyIndonesiaasbeingrelevantforalikeproductdeterminationaretoosubjective(e.
g.
"reputation")orvague(e.
g.
"quality"or"rideandcontort")forbeingmeasurable.
Priceisnotrelevantforalikeproductdetermination,especiallywhenasinthepresentcaseoneoftheproductsconcernedbenefitsfromahugesubsidy,andtheimportedproductsaresubjecttothepaymentofveryhighimportduties.
AsnotedbythePanelReportonJapan-CustomsDuties,TaxesandLabellingPracticesonImportedWinesandAlcoholicBeverages,adoptedon10November1987,BISD34/119:".
.
.
likeproductsdonotbecome"unlike".
.
.
merelybecauseof.
.
.
.
differencesintheirprices,whichwereofteninfluencedbyexternalmeasures(e.
g.
customsduties)andmarketconditions(e.
g.
supplyanddemand,salesmargins)"WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage217Table22ComparisonofCertainModelsMarqueMakeModeleBasicmodelPeugeot3061.
8StPeugeot3061.
8StLMOpelOptima1.
8GLSOpelOptima1.
8NewCDXTimorS5151.
5TimorS515i1.
5I/MechanicalFeaturesLength(mm)4,2404,2404,3294,3294,3604,360Height(mm)1,3671,3671,4101,4101,3901,390Width(mm)1,6921,6921,6881,6881,6921,692WheelBase(mm)2,5802,5802,5172,5172,5002,500PetrolorDieselEngineXU7JPXU7JPMPFIMPFI85CEFICubicCapacity(cm3)1,7611,7611,7961,7961,4981,498NumberofCylinders444444NumberofValves/Cylinder8V8V8V8V8V16VMaximumPower(DIN/ch)103103118118--NbrRPM6,0006,0005,4005,400--MaximumPower(JIS/ch)82105NbrRPM5,5005,500Maxitorque(DIN)16.
016.
016.
316.
3--Maxitorque(JIS)12.
215.
0NbrRPM3,0003,0003,2003,2002,5004,000Carburetor/InjectionIIIICIManualGearBox(NB.
ofSpeeds)555555AutomaticGearBox(NB.
ofSpeeds)WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage218MarqueMakeModeleBasicmodelPeugeot3061.
8StPeugeot3061.
8StLMOpelOptima1.
8GLSOpelOptima1.
8NewCDXTimorS5151.
5TimorS515i1.
5Brakes(Disc/drums/Ventil.
)VD/DRVD/DRD/DRD/DRVD/DRVD/DRAnti-lockBrakesystem---X--PowerSteeringXXXXXXII/OutsideFeaturesNumberofDoors444444AdditionalHeadlamps--XX--BodysideMouldingsXXXXXXRearSpoiler----XXLightAlloyWheels-XXX--TyreSize185/65/R14185/65/R14195/60/R14195/60/R14175/70/R13175/70/R13MetallicPaintXXXX-OTintedGlassXXXXXXIII/InsideEquipmentAirBag(1/2)---1--SideImpactsBeamsXXXXXXCentralDoorLockingXXXXXXAdjustableSteeringColumnXXXX-XElectricWindowsFront/RearF/RF/RF/RF/RXXElectricWindows(Front/1Touch)FR/oneTFR/oneTFR/oneTFR/oneT-XDriverSideMirrorManu.
/Electr.
EEEEMEPassengerSideMirrorManu.
/Elec.
EEEEMEWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage219MarqueMakeModeleBasicmodelPeugeot3061.
8StPeugeot3061.
8StLMOpelOptima1.
8GLSOpelOptima1.
8NewCDXTimorS5151.
5TimorS515i1.
5AlarmSystem--XX--AirConditioningXXXXXXRadioEquipmentXXXX-XHeightAdjust.
FrtSeatsManu.
/ElecMMMMMMRearSeatFolding1/3-2/31/3-2/31/3-2/31/3-2/3--RearHeadRestraintsXXXXXXTRIMVELOURSLEATHERVELOURSVELOURSCLOTHCLOTHNumberofRearSeatBelts3333333rdBrakingLightXXXXXX8.
133ShouldthePaneltaketheviewthatitisnecessarytodistinguishtwoormore"segments"withinthecategoryofpassengercars,theEuropeanCommunitieswouldreferthePaneltotheclassificationmadeintheDRIReports.
AccordingtotheDRIReports,themodelsofpassengercarssoldinIndonesiabetween1994and1997maybeclassifiedintofoursegments,asfollows:SegmentB("SuperminiClass"):DaihatsuCharade,SuzukiBaleno,SuzukiEsteem,ToyotaStarlet;SegmentC("LowerMediumClass"):DaewooCielo,FordLaser,HondaCity,HondaCivic,HyundaiAccent/BimantaraCakra,Peugeot306,OpelOptima,MitsubishiLancer,Mazda323,MazdaMR90,ToyotaCorolla,ToyotaCorona,KiaSephia/TimorS-515;SegmentD("UpperMediumClass"):AudiA4,DaewooCielo,FordTelstar,HondaAccord,HyundaiElantra/BimantaraNenggala,Mazda626,MitsubishiGalant,OpelVectra,Peugeot405/406;SegmentE("ExecutiveClass"):AudiA6,BMW3Series,BMW5series,BMW7series,MercedesBenzCclass,MercedesBenzEclass,MercedesBenzSclass,NissanCedric,NissanZafiro,ToyotaCrown,VolvoU.
AccordingtotheDRIReports,nomodelwassoldwithinSegmentA("UtilityClass").
8.
134IndonesiacannotreasonablydenythattheTimorandtheECcars,andinparticulartheOpelOptimaandthePeugeot306,havecloselyresemblingphysicalcharacteristics.
Forthatreason,Indonesiaisforcedtoemphasizetheimportanceofwhatitterms"non-physicalcharacteristics".
(SeeSectionVIII.
B.
3).
Theseincludealonglistofvagueandessentiallysubjectivecriteria,suchas"brandreputation","status","quality","reliability",etc.
whichcannotbeproperlymeasuredandcompared.
IfthePanelupheldIndonesia'sviewthattwovehicleswhichhavecloselyresemblingphysicalcharacteristicsmayneverthelessnotbe"like"becauseofWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage220differencesinfactorssuchas"quality"or"brandreputation",itwouldbeopeningthedoortoallkindsofarbitraryandabusivedistinctions.
AnexaminationofpriorPanelreportsshowsthatallegeddifferencesregardingnon-physicalcharacteristicshaveneverbeenregardedasdeterminantforalikeproductdetermination.
Forinstance,inthe1987caseonJapan-TaxesonAlcoholicBeverages465,JapanclaimedthathighqualityScotchwhiskywasnot"like"domesticJapanesewhiskyofinferiorquality.
ThePanelrightlyignoredthoseargumentsandconcludedthatallwhiskywas"like".
Inrelativeterms,thereisnomoredifferencebetweenaMercedesandaTimorthanbetweenapremiumbrandofmaltScotchwhiskyandaJapanesebrandofsecondgradewhiskymadebyaddingwatertoaconcentrate.
8.
135Tobeprecise,theEuropeanCommunities'positionisthatcarswhichhavecloselyresemblingphysicalcharacteristicsdonotbecome"unlike"simplybecauseofallegeddifferencesinso-called"non-physicalcharacteristics.
"8.
136"Ridingcomfort"isdeterminedbythephysicalcharacteristicsofacar.
Thesameistrueof"quality".
"Reputationforquality"isoneofthefactorswhichmakeupthe"brandimageofaproduct.
"Itisobviousthat"brandimage"mayinfluenceconsumers'choices.
IntheEuropeanCommunities'view,however,meredifferencesinbrandimagedonotsufficetomaketwoproducts"unlike".
Moreover,thiscriterionislargelysubjective,cannotbeaccuratelymeasured,andmaychangeovertime.
Forinstance,bydefinitionnewentrantslackanestablished"brandimage".
Thus,onIndonesia'sconstruction,asubsidizingMembercouldalwaysclaimthatsubsidiesfortheestablishmentofanewdomesticindustrycannotcause"seriousprejudice"toimports.
(2)ArgumentsoftheUnitedStates8.
137TheUnitedStatesarguesthatthepassengercarswhich,butfortheNationalMotorVehicleprogramme,UnitedStatesmotorvehiclemanufacturerswouldhavesoldinIndonesia,are"like"theTimorKiaSephiasedan.
ThefollowingaretheUnitedStates'argumentsinthisregard:8.
138Footnote46oftheSCMAgreementdefines"likeproduct"inthefollowingmanner:ThroughoutthisAgreementtheterm"likeproduct"("produitsimilaire")shallbeinterpretedtomeanaproductwhichisidentical,i.
e.
alikeinallrespectstotheproductunderconsideration,orintheabsenceofsuchaproduct,anotherproductwhich,althoughnotalikeinallrespects,hascharacteristicscloselyresemblingthoseoftheproductunderconsideration.
8.
139Obviously,thisdefinitionprovidesonlygeneralguidance,andacase-by-caseanalysisisnecessarytodeterminewhetheraparticularproductis"like"another.
Inthisregard,theguidanceprovidedbytheAppellateBodyinconnectionwiththeapplicationofthe"likeproduct"conceptforpurposesoftheWTOagreementsisparticularlyapt:466Nooneapproachtoexercisingjudgementwillbeappropriateforallcases.
ThecriteriainBorderTaxAdjustmentsshouldbeexamined,buttherecanbenoonepreciseandabsolutedefinitionofwhatis"like".
Theconceptof"likeness"isarelativeonethatevokestheimageofanaccordion.
Theaccordionof"likeness"465PanelreportonJapan-CustomsDuties.
TaxesandLabellingPracticesonImportedWinesandAlcoholicBeveragesadopted10November1987,BISD34S/83,118.
466"Japan-TaxesonAlcoholicBeverages,"WT/DS8/R,ReportoftheAppellateBody,adopted1November1996,p.
22.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage221stretchesandsqueezesindifferentplacesasdifferentprovisionsoftheWTOAgreementareapplied.
Thewidthoftheaccordioninanyoneofthoseplacesmustbedeterminedbytheparticularprovisioninwhichtheterm"like"isencounteredaswellasbythecontextandthecircumstancesthatprevailinanygivencasetowhichthatprovisionmayapply.
Factorswhichshouldbeconsideredinapplyingacase-by-caseanalysisinclude"aproduct'send-usesinagivenmarket,consumers'tastesandhabits,whichchangefromcountrytocountry,andtheproduct'sproperties,natureandquality.
"467(a)ThepassengercarsthattheUnitedStateswouldhavesoldinIndonesiaarecomparabletotheTimor.
8.
140Withthisanalyticalframeworkinmind,letusnowturntoananalysisofspecificpassengercarsofUSmotorvehiclemanufacturers.
BecauseoftheNationalMotorVehicleprogramme,therecurrentlyarevirtuallynopassengercarsofUSmanufacturersthatareimportedandsoldinIndonesia.
468However,thepassengercarsthatwereimportedandsoldinIndonesiapriortotheintroductionoftheNationalMotorVehicleprogrammewere"like"theTimorKiaSephiasedan.
Inaddition,thepassengercarsthat,butfortheNationalMotorVehicleprogramme,wouldhavebeenimportedandsoldinIndonesiaare"like"theTimorKiaSephiasedan.
8.
141PriortotheintroductionoftheNationalMotorVehicleprogramme,GeneralMotorssoldtwopassengercarsunderits"Opel"brandthateasilycanbeconsideredas"like"theTimorKiaSephiasedan.
ThesearetheOpelOptimaandtheOpelVectra.
8.
142TheOpelOptimaandtheTimorKiaSephiabothfallwithin"SegmentC"ofthemotorvehiclemarket(lowermediumclasspassengercars).
469Moreover,assetoutinTable23,below,thespecificationsfortheOptimaandtheTimorKiaSephiaarequitecomparable.
Thesizeandweightofthetwocarsarevirtuallyidentical,whiletheOptimahasaslightlybiggerengine.
8.
143WithrespecttotheOpelVectra,whileitispositionedslightlyhigherinthemarketthantheOptimaortheTimorKiaSephia470,intermsofspecifications,assetoutinTable23,itisnotallthatdissimilartotheTimorKiaSephia.
TheVectraisslightlylargerthantheTimorKiaSephia(e.
g.
,theVectraisabout100mmlongerthantheTimorKiaSephia),andhasamorepowerfulengine.
However,bothcarssharethesameend-uses;i.
e.
,totransportpassengers.
8.
144TurningtoFord,Fordhadwell-advancedplanstoimportandsellFordEscortsinIndonesia,plansthatFordhadtoabandoninlightoftheNationalMotorVehicleprogrammeandtheintroductionoftheheavilysubsidizedTimorKiaSephiasedan.
LiketheTimorKiaSephia,theEscortfallsinSegmentCofthepassengercarmarket.
471Acomparisonofspecifications,assetforthinTable23,confirmsthesimilaritiesbetweentheEscortandtheTimorKiaSephiaandthefactthattheEscortis"like"theTimorKiaSephia.
TheTimorKiaSephiaisalittlebitlonger467Id.
,p.
21,citingtoReportoftheWorkingPartyonBorderTaxAdjustments,BISD18S/97,para.
18.
468SeeAV/13,p.
3(Question6)andAttachment8(Question6).
469SeeMcGraw-HillWorldCarIndustryForecastReport,February1997,pp.
284-85,includedasAnnex1toAV/2.
Carsfallingwithinaparticularmarketsegmentwillroughlybeofthesamesize,beinthesamepricerange,andsharethesametargetcustomers.
470TheVectrafallswithin"SegmentD"(uppermediumclass)ofthepassengercarmarket.
Id.
471SeeMcGraw-HillWorldCarIndustryForecastReport,February1997,pp.
284-85,includedasAnnex1toAV/2.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage222(65mm)andalittlebithigher(44mm)thantheEscort,whiletheEscortisalittlebitwider(183mm)andhasaslightlylargerengine(1597ccversus1498ccfortheTimorKiaSephia).
8.
145ThefollowingtabledemonstratesthattheTimorKiaSephia,theOpelOptima,andtheFordEscortarequitecomparableintermsofspecifications:472Table23Timor,Escort,andOpelSpecificationsItemsTimorS515FordEscort4dr"Ghia"NotchbackManualTransmissionOpelOptimaOpelVectraDimensions1.
Overalllength(mm)4,3604,2954,3294,4772.
Overallwidth(mm)1,6921,8751,6881,7073.
Overallheight(mm)1,3901,3461,4101,4254.
Wheelbase(mm)2,5002,5232,5172,6375.
Turningcircle(m)5.
1104.
96.
Curbweight(kg)1,0551,145980Engine1.
Type4cyl,inline,SOHC,carburetor4cyl.
,Zetecinline4cyl.
,8valves,Multi-PortFuelinjection(MPFI)4cyl.
,8valvesMulti-PortFuelinjection(MPFI)2.
Displacement(cc)1,4981,5971,7961,9983.
Max.
Power85PS/5,500rpml75@5500118PS/5,400rpm136hpTransmissionGearRatio:-1st3.
4173.
103.
58---2nd1.
8951.
192.
14---3rd1.
2961.
281.
48---4th0.
9060.
951.
12---5th0.
7380.
760.
89---Reverse3.
7363.
6153.
333--472Source:UScompanies.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2238.
146Finally,withrespecttoChrysler,ChryslerhadplanstoimportandsellitsNeonpassengercarinIndonesia.
ThetablebelowpresentsacomparisonofthespecificationsoftheNeonandtheTimorKiaSephia.
ThedatashowthattheChryslerNeoncloselyresemblestheTimorKiaSephia,and,thus,canbeconsidereda"likeproduct"totheSephia.
TheNeonisonly4mmlonger,16mmwider,and5mmtallerthantheSephia,andisonly54kilogrammesheavier.
Also,althoughtheNeonhasalargerengine,boththeNeonandtheTimorKiaSephiafallwithintheCsegment,and,thus,intheviewoftheindustry,competeforthesamecustomers.
473Assuch,theNeoncansafelybeconsideredas"like"theTimorKiaSephia.
8.
147ThespecificationsfortheChryslerNeonthatwouldhavebeensoldinIndonesiabutfortheNationalCarProgrammeareasfollows:Table24TimorandNeonSpecificationsItemsTimorS515ChryslerNeonDimensions1.
Overalllength(mm)4,3604,3642.
Overallwidth(mm)1,6921,7083.
Overallheight(mm)1,3901,3954.
Wheelbase(mm)2,5002,6425.
Turningcircle(m)5.
110.
86.
Curbweight(kg)1,0551,109Engine1.
Type4cyl,inline,SOHC,carburetor4cyl.
inlineMPISOHC2.
Displacement(cc)1,4981,9963.
Max.
Power85PS/5,000rpm98@5,850rpm8.
148Tosummarize,thepassengercarsthatUSmanufacturersdidimportandsellinIndonesia,aswellasthepassengercarsthattheywouldhaveimportedandsoldinIndonesia,canbeconsideredas"likeproducts"totheTimorKiaSephia.
WhilenoneoftheseUSpassengercarsis"identical"totheTimorKiaSephia,identitybetweenmotorvehiclesisnotrequiredundertheSCMAgreement.
Ifidentifyofproductswererequired,itisdifficulttofathomhowthereevercouldbeaseriousprejudicedispute(oracountervailingdutyproceeding,forthatmatter)involving473Id.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage224motorvehiclesoranyothertypeofconsumergood,whereslightvariationsinmodelsorproductsaremadefortheverypurposeofdistinguishingproductsincompetitionwithoneanother.
Instead,undertheSCMAgreement,itisenoughthatoneproducthas"characteristicscloselyresembling"thoseofthesubsidizedproduct.
TheOpelOptimaandVectra,theFordEscort,andtheChryslerNeoneachsatisfythisstandard.
(b)TheGMOpelBlazeriscomparabletotheKiaSportage8.
149Asnotedabove,KiaTimor'splanscallfortheassemblyandsaleinIndonesiaoftheKiaSportage,tobeknownastheTimorJ520i.
Whenintroduced,theTimorKiaSportagewillcompetedirectlywithGM'sOpelBlazer,whichGMcontinuestoimportandassembleinIndonesia.
8.
150AcomparisonofspecificationsdemonstratesthattheBlazerandtheTimorKiaSportagearecomparableproducts:474Table25SportageandBlazerSpecificationsEngineSportageBlazerDOHCType2.
0LDOHC,4cyl,16v2.
2LDOHC,4cyl.
Horsepower130hp5500rpm138hp5600rpmTorque127lb-ft4000rpm195Nm3800rpmTransmission5spdman5spdmanBrakeFrontdisc/ReardrumwithrearABSFrontdisc/ReardrumwithABSDimensionWheelbase2650mm2718mmLength4245mm4602mmWidth1730mm1690mmHeight1650mm1508mmFuelcapacity60L76LHeadroom1005.
8mm1005mmLegroom1130.
3mm1078mm474Source:UScompanies.
TheUnitedStatesalsobelievesthatJeepCherokeesandWranglersarecomparabletotheSportage,butlacksdetailedspecifications.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage225(c)Indonesia'sargumentsconcerning"likeproduct"areincorrectasamatteroflaw8.
151Finally,letusconsidertheheartofIndonesia'sdefense;namely,thatnoneofthepassengercarsthatwouldhavebeensoldbyUSmanufacturerscanbeconsidereda"likeproduct"totheTimorKiaSephiasedanforpurposesoffootnote46oftheSCMAgreement.
PuttingasidethefactthatIndonesiadidnotmakethisargumentinconnectionwiththeUnitedStatesclaimofseriousprejudice,Indonesianeverthelessis,onceagain,wrongonthefactsandthelaw.
8.
152Indonesiabeginsitslikeproductlegalanalysiswithanaccuratequotationoffootnote46,notingthatintheabsenceofanidenticalproduct,alikeproductcanconsistofaproductwhich"hascharacteristicscloselyresemblingthoseoftheproductunderconsideration.
"(Emphasisadded).
BecausethislanguageobviouslyunderminesIndonesia'sentirecase,Indonesiadismissesthequotedphraseas"amorphousandskeletal"andneverreferstoitagain.
8.
153However,astheAppellateBodyhassooftennoted,atreatyinterpretermuststartwiththelanguageofthetreaty.
475TheSCMAgreementdoesnotrequireidentityofproducts,butonlyacloseresemblance.
AllofIndonesia'ssubsequentlegalargumentationisdesignedtodonothingmorethandivertthePanel'sattentionfromwhattheSCMAgreementactuallysays.
8.
154Next,IndonesiamakestheextraordinaryargumentthattheabilitytobringaseriousprejudicecaseagainstadevelopingcountryMemberconstitutesaso-called"exception"tothe"right"conferredonIndonesiabytheSCMAgreementtosubsidize.
Assuch,Indonesiaargues,thisexception,includingthedefinitionof"likeproduct,"mustbenarrowlyconstrued.
Thisisutternonsense.
8.
155Asageneralmatter,theUnitedStatesdoesnotagreewiththeprinciplethatsimplybecauseaparticularprovisionoragreementcanbelabelledasan"exception"tosomethingelse,thatprovisionoragreementmustbemechanicallyandnarrowlyconstrued.
IntheWoolShirtscase,Indiamadeasimilarargument,andtheAppellateBodyrejectedit.
476Moreover,itisludicroustosuggestthatlikeproductanalysesdifferdependinguponwhetherthecomplainantischallengingthesubsidiesofadevelopedoradevelopingMember.
8.
156However,evenassumingthatthismechanicalruleoftreatyinterpretationapplies,Indonesia'sapplicationofitis180degreesbackward.
Ifthereisan"exception"inArticle27oftheSCMAgreement,itisthatdevelopingcountryMembersareexceptedfromthegeneralprohibitionagainsttheuseoflocalcontentsubsidiesandtheremediesavailabletocombatsuchsubsidiesthatrequirenoshowingofadversetradeeffects.
Thus,iftheprinciplesuggestedbyIndonesiaistobecorrectlyapplied,thisPanelmustinterpretallrelevantprovisionsinsuchawayastolimittheexceptionaltreatmentaffordedbyArticle27.
3.
Inthecontextofthiscase,thismeans,amongotherthings,interpretingtheterm"likeproduct"broadly,notnarrowly.
477475India-PatentProtectionforPharmaceuticalandAgriculturalChemicalProducts,WT/DS50/AB/R,ReportoftheAppellateBodyissued19December1997,para.
45.
476UnitedStates-MeasureAffectingImportsofWovenWoolShirtsandBlouses,WT/DS33/AB/R,ReportoftheAppellateBodyadopted23May1997,page19.
477Carriedtoitslogicalconclusion,acorrectandconsistentapplicationofIndonesia'sargumentwouldresultinIndonesiabearingtheburdenofprovingthatseriousprejudicehasnotoccurred.
Ofcourse,thisisthetypeofburdenshiftingthatIndiaproposedinWoolShirts,andthattheAppellateBodyrejected.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage226(d)Indonesia'sargumentsconcerning"likeproduct"areincorrectasamatteroffact8.
157HavingdisposedofIndonesia'slegalargumentsconcerninglikeproduct,letusturntoIndonesia'sfactualarguments.
Asdiscussedabove,Table23comparesthespecificationsfortheTimorKiaSephia,theFordEscort,andtwotypesofOpels,theOptimaandtheVectra.
Thiscomparisonestablishestheclosephysicalresemblancebetweentheseproducts.
However,notwithstandingthefactthatphysicalcharacteristicsareastandardcriterioninidentifyinglikeproducts,Indonesiasimplydismissesthiscomparisonas"undulyrestrictive".
8.
158Withrespecttoend-use,anotherstandardlikeproductcriterion,theUnitedStatesnotedthatthesecarsallhavethesameend-use;namely,thetransportofpersons.
Here,too,Indonesiadismissesthiscriterionasirrelevant.
8.
159Instead,IndonesiarecyclesthesameargumentitmadeinconnectionwithArticleIofGATT1994,whichisthatconsumersconsidernumerousphysicalandnon-physicalcharacteristicsinmakingtheirpurchasingdecisions.
Whilethisistrueinageneralsense,itprovesnothing,andIndonesiaoffersnoevidenceastohowthisfactorjustifiestheconclusionthatEscorts,Neons,andOpelOptimasandVectrasarenot"like"theSephia.
Ofcourse,consumerproducts,includingpassengercars,aredifferentfromeachother,becauseproductdifferentiationisoneofthemeansbywhichproductscompete.
However,thefactthatconsumerproductsinevitablywillnotbeidenticaltooneanotherdoesnotmeanthattheycannotbeconsideredas"closelyresembling"oneanotherforpurposesofidentifyinga"likeproduct"undertheSCMAgreement.
Ifproductshadtobe"identical"(orvirtuallyidentical)inordertobeconsidered"like,"itwouldbeimpossibletobringaseriousprejudicecase(oracountervailingdutycase,forthatmatter)againstasubsidizedconsumerproduct.
8.
160Thereareafew"facts"thatIndonesiathrowsoutinordertoconfusetheissue.
First,itnotesthattheDRI/McGraw-HillmarketsegmentationcategoriesweredevelopedinthecontextoftheEuropeanmarket.
Eveniftrue,IndonesiadoesnotexplainhowthisrendersthesecategoriesinappropriateforpurposesofthiscaseortheIndonesianautomarket.
Indeed,DRI/McGraw-HillusesthesecategoriesforpurposesofitsauthoritativeAsiaAutomotiveIndustryForecastReport.
4788.
161Second,Indonesianotesthatcarswiththesamenameplateoftendiffersignificantlyfrommarkettomarket.
Eveniftrue,Indonesiaoffersnoevidencethatthepassengercarsinquestiondodiffersignificantly.
8.
162Third,IndonesiacitesthefactthatforHTSpurposes,passengercarsaredistinguishedonthebasisoftotalcylindercapacity,withbreakpointsat1000cc,1500cc,and3000cc.
However,thesebreakpointsarearbitrary,andprovidenobasisforconcludingthattheUSpassengercarsarenotlikeproductstotheSephiasimplybecausetheSephia,at1,498cc,fallstwo"cc's"belowthebreakpoint.
Moreover,Indonesiadoesnotexplainwhy,if1500ccissuchasignificantbreakpoint,itchose1600ccasthebreakpointforconferringtaxincentivesunderGovernmentRegulationNo.
36/1996.
478USExhibit29presentstwopagesofDRIpromotionalmaterialsthatattesttotheauthoritativenatureoftheDRIGlobalAutomotiveGroup.
Noteinparticularthattheselectedlistofclientsincludesfamiliarnamesinthiscase,suchasChrysler,Ford,GM,Honda,Hyundai,Kia,Mitsubishi,Nissan,andToyota.
TheUnitedStatesdoesnottakethepositionthattheDRImarketsegmentationisdispositivewithrespecttothelikeproductissuesinthiscase.
Rather,DRI'smarketsegmentationconfirmswhatatraditionallikeproductanalysisdemonstrates;namely,thattheTimorKiaSephiais"like"theproductsthatUSmanufacturerswouldhavesoldinIndonesiabutfortheNationalCarprogramme.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2278.
163Finally,notwithstandingallofthemoneyandresourcesthatIndonesiareportedlyhasdevotedtothiscase,Indonesiaapparentlyhasbeenabletofindonlyonedocument,(IndonesiaAttachment12),thatgroupstheSephiainadifferentcategoryfromtheEscortandNeon.
However,neitherthedocumentitselfnorIndonesiaexplainshowthesecategoriesweredrawn.
8.
164TheUnitedStateshasprovidedmorethansufficientevidencetoestablishthattheUSpassengercarsinquestion"closelyresemble"theTimorKiaSephiaand,thus,are"like"theSephia.
Inresponse,Indonesiahaspresentedonlyflawedlegalargumentsandvirtuallynoevidence.
(e)Marketsegment8.
165Itisimportanttoputtheissueof"marketsegments"inaproperandlegallyrelevantcontext.
Article6.
4oftheSCMAgreementindicatesthatdisplacementorimpedanceincludesasituationwheretherehasbeenachangeinrelativesharesofthemarkettothedisadvantageofthenon-subsidizedlikeproduct.
Inanalysingchangesinrelativemarketshares,theUnitedStatesgenerallyagreeswiththestatementbyIndonesiathat,tobemeaningful,marketsharedatamustbecalculatedforthemarketsegmentintowhichthelikeproductsfall.
8.
166Havingsaidthat,however,italsoisimportanttonotethat,basedonIndonesia'sowndata,bytheendofMay,1997,theTimorKiaSephiahadachievedamarketshareof26.
53percent.
SeeAV/14,AttachmentU-21/6.
AlthoughitisnotreadilyapparentfromAttachmentU-21/6itself,whenoneexaminesAttachmentsU-21/4-BandU-21/5-BtoAV/14,itisclearthatthe26.
53percentfigurerepresentstheTimorKiaSephia'sshareofthemarketthatincludesallpassengercarssoldinIndonesia.
4798.
167IntheviewoftheUnitedStates,theattainmentofa26.
53percentmarketshareinlessthanoneyearmorethansatisfiestherequirementsofArticle6.
4.
EliminatingcertainpassengercarsfromthemarketsegmentusedbyIndonesiainitscalculations(i.
e.
,allpassengercars)simplyincreasesthemarketshareattainedbytheTimorKiaSephia,therebymakingtheseriousprejudicecaseagainstIndonesiaallthemoredamning.
Thus,unlessthePanelwereoftheviewthattheattainmentofa26.
53percentmarketsharedidnotdemonstrateseriousprejudice,attemptingtoplaceallofthepassengercarssoldinIndonesiaintotheirappropriatemarketsegmentswouldappeartobeanexercisethatissomewhattangentialtotheissuesraisedinthiscase.
8.
168Nevertheless,inordertoberesponsivetothePanel'squestions,theUnitedStatessuggeststhatinsteadof"reinventingthewheel",thePanelmightwanttorelyonthemarketsegmentationcategoriesactuallyusedbytheautomobileindustry.
Suchanapproachseemsparticularlyappropriateinlightofthefactthat"[t]heGATT1994isacommercialagreement,andtheWTOisconcerned,afterall,withmarkets.
"Japan-TaxesonAlcoholicBeverages,supra,page26.
479AV/14,AttachmentU-21/4-Bprovidessalesfiguresforpassengercarsthatbenefitedfromsubsidiesduringtheperiod1995-1997.
The"Total"columnfor1997indicatesthatasofMay,1997,thetotalsalesvolumeforthesepassengercarswas12,413,ofwhichtheTimorKiaSephiaaccountedfor7,058.
AV/14,AttachmentU/21-5-Bprovidessalesfiguresforpassengercarsthatdidnotbenefitfromsubsidiesduringtheperiod1995-1997.
The"Total"columnfor1997indicatesthatasofMay1997,14,038ofthesecarsweresold.
Thus,thetotalnumberofpassengercars(bothsubsidizedandnon-subsidized)soldinIndonesiaduringtheperiodJanuary-May,1997was26,451.
The7,058TimorKiaSephiassoldduringthisperiodaccountedfor26.
68percentofthistotal.
Presumably,anarithmeticerroronthepartoftheindividualpreparingAV/14accountsforthedifferencebetweenthe26.
53percentfigureinAttachmentU/21-6andthe26.
68percentfigurederivedfromAttachmentsU-21/4-BandU-21/5-B.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2288.
169Applyingthisapproach,theTimorKiaSephiafallsintothe"C"segment,whichincludes"lowermediumclass"cars.
(Seeaboveforadiscussionofautomobilemarketsegmentcategories.
)OtherCsegmentpassengercarsthataresold(orthat,butfortheNationalCarProgramme,wouldhavebeensold)inIndonesiainclude:OpelOptima,FordEscort,ChryslerNeon,Peugeot306,ToyotaCorolla,HondaCity,HondaCivic,NissanSunny,MitsubishiLancer,DaewooNexia,HyundaiAccent,andtheMazda323.
ItispossiblethattheBimantaraCakraorNenggalamodelsalsomayfallintotheCsegment,buttheUnitedStateslackssufficientinformationatthistimetomakeanydefinitivestatementsregardingthesetwomodels.
8.
170Alternatively,itwouldbereasonableforthePaneltofindthattherelevantmarketsegmentalsoincludesthe"D"segmentof"uppermediumclass"passengercars.
IfthemarketsegmentweredefinedascomprisingallmediumclasscarsinboththeCandDsegments,additionalcarsthataresold(orthat,butfortheNationalCarProgramme,wouldhavebeensold)inIndonesiainclude:OpelVectra,HondaAccord,Peugeot405,406,and606,ToyotaCoronaand(possibly)theCrown,NissanSentra,MitsubishiGalant,andMazda626.
8.
171Indonesiamakesmuchofthefactthatthepassengercarmarketissegmentedandthatcarmanufacturersdevotesubstantialresourcestoestablishingandtargetingdifferentmarketsegments.
(SeeSectionVIII.
B.
3.
)However,thisfactisnotnew,anditisconsistentwiththeUnitedStatespositionthattheTimorKiaSephiafallswithinthe"C"segmentofthepassengercarmarket.
Likewise,itisnotanewfactthatanindividualautomanufacturerwilltrytoproduceandselloneormorecarswithineachsegmentofthepassengercarmarket.
8.
172Consider,forexample,KiaMotors,TPN'sjointventurepartnerintheNationalCarProgramme.
USExhibit30consistsofpage211ofDRI'sAsianAutomotiveIndustryForecastReport,November1997.
Exhibit30demonstratesthatKiaoffersproductsinpassengercarsegmentsAthroughE,andusuallyoffersmorethanonecarineachsegment.
Strikingly,however,theSephiaisKia'ssoleentryinthe"C"segment.
8.
173Indonesiaalsomakesmuchofthefactthattherearenumerousdifferencesbetweenpassengercars.
However,this,too,isnotanewfact,anditisexactlythepointtheUnitedStateshasbeenmakingthroughoutthiscase;namely,thatconsumerproducts,includingpassengercars,competeonthebasisofnumerousdifferencesbetweenproducts.
Productcharacteristicswithinsimilarcategorieswillvaryamongcompetingmodelswithingeneralbandsormarketsegments.
However,thisisnotenoughtorendercarswithinthesamemarketclassas"unlike"eachother.
8.
174Asanexample,considerUSExhibit31.
Exhibit31isasummaryofthevariousfeaturesthatFordhastoutedasmakingtheEscortpreferableto,anddistinguishablefrom,itscompetition.
TheUnitedStatessubmitsthatwhilethesefeaturesmaydistinguishtheEscortfromitscompetition,theyarenotenoughtorendertheEscort"unlike"itscompetition.
Bythesametoken,thefactthattheTimorKiaSephiamayhavefeaturesthatdistinguishitfromitscompetitionisinsufficienttorendertheTimor"unlike"itscompetition.
8.
175Indonesiaarguesthatso-called"non-physicalcharacteristics"rendertheTimor"unlike"andnon-competitivewiththepassengercarsoftheUSmanufacturersthatareatissueinthiscase.
TheUnitedStatesquestionswhether,onbalance,anysuchdifferencesexist,andIndonesiahasnotpresentedanyevidenceofsuchcharacteristics.
8.
176Inthisregard,TPN,Ford,andChryslereachwere(orwouldhavebeen)newentrantstotheIndonesianpassengercarmarket(andGeneralMotorswasonlyarelativelynewentrant)withlittle,ifany,developedbrandimageorloyalty.
WhileIndonesianconsumersmaywellhaveformulatedaperceptionthatthecarsofUSmanufacturersareofsuperiorqualityascomparedtotheTimor,WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage229suchperceptionslikelywouldbebalancedbytheundoubtedpatrioticfeelingsthatIndonesianconsumerswouldhavewithrespecttotheTimorasthefirstIndonesianNationalCar.
8.
177Onbalance,Indonesiaappearstobearguingthatifconsumerchoicesweredeterminedsolelyonthebasisofthemarket,theTimorwouldhavelostouttotheOpelOptima,theFordEscort,andtheChryslerNeon.
Withthis,theUnitedStateswholeheartedlyagrees,andthatistheverycruxofthisdispute.
WhatthisdisputeisaboutisthatthechoicesofIndonesianconsumerswerenotlefttothemarket,butinsteadweredistortedbythemassivesubsidiesprovidedbytheGovernmentofIndonesia.
ThesesubsidiesenabledtheTimortoundercutthepricesofcompetitiveproductssosignificantly,thatasignificantnumberofconsumersappeartohavebeenwillingtomakeatrade-offbetweenqualityandprice.
However,thefactthatconsumersmadethischoiceisnotenoughtorendertheTimor"unlike"theothercarsinitsclassforthepurposesoftheSCMAgreement.
8.
178NowletusturntothespecificsofIndonesia'smodelcomparisons.
AttheoutsettheUnitedStatestakesissuewithIndonesia'sassertionthattherearefourbasicphysicalattributesorspecificationgroupingsthatdifferentiatepassengercarsandthatcontributetosegmentingthemarket.
(SeeSectionVIII.
B.
3,Tables26and27.
)Indonesiaclaimsthattheseattributesare:powerplant;steeringandsuspension;safetyfeatures;andpassengercompartment.
IntheviewoftheUnitedStates,therearethreefactorsthatsegmentthemarket:powerplant,vehiclesize,andoverallfeatures.
8.
179Havingsaidthat,however,letusassumethatIndonesia'sapproachiscorrectandconsiderIndonesia'sproductcomparisons.
Acloselookatthecomparisonsrevealsthat(1)theyfailtorebuttheevidencepresentedbytheUnitedStatesthattheGMOpels,theFordEscort,andtheChryslerNeonareliketheTimorKiaSephia;and(2)Indonesia'scomparisonsarenotevenaccurate.
8.
180First,however,theUnitedStatesshouldnotethatIndonesia'sproductcomparisonsinTable27areinaccurate,becauseIndonesiacomparestheTimorS515,thebasemodelfortheTimorKiaSephia.
IndonesiafailstomentiontheTimorS515i,thefuelinjectedmodelwhichwasimportedundertheone-yearauthorizationandwhich,accordingtoIndonesia'sownAnnexVresponseis"[t]heonlyTimorcarproducedinIndonesia.
"SeeAV/14,Attachment28.
8.
181Withrespecttothecategoryof"powerplant,"IndonesiafindstheUScarsinquestiontobenon-comparabletotheTimor.
(SeeTable26.
)TheUnitedStatesdoesnotagreethatthesedifferencesrenderthecarsinquestionnon-comparabletotheS515.
However,letusinserttheTimorS515iintothecomparison.
TheTimorS515ihasadouble-overheadcam(DOHC),16valveengine.
Bycomparison,theChryslerNeonhasonlyasingle-overheadcam(SOHC)engine,althoughitalsohas16valves.
TheOpelOptimahasonlyanSOHC,8valveengine.
Basedonindustryestimates,thesedifferencesbetweentheTimorS515iandtheOpelOptimaareworthapproximatelyRp.
2.
5million.
4808.
182Thus,whiletheOpelOptimaandChryslerNeonhavealargerenginedisplacementthantheTimorS515i,theS515ihasaDOHC,16valveengine,whereastheNeonhasonlyanSOHC,16valveengineandtheOptimaonlyanSOHC,8valveengine.
AsfortheEscort,itsenginedisplacementisonly99cc'smorethanthatoftheS515i.
(Inthisregard,theUnitedStatesnotesthatIndonesiaincorrectlyliststheNeon'senginedisplacementas2,000cc.
AsclearlysetforthinevidencesubmittedbytheUnitedStates(Table23),theNeon'senginedisplacementis1,996cc.
)480SeeUSExhibit32.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2308.
183IntheviewoftheUnitedStates,thesedifferencesareinsufficienttowarranttheconclusionthat,intermsofpowerplant,theUScarsdonot"closelyresemble"theTimorS515iortheS515withinthemeaningofthe"likeproduct"definitionintheSubsidiesAgreement.
8.
184TurningtowhatIndonesiareferstoasthecategoryof"steeringandsuspension",IndonesiafindstheUScarstobenon-comparablebasedonthepresenceofpowersteeringandtiresize.
(SeeTable26andaccompanyingnotes.
)However,accordingtoTimorsalesbrochures,boththeS515andtheS515ihavepowersteeringasastandardfeature.
(SeeEuropeanCommunitiesExhibitD-4.
)Moreover,accordingtoFordofficials,powersteeringontheEscortisanoption,notastandardfeature,worthapproximatelyUS$200.
8.
185Asforlargertiresize,thisisadesignedoptionthatdependsuponanticipatedroadconditionsandgenerallyisdefinedasastandardfeatureofminimalvaluetoconsumers.
8.
186Inshort,theUScarscannotbeconsidered"unlike"theS515ortheS515ionthebasisofsteeringandsuspension.
8.
187TurningtowhatIndonesiacalls"safetyfeatures",withrespecttobrakes,IndonesiacitesthefactthattheNeonhasantilockbrakes.
However,thisisanoptionalfeatureontheNeon,asclearlysetforthinTable27.
WithrespecttotheEscort,IndonesiaclaimsthattheEscorthasreardiscbrakes,butthisisincorrect.
AssetforthinUSExhibit33,page3,theEscorthasreardrumbrakes,justliketheTimor.
Finally,therearenodifferencesbetweentheOpelOptimaandtheTimorwithrespecttobrakes.
8.
188Withrespecttoairbags,accordingtoFordofficials,ForddidnotincludeairbagsinitsIndonesialaunchplansfortheEscort.
TheNeon,however,wouldhavehadairbags.
8.
189Withrespecttofueleconomy,theUnitedStateshassomedifficultyunderstandinghowthisconstitutesa"safetyfeature.
"Nevertheless,accordingtotheUSDepartmentofEnergy,thefueleconomyoftheSephiaiscomparableto,andinsomecasesbetterthan,thatoftheEscortandtheNeon.
USExhibit34containsexcerptsfromtheUSDepartmentofEnergyFuelEconomyGuide:ModelYear1997.
USExhibit35summarizesthedatafromthisguidewithrespecttotheSephia,theEscort,andtheNeon.
Ascanbeseen,theSephiaactuallyhassuperiormileagetotheversionsoftheEscortandNeonthathaveautomatictransmissions.
NotealsothatIndonesiadoesnotprovideanysourceforthefueleconomyfigurescontainedinTable27.
8.
190Turningfromfueleconomytovehicleweight,inanotetoTable27,IndonesiacitesonlythefactthattheOpelVectraisheavierthantheTimor,thusconcedingthatTimors,Neons,Escorts,andOptimashavecomparableweights.
8.
191Finally,inthesamenotetoTable27,IndonesiacitesthefactthattheVectrahasalargerfueltankthandoestheTimor,therebyconcedingthatTimors,Neons,Escorts,andOptimashavecomparablysizedfueltanks.
Inthisregard,theUnitedStateswouldnotethatitdoesnotbelievethatfueltanksizeplaysmuchofarole,ifanyrole,inconsumerpurchasingdecisions.
8.
192Insummary,insofaras"safetyfeatures"areconcerned,Indonesia'sanalysisisinaccurateandfailstorebuttheUSevidencethatthecarsofUSmanufacturersare"like"theTimorKiaSephia.
8.
193Finally,withrespecttothecategoryof"passengercompartment,"inTable26,IndonesiaconcedesthatTimors,Neons,Escorts,andOptimasarecomparable.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2318.
194Thus,Indonesia'sowncomparisons,whencorrectedforinaccuracies,demonstratethattheUScarsinquestionare"like"theTimor.
However,theUnitedStatesshouldnotethatIndonesiaignoresordownplayscertainfactsthat,accordingtoIndonesia,shouldformapartofany"likeproduct"analysis.
WealreadyhavementionedthefactthattheengineoftheTimorS515ihascertainattributesthatmakeitmoredesirablethantheenginesintheOptimaandtheNeon.
Inaddition,IndonesiafailstocitethefactthattheTimorS515ihastiltsteering,mudflaps,colourkeymirrorsandbumpers,andafoldablemirror,allofwhichareattractivefeaturestoconsumers.
8.
195Moreover,IndonesiaignoresthefactthattheUSmanufacturers,asnew(orrelativelynew)entrantsintotheIndonesianpassengercarmarket,havelittle,ifany,brandloyaltybaseorawell-developedbrandimage.
Ford,forexample,hasonlyoneafter-salesserviceoutletinIndonesia.
8.
196Finally,theUnitedStateswouldliketocallthePanel'sattentiontoUSExhibit36,whichcontainsexcerptsfromtheCataloguedelaRevueAutomobile'96,describedbyindustryofficialsasanauthoritativesource.
IntheentryfortheSephia,theSephiaisdescribedas"techniquementparentéauxMazda323/FordEscortUSA/MercuryTracer.
"Translated,thismeansthattheSephiais,amongotherthings,technologicallyrelatedtotheEscort.
8.
197AstheUnitedStateshasexplained,theEscortisFord'sentryinthe"C"segmentofthepassengercarmarket.
GiventhefactthattheSephiaistechnologicallyrelatedtotheEscort,itseemsfairtosaythattheTimorKiaSephiafallswithinthatsamesegmentandisa"likeproduct"totheothercarsinthatsegment.
(f)Indonesia'sargumentsconcerningtheburdenofproofareincorrect8.
198IndonesiaclaimsthattheUnitedStateshasfailedtosatisfyitsburdenofproof.
IntheviewoftheUnitedStates,ithasmorethansatisfieditsburdenasarticulatedbytheAppellateBodyinWoolShirts,ofpresentingaprimafaciecaseofseriousprejudice.
ThefirstandsecondsubmissionsoftheUnitedStatesestablishalloftheelementsforaseriousprejudicecase.
Instead,itisIndonesiathathasfailedtorebuttheUScase.
Ofcourse,IndonesiaishardputtorebuttheevidencecitedbytheUnitedStates,becausemuchofitisIndonesia'sownevidence,submittedinthecourseoftheAnnexVprocess.
8.
199IndonesiapresentsanewargumentthattheburdenofproofoncomplainantsishigherinthiscasebecauseIndonesiaisadevelopingcountryandtheabilitytobringaseriousprejudicecaseagainstitallegedlyisaderogationofits"right"toprovidelocalcontentsubsidies.
(SeesectionVIII.
B.
3(a)(3).
)ThisisanexpansiononIndonesia'searlierargumentthat"likeproduct"mustbeinterpreteddifferentlyinthiscasebecauseofIndonesia'sdevelopingcountrystatus.
8.
200TheUnitedStatesaddressedIndonesia'searlierargumentinsectionVIII.
B.
3(a)(2).
Indonesia'sexpansionofitsargumentbringstheargumentevenmoreclearlywithinthescopeoftheWoolShirtscase,wheretheAppellateBodyrejectedIndia'sargumentthattheburdenofproofchangessimplybecauseaparticularprovisionmaybelabeledasanexceptiontosomethingelse.
Significantly,initssubmission,IndonesiadoesnotmentiontheWoolShirtsreportwhenitadvancesits"derogation"argument.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage232(3)Indonesia'sarguments(a)TheEuropeanCommunitiesandtheUnitedStateshavenotmettheirclearburdenofdemonstratingseriousprejudicetoalikeproductonthebasisofpositiveevidence8.
201TheEuropeanCommunitiesandtheUnitedStatesimplicitlyordirectlyaccuseIndonesiaofmakingdiversionaryargumentsonthethresholdlikeproductissue.
Itisthey,however,whoareengaginginsuchtactics.
BothcomplainantscriticizeIndonesia'slikeproductobservations,butindoingsotheyseektoobscureafundamentallyimportantproceduralmatter.
Namely,thatitisthey,notIndonesia,thathavetheburdenofdemonstratingwhatareappropriatelikeproductswithinthemeaningoftheSubsidiesAgreement.
Theirfailure-indeed,theirinability-todemonstratethattheTimorislikeanyEuropeanCommunitiesorUScarisfataltotheirseriousprejudiceclaims.
8.
202Moreover,eveniftheEuropeanCommunitiesandUScarswerefoundtobeliketheTimor,noseriousprejudicewouldexistorwouldarisebecausesuchcarsdonotcompetewiththeTimor.
TheTimorisano-frillsbudgetcarwhichhastappedanewclassofbuyersandcreatedanicheatthebottomofthehighlysegmentedpassengercarmarket.
(b)Complainantshavenotmettheirsubstantialburdensofproofwithrespecttothelikeproductissue8.
203ItisobviousthatneithertheEuropeanCommunitiesnortheUnitedStateshasmetitsclearburdenofestablishingappropriatelikeproductsorofdemonstratingbypositiveevidencethatanyappropriateandrelevantlikeproductshavesufferedorarethreatenedwithseriousprejudice.
Asdiscussedbelow,theirfailuretosatisfytheapplicableburdensofproofrenderstheirSCMAgreement-basedargumentsanemptyexercise.
8.
204Bothcomplainantshaverejectedinthemostgeneraltermsitspositionthatnoneofthevehiclestheysell(orallegedlywouldhavesold)inIndonesiaareliketheTimor,but,asdiscussedindetailbelow,neitherhasattemptedinanymeaningfulwaytoaddressandrehabilitatethefundamentalflawsinits"likeproduct"analysis.
Thisactionandinactionreflectsanaltogetherunacceptabledisregardfortheappropriateandrecognizedrequirementthatacomplainanthastheburdenofestablishingacceptable"likeproducts"foranalyticalpurposes.
4818.
205ThefailureoftheEuropeanCommunitiesandtheUnitedStatestomeettheirburdenofproofonthelikeproductissueevisceratestheirentireseriousprejudiceargumentsbecausetheyhaveacorrelativeobligationtoproveseriousprejudicetotheirlikeproductsbypositiveevidence.
482Noamountofcreativeargumentationorirrelevantdatacansatisfytheapplicable481SeeJapan-TaxesonAlcoholicBeverages(1November1996),WT/DS8/R,117,para.
6.
14(complainanthasburdenofprooftoshowlikeproductinArticleIII:2dispute);seegenerallyArgentina-MeasuresAffectingImportsofFootwear,Textiles,ApparelandOtherItems(25November1997),WT/DS56/R,90-91,para.
6.
35.
482ThepositiveevidencestandardoftheSubsidiesAgreementisespeciallysignificantinthiscasebecauseanaffirmativefindingofseriousprejudicewouldoperatetodepriveIndonesia,asadevelopingcountry,ofitsrighttoprovidecertainsubsidies.
AderogationofIndonesia'srightinthiscaseplacesanexceedinglyhighburdenofproofonComplainants.
SeegenerallyCanada-AdministrationoftheForeignInvestmentReviewAct(FIRA)(7February1984),BISD30S/140,164,para.
5.
20;Japan-RestrictionsonImportsofCertainAgriculturalProducts(22March1988),BISD35S/163,226-27,para.
5.
1.
3.
7;EEC-RestrictionsonImportsofDessertApples--ComplaintbyChile(22June1989),BISD36S/93,125,para.
12.
3.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage233positiveevidencestandardwhere,ashere,acomplainantfailstocarryitsburdenofestablishingtheproperuniverseoflikeproducts.
Inordertohaveanymeaningandtosupportanaffirmativedetermination,theindiciaofseriousprejudicemustflowfromapples-to-applescomparisons.
Asdiscussedelsewhereinthissubmission,Complainantshave,however,developedandadducedapples-to-oranges"evidence"thatisbasedonfaultylikeproductanalyses.
(c)Theterm"likeproduct"mustbeverynarrowlyconstruedandappliedinthisproceeding8.
206Footnote46totheSubsidiesAgreementprovides:ThroughoutthisAgreementtheterm"likeproduct"("produitsimilaire")shallbeinterpretedtomeanaproductwhichisidentical,i.
e.
alikeinallrespectstotheproductunderconsideration,orintheabsenceofsuchaproduct,anotherproductwhich,althoughnotalikeinallrespects,hascharacteristicscloselyresemblingthoseoftheproductunderconsideration.
8.
207Thesomewhatamorphousandskeletalphrase,"characteristicscloselyresembling,"maybefleshedoutthroughreferencetopriorGATTandWTOcases,butitiswellestablishedthatthe"likeproduct"conceptisfluidanditsmeaningdependsonthecontextinwhichitisused.
483AstheWTOAppellateBodyhasstated:484Nooneapproachtoexercisingjudgmentwillbeappropriateforallcases.
ThecriteriainBorderTaxAdjustmentsshouldbeexamined,buttherecanbenoonepreciseandabsolutedefinitionofwhatis"like".
Theconceptof"likeness"isarelativeonethatevokestheimageofanaccordion.
Theaccordionof"likeness"stretchesandsqueezesindifferentplacesasdifferentprovisionsoftheWTOAgreementareapplied.
Thewidthoftheaccordioninanyoneofthoseplacesmustbedeterminedbytheparticularprovisioninwhichtheterm"like"isencounteredaswellasbythecontextandthecircumstancesthatprevailinanygivencasetowhichthatprovisionmayapply.
8.
208Factorswhichhavebeenconsideredinapplyingacase-by-caseanalysisincludeaproduct'send-usesinagivenmarket;consumer'stastesandhabits,whichchangefromcountrytocountry;andtheproduct'sproperties,natureandquality.
485Thetarifftreatmentofproductsisanotherfactorthathasbeenconsidered.
486Thus,althoughinterpretationsofthephraseinonecontextcan483See,e.
g.
,Japan-CustomsDuties,TaxesandLabellingPracticesonImportedWinesandAlcoholicBeverages(10November1987),BISD34S/83(paras.
5.
5and5.
6atpp.
113-115);Canada-ImportRestrictionsonIceCreamandYoghurt(5December1989),BISD36S/68(para.
67atp.
87);UnitedStates-MeasuresAffectingAlcoholicandMaltBeverages(19June1992),BISD39S/206(paras.
5.
71-5.
75atpp.
293-294).
484Japan-TaxesonAlcoholicBeverages,WT/DS8/AB/R(1November1996),ReportoftheAppellateBody,atp.
21.
485See,e.
g.
,WorkingPartyReportonBorderTaxAdjustments(2December1970),BISD18S/97(para.
18atpp.
101-102);UnitedStates-TaxesonPetroleumandCertainImportedSubstances(17June1987),BISD34S/136(para.
5.
1.
1atp.
154);UnitedStates-MeasuresAffectingAlcoholicandMaltBeverages(19June1992),BISD39S/206(para.
5.
24atp.
276);UnitedStates-StandardsforReformulatedandConventionalGasoline,WT/DS2/R(20May1996),ReportofthePanel,atpp.
36-37,para.
6.
8.
486See,e.
g.
,WorkingPartyReportontheAustralianSubsidyonAmmoniumSulphate(3April1950),BISDII/188(para.
8atp.
191);EEC-MeasuresonAnimalFeedProteins(14March1978),BISD25S/49(para.
4.
2atp.
63);Japan-CustomsDuties,TaxesandLabellingPracticesonImportedWinesandWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage234promoteabetterappreciationofthephraseinanothercontext,itisessentialtorelatethespecificinterpretationandapplicationtothepurposeofthearticlebeingconstrued.
487Here,theterm"likeproduct"mustbeverynarrowlydefined.
8.
209AttheHavanaConference,itwasstatedthatthewords"likeproduct"meantthesameproductinthecontextofArticleVIoftheGATT(antidumpingandcountervailingduties).
488The1959ReportoftheGroupofExpertson"Anti-dumpingandCountervailingDuties"statedthat,inthedumpingcontext,the"termshouldbeinterpretedasaproductwhichisidenticalinphysicalcharacteristicssubject,however,tosuchvariationsinpresentationwhichareduetotheneedtoadapttheproducttospecialconditionsinthemarketoftheimportingcountry(i.
e.
,toaccommodatedifferenttastesortomeetspecificlegalorstatutoryrequirements).
"489Theexactsamedefinitionsetforthinfootnote46oftheSubsidiesAgreementfirstappearedinthe1967and1979anti-dumpingandcountervailingdutyagreements.
490Thishistoryamplydemonstratesthatthe"likeproduct"conceptistobeverynarrowlyconstruedandrestrictivelyappliedinanti-dumpingandsubsidyproceedings.
491Thisisbecausetheimpositionofdiscriminatoryanti-dumpingandcountervailingdutiesareexceptionstothegeneralmost-favoured-nationobligationofArticleIoftheGATT.
4928.
210Thesamelogicapplieswithequalforcehere.
Thenumerousdevelopingcountrycarve-outsintheSubsidiesAgreement(e.
g.
,Article27)revealtheWTOMembers'recognitionandacceptanceofthenecessityofsubsidymeasurestopromotecriticaldevelopmentprogrammesinsuchcountries.
Inotherwords,theuniverseofbenefitsextendedtodevelopingcountriesundertheSubsidiesAgreementincludestheright(albeitconditional)toprovidesubsidies.
Therefore,becauseanaffirmativefindingofthethreatofseriousprejudicetoa"likeproduct"wouldoperatetodepriveadevelopingcountryMemberofthisgenerallyavailableright,"likeproduct"mustbenarrowlyconstrued.
493AderogationofIndonesia'srightinthiscasethereforeplacesanexceedinglyhighburdenofproofonComplainants494,andComplainantshavenotmetthisburden.
(d)WithregardtoTimorsales,nolikeproductoftheEuropeanortheUnitedStateshasbeenseriouslyprejudicedAlcoholicBeverages(10November1987),BISD34S/83(para.
5.
6atp.
115);UnitedStates-StandardsforReformulatedandConventionalGasoline,WT/DS2/R(20May1996),ReportofthePanel,atp.
37,para.
6.
9.
487See,e.
g.
,EEC-ImportsofBeeffromCanada(10March1981),BISD28S/92(para.
4.
2atp.
98);UnitedStates-MeasuresAffectingAlcoholicandMaltBeverages(19June1992),BISD39S/206(paras.
5.
24and5.
25atp.
276andpara.
5.
71atpp.
293-294).
488E/CONF.
2/C.
3/SR.
30,p.
5.
489L/978,adoptedon13May1959,BISD8S/145(para.
12atp.
149).
490SeeBISD15S/24,25;BISD26S/171,172;BISD26S/56,65fn.
1.
491SeegenerallyJapan-CustomsDuties,TaxesandLabellingPracticesonImportedWinesandAlcoholicBeverages(10November1987),BISD34S/83(para.
5.
6.
atp.
115).
492SeeUnitedStates-CountervailingDutiesonFresh,ChilledandFrozenPorkfromCanada(11July1991),BISD38S/30(para.
4.
4.
atp.
44).
493SeegenerallyJapan-RestrictionsonImportsofCertainAgriculturalProducts(22March1988),BISD35S/163(para.
5.
2.
2.
3atp.
230);Canada-ImportRestrictionsonIceCreamandYoghurt(5December1989),BISD36S/68(para.
59atp.
84);EEC-RestrictionsonImportsofApples--ComplaintbytheUnitedStates(22June1989),BISD36S/135(para.
5.
15atp.
164);Norway-ProcurementofTollCollectionEquipmentfortheCityofTrondheim(13May1992),BISD40S/319(para.
4.
5atp.
336).
494SeegenerallyCanada—AdministrationoftheForeignInvestmentReviewAct(7February1984),BISD30S/140(para.
5.
20atp.
164);Japan-RestrictionsonImportsofCertainAgriculturalProducts(22March1988),BISD35S/163(para.
5.
1.
3.
7atpp.
226-227);EEC-RestrictionsonImportsofDessertApples--ComplaintbyChile(22June1989),BISD36S/93(para.
12.
3atp.
125).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2358.
211NotwithstandingtheirclaimsandcriticismsofIndonesia'slikeproductapproach,neithertheEuropeanCommunitiesnortheUnitedStatessellsanycarmodelsinIndonesiathatareliketheTimor.
Forthepurposesofthisproceeding,likeproductdeterminationsmustbemadewithreferencetonumerousphysicalandnon-physicalcharacteristicsandconsumerperceptionsandpreferences.
Complainants'likeproductargumentsarewoefullyinadequatebecausetheyfailtoaddressthefullrangeofrelevantcharacteristicsandperceptions.
(e)TheEuropeanCommunitiesassertionsconcerningtheOpelOptimaandthePeugeot306areincorrectandmisleading8.
212TheEuropeanCommunitiesasserts,ineffect,thatIndonesia'sapproachtothelikeproductconceptis"clearlytoorestrictive"becauseatleastoneofthe60differentmodelsofpassengercarssoldinIndonesiamustbeliketheTimor.
Puttingasidewheretheburdenofproofresides,andtheEuropeanCommunities'sfailinginthatregard,theEuropeanCommunities'spointisverywideofthemark.
TheissuehereiswhetheranyECpassengercarsareliketheTimor,notwhetheranyothercarsareliketheTimor.
8.
213TheEuropeanCommunities'srecycledseriousprejudiceargumentsareahodgepodgeofgeneralandspecificdata.
TheEuropeanCommunitieshasprofferedgeneralmarketsharedatacoveringtheentirepassengercarmarket,whilealsomakingpriceundercutting,salesandmarketshareargumentslimitedtotheOpelOptimaandthePeugeot306.
TheEuropeanCommunitiestipsitshattothelikeproductconceptbynarrowingthefocustotwomodelsitclaimsarewithinthesamesegmentastheTimor,but,todate,ithasfurnishednospecificinformationordatatosupportthe"likeness"oftheseproducts.
Again,andattheriskofbeingrepetitive,thismakesEuropeanCommunitiesdataonmarketshare,salesandpriceundercuttinguseless.
Moreover,asshowninTables26and27,theTimorisnotliketheOpelOptimaorthePeugeot306.
(f)TheUnitedStateshassoldnolikeproductsinIndonesiaanditsassertionsregardingtheGMOpels,FordEscortandChryslerNeonaremisplacedandspeculative8.
214TheUnitedStatescannotdemonstrateseriousprejudicebecauseithasnotsatisfiedtheessentiallikeproductpredicate.
AsdemonstratedinTables26and27,theFordEscort,ChryslerNeonandOpelOptimasandVectrasarenotliketheTimor.
4958.
215Furthertothelikeproductissue,theUnitedStatessuggeststhatthelegalanalysisshouldbeconfinedtoconsiderationofthemostbasicphysicalcharacteristicsandendusesofpassengercars.
Suchananalysiswouldbeinappropriate,however,becauseitisoverlysimplistic.
8.
216TheUnitedStatestakesIndonesiatotaskforextendingitsanalysisbeyondthedefinitionof"likeproduct"foundinfootnote46totheSubsidiesAgreement,butthisisunjustifiedand,atbest,disingenuous.
TheUnitedStatesstates:"Obviously,thisdefinitionprovidesonlygeneralguidance,andacase-by-caseanalysisisnecessarytodeterminewhetheraparticularproductis495TheUnitedStatesattemptstobuttressitspositionbyassertingthat"thereisplentyofevidencethatintheUSmarkettheSephiaisconsideredtobeinthesamecategoryastheEscortandNeon.
"Thisisunavailingforthreereasons.
First,theKiaSephiamarketedintheUnitedStatesisamuchmoreadvancedcarthantheTimor--thedifferencesaresogreatthattheSephiaisnot"like"theTimor.
SeeIndonesiaExhibit42atpp.
8-9.
Second,analysts'perceptionsoftheUSmarkethavenorelevancetotheIndonesianmarket.
Finally,evenifsuchperceptionswererelevant,notallanalystsputtheSephiainthesamecategoryastheEscortandNeon.
SeeIndonesiaExhibit12.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage236'like'another.
…Factorswhichshouldbeconsideredinapplyingacase-by-caseanalysisinclude'aproduct'senduseinagivenmarket,consumer'stastesandhabits,whichchangefromcountrytocountry,andtheproduct'sproperties,natureandquality.
"496TheUnitedStatesalsohasnoteditsagreementwithIndonesiathat"consumersconsidernumerousphysicalandnon-physicalcharacteristicsinmakingtheirpurchasingdecisions.
"ThisirrefutablefactisamplyborneoutbythefollowingstatementappearinginFordMotorCompany's1996annualreporttotheUSSecuritiesandExchangeCommission:Ford'sshare[ofindustrysales]isinfluencedbythequality,price,design,driveability,safety,reliability,economyandutilityofitsproductscomparedwiththoseofferedbyothermanufacturers,aswellasbythetimingofnewmodelintroductionsandcapacitylimitations.
Ford'sabilitytosatisfychangingconsumerpreferenceswithrespecttotypeorsizeofvehicleanditsdesignandperformancecharacteristicscanaffectFord'ssalesandearningssignificantly.
4978.
217ThewiderangeofacknowledgedfactorsthatmustbeconsideredinidentifyingwhichproductsareliketheTimorfurtherpointsupthefailureoftheUS(andtheEC)tosatisfytheburdenofproofdiscussedabove.
(g)Indonesia'spositiononthelikeproductissuedoesnotrendertheSubsidiesAgreementinapplicabletoconsumerproducts8.
218TheEuropeanCommunitiesandtheUnitedStatesseparatelyargue,inessence,thatIndonesia'slikeproductanalysisistoorestrictivebecauserequiringidentitybetweenpassengercarswouldeffectivelyexcludeconsumerproductsfromthescopeoftheSubsidiesAgreement.
Thoseargumentsarefallacious.
8.
219Indonesiahasneverclaimedthatproductsmustbeidenticaltobeconsideredlikeoneanother.
Indeed,Indonesiaagreesthatsomedifferentiationcanexistamonglikeproducts.
Itiscriticaltoemphasize,however,thattheconceptofdifferentiationmustbecarefullycircumscribed,takingdueaccountofthetypesofproductsatissue.
Forexample,whilerelativelyminorandinconsequentialdifferencesexistamongmanyconsumerproducts-suchasblenders,canopenersandtoasterovens-passengercarsareveryhighlydifferentiatedproducts.
Twocarsmightevencloselyresembleoneanotherintermsoftheirmostbasicphysicalcharacteristics,butyetstillbehighlydifferentiatedonthebasisofnumerousotherphysicalandnon-physicalcharacteristics,includingdesign,quality,durability,driveability,safety,reliability,brandloyalty,brandimage/reputation,status,after-salesservice,fuelconsumptionandresalevalue.
498Thismultitudeofdifferentiatingfeaturesamongcars,aswellastheirmuchhighercost,distinguishesthemfromnearlyallotherconsumerproducts.
Thus,althoughitmaybedifficulttodetermineappropriatelikeproductcategoriesforthepurposesofthisproceeding,thatdifficultydoesnotsupportthesweepingassertionsoftheEuropeanCommunitiesandtheUnitedStatesthattheadoptionofIndonesia's496UnitedStatescitingJapan-TaxesonAlcoholicBeverages(1November1996),WT/DS8/R,ReportoftheAppellateBody,22.
497FordMotorCompany1996AnnualReporttoUSSecuritiesandExchangeCommissioninForm10-Kat5(IndonesiaExhibit44).
498Forexample,asshowninTable27,theTimorS515andMercedes-BenzC180havemanyphysicalsimilarities,butonecannotreasonablyconsiderthemtobelikeproducts.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage237specificapproachtothelikeproductissueinthiscasewouldmakeitimpossibletobringaseriousprejudicecaseagainstasubsidizedconsumerproduct.
4998.
220Productdifferentiationissignificanttothelikeproductissueforanotherreason.
Itisrecognizedthatwherethereishighdegreeofproductdifferentiation,productsarelesssubstitutable,andpriceislesslikelytobeadeterminingfactorinpurchasingdecisions.
TheexceptionallyhighdegreeofproductdifferentiationbetweentheTimorS515andtheEuropeanCommunitiesandUnitedStatesgroupofpurportedlylikecarsmakesthemnon-substitutable.
Thisisimportantbecause,asthepanelinJapan-TaxesonAlcoholicBeveragesrecognized,alllikeproductsare"directlycompetitiveorsubstitutableproducts.
"500Thus,becausetheTimorandnoneoftheproposedcomparisonmodelsaresubstitutableor"directlycompetitive,"theycannotbeconsideredlikeproducts.
501(h)Marketsegment8.
221Numerousphysicalandnon-physicalattributesandconsumerperceptionsdeterminethemarketsegmentintowhichanygivenmodelfalls.
Thesevariousfactors,include,butarenotlimitedto:brandloyalty;quality;brandimage/reputation;reliability;design;durability;utility;resalevalue;rideandcomfort;driveability;standardfeatures;safetyfeatures;availableoptions;exteriorsize;interiorspace;fueleconomy;after-salesservice;enginesizeandtechnology;transmissiontype;andsuspensiontype.
8.
222ThephysicalattributesandspecificationsoftheTimorsetforthbyIndonesiainTable27,aswellasthenon-physicalattributesandperceptionslistedabove,placetheTimorinthemarketsegmentcomposedofbudgetsmallpassengercars.
TheTimortapsnewentrantstothecarmarketthroughthismarketsegment.
Thesamephysicalandnon-physicalattributesandperceptionsplacetheFordEscort,OpelOptimaandVectra,andChryslerNeon(andPeugeot306)atthetopofthemoreelevatedsmallcarsegment.
8.
223TherelativepositionsoftheTimorandtheUnitedStates(andtheEuropeanCommunities)comparisonmodelsareamplydemonstratedbyreferencetojusttheirmostbasicphysicaldifferences(Thesepositionsarereinforcedandmadewiderbythedifferentnon-physicalattributesandperceptionsofeachmodel.
)Therearefourbasicphysicalattributesorspecificationgroupingsthatdifferentiatepassengercarsandcontributetosegmentingthemarket:powerplant;steeringandsuspenion;safetyfeatures;andpassengercompartment.
8.
224Thepowerplantgroupingincludes:engineconfigurationandenginesize;transmissiontype;horsepower;andtorque.
Thesteeringandsuspensiongroupingincludes:suspensiontype;499ThoseassertionsalsoarebeliedbythemanysuccessfulcountervailingandantidumpingdutyproceedingsintheEC,theUSandothercountriesthathaveinvolvedconsumerproducts.
ThelocalauthoritiestherehaveusedthesameoraverysimilarlikeproductapproachasthatappearingintheSubsidiesAgreement.
SeegenerallyCertainElectricFansfromthePeople'sRepublicofChina,USITCPub.
2461(December1991);CertainPersonalWordProcessorsfromJapan,USITCPub.
2411(August1991);Top-of-the-StoveStainlessSteelCookingWarefromKoreaandTaiwan,USITCPub.
1936(January1987).
500Japan-TaxesonAlcoholicBeverages(1November1996),WT/DS8/R,121,para.
6.
22.
AlthoughthePaneltherewasaddressingArticleIIIandtheInterpretiveNotesinAdArticleIII,itsgeneralstatementinthisregardapplieswithequalforcehere.
501ThenotionofcompetitionanditsimportanceisclearlyreflectedinthetextoftheSubsidiesAgreement.
CompetitionisthemotiveforceunderlyingalloftheindiciaofseriousprejudicepresentedinArticle6.
3:thedisplacementorimpedingofimports,significantpriceundercutting,significantpricesuppression,pricedepression,lostsales,orlostmarketshare.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage238drivewheels;steeringsystem;tyresize;andturningcycle.
Thesafetyfeaturegroupingincludes:brakingsystem;fueltankcapacityandmileage;curbweight;andpassiverestraint.
Thepassengercompartmentgroupingincludes:interiordimensionsandnumberofpassengers.
8.
225ThefollowingtablehighlightsthemostsignificantphysicaldifferencesthatmaketheTimor"unlike"theproposedcomparisonmodels:WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage239Table26UnitedStatesandEuropeanCommunities-ProposedComparisonsFordEscortPeugeot306ChryslerNeonOpelVectraOpelOptimaPowerPlant502NNNNNSteeringandSuspension503NNNNNSafetyFeatures504NNNNNPassengerCompartment505YYYNYY=ComparabletotheTimorS515N=NotComparabletoTimorS5158.
226ThefulldatafromwhichtheanalysisinTable26isderivedarepresentedinthetablebelow:502IncomparisontotheTimor,thesecarshavelargerengineswithgreaterhorsepowerandtorque.
TheNeonhasanautomatictransmission,whichisalsoavailableforthePeugeot.
503IncomparisontotheTimor,theEscort,VectraandOptimahavepowersteeringandthePeugeot,Neon,VectraandOptimahavelargertires.
504IncomparisontotheTimor,theNeon,Vectra,andPeugeothaveABS;theEscorthasreardiscbrakes;theEscort,Neon,VectraandOptimahaveairbags;EscortandNeonhavesuperiorfueleconomy;theOpelVectraisheavier;andfueltanksoftheVectraandPeugeotarelarger.
505Interiorspace(basedonexteriormeasurements)andthenumberofpassengersaccommodatedareapproximatelythesame,exceptfortheVectra,whichseatsanadditionalpassenger.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage240Table27ComparisonofCarsItemTimorS515FordEscortChrysler(DodgeNeon)OpelVectraOpelOptimaPeugeot306Mercedes-BenzC-1801.
EngineSize(cc)1,4981,5972,0001,9981,7961,7611,7992.
EngineConfigurationandNumberofValvesSOHC,4Cyl.
Carburetor,16ValvesDOHC,4Cyl.
Injection,16ValvesOHC,4Cyl.
InjectionSOHC,4Cyl.
InjectionSOHC,4Cyl.
InjectionSOHC,4Cyl.
Injection4Cyl.
Injection3.
SuspensionFront:Independent,MacPhersonStrutRear:FullyIndependent,Multi-linkedYesYesYesYesYesYesYesYesYesYesYesYes4.
Brakes1.
Front2.
Rear3.
ABSDiscBrakeDrumsDiscBrakeDiscBrakeDiscBrakeDrumsYesDiscBrakeDrumsYesDiscBrakeDrumsDiscBrakeDrumsYesDiscBrakeDiscBrakeYes5.
Drive(FrontWheel)YesYesYesYesYesYesNo6.
SteeringRack&Pinion,withcollapsiblecolumnRack&Pinion,power-assistedRack&Pinion,powersteeringRack&Pinion,powersteeringAdjustableColumn(angle)controlundersteeringwheel,powersteering7.
Transmission(Manual5orAutomatic)Manual5SpeedManual5SpeedAutomatic3SpeedManual5SpeedManual5SpeedManual5SpeedManual5Speed8.
Horsepower(kw/rpm)58/5,50075/5,50097/6,00080.
9/5,40066/5,40070/6,000122/5,5009.
Torque(kgm/rpm)122/2,500134/3,000129/5,000173/2,600163/3,200148/3,000199/3,75010.
FuelTankCapacity(litre)50555761528075Table27-ContinuedItemTimorS515FordEscortChrysler(DodgeNeon)OpelVectraOpelOptimaPeugeot306Mercedes-BenzC-18011.
OverallFuelEfficiency(km/ltr)-Urban-Suburban12.
313.
99.
529.
724.
25.
812.
CurbWeight1,0551,1101,1021,2459801,1001,28013.
Height1,3901,3461,3201,4251,4101,3831,38914.
Width1,6921,8751,6871,8411,6881,6891,72015.
Length4,3604,2954,2954,4771,2394,2324,48716.
WheelBase(mm)2,5002,5232,6002,6372,5172,5802,69017.
TurningCycle(metres)4.
9555.
334.
995.
455.
3718.
TyreSize175/70R13175/70R13185/65R14195/60R15-87H195/60R15185/60R14195/65R1591H19.
NumberofPassengers444544420.
AirConditioningYesYesYesYesYesYesYes21.
AirBagsNoYesYesYesYesNoYesWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage242(i)TheNeonisnot"like"theTimor8.
227Inadditiontothedifferencesalreadynoted,datapresentedbytheUnitedStatesshowsthattheNeonisdownrightluxuriouscomparedtothespartanTimor.
AccordingtotheUnitedStates,theNeonincludesthefollowingequipmentasstandardfeatures:-compactdiscplayer;-anelectricsunroof;and-thenew,low-forceairbags.
5068.
228TheseitemsarenotevenofferedasoptionsontheTimor.
YettheyarestandardontheoneUnitedStates-madecartheUnitedStatesclaimsisliketheTimor.
Also,eventhelimitedphysicaldataontheNeonprovidedbytheUnitedStatesdemonstratesthatthereareothersignificantphysicaldifferencesbetweentheNeonandtheTimor.
(SeeTable23.
)8.
229Moreover,theUnitedStateseffectivelyconcedesthattheTimorisperceivedinIndonesiajustasIndonesiahasdescribedittothisPanel-asalower-quality,budgetcar.
507Ofcourse,asIndonesiahasdiscussedandtheUnitedStateshasacknowledged,consumers'perceptionsarecriticaltotheirpurchasingdecisions.
8.
230ParticularlyinstructiveistheUnitedStates'acknowledgementthattheSephiaandtheTimorarenotthesamecar.
Inanattempttosidesteptheissue,theUnitedStatesstatesthat"theonlydifference.
.
.
isthe'Timor'stickerand,perhaps,thecountryoforiginofsomeoftheparts.
"TheUnitedStatesthennotesinpassingthat"theversionoftheSephiasoldintheUnitedStateshasaslightlylargerenginethantheversionsoldinIndonesia.
"8.
231Furthermore,theUnitedStatesengagesinafarmoreegregiousmanipulationofdatawhenitdiscussesthepowerofthetwocars.
WebringtothePanel'sattentionthefactthattheUnitedStateshaspresentedmisleadingdatainaside-by-sidecomparisonoftheTimorandtheNeon.
TheUnitedStatespresentsahorsepowerfigure(whichtheUnitedStateslabels"HP")indescribingtheTimor'spoweroutput,butakilowatt-at-rpmfigurefortheNeonwithoutnotingthechangeinthemeasurement.
Theresultisan85to98comparison,insteadoftheappropriate85to129horsepowercomparison,which,ofcourse,undercutstheUnitedStates'position.
Moreover,wenotethat,insofarastheNeonisaUS-madecar,Chryslermarketsitbasedonhorsepower.
WetrustthattheUnitedStatesdidnotusethisbaitandswitchintentionallytomisleadthePanel,hopingthattheimpropercomparisonwouldgounnoticed.
8.
232IndonesiaalreadyhasdemonstratedconclusivelywhattheUnitedStatesstillseekstoavoidadmitting:eventheSephiaisnot"like"theTimor.
TheTimoristheSephiaofyearsgoneby.
UnlikeanyproducerfromtheUnitedStates,theEuropeanCommunitiesorJapan,Kiawaswillingtolicenseitsoutdatedtechnologyatafairprice,butnotevenKiawaswillingtolicenceitscurrenttechnology.
(b)CKDsas"like"finishedTimors8.
233Accordingtotheparties,theGMOpelOptimaandVectra,theFordEscort,thePeugeot306andtheChryslerNeon,amongothermodels,are(orwouldbe)importedintoIndonesiain506USExhibit24,p.
18liststheseitemsasstandardequipmentfortheNeon.
507Id.
,p.
35(articlenotespotentialbuyers'concernsabouttheTimor'squalityandafter-salesservice).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage243Completely-Knocked-Down("CKD")(ratherthanCBU)form.
OnceinIndonesia,theyareassembledandsold.
TheEuropeanCommunitiesandtheUnitedStatesarguethattheseimportsinCKDformare"like"finishedTimors.
Indonesiadisagrees.
Thefollowingarethepartiesargumentsinthisregard:(1)ArgumentsoftheEuropeanCommunities8.
234ThepropositionthatCKDcarsmustbeconsideredas"like"toassembledcompletepassengerswheretheCKDkitalreadyhasthe"essentialcharacter"ofthecompletecarissupportedbyagenerallyacceptedprincipleofcustomsclassification,nowcontainedinRule2(a)oftheGeneralRulesfortheInterpretationofthe1996HarmonisedSystem.
Accordingtothisprinciple:Anyreferenceinaheadingtoanarticleshallbetakentoincludeareferencetothatarticleincompleteorunfinished,providedthat,aspresented,theincompleteorunfinishedarticlehastheessentialcharacterofthecompleteorfinishedarticle.
Itshallalsobetakentoincludeareferencetothatarticlecompleteorfinished(orfallingtobeclassifiedascompleteorfinishedbyvirtueofthisrule),presentedunassembledordisassembled8.
235GiventhatIndonesiagrantsimportdutyrelieffortheimportationofpartsandcomponentsfortheassemblyofpassengercarswhenthelocalcontentofthecarsintowhichtheyareassembledismorethan20percent,importedCKDsmaybeconsideredashavingthe"essentialcharacter"ofacompletecarinthosecaseswheretheyhavenotbenefitedfromimportdutyrelief.
8.
236ThecriteriaappliedbyIndonesiainordertoclassifythesameproductswhenimportedintoIndonesiastillremainunclear.
Indeed,themerefactthatthoseCKDkitsbenefitfromalowerimportdutyratedoesnotnecessarilymeanthattheyarenotclassifiedwithinthesameHSsix-digitcodeasCBUcars.
IfitwasconfirmedthattheCKDkitsexportedfromtheECareclassifiedbyIndonesiaaspartsandcomponents,ratherthanaspassengercars,thenecessaryimplicationwouldbethatIndonesiadoesnotfollowGeneralInterpretativeRule2(a).
8.
237Atanyrate,whetherornotIndonesiaadheresinpracticetoGeneralInterpretativeRule2(a)istotallyirrelevanttothisdispute.
TheEuropeanCommunitieshasinvokedGeneralInterpretativeRule2(a)insupportofitscontentionthatCKDkitsandCBUcarshave"closelyresemblingcharacteristics"and,therefore,are"like"productsforthepurposesoftheSCMAgreement.
Thatargumenthasageneralrelevanceandremainsvalid,irrespectiveofwhethertheimportingMemberconcernedinaparticulardisputecomplieswiththatruleornot.
8.
238InresponsetoaquestionfromthePanelregardingtheconditioninwhichtheCKDkitsareimported,andthenatureandamountofvalueaddedinIndonesia,theEuropeanCommunitiesstatedthefollowing:8.
239VirtuallyallECcars(ofallmodels)areexportedtoIndonesiaasCKDkits.
Thekitsalreadyincludealmostallthepartsandcomponentesnecessaryforassemblingthecars.
TheonlypartsandcomponentswhicharepurchasedinIndonesiaarelowcostuniversalcomponents,suchasbatteriesandtyres,oraccessoriessuchasradios,CD-playersandloudspeakers.
Asaresult,thepercentageoflocaladdedvalueisverylowinallcases.
AccordingtothedataprovidedbyIndonesiainresponsetoaquestionraisedbytheUnitedStatesduringtheconsultations,(seetablebelow)in1996,thelocalcontentpercentageoftheECmodelsassembledinIndonesiarangedfrom6.
4percentto8.
2percent.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage244Table28LocalContentKindOfVehiclesOriginalcountryLocalContent(%)199419951996I.
CommercialCarCategoryIJapan12.
201-61.
0166.
398-48.
1276.
470-45.
398UnitedStates29.
078--EuropeanCommunity-5.
760-CategoryIIJapan31.
815-37.
50223.
404-33.
67224.
610-33.
976UnitedStates---EuropeanCommunity21.
60425.
353-28.
10922.
005-22.
517CategoryIIIJapan31.
164-36.
62130.
431-36.
06025.
295-34.
819UnitedStates---EuropeanCommunity23.
061-31.
63429.
273-30.
96422.
529-23.
280CategoryIVJapan1.
000-31.
9942.
725-30.
7963.
977-30.
162UnitedStates2.
200-11.
8002.
200-EuropeanCommunity-4.
6824.
689II.
PassengerCarJapan5.
000-42.
9686.
231-42.
2486.
908-42.
165UnitedStates6.
0007.
536-11.
2007.
663-11.
066EuropeanCommunity5.
000-6.
3276.
222-7.
8586.
388-8.
292Korea-5.
016-8.
3046.
529-8.
300WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage245(2)ArgumentsoftheUnitedStates8.
240TheUnitedStatesagreeswiththeEuropeanCommunitiesthatCKDpassengercarsmustbeconsideredas"liketotheassembledcompletepassengercarsinthosecaseswheretheCKDkithasalreadythe'essentialcharacter'ofthecompletecar"forthereasonssetforthbytheEuropeanCommunities.
TheUnitedStateswouldaddthat,toalargeextent,worldtradeinautomobilesisconductedintheformoftheexportandimportofunassembledvehicles,asopposedtocompletelybuilt-up,finishedvehicles.
CertainlythatisthecaseinIndonesia,wheretheonlypassengercarthathasbeenimportedinCBUformandinsizeablequantitieswastheKiaSephiaduringtheone-yearperiodinwhichthetariffandtaxexemptionswereineffect.
BecauseaCKDpassengercarhastheessentialcharacterofacompletecar,itwouldexaltformoversubstancetofindthataCKDpassengercarisnotalikeproducttoafinishedcar.
8.
241InresponsetoaquestionfromthePanelregardingtheconditioninwhichtheCKDkitsareimported,andthenatureandamountofvalueaddedinIndonesia,theUnitedStatesstatedthefollowing:8.
242InthecaseofFord,theEscortCKDkitswouldhavebeenorderedingroupsof20vehicles;i.
e.
,anordercouldbeforanymultipleof20vehicles,suchas20,40,60,etc.
Thekitswouldhavebeenpackagedinwaterproof,pre-engineeredcasestoaccepttheexactcontentofthekit,suchasthecorrectnumberofhoods,fenders,engines,etc.
Thepre-engineeredcasesthenwouldhavebeenplacedinstandardizedcargocontainersfordeliverytotheportandsubsequentoceanshipment.
TheCKDkitwouldhavecontainedalloftheindividualpartsnecessarytobuildacompleteEscort,exceptforlocallyprocuredpartsandcomponents,suchasoilandgasoline.
8.
243Withrespecttolocalcontent,theinitiallocalcontentofFordEscortswouldhavebeenwellbelowthe20percentthresholdforobtainingtariffincentivesunderthe1993Programme,althoughFordplannedonincreasingthelocalcontentovertime.
8.
244WithrespecttotheChryslerNeon,thekitswouldhavebeenshippedinlotsof72vehicles.
Becauseundertheproject,asplanned,Neonswouldhavehadlessthan10percentlocalcontent,thiswouldhaveresultedin85boxesperlot.
TheUnitedStatesdoesnothaveacompletelistofthecomponentsthatwouldhavebeensourcedfromIndonesia.
AccordingtoChryslerofficials,however,duetothelowlocalcontent,theitemsthatwouldhavebeensourcedlocallywouldhaveincludedsuchthingsaspaints,oils,gasoline,andothercommodities.
8.
245TheUnitedStateshasrequested,butnotreceived,informationfromGeneralMotorsconcerningtheprecisecompositionofitsCKDkits.
(3)ArgumentsofIndonesia8.
246CKDcarsarenot"like"finishedcars.
AlthoughvariousCustomsregimesclassifyfortariffpurposesincomplete,unfinishedorunassembledproductsandfinishedproductsundertheidenticalHTSnumber,thisfactinandofitselfdoesnotmakeacompleted"ready-to-sell"automobilealikeproducttoanincomplete,unfinishedorunassembledcarthatafterimportationrequirestheadditionofcriticalcomponents,labour,capitalresourcesandequipmentbeforeitis"ready-to-sell".
8.
247Designationofunassembledandassembledproductsaslikeproductsresultsincomparisonsbetweenarticlesthatarephysicallydissimilarwithdifferentcustomersandcustomerexpectations.
Theseresultantapples-to-orangescomparisonsareeconomicallyandlegallymeaningless.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2468.
248Thephrase"essentialcharacter"isatariffclassificationconcept.
Itisnotaconceptthatcanbeusedasthedispositivefactorwhencomplainantsattempttocobbletogetheranunworkablecomparisonanalysis.
(c)"Imports"from/"exports"bycomplainant8.
249InresponsetoaquestionfromthePanel,theUnitedStatesaddressedthequestionofwhetherseriousprejudicetotheinterestsoftheUnitedStatescouldariseintermsofdisplacement/impedanceandpriceundercuttingwheretheproductsbeingdisplaced/impededorwhosepriceswerebeingundercutwerenotofUSorigin.
ThefollowingaretheUnitedStates'argumentsinthisregard:(1)ArgumentsoftheUnitedStates8.
250WithrespecttotheEscortsthatFordplannedtoimportintoIndonesia,accordingtoFord'sprojectplanforIndonesia,theywouldhavebeensourcedfromEurope.
WithrespecttotheOpelOptimasandVectrasimportedintoIndonesia,itistheunderstandingoftheUnitedStatesthatimportsofOpelOptimasandVectrashaveceasedasaresultoftheNationalCarprogramme,althoughitispossiblethatcarsfrominventorymaystillbeavailableforsaleinIndonesia.
PriortotheintroductionoftheNationalCarprogramme,OpelsweresourcedfromEurope.
WithrespecttotheChryslerNeonstobeimportedintoIndonesia,theywouldhavebeensourcedfromtheUnitedStates;specifically,fromChrysler'splantinthestateofIllinois.
8.
251ItistheunderstandingoftheUnitedStatesthattherearenopassengercarsofUSorigin,inCBUorCKDform,thatcurrentlyareimportedintoIndonesia.
SeeAV/13,USAnswertoQuestion#6.
WhilethestrayimportofaUS-originpassengercarcannotberuledout,asdemonstratedbelow,theUSmanufacturerscancelledtheirplanstoexportpassengercarstoIndonesiaduetotheintroductionoftheNationalCarprogramme.
Therefore,atpresent,vehicleexports(otherthantrucks)ofUSoriginconsistofkitsofGM(Opel)BlazersandJeepCherokees,bothofwhichfallintothecategoryof"lightcommercialvehicles.
"8.
252ItistheviewoftheUnitedStatesthatseriousprejudicetotheinterestsoftheUnitedStatesintermsofdisplacement/impedanceandpriceundercuttingmayarisewheretheproductsbeingdisplaced/impededorwhosepricesarebeingundercutarenotofUSorigin.
Thereasonsforthisareasfollows:8.
253Article6.
1oftheSCMAgreementrefersto"[s]eriousprejudiceinthesenseofparagraph(c)ofArticle5.
.
.
.
"Article5(c),inturn,refersto"seriousprejudicetotheinterestsofanotherMember".
Inaddition,footnote13toArticle5(c)statesasfollows:"Theterm'seriousprejudicetotheinterestsofanotherMember'isusedinthisAgreementinthesamesenseasitisusedinparagraph1ofArticleXVIofGATT1994,andincludesthreatofseriousprejudice.
"ThesecondsentenceofArticleXVI:1statesasfollows:"Inanycaseinwhichitisdeterminedthatseriousprejudicetotheinterestsofanyothercontractingpartyiscausedorthreatenedbyanysuchsubsidization,thecontractingpartygrantingthesubsidyshall,uponrequest,discusswiththeothercontractingpartyorpartiesconcerned,orwiththeCONTRACTINGPARTIES,thepossibilityoflimitingthesubsidization.
"Thus,onehastostartwithArticleXVI:1.
8.
254ThesecondsentenceofArticleXVI:1,byitsterms,doesnotlimitaMember'srighttocomplainaboutseriousprejudicetosituationswheretheproductsthatarebeingaffectedbysubsidiesareofthatparticularMember'sorigin.
Instead,ArticleXVI:1referstoaMember's"interests",theordinarymeaningofwhichis"thestateofbeingconcernedoraffectedesp.
withrespecttoadvantageorwell-being".
BecauseGeneralMotorsandFordareundeniablyUSWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage247companies,theUnitedStateshasalegitimateconcernwithrespecttothewell-beingofthosecompanies.
Thus,actionsthataffectthosecompanies,orproductsproducedandsoldbythosecompanies,affecttheinterestsoftheUnitedStateswithinthemeaningofArticleXVI:1.
Inotherwords,underArticleXVI:1,theUnitedStateshasan"interest"inexportsfromtheECoftheproductsofUScompanies,suchasGeneralMotorsandFord.
ThestandardofArticleXVI:1,throughfootnote13,isincorporatedintoPartIIIoftheSCMAgreementasabasicprinciple.
Hadadifferentresultbeenintended,thedrafterscouldhaveeasilyuseddifferentlanguage.
8.
255ItistruethatsomeoftheprovisionsofArticle6doandsomedonotmeshperfectlywiththisbasicprinciple.
Paragraphs(a)through(c)ofArticle6.
3,forexample,simplyrefertotheeffectsonlikeproductsfrom"anotherMember",asopposedtoproductsfromthecomplainingMember,andareconsistentwiththebasicprincipleofArticleXVI:1andArticle5(c).
Paragraph(d)ofArticle6.
3doesnotrefertotheeffectsonlikeproductsatall.
8.
256Ontheotherhand,Article6.
7,whichdescribessituationsinwhichseriousprejudiceshallnotariseunderArticle6.
3,referstoimportsorexportsfromthecomplainingMember.
IntheviewoftheUnitedStates,however,thespecificrulesinArticle6.
7shouldbeinterpretedinlightofthebasicprincipleinArticleXVI:1,asincorporatedintoArticle5,andshouldnotbeusedtooverridethebasicprinciple.
(2)ArgumentsofIndonesia8.
257IndonesiaarguesthatthefactthatnoproductsofUSoriginaresoldinIndonesiameansthattheUnitedStateshasnoclaimofseriousprejudice.
ThefollowingareIndonesia'sargumentsinthisregard:8.
258TheUnitedStatesadmitsthat:"therearenopassengercarsofUnitedStatesorigin,inCBUorCKDform,thatcurrentlyareimportedintoIndonesia";OpelOptimasandVectrasimportedintoIndonesiawereandwouldbesourcedfromtheEuropeanCommunities,notfromtheUnitedStates;andeveniftheso-called"plans"oftheBigThreewererelevant,onlyoneUnitedStatescompany-Chrysler-everconsideredexportingaUS-madeproductfromtheUnitedStatestoIndonesia(aCKDNeon).
OpelsourcesfromtheEuropeanCommunitiesandtheUnitedStatesadmitthatFordwouldhavesourcedanyEscortsdestinedforIndonesiafromEurope.
Thus,theUnitedStateshasreduceditsseriousprejudiceclaimtoone,quitesimple,inadequatelysubstantiatedallegation:ButfortheIndonesianmeasures,Chryslerwouldhavegoneforwardwithitssupposed"plans"totrytoselltheNeoninIndonesia.
Evenifthisweretrue,itwouldnotamounttoseriousprejudice.
Therefore,thePanelshouldrejecttheUnitedStatesclaimsandrejectitscomplaint.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2484.
Article6.
3(a)oftheSCMAgreement-displacement/impedanceofimports(a)ArgumentsoftheEuropeanCommunities8.
259TheEuropeanCommunitiesclaimsthatthesubsidiesatissuecause"seriousprejudice"totheinterestsoftheCommunityinthewaydescribedinparagraphs(a)and(c)ofArticle6.
3oftheSCMAgreement.
ThefollowingaretheEuropeanCommunities'argumentsinsupportofthisclaim:8.
260InaccordancewithArticle6.
3oftheSCMAgreement,seriousprejudiceinthesenseofArticle5mayarise:.
.
.
.
inanycasewhereoneorseveralofthefollowingapply:(a)theeffectofthesubsidyistodisplaceorimpedetheimportsofalikeproductofanotherMemberintothemarketofthesubsidizingMember;(b)theeffectofthesubsidyistodisplaceorimpedetheexportsofalikeproductofanotherMemberfromathirdcountrymarket;(c)theeffectofthesubsidyisasignificantpriceundercuttingbythesubsidizedproductascomparedwiththepriceofalikeproductofanothermemberinthesamemarketorsignificantpricesuppression,pricedepressionorlostsalesinthesamemarket";(d)theeffectthesubsidyisanincreaseintheworldmarketshareofthesubsidizingMemberinaparticularsubsidisedprimaryproductorcommodityascomparedtotheaverageshareithadduringthepreviousperiodofthreeyearsandthisincreasefollowsaconsistenttrendoverperiodwhensubsidieshavebeengranted.
8.
261Theuseofthealternativeconjunction"or"inthechapeauofArticle6.
3clearlyindicatesthatthepresenceofoneofthefactorslistedinthatprovisionmaybesufficienttoestablishtheexistenceofseriousprejudice.
8.
262TheCommunityclaimsandwilldemonstrateherebelowthatthesubsidiesunderconsiderationcauseseriousprejudicetotheinterestsoftheCommunityinthemannerdescribedinparagraphs(a)and(c)ofArticle6.
(1)SubsidizedNationalCarshavedisplacedandimpededimportsofpassengercarsfromtheEuropeanCommunities8.
263AlthoughPTTPNenteredtheIndonesianmarketonlyinOctober1996,bytheendofthatyearsalesoftheTimorS-515alreadyaccountedformorethan10percentofthetotalannualsalesofpassengercarsinthatmarketduring1996.
During1997,salesoftheTimorS-515havecontinuedatasteadypace.
AsshowninthetableincludedinAnnexC-2,bytheendofthefirstsemesterof1997,themarketshareoftheTimorS-515hadreached26.
52percent.
Inotherwords,thankstothemassivesubsidisationprovidedbytheIndonesianGovernment,PTTPNhasbeenabletocapturemorethanaquarteroftheIndonesianmarketforpassengercarsinjustninemonths.
8.
264PTTPN'ssuccessfulentryintotheIndonesianmarkethastakenplace,toasignificantextent,attheexpenseofimportsfromtheCommunity.
Indeed,salesoftheheavilysubsidizedWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage249TimorS-515haveboth"replaced"existingimportsofCommunitypassengercarsand"impeded"afurtherincreaseinCommunityimports.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage250Table29SalesofPassengerCars-Marketshares19931994199519961997*Timor---10.
1026.
52EC**9.
918.
2823.
7224.
0916.
15Japan***89.
881.
5269.
0859.
8550.
49Other0.
20.
217.
195.
956.
83*April-May1997**IncludessalesoftheOpelOptimaandtheOpelVectra***IncludessalesoftheFordLaserandtheFordTelstarSource:AV/3(dataderivedfromattachmentsA-39/1-AthroughA-39/5-B).
8.
265Since1992anduntil1996,exportsofpassengercarsfromtheCommunitygrewatafasterpacethandemand,resultinginasignificantgainintermsofmarketshare.
AsshowninTable29,themarketshareheldbypassengercarsimportedfromtheCommunitynearlydoubledbetween1993and1994,from9.
9percentto18.
28percent,andincreasedagainthefollowingyearto23.
72percent.
8.
266In1996,thistrendwasabruptlyinterruptedbytheentryintothemarketoftheTimorS-515.
Thus,theCommunity'ssharefor1996wasonlymarginallyhigher(24.
09percent)thanitssharefor1995(23.
72percent).
Duringthefirsthalfof1997,theshareheldbyEuropeanCommunitiesimportsfelldramaticallytoonly16.
15percent,thelowestlevelsince1993.
Table30SalesoftheOpelOptimaandthePeugeot306-Units199519961997*1997**OpelOptima419359165257Peugeot306-1,017443656Total38,82642,34526,60749,568*April-May**August1997,basedondatafromtheECindustrySource:AV/3(AttachmentA-39/1-B).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage251Table31MarketsharesoftheOpelOptimaandthePeugeot306199519961997*1997**OpelOptima1.
080.
850.
620.
52Peugeot306-2.
401.
661.
32*April-May**August,basedondatafromtheECindustry.
Source:AV/3(AttachmentA-39/1-B).
8.
267Tables30and31showtheimpactoftheintroductionoftheTimorS-515onthesalesoftheOpelOptimaandofthePeugeot306,thetwoCommunitymodelswhicharetheclosestintermsofspecificationsandpricetotheTimorS-515.
8.
268ThePeugeot306wasnotsoldinIndonesiaduring1995.
In1996,Peugeotsold1,017unitsofthismodel,400unitslessthanithadoriginallyplanned.
Duringthefirsteightmonthsof1997thenumberofcarssoldwasonly656(984unitsonanannualizedbasis,i.
e.
33unitslessthanin1996).
Andthisdespiteasubstantialincreaseinoveralldemand.
Indeed,bytheendofAugust1997,totalsalesofpassengercarsinIndonesiaalreadyexceededbyalmost20percentthevolumesoldduringthewholeof1996.
Asaresult,themarketshareofthismodelshrankfrom2.
4percentin1996tojust1.
3percentduringthefirsteightmonthsof1997.
8.
269ThesalesoftheOpelOptimafellfrom419unitsin1995to359unitsin1996.
Duringthefirsteightmonthsof1997,Opelsold257unitsofthismodel.
Intermsofmarketshare,thisrepresentadeclinefrom1.
08percentin1995to0.
85percentin1996andtoonly0.
52percentduringthefirsteightmonthsof1997.
Duetothedepressedsalessituation,OpelhasnotorderedanynewCKDOptimasfromtheEuropeanCommunitiessince1996.
8.
270ThenegativeeffectsoftheNationalCarProgrammearenotlimitedtothosefeltbythoseCommunitybrands/modelsthatwerealreadypresentintheIndonesianmarket.
TheNationalCarProgrammehasalsopreemptedotherCommunitybrands/modelsfromenteringtheIndonesianmarket.
8.
271Thus,forinstance,whentheNationalCarProgrammewasadopted,FordwasabouttostartimportingCKDEscortsmadeatitsplantinSaarlouis(Germany).
Withthatpurpose,FordhadalreadyinvestedclosetoUS$1millionworthoftoolinginIndonesia.
ThemarketupheavalcausedbythelaunchingoftheNationalCarProgrammeforcedFordtosuspendindefinitelythoseplans.
5088.
272Similarly,priortotheapprovaloftheNationalCarProgramme,GeneralMotors/OpelhadadvancedplanstoexpandandupgradeitsassemblyfacilitiesinIndonesia.
Accordingtothoseplans,theOpelOptimaandtheOpelVectraweretobereplacedbynewOpelmodels.
InJune508Accordingtoabusinessplanadoptedin1995,FordwouldhaveexportedtoIndonesiathefollowingquantitiesofCKDEscorts:199619971998199920002001200220031,3233,4685,1567,37012,02613,86716,02618,433WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2521996,GeneralMotors/OpelannouncedthattheplannedinvestmentswereputonholdbecauseofthesituationcreatedbytheNationalCarprogramme.
509Sincethen,GeneralMotors/OpelhasdiscontinuedtheproductioninIndonesiaoftheOpelVectra.
Asshownabove,althoughtheOpelOptimaisstillbeingassembledinIndonesia,salesofthatmodelaredwindling.
8.
273IndonesiamakespartialandmisleadingstatementswhichaimatminimisingtheimportanceoftheEuropeanCommunitiesinterestsinthiscaseand,thereby,alsotheseriousnessoftheprejudicesufferedbytheEuropeanCommunities.
Thus,Indonesiaarguesthat:-in1995EuropeanCommunitiesbrandsaccountedforonly3.
3percentoftotalvehicleproductioninIndonesia;-exportsofmotorvehiclesandpartstoIndonesiawereunderUS$300millionin1995;-EuropeanCommunitiesexportsconsistofMercedesandBMWswhichdonotcompetewiththe"small,lowtechnologyTimor".
8.
274ThepercentagementionedbyIndonesiarelatestothetotalmarketformotorvehicles.
TheEuropeanCommunitiescomplaintconcernsonlythemarketforpassengercars.
InthatmarkettheEuropeanCommunitiessharereached24percentin1996.
8.
275Admittedly,inabsolutetermstheEuropeanCommunitiesexportsofpassengercarstoIndonesiaaresmall.
Thereasonforthis,however,isthattheIndonesianmarketitselfisstillverysmall(42,346unitsin1996).
Indonesia'smarketforpassengercarsneverthelesshasconsiderablegrowthpotential,especiallyinthemiddleandsmallsegments.
TheNationalCarprogrammethreatenstodislodgetheEuropeanCommunitiesexportersfromthepositionstheyhavetakenalreadyinthatmarketandpreventthemfromtakingadvantageofthatgrowth.
8.
276Inanyevent,itisobviousthattheexistenceof"seriousprejudice"inthesenseofArticles5and6oftheSCMAgreementisnotdependantupontheabsolutesizeormonetaryvalueofthe"prejudice".
The"seriousness"oftheprejudicemustalwaysbeassessedinrelationtothemarketconcerned.
8.
277SalesofmodelsinthehighsegmentofthemarketstillaccountforamajorityoftheEuropeanCommunitiesexportstoIndonesia.
Toalargeextent,thisreflectsthestructureoftheIndonesianmarket,wherecarsfallingwithinthesmallandmiddlesegmentshaveaccountedtraditionallyforasmallersharethaninmorematuremarkets.
Nonetheless,contrarytotheimpressionthatIndonesiawouldliketoconveytothePanel,theEuropeanCommunitiesdoesnotexporttoIndonesiaonlyMercedesandBMWs.
In1996,salesofthePeugeot306andtheOpelOptimaaccountedfor15percentoftheECexports.
8.
278Indonesiaallegesthat:-".
.
.
salesofpassengercarscarryingECbrandnamesincreasedfrom8,554unitsin1995to9,526unitsin1996"509Seee.
g.
"GMHaltsIndonesiamoveovernationalcarpolicy",FinancialTimes,13June1996(ECExhibitC-10).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage253-".
.
.
themarketsharedevelopmentsaremeaningless.
.
.
Marketshareanddemandgrowtharenotnecessarilycorrelated.
Manyextraneousfactorsinfluencethisrelationship,includingchangesincustomerpreferences.
.
.
"-".
.
.
Timortappedanewclassofbuyersandcreatedanewmarketnicheatthebottom"8.
279Comparisonofthesalesfiguresfor1995and1996canbemisleading,sincetheTimorS-515onlyenteredthemarketinOctober1996.
Acomparisonofthecorrespondingfiguresfor1996(10,075units)and1997(10,714unitsonanannualizedbasis510)showsthattheincreaseinsalesofEuropeanCommunitiesimportswasless"substantial"thanclaimedbyIndonesia(ca.
6percent).
Furthermore,eventhatmodestoverallincreasemasksthefactthatduring1997salesoftheOpelOptimahavestagnatedandsalesofthePeugeot306havefalleninabsoluteterms.
8.
280Inanyevent,displacementorimpedanceofimportsinthesenseofArticle6.
2oftheSCMAgreementmayexistnotonlywhereimportsfallinabsolutetermsbutalsoincaseswherethereisadecreaseintheirmarketshare.
Thisisimplicitinthenotionof"impedance",whichpurportstocoverthesituationwheresubsidizedgoodsdonotdisplaceanypre-existingimportsbutratherpre-emptimports(includingadditionalimports)fromtakingplace.
8.
281TheargumentthatalossofmarketsharemayconstituteseriousprejudiceisfurtherconfirmedbyArticle6.
4oftheSCMAgreement,whichprovidesthat:Forthepurposesofparagraph6.
3(b),thedisplacementorimpedingofexportsshallincludeanycaseinwhich.
.
.
.
ithasbeendemonstratedthattherehasbeenachangeinrelativesharesofthemarkettothedisadvantageofthenon-subsidizedlikeproductoveranappropriatelyrepresentativeperiodsufficienttodemonstratecleartrendsinthedevelopmentofthemarketfortheproductconcerned,which,inthenormalcircumstancesshallbeatleastoneyear.
'Changeinrelativesharesofthemarket',shallincludeanyofthefollowingsituations:(a)thereisanincreaseinthemarketshareofthesubsidizedproduct.
.
.
Although,byitsownwords,Article6.
4appliestothird-countrymarketsituations,thereisnoreasonwhythesametypeofanalysisshouldnotbeappropriatealsointhecaseofdisplacementorimpedanceofimportsfromthemarketofthesubsidizingcountry.
8.
282Itisworthrecallingthat,inaccordancewithArticle15.
4oftheSCMAgreement,marketsharesareoneoftherelevantfactorinestablishingwhethersubsidiesimportshavecaused"injurytothedomesticindustry"ofanotherMemberforthepurposesofbothArticle5(a)andPartVoftheSCMAgreement.
8.
283Indonesia'scontentionthat".
.
.
marketshareanddemandgrowtharenotnecessarilycorrelated"andthat".
.
.
manyextraneousfactorsinfluencethisrelationship,includingchangesincustomerpreferences.
.
.
"isbutameretruism.
TheEuropeanCommunitieshasshownthatthefallinmarketshareofEuropeanCommunitiesimportshastakenplacesimultaneouslywithaparallelincreaseinthemarketshareofsubsidizeddomesticproductswhichhaveundercutsignificantlythepricesoftheEuropeanCommunitiesimports.
Furthermore,thatdecreasehasinterruptedbrusquelyanupwardtrend.
AllthisismorethansufficientevidencetoconcludethatthedeclineinthemarketshareofEuropeanCommunitiesimportshasbeencausedbythesubsidiesatissueandnot510BasedonIndonesiaExhibit40.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage254byanyother"extraneousfactor".
Especially,sinceIndonesiahasnotprovidedanyevidencewhatsoeverthat"otherfactors"mayhavecausedthesuddendecreaseinthemarketshareofEuropeanCommunitiesimports.
8.
284Indonesia'spropositionthattheTimorhasgeneratedentirelyitsowndemandispurelyspeculativeandcannotbedemonstrated.
Demandforpassengercars,andinparticularforpassengercarswithinthesamesegmentastheTimor,hadgrownsteadilyoverthepastfewyears.
ItwouldhavecontinuedtoincreaseevenwithouttheNationalCarProgramme.
That"natural"increaseofthemarkethasbeencapturedbytheTimorS-515,attheexpenseofothernon-subsidizedcars,togetherwithanyadditionaldemandallegedlycreatedbytheNationalCarProgramme.
8.
285Indonesia'sargumentthattheTimorhas"tappedintoanewclassofconsumers"andcreateditsowndemandis,infact,againthesamepropositionasIndonesia'sthresholdargumentthattheTimorisnot"like"theEuropeanCommunitiescars.
Thenotionof"competitive"productsisbroaderandencompassesthatof"like"products.
IftheEuropeanCommuntiycarsare"like"theTimor,itfollowsnecessarilyattheycompetewiththeTimorforthesamecustomers.
Itisconceivablethat,duetoitsverylowsubsidizedprice,theTimormayhavegeneratedsomeadditionaldemandforpassengercars.
Yet,theTimorhascapturednotonlythatadditionaldemandbutalsosalestocustomerswhich,intheabsenceoftheNationalCarProgramme,wouldhavepurchasedother"like"non-subsidizedpassengercars.
(b)ArgumentsoftheUnitedStates(1)Informationconcerningseriousprejudice(a)TheTimorKiaSephiarapidlyacquiredasubstantialshareoftheIndonesianmarketandsignificantlyundercutthepricesofotherpassengercarsinitsclass8.
286TheintroductionoftheNationalMotorVehicleprogrammeandtheannouncementthata"nationalmotorvehicle",theTimorKiaSephiasedan,wouldsoonbeonthemarketatapriceofRp.
35millionhadanimmediateimpactonthemarket.
Soon,therewerereportsinthepressthat,asofthebeginningof1996,carsaleswerefallingasIndonesianspostponednewvehiclepurchasesinanticipationofTimor'sentry.
511"CarindustryexecutivespredictedthatwhiletheIndonesiannewcarmarketwasgrowing,thecheapTimor'nationalcar'wouldleadpeopletoswitchbrandsratherthanpromotedramaticindustry-widesalesgrowth".
5128.
287Thesepredictionsprovedaccurate.
AlthoughthesuccessoftheTimorKiaSephiawasnotasgreatasTPNofficialspredicted,itnonethelesscapturedasizeableshareoftheIndonesianpassengercarmarket.
AttachmentA-39/6toAV/3providesthemarketshareoftheTimorKiaSephia.
AccordingtoAttachmentA-39/6,theTimorKiaSephiawentfromamarketshareofzeroinFebruary1996(whentheNationalMotorVehicleprogrammewasannouncedandKiaTimorwasnamedastheproducerofthe"nationalmotorvehicle")toa10.
11percentmarketsharebythe511"EarlyLaunchingforNationalCar,"BusinessTimes(Singapore),July9,1996,p7(USExhibit14,pp.
96-97);seealso"Indonesia'sGhostCarGivesJapanMakersaShudder,"ReutersWorldService,10May1996(Exhibit14,pp.
33-35).
512"IndonesiaCarMayNotMeetLocalContentClause,"TheReuterAsia-PacificBusinessReport,29July1996(USExhibit14,pp.
103-104).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage255endof1996.
BytheendofMay1997,theendoftheperiodcoveredinAttachmentA-39/6,themarketshareoftheTimorKiaSephiahadcatapultedto26.
53percentinlittlemorethanoneyear.
8.
288ThereasonwhytheTimorKiaSephiacouldachievesuchasignificantmarketpenetrationinsoshortaperiodoftimeissimple:theTimorKiaSephiawas,andis,thecheapestpassengercarinitsclassonIndonesianroads.
513Becauseofthehugetariffandtaxsubsidiesitenjoys,theTimorKiaSephiacanbesoldfor50percentofthepriceofitsrivals.
5148.
289ThedataonlistpricesforpassengercarsinIndonesiaprovidedbyIndonesiathroughtheAnnexVprocedureatteststothetremendouspriceadvantageenjoyedbytheTimorKiaSephia.
(AttachmentA-40/1toAV/3)Asthesedatademonstrate,theTimorKiaSephiasignificantlyundercutthepricesofeverypassengercarinitsclass:515Table32ListPricesManufacturer&PassengerCarModelNovember1996priceinrupiahsMarch1997priceinrupiahsTimorKiaSephiaS515metallic33.
5million33.
5millionTimorKiaSephiaS515imetallic36.
9millionOpelOptimaGLS1800cc69.
5million70millionToyotaCorollaM/T1600cc71.
1million68.
3millionToyotaCorollaA/T1600cc74.
8million71.
8millionMitsubishiLancerM/T1600cc64.
0million65.
0millionMitsubishiLancerA/T1600cc67.
0million68.
0millionMitsubishiLancerDOHC1800cc72.
0million72.
0millionHondaCivic4dr,GKP1600cc72.
5million71.
2millionHondaCivic4dr,AKP1600cc76.
2million74.
9million513"IndonDomesticCarSalesRaceupby41percentinMay,"BusinessTimes(Singapore),17June1997(USExhibit14,pp.
138-139).
514"BumpyRoadAheadforMotoringPlans,"SouthChinaMorningPost,8June1997(USExhibit14,pp.
132-135).
Inthisregard,becauseofthehightariffsonimportedautomotivepartsandthe35percentluxurytaxonpassengercars,"carpricesinIndonesiaareamongthehighestintheworld.
""IndonesiaDrawsMoreCriticismOverCarPlan,"TheNikkeiWeekly,17June1996,p.
1(USExhibit14,pp.
80-83).
515Thepassengercarsincludedinthetablefallwithin"SegmentC"ofthemotorvehiclemarket.
SeeMcGraw-HillWorldCarIndustryForecastReport,February1997,pp.
284-85,includedinAnnex1toAV/2.
Carsfallingwithinaparticularmarketsegmentwillbeofroughlythesamesize,beinthesamepricerange,andsharethesametargetcustomers.
SegmentCincludes"lowermediumclass"passengercars.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage256Peugeot306M/T1761cc62.
5million63.
0millionPeugeot306A/T1761cc64.
8million65.
5millionDaewooNexiaDOHC1500cc43.
0million8.
290SignificantpriceundercuttingbytheTimorKiaSephiaappearswhenonecomparesmarketpricesinsteadoflistprices.
Annex3toAV/2containsmarketpricesforthelastquarterof1996.
UsingthesedatathemarketpricesforpassengercarsinSegmentCwereasfollows:Table33MarketPricesManufacturer&PassengerCarModel4thQuarter1996priceinrupiahsKiaTimorSephia35.
75millionOpelOptimaGLS59millionOpelOptimaCDX62millionOpelOptimaCDXA-BAG64millionToyotaCorolla1.
6XLI66.
35millionToyotaCorolla1.
6SEGMT71.
35millionToyotaCorolla1.
6S-CRUISEMT74.
85millionToyotaCorolla1.
6SEGAT75.
25millionMitsubishiLancer1.
6MT65millionMitsubishiLancer1.
6AT70.
5millionMitsubishiLancer1.
8MT75.
5million(b)AsaresultoftheNationalMotorVehicleprogrammeandtheintroductionoftheheavilysubsidizedTimorKiaSephia,USmotorvehiclemanufacturersabandonedtheirplanstoexportpassengercarstotheIndonesianmarket8.
291ThephenomenalmarketpenetrationoftheTimorKiaSephiacame,inpart,attheexpenseofUSmotorvehiclemanufacturers.
PriortotheintroductionoftheNationalMotorVehicleprogrammeandthesubsidizedTimorKiaSephia,GeneralMotors,Ford,andChryslereachhadplanstoincreasetheirpenetrationoftheIndonesianpassengercarmarket.
However,eachWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage257companyhadtoabandonorsuspenditsplansasaresultoftheNationalMotorVehicleprogramme.
516(i)GeneralMotors8.
292InthecaseofGM,italreadyhadinvested$110millioninanassemblyplantinBekasi,WestJava,thatproducedabout7,000ChevyBlazers(badgedas"Opels"inIndonesia),OpelOptimasandOpelVectrasperyear.
517GMhadestablished34fullservicedealershipsand,asofNovember1996,had550employeesinIndonesia.
518Itwasconsideringinvestinginplantexpansion,andhadapprovaltobringinnewmodelsfortheOpelOptimaandOpelVectra.
519Althoughtheprecisefiguresareconfidential,GM'sbusinessplancalledforsalesofOpelOptimasandVectrasinexcessof1,000carsin1996andaround3,000carsin1997,withprogressiveincreasesinsubsequentyears.
5208.
293However,becauseoftheNationalMotorVehicleprogramme,GMhadtoputitsplansforadditionalinvestmentinIndonesiaonhold.
521Inaddition,GMcutbackitsexistingassemblyplantfromtwoproductionshiftstoone.
522AccordingtoIndonesia'sowninformation,GMsoldonly549OpelsinIndonesiain1996,andonly176inthefirsthalfof1997.
5238.
294Inadditiontoaffectingsalesvolumes,theintroductionofthesubsidizedTimorKiaSephiaalsoaffectedGM'sprices.
DuringtheperiodSeptember1995-September1996,thecompany'stransactionpricesinIndonesiawerereducedby$7,000perunit.
524Moreover,GM'sBusinessPlan/BudgetcalledforpriceincreasesonOpelOptimasandVectrasinlinewithhistoricalprice/inflationtrendsinIndonesia.
Historically,theConsumerPriceIndex(CPI)hasincreased8-10percentannuallyinIndonesia,andautomotivepricingcloselytrackstheCPI.
However,theintroductionoftheTimorKiaSephiaresultedinanartificialflatteningofmotorvehicleprices,whiletheCPIcontinuedtoincrease.
525(ii)Ford516Inaddition,theUnitedStatesshouldnotethatithasadditionalinformationinitspossessiondocumentingtheplansofFord,GM,andChrysler.
However,becausethisinformationisbusinessproprietary,theUnitedStatesisreluctanttoprovideittothePanelunlessthePanelestablishesadequateprocedurestoprotectsuchinformation.
517See,e.
g.
,"LikeFather,LikeSon;Indonesia'sProposed'NationalCar'HasPlentyofInternationalCritics--andaFamiliarFaceattheHelm,"Time,10June1996,p.
40(USExhibit14,pp.
69-71);seealso"GMHaltsPlansforIndonesiaCar;FirmRequestsClarificationonNationalCarPolicy,"TheDallasMorningNews,12June1996,p.
6B(USExhibit14,pp.
75-76).
518Source:UScompanies.
519Source:UScompanies.
520ThesefiguresareslightlyhigherthantheprojectionsconcerningtheIndonesianproduction/assemblyofOpelssetforthinEastAsianAutomotiveGrowthMarkets,Summer1994,pp.
370-371,whichwasincludedaspartofAnnex1toAV/2.
521"GMFreezesIndonesianInvestment;PoliciesCreatean'UnlevelPlayingField',"AutomotiveNews,17June1996,p.
38(Exhibit14,pp.
84-85);seealso"AFuriousFlapOverFavouritism,"BusinessWeek,July8,1996(USExhibit14,pp.
9295).
522Source:UScompanies.
523AV/3,AttachmentA-39/5-B.
524Source:UScompanies.
525Source:UScompanies.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2588.
295InthecaseofFord,ithadwell-advancedplanstoimportandsellFordEscortsinIndonesia.
526Fordhadcommittedtothedevelopmentofajointventure,hadassignedfourfull-timeemployeesinIndonesia,andwasactivelypursuingtheacquisitionofassemblyfacilitiesinIndonesia.
527Fordhadcommittedassetsof$1millionthatincludedproductionandassemblyequipment,tooling,componentparts,andengineering,allofwhichwereinIndonesiapriortotheannouncementoftheNationalMotorVehicleprogramme.
528Fordhadanapprovedinvestmentplanof$56million,withthefeasibilityoffutureinvestmentinassemblytobedeterminedbasedupontheneedsofthemarketandmanufacturingrequirements.
529TheseplanswerepartofabroaderAsianstrategywhichalreadyhadresultedininvestmentsof$700millioninIndia,$500millioninThailand,$350millioninChina,and$100millioninVietnam,andFord'stotalinvestmentinIndonesiaeasilycouldhavebeeninlinewithFord'sinvestmentsintheseothercountriesintheregion.
5308.
296Intermsofprojectedsalesvolume,theEscortwasprojectedtoachieve5.
2percent,10percent,10.
5percent,and11percentinthefirstfouryearsafteritsintroductionin1996,orapproximately15,000unitsoverthefirstfouryears.
5318.
297However,likeGM,FordhadtoscrapitsplansinlightoftheNationalMotorVehicleprogramme.
532Asaresult,theprojected15,000salesofFordEscortswillnottakeplace.
Basedonthecompany'sestimates,ifFordhadgoneaheadwithitsplansandimportedandsoldEscortsinIndonesia,theTimorKiaSephiawouldhaveundercutthepriceoftheleastexpensiveversionoftheEscortbymorethanUS$5,000.
533(iii)JointletterfromFordandGeneralMotors8.
298TheUnitedStatessubmittedajointletterfromFordandGeneralMotors,preparedinthecontextofthisdispute,describing"datanecessarytoestablishseriousprejudice"andaddressing"questionssubmittedbyIndonesiatotheUnitedStates".
(USExhibit38.
)Thefollowingisthetextofthisletter:"AlloftheAmericanautomotivemanufacturersareglobalcompanieswithmanufacturing,component,andassemblyoperationsaroundtheworld.
Ford,GeneralMotorsandChryslerweretheoriginatorsofthemodernautomotiveindustry,andtodayactivelyparticipateinmorethan130countries,havemorethan1,000,000employees,inexcessof30,000dealersworldwide,andannualrevenuesofmorethan$300billion.
Diversemulti-nationalcorporations,whetherAmericanorEuropean,developandcommitproductstobeassembledinvariouscountries526"FordSeeksInroadsinBoomingAsianAutoMarket,"TheReuterEuropeanBusinessReport,25April1996(USExhibit14,pp.
29-30).
527Source:UScompanies;seealso"LikeFather,LikeSon;Indonesia'sProposed'NationalCar'HasPlentyofInternationalCritics--andaFamiliarFaceattheHelm,"Time,10June1996,p.
40(USExhibit14,pp.
69-71).
528Source:UScompanies.
529Source:UScompanies.
530Source:UScompanies;seealso"FordSeeksInroadsinBoomingAsianAutoMarket,"TheReuterEuropeanBusinessReport,25April1996(USExhibit14,pp.
29-30).
531Source:UScompanies.
532Source:UScompanies;seealso"LikeFather,LikeSon;Indonesia'sProposed'NationalCar'HasPlentyofInternationalCritics--andaFamiliarFaceattheHelm,"Time,10June1996,p.
40(USExhibit14,pp.
69-71).
533Source:UScompanies.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage259butarestillthepropertyoftheoriginatingcorporationintheirrespectivehomecountry.
Productsthataresharedbymulti-nationalAmericancorporationsarenolessAmericanbecausetheyaredistributed/assembled/manufacturedinthecountrieswhentheassetsarelocated.
FordandGeneralMotorshaveconsensedonthisresponsetotheIndonesianquestiontotheUSTRandtosupplytherequestedWTOdatanecessarytoestablishseriousprejudice.
DATANECESSARYTOESTABLISHSERIOUSPREJUDICE(1)-FordproposedtosupporttheIndonesianmarketwithAmerican,EuropeanandJapanesesourcedproducts.
-Fordcommittedtothedevelopmentofajointventure,hasassignedfourfull-timeforeignserviceemployeestoIndonesia,andwasactivelypursuingtheacquisitionofassemblyfacilitiesinthemarket.
-GMhasinvested$110millionfor3products:OpelOptima,OpelVectraandOpelBlazer.
-TheOpelBlazerisinproductionandGMhadapprovaltobringinnewmodelsforOpelOptimaandOpelVectra-TheNationalVehicleProgrammeforcedGMandFordtoliquidateinventoriesunderdifficultterms:-Saleswerelostduetodepressedmarketconditions-Significantincrementalmerchandisingcostswereincurredtorelieveinventories-Prices/revenueswerenegativelyimpacted-TimorhadsignificantnegativeimpactonGMandnewforeignbasedsuppliersparticularlyinthesuppressionofcomponentandsalesvolumes.
-FutureinvestmentforFordandGMison"hold".
-September1995toSeptember1996theoverallmarketisdown(16.
8%)whichnegativelyaffectedvolumesandprices.
-GMtransactionpriceswerereducedby$7,000/unit-Fordtransactionpricesweredownby$6,500/unit-Perceivedinstabilityinthe"RegulatoryFramework"isnegativelyimpactingabilitytoattractnewinvestors(suppliersanddealers)andnewproductinvestmentbymanufacturers.
-GMcutbacktheircurrentassemblyplantfrom2shiftsto1shiftofproduction.
-GManticipatesafurther(15%)reductioninBlazerretailsalesifKia/TimorSportageisaddedtotheNationalVehicleProgramme.
(2)-FordcancelledtheEscortprogrammeasadirectresultoftheNationalVehicleProgrammeafterhavingcommittedassetsof$1.
0million.
Thisincludedproductionandassemblyequipment,tooling,componentparts,andengineeringallofwhichwereinIndonesiapriortotheNationalVehicleProgramme.
-Planstoexporttothirdcountries,bothvehiclesandcomponents,are,orwillbenegativelyaffected.
ReducedvolumesinIndonesiaasaresultoftheNationalVehicleProgrammehascausedhigherWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage260componentcosts.
Atthesametime,KoreansupplierswillenjoyhighervolumesandpotentiallylowercostsduetothemonopolisticrelationshipinIndonesia.
-OpelVectraandOptimaareregionalproducts.
PlanstoutilizedomesticsuppliersinIndonesiatoreducethecostbaseforotherregionalassembliesofproductshavebeencancelledduetopostponementoftheVectraandOptimaproductioninIndonesia.
(3)-TheimpactoftheannouncementoftheNationalVehicleProgrammeinIndonesiawasadepressionofsalesinallpotentiallyimpactedretailmarketsegments.
Theimpactonthesesegmentswere:PercentagePointChange1996versus1995SegmentsJuneCYTD(PPChg)SeptemberCYTD(PPChg)BSegment(50%)(29.
1%)CSegment+31%+9.
2%TotalPassengerCar(1.
2%)(5.
5%)CategoryI(22.
6%)(23.
6%)CategoryIV(24.
5%)(25.
4%)Non-EffectedSegments+12.
4%+11.
7%-ItisclearthatwhentheNationalVehicleProgrammewasannounced,whichincludedthesportutility"Sportage"asTimor520i,theretailsalesweredepressedbecauseconsumerswerewaitingtoevaluatetheimpactoftheNationalVehicleProgramme.
-Manufacturersrespondedtotheannouncementbyincreasingincentivesinthemarkettoinclude,butnotlimitedto,freeextendedwarranties,freeorlowinterestratefinancing,andfreeservicecontractsthatincludedbothpartsandlabour,allofwhichwereespeciallytrueintheCSegmentwheretheimpactwasexpectedtobethemostimmediate.
-ThesemerchandisingeffortsartificiallyincreasedthesalesvolumesintheCSegment,throughJuneversusJuneayearago,untilinventorieswereconsideredbymanufacturerstobereasonablyaligned,JunethroughSeptemberretailsalesthenplummeted(30.
4%)versusthesameperiodlastyear.
-InthosesegmentswheretheNationalVehicleProgrammewasexpectedtohavelittleornodirectimpactontheindustryincreased.
ThroughJuneCYTDthesesegmentsgrew+12.
4%andthroughSeptemberCYTDtheymaintainedthisgrowthat+11.
7%.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage261-Ford'sEscortandSportUtilityprogrammesweredevelopedtobetheregionalbasisofFord'sASEANandAICOstrategy.
IndonesiawastobeapivotalmanufacturingcentreforAICOcomplementation.
(4)-Allelementsofthisquestionwereaddressedabovein1through3exceptforpricesuppression.
-TheGMBusinessPlan/BudgetcalledforpriceincreasesonOptima,VectraandBlazer.
Thesewereinlinewiththehistoricalprice/inflationtrendsinIndonesia.
TheseincreaseshavenotbeenpossibletooffsettheCPIincreases.
-HistoricallytheCPIhasincreased8-10%annuallyinIndonesia.
Thisisrunningconsistentfor1996andtheforecastfor1997.
Historically,andbasedoneconomicprinciples,automotivepricingcloselytrackedtheCPIastheCPIreflectsthecoststructure.
Thisisanestablished,normal,cost/priceeconomicstructureintheautomotiveindustryforOEM'sandcomponentsuppliers-DuetotheNationalVehicleProgrammeannouncement,pricesareartificiallyflatordecreasingwhiletheCPIcontinuestoincrease.
-TheTimorisKoreanmanufacturedtodayandisoperatinginadifferenteconomicstructurethanothermanufacturersinIndonesia.
ThisisfurthercompoundedbytheuniqueexclusionofdutiesandtaxesonTimor.
QUESTIONSSUBMITTEDBYINDONESIATOTHEUNITEDSTATESA.
Indonesia,inmid-1993tookstepstoderegulatetheautomotiveindustry.
USautomotiveinterestsviewedthisasaverypositiveandprogressiveapproachtoopeningtheIndonesianmarket,andwhensubsequentactionsundertakenin1994and1995reinforcedthistrend,itrevitalizedautomotivemanufacturers'interestinIndonesia.
InFebruary1996,theIndonesianGovernmentannouncedaregressiveautomotivepolicythatprovidespreferentialtariffandtaxtreatmentsforonecompany.
InadditiontheregulationsprecludedUSorotherforeignautomotivemanufacturersfromparticipatingduetorestrictivepracticesrelatingtoforeignequityparticipationandproductnaming.
Overall,theUSautomotivemanufacturersbelievetheNationalVehicleProgrammedamagesIndonesia'sinterestsandtheIndonesianautomotiveindustry.
WehadfirmplanstoassistthedevelopmentoftheindustryinIndonesia,andtomakeIndonesiaakeypartofourASEAN,Asiaandglobalplans.
ThisisnowallonholdduetothechangeinpolicydirectioncontainedintheNationalVehicleProgramme.
TheUSautomotivemanufacturersrequirerenewedconfidenceintheIndonesianGovernmentiftheyaretoincrease,orevenmaintain,theirinvestmentsandcommitmenttoIndonesia.
B.
1.
-AllpassengercarsaredirectlyimpactedbyPTTimorandtheBlazerisindirectlyimpactedbecauseofthepassengercarsubstitutioneffectandtheassociatedannouncementofthe"Sportage".
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage262-Allofthepassengercarswereimpactedbyvolumedepression,pricesensitivity,andtransactionpricereductionsinordertobeascompetitiveaswasrealisticallypossiblegiventhetariffandtaxinequities.
2.
-TheFordEscortandLaser,andOpelOptimaandVectraarepetrolengines,4doorsedansthatcompeteintheCSegmentoftheindustryandareimmediatelyimpactedbyPTTimor3.
-Escortwasprojectedtoachieve5.
2%,10.
0%,10.
5%and11.
0%inthefirstfouryearsafterintroductionin1996or15,100unitsoverthefirstfouryears.
ThecancellationofEscorttotallyeliminatedthesesales.
-Laserwasprojectedtosell1,400unitsoverthesamefouryearperiod.
-Totalprojectedlostunitsales/revenuesatretailforFordis16,500unitsoverthefouryearperiod.
4.
-ThelocalcontentplanforEscortwasjustunder20%atlaunch,progressingtoover20%within2years,andover40%localcontentwithin4years.
ThiswasthecommittedlocalcontentplanthatwaspartoftheimplementationplanforEscort.
-GMpurchases45%ofBlazer'scomponentslocallyfrom67suppliersand55%isimportedfrom21locationsin11countriesaroundtheworld.
5.
-BothFord'sandGM'svehicleshaveworldwidecomponentsourcing,andvehiclemanufacturing/assemblywastobeaccomplishedinIndonesia.
6.
-Productsthataretheresultofmulti-nationalcorporationsandtheiraffiliatedsuppliersworldwidearehomecountryfundedandshouldthusbeconsideredashomecountrycorporateproductswithoutregardtothecountryofsourcing.
C.
1.
-Fordhadanapprovedinvestmentplanof$56.
0millionwiththefeasibilityoffutureinvestmentinassemblytobedeterminedbasedupontheneedsofthemarketandmanufacturingrequirements.
-GMhasinvested$110.
0millioninanassemblyplantforOptima,VectraandBlazer,GM'stotalinvestmentplanwasupto$750millioninIndonesia.
2.
-Ford'stotalplannedinvestmentwascommittedtotheestablishmentofEscortinthemarketwithbothlocalassemblyandincreasinglocalcontent,ultimatelyreaching40%localcontentbythefourthyear.
-LocalcontentandassemblyplanswerebeingimplementedforLaserandTelstaraswellasfutureplannedproductintroductionsforIndonesia.
3.
-Americanautomotiveinvestmentplanshavebeenplacedon"hold"pendingthedeterminationoftherevisedregulatoryenvironment,theNationalVehicleProgramme,theeconomicstability,andthepoliticalfutureofIndonesia.
4.
-GeneralMotorshasinvested$110millioninaplantinBekasi,andlaunchedtheOpelBlazer,OptimaandVectra.
TheyhaveWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage263established34fullservicedealershipsandcurrentlyhave550employeesinIndonesia.
-GMhadapprovaltointroducenewmodelsforbothOptimaandVectra,whichisnowon"hold".
-FordwasintheprocessoflaunchingtheFordEscort,finalizingplanstoestablishajointventureinIndonesiaandacquiringamanufacturingfacility.
-Ford'splanwaspartofanAsianstrategywhichalreadyhasresultedininvestmentsof:$700millioninIndia$500millioninThailand$350millioninChina$100millioninVietnam-FordwasdevelopingplanstolaunchtwomajorvehicleprogrammesinIndonesia-onewithaproductdesignedanddevelopedprimarilyforIndonesia.
-TheFord'stotalinvestmentintheseprogrammescouldhavebeeninlinewithFordinvestmentsinothercountriesintheregion.
-AllfutureinvestmentbyGMandFordareon"hold".
"(iv)Chrysler8.
299AsforChrysler,priortotheintroductionoftheNationalMotorVehicleprogramme,itassembledJeepCherokeesinCikarang,WestJava.
534IthadplanstointroducetheNeon,butlikeGMandFord,ithadtoabandontheseplansoncetheNationalMotorVehicleprogrammewasintroduced.
8.
300TheUnitedStatessubmittedtwonewspaperarticlesinconnectionwithitsargumentsregardingChryler'splans.
Thetextsofthesearticlesfollow:"AFURIOUSFLAPOVERFAVOURITISM":535"AmajorAsiancountryhasriggeditsautomarket.
GeneralMotors,FordandChrysler,whichhadhighhopesofcrackingthemarket,areupinarms.
ThestakesaresohighthatUSCommerceSecretaryMickeyKantorwasscheduledtovisitinlateJuneforashowdownwithhistradecounterparts.
Thecountryisn'tJapanorChina.
It'sIndonesia,thelargestmarketinboomingSoutheastAsia.
JusthowtheGovernmentofPresidentSuhartodrewthewrathofDetroit'sBigThreeisafascinatingcasestudyofhowthingsworkinIndonesia.
TheJapanesearealsoirritatedwithSuhartoandareattackinghis"nationalcar"programme,whichgivesaprominentroletoSouthKorea'sembattledKiaMotorsCorp.
Indonesiahasanannualpercapitaincomeofonly$1,000,buttheBigThreeexpectthemarkettogrowrapidlyasIndonesiansgetricherandayoung534"LikeFather,LikeSon;Indonesia'sProposed'NationalCar'HasPlentyofInternationalCritics--andaFamiliarFaceattheHelm,"Time,10June1996,p.
40(USExhibit14,pp.
69-71).
535AFuriousFlapOverFavouritism",BusinessWeek,8July1996,p.
14(USExhibit14,pp.
99-95).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage264populationmatures.
EventhoughtheJapanesecontrol95percentofthemarket,FordMotorCo.
sentinamanagementteamearlythisyeartoexpandasmalloperationthatsellsFordLasersastaxisintoamanufacturerofEuropean-engineeredEscorts.
GeneralMotorsCorp.
andChryslerCorp.
weremovingaheadwithsimilarplans.
KEEPINGMUM.
ButtheIndonesianGovernmentspoiledthepartyinFebruary.
Bydecree,anewcompanyrunbyPresidentSuharto'syoungestson,33-year-oldHutomoMandalaPutra,willbeallowedtosellimportedsedansfromKiaforlessthanhalfthepriceofcompetingmodels-thatis,about$15,000comparedwith$30,500foraToyotaCorolla.
ThedealistypicalinacountryknownforthepervasivebusinessinterestsofthePresident'sfamily.
Underthearrangement,Kiawillshipitsfour-doorSephiasedantoIndonesiawithoutpayingimportdutyorluxurytax.
ThecarwillcomeinundertheTimorbrandnameofthenewnationalcarmaker,Kia-TimorMotor,whichis70percentownedbyHutomo.
Kiaownstheremaining30percentandiscontributing30percentofthenewcompany's$100millioncapital.
TheplanisfortheventuretostartassemblingthecarsinIndonesianextyearandeventuallyexportsome.
FewIndonesiansdaretocriticizetheprogramme,sincethepresidentialpalacedealsharshlywithopponents.
Butthenewcompany'simpactontheIndonesianmarkethasbeenimpossibletohide:consumersarewaitingforthebargain-basementsedantorolloffthepierlaterthisyear.
Withmonthlysalesdownatleast10percent,theAssociationofIndonesianAutomotiveIndustriessaysthisyear'ssalescouldfallfarshortofthe383,000carssoldin1995.
ThathelpsexplainwhytheJapanesearethreateningtotakeIndonesiatotheWorldTradeOrganizationforarulingonitscarprogramme.
"ThisisagainstWTOrules",complainsanofficialofJapan'sMinistryofInternationalTrade&Industry.
InadditiontotheWTOthreat,theAmericansaretryingtousetheprospectofwithheldinvestmenttoforceSuhartotobudge.
Withabout$110millioninvested,GMisstillassemblingOpelVectras,OpelAstras,andChevroletBlazersbuthasdelayedexpansionplans.
ChryslerismakingJeepCherokeesandhadplannedtointroducetheNeonandaminivan,butnowthoseplansareonhold.
MembersofFord'srecentlyarrivedmanagementteamhavebeenleftidle,withtheirchildrenenrolledinthelocalinternationalschool.
TITFORTAT.
IndonesianofficialsseepoeticjusticeforJapan:ToyotaMotorCorp.
hasresisteddemandsfromitsIndonesianpartner,AstraInternational,torevupexportsofthe$19,000ToyotaKijangutilityvehicle,becausethatwouldmeanitwouldbecompetingwithotherToyotaassemblersinAsia.
Foritspart,theGovernmentdefendstheKiadeal,sayingIndonesiahasnotimetoloseifitistogetreadyforloweringitstradebarrierstofellowmembersoftheAssociationofSoutheastAsianNationsin2003.
GettingtheTimorprojectupandrunningwillbedifficult.
Itisalreadybehindschedule,andsupplywillprobablynotmeetdemand,saysF.
Soeseno,Secretary-GeneraloftheAssociationofIndonesianAutomotiveIndustries.
Kia-TimorMotorwillbeallowedtoimport40,000ofthe1.
5-litresedansuntilJune1997,bywhichtimethecompanyissupposedtohavestartedassemblyatanewplantthathasyettobebuilt.
ThepercentageofIndonesian-madepartsistoincreasesteadilyto60percentbySeptember1999-ascheduleToyotaofficialsWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage265saywillbeimpossibletokeep.
CriticsalsosaytheTimorwillbehamstrungwithoutstrongdistributionandservicenetworks.
ButKiavowstomakethedealworkandisstaking$400milliontobuildtheassemblyplant.
Tomeetlocalcontentrequirements,itplanstohelp30KoreanpartssuppliersformjointventureswithIndonesiancompanies.
OnereasonKiaissodeterminedisthatitisgettingsqueezedinthehomemarketbyHyundaiMotorandDaewooMotor-andnowthemightySamsunggroupischargingintotheautoindustry.
SomeanalystsbelieveKia'sverysurvivalasanindependentmanufacturermayhingeonmakingtheIndonesiandealwork.
SmallwonderthatKiaExecutiveVice-PresidentKimSeung-Ahnsays:"KiaisfullycommittedtohelpingIndonesiadevelopanationalcar".
SomeofKia'sbackers,however,saytheyareagainsttheTimordeal.
Fordowns33.
4percentofMazdaand9.
4percentofKia.
Mazdainturnowns7.
5percentofKia.
IndonesianofficialshintthatFordandMazdaarequietlypleasedwiththeirbackdoorentranceintoIndonesia,throughKia.
ButbothFordandMazdadenythat.
"Whatwewouldgetispeanuts",saysTerryEmrick,Ford'stopexecutiveinIndonesia.
"Ithasabsolutelynoeffect".
FordexecutivesaddthatmostIndonesianconsumersstillwon'tbeseeingtheircompany'sbrandedproducts.
STEPPINGBACK.
Ultimately,industryanalystsexpecttheGovernmenttoyieldtotheinternationaluproar,possiblybykeepingthenationalcarprogrammeinplacebutatthesametimereducingtariffsoncompetingmodels.
TheAmericansmightnotbebigbeneficiariesiftheyaretooheavy-handedandangertheIndonesians.
AlthoughJapanprotestedforcefullyatfirst,TokyoseemstobesteppingbackandlettingWashingtonconfrontSuharto,saysAndrewH.
CardJr.
,ChiefExecutiveoftheAmericanAutomobileManufacturersAssn.
"Japandoesn'thavealonghistoryofstandingatthefrontoftheline",saysCard.
Moreover,unliketheAmericans,ToyotahasnotputitsplansonholdforanewplantnearJakarta.
SowhiletheBigThreesulk,ToyotacouldquietlyincreasethelocalcontentofitsKijangbeyondthe60percentlevel,allowingittobesoldfreeofdutyandluxurytaxes.
"TheIndonesianswillinonewayoranotherhavetoaccommodatetheJapanese",concludesJohnBonnell,DirectorofSoutheastAsiaforAutomotiveResourcesAsiaLtd.
inBangkok.
So,too,aretheKoreanslikelytopersevere.
ThekeyquestioniswhethertheAmericanswillproveasadeptatplayingthegameIndonesian-style.
AnatomyofanIndonesianControversyADEALISCUTThesonofIndonesianPresidentSuhartomakesapactwithKiaMotorofSouthKoreatomakea"nationalcar"forthecountry.
Atfirst,theSephiasedanwillbeassembledinKoreabutbroughtintoIndonesiaduty-free.
JAPANESEOUTRAGEThisunderminesToyota,whichisassemblingvehiclesinajointventurewithAstraInternational.
ToyotaandotherJapanesemakerspersuadetheGovernmentofPrimeMinisterRyutaroHashimototoprotestKia'ssweetheartagreement.
AMERICANANGERGeneralMotors,Ford,andChrysler,whichhadbeencontemplatingmakingbiginvestmentsinIndonesia,delaythoseplans.
USWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage266CommerceSecretaryMickeyKantorwasscheduledtoarriveinJakartatoprotesttheKiadeal.
BACKDOORWINNERSFordownsacontrollingstakeinMazda,andbothcompaniesownminoritysharesinKia.
TheSephia,meanwhile,islargelybasedonMazdadesignsandparts.
ButFordsaysthischannelintoIndonesiaisnotadequate.
""GMFREEZESINDONESIANINVESTMENT;POLICIESCREATEAN'UNLEVELPLAYINGFIELD'"536"GeneralMotorshasputplansforadditionalinvestmentinIndonesiaonheldbecauseofthatcountry's"nationalcar"project.
DonaldSullivan,GM'sAsianandPacificOperationsPresident,saidherethattheautomakerhasnointentionofpullingoutofIndonesia,however.
"Wecurrentlyhave$110millioninvestedinarelativelynewplantinIndonesia.
We'retheretostay",hesaidatapressconferenceannouncingdetailsofGM'snewThaiplant.
Butheadded,"We'vebeenverydisappointed"byJakarta'snewnationalcarpolicies.
Thosepolicies,hesaid,createan"unlevelplayingfield"forautocompaniesinIndonesia.
SullivansaidGMhadbeenconsideringinvestinginaplantexpansion,aswellasunspecifiedinfrastructure-relatedareas.
HedidnotrespondtoarequesttosayhowmuchGMhadbeenplanningtoinvest.
BothFordMotorCo.
andChryslerCorp.
shelvedproposedIndonesianprojectsearlierthisyearinthewakeofthenewpolicy.
ChryslerwasclosetoadecisiontobeginassemblingNeonsfromknockdownkits,whileFordwasconsideringasmallassemblyplant.
Aspreviouslyreported,IndonesianPresidentSuhartoissuedadecreeinlateFebruarythatgrantedimport-dutyandluxury-salestaxexemptionsfora"nationalcar",theTimor,tobeproducedbyajointventurebetweenKorea'sKiaMotorsLtd.
,andSuharto'syoungestson,Hutomo(Tommy)MandalaPutra.
Thetaxbreakswillallowthecartobepricedatabouthalfthestickerofcompetingmodels.
UnderblisteringcriticismfromJapan,theUnitedStatesandtheEuropeanUnion,IndonesiarecentlyrevisedthepolicysoastoallowothercompaniestoqualifyforthetaxbreaksiftheirIndonesian-assembledcarshavelocalcontentofatleast60percent.
536"GMFreezesIndonesianInvestment:PoliciesCreatean'UnlevelPlayingField'",AutomotiveNews,17June1996,p.
38(USExhibit14,pp.
84-85).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage267Asecondrevision,though,wouldallowtheTimortobebuiltinKoreaforuptoayearwhileaplantinIndonesiaisconstructed,ifIndonesianworkersdotheactualassemblyworkinKorea.
TheformerrevisionappearedaimedatplacatingtheJapanese,butthelatteronegreatlyfannedJapaneseresentmentofthepolicy.
InfuriatedbytheprospectofacarassembledinKoreabeinggivenpreferentialtaxtreatmentoverJapanesevehiclesassembledinIndonesia,JapanlastweekmovedclosertofilingacomplaintoverthepolicywiththeWorldTradeOrganization.
"8.
301PriortotheintroductionoftheNationalCarProgramme,ChrysleralreadywasassemblingJeepCherokeeandWranglervehiclesinCikarang,WestJava.
Chrysler,togetherwithLippoGroupandNingzPacific,wasstudyinganassemblyjointventureinLippoCitytoassembleNeonpassengercarsandotherpassengervehicles.
537TheplannedinvestmentinthisjointventurewouldhavebeenmorethanUS$150million.
Chrysler'sbusinessplancalledforinitialsalesofmorethan15,000vehiclesperyear,including1,000to2,000Neonsperyear,withvolumesprogressivelyrisingthereafter.
TheNeonswouldhavebeensourcedfromtheUnitedStates;specificallyfromChrylser'splantinthestateofIllinois.
8.
302Chrysler'splanforinvestmentinIndonesiawaspartofabroaderAsianstrategyunderwhichChrysleralreadywasmanufacturingorsellingvehiclesinThailand,Malaysia,China,TaiwanandJapan.
Indeed,ChryslerrecentlydecidedtoexpanditsSingaporeoperationsandintensifyitssalescampaigninAsia,concentratingparticularlyontheNeonanditsJeepvehicles.
5388.
303However,becauseoftheNationalCarProgramme,ChryslerwasforcedtoputitsplansforadditionalinvestmentinIndonesiaonhold,anddidnotproceedtothefinalapprovalstage.
Inaddition,ChryslerwasforcedtosignificantlyreduceproductionofJeepvehiclesatitsexistingassemblyplant.
BasedonChryslerestimates,ifChryslerhadgoneaheadwithitsplanstoselltheNeoninIndonesia,theTimorKiaSephiawouldhaveundercutthepriceoftheleastexpensiveversionoftheNeonbymorethanUS$5,000.
5398.
304TheUnitedStatessubmittedaletterfromChrysler,preparedinthecontextofthisdispute,summarizingChrysler's"activitiesinIndonesiaaroundthetimetheNationalMotorVehicleProgrammewasannounced".
(USExhibit39.
)Thefollowingisthetextoftheinformationprovidedinthatletter:"ChryslerCorporation-Indonesia-PriortointroductionoftheNationalMotorVehicleProgramme,ChryslerwasalreadyassemblingJeepCherokeeandWranglervehiclesinCikarang,WestJava.
Chrysler,togetherwithLippoGroupandNingzPacific,wasstudyinganassemblyjointventurelocatedinLippoCitytoassembleNeonpassengercarsandotherpassengervehicles.
Plannedinvestmentinthisjointventurewouldhavebeenmorethan$150million.
Althoughtheprecisefiguresareconfidential,Chrysler'sbusinessplancalledforinitialsalesofmorethan15,000vehiclesperyear,537SeealsoIndonesiaExhibit11.
538"StillontheRightRoad,"AsianBusiness,November,1997(USExhibit24,pp.
16-23).
539AcomparisonofthespecificationsoftheTimorS515andtheChryslerNeonisprovidedinTable23.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage268including1,000to2,000Neonsperyear,withvolumesprogressivelyrisingthereafter.
-Chrysler'splanforinvestmentinIndonesiawaspartofabroaderAsianstrategyunderwhichChryslerwasalreadymanufacturingorsellingvehiclesinThailand,Malaysia,China,TaiwanandJapan.
-However,becauseoftheNationalMotorVehicleProgramme,ChryslerhadtoputitsplansforadditionalinvestmentinIndonesiaonhold,anddidnotproceedtothefinalapprovalstage.
Inaddition,ChryslerwasforcedtosignificantlyreduceproductionofJeepvehiclesatitsexistingassemblyplant.
BasedonChrysler'sinternalestimates,ifChryslerhadgoneaheadwithitsplanstoproduceandselltheNeoninIndonesia,theTimorKiaSephiawouldhaveundercutthepriceoftheleastexpensiveversionoftheNeonbymorethan$5,000.
"(c)UndertheSCMAgreement,theone-yeartariffandtaxexemptionscontinuetoprovideactionablesubsidiesthatcauseseriousprejudice8.
305WithrespecttoIndonesia's"deadmeasures"argument,itispremisedoncarvinguptheNationalCarprogrammeintoaseriesofindividualprogrammes.
However,thereisnobasisforthistypeoflegalsurgery,becausealloftheindividualcomponentsoftheNationalCarprogrammereferbacktoPresidentialInstructionNo.
2/1996,thedocumentwhichgavebirthtothesingleNationalCarprogramme.
Indeed,initsfirstsubmission,Indonesiaisinconsistentinthisregard,sometimesreferringtocertainmeasuresas"programmes"intheirownright,andatothertimesreferringtothemas"aspects"ofasingleprogramme,theNationalCarprogramme.
8.
306Inaddition,asalegalmatter,thereisnobasisintheSCMAgreementforcarvinguptheNationalCarprogrammeinthismanner.
Article6.
1(a),theprovisiononwhichtheUSclaimofseriousprejudiceisbased,referstothe"totaladvaloremsubsidizationofaproduct",notthe"totaladvaloremsubsidizationofaproductunderaparticularprogramme".
Likewise,paragraphs2and4ofAnnexIVrefertothe"overallrateofsubsidization.
"8.
307Inadditiontobeingbasedonafaultylegalpremise,Indonesiaiswrongonthefacts.
TheUnitedStateshasexplainedabovehowIndonesia's"deadmeasures"argumentiswrongwithrespecttotheUSclaimregardingArticleIofGATT1994.
However,evenassumingforpurposesofargumentthatIndonesia'sargumentiscorrectwithrespecttoArticleI,itisnotcorrectforpurposesoftheSCMAgreement.
Thisisbecausethesubsidiesprovidedundertheone-yearauthorizationare,byIndonesia'sownadmission,"non-recurring"subsidies.
AsdemonstratedinthefirstUSsubmission,thesesubsidiesmustbeallocatedtofuturetimeperiods,somethingthatIndonesiahasnotdisputedandcannotdispute.
8.
308Becausethesesubsidiesmustbeallocatedtofutureperiods,theycontinuetobenefitsalesoftheTimorKiaSephiaandcontinuetocauseseriousprejudice,regardlessofwhethertheSephiassoldwereimportedfromKoreaorassembledinIndonesia.
Inaddition,becausethesesubsidiesareallocatedtofutureperiods,theyremainsubsidiesthatcanbewithdrawnwithinthemeaningofArticle7.
8oftheSCMAgreement,possiblybymeansofTPNrepayingthesubsidiestoIndonesia.
(d)TheothercomponentsoftheNationalCarprogrammecauseseriousprejudice8.
309Indonesia'snextargumentisthatthecomponentsoftheNationalCarprogrammeotherthantheone-yeartariffandtaxexemptioncouldnothavecausedseriousprejudice.
Thisargumentisequallyflawed.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2698.
310First,asnotedaboveinconnectionwithIndonesia's"deadmeasures"argument,thereisnobasisintheSCMAgreementforcarvinguptheNationalCarprogrammeintoindividualprogrammes.
8.
311Second,IndonesiaarguesthattheTambunplantisproducingonly1,000vehiclesperyear.
Eveniftrue,thisdoesnotdispelthefactthatthesevehiclesaresubsidized,nordoesitreflecttheanticipatedannualproductionoftheTimorKiaSephia,whichIndonesiaestimatedat6,000unitsperyearin1998,and35,000unitsperyearin1999.
SeeAV/14,AttachmentA-28.
NordoesitreflectthefactthatthepassengercarmarketinIndonesiaisrelativelysmall.
Inaddition,Indonesia'sreferencetotheCikampekplant,wheretheSportagewillbebuilt,ismisleading,becauseitisdesignedtomakethePanelbelievethattheadditionalcapacityaffordedbythatplantwillnotbenefittheSephia.
However,theSephiaalsowillbebuiltatCikampek,theTambunfacilitybeingonlyatemporaryfacilitypendingthecompletionoftheCikampekplant.
8.
312Inshort,throughthesubsidiesthatitcurrentlyisreceiving,theKiaTimorjointventurewillhavethewherewithaltomaintain,andexpandupon,the26percentmarketsharethatitalreadyhasachieved.
Moreover,bymeansofthesubsidiesthatitcurrentlyisreceiving,theKiaTimorSephiacancontinuetobesoldatpricesthatsignificantlyundercutthepricesoflikeproducts.
8.
313Finally,Indonesia'sargumentssimplymischaracterizewhathashappenedinthiscase.
AsaresultoftheintroductionoftheNationalCarprogrammeandthesaleatcut-rate,subsidizedpricesoftheTimorKiaSephia,likepassengercarsofUSmanufacturersweredrivenoutoftheIndonesianpassengercarmarketorprecludedfromenteringit.
Thesubsidiescurrentlyineffect,includingthesubsidiesundertheone-yearauthorization,merelyensurethatUSpassengercarswillcontinuetobeexcludedfromtheIndonesianmarket.
8.
314Thus,thisisnota"threat"caseasIndonesiawouldhavethisPanelbelieve.
Tothecontrary,itisacaseofcurrentandcontinuingseriousprejudice.
8.
315ThetariffandtaxsubsidiesprovidedundertheNationalMotorVehicleprogrammehavedisplacedorimpededlikeproductsofUSmotorvehiclemanufacturersfromtheIndonesianmarket,withinthemeaningofArticle6.
3(a).
Inaddition,thesesubsidiesresultedinsignificantpriceundercuttingbythesubsidizedTimorKiaSephiasedanascomparedwiththepriceoflikeproductsofUSmotorvehiclemanufacturers,withinthemeaningofArticle6.
3(c).
(e)ThetariffandtaxsubsidiesundertheNationalMotorVehicleprogrammedisplacedorimpededimportsofpassengercarsofUSmotorvehiclemanufacturersintotheIndonesianmarket8.
316UnderArticle6.
3(a)oftheSCMAgreement,seriousprejudiceexistswhere"theeffectofthesubsidyistodisplaceorimpedetheimportsofalikeproductofanotherMemberintothemarketofthesubsidizingMember.
"WithrespecttoimportsofGM,Ford,andChryslerpassengercars,thissituationispreciselywhatoccurredinIndonesiaasaresultoftheNationalMotorVehicleprogrammeandtheintroductionofthesubsidizedTimorKiaSephiasedan.
8.
317AttachmentA/39/6toAV/3providesthemarketshareoftheTimorKiaSephia.
AccordingtoAttachmentA/39/6,theTimorKiaSephiawentfromamarketshareofzeroinFebruary1996(whentheNationalMotorVehicleprogrammewasannouncedandKiaTimorwasnamedastheproducerofthe"nationalmotorvehicle")toa10.
11percentshareofthemarketbytheendof1996.
BytheendofMay1997,thelastperiodcoveredinAttachmentA/39/6,themarketshareoftheTimorKiaSephiahadcatapultedto26.
53percent.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2708.
318Thisphenomenalmarketpenetrationcame,inpart,attheexpenseofthepassengercarsofGM,Ford,andChrysler.
AssetforthinAV/15,inresponsetoIndonesia'sQuestion6,eachofthesecompanieshadplanstoincreaseitspenetrationoftheIndonesianpassengercarmarket,buteachcompanyhadtoabandonorsuspenditsplansasaresultoftheNationalMotorVehicleprogramme.
540Numerousnewsreportssubstantiatetheexistenceoftheseplans,aswellasthedeathblowdealttothembytheannouncementoftheNationalMotorVehicleprogrammeandthefactthatthethreefirmswouldbeforcedtocompeteagainstthemassivelysubsidizedTimorKiaSephia.
5418.
319Althoughtheprecisefiguresareconfidential,inthecaseofGM,whichalreadywassellingitsOpelpassengercarsinIndonesiawhentheNationalMotorVehicleprogrammewasintroduced,GM'sbusinessplancalledforsalesofOptimasandVectrasinexcessof1,000carsin1996andaround3,000carsin1997,withprogressiveincreasesinsubsequentyears.
542AccordingtoIndonesia'sowninformation,however,GMsoldonly549Opelsin1996,andonly176inthefirsthalfof1997.
5438.
320InthecaseofFord,thecompanyprojectedsalesvolumesinIndonesiafortheEscortofover1,000unitsin1996,over3,000unitsin1997,withsteadyannualincreasesthereafter.
5448.
321RegardingChrysler,accordingtoChryslerofficialsthelaunchdatefortheNeonprojectwouldhavebeenmid-1997,hadtheprojectnotbeencancelledduetotheNationalCarProgramme.
8.
322TheUnitedStatesnotes,however,thattheprecisetimingofsuchsalesisnotcriticaltoaseriousprejudiceanalysisinthiscase.
Chryslerwasshutoutofthemarket,anditwillcontinuetobeshutoutofthemarketaslongasTPNcontinuestobenefitfrommassivesubsidies.
Inthemeantime,themarketshareoftheTimorshottoover26percentofthetotalIndonesianpassengercarmarketandsignificantlyundercutthepricesatwhichtheNeonwouldhavebeensold.
TPNiswell-positionedtoincreaseitsmarketsharewhilenewentrants,suchasChryslerremainshutoutoftheIndonesianmarket.
IntheviewoftheUnitedStates,thissatisfiesthecriteriaforseriousprejudiceunderArticle6.
3oftheSCMAgreement.
540LikeotherautomotivemanufacturersinIndonesia,thepassengercarsexportedtoIndonesiabyFord,Chrysler,andGM(liketheTimorKiaSephiaitself)wouldhavebeenintheformofkitsthatwouldhaveundergonefinalassemblyinIndonesia.
"Becauseofhighdutiesonimports,thebulkofvehiclessoldinIndonesiaarelocallyassembledbyjointventuressetupwithlocalcompanies.
""JakartaPolicyStallsExpansionPlans;JapaneseFirmsRethinkStrategyAfterSuharto's'NationalCar'Decree,"TheNikkeiWeekly,25March1996,p.
1(USExhibit14,pp.
19-23).
541See,e.
g.
,"LikeFather,LikeSon;Indonesia'sProposed'NationalCar'HasPlentyofInternationalCritics--andaFamiliarFaceattheHelm,"Time,10June1996,p.
40(USExhibit14,pp.
69-71);"GMHaltsPlansforIndonesiaCar;FirmRequestsClarificationonNationalCarPolicy,"TheDallasMorningNews,12June1996,p.
6B(USExhibit14,pp.
75-76);"GMFreezesIndonesianInvestment;PoliciesCreatean'UnlevelPlayingField',"AutomotiveNews,17June1996,p.
38(USExhibit14,pp.
84-85);seealso"AFuriousFlapOverFavouritism,"BusinessWeek,8July1996(USExhibit14,pp.
92-95);"FordSeeksInroadsinBoomingAsianAutoMarket,"TheReuterEuropeanBusinessReport,25April1996(USExhibit14,pp.
2930).
542ThesefiguresareslightlyhigherthantheprojectionsconcerningtheIndonesianproduction/assemblyofOpelssetforthinEastAsianAutomotiveGrowthMarkets,Summer1994,pp.
370-371,whichwasincludedaspartofAnnex1toAV/2.
543AV/3,AttachmentA/39/5-B.
544TheprecisefiguresconstitutebusinessproprietaryinformationthattheUnitedStatesisreluctanttoprovidetothePanelabsenceadequateprocedurestoprotectsuchinformation.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2718.
323Inthisregard,theUnitedStateswouldliketomemorializeanexchangethattookplaceatthesecondmeetingofthePanel.
TheUnitedStatesmadethepointthatIndonesiaappearedtobearguingthattheUSclaimofseriousprejudicecouldsucceedonlyiftheUSmanufacturershadfirstgoneforwardwiththeirplans,notwithstandingtheintroductionoftheNationalCarProgramme.
TheUnitedStatesobservedthatsucharequirementwouldforcecompaniesfacingmassivelysubsidizedcompetitiontoengageincommerciallyirrationalbehaviour,andthatitcouldnothavebeentheintentofthedraftersoftheSCMAgreementtomakeirrationalbehaviourbyprivatefirmsaprerequisitetoreliefundertheSCMAgreement.
ThisisparticularlytrueinlightofthefactthatoneofthepurposesoftheSCMAgreementwastoestablishamoreeffectivemultilateralremedyagainstsubsidiesthatcauseadverseeffects.
Certainly,inthiscaseitwouldhavebeenfoolhardyfortheUScompaniestoproceedwiththeirplansinlightoftheartificial50percentpriceadvantagethattheTimorKiaSephiaenjoyedduetothesubsidiesprovidedbytheGovernmentofIndonesia.
8.
324Inresponse,IndonesiastatedthatitwasnotarguingthattheUScompaniesactuallyhadtohavemadesales,butthatthecompanieshadtohavehad"credible"planstoenter,orexpandtheirpresencein,theIndonesianpassengercarmarket.
8.
325IntheviewoftheUnitedStates,theevidenceprovidedbytheUnitedStatesconcerningtheplansofGeneralMotors,Ford,andChryslermorethanestablishesthecredibilityofthoseplans.
IndonesiahasnotarguedthattheevidencepresentedbytheUnitedStatesisinaccurate,andIndonesiahasnotofferedevidenceofitsowntorebuttheevidenceputforwardbytheUnitedStates.
8.
326Finally,theplansoftheUScompaniesmustbeputincontext.
Intermsofpopulation,Indonesiaisthefourthlargestcountryintheworld.
IndonesiaisinAsia,aregioninwhicheachoftheUScompanieshasbeenseekingtoexpanditspresence.
GeneralMotorsalreadywassellingpassengercarsinIndonesia,andcontinuestosellsportsutilityvehicles.
Chrysleralsocontinuestosellsportsutilityvehicles.
Fordsellstaxis.
Inlightofallofthesefactors,itseemsimplausiblethatthecompanieswouldnothavegoneforwardwiththeirplanshadtheNationalCarProgrammenotbeenintroduced.
8.
327IntheviewoftheUnitedStates,thePanel'staskshouldbetoanswerthefollowingquestion:"Isitmorelikelythannot,basedontheevidence,thattheUScompanieswouldhavegoneforwardwiththeirplanshadtheNationalCarProgrammenotbeenintroduced"IntheviewoftheUnitedStates,theevidenceinthiscaseclearlywarrantstheanswer"Yes".
8.
328Overall,priortotheannouncementoftheNationalMotorVehicleprogramme,thethreeUScompanieshadplanstospendmorethanUS$750milliontoincreasetheirpresenceintheIndonesianmotorvehiclemarket.
545However,theUScompanieshadtoabandontheirplansforimportingandsellingpassengercarsinIndonesia.
Whileeachofthethreecompaniesisahighlycompetitiveautomobilemanufacturer,theirbusinessdecisions-unlikeTPN's-arenecessarilygovernedbycommercialconsiderations.
WiththeonsetoftheNationalMotorVehicleprogramme,theintroductionoftheTimorKiaSephia,andtheprospectofcompetingagainsttheIndonesianTreasury,thethreeUScompanieswereforcedtoabandontheirplans,andcouldonlywatchastheTimorKiaSephiaquicklyacquired26percentoftheIndonesianmarket.
(1)TheevidenceonsalestrendsshowsthatthesubsidiesprovidedundertheNationalCarprogrammehavecauseddisplacementorimpedance545Source:UScompanies.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2728.
329IndonesiaclaimsthatthesalesnumbersshownodiscernibleimpactoftheTimorKiaSephiaonthesalestrendsofUS-brandpassengercars.
546BecausethisisoneofthefewinstancesinwhichIndonesiaactuallydiscussesfacts,these"facts"warrantclosescrutiny.
8.
330WithrespecttoGeneralMotors,thedatacitedbyIndonesiashowsthatsalesofGMOpelsbegantodeclinein1996,theyearinwhichtheNationalCarprogrammewasintroduced.
However,Indonesiadoesnotrefertoitsowndata,whichdemonstratesthatduringthefirsthalfof1997,Opelsalesdeclinedevenfurther.
Inaddition,IndonesiatotallyignoresthefactthatGeneralMotorshadplanstoincreaseitssalesofOpelstoover1,000carsin1996andaround3,000carsin1997,withprogressiveincreasesthereafter.
Indonesiaalsoignoresthewell-documentedfactthatGeneralMotorshadtocancelitsexpansionplansfollowingtheintroductionoftheNationalCarprogramme.
8.
331InthecaseofFord,IndonesiasimplyprovidessalesfiguresforFordLasers,acarsoldexclusivelytothetaximarket.
GivenIndonesia'sinsistenceelsewherethata"likeproduct"comparisoncallsforpassengercarstobevirtuallyidentical,therelevanceoftaxisalestoaseriousprejudicecaseinvolvingpassengercarsispuzzling,andIndonesiaoffersnoexplanation.
Moreover,IndonesiaprovidesnoresponseconcerningFord'swell-publicizedplanstointroducetheFordEscorttotheIndonesianpassengercarmarket.
8.
332Finally,inthecaseofChrysler,IndonesiacorrectlynotesthatChryslerdidnotmarketChrysler-brandpassengercarsinIndonesiaduring1994-96.
However,IndonesiasimplyignoresthefactthatChryslerwasplanningtointroducetheNeontotheIndonesianpassengercarmarket,butthatChrysler,too,hadtocancelitsplansfollowingtheintroductionoftheNationalCarprogramme.
8.
333Inadditiontoignoringtheevidence,Indonesiaignoresthelaw.
Article6.
4oftheSCMAgreement,whichprovidesguidanceconcerningtheanalysisofmarketdisplacementorimpedance,statesasfollows:Forthepurposesofparagraph3(b),thedisplacementorimpedingofexportsshallincludeanycaseinwhich,subjecttotheprovisionsofparagraph7,ithasbeendemonstratedthattherehasbeenachangeintherelativesharesofthemarkettothedisadvantageofthenon-subsidizedlikeproductoveranappropriatelyrepresentativeperiodsufficienttodemonstratecleartrendsinthedevelopmentofthemarketfortheproductconcerned,which,innormalcircumstancesshallbeatleastoneyear).
"Changeinrelativesharesofthemarket"shallincludeanyofthefollowingsituations:(a)thereisanincreaseinthemarketshareofthesubsidizedproduct.
.
.
.
8.
334WhathappenedintheIndonesianpassengercarmarketoverthelastyearfitsperfectlywithinArticle6.
4.
ThesubsidizedTimorKiaSephiaandthenon-subsidizedGMOpels,FordEscort,andChryslerNeoneffectivelystartedwithamarketshareofzero.
Eachofthecompaniesinquestionhadplanstoincreasethemarketshareofitscars.
However,throughsubsidies,theTimorKiaSephiacaptured26percentoftheIndonesianpassengercarmarket,whiletheothercarsremainedatzero.
Thisisaclassicsituationofdisplacementorimpedance.
547Moreover,while546TheUnitedStatesmustemphasizethatthisargumentwasnotmadeinconnectionwiththeUSclaimofseriousprejudice.
However,itisaddressedhereinanticipationofIndonesia"rethinking"itsdefence.
547Moreover,aspreviouslynoted,ifcertainpassengercarsareexcludedfromthemarketsharecalculation,themarketshareoftheTimorKiaSephiaisincreased.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage273Article6.
4,byitsterms,appliestothird-countrymarketsituations,thereisnoreasonwhythistypeofanalysisisnotsuitablewithrespecttothedisplacementorimpedanceofimportsfromthemarketofthesubsidizingMember.
548(2)TheTimordoesnotoccupyaspecialniche8.
335InadditiontoclaimingthattheTimorisnot"like"othercars,IndonesiaarguesthattheTimordoesnotcompetewithOpels,Escorts,orNeonsbecauseallegedly"theTimorhastappedintoanewclassofconsumersandcreatedanicheatthebottomofthemarket".
Indonesiaalsoclaimsthat"aconsumerwhopurchases.
.
.
aToyota,OpelorPeugeotisextremelyunlikelytopurchaseaTimor,andviceversa".
AllofthisconstitutesaneffortonthepartofIndonesiatotalkaroundtheundeniablefactthat,inoneyear,theTimorKiaSephiaacquiredover26percentofthetotalIndonesianpassengercarmarket.
8.
336Significantly,Indonesiaprovidesnoevidencetosupportitsassertionsregardinganewmarketniche.
Themarketdatadiscussedonpage21ofIndonesia'ssecondsubmission,whichrelatestoallpassengercars,simplyshowsthattheoverallIndonesianpassengercarmarkethasgrownslightly.
ItdoesnotdisprovethattheTimorhas,throughsubsidization,stolensalesfromUSmanufacturersinthelower-mediumpassengercarclass.
8.
337IftheTimordoesoccupyaspecialniche,itisthenicheof"heavilysubsidizedlower-mediumclasscar".
However,forseriousprejudicepurposes,thefactthataproductisheavilysubsidized,andthuscansignificantlyundercutthepricesofitscompetition,cannotbeusedasabasisforconcludingthatthereisnocompetitionorthattheproductsinquestionarenot"like"eachother.
8.
338Moreover,Indonesiaissimplyincorrectthatmarketsharedataisnotanindiciaofseriousprejudice.
NothinginArticle6.
3(a)precludesaconsiderationofmarketsharedata,anditsuseisconsistentwithArticle6.
3(b),whichalsodealswithdisplacementorimpedingofimports.
Inthisregard"displace"means"tocrowdout:taketheplaceof".
Webster'sThirdNewInternationalDictionary.
MarketsharedataprovidesameasureoftheextenttowhichtheTimorhas"crowdedout"or"takentheplaceof'likeproductsfromUSmanufacturers,andtherebycauseseriousprejudicetotheinterestsoftheUnitedStates.
(3)TheprejudicecausedtolikeproductsofUSmanufacturerswasserious8.
339IndonesiaattemptstoarguethatwhateverharmUSinterestsmayhavesuffered,itisnotenoughtobeconsidered"serious"withinthemeaningoftheSubsidiesAgreement.
Again,however,inadvancingthisargument,Indonesiadiscussestotalsalesfiguresratherthansalesofpassengercarsthatare"like"theTimor.
8.
340Moreover,IndonesiatotallyignoresthesalesthattheUSmanufacturerswouldhavemadebutfortheintroductionoftheNationalCarprogramme.
GM'splancalledforaround3,000salesofOpelsin1997,Ford'splancalledforroughly2,000Escortsin1997,andChrysler'splancalledforbetween1,000to2,000Neonsin1997.
EveniftheUSmanufacturersonlyachievedone-halfofthelowerendoftheirprojections,thisstillwouldhaveamountedtoroughly3,000cars,which,in548Indeed,Indonesiawouldbehard-pressedtocontesttheapplicationofArticle6.
4,havingalreadyarguedthatthePanelshouldanalyzethreatofseriousprejudiceunderArticle6baseduponthecountervailingdutystandardsforthreatofinjurycontainedinArticle15.
7oftheSCMAgreement.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage274theIndonesianpassengercarmarket,isaconsiderableamount.
Thefactthatthesesaleshavenotoccurredisnot"trifling,"asIndonesiawouldhavethisPanelbelieve.
(4)IndonesiahasnotprovidedanvevidencetorebutthefactthatUSManufacturershadwell-developedplanstoenter,orincreasetheirpresencein,theIndonesianpassengercarmarket8.
341Finally,letusdiscusstheUSmanufacturers'plansfortheIndonesianmarket.
Significantly,Indonesiadoesnotchallengetheexistenceoftheseplansorofferevidenceaimedatdisprovingtheexistenceoftheseplans.
Indeed,theonlyevidenceofferedbyIndonesiaonthisparticularissuesupportsthepositionoftheUnitedStates.
SubmittedasUSExhibit37isadocumententitled"Indonesia'sAutomotiveMarket,"whichwassubmittedbyIndonesiaasIndonesiaExhibit11(firstsubmission).
Pages3-4ofUSExhibit37discusstheplansofeachofthethreeUSmanufacturersanddescribehowtheseplanswerecancelledorsuspendedasaresultoftheNationalCarProgramme.
8.
342RatherthanattemptingtorebuttheevidencepresentedbytheUnitedStates(whichIndonesiaknowsitcannotdo),IndonesiainsteadreliesontheproceduraldefensethattheUnitedStatesallegedlyhasnotpresentedenoughevidencetotriggerIndonesia'sobligationtopresentrebuttingevidence.
However,asstatedbytheAppellateBodyintheWoolShirtscase,atpage14,theburdenontheUnitedStates,asthecomplainant,merelyistoadduce"evidencesufficienttoraiseapresumptionthatwhatisclaimedistrue.
"IntheviewoftheUnitedStates,ithasmorethansatisfiedthisburdenbyprovidinginformationobtainedfromtheUScompaniesandinformationcontainedinnewspaperarticlesandtradejournals.
8.
343Inaddition,tosatisfyIndonesia'sinsistencethattheUnitedStatesprovidedocumentsstraightfromthecompaniesthemselves,theUnitedStateshassubmitteddocumentscontaininginformationjointlysubmittedbyFordandGeneralMotorstotheOfficeoftheUSTradeRepresentative(USTR)549,andinformationsubmittedbyChryslertoUSTR550.
TheUnitedStatesemphasizesthatthereislittlenewinformationcontainedinthesedocuments,becausemostoftheinformationcontainedinthesedocumentswasalsocontainedintheUSfirstandsecondsubmissions.
TheUnitedStatestruststhatthesubmissionofthesedocumentswillputanendtoIndonesia'saccusationsthattheUnitedStateshasreliedonhearsayevidence.
(5)Asafactualmatter,itissimplynotestablishedthatthetariffandtaxbenefitsconferredonTPNunderDecreeNo.
42/96willeverbereimbursed8.
344TheUnitedStatesargues,inconnectionwithitsargumentsregardingwhethertheJune1996programmeisanexpiredmeasure,thatitisnotestablishedthatthetariffandtaxbenefitsconferredonTPNunderDecreeNo.
42/96willeverbereimbursed.
TheseargumentsaresetforthinSectionX.
B.
(c)ResponsebyIndonesia8.
345ThefollowingareIndonesia'sresponsestothecomplainants'argumentsregardingdisplacementorimpedanceofimports:549USExhibit38.
550USExhibit39.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage275(1)Thecomplainants'presentationwithrespecttoactualseriousprejudicetotheirinterestsisirrelevantbecauseitrelatessolelytotheallegedeffectsoftheterminatedJune1996Programme8.
346Thecomplainants'collectiveseriousprejudiceallegationsencompassonlytheNationalCarprogramme,whichtheyallegehasthreecomponents:(i)theJune1996programme,whichprovidedconditionalexemptionsfromimportdutiesandtheluxurytaxforimportednationalcars;(ii)theFebruary1996programme,whichprovidesconditionalexemptionsfromtheluxurytaxandfromimportdutiesonpartsandcomponentsusedfortheassemblyofnationalcarsinIndonesia;and(iii)theAugust1997US$690millionloantoTPN.
551(2)Toestablishseriousprejudice,complainantsmustprovethatasubsidyexistsandthatitiscausingorthreatenstocauseseriousprejudice8.
347Inordertomaintainaclaimofseriousprejudice,thecomplainantsmustestablishboth:1.
theexistenceofameasureconferringanactionableorprohibitedsubsidy552;and2.
adverseeffectsintheformofseriousprejudicetotheirinterestsresultingfromthemeasureconferringthesubsidy.
553Thus,inshort,thecomplainantsmustshowthatasubsidyexistsandthatitcausesorthreatensadverseeffectsresultinginseriousprejudice.
Thecomplainantshavenotmadeandcannotmakethisshowing.
(3)Complainants'allegationsofseriousprejudicefailbecausetheyhavenotdemonstratedthatanexistingsubsidymeasurehasresultedinactualseriousprejudice8.
348Thecomplainantsallegethattheirinterestshavesufferedseriousprejudicethroughthedisplacementorimpedanceofimports(Article6.
3(a))andpriceundercutting(Article6.
3(c))bythenationalcarduring1996andthefirsthalfof1997.
TheyrelyheavilyoncontemporaneoussalesandpricedataprovidedbytheGovernmentintheAnnexVprocess,butfailtoacknowledgethatthesalesandpricedatarelatingtothenationalcarduring1996and1997(todate)relateexclusivelytonationalcarsthatbenefittedsolelyfromtheJune1996programme.
Asdiscussedabove,theJune1996programmeterminatedinitsentiretyinJune1997.
Thus,evenifComplainants'assertionsregardingactualseriousprejudicein1996and1997werecorrect(whichtheyarenot),thisharmwouldnotbecognizableinthisproceedingbecausetheunderlyingmeasurecomplainedofhasalreadybeenwithdrawn.
Complainants'claims,therefore,aremoot.
554551Asdemonstrated,complainants'argumentsconcerningtheloanareirrelevantbecausetheloanandrelatedissuesarenotwithinthescopeofthisPanelproceeding.
Also,inanycase,theloanwasdeliveredoncommercialterms.
552SeeSubsidiesAgreement,Article1.
1.
SeealsoSubsidiesAgreement,Articles3.
1.
(b),5,6and7,eachofwhichreferstoextantsubsidies.
553SeeSubsidiesAgreement,Articles5(c)and6.
Thephrase,"seriousprejudicetotheinterestsofanotherMember,"includesthethreatofseriousprejudice.
SeeSubsidiesAgreement,fn.
13.
554Indeed,theSubsidiesAgreement,initsentirety,isdesignedtoprovidearemedyforexistingsubsidymeasures.
ThisisdemonstratedmostclearlyinArticle7.
8,whichdirectsMembersmaintainingasubsidymeasurefoundtocauseseriousprejudiceeithertowithdrawthemeasureortoremedytheadverseeffects.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2768.
349Atthesametime,thetwo555remainingcomponentsoftheNationalCarProgrammecouldnothavecausedactualseriousprejudicetoeitherComplainants'interests.
TPNdidnotbeginassemblingthenationalcarinIndonesiaundertheFebruary1996programmeuntilJune1997.
Moreover,theTambunPlantatwhichthenationalcarisbeingassembledwillproducevehiclesattherateofonly1,000unitsperyear.
8.
350TheAugust1997loantoTPNwillbeusedtofundtheconstructionoftheCikampekPlant,wheretheSportagewillbebuilt.
Asdiscussedabove,however,theSportagewillnotbedesignatedasa"nationalmotorvehicle"andwillnotbenefitfromthetariffandtaxsubsidiesextendedundertheFebruary1996programme.
Additionally,eveniftheAugust1997loanweredeemedtoconferasubsidyontheSportage,actualseriousprejudicecouldnotarisebecausenovehicleshaveyetbeenbuilt.
8.
351Insum,theJune1996programmehasbeenwithdrawnandneithertheFebruary1996programmenortheAugust1997loanhascausedactualseriousprejudicetothecomplainants'interests.
Thepracticaleffectoftheforegoinganalysisistoleaveintactandrelevantonlythecomplainants'threatofseriousprejudiceallegations.
Asdemonstratedbelow,likethecomplainants'claimsofactualseriousprejudice,theseallegationslackmeritanddonotrequireorwarrantanyremedialaction.
(4)Thecomplainants'allegationsregardingthecancellationoftheircompanies'plansfortheIndonesianmarkethavenotbeenadequatelysubstantiated8.
352AsimilarevidentiaryfailureplaguestheEuropeanCommunitiesandUnitedStatesassertionsregardingtheplansand/orprojectionsofGM,FordandChryslerfortheIndonesianmarket.
Complainantshaveattemptedtoprovideathinveneerofauthenticitytotheirvariousclaimsregardingthecompanies'plansand/orsalesprojectionsbycitingtonewspaperandtradearticles,butthisiswhollyinadequate.
ThepositiveevidencestandardoftheSubsidiesAgreement,alongwiththemanyuncertaintiesofbusinessandtheinherentlyspeculativeandfluidnatureofplansandprojections,requiresmuchmorethanthis.
TheEuropeanCommunitiesandUSclaimsshouldbesummarilydismissedbecausetheyhavenotbeensubstantiatedwithevenasinglesourcedocument.
5568.
353AcloserlookattheUnitedStates'allegationsconcerningtheplansoftheBigThreeisalsoinorder.
First,asapreliminarymatter,Indonesianotesthatithascontestedanddoescontesttheexistenceof"well-developed"BigThreeplanstoenterorexpandinIndonesia'smarketforpassengercars.
Wherearetheseclaimed"businessplans"TheUnitedStateshasfailedtointroduceanysourcedocumentationconcerningthem.
Atmost,theUnitedStateshasestablishedthatcompanypersonnelhaveinformedreporters,orreportershavespeculated,thattheBigThreehad"plans"toinvestinIndonesiaandsuch"plans"allegedlywerefrustratedbytheNationalCarProgramme.
Thisisnotpositiveevidence;infact,itdoesnotevenrisefromthelevelofhear-say.
555Actually,onlyonemeasure,theFebruary1996policy,remainsbecausetheAugust1997loantoTPNisoutsidethescopeofthisproceedingand,inanycase,wasdeliveredoncommercialterms.
Inordertobethorough,however,theloanisdiscussedaswell.
556SeeArgentina-MeasuresAffectingImportsofFootwear,Textiles,ApparelandOtherItems(11November1997),WT/DS56/R,91,para.
6.
40("adversaryisobligatedtoprovidetheinternationaltribunalwithrelevantdocumentswhichareinitssolepossession").
IndonesiareservestherighttocommentonanysuchdocumentsormaterialswhichmightbesuppliedbytheECortheUS.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2778.
354Second,theso-called"plans"appearnottobe"plans"atall,but,atmost,planstodevelopplans.
AccordingtotheUnitedStates,the"plans"breakdownasfollowsforeachmanufacturer.
ForbothFordandGM,theUnitedStates'rebuttalmentionsno"plan"toexportUS-madeautostoIndonesia.
Moreover,Chrysler,theonlyremainingmanufacturer,hadnofirmplantoenterIndonesia'spassengercarmarket.
Rather,accordingtotheUnitedStates,Chrysler"wasstudying"ajointventureinIndonesiatoassembleNeonpassengercarsandotherpassengervehicles.
557Studyingorconsideringajointventureisnotthesameashavingaconcreteplan.
And,ontopofthis,theUnitedStatesagainhasfailedtoprovidepositiveevidence,asitmust,tosupportanyoftheseclaims.
8.
355TheUnitedStatesclaimregardingChryslerisbasednotonpositiveevidence,butonhear-say.
ThisalsoistrueoftheEuropeanCommunitiesallegationsconcerningtheplansofFordandGM.
Fortheirclaimstohaveanymeritatall,theEuropeanCommunitiesandtheUnitedStateswouldhavetoprovebypositiveevidencethat:first,theyhaddocumentedplanstoimportcarsliketheTimor;second,theNationalCarProgrammeinfactcausedthecompaniestocanceltheirclaimedplans;third,hadtheycontinuedwiththeirplans,asubstantialnumberoftheircarswouldhavebeensoldinIndonesiahadtheNationalCarProgrammenotbeeninstituted;andfourth,theNationalCarProgrammewouldnegativelyhaveimpactedtheirsalessuchthatseriousprejudicewouldhaveresulted.
8.
356However,neithertheEuropeanCommunitiesnortheUnitedStateshassatisfactorilyaddressedtheseinterrelatedfactors,muchlessprovidedevenminimalsupportforthesepoints.
Rather,theyhaveclaimed,withoutadducingasinglesubstantiatingsourcedocument,thatthecompanieshadplanstoenterIndonesia'smarketthatwerefoiledbytheTimor.
8.
357Inthisregard,IndonesianotesthatFordandChryslerdidnotsubmitasingleapplicationforapprovalofthedevelopmentofpassengercarproductionorassemblyfacilitiesinIndonesiaduringtheperiodof1993tothepresent.
Insum,FordandChryslerhaveneverhadanyrealplanstoproduceorassemblealikeproductinIndonesia.
Moreover,in1993,GMsubmittedtoIndonesiaapassengercarproductionandassemblyplan,whichIndonesiaapproved.
Notonlyistherenoevidencetosupporttheterminationofanyplans,since1993,GMhascontinuedtoexpanditsoperations.
Infact,inNovemberof1997,GMsubmittedtoIndonesiaanapplicationtosignificantlyexpanditsproductionandassemblyoperationsinIndonesia.
IndonesiaapprovedthisapplicationinDecember1997.
ThesefactsbelietheclaimsoftheEuropeanCommunitiesandUnitedStatesregardingseriousprejudice.
Theyalsodemonstratethat,ifanyabandonedplansexisted,theUnitedStatesandtheEuropeanCommunitiescouldintroduceevidenceoftheplansthattheIndonesiangovernmentalreadywouldhavecopiesof-therequestforapprovalofneworexpandedoperationsinIndonesia.
Thus,thePanelshouldnotallowComplainantstohidetheirlackofevidencebehindthecloakofconfidentiality.
8.
358IndonesiaaccordinglysubmitsthatthePanel'sconsiderationofthisissueshouldfocusonthecompletelackofpositiveevidencetosupporttheUnitedStatesandEuropeanCommunities557Id.
atpara.
12,p.
3.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage278claims,andthefactthat,evenacceptingtheUnitedStatesandEuropeanCommunitiesstories,theBigThreedonothaveandneverhadanyconcrete,confirmedplanstosellacarliketheTimorinIndonesia.
8.
359WealsourgethePaneltonotetheinconsistenciesandthenarrowingtrendintheUnitedStatespresentations.
First,theUnitedStatesarguedthatalloftheBigThreesoldorwouldhavesoldlikeproductsinIndonesia;nowitarguesthatnoneofthemselllikeproductsinIndonesiaandthatonlyChryslerwasconsideringdoingso.
Onewonderswhattomorrow'sadmissionwillbe.
8.
360Insum,IndonesiashouldnotbepenalizedforwhattheUnitedStatesclaims,buthasnotproperlyestablished,werebusinessplans,projectionsordecisionsbyUnitedStates-basedcompanies.
IndonesiaasksthePaneltofindtheUnitedStatesargumentsbaselessandtorejecttheUnitedStatescomplaint.
(5)SalesoftheTimorhavenotaffectedsalesinIndonesiaofUS-basedpassengercarmanufacturersforthreebasicreasons8.
361SalesoftheTimorhavenotaffectedsalesinIndonesiaofUS-basedpassengercarmanufacturersforthreebasicreasons.
First,US-basedmanufacturerscompeteinamarketsegmentdominatedbyJapanese-basedmanufacturers.
558Todate,theirmarketingeffortshavestumbledbadly.
8.
362Second,US-basedmanufacturers'claimed"efforts"tosellpassengercarsthatcompetewiththeTimorareeithernon-existent,nebulous,orpurelyspeculative.
Forexample,FordmakesmuchofthefactthatithasassignedfourforeignserviceemployeestoIndonesiaandinvestedUS$1millioninIndonesia.
559Fordhas370,000employeesworldwideanditsautomobilesegmentaloneregisterssalesofUS$118billion.
560Obviously,Ford'scommitmenttoIndonesia(otherthantoIndonesia'stax-freetaximarket)isvirtuallynon-existent.
Chrysler'scommitmenttotheIndonesianmarketisgreaterthanFord's,butitisdirectednotatthepassengercarsegmentbuttosalesofJeep-typevehicles.
ChryslerCherokeesandWranglersdonotcompetewithTimorsedans.
Chrysler'sattempttoshowseriousprejudiceintheTimorpassengercarsegmentbyintroducingits"plans"toassembleNeonsinIndonesiaisunpersuasive.
Chryslerstatementsthatit".
.
.
wasstudyinganassemblyjointventure.
.
.
[p]lannedinvestment".
.
.
and"theprecisefiguresareconfidential.
.
.
"561arevagueandunsupported.
Thereisnotonepieceofevidenceontherecordofthisproceedingthatsupportsthesestatements.
8.
363IndonesiahasbareditssoulinpresentingitscasetothisPanelandrespondingtothecomplainants'questions.
ComplainantsshouldnotbeabletosucceedbeforethisPanelbyrelyingonwispsofintra-corporatemarketingbrainstormingwhilefailingtoprovidesubstantivereal-worlddatatothePanelforscrutinybyallparties.
8.
364GeneralMotors'presentation,althoughsuperficiallymorecompellingthanFord'sorChrysler's,missesthepointentirely.
GMgoestogreatlengthstodetailitsinvestmentintheOpel558AsJapanhaspreviouslyacknowledgedinthisproceeding,JapandoesnotmarketacarthatcompeteswiththeTimor.
559USExhibit38,pp.
1-2.
560Ford10-Q(1996)and"FordMotorCompany-TheHistoryofFordMotorCompany-AnAmericanLegend".
561USExhibit39,Page2.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage279Optima,OpelVectraandOpelBlazer,however,GMhasneversoldmorethanafewhundredofthesevehiclesinIndonesia.
GM'sclaimoflostpotentialsalesthusispurelyspeculative.
8.
365ThehistoryofGM'smarketingeffortsinIndonesiaisamuchbetterbarometeroftherealsituation.
GM'shistoryofsaleseffortsinIndonesiaisoneofsporadic,unfocusedmarketingeffortsthathaveeachfailedtopenetratethetargetmarket-theJapanese-dominatedpassengercarsegment.
GMhasno-onetoblamebutitselfforfailuretosuccessfullycompetewiththeJapaneseinIndonesiaforashareofthatvalue-addedmarket.
AsIndonesiacontinuallyhasstressedthroughananalysisofphysicalcharacteristics,theOptima,VectraandBlazerdonotcompetewiththeTimor.
8.
366Third,TimorsalesdonotaffectsalesbyUS-basedpassengercarmanufacturersbecauseotherissues,rightlyorwrongly,havedissuadedthe"BigThree"frominvestingthecapitalnecessarytosuccessfullysellpassengercarsinIndonesia.
TheUSfinallyhasacknowledgedthattheBigThree'sdecisionstoplacea"hold"ontheir"plans"forIndonesiawasbasedonfactorsotherthantheNationalCarProgramme.
TheIndonesianmarketisdominatedbytheJapanese.
TheJapanesearefirmlyentrenched,andJapanesevehiclesholdapproximately90percentofthemarket.
562ThisfactalonemakesitdifficultfortheBigThreetojustifymillionsofdollarsofcapitalinvestments.
Furthermore,Indonesia'sroadtransportationinfrastructureisintheearlystagesofdevelopmentanditspersonalusemarketrepresentsasmallpercentageofarelativelysmallmarket.
5638.
367Simplyput,thereasonstheBigThree"withdrewfrom"or"failedtoenter"theIndonesianmarkethavenothingtodowiththeNationalCarProgramme.
Theywithdrewbecause(1)themarketforsmallcarsistoosmalltojustifyandsustainthenecessarycapitalinvestmentsand,inanycase,isdominatedbyJapan;(2)thelowannualpercapitaincomeinIndonesiaresultsinaminutehigh-profitmarketnichethatisdominatedbyMercedes-BenzandBMWthatprecludespenetrationbytheBigThree;(3)low-income,entry-levelautomobilessuchastheTimordonotprovidetheper-unitprofitnecessarytogenerateinvestmentreturnsthattheBigThreeenjoyintheirimportantmarkets-NorthAmericaandEurope;and(4)theinvestmentincentivesprovidedincountriessuchasThailandarebetterthanthoseprovidedinIndonesia.
5648.
368Inconclusion,US-basedmanufacturersdidnotsufferseriousprejudiceduetoIndonesia'sNationalCarProgramme.
TheTimor,becauseofitslow-income,entry-levelappeal,doesnotcompetewithUS-basedautomobiles.
US-basedmanufacturers'automobilesarepositionedtocompeteinothermarketsegments,againstJapanesemodelsinIndonesiaandintherestoftheworld.
TheIndonesianmarketisdominatedbytheJapanese,per-unitprofitmarginswouldbecomeverythiniftheUSweretocompete,andthehigherprofitper-unitmarketnicheisdominatedbyBMWandMercedes-Benz.
Thus,fortheBigThreetomaketheinvestmentsnecessarytocompeteinIndonesiawouldbeincompatiblewiththeshort-horizon,quarterlyprofitmaximizationprinciplesthatdriveUS-basedmanufacturers.
(6)EveniftheEuropeanCommunitiesandUScarswerefoundtobeliketheTimor,noseriousprejudiceexistsorwillarisebecausetheydonotcompetewiththeTimor562USExhibit37,Page1.
563Id.
564Id.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2808.
369Assuming,arguendo,thattheEuropeanCommunitiesandUScarswerefoundtobeliketheTimor,thiswouldnotbetantamounttodeterminingthattheNationalCarprogrammehascausedorwillcauseseriousprejudicetoEuropeanCommunitiesandUSinterests.
Thelikeproductdeterminationmerelyestablishestheproperanalyticalframeworkinwhichtoconsider,inturn,whethertheseparatecomponentsoftheprogrammehavecausedseriousprejudicetocomplainants'interests.
565Inotherwords,itisnotenoughforcomplainantstoshowthattheTimorissubsidizedandthat,atthesametime,theircommercialwelfarehasdeclinedornotimprovedasexpected.
Rather,theymustdemonstratetheexistenceofacausallinkbetweenthetwoevents.
Asdiscussedbelow,theEuropeanCommunitiesandtheUnitedStateshavenotshownandcannotshowthisrequisitelinkagebecausetheTimorisalow-end,no-frillsbudgetcarthatisnotinthesamemarketsegmentasthemore-advanced,state-of-the-artEscort,Neon,Optima,VectraorPeugeot306.
5668.
370Availablesalesdatafor1996and1997revealthattheTimorhastappedintoanewclassofconsumersandcreatedanichesegmentatthebottomofthemarket.
567Thesedataalsoshowthatsalesinthenon-Timorsegmentshaveincreased,despitetheintroductionoftheTimor.
Totalsalesbyallmanufacturersincreasedfrom38,826carsin1995to42,346carsin1996,foratotalincreaseof3,520cars.
TheTimorwasintroducedin1996and4,278unitsweresold.
Totalsalesbyallmanufacturersincreasedfrom28,265unitsinthefirstthreequartersof1996to53,033carsduringthefirstthreequartersof1997,foranearlytwo-foldincreaseof24,768cars.
Timorsalesof11,853carsinthefirstthreequartersof1997accountedforlessthanone-halfofthisphenomenalgrowth.
565ThiscausationrequirementisapparentfromthetextoftheSubsidiesAgreement.
Article5provides:"NoMembershouldcause,throughtheuseofany[specific]subsidy…,(c)seriousprejudicetotheinterestsofanotherMember.
"(footnoteomitted)Articles6.
2and7.
1speakofsubsidies"resulting"inseriousprejudice.
Articles6.
3(a)and(c)respectivelystatethatseriousprejudicemayarisewhere"theeffectofthesubsidyistodisplaceorimpedetheimportsofalikeproduct"and"theeffectofthesubsidyisasignificantpriceundercutting…ofalikeproduct.
""Effect"isdefinedas:"Somethingaccomplished,caused,orproduced;aresult,consequence.
CorrelativewithCAUSE.
"TheCompactOxfordEnglishDictionaryatp.
496(2ded.
1987).
566TheUSalsoclaimsthattheTimorJ520iisliketheGMOpelBlazerandwillposeathreattoUSlightcommercialvehicles.
Indonesianeednot,however,addressthisclaimbecausetheTimorJ520iisnotandwillnotbecoveredbytheNationalCarProgram.
CertificateofRegistrationofMark/Type/VariantofMotorVehicle,No.
1039/DJ-IIMK/X/1997,DepartmentofIndustryandTradeoftheRepublicofIndonesia,theDirectorateGeneralforMetals,MachineryandChemicalIndustry(IndonesiaExhibit42,AttachmentE).
567TheIndonesianpassengercarmarketcanbeproperlyexaminedonlyonasegmentedbasis.
Thatmarket(likeallothercarmarkets)ischaracterizedbyaveryhighdegreeofmarketdifferentiationandspecialization.
Thus,aconsumerwhopurchasesaMercedes-BenzorBMWor,forthatmatter,aToyota,OpelorPeugeot,isextremelyunlikelytopurchaseaTimor,andviceversa.
SeegenerallyUnitedStates-MeasuresAffectingAlcoholicandMaltBeverages(19June1992),BISD39S/206,294,para.
5.
73.
Carmanufacturersdevoteverysubstantialresourcestoestablishingandtargetingdifferentmarketsegmentsandsmallernichesintheirproduction,advertisingandmarketing.
Forexample,GMfollowsastrategyofsellingdozensofdifferentmodelswherecompetitorsselljustafew.
This"needssegmentation"approachisdesignedtoaimvehiclesmorepreciselyatbuyersbasedonbuyers'specificdemographics,attitudesanddesiredcarfeatures.
SeeDanielMcGinn,DivideandConquer:MeettheResearcherBehindGM'sControversialMarketingStrategy,Newsweek,1December1997,atpp.
50and52(IndonesiaExhibit42,AttachmentB).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2818.
371ThesalesdatasetforthinthefollowingtablealsodemonstratethattheEuropeanCommunitiesandtheUSpositions(andJapan'sposition)inthemarketplacehaveimprovedsincetheTimorwasintroduced.
568568OpelOptimaandVectrasalesareattributedtotheEC.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage282Table341995199619975691Q/3Q19971Q/3Q1996EC9,21310,07511,0938,3207,653US2,8803,6524,4563,3422,594Japan23,94121,69334,30425,72816,718Others/CBUImports2,7922,6485,0533,7901,300Timor04,27815,80411,8530TOTAL38,82642,34670,71053,03328,265Source:Gaikindo;GovernmentoftheRepublicofIndonesia8.
372Insum,theforegoingdataruncontrarytotheEuropeanCommunitiesandUSassertionsthatsalesoftheTimorhavedisplacedorimpededimportsoftheclaimedlikeproducts.
5708.
373Finally,Indonesianotesthattheoperativestandardforremediationis"seriousprejudice.
"Thisconceptdoesnotlenditselftoreadymeasurementand,accordingly,itsmeaninghasnotcrystallizeddespiteitsrelevancetomanyGATTproceedings.
Thisdoesnot,however,meanthatitiswithoutcontent.
8.
374Article31.
1oftheViennaConventionontheLawofTreatiesprovides:"ATreatyshallbeinterpretedingoodfaithinaccordancewiththeordinarymeaningtobegiventothetermsofthetreatyintheircontextandinlightofitsobjectandpurpose.
""Serious"isdefinedas:"Weighty,important,grave;(ofquantityordegree)considerable,nottrifling".
5718.
375TheEuropeanCommunitiesandtheUnitedStatespointtospecific,concretesalesdataforonlytheOpelOptimaandVectraandthePeugeot306.
GMsold549OpelsinIndonesiain1996and284OpelsfromJanuarythroughSeptember1997(379unitsonanannualizedbasis);1,086Peugeot306'sweresoldin1996and762(1,016annualized)weresoldthroughSeptember1997.
569AnnualizedonthebasisofJanuarythroughSeptember1997sales.
570Ofcourse,thisstandardisnotevenapplicableifthePaneldeterminesthatcarsassembledbyECorUSmanufacturersinIndonesiafromimportedkitsarenotliketheTimor.
IndonesianotesthattheECandtheUSrelyheavilyonmarketsharetrendsandtheUSreferstoArticle6.
4oftheSubsidiesAgreementforguidanceinanalyzingmarketdisplacementorimpedance.
First,onlyArticles6.
3(a)and(c)pertaintothiscaseandtheydonotrefertomarketshareasanindiciaofseriousprejudice.
Second,historicalandcurrentmarketsharedataaremeaningless,becausetheTimor'sestablishmentofanewmarketsegmenthasfundamentallytransformedtheIndonesianpassengercarmarket.
Thus,inordertohaveevenlimitedmeaning,marketsharedatamustbecompiledonasegment-specificbasis.
AsfortheEC'ssuggestionthatsalesoftheOpelOptimaandPeugeot306shouldnothavedeclinedin1997becauseofasubstantialincreaseingeneraldemand,sales,demandgrowthandmarketsharearenotnecessarilycorrelated.
TheECitselfhasobserved:"Since1992anduntil1996,exportsofpassengercarsfromtheCommunity[toIndonesia]grewatafasterpacethandemand,resultinginasignificantgainintermsofmarketshare.
"571TheCompactOxfordEnglishDictionaryatp.
1716(2ded.
1987).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage283Thus,evenwhentakentogether,thenetdeclineinsalesforthethreemodelsfrom1996(1,635cars)to1997(1,395cars)willbeonlyapproximately240cars.
Thesecarsrepresentonlyapproximately1.
5percentofprojectedtotalEuropeanCommunitiesandUSsalesin1997(15,549cars).
Thus,evenifthedropinsalescouldbeattributedtotheTimor(anditcannot),suchaminusculedeclinecouldhardlybeconsideredanythingotherthantriflingandcertainlycannotserveasthebasisforafindingofseriousprejudice.
(7)TheEChasfailedtoproveseriousprejudice8.
376TheEuropeanCommunitiesfocusesonsalesofEC-producedcarsinIndonesiawithpassingreferencetotheplansofFordandGM.
(IndonesiaacknowledgesthattheECdoesnotattempttoclaimanyUnitedStates-producedcarsasitsown.
)TheEuropeanCommunitiesoriginallyhadarguedthattheOpelVectraalsoisliketheTimor,butnowapparentlyconcedesthiswasanerror.
8.
377Thus,apartfromtheEuropeanCommunities'allegationsconcerningFordandGMplans,thesuccessoftheEuropeanCommunities'complainthingesontheEuropeanCommunitiesdemonstratingbypositiveevidence,first,thattheOpelOptimaorthePeugeot306isliketheTimorand,second,thatIndonesia'smeasureshavecausedseriousprejudicebyimpactingsalesofthesecars.
8.
378TheEuropeanCommunitieshasnotmeteitheroftheseburdens.
Evenputtingasidethemanyimportant,non-physicalcharacteristicsthatmustbeconsideredinestablishinglikeproductshere,Indonesiaalreadyhasdemonstrated,andtheEuropeanCommunities'likeproductmatrix572confirms,thattheTimorisnotliketheOptimaorthe306whenonlyphysicalcharacteristicsareconsidered.
Also,theEuropeanCommunitieshaspresentednopositiveevidencedemonstratingthattheTimorhashadanyimpactonEuropeanCommunitiessales.
AlthoughIndonesiahasnotcommissionedorperformedanyeconometricormarketresearchonthispoint,thedatawehaveseensuggestthattheJapanesemodels,manyofwhichareliketheOptimaandthe306,arecontinuingtodominatethemarketsegmentsabovetheTimor.
IftheEuropeanCommunitiesislosingsales,thenitislosingthemtotheJapaneselikeproducts,nottothe"unlike"Timor.
Therefore,IndonesiaasksthatthePanelrejecttheEuropeanCommunities'argumentsanddismisstheEuropeanCommunities'Complaint.
8.
379Furthertothelastpoint,Indonesianotesthat,notwithstandingthepositiveevidencestandard,noneofthecomplainantshasundertakeneconometricormarketstudiestosupporttheirpositions.
AstudywouldallowthePaneltoevaluatethevariousothercriteriatheEuropeanCommunitiesdeems"toosubjective"or"toovague".
Yettheyhavenotdoneso.
HadIndonesiatheburdenofprooforpersuasion,thePanelandPartiesalreadywouldhavethedatainfrontofthem.
ComplainantshaveavoidedanythoroughinvestigationoranalysisoftheIndonesianmarketbecausetheyknowsuchanalysiswouldconfirmIndonesia'sposition.
8.
380Ratherthanengagingtheseimportantissues,theEuropeanCommunitiescontinuestoadvanceitsideathatallpassengercarsarelikeproducts,i.
e.
,Mercedes-Benzes,Bentleys,YugosandTimorscompeteforthesamecustomers.
Ithasnochoicebuttodosobecauseonlybyavoidingcausalitycanitsucceed.
8.
381Later,theEuropeanCommunitiesplaysfastandloosewithmarketsharedata,assertingthattheEuropeanCommunitiesaccountsfor24percentofIndonesia'smarket,butfailingto572ECExhibitD-3.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage284mentionthatthevastmajorityofthisshareisfromsalesof"modelsinthehighsegmentofthemarket"(i.
e.
,BMWs,Mercedes-BenzesandVolvos).
Moreover,theEuropeanCommunitiesignoresthefactthatJapan'ssaleshaveincreasedbyover50percent.
8.
382Thetruth,or"truism",astheEuropeanCommunitiessays,isthattheTimortapsadifferentmarketsegment.
TheEuropeanCommunitiesstatesthat"[t]hepropositionthattheTimorhasgeneratedentirelyitsowndemandispurelyspeculativeandcannotbedemonstrated".
But,first,Indonesia'spresentationisnotspeculative;itisbasedonareasonedviewofthemarketandTPN'smarketingintentionfortheTimor.
Indonesia'sview,unlikethatoftheEuropeanCommunities,accountsforthephenomenalgrowthinJapan'ssales.
Second,Indonesia'sviewcanbedemonstrated.
Moreimportantly,however,Indonesiadoesnotbeartheburdenofproofhere.
TheEuropeanCommunitiesdoes.
Ithasfailedtoproveitsallegations,andsothePanelshouldrejecttheEuropeanCommunities'assertionsanddismisstheEuropeanCommunities'complaint.
5.
Article6.
3(c)oftheSCMAgreement—PriceUndercutting(a)ArgumentsoftheEuropeanCommunities8.
383ThefollowingaretheEuropeanCommunities'argumentsregardingpriceundercuttingbysubsidizednationalcars:(1)ThepricesofthesubsidizedNationalCarsundercutsignificantlythepricesoflikepassengercarsimportedfromtheCommunity8.
384InaccordancewithArticle6.
3oftheSCMAgreement,seriousprejudicemayarise,interalia,wheretheeffectofthesubsidyisasignificantpriceundercuttingbythesubsidizedproductascomparedwiththepriceofthelikeproductofanothermember.
8.
385ThemassivesubsidiesgrantedtoPTTPNhaveallowedthiscompanytopricetheTimorS-515wellbelowthepassengercarsimportedfromtheCommunities.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2858.
386Table35ranksallthepassengercarsofupto1,800ccofferedintheIndonesianmarketaccordingtotheirlistedsaleprice.
TheyshowthattheTimorS-515wastheleastexpensivemodelonsaleinIndonesiainNovember1996andagaininMarch1997,withtheonlyexceptionoftheMazdaMR-90,arelativelyoldmodelwhichwassoldinverysmallquantities573.
Table35ListedpricesinIndonesiaforpassengercarsofupto1800ccNovember1996ModelPrice(thousandRp)MazdaMR-9030,200TimorS515Solit33,000TimorS515Metalic33,500SuzukiBalenoSY41643,500BimantaraCakraMT45,000BimantaraCakraAT48,650ToyotaStarlet47,800HondaCityGM50,975FordLaserGHIAsaloon58,800Peugeot306M/T59,000BimantaraNenggalaM/T53,100Peugeot306M/T62,500BimantaraNenggalaA/T63,500MitsubishiLancerM/T64,000Peugeot306A/T65,500MitsubishiLancerA/T67,000OpelOptimaGLS70,000ToyotaCorollaM/T71,100LancerDOHC72,000HondaCivic4DoorNBGKP72,490ToyotaCorollaA/T74,800HondaCivic4DoorNBAKP76,190ToyotaCorona80,700Source:AV/3,AttachmentA-40/1.
March1997573102unitsin1996and16duringthefirsthalfof1997.
SeeAV/3,AttachmentA-39/1-B.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage286ModelPrice(thousandRp)MazdaMR-9030,000TimorS515Solit33,000TimorS515Metalic33,500TimorS515ISolit36,400TimorS515IMetalic36,900BimantaraCakraMT39,900DaewooNexiaDOHC43,000BimantaraCakraAT43,450SuzukiBalenoSY41644,750ToyotaStarlet48,100HondaCityGM51,300BimantaraNenggalaM/T53,100BimantaraNenggalaA/T57,000FordLaserGHIASaloon59,000Peugeot306M/T59,500Peugeot306M/T63,000FordLaserGHIASaloon63,200MitsubishiLancerM/T65,000Peugeot306A/T65,500MitsubishiLancerA/T68,000MazdaAstina68,300ToyotaCorollaM/T68,300OpelOptimaGLS70,000HondaCivic4DoorNBGKP71,160ToyotaCorollaA/T71,800LancerDOHC72,000HondaCivic4Doors74,860ToyotaCorona81,2008.
387Moreparticularly,thedataevidencethattheTimorS-515undercutsignificantlythepricesoftheclosestCommunitymodelsintermsofspecifications.
InNovember1996,thepriceoftheTimorS-515'smostexpensiveversionwas43percentlowerthanthepriceoftheleastexpensiveversionofthePeugeot306and52percentlowerthanthepriceoftheOpelOptima.
AsofMarch1997,themarginsofpriceundercuttingwerealmostidentical.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage287(b)ArgumentsoftheUnitedStates8.
388TheUnitedStatessubmitsthatthetariffandtaxsubsidiesprovidedundertheNationalMotorVehicleprogrammehaveresultedinsignificantpriceundercuttingbytheTimorKiaSephia.
ThefollowingaretheUnitedStates'argumentsinthisregard.
8.
389UnderArticle6.
3(c)oftheSCMAgreement,seriousprejudiceexistswhere"theeffectofthesubsidyisasignificantpriceundercuttingbythesubsidizedproductascomparedwiththepriceofalikeproductofanotherMemberinthesamemarket.
.
.
.
"Article6.
5elaboratesontheanalysisofpriceundercutting:Forthepurposeofparagraph3(c),priceundercuttingshallincludeanycaseinwhichsuchpriceundercuttinghasbeendemonstratedthroughacomparisonofpricesofthesubsidizedproductwithpricesofanon-subsidizedlikeproductsuppliedtothesamemarket.
Thecomparisonshallbemadeatthesameleveloftradeandatcomparabletimes,dueaccountbeingtakenofanyotherfactoraffectingpricecomparability.
However,ifsuchadirectcomparisonisnotpossible,theexistenceofpriceundercuttingmaybedemonstratedonthebasisofexportunitvalues.
(1)Tariffandtaxsubsidies8.
390Putsimply,theTimorKiaSephiaisthecheapestcaronIndonesianroads.
574Becauseofthehugetariffandtaxbreaksitenjoys,theTimorKiaSephiacanbesoldfor50percentofthepriceofitsrivals.
5758.
391Thenewspaperaccountsareconsistentwiththeharddata.
AssetforthinTable31,above,theTimorKiaSephiaS515soldforRp.
33.
5million,whiletheOpelOptimaGLS(theleastexpensiveOpel)soldforRp.
69.
5million.
Inotherwords,theTimorKiaSephiasoldforlessthanone-halfthepriceoftheOpelOptima.
InMarch,1997,thispricegapincreasedslightly,astheTimorKiaSephiasedancontinuedtosellforRp.
33.
5million,whilethepriceoftheOpelOptimaGLSincreasedslightlytoRp.
70million.
Eventhefuel-injectedversionoftheTimorKiaSephia,theS515i,soldforonlyRp.
36.
9millioninMarch1997.
8.
392WithrespecttotheFordEscort,Ford,ofcourse,abandoneditsplanstoselltheEscortinIndonesiaduetotheNationalMotorVehicleprogramme.
However,basedoncompanyfigures,theTimorKiaSephiaS515wouldhaveundercutthepriceoftheleastexpensiveversionoftheEscortbymorethanUS$5,000.
5768.
393Moreover,theTimorKiaSephiadidnotsignificantlyundercutthepricesofonlyUSpassengercars.
ItsignificantlyundercutthepricesofeverypassengercarinitsclasssoldinIndonesia,asdemonstratedinTables32and33,above.
574"IndonDomesticCarSalesRaceupby41percentinMay,"BusinessTimes(Singapore),June17,1997(USExhibit14,pp.
138-139).
575"BumpyRoadAheadforMotoringPlans,"SouthChinaMorningPost,8June1997(USExhibit14,pp.
132-135).
576TheUnitedStateshasprecisefiguresregardingtheplannedpricesforFordEscortsinIndonesia.
However,thesefiguresconstitutebusinessproprietaryinformationthattheUnitedStatesisreluctanttoprovidetothePanelabsenceadequateprocedurestoprotectsuchinformation.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2888.
394ThereasonswhytheTimorKiaSephiacouldsosignificantlyundercutthepricesofitscompetitionareobvious.
First,theTimorKiaSephiawasnotsubjecttoimportduties,whetherimportedfromKoreainCBUformduring1996-1997oraskitsfromJuly1997onward.
Second,theTimorKiaSephiaisnotsubjecttothe35percentluxurytax.
8.
395InformationprovidedbyIndonesia(AttachmentA-28toAV/3)effectivelyconcedesthatthetariffandtaxsubsidiesundertheNationalMotorVehicleprogrammeareresponsibleforthesignificantlevelofpriceundercutting.
Thistablecontainsdatafor1998and1999regardingtheTimorKiaSephiaS515ithatwillbeassembledattheKarawangfacility.
Row4ofthetable(UnitDealerPrice)indicatesthattheeffectofthetariffandtaxsubsidiesoftheNationalMotorVehicleprogrammeistolowerthepriceoftheTimorKiaSephiasedanbyUS$7,243-9,158.
8.
396TheUnitedStatesdoesnotnecessarilyaccepttheaccuracyofthedatainthistable.
Foronething,itdoesnotdealwiththe1996-97periodduringwhichthetariffsubsidywasevengreaterduetotheexemptionofimportsofCBUKiaSephiasfromthe200percenttariff.
Therefore,itdoesnotreflectthepriceimpactofthisparticularsubsidy.
Inaddition,duringtheAnnexVprocess,Indonesiarefusedtoexplainthebasisonwhich"unitcost"wasestimatedinthetable,thefigurefromwhich"unitdealercost"apparentlywasderived.
577Nevertheless,thetableconstitutesanadmissionastothetremendousimpactofthetariffandtaxsubsidiesonthepriceoftheTimorKiaSephia.
(c)ResponsesbyIndonesia8.
397ThefollowingareIndonesia'sresponsestothecomplainants'argumentsregardingpriceundercutting.
(1)Pricecomparisonsmade8.
398TheEuropeanCommunitiesandtheUnitedStatesclaimpriceundercuttingbytheTimor,buttheirpositionisfallaciousbecauseitisbasedonamisleadinglysimplisticcomparisonoflistprices.
TheSubsidiesAgreementandcommercialrealityrequirethatotherfactorsaffectingpricecomparabilitybeconsidered.
8.
399Article6.
5oftheSubsidiesAgreementrequiresthatpricecomparisonsmusttake"dueaccount…ofanyotherfactoraffectingpricecomparability".
Thisrequirement,inconjunctionwiththepositiveevidencestandard,meansthatComplainantshavetheburdenofquantifyingandmakingappropriatepriceadjustmentsforthephysicalcharacteristicsandconsumerpreferencesandperceptionsthatdistinguishtheTimorfromtheirmanufacturers'products.
Thistaskmaybedifficult,butitisabsolutelyindispensable.
Inthesamevein,Article6.
3(c)requiresthattherebe"significantpriceundercutting".
AsreflectedinArticle6.
5,theexistenceofanypriceundercuttingandadeterminationastoitssignificancenecessitatesanapples-to-applescomparison.
578577InAV/15,inQuestion12/28(a),theUnitedStatesreneweditsearlierrequestforanexplanationoftheestimatedunitcostforcarstobeproducedattheKarawangfacility.
(KarawangisthedistrictinwhichCikampekislocated).
InAV/16,p.
3,insteadofansweringthequestion,IndonesiareferredtheUnitedStatestoTableA-30/2ofAttachmentU-12.
However,TableA-30/2merelyprovidesalistofcostsinrelativeterms,and,assuch,cannotbeusedasabasisforestimatingunitcostsinabsoluteterms.
Inotherwords,underTableA-30/2,ifonestartswithacostofX,thefinalpricewillbe616.
9X.
However,TableA-30/2doesnotallowonetodeterminewhatXis.
578Althoughnotdirectlyapplicable,itisinstructivetonotethatlocalauthoritieswhichadministerWTO-consistentantidumpingandcountervailingdutyregimesroutinelysplitalikeproductcategoryintoWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage289(2)Factorsaffectingpricecomparability8.
400Numerousphysicalandnon-physicalfactorsandconsumerperceptionsaffectthepricecomparabilityofpassengercars.
Theseinclude,butarenotlimitedto:brandloyalty;quality;after-salesservice,brandimage/reputation;reliability;design;durability;utility;resalevalue;rideandcomfort;driveability;standardfeatures;safetyfeatures;availableoptions;exteriorsize;interiorspace;fueleconomy;enginesizeandtechnology;transmissiontype;andsuspensiontype.
AsdemonstratedinTables26and27above,therearenumerousphysicaldifferencesbetweentheproposedcomparisonmodelsthatmustbetakenintoaccountwhencomparingtheirprices.
Theabove-identifiednon-physicalattributesandconsumerperceptionsalsorequiresuchanaccounting.
8.
401Onepossibleapproachtoquantifyingthepriceeffectsofcertainphysicaldifferenceswouldbetoconsiderthesurchargescommonlyassessedbydealersforenhancedfeatures,suchasalargerengineandadvancedenginetechnology;specialsafetyfeatures(e.
g.
,anti-lockbrakesandairbags);trimpackages;interiorappointments(e.
g.
,powerwindowsandlocksandsoundsystem);andanautomatictransmission.
Ofcourse,theusefulnessofsuchsurchargesasbasesforadjustmentswouldbeconstrainedbytheirlimitedcross-modeltransferability.
8.
402Quantifyingthepriceeffectsofotherphysicalandnon-physicalfactorsandperceptionsismuchmoredifficultbecausespecificsurchargesdonotexist.
OnewaytogaugethepricepremiumconsumerswillinglypayfortheuniquepackagesoffeaturesofferedbythePeugeot306andOpelOptimawouldbetodesignandconducttargetedconsumersurveys.
Suchsurveysarecommonplaceintheautomotiveindustry.
5796.
Adjustmentsforfactorsaffectingpricecomparability(a)ArgumentsofIndonesia8.
403Asshown,numerous"otherfactors"affectthepricecomparabilityoftheTimor,thePeugeot306andtheOpelOptimaandthesefactorsmustbetakenintoaccountwhenassessingtheEuropeanCommunities(andtheUnitedStates)priceundercuttingclaims.
Indonesiarespectfullynotestheburdenofestablishinglikeproductsproperlyrestswithcomplainants.
(b)ArgumentsoftheEuropeanCommunities8.
404TheEuropeanCommunitieshasshownthat:-theTimorS-515wastheleastexpensivepassengercaronsaleinIndonesiainNovember1996andagaininMarch1997;numerousspecificproductswhenmakingpricecomparisonsamongproductsforinjuryassessmentpurposes.
Forexample,inthe1992antidumpingdutyinvestigationofMinivansfromJapan,theUSInternationalTradeCommissionandthepartiesacknowledgedandwrestledwiththedifficulttaskofdeterminingthecomparabilityofvariousminivanmodels.
TheCommission,withtheparties'input,eventuallysubdividedtheunitaryminivanlikeproductcategoryintofifteenspecificproductsforprice-comparisonpurposes.
SeeMinivansfromJapan,USITCPub.
2529(July1992)atpp.
5andA-100(IndonesiaExhibit45).
579SeegenerallyDanielMcGinn,DivideandConquer:MeettheResearcherBehindGM'sControversialMarketingStrategy,Newsweek,1December1997atpp.
50-52(IndonesiaExhibit42,AttachmentB).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage290-specifically,inNovember1996,thepriceoftheTimorS-515'smostexpensiveversionwas43percentlowerthanthepriceoftheleastexpensiveversionofthePeugeot306and52percentlowerthanthepriceoftheOpelOptima.
AsofMarch1997,themarginsofpriceundercuttingwerealmostidentical.
8.
405Indonesiahasnotprovidedanyevidenceinordertorebuttheaboveclaims.
Instead,Indonesia'sonlyargumentswithrespecttotheexistenceofpriceundercuttingarethefollowing:-Article6.
5oftheSCMAgreementrequiresthatanypricecomparisonsshallbemadeatthesameleveloftrade,atcomparabletimesanddueaccountmustbetakenofanyotherfactoraffectingpricecomparability.
TheEuropeanCommunitieshasnotattemptedtoaccountfor"anyotherfactors"initsanalysis.
-TheMazdaMR-90andtheFordLaseraresoldatpricesbelowthosechargedfortheTimor.
8.
406AllthepricecomparisonsmadebytheEuropeanCommunitiesarebasedonthelistedretailpricesprovidedbyIndonesiaitself(inAttachmentA-40/1toitsAnnexVResponse).
TheEuropeanCommunitiesunderstandsthatallthepricesmentionedinthatinformationareatthesameleveloftrade(namely,atretaillevel)andcorrespondtothesameperiodoftime(November1996andMarch1997).
TheEuropeanCommunitiesbelievesthattherearenorelevant"otherfactors"(includingdifferencesinphysicalcharacteristics)whichmayaffectsignificantlypricecomparabilitybetween,ontheonehand,theTimorS-515and,ontheotherhand,theOpelOptimaandthePeugeot306.
Indonesiaitselfhasnotbeenabletoidentifyanysuch"otherfactor",letaloneanyfactorwhichmayaccountforalevelofpriceundercuttingof50percent.
8.
407Further,theEuropeanCommunitiesisnotawareofany"otherfactor"(includingdifferencesinphysicalcharacteristics)whichmayexplainthemassivepriceundercuttingbytheTimor.
IndonesiacannotplaceupontheEuropeanCommunitiestheburdenofprovingthenegative,i.
e.
thatno"otherfactor"isresponsibleforthepriceundercutting.
TheevidenceadducedbytheEuropeanCommunitiesismorethansufficienttoraiseapresumptionthatthesubsidiesindisputehavecausedsignificantpriceundercutting.
IfIndonesiaconsidersthatthepricedifferencesareduetoany"otherfactor",itisforIndonesiatoproveit.
8.
408Inanyevent,thedatacontainedinIndonesia'sAnnexVresponseconfirmthatthepriceundercuttingisessentiallyattributabletothesubsidiesreceivedbyPTTPN.
Accordingtothefollowingtable(providedbyIndonesiaAV/3,AttachmentA-28),theestimateddealerpricesfortheTimorduring1998willbebetweenUS$22,170andUS$24,085"withoutsubsidy"andUSD14,927"withsubsidy".
Theestimatedprice"withsubsidy"isalmostthesameasPTTPN'slistedpricefortheTimorasofMarch1997,whichpriceundercutthelistedpricefortheleastexpensiveversionofthePeugeot306(US$24,405)by39percent.
Incontrast,theestimatedprice"withoutsubsidy"fortheTimorwouldhaveundercutthelistedpriceofthePeugeot306byonlybetween1and9percent.
Inotherwords,accordingtoIndonesia'sownestimates,thesubsidiesreceivedbyPTTPNwouldaccountforbetween77and97percentofthepricedifferencebetweentheTimorandthePeugeot306.
Table36TimorCarsManufacturedInKarawangPlantUS$1=Rp.
2430No.
Item19971998(estimated)1999(estimated)Remarks1Capacity(unit)NA63,00063,0002OutputNA6,00035,000TheonlyTimorcarproducedinIndonesiaistheS-515iDOHC-1500cc.
3Unitcost(US$)a.
withsubsidyb.
withoutsubsidyNANA7,000-9,0009,664-12,8527,000-9,0009,664-12,8524Unitdealerprice(US$)a.
withsubsidy1b.
withoutsubsidy2NANA14,92722,170-24,08514,92722,170-24,0855SalesinIndonesiaa.
Unitb.
US$(million)NANA6,00089.
5625,000373.
186Exporta.
Unitb.
US$(million)NANA0010,00070-907Localcontent(%)NA40608Subsidy(US$million)a.
importdutyb.
luxurysalestaxNANA15.
99-23.
1227.
47-31.
8451.
80-74.
8996.
81-110.
97Note:1DealerpriceiscalculatedwithoutLuxurySalesTax,ImportDutyandRegistrationFee.
2DealerpriceiscalculatedwithoutRegistrationFee.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2938.
409Asnoted,theMazdaMR-90isanoldmodel.
TheEuropeanCommunitiesbelievesthattherehavebeennosalesofthismodelsinceMay1997andthatbetweenJanuaryandAprilof1997only19unitsweresold.
TheFordLaserissoldexclusivelyforuseasataxi,freeofcustomsdutiesandofsalestaxes.
Therefore,anycomparisonwiththepricesofmodelswhicharesubjecttoimportdutiesandsalestaxesismeaningless.
(c)ArgumentsoftheUnitedStates8.
410IndonesiatakesaperfunctorystabatarguingthatthepriceanalysesconductedbytheUnitedStatesandtheEuropeanCommunitiesareflawed.
Indonesiadoesnotassertthatthesepricecomparisonswerenotmadeatthesameleveloftradeoratcomparabletimes,butinsteadassertsthattheComplainantsfailedtoaccountfor"anyotherfactors"withinthemeaningofArticle6.
5.
AsidefromthefactthatArticle6.
5doesnotimposeaburdenonthecomplainingpartytoadjustfor"anyotherfactors,"butinsteadidentifiessuchfactorsassomethingforapaneltoconsider,theUnitedStatesdoesnotknowofanysuchfactors,andIndonesiahasnotidentifiedany.
Essentially,IndonesiaisseekingtohavethePanelimposeontheUnitedStatesandtheEuropeanCommunitiestheburdenofprovingthenegative;i.
e.
,that"otherfactors"donotexist.
8.
411Moreover,asstatedbynumerouscommentators,theonlyfactorresponsibleforthesignificantpriceundercuttingbytheTimorKiaSephiaissubsidies,andthe50-60percentpriceadvantagethatthesesubsidiesconfer.
5808.
412TheUnitedStatesisunawareofanyotherfactorthatwouldaccountforthemassivepriceundercuttingoflikeproductsbytheTimorKiaSephia.
Asnumerousanalystshaverecognized,thispriceundercuttingisattributabletothehugesubsidiesprovidedbyIndonesia.
5818.
413IntheviewoftheUnitedStates,thepartythatwouldbenefitfromhavingan"otherfactor"beingtakenintoaccountunderArticle6.
5shouldbeartheburdenofprovingtheexistenceofsuchafactoranditseffectonpricecomparability.
Otherwise,astheUnitedStateshasalreadynoted,theopposingpartywouldbeartheburdenofprovingthenegative,anunreasonableburdenwhichistypicallyimpossibletosatisfyandwhichthedraftersoftheSCMAgreementcouldnothaveintended,giventhatoneofthepurposesoftheSCMAgreementwastocreateanoperationalmultilateralremedyagainstsubsidies.
8.
414Inthatregard,therelevantprovisionsoftheAnti-dumpingAgreement,whichdealsextensivelywithissuesorpricecomparability,provideusefulguidanceonthispoint.
Indeed,Indonesiahaspreviouslyacknowledgedthatconceptsdevelopedintheanti-dumpingcontextcanberelevanttoananalysisofseriousprejudice.
8.
415Article2.
4oftheAnti-dumpingAgreementdealswiththetopicofmakingafaircomparisonbetweennormalvalueandexportprice,andprovidesthatdueallowanceshallbemade580See,e.
g.
,"Jakarta'sCarWars,"BusinessTimes(Singapore),28May1996(USExhibit14,pp.
46,48);"IndonesiaDrawsMoreCriticismOverCarPlan,"TheNikkeiWeekly,17June1996(USExhibit14,pp.
80-81);"BumpyRoadAheadforMotoringPlan,"SouthChinaMorningPost,8June1997(USExhibit14,pp.
132-133);and"IndonesiaCompany:SuhartoClan'sBusinessActivities,"EIUViewswire,28July1997(USExhibit14,pp.
154,156).
581See,e.
g.
,"Jakarta'sCarWars",BusinessTimes(Singapore),28May1996(USExhibit14,pp.
46,48);"IndonesiaDrawsMoreCriticismOverCarPlan,TheNikkeiWeekly,17June1996(USExhibit14,pp.
80-81);"BumpyRoadAheadforMotoringPlan",SouthChinaMorningPost,8June1997(USExhibit14,pp.
132-133);and"IndonesiaCompany:SuhartoClan'sBusinessActivities",EIUViewswire,28July1997(USExhibit14,pp.
154,156).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage294foravarietyoffactors,including"anyotherdifferenceswhicharealsodemonstratedtoaffectpricecomparability".
Inotherwords,thepartyseekinganallowancemustdemonstratetheeffectofafactoronpricecomparability.
ThelastsentenceofArticle2.
4states:"Theauthoritiesshallindicatetothepartiesinquestionwhatinformationisnecessarytoensureafaircomparisonandshallnotimposeanunreasonableburdenofproofonthoseparties.
"ThusArticle2.
4appearstoimposetheburdenofproofonthepartyseekinganallowanceoranadjustmenttonormalvalueorexportprice,althoughtheburdenimposedcannotbeanunreasonableone.
8.
416TheUnitedStatescannotspeakforthepracticeofallMembers,butcertainlythepracticeoftheUSauthoritiesresponsibleforadministeringtheUSanti-dumpinglawistoimposetheburdenofproofonthepartyseekinganadjustment,whetherthepartybeanexporterseekinganadjustmentthatwillloweradumpingmarginoradomesticpartyseekinganadjustmentthatwillincreaseadumpingmargin.
8.
417Bythesametoken,anevenhandedapplicationofArticle6.
5wouldbetoimposetheburdenofproofonthepartyclaimingtheexistenceofany"otherfactoraffectingpricecomparability".
Thisavoidstheimpositionoftheunreasonableburdenofprovingthenegative.
8.
418TheUnitedStateswouldalsonotethatArticle6.
5refersto"dueaccountbeingtakenof"otherfactors".
Theordinarymeaningof"due"is"fittingorappropriate".
AstheUnitedStateshaspreviouslystated,itisunawareofanyfactorsotherthanthesubsidiesprovidedbyIndonesiathatwouldaccountforthemassivepriceundercuttingreflectedinsalesoftheTimorKiaSephia.
Also,aspreviouslystated,evenIndonesia'sowndatashowthatsubsidiescausethepriceoftheTimorKiaSephiatobebetweenUS$7,200-9,100lowerthanwouldotherwisebethecase.
AV/14,AttachmentA-28,note4.
8.
419ItissubmittedthatevenifitisassumedforpurposesofargumentthattheUnitedStatesbearstheburdenoftaking"due"accountofotherfactors,theUnitedStateshasmetitsburdenofestablishingthatnoaccountforsuchfactorsis"due"inthiscase.
7.
AdditionalECrebuttalstoIndonesia'sresponsestoseriousprejudiceclaims(a)ThesubsidiesreceivedbyPTTPNpursuanttoPresidentialDecree42/96havenotbeenwithdrawn8.
420Indonesia'sfirstargumentisbasedonthewrongpremisethattherearetwodifferent"programmes",eachprovidingdifferentsubsidies.
Inreality,however,thereisbutasingleNationalCarProgrammebasedonPresidentialInstruction2/96.
PresidentialDecree42/1996doesnotintroduceanew"programme".
ThesolepurposeofPresidentialDecree42/1996was,byitsownwords,toextendonatemporarybasistoNationalCarsimportedfromKoreathe"sametreatment"582alreadygrantedinFebruary1996toNationalCarsassembledinIndonesia.
8.
421Moreover,Indonesia'sfirstargumentmakesthefundamentalerrorofconfusingthemeasuregrantingasubsidywiththesubsidyitself.
Asubsidycontinuestoexist-and,therefore,maybe"withdrawn"oritsadverseeffects"removed"inthesenseofArticle7.
8oftheSCMAgreement-foraslongasitcontinuestobenefitthesaleofgoodsbytherecipientfirm,evenifthemeasuregrantingthatsubsidyhasalreadyexpired.
582SeeArticle1ofPresidentialDecree42/1996inECExhibitA-13.
ThetranslationprovidedbyIndonesia(Attachment6)statesthatimportedNationalCars"willbetreatedequally.
.
.
".
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2958.
422Inthepresentcase,thepermitgiventoPTTPNforimporting45.
000unitsoftheTimorS-515dutyandtaxfreefromKoreaexpiredasof30June1997.
Yet,thesubsidiesreceivedbyPTTPNpursuanttothatauthorizationhavenotbeen"withdrawn".
SalesofpassengercarsbyPTTPNafter30June1997havecontinuedtobenefitfromthosesubsidiesand,asaresult,tocauseseriousprejudicetotheinterestsoftheEuropeanCommunities.
8.
423Inthisregard,theEuropeanCommunitiesnotesandagreeswiththeargumentmadebytheUnitedStatestotheeffectthatthesubsidiesgrantedundertheone-yearauthorizationtoimportcarsfromKoreadutyandtaxfreearenon-recurringsubsidiesandthereforeshouldbeallocatedtofuturetimeperiods.
8.
424Furthermore,evenifthetotalamountofthesubsidieshadtobeattributedtothepassengercarsimportedfromKoreabefore30June1997,itremainsthatmorethan70percentofthosecarshadnotbeensoldyetasofthatdate.
Infact,itcanbeestimatedthatifsalesoftheTimorS-515continueatthesamepaceasuntilnow,thelastTimorS-515importedfromKoreaunderPresidentialDecree42/1996willnotbesolduntilMarch1999.
Thiscannotbeexplainedawaysimplyasan"inventoryoverhang".
8.
425IndonesiadoesnotaddressdirectlytheevidenceofseriousprejudicesubmittedbytheEuropeanCommunities.
Allegedly,becauseitneednotdosogiventhattheTimorS-515isunlikeanyotherpassengercarandthat,inaddition,theso-called"June1996Programme"hasalreadyexpired.
Inreality,becauseIndonesiacannotprovideanyevidencetorebuttheECclaim,whichisbasedonevidencesuppliedbyIndonesiaitselfaspartofitsAnnexVresponse.
(b)Indonesia'ssuggestionthatthefactthattheimportdutyandluxurytaxbenefitswithrespecttoCBUsimportedfromKoreaundertheJune1996programmewillbereimbursedornotprovidedprecludesafindingofseriousprejudiceisincorrect8.
426AccordingtoIndonesia,allthebenefitsgrantedundertheso-calledJune1996programmewerealready"provided"before30June1996.
Therelevantquestion,therefore,iswhetherthosebenefitscontinuetohaveeffects.
AslongasthosebenefitsarenoteffectivelyanddefinitivelyreimbursedbyPTTPN(increasedwithanappropriateamountofinterest),itcannotbeconsideredthatthesubsidieshaveceasedtoproduceeffects.
8.
427TheletterthatIndonesiahassubmittedindicatingthattheTimorsimportedasCBUsfromKoreadonotmeetlegalrequirementstoreceiveNationalCarbenefitsisaletterfromSUCOFINDOtotheIndonesianGovernment,whichcontainstheresultsofanauditconductedbySUCOFINDO.
TheEuropeanCommunitiesunderstandsthattheIndonesianGovernmenthasnotyettakenanyformaldecisionorderingthereimbursementbasedonSUCOFINDO'saudit.
Moreover,assumingthatsuchdecisionwastaken,itislikelytobeappealedbyPTTPN.
Evenifthatappealwasunsuccessful,itwouldstillbepossiblefortheIndonesianGovernmentto"forgive"PTTPN'sdebt.
8.
428Insum,PTTPNhasnotyetreimbursedanyoftheunpaidtaxesanddutiesanditisstilluncertainwhetheritwillberequiredtodosointhefuture.
Thus,thereisnoreasontoassumethatthesubsidieshaveceasedorwillceasetocauseseriousprejudice.
Inthosecircumstances,thePanelisrequiredtoruleonthisclaim,likeonallotherclaimsincludedinitstermsofreference.
(c)ThesubsidiesgrantedundertheNationalCarProgrammefortheassemblyofpassengercarswillcontinuetocauseseriousprejudicetotheCommunityindustryWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2968.
429ThepermitissuedtoPTTPNforimportingTimorS-515carsdutyfreeandtaxfreefromKoreaexpiredon30June1997.
Nonetheless,thesalesofthosecars,togetherwiththesalesofsubsidizedcarsassembledbyPTTPNinIndonesia,willcontinuetocauseseriousprejudicetotheCommunityinterestsintheforeseeablefuture.
8.
430Asof30June1997,thenumberofTimorsS-515importeddutyfreeandtaxfreefromKoreaandnotyetsoldwas28,391.
Incomparison,thetotaldemandforpassengercarsduring1996was42,345units.
Thus,thenumberofTimorsS-515importedfromKoreaandnotyetsoldasof30June1997wouldhavebeensufficienttocoveralmost70percentofthetotalIndonesiandemandforpassengercarsduringthewholeof1996.
Asalreadynoted,thosecarswillnotbesubjecttotheSalesTaxonLuxuryGoodswhentheyaresold.
8.
431FromJune1997anduntilMay1998,PTTPNwillassembletheTimorS-515attheTambunPlant.
AccordingtoIndonesia,thisPlanthasaproductioncapacityof3,000carsperyearandiscurrentlyproducingattherateof1,000carsperyear.
8.
432AsfromMay1998,PTTPNwillstartproducingtheTimorS-515atitsownplantinKarawang.
AccordingtotheinvestmentpermitapprovedbytheBKPM,theKarawangPlantisdesignedtoproduce120,000carsperyear,ofwhich80,000sedans.
Incomparison,theforecastdemandforpassengercarsduring1998and1999is64,000and72,000,respectively.
583Thus,KarawangPlantwillhavemorethansufficientproductioncapacitytosupply100percentoftheIndonesiandemandduringthenexttwoyears.
8.
433AccordingtothemoreconservativeestimatesnowproducedbytheIndonesianauthoritiesforthepurposesofthisdispute,theproductioncapacityofKarawangPlantwillbe63,000units.
584Thoughlessthanoriginallyplanned,thiscapacitywillstillbesufficienttocoveralmost100percentoftheexpecteddemandfor1998.
5858.
434Accordingtothesameestimates,theactualoutputofTimorsS-515willbe6,000unitsin1998and35,000unitsin1999,ofwhich25,000forsaleontheIndonesianmarket.
586ThismeansthattheIndonesianGovernmentexpectsthat,despiteanunexplainedverylowrateofcapacityutilization,in1999KarawangPlantwillsupplyover35percentoftheforecasttotalsalesintheIndonesianpassengercarmarket.
Inotherwords,theIndonesianauthoritiesarecountingonafurther10percentincreaseinPTTPN'smarketsharebetweennowand1999.
8.
435Asshownabove,theestimatedsubsidizationrate(onsalesvalue)ofthecarsassembledbyPTTPNinIndonesiaislowerthanthecorrespondingrateforcarsimportedfromKoreabutstillverysubstantial.
ThiswillenablePTTPNtocontinuetoundercutsignificantlythepricesoftheCommunitycars.
Infact,accordingtoPTTPN'sownestimates,theretailpriceforthecarsassembledatKarawangPlant,willbevirtuallythesameasthe1997pricesforthecarsimportedfromKorea.
587583DatafromDRI'sreporton"EastAsianAutomotiveGrowthMarkets"includedinAV/2,Annex2.
584AV/3,AttachmentA-28.
585DatafromDRI'sreporton"EastAsianAutomotiveGrowthMarkets"includedinAV/2,Annex2.
586AV/3,AttachmentA-28.
587InAV/3,AttachmentA-28,Indonesiahasindicatedthattheestimatedunitdealerprice"withsubsidy"fortheTimorsS-515assembledatKarawangPlantduring1998and1999willbeUS$14,927.
ThispriceisalmostidenticaltoPTTPNcurrentprices.
Thus,accordingtoAV/3,AttachmentA-40/1,inMarch1997PTTPN'slistedretailpricesfortheTimorS-515rangedfromUS$13,535toUS$14,861.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2978.
436TheEuropeanCommunitieshasestablishednotonlythattheNationalCarProgrammehascausedseriousprejudicebutinadditionthatitwillcontinuetodosointheforeseeablefuture.
Thisclaimisnottobeconfusedwithaclaimofthreatofseriousprejudice.
SincetheNationalCarProgrammehasalreadycausedseriousprejudice,thereisnoneedfortheECtoshowthatitthreatenstocauseseriousprejudice.
TheEChassubmittedalsoaclaimofthreatofseriousprejudice,butonlyinthealternative,i.
e.
intheeventualitythatthePanelwastofindthattheNationalCarProgrammehasnotcausedactualseriousprejudice.
(SeeSectionVIII.
B.
7.
)8.
437TheEuropeanCommunitieshasshownthat:-Asof30June1997,thenumberofTimorsS-515importeddutyandtaxfreefromKoreaandnotyetsoldwas28,391.
Asmentionedabove,ifsalesoftheTimorS-515continueatthesamepaceasuntilnow,itmaybeestimatedthatthelastTimorS-515importedfromKoreawillnotbesolduntilMarch1999.
-FromMay1998,theTimorS-515willbeassembledatKarawangPlant.
AccordingtotheinvestmentpermitissuedbytheIndonesianGovernmenttoPTTPN,thisPlanthasbeendesignedtoproduce80,000sedansperyear.
-AccordingtoIndonesia'sAnnexVresponse,theactualoutputofTimorS-515atKarawangPlantwillbe6,000unitsin1998and35,000unitsin1999,ofwhich25,000forsaleontheIndonesianmarket.
Incomparison,untilSeptemberofthisyear,PTTPNsold13,476units.
ThismeansthatPTTPNexpectstoincreaseitssalesbyalmost40percentbetweennowand1999.
-InitsAnnexVResponse,IndonesiahasadmittedthatthecurrentpricesfortheTimorS-515,andconsequentlythelevelofpriceundercutting,willremainunchangedduring1998and1999.
8.
438Indonesiahasnotadvancedanyevidencewhatsoevertorebuttheaboveallegations.
Itcouldhardlydoso,sincetheyareallbasedondataprovidedbyIndonesiaitselfinitsAnnexVResponse.
8.
439TheEuropeanCommunitiespresentsarebuttaltotheargumentthatthemeasurehasexpiredandthereforeisnotrelevanttothePanel'sworkinthecontextofitsclaimsunderArticleI:1ofGATT1994.
(SeeSectionVII.
E.
2)Inaddition,withrespecttotheimplications,ifany,ofaneventualrepaymentbyTPNofthebenefitsundertheprogramme,theEuropeanCommunitiesmakesthefollowingarguments:8.
440AccordingtoIndonesia,allthebenefitsgrantedundertheso-calledJune1996programmewerealready"provided"before30June1996.
Therelevantquestions,therefore,iswhetherthosebenefitscontinuetohaveeffects.
AslongasthosebenefitsarenoteffectivelyanddefinitivelyreimbursedbyPTTPN(increasedwithanappropriateamountofinterest),itcannotbeconsideredthatthesubsidieshaveceasedtoproduceeffects.
8.
441ThelettersubmittedbyIndonesiaisaletterfromSUCOFINDOtotheIndonesianGovernmentwhichcontainstheresultsofanauditconductedbySUCOFINDO.
TheEuropeanCommunitiesunderstandsthattheIndonesianGovernmenthasnottakenyetanyformaldecisionorderingthereimbursementbasedonSUCOFINDO'saudit.
Moreover,assumingthatsuchdecisionwastaken,itislikelytobeappealedbyPTTPN.
Evenifthatappealwasunsuccessful,itwouldstillbepossiblefortheIndonesianGovernmentto"forgive"PTTPN'sdebt.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage2988.
442Insum,PTTPNhasnotreimbursedyetanyoftheunpaidtaxesanddutiesanditisstilluncertainwhetheritwillberequiredtodosointhefuture.
Thus,thereisnoreasontoassumethatthesubsidieshaveceasedorwillceasetocauseseriousprejudice.
Inthosecircumstances,thePanelisrequiredtoruleontheseriousprejudiceclaim,likeonallotherclaimsincludedinitstermsofreference.
8.
AdditionalUnitedStatesargumentsconcerningseriousprejudicethegovernment-directed$690millionloan8.
443Asdemonstratedabove,thetariffandtaxsubsidiesprovidedundertheNationalMotorVehicleprogrammehavecausedseriousprejudicetotheinterestsoftheUnitedStates.
Thegovernment-directed$690millionloantoTPNexacerbatedtheseriousprejudicethatalreadyexistedatthetimewhentheGovernmentofIndonesiaorderedthebankstoprovidetheloan.
8.
444AsaresultoftheconcessionalfinancingprovidedtoTPNthroughtheinterventionoftheIndonesianGovernment,TPN'scostsofdoingbusinesswillbereducedevenfurther.
ThiscontinuedGovernmentbackingwillensurethatTPNanditsjointventure,KiaTimor,continuetoenjoyacompetitiveadvantagevis-a-vistheircompetitorsintheIndonesianpassengercarmarket,andthatimportsofpassengercarsfromUSmotorvehiclemanufacturerswill(a)continuetobedisplacedorimpededfromtheIndonesianmarket;and(b)willcontinuetoexperiencesignificantpriceundercuttingfromthesubsidizedTimorKiaSephiasedan.
9.
ClaimsofthreatofseriousprejudiceundertheSCMAgreement(a)ClaimoftheEuropeanCommunities8.
445TheEuropeanCommunitiesclaimsthat,inthealternative,thesubsidiesgrantedundertheNationalCarProgrammetopassengercarsposeathreatofseriousprejudicetotheCommunityinterests.
ThefollowingaretheEuropeanCommunities'argumentsinsupportofthisclaim.
8.
446Asdemonstratedabove,thesubsidiesgrantedundertheNationalCarProgrammehavecausedactualseriousprejudicetotheCommunityinterestsandwillcontinuetodosointheforeseeablefuture.
8.
447Nonetheless,assumingarguendothatthePanelconsideredthattheavailableevidencedoesnotwarrantafindingofactualseriousprejudice,thefactsdiscussedaboveinordertodemonstratethatthesubsidiesinquestionwillcontinuetocauseseriousprejudicetotheCommunityindustryaremorethansufficienttoconcludethattheNationalCarProgrammeposesathreatofseriousprejudicetotheCommunityinterests.
(b)ClaimoftheUnitedStates8.
448TheUnitedStatesclaimsthatthesubsidiesundertheNationalMotorVehicleProgrammehavecausedathreatofseriousprejudicetotheinterestsoftheUnitedStateswithinthemeaningofArticle6and27oftheSCMAgreement.
ThefollowingaretheUnitedStatesargumentsinsupportofthisclaim:(1)Claimasraised8.
449TheUnitedStateshasdemonstratedthattheNationalMotorVehicleprogrammealreadyhasresultedinseriousprejudiceinsofaraspassengercarsareconcerned.
However,thesesubsidiesalsothreatenseriousprejudicewithrespecttoUSexportsoflightcommercialvehiclestotheWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage299Indonesianmarket.
Asindicatedabove,KiaTimorplanstoassembleitsownversionoftheKiaSportage,alightcommercialvehicle,tobesoldinIndonesiaastheTimorJ520i.
Asdiscussedbelow,theTimorKiaSportagealsowillbenefitfromsubsidies,andlikelywillhavethesameadverseeffectsonUSlightcommercialvehiclesastheTimorKiaSephiahadonUSpassengercars.
8.
450Bywayofbackground,note13toArticle5oftheSCMAgreementprovidesthattheterm"seriousprejudice"includes"threatofseriousprejudice".
AlthoughtheSCMAgreementdoesnotaddressindetailtheelementsofathreatofseriousprejudicecase,logically,theelementsforsuchacaseshouldbethesameasforaseriousprejudicecase.
Theprincipaldifferencebetweenthetwotypesofcasesisthatinaseriousprejudicecase,alloftheelementsalreadyexist,whereasinathreatofseriousprejudicecase,alloftheelementsneednothavecometopass.
8.
451Inthiscase,theUnitedStateshaspreviouslydemonstratedthatthreeofthefournecessaryelementsalreadyexist.
Thegovernment-directed$690millionloan(1)constitutesasubsidy,(2)isspecific,and(3)exceeds5percentadvalorem.
BecausetheostensiblepurposeofthissubsidyistofundtheconstructionoftheCikampekfacilitywheretheTimorKiaSportagewillbeassembled,theloanconfersasubsidyontheSportage.
5888.
452Inaddition,theUnitedStateshasshownthatUSlightcommercialvehiclesimportedandsoldinIndonesiaare"like"theTimorKiaSportage.
AssetforthinTable25,basedonacomparisonofspecifications,theGMOpelBlazerissufficientlysimilartotheSportagetobeconsidereda"likeproduct".
5898.
453TheonlyremainingquestioniswhattheeffectswillbeoftheTimorKiaSportageonceitisintroducedintotheIndonesianmarketsometimenextyear.
BasedonthepricingstrategyemployedbyTPNinconnectionwiththeTimorKiaSephia,itisreasonabletoassumethatTPNwilltakeadvantageofthesubsidiesitreceivesfromtheGovernmenttosignificantlyundercutthepricesofitscompetitionwithinthemeaningofArticle6.
3.
Assuch,athreatofseriousprejudiceexists.
(2)ClaimnotpursuedduetoPanel'srulingontheadmissibilityofthe$690milliongovernment-directedloan8.
454TheUnitedStatesclaimofthreatofseriousprejudicewaslimitedtotheimpactofthesubsidizedSportageonlightcommercialvehiclesofUSmanufacturers.
ThethreatofseriousprejudiceclaimwasbasedontherelatedclaimthattheUS$690milliongovernment-directedloantoTPN(thepurposeofwhichwastofinancetheconstructionoftheCikampekplantatwhichtheSportagewillbeassembled)constitutesanactionablesubsidy.
BecausethePanelhasdismissedtheUSclaimregardingtheloan,theUnitedStatesisnotcurrentlypursuingitsclaimofthreatofseriousprejudice.
8.
455However,whilethePanelhasruledthattheUSclaimsconcerningtheloanareinadmissible,theloanremainsrelevanttothiscase.
Cf.
,Argentina-MeasuresAffectingImportsofFootwear,Textiles,Apparel,andOtherItems,WT/DS56/R,ReportofthePanelissued25588Todate,theGovernmentofIndonesiahasinsistedthattheTimorKiaSportagewillnotbedesignatedasa"nationalmotorvehicle"andwillnotbenefitfromthetariffandtaxsubsidiesundertheNationalMotorVehicleprogramme.
Bethatasitmay,anissueremainsastowhetherthetariffandtaxsubsidiesprovidedtotheSephiaalsoprovidebenefitstotheSportage.
589TheUnitedStatesalsobelievesthattheJeepCherokeeandJeepWranglerare"like"theSportage.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage300November1997,para.
6.
15.
IndonesiaassertedatthefirstmeetingofthePanelthatafterTPN'sstart-upphase,themarketwilldeterminethewinnersandthelosers,asitshould.
"Indonesia'sStatementtothePanel,page2.
ThisstatementissimplycontradictedbythefactthattheGovernmentofIndonesiaorderedaconsortiumofbankstoprovidea$690millionloantoTPNonpreferentialterms.
Theloanisasubsidy,and,witha10-yearterm,hasa10-yearallocationperiod.
Inotherwords,TPNwillbedeemedtobereceivingsubsidiesfromtheloanforthenexttenyears.
TheexistenceoftheloanbeliesIndonesia'sclaimthat,asof1999,the"market"willdeterminethewinnersandthelosers.
Moreover,Indonesia'sclaimthattheGovernmentofIndonesiaplayednoroleintheprovisionoftheloanissoatoddswiththereportedfactsthatitcallsintoquestionthecredibilityofotherfactualassertionsmadebytheGovernmentofIndonesiainthiscase.
(c)ResponsebyIndonesia8.
456IndonesiarespondstothethreatofseriousprejudiceclaimsraisedbytheEuropeanCommunitiesandtheUnitedStatesbyarguingthatthesecomplainantsmustdemonstrateathreatofseriousprejudicebypositiveevidenceinaccordancewiththeprovisionsofparagraphs3through8ofArticle6.
ThefollowingareIndonesia'sargumentsinthisregard:8.
457ThespecificthreatallegationsoftheECrelatesolelytotheputativeeffectsoftheFebruary1996componentoftheNationalCarProgrammeandthespecificthreatallegationsoftheUnitedStatesrelatesolelytotheputativeeffectsoftheAugust1997loan.
590Asdiscussedabove,theseallegationsimplicatethe5percentadvaloremstandardofArticle6.
1(a),aswellasthegenerallyavailableseriousprejudicestandardsofArticle6.
3.
Thisdoesnot,however,resultintheapplicationofdifferenttypesofthreatanalysestothesedifferentbasesforactionability.
8.
458Inthiscase,Article27.
8operatestoapplythegeneralstandardsofArticle6.
3toanyArticle6.
1(a)allegations.
Asdemonstratedbelow,complainantshavefailedtoshowbypositiveevidence,astheymustundereitherArticle6.
1(a)or6.
3,thattheirinterestsarethreatenedwithseriousprejudice.
591(1)TheactualandallegedsubsidiesprovidedpursuanttotheFebruary1996NationalCarProgrammeortheAugust1997loantoTPN,respectively,donotthreatenseriousprejudicetoEuropeanCommunitiesorUSinterests8.
459Paragraphs(a)and(c)ofArticle6.
3applytotheEuropeanCommunitiesandUnitedStatesthreatofseriousprejudiceallegations.
Bothparagraphsexpresslyfocusontheeffectofthesubsidy590TheECspeaksgenerallyofthecontinuedeffectsoftheterminatedJune1996programmeandofthe"estimatedsubsidisationrate(onsalesvalue)ofthecarsassembledbyPTTPNinIndonesia"andtheUnitedStatesassertsgenerallythatNationalCarProgrammesubsidiesthreatenseriousprejudicetoUSexportsoflightcommercialvehicles,butsuchgeneralizedpleadingfailstosatisfyeventhemostrudimentarypositiveevidenceordueprocessstandards.
591Thus,althoughtheUSAnnexIVcalculationsregardingtheAugust1997loanareflawedinseveralcriticalrespects,theGovernmentneedsnothereaddresstheirvalidityandaccuracy.
Also,althoughnotwithinthescopeoftheirspecificthreatallegations,andthusnotgermane,thesameholdstruefortheapplicationbytheUSandtheECofthe5%/15%teststotheFebruaryandJune1996aspectsoftheNationalCarProgramme.
ThecalculationsrelatingtotheJune1996programmearemootbecausetheprogrammehasbeenterminated.
Similarly,thecalculationsrelatingtotheFebruary1996programmearemootbecausetheonlyevidenceofactualseriousprejudicethatisadducedrelatesexclusivelytothenow-terminatedJune1996programme.
Article6.
1(a)isnotimplicatedbytheFebruary1996programmebecause,asdemonstratedbelow,ComplainantshavefailedtosatisfytheevidentiarystandardimposedbyArticle27.
8withrespecttothreatofseriousprejudice.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage301atissueona"likeproduct"ofanotherMember.
Thisthresholdconceptsignificantlylimitsthescopeoftheeffectsanalysisthatistobeundertakenhere.
Asdiscussedabove,Indonesiadisagreeswiththecomplainants'likeproductarguments.
(a)Complainants'threatallegationsarebasedoninappropriatelikeproductanalyses8.
460Thecomplainants'threatallegationsarebasedoninappropriatelikeproductanalyses.
TheECtakesanundulyexpansiveapproach,boldlyassertingthatallmotorvehiclesfallingwithinthecategoryofpassengercars,asdefinedinIndonesia'sregulations,constituteasinglecategoryoflikeproducts.
TheUnitedStates,incontrast,takesanundulyrestrictiveapproach,lookingonlyatlimitedengine,transmission,brakeanddimensiondatafortheSportageandtheOpelBlazer.
592Asdiscussedabove,theSportageisnot(andwillnotbe)anationalcar.
Moreover,theapplicationofcustomarylikeproductcriteriademonstratesthespeciousnatureofeachcomplainant'sapproach.
8.
461Theend-usecriterionoffersnoguidanceherebecausewidelydissimilarvehicles,suchasbuses,motorcycles,vansandcars,servetotransportpeopleandcarrycargo.
Indeed,animalsandhuman-drawnmeansofconveyancealsoservethesepurposes.
8.
462Withrespecttocars,consumer'stastesandhabitsandtheproduct'sproperties,natureandqualityareinseparable.
ContrarytothepositionstakenbytheEuropeanCommunitiesandtheUnitedStates,themarketsforpassengercarsandlightcommercialvehiclesareveryhighlydifferentiated.
Itiswidelyrecognizedthatconsumersconsidernumerousphysicalandnon-physicalcharacteristicsinmakingtheirpurchasingdecisions:quality;reputation;price;resalevalue;rideandcomfort;standardfeatures;safetyfeatures;availableoptions;exteriorsize;interiorspace;enginesizeandtechnology(e.
g.
,horsepower,in-line/Vconfiguration,valvedesign);fuelefficiency;etc.
5938.
463Finally,thatwithrespecttotarifftreatment,passengercarsaredistinguishedonthebasisoftotalcylindercapacityandfueltype(gasolineversusdiesel),withHarmonizedTariffSystembreakpointsoccurringat1000cc,1500ccand3000cc.
594Inthisrespect,itisespeciallyimportanttonotethattheTimorisoneofthefewpassengercarssoldinIndonesiawithacylindercapacityoflessthan1500cc.
595592Althoughnotrelevant,thiserrantapproachalsocontaminatesthelikeproductanalysisrelieduponbytheUSwithrespecttopassengercars.
TherelianceoftheUSand,toalesserextent,theEContheDRI/McGraw-Hillmarketsegmentationcategoriesisalsomisplaced.
First,theDRI/McGraw-HillcategoriespertaintotheEuropean,nottheIndonesian,carmarket.
SeeAV/2,atAnnex1,p.
284.
Second,carswiththesamenameplateoftendiffersignificantlyfrommarkettomarket.
Finally,thereisdisagreementamongindustryauthoritiesastohowtosegmentthemarket.
Forexample,aUSindustryauthorityplacesthemore-advancedUSversionoftheKiaSephiaina"Budget"category,whollyapartfromtheEscort,Neon,andanyOpelOptima-equivalentGMmodel.
SeeIndonesiaExhibit12.
593Indeed,ifallthatmatteredwasacar'sgeneralmarketsegment,wewouldnotobservetheverysignificantpricespreadsthatexistbetweencarsinthesamesegment.
Forexample,assetforthbytheUnitedStatesinTable31,theMarch1997listpriceforaDaewooNexiaDOHC1500ccwas43millionrupiah,whilethelistpriceforaHondaCivic4-door,AKP1600ccwasnearly75millionrupiah.
594SeeHTSCategory87.
03.
Anumberofcountriesalsoconsiderotherfactors(e.
g.
,interiorspace;bodytype;numberofcylinders;height)infurthersubdividingthiscategoryforstatisticalandotherpurposes.
595ItisalsonoteworthythattwoothervehiclesfittingintheHTS1000ccto1500cccategory(theMazdaMR-90(1400cc)andtheFordTaxi(1300cc)),aresoldatpricesbelowthosechargedfortheTimor.
SeeAV/14,atAttachmentU-22/1at3;AV/13,atAttachment7.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage3028.
464Insum,althoughitmaybedifficulttodetermineappropriatelikeproductcategoriesforthepurposesofthisproceeding,itshouldbeabundantlyclearthatthecategoriesurgedbytheEuropeanCommunitiesandtheUnitedStatesarenotappropriate.
Thisisespeciallysoconsideringthatarestrictiveinterpretationofthatphraseisrequiredhere.
TheEuropeanCommunitiesandtheUnitedStateshavenotmettheirburdenofprovingthatproductsarelikeandofestablishingacceptablelikeproductcategories.
596Asfurtherdiscussedbelow,theirfailuretoadduceappropriateevidenceonthosebasesresultsintheirfailuretoaffirmativelydemonstrate,astheymust,thattheirinterestsarethreatenedwithseriousprejudicethroughtheeffectsoftheFebruary1996programmeorthe1997loantoTPN.
(b)ComplainantshavefailedtodemonstratethattheeffectsoftheFebruary1996ProgrammeortheAugust1997loantoTPNthreatenseriousprejudice(1)Thethreatofseriousprejudicestandard8.
465Asathresholdmatter,itisimportanttoemphasizethatthethreatofseriousprejudicestandardmustbeveryexacting.
597Forexample,unsubstantiatedconjecture,speculationandassumptionscertainlycouldnotconstitutethe"positiveevidence"calledforbyArticle27.
8.
Moreover,thetemporaldimensionisalsocritical,giventhefluidityoftheeconomicandbusinessenvironments(onbothmacroandmicrolevels).
Projectionsandforecastsmaybecarefullydeveloped,buttheyarealltoosusceptibletorevision.
Thus,themoreremoteanitemisintime,thelessreliableitisasacurrentindicatoroffuturedevelopments.
Insum,thethreatallegedmustberealandimminent,andthethreatstandardmustbeappliedcautiouslyandjudiciously,especiallywhentherightsofadevelopingcountryMemberareatstake.
(2)TheECassertions8.
466TheEuropeanCommunities:(i)assertsthatfuturesalesofthenationalcarsimportedundertheJune1996programmewillcause(unspecified)seriousprejudice;(ii)impliesthatnationalcarsassembledinIndonesiaundertheFebruary1996programmewilldisplaceorimpede596SeegenerallyJapan-TaxesonAlcoholicBeverages,WT/DS8/R(1November1996),PanelReport,atp.
117,para.
6.
14(complainantshaveburdenofprooftoshowlikeproductinArticleIII:2dispute).
597Article15.
7oftheSubsidiesAgreement,whichpertainstotheimpositionofcountervailingmeasures,isespeciallyinstructiveinthisrespect.
Itprovides,inpertinentpart:"Adeterminationofathreatofmaterialinjuryshallbebasedonfactsandnotmerelyonallegation,conjectureorremotepossibility.
Thechangeincircumstanceswhichwouldcreateasituationinwhichthesubsidywouldcauseinjurymustbeclearlyforeseenandimminent.
"Article15.
8,inturn,extendsanadditionalcautionarynote,evenwheretheimpositionofcountervailingmeasuresiswarranted:"Withrespecttocaseswhereinjuryisthreatenedbysubsidizedimports,theapplicationofcountervailingmeasuresshallbeconsideredanddecidedwithspecialcare.
"FurtherguidancecanbefoundinthepronouncementsofvariousGATTbodiesthathaveaddressedthesamethreatconceptintheanti-dumpingcontext.
TheReportoftheGroupofExpertson"Anti-dumpingandCountervailingDuties"states:"Withrespecttocaseswherematerialinjuryisthreatenedbydumpedimports,theGroupstressedthattheapplicationofanti-dumpingmeasureshadtobestudiedanddecidedwithparticularcare.
"(13May1959)BISD8S/145(para.
16atp.
150)(emphasisinoriginal).
TheCommitteeonAnti-dumpingPracticesstated:"[A]nti-dumpingreliefbasedonthethreatofinjurymustbeconfinedtothosecaseswheretheconditionsoftradeclearlyindicatethatmaterialinjurywilloccurimminentlyifdemonstrabletrendsintradeadversetodomesticindustrycontinue,orifclearlyforeseeableadverseeventsoccur.
"RecommendationConcerningDeterminationofThreatofMaterialInjury(21October1985),BISD32S/182(para.
5atp.
183).
SeealsoKorea-Anti-dumpingDutiesonImportsofPolyacetylResinsfromtheUnitedStates(27April1993),BISD40S/205(para.
271atp.
293).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage303EuropeanCommunitiesimports;and(iii)arguesthatTPNwillbeableandcurrentlyplanstosetretailpricesthatwillundercutsignificantlythepricesofECcarsin1998and1999.
Noneofthesepoints,however,supportsanaffirmativethreatfinding.
8.
467AsfortheEuropeanCommunities'specificassertions,anyoverhangintheinventoryofimportednationalcarsisirrelevanttothisproceeding.
ThesecarsbenefittedonlyfromtheJune1996programme,whichhasterminated.
8.
468TheEC'sfuturedisplacement/impedance598andpriceundercutting599argumentsarealsowithoutmerit.
Asdiscussedabove,theEuropeanCommunities'failuretodevelopandadducelikeproduce-specificevidencestripstheiralreadysketchythreatargumentofanyvalidity.
8.
469Nevertheless,thefactthatthenationalcardoesnotandwillnotcompetesignificantlywithECcarsisborneoutbyhistoricaldata.
Forexample,notwithstandingtheJune1996programme,totalIndonesiansalesofpassengercarscarryingEuropeanCommunitiesbrandnamesincreasedfrom8,554unitsin1995to9,526unitsin1996.
600Moreover,taking1996asthereferenceyear,thebreakdownofpassengercarsalesbybrandwasasfollows:Mercedes-Benz,3,829units(40.
2percentoftotalEuropeanCommunitiessales);BMW,3,608units(37.
9percent);Peugeot,1,401units(14.
7percent);andVolvo,688units(7.
2percent).
601ItsimplystrainscredulitytosuggestthatthesmallTimorisorwillbearivalofMercedes-Benz,BMW,PeugeotorVolvo.
Thus,thehistoricaldataareyetanotherfactorrefutingtheEuropeanCommunities'assertionsthatthenationalcarthreatenstocause(or,infact,hascaused)seriousprejudicetotheEuropeanCommunities'interests.
(3)TheUSclaim8.
470TheUnitedStatesthreatallegationisone-dimensional,focusingsolelyontheputativeeffectstheyet-to-be-builtSportagewillhaveonsalesoftheGMOpelBlazer.
TheUnitedStatesfirstassertsthattheAugust1997loantoTPNconstitutesaspecificsubsidythatexceeds5percentadvalorem,andclaimsallthatisinquestioniswhattheeffectswillbeoftheSportagewhenitis598Althoughnotapplicablehere,GATTpanelsaddressingdisplacement/impedanceclaimshaveimposedahighburdenofproofonthecomplainants,requiringthemtoprovideclearandsubstantialevidencetosupporttheirclaims.
SeeFrenchAssistancetoExportsofWheatandWheatFlour(21November1958),BISD7S/46(para.
(c)atp.
55);EC—RefundsonExportsofSugar(6November1979),BISD26S/290(para.
4.
28atpp.
314-315andpara.
(f)atp.
319).
599Ofcourse,Article6.
5requiresthatanypricecomparisonsshallbemadeatthesameleveloftradeandatcomparabletimesandthatdueaccountmustbetakenofanyotherfactoraffectingpricecomparability.
NeithertheECnortheUShasevenattemptedtoaccountfor"anyotherfactors"initsanalysis.
600SeeAV/14,atAttachmentU-21/1-B(doesnotincludeOpelbrand).
BoththeUSandtheECincludesalesofOpelintheirstatisticsandseriousprejudicecalculations.
TheGovernmentasksthatthePanelissuearulingregardingwhichoftheComplainantsshouldbeallowedtoclaimOpelsalesasitsown.
TheECunderstandablyignoresitssubstantialincreaseinsalesandinsteadfocusesonmarketshare,claimingthatitsmarketshareincreased"onlymarginally"from1995to1996and"felldramatically"duringthefirsthalfof1997.
Suchmarketsharedevelopmentsaremeaningless,however.
AstheECitselfstates:"Since1992anduntil1996,exportsofpassengercarsfromtheCommunitygrewatafasterpacethandemand,resultinginsignificantgainsintermsofmarketshare.
"Thisdemonstratesthatmarketshareanddemandgrowtharenotnecessarilycorrelated.
Manyextraneousfactorsinfluencethisrelationship,includingchangesincustomerpreferences.
601SeeAV/14,atAttachmentU-21/1-B.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage304introducedintothemarket.
602TheUnitedStatesthensimplyassertsthat"[b]asedonthepricingstrategyemployedbyTPNinconnectionwiththeTimorKiaSephia,itisreasonabletoassumethatTPNwilltakeadvantageofthesubsidiesitreceivesfromtheGovernmenttosignificantlyundercutthepricesofits[theSportage's]competitionwithinthemeaningofArticle6.
3(c).
"Thisisnomorethanunsubstantiated,unvarnishedspeculationthatdoesnotevenremotelyapproachthetypeofpositiveevidencerequiredbytheSCMAgreement.
Thisfact,coupledwiththeinadequateUSlikeproductanalysisdiscussedabove,isfataltothethreatallegationoftheUnitedStates.
8.
471Further,IndonesiahasinformedthecomplainantsandthePanelthatitwillnotgrantNationalCarstatustoaSportage-typevehicle.
603C.
ClaimunderArticle28oftheSCMAgreement6041.
ClaimraisedbytheUnitedStates8.
472TheUnitedStatesclaimsthatIndonesiahasextendedthescopeofitstariffandtaxsubsidiesinamannerinconsistentwithArticle28.
2oftheSCMAgreement.
ThefollowingaretheUnitedStates'argumentsinsupportofthisclaim:8.
473Indonesiafirstintroduceditssystemoflocalcontent-basedtariffandtaxincentivesin1993,wellbeforethedateonwhichIndonesiasignedtheWTOAgreementandthedateonwhichtheWTOAgreemententeredintoforceforIndonesia.
However,aftertheWTOAgreemententeredintoforcewithrespecttoIndonesia,Indonesiaextendedthescopeofthosesubsidies.
Insodoing,IndonesiaviolatedArticle28.
2oftheSCMAgreement.
8.
474Tobeginwith,thetariffandtaxincentivesprovidedunderthe1993programmeconstituteso-called"importsubstitution"or"localcontent"subsidieswithinthemeaningofArticle3.
1(b)oftheSCMAgreement.
First,theysatisfythedefinitionofa"subsidy"underArticle1.
1oftheSCMAgreement,becausethey(a)resultingovernmentrevenuethatisforegone;and(b)theyconferabenefitbyloweringafirm'stariffand/ortaxbill.
Indeed,Indonesiahasconcededthatthesemeasuresconstitutesubsidies.
Second,thesesubsidiesfallwithinthepurviewofArticle3.
1(b)becausetheyare"contingent.
.
.
upontheuseofdomesticoverimportedgoods".
Thus,thesesubsidiesareprohibitedunderArticle3oftheSCMAgreement.
8.
475AlthoughIndonesia'stariffandtaxincentivessatisfythedefinitionofaprohibitedsubsidy,IndonesiaisnotcurrentlysubjecttotheprohibitionofArticle3.
1(b),becauseitisadevelopingcountry.
UnderArticle27.
3oftheSCMAgreement,"[t]heprohibitionofparagraph1(b)ofArticle3shallnotapplytodevelopingcountryMembersforaperiodoffiveyears.
.
.
fromthedateofentryintoforceoftheAgreement.
"8.
476However,whileIndonesiaisnotcurrentlysubjecttotheprovisionsofArticle3.
1(b)prohibitingtheuseoflocalcontentsubsidies,IndonesiaissubjecttotheprovisionsofArticle28.
2602NotwithstandingtheUSallegation,theloanisnotasubsidybecauseitstermsarefullyconsistentwithcommercialconsiderationsand,inanycase,theloanisoutsidethescopeofthisproceeding.
TheGovernment,however,needsnotdebatethepointherebecausetheallegedeffectsdonotthreatenseriousprejudicetoUSinterests.
603Inthisregard,IndonesiahassubmittedtothecomplainantsandtothePanelalettertoTPNfromtheMinistryofIndustryandTradedenyingNationalCarbenefitsforaSportage-typevehicle(No.
1039/DJ-ILMK/X/1997of21October1997,IndonesiaExhibit42,AttachmentE).
604Japan,initsfirstsubmissionallegedthatIndonesiahadviolatedArticle28oftheSCMAgreement.
Japandidnot,however,makeaclaimwithrespecttothisallegedviolation.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage305oftheSCMAgreementthatprohibittheextensionofthescopeofsubsidyprogrammesthatareinconsistentwiththeprovisionsoftheSCMAgreement.
Article28,whichisentitled"ExistingProgrammes,"appliesto"[s]ubsidyprogrammeswhichhavebeenestablishedwithintheterritoryofanyMemberbeforethedateonwhichsuchaMembersignedtheWTOAgreementandwhichareinconsistentwiththeprovisionsofthisAgreement.
.
.
.
"605Article28.
2providesthefollowing:"NoMembershallextendthescopeofanysuchprogramme,norshallsuchaprogrammebereneweduponitsexpiry.
"8.
477Indonesiahasextendedthescopeofitspre-WTOtariffandtaxsubsidiesinseveralways.
First,DecreeNo.
223/1995revisedthetariffsubsidiespreviouslyavailableunderDecreeNo.
645/1993withrespecttopassengercarparts.
Therevisionwasasfollows:605Article28.
1,SCMAgreement.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage306Table37PassengerCarPartsLocalContentRatesImportDutyRatesDecreeNo.
645/1993ImportDutyRatesDecreeNo.
223/1995lessthan20%100%65%20%to30%80%50%morethan30%andupto40%60%35%morethan40%andupto50%60640%20%morethan50%andupto60%60740%10%morethan60%0%0%8.
478Astheabovetabledemonstrates,inthecaseoftariffincentivesforpassengercarparts,bycreatingnewgradationsoflocalcontentrates(i.
e.
,the40-50percentrangeandthe50-60percentrange),DecreeNo.
223/1995extendstherangeoftheincentivesavailable.
Forexample,inthecaseofanassemblerofpassengercarswithalocalcontentof41percent,underDecreeNo.
645/1993,thatassemblerwouldhavehadtoboostitslocalcontenttoover60percentinordertoobtaintheincrementalbenefitofanimportdutyrateof0percent.
Because60percentlocalcontentmaybeanunattainablegoal,theassemblerwouldhavehadnoincentivetoincreaselocalcontentbeyond41percent.
608However,underDecreeNo.
223/1995,theassemblerneednotpassthe60percentlocalcontenttargetinordertoobtainanadditionalsubsidy;instead,itcanreduceitsimportdutyratefrom20percentto10percentbyachievingalocalcontentrateofonly51percent.
8.
479DecreeNo.
82/1996alsoextendsthescopeofthepre-WTOtariffincentives.
UnderDecreeNo.
82/1996,theproducerorassemblerofa"nationalmotorvehicle"paysnoimportdutiesonimportedpartsifthevehiclehasalocalcontentof20percentinthefirstyearor40percentinthesecondyear.
Inthecaseofpassengercars,aproducerorassemblerofapassengercarwithalocalcontentrateof20percentwouldhavepaidimportdutiesattherateof80percentunderDecreeNo.
645/1993,whileaproducerorassemblerofacarwithalocalcontentrateof40percentwouldhavepaidimportdutiesattherateof60percent.
Clearly,theadjustmentofimportdutyratesfrom80percentand60percenttozeroconstitutesanextensionofthescopeofthetariffsubsidy.
8.
480Second,Indonesiahasextendedthescopeofitspre-WTOtaxincentives.
RecallthatunderDecreeNo.
647/1993,passengercarswithacylindercapacityoflessthan1600ccandjeepsweresubjecttoapreferentialluxurytaxrateof20percent,providedthatthelocalcontentofsuch606DecreeNo.
645/1993onlyhadacategoryof40%to60%.
607DecreeNo.
645/1993onlyhadacategoryof40%to60%.
608Indeed,mostobserversconsidertheattainmentof60%localcontentforpassengercarsasextremelyproblematic.
"InDefenceoftheNationalCarProject,"BusinessTimes(Singapore),10June1996(USExhibit14,pp.
72-74).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage307vehiclesexceeded60percent.
Thus,DecreeNo.
647/1993constitutedanimportsubstitutionsubsidywithrespecttojeepsandcertainpassengercars,theamountofthesubsidybeingthedifferencebetweenthepreferential20percentrateandthe35percentrateapplicabletothecorrespondingvehicleswithalocalcontentof60percentorless.
8.
481However,RegulationNo.
36/1996increasedtheamountofthetaxsubsidyandexpandedthetypesofvehicleseligibleforthesubsidy.
UnderRegulationNo.
36/1996,theluxurytaxisreducedfrom20percenttozeroformotorvehicleswithalocalcontentinexcessof60percent.
Inaddition,insteadoflimitingthetaxsubsidytojeeps,RegulationNo.
36/1996makesthetaxexemptionapplicabletoalllightcommercialvehicles.
Finally,a"nationalmotorvehicle"issubjecttoaluxurytaxofzeroeventhoughitisonlyrequiredtohavealocalcontentof20percentinthefirstyearand40percentinthesecondyear.
8.
482Insummary,thatIndonesiahassignificantlyextendedthescopeofitspre-WTOlocalcontentsubsidies.
Insodoing,IndonesiahasactedinconsistentlywiththeprovisionsofArticle28.
2oftheSCMAgreement.
8.
483IndonesiahasnotcontestedtheUnitedStates'descriptionoftheprecisemannerinwhichIndonesiaextendedthescopeofthesesubsidies.
Indonesiamakestwoargumentsinresponse:(1)becauseArticle27.
3doesnotcontainanexpressstandstillprovisioncomparabletothestandstillprovisionconcerningexportsubsidiesinArticle27.
4,thedraftersmusthaveintendedtoprecludeastandstillprovisionforlocalcontentsubsidies;and(2)localcontentsubsidiesusedbydevelopingcountryMembersarenot"inconsistentwiththeprovisionsoftheAgreement"withinthemeaningofArticle28.
1.
TheUnitedStatessubmitsthatbothargumentsarewrong.
8.
484ThefirstargumentignoresthetextofArticle28andthedraftinghistoryofArticle27.
3.
Withrespecttothetext,Article28,byitsterms,appliestoallMembers,notmerelydevelopedcountryMembers.
IfthedraftershadintendedthatArticle28applyonlytodevelopedcountryMembers,presumablytheywouldhavesaidsoexplicitly.
Instead,theprovisionsofArticle28applytoallMembers,exceptasmodifiedbyotherprovisionsoftheAgreement.
WhileArticle27.
3maymodifythedeadlinesinArticle28.
1(b)foreliminatingsubsidiesthatareinconsistentwiththeSCMAgreement,Article27.
3doesnotmodifythenotificationrequirementsofArticle28.
1(a)orthestandstillrequirementsofArticle28.
2.
8.
485ConcerningthedraftinghistoryofArticle27.
3,inthediscussionoftheTRIMsAgreement,above,theUnitedStateshasdemonstratedhowArticle27.
3wasalastminuteinsertionintothetextoftheSCMAgreementthatwasintendedtoavoidprohibitingthoselocalcontentsubsidiesthatwouldbepermittedunderthetransitionprovisionsoftheTRIMsAgreement.
Inmakingthislastminuteinsertion,notallofthenecessaryconformingchangesweremade.
Forexample,Article27.
7oftheSCMAgreementclarifiesthattheexpeditedproceduresofArticle4donotapplytoadevelopingcountryMemberinthecaseofexportsubsidieswhichareinconformitywiththeprovisionsofparagraphs2through5.
Article27.
7shouldhavebeenrevisedtoincludeareferencetolocalcontentsubsidies,butitwasnot,andonemustreadthisomittedreferenceintoArticle27.
7,asallthepartiesinthiscasehavedone.
8.
486Therefore,theabsenceofastandstillprovisioninArticle27.
3comparabletotheprovisioninArticle27.
4shouldnotbeinterpretedasadeliberatedecisionbythedrafterstoexcludedevelopingcountrylocalcontentsubsidiesfromthegeneralstandstillobligationofArticle28.
2.
ThisisespeciallytrueinlightofthecomparablestandstillprovisioninArticle5.
4oftheTRIMsAgreement.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage3088.
487TurningtoIndonesia'sargumentthatlocalcontentsubsidiesofdevelopingcountryMembersarenot"inconsistentwith"theprovisionsoftheSCMAgreement,"inconsistentwith"simplyisnotasynonymfor"prohibitedby.
"IfthedraftershadintendedthatArticle28.
1encompassonlysubsidiesthatareprohibitedbytheSCMAgreement,theyeasilycouldhaveusedthemoreprecisephrase"prohibitedby".
8.
488Finally,Indonesia'slimitedinterpretationofArticle28isinconsistentwiththeobjectandpurposeoftheSCMAgreement,whichwastoincreasedisciplinesontheuseofexportandlocalcontentsubsidies.
Althoughthedeadlineforeliminationofthesesubsidiesisphasedinforcertainclassesofeconomies,nowhereisthereaprovisionintheSCMAgreementthatexpresslycondonestheunilateralextensionof,orincreasein,thesetypesofsubsidiesduringthephaseoutperiod.
Tothecontrary,theonlytwoprovisionsintheSCMAgreementthatexpresslyaddressthisissue,Articles27.
4and28.
2,condemnsuchextensionsorincreases.
8.
489Insummary,IndonesiahasfailedtorebuttheexistenceofaviolationofArticle28.
2oftheSCMAgreement.
2.
ResponseofIndonesia8.
490IndonesiarespondstotheclaimunderArticle28.
2oftheSCMAgreementbyarguingthatArticle27.
3oftheAgreementpermitsIndonesia,asadevelopingcountry,tomaintainthesubsidiesgrantedunderthe1993andFebruary1996Programmes.
ThefollowingareIndonesia'sargumentsinthisregard:.
(a)IndonesiaissubjecttoArticle27.
38.
491Entitlementtothesubsidiesgrantedunderboththe1993andFebruary1996programmesandthelevelofthesubsidygrantedtoeachrecipientdependsuponthepercentageoflocallysourcedpartsandcomponentsinaparticularcarmodelorautomotivecomponent.
Therefore,asnoted,thesesubsidiestechnicallyfallwithinthescopeofArticle3.
1(b)as"subsidiescontingent(whethersolelyorasoneofseveralotherconditions)upontheuseofdomesticoverimportedgoods".
Asdiscussedabove,Indonesia,asadevelopingcountry,iswithintheambitofArticle27.
3oftheSubsidiesAgreement,andthusbenefitsfromanexemptionfromtheprohibitionofArticle3.
1(b)forafiveyearperiod.
(b)Article27.
3doesnotprecludetheintroductionorexpansionofdomesticcontentsubsidies8.
492Article27.
3doesnotprecludeIndonesia,asadevelopingcountry,fromintroducingorexpandingdomesticcontentsubsidies.
TheArticlestatesinfull:Theprohibitionofparagraph1(b)ofArticle3shallnotapplytodevelopingcountryMembersforaperiodoffiveyears.
.
.
fromthedateofentryintoforceoftheWTOAgreement.
Article27.
4incontrastprecludesa"developingcountryMemberreferredtoinparagraph2(b)"[ofArticle27](i.
e.
,developingcountriesotherthanleast-developedcountriesandcountrieswithpercapitaGNPoflessthan$1,000perannum)from"increas[ing]thelevelofitsexportsubsidies.
"8.
493UndertherulesoftreatyinterpretationreflectedintheViennaConventionontheLawofTreaties,theinclusionofaprohibitiononneworexpandedexportsubsidiesunderArticle27.
4andtheabsenceofanysuchprohibitionastodomesticcontentsubsidiesunderArticle27.
3canonlyWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage309meanthatthereisnosuchpreclusionunderArticle27.
3.
IfthedraftersoftheSubsidiesAgreementhadintendedtoprecludetheintroductionorexpansionofdomesticcontentsubsidies,theywouldhavedonesoexpresslyinArticle27.
3,astheydidwithrespecttoexportsubsidiesinArticle27.
4.
(c)ThedomesticcontentsubsidyisnotwithinthescopeofArticle27.
4becauseitisnotan"export"subsidyandIndonesiaIsanAnnexVIIdevelopingcountry8.
494TherelevantpartofArticle27.
4readsasfollows:27.
4AnydevelopingcountryMemberreferredtoinparagraph2(b)shallphaseoutitsexportsubsidieswithintheeight-yearperiod,preferablyinaprogressivemanner.
However,adevelopingcountryMembershallnotincreasethelevelofitsexportsubsidies,andshalleliminatethemwithinaperiodshorterthanthatprovidedforinthisparagraphwhentheuseofsuchexportsubsidiesisinconsistentwithitsdevelopmentneeds.
(Emphasisadded;footnoteomitted.
)8.
495ByitstermsArticle27.
4appliesonlyto"export"subsidies.
"Exportsubsidies"isatermofartreferringtosubsidiesdefinedinArticle3.
1(a)oftheSubsidiesAgreement:subsidiescontingent,inlaworinfact,whethersolelyorasoneofseveralotherconditions,uponexportperformance,includingthoseillustratedinAnnexI.
(Footnotesomitted.
)Thetermdoesnotincludedomesticcontentsubsidies,whicharedefinedseparatelyinArticle3.
1(b).
8.
496ThedistinctionbetweenexportanddomesticcontentsubsidiesisalsoexplicitinArticle27,whichsetsoutspecialanddifferentialtreatmentforeachofthetwotypesofsubsidies.
Articles27.
2and27.
4dealwithexport(Article3.
1(a))subsidies,whileArticle27.
3dealswithdomesticcontent(Article3.
1(b))subsidies.
Accordingly,theconditionsetoutinArticle27.
4doesnotapplytoIndonesia'sArticle3.
1(b)domesticcontentsubsidy.
8.
497Moreover,evenifArticle27.
4didapplytodomesticcontentsubsidies(which,torepeat,itdoesnot),thepreclusionagainstincreasingthelevelofsubsidieswouldnotapplytoIndonesia.
Article27.
4appliesto"[a]nydevelopingcountryMemberreferredtoinparagraph2(b)[ofArticle27].
"ByitstermsitdoesnotapplytoArticle27.
2(a)developingcountryMembers—those"referredtoinAnnexVII"oftheSubsidiesAgreement.
609IndonesiaisanAnnexVIIdevelopingcountryMember-itissolistedinparagraph(b)ofthatAnnex.
Forthisreasonaswell,Indonesia'sdomesticcontentsubsidyisnotcoveredbytheprovisionsofArticle27.
4.
609ComplainantscannotsuccessfullyassertthatthesecondsentenceofArticle27.
4isnotlimitedtodevelopingcountryMembersreferredtoinparagraph2(b)ofArticle27.
ThefirstsentenceofArticle27.
4expresslyreferstoparagraph2(b)countries.
Thethirdsentencereferstodesiredextensionoftheeight-yearphase-outrequirementforexportsubsidies.
Itcanapplyonlytoparagraph2(b)countriesbecauseparagraph2(a)(i.
e.
,AnnexVII)countriesarenotrequiredtophaseouttheirexportsubsidieswithineightyears.
Inaddition,thesecondsentenceitselfspeaksofeliminatingexportsubsidies"withinaperiodshorterthanthatprovidedforinthisparagraph.
"(Emphasisadded.
)Thatperiodcanonlybetheeight-yearperiodforphase-outofexportsubsidiesbyparagraph2(b)countries.
Accordingly,analysisofthetextofthesecondsentenceofArticle27.
4andofitscontextconfirmthattheentiretyofArticle27.
4appliesonlytoparagraph2(b)countries.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage310(d)ThedomesticcontentsubsidyisnotwithinthescopeofArticle28.
2becauseitisnotinconsistentwiththeSCMAgreement8.
498Article28.
2,regardingextensionofsubsidyprogrammes,doesnotapplytoIndonesiaasadevelopingcountry.
Article28isaphase-outprovisionforsubsidyprogrammesthatexistedonthedatetheWTOenteredintoforceandthatwereinconsistentwiththeSubsidiesAgreement.
TheArticlereadsinfull:28.
1SubsidyprogrammeswhichhavebeenestablishedwithintheterritoryofanyMemberbeforethedateonwhichsuchaMembersignedtheWTOAgreementandwhichareinconsistentwiththeprovisionsofthisAgreementshallbe:(a)notifiedtotheCommitteenotlaterthan90daysafterthedateofentryintoforceoftheWTOAgreementforsuchMember;and(b)broughtintoconformitywiththeprovisionsofthisAgreementwithinthreeyearsofthedateofentryintoforceoftheWTOAgreementforsuchMemberanduntilthenshallnotbesubjecttoPartII.
28.
2NoMembershallextendthescopeofanysuchprogramme,norshallsuchaprogrammebereneweduponitsexpiry.
(Emphasisadded.
)8.
499Article28.
2appliesonlytosubsidyprogrammeswhichareinconsistentwiththeprovisionsoftheSubsidiesAgreement.
Thus,thereferenceinArticle28.
2to"anysuchprogramme"canonlyrefertosubsidyprogrammeswhichare"inconsistent"withtheAgreementandmustbe"broughtintoconformity"withitsprovisions.
8.
500Indonesia'sdomesticcontentsubsidiesunderthe1993incentiveprogrammewereineffecton1January1995(thedatetheWTOAgreemententeredintoforce)andwerenotthen(andarenotnow)inconsistentwiththeprovisionsoftheSubsidiesAgreement.
OnlysubsidieswhichareprohibitedareinconsistentwiththeSubsidiesAgreement.
AMembershall"neithergrantnormaintain"aprohibitedsubsidy(Article3.
2),andifoneisfoundtoexist,theMemberisto"withdrawthesubsidywithoutdelay"(Article4.
7).
"Actionable"subsidies(includingsubsidiesbydevelopingcountriesthatarenotprohibitedbyvirtueofArticle27.
3),ontheotherhand,arenotinconsistentwiththeAgreement.
Theymaybegranted,butiftheyaresubsequentlydeterminedtoresultinadverseeffectstotheinterestsofanothermember,"theMembergrantingormaintainingsuchsubsidyshalltakeappropriatestepstoremovetheadverseeffectsorshallwithdrawthesubsidy"(Article7.
8).
Inotherwords,actionablesubsidiesareconsistentwiththeAgreement,butanyadversetradeeffectscausedbythemmustberemedied.
IX.
ARTICLEXCLAIMSA.
ClaimsUnderArticleX:3(a)ofGATT19941.
ClaimsRaisedbyJapan9.
1JapanclaimsthattheextendedNationalCarProgrammewasadministeredinviolationofArticleX:3(a)ofGATT1994.
ThefollowingareJapan'sargumentsinsupportofthisclaim:(a)ArticleX:3(a)oftheGATT1994requiresuniform,impartialandreasonableadministrationofregulationsWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage3119.
2ArticleX:3(a)ofGATT1994establishesthat:Eachcontractingpartyshalladministerinauniform,impartialandreasonablemannerallitslaws,regulations,decisionsandrulingsofthekinddescribedinparagraph1ofthisArticle.
Laws,regulations,decisionsandrulingsunderArticleX:1include,inparticular,thosepertaining"toratesofduty,taxesorothercharges".
9.
3TheAppellateBodyreportintheEC-BananasIIIcaseemphasizedthatArticleX:3(a)does"notapplytothelaws,regulations,decisionsandrulingsthemselves,butrathertotheadministrationofthoselaws,regulations,decisionsandrulings.
".
610(b)IndonesiagrantedbenefitstoautomobilesimportedbyPTTimorinviolationofArticleX:3(a)ofGATT19949.
4InJune1996,IndonesiaauthorizedPTTimortoimportautomobilesdutyfreeinaccordancewiththeprovisionsofPresidentialDecreeNo.
42,althoughthecounter-purchaserequirement,whichisclearlysetoutintheDecreeoftheMinisterofTradeandIndustryNo.
142/MPP/Kep/6/1996611,wasobviouslynotmet.
TheIndonesiantradestatisticsshowthatitisquiteunlikelythatTPNandKiahavemetthe25%counter-purchaserequirement,whichisclearlysetforthinthegovernmentaldecree.
612Followingthisauthorization,almost40,000automobileswereimporteddutyfree,andsalesofthoseautomobileswerealsoexemptedfromtheluxurytaxasdiscussed.
ThesefactsconstituteviolationsofArticleX:3(a)ofGATT1994,forthefollowingreasons.
9.
5First,PresidentialDecreeNo.
42/1996613andtheDecreeoftheMinisterofTradeandIndustryNo.
142/MPP/Kep/6/1996fallwithinthescopeofArticleX:1ofGATT1994,sincetheyareobviouslyregulationspertaining"toratesofduty,taxesorothercharges".
9.
6Second,IndonesiagrantedauthorizationtoPTTimor,resultinginexemptionsfromdutiesandtheluxurytax,clearlyinviolationofthePresidentialDecreeNo.
42andtheDecreeoftheMinisterofTradeandIndustryNo.
142/MPP/Kep/6/1996.
Inotherwords,Indonesiaadministereditsregulationsinapartialandunreasonablemanner.
9.
7Therefore,IndonesiagrantedbenefitstoautomobilesimportedbyPTTimorinviolationofArticleX:3(a)ofGATT1994.
2.
ResponseofIndonesia610ReportoftheAppellateBodyonEC-BananasIII,para.
200.
611DecreeoftheMinisterofTradeandIndustryNo.
142/MPP/Kep/1996(JapanExhibit43).
612DuringtheperiodfromJanuary1996-December1996,thetotalamountofautomotivepartsandcomponentsexportedfromIndonesiatoKoreawas$5,777,843,whichincludesnotonlypartsandcomponentsfor"Sedan/S515-1500cc",butalsoforothermodelsproducedbyKiaMotorsandforvehiclesproducedbyotherKoreancompanies(seeJapanExhibit50).
Ontheotherhand,thevalueoftheNationalCarsimportedfromKiaMotorsduringtheperiodfromJune1996throughDecember1996was$131,242,800(seeJapanExhibits30and31).
Accordingly,itisquiteobviousthat,asfarastheperiodfromJune1996throughDecember1996isconcerned,thevalueofthecounter-purchasebyKiacouldneveramountto25percentoftheimportvalueoftheNationalCars(i.
e.
$32,810,700).
613PresidentialDecreeNo.
42/1996(JapanExhibit9).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage3129.
8IndonesiaarguesthatJapan'scontentionthattheprovisionof"PioneerStatus"toTPNviolatedArticleX:3(a)ofGATT1994IsIncorrect.
ThefollowingareIndonesia'sargumentsinthisregard.
(a)Japan'scontentionthattheprovisionof"PioneerStatus"toTPNviolatedArticleX:3(a)ofGATT1994isincorrect9.
9JapanerroneouslyclaimsthatIndonesiahasactedinconsistentlywiththeobligationsofArticleX:3(a)oftheGeneralAgreementtoadministerlaws,regulations,decisionsandrulingsinauniform,impartialandreasonablemanner.
IndonesiahasnotviolatedArticleX:3(a).
9.
10First,asdiscussedinthecontextofGATTArticleI(SeeSectionVII.
D),theJune1996programmeexpired,asscheduled,onJune301997,andwillnotberenewed.
Sincetheprogrammeandtheauthorityunderwhichitwasgrantedhaveterminated,thereisnobasisforanaffirmativedeterminationbythePanel.
9.
11Second,TPNwasdesignatedtobuildandproduceanationalcarinDecisionoftheStateMinisterfortheMobilizationofInvestmentFundsNo.
02/SK/1996(5March1996).
614Thedecisionwasbasedon:-TPN'srequesttobeselectedtobuildacar(TPNLetterNo.
071/PD/TPN/II/96(28February1996))615;-TPN'sobtainingdomesticinvestmentapproval(No.
607/I/PMDN/1995(9November1995))616;and-TPN'sfulfillmentofallthecriteriaandrequirementstobedesignatedtobuildanationalcarassetoutinDecreeoftheStateMinisterforMobilizationofInvestmentFundsNo.
1/SK/1996(27February1996))617,whichinturnimplementsInstructionofthePresidentNo.
2/1996(19February1996).
6189.
12LikeKia,anyJapanesecompanycouldhavesoughttoparticipateintheNationalCarProgramme.
Nonehavedoneso.
Iftheyhad,theywouldhavebeenjudgedbythesamecriteriaappliedtoTPN(thoseofInstructionofthePresidentNo.
2/1996andtheregulationsanddecreesimplementingtheInstruction).
Theprogrammewouldhavebeenadministeredinauniform,impartialandreasonablemanner.
Accordingly,nobasisexistsforJapan'scontentionthatIndonesiaactedinconsistentlywiththeobligationsofArticleX:3(a)oftheGeneralAgreement.
(b)IndonesiahascompliedfullywiththeletterandthespiritofArticleX,which,inanycase,doesnotestablishsubstantiveobligations9.
13Indonesiahasadministeredthelaws,decrees,regulationsanddecisionsregardingtheNationalCarProgrammeinauniform,impartialmanner,inaccordancewithArticleX:3ofGATT1994.
JapannonethelessinsiststhatitsmanufacturersstilldonotunderstandthesubsidiesandIndonesia'sadministrationofthem.
Extraordinary.
Japan'sproducersunderstandthemwell614SeeIndonesiaExhibit5.
615SeeIndonesiaExhibit14.
616SeeIndonesiaExhibit15.
617SeeIndonesiaExhibit4.
618SeeIndonesiaExhibit1.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage313enoughtohaveincreasedtheircombinedshareofallofIndonesia'spassengercarmarkets,includingthemarketinwhichtheTimorcompetes,byover40percent.
Suchgrowthisunprecedented.
Moreover,Japan'scarmakersaccomplishedthisbyoutcompetingtheEuropeanCommunitiesandUnitedStatesmanufacturerswhosemarketsharetheyacquired,andwho,presumably,dounderstandthesubsidies,insofarasneithertheUnitedStatesnortheEuropeanCommunitieshasseenfittopretendignorance.
9.
14Finally,Japan'srebuttalisnothingmorethanadescriptionofthehousekeepingrelatedtoaterminatedmeasure.
Thedescriptiondemonstratesnothingpartial,notuniformorunreasonable.
TheGovernmentcannotunderstandwhyJapaninsistsoncontinuingtoadvanceanobviouslyflawedclaimunderArticleX.
(c)TheGovernmentofIndonesiadidnotestablishtheNationalCarProgrammeforthesolebenefitofTPN9.
15MuchofJapan'sArticleXclaimisbasedonitserroneousandunsupportedassertionthattheNationalCarProgrammewascreatedsolelyforthebenefitofTPN.
AstheGovernmentalreadyhasdemonstrated,thisisassertionisfalse.
TheprogrammewascreatedtobenefitIndonesiaandwasmadeavailabletoanyqualifyingcompany.
TPNwaschosenonthebasisofthestrengthofitsproposal.
Inparticular,itwasfoundthatTPN'sproposaltoproducethe"Timor"S515carusingtechnologyfromKiaMotorsofSouthKoreamettherequirementssetforthinDecreeoftheMinisterofIndustryandTradeNo.
31/1996.
(d)TheGovernmentofIndonesiaisaddressingproperlytheissueofwhetherTPNhascompliedwiththerelevantdecrees;inanycase,thisisamatterofinternalenforcementofIndonesianlaw,notofcompliancewithArticleXofGATT19949.
16JapanalsopurposefullyconflatesthetermsandrelationshipsamongtheDecreeswiththeirenforcement,inavainattempttofurtherdistortIndonesia'sconduct.
Inthisregard,IndonesianotedinitsSecondSubmissionthatitwasexaminingwhetherTPNhadcompliedwiththedecrees,andthatiftheGovernmentfoundthatTPNhadnotcomplied,itwouldtakeappropriateactionasprovidedforinthedecrees.
619Indonesiasubsequentlysubmittedalettercontainingtheresultsofthisexamination,whichindicatedthatTPNhadnotfulfilledtherequirementsofthedecrees.
Accordingly,theMinisterofFinancewouldinstructtheDirector-GeneralofCustomstodemandpaymentbyTPNoftheimportdutiesandluxurysalestaxduebyvirtueofTPN'sfailuretosatisfythecriteriaoftheNationalCarprogrammeforthefirstyear.
3.
RebuttalArgumentsmadebyJapan9.
17ThefollowingareJapan'srebuttalargumentstoIndonesia'sresponsestotheclaimsraisedunderArticleX:3(a)ofGATT1994:9.
18TheGovernmentofIndonesia,ingrantingbenefitsundertheNationalCarProgrammetoacompanythatdoesnotmeetitsownregulatoryrequirements,violatesGATTArticleX:3(a).
JapanhasspecificallystatedthatIndonesiantradedataindicatesthatthe25percentcounter-purchaserequirementwasnotsatisfied.
9.
19IndonesiadidnotmakeanymeaningfulresponsetoJapan'sarguments.
Instead,itstatedirrelevantlythat"[PTTimor]wasdesignatedtobuildandproduceanationalcarinDecisionofthe619SeeIndonesiaExhibit43atp.
3.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage314StateMinisterfortheMobilizationofInvestmentFundsNo.
02/SK/1996"andthat"[l]ikeKia,anyJapanesecompanycouldhavesoughttoparticipateintheNationalCarProgramme.
"ItisobviousthatneitherofthesepointsaddressesinanywaytheArticleX:3violationsestablishedbytheGovernmentofJapan.
9.
20Indonesiaonlytriestoevadetherealissue,alleging,forexample,that"Japan.
.
.
purposefullyconflatesthe.
.
.
Decreeswiththeirenforcement".
However,theobligationofGATTArticleX:3(a)specificallyconcernstheadministrationorenforcementofregulations.
JapancannotfathomwhyIndonesiawouldbelievethatthemannerinwhichitenforcestheNationalCarProgrammeisnotanissueforGATTArticleX:3(a).
9.
21Moreover,Indonesiahasacknowledgedthat"preliminarydatasuggests"thatJapaniscorrectinarguingthatPTTimordidnotmeettheNationalCarProgramme'srequirements.
Indonesiaalsoacknowledgedthatnonethelessitfailedtocompleteacomplianceaudit,althoughtheJune1996Programmeallegedlyexpiredmorethanfivemonthsago.
NorhasIndonesiaaskedPTTimortoreturnthebenefitsorpresentedascheduleonwhentheauditwillbecompleted.
TheGovernmentofJapanthusconcludesthatthedelayinauditingisanotherclearindicationoftheGovernmentofIndonesia'sunreasonableadministrationoftheNationalCarProgramme,andalsoitselfconstitutesaviolationofGATTArticleX:3(a).
6209.
22IndonesiaessentiallyadmittedthatitgrantedbenefitstoTPNwithoutconsideringitsownregulations.
TobeeligibleforbenefitsundertheJune1996Programme,PresidentialDecreeNo.
42requiresthatNationalCarsfromKoreamustbemadebyIndonesianworkersandmustfulfilthe25%counter-purchaserequirement.
However,IndonesiastatesinitsanswerstoJapan'squestions,withregardtothefirstrequirement,thatthe"Governmentcurrentlyisverifyingthedata".
Andmorestrikingly,withregardtothesecondrequirement,theIndonesianGovernmentinformedJapanjustonedaybeforetheSecondPanelMeetingofitsownverificationon9January1998whichconfirmedthatTPNhasnotmetthatrequirement.
Therefore,itisclearthatIndonesiagrantedauthorizationtoTPNwithoutreviewingitscompliance,oreventheplausibilityofcompliance,withtherequirements.
9.
23Finally,theGovernmentofJapannotesthatitrequiresaconsiderablestretchoftheimaginationtoregard40,000automobilesasbeingproduced"byIndonesianworkers"whenallegedlyonly100IndonesiannationalshavebeensenttoKoreaandtheyweresentas"trainees"atthat.
Furthermore,thepressreportedthatamemberoftheIndonesianParliament,whovisitedKoreainAugust1996,foundonlythreeIndonesianworkersatKia.
621B.
ClaimsunderArticleX:1ofGATT19941.
ClaimsRaisedbyJapan9.
24JapanclaimsthattheextendedNationalCarProgrammealsoviolatesArticleX:1ofGATT1994,whichrequirespublicationoftraderegulations.
ThefollowingareJapan'sargumentinsupportofthisclaim:620AsindicatedaboveandinSectionX,IndonesiahassubmittedtothePanelaletterconcerningtheresultsoftheaudit(IndonesiaExhibit47).
621JakartaPost,"KiaMotorslacksIndonesianstaff:Housemember"(30January1997)(JapanExhibit73),JakartaPost,"Timorsendsonly100supervisorstoKiaplant:Tunky"(31January1997)(JapanExhibit74),FarEasternEconomicReview,"TheTimorGap"(27February1997)(JapanExhibit75).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage3159.
25ArticleX:1ofGATT1994establishesthat:Laws,regulations,judicialdecisionsandadministrativerulingsofgeneralapplication,madeeffectivebyanycontractingparty,pertaining.
.
.
toratesofduty,taxesorothercharges.
.
.
shallbepublishedpromptlyinsuchamannerastoenablegovernmentsandtraderstobecomeacquaintedwiththem.
.
.
.
9.
26IndonesiahasneverclearlysetouttherequirementsfortheImportedNationalCars,andalsoadministeredtherelevantregulationspartiallyandunreasonably.
ThelackofclarityismoststrikingwithrespecttoDecreeoftheMinisterofIndustryandTradeNo.
31/MPP/SK/2/1996,issuedinFebruary1996,includingtherequirementthatNationalCarsbe"domesticallyproduced"andlocalcontentrequirements622,andalsowithrespecttothemeaningof"byIndonesianpersonnel"underPresidentialDecreeNo.
42/1996.
623Indonesianotonlyfailedtomaketherequirementsclearinthepublishedregulations,butevenfailedtoclearlyexplaintherequirementsduringtheconsultationswithJapan.
9.
27Inparticular,IndonesiahasmadeclearthattheconditionsstipulatedintheDecreeoftheMinisterofIndustryandTradeNo.
31/1996alsomustbealsomet,inadditiontotheconditionsofDecree42/1996.
624However,ImportedNationalCarsobviouslycannevermeettheconditionssetoutinDecree31/1996,inparticularparagraphaofArticle1,whichrequiresthemtobe"domesticallyproducedbyusingfacilitiesownedbynationalindustrialcompaniesorIndonesianstatutorybodieswithtotalsharesbelongingtoIndonesiancitizens.
"(Emphasisadded.
)9.
28Second,regarding"thelocalcontentrequirementsasstipulatedbytheMinisterofIndustryandTrade"inArticle1ofPresidentialDecreeNo.
42/1996,theGovernmentofIndonesiahasstated625thattheycorrespondtothosestipulatedinArticle3oftheDecreeoftheMinistryofIndustryandTradeNo.
31/MPP/SK/2/1996(i.
e.
,"attheendofthefirstyear,theyshallreachthelocalcontentrateofmorethan20percent").
However,theGovernmentofIndonesiafurtherstatedthat"satisfactionofthe25percentcounter-purchaserequirement[assetoutintheDecreeoftheMinisterofTradeandIndustryNo.
142/MPP/Kep/6/1996]willbetreatedasequivalenttoachieving20percentlocalcontent,"andPTTimor"shouldexportandKiaMotorsshouldpurchaseautomotivepartsandcomponentsamountingto25percentoftheC&Fvalueofimportedcarsintheone-yearperiod.
"626Accordingly,theGovernmentofIndonesiaseemstoindicatethatimportedautomobilesaretreatedassatisfying"localcontentrequirements,"aslongasthe25percentcounter-purchaserequirementismetbyitsproducer,eveniftheproducerdoesnotuseanyofsuchpartsandcomponents,importedfromIndonesia,toassembletheautomobilesforexporttoIndonesia,withoutregardtoPresidentialDecreeNo.
42/1996.
9.
29Third,Article1ofPresidentialDecreeNo.
42/1996requiresthattheNationalCarsbeproduced"byIndonesianpersonnel,"buttheGovernmentofIndonesiahasnotprovidedanyexplanationaboutwhatextentofparticipationbyIndonesianworkersisnecessarytomeetthe622DecreeoftheMinisterofIndustryandTradeNo.
31/MPP/SK/2/1996(JapanExhibit28).
623PresidentialDecreeNo.
42/1996(JapanExhibit9).
624JapaneseQuestionnaireregardingtheIndonesianNationalCarProgramme(JapanExhibit44),QuestionNo.
9;Indonesia'sAnswertoQuestionsSubmittedbyJapan(JapanExhibit45),AnswerNo.
9.
SeealsoAdditionalQuestionsfromtheGovernmentofJapanconcerningIndonesianAutomobileProgramme(JapanExhibit46),QuestionsNos.
IV.
3andIV.
4;AnsweroftheRepublicofIndonesiatoAdditionalQuestionssubmittedbytheGovernmentofJapan(JapanExhibit47)AnswersNos.
IV.
3.
andIV.
4.
625Id.
,atQuestionandAnswerNo.
12betweenJapanandIndonesia(JapanExhibits44and45).
626Id.
,atQuestionsandAnswersNo.
13,22and23betweenJapanandIndonesia(JapanExhibits44and45).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage316requirement.
627Inthisconnection,theGovernmentofIndonesiahasstatedonlythatPTTimor"reportedthat,throughtheendofOctober1996,100workershadbeendispatchedtoKorea.
Theworkersparticipateinproductionastrainees.
"6289.
30Asexplainedabove,PresidentialDecreeNo.
42/1996anditsimplementingregulationsfallwithinthescopeofArticleX:1.
Accordingly,itshouldbeconcludedthatIndonesiahasnotpublishedalltheregulationsnecessarytomaketherequirementssufficientlyclear,orthatithasatleastnotpublisheditsregulations"insuchamannerastoenablegovernmentsandtraderstobecomeacquaintedwiththem,"eitherofwhichconstitutesaviolationofArticleX:1ofGATT1994.
9.
31Inaddition,Indonesiaalsohasignoreditsobligationtopublishtraderegulations"promptly".
MostoftheregulationsrelatedtotheNationalCarProgramme,includingPresidentialInstructionNo.
2/1996629andPresidentialDecreeNo.
42/1996630,areenforcedasofthedateofissuance,andtherewasnopriorpublicnotificationregardingthenewregulationsbeforethedateofissuance.
However,theseregulationsdeeplyaffectexportersandinvestors,anditwasnecessaryforthecompaniestogettherelevantinformationwellinadvanceinordertoadapttothenewregulations,forexample,inordertogetbenefitsaftermeetingstipulatedrequirements.
ThisreinforcestheconclusionthatIndonesiaviolateditsobligationsunderGATTArticleX:1.
2.
Indonesia'sResponsetotheClaimunderArticleX:19.
32InresponsetotheclaimraisedunderArticleX:1,IndonesiaarguesthatJapan'scontentionthatIndonesianregulationswerenotpublishedpromptlyasrequiredbyArticleX:1ofGATT1994iserroneous.
ThefollowingareIndonesia'sargumentsinthisregard:9.
33JapanerroneouslycontendsthatIndoneaisdidnotclearlysetouttherequirementsfortheJune1996programmeandthatthisviolatesthepublicationrequirementofGATTArticleX:1.
ContrarytoJapan'sassertion,DecreeoftheMinisterofIndustryandTradeNo.
31/MPP/SK/2/1996,dated19February1996631,andallotherdecreesrelevanttotheJune1996programmesetoutfullytherequirementsandconditionsofthatprogramme.
9.
34Evenifthatwerenotthecase,though,therewouldbenoviolationofArticleX:1.
Byitsterms,theobjectivesofthisArticlearelimitedto(1)promptpublication,(2)"insuchamannerastoenablegovernmentsandtraderstobecomeacquaintedwiththem.
"AsrequiredbyIndonesianlaw,allregulationsanddecreesarepublishedintheStateGazettepromptlyaftertheirpromulgation.
Thisofficial,readilyaccessiblepublicationfullysatisfiestheproceduralrequirementofenablinggovernmentsandtraderstobecomeacquaintedwithregulationsanddecrees.
ArticleX:1isatransparencyrequirement,notasubstantiveobligationtomeetonecountry'ssubjective,substantivestandardastowhetheranothercountry'sregulationis"clear".
627QuestionandAnswerNo.
9.
betweenJapanandIndonesia(JapanExhibits44and45);seealsoadditionalquestionandanswerNo.
IV.
5.
betweenJapanandIndonesia(JapanExhibits46and47).
628QuestionandAnswerNo.
4.
betweenJapanandIndonesia(JapanExhibits44and45);seealsoadditionalQuestionandAnswerNo.
IV.
2.
betweenJapanandIndonesia(JapanExhibits46and47).
629PresidentialInstructionNo.
2/1996(JapanExhibit8).
630PresidentialDecreeNo.
42/1996(JapanExhibit9).
631SeeIndonesiaExhibit2.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage3179.
35JapanalsoerroneouslyclaimsthatArticleX:1requirespublicationofofficialdocumentspriortotheireffectivedate.
Thereisnosuchrequirement.
Indeed,thewords"shallbepromptlypublished"clearlyenvisionpublicationafterentryintoforce.
9.
36ForthesereasonsthereisnobasisforJapan'scontentionthatIndonesiadidnotactinconformitywithArticleX:1oftheGeneralAgreement.
9.
37RespondingtoJapan'sargumentsandquestions,IndonesiastatedthatDecreeNo.
31isirrelevanttotheJune1996Programme.
6323.
RebuttalArgumentsmadebyJapan9.
38JapanmakesthefollowingrebuttalsargumentstoIndonesia'sresponsestotheclaimraisedunderArticleX:1:9.
39TheGovernmentofIndonesia,innotpublishingitsmeasurespromptlyand"insuchamannerastoenablegovernmentsandtraderstobecomeacquaintedwiththem",violatesGATTArticleX:1.
Asdemonstrated,theGovernmentofJapan,aswellasJapanesetraders,stillcannotknowseveralimportantrequirementsundertheJune1996Programme,forexample,whattheterm"producedbyIndonesianworkers"exactlymeans.
9.
40Indonesia'sFirstSubmissiondoesnotmakeanymeaningfulargumentinresponse.
Rather,itsimplyarguesthat:(i)GATT"ArticleX:1isatransparencyrequirement,notasubstantiveobligationtomeetonecountry'ssubjective,substantivestandardastowhetheranothercountry'sregulationis'clear'";and(ii)"allregulationsanddecreesarepublishedintheStateGazettepromptlyaftertheirpromulgation".
9.
41Indonesia'sdefencescannotprevail,however,becausetheyareinconsistentwiththetextofArticleX:1.
SeveralimportantmeasuresbyIndonesiangovernmentpertainingtorequiremeritsonimportswerenotpublished"insuchamannerastoenablegovernmentsandtraderstobecomeacquaintedwiththem".
9.
42Japanhasidentifiedthespecificpointsthatneedclarificationorfurtherelaborationsoas"toenablegovernmentsandtraderstobecomeacquaintedwith"theNationalCarProgramme,butIndonesiahasnotaddressedtheseissues.
Thus,criticalaspectsoftheNationalCarProgrammeremainunknowable.
Itmustbestressed,however,thatbelatedclarificationatthisstagewouldnotbe"prompt"anymoreandthuscouldnotcuretheinsufficiencyofthepublicationatanearlierstage.
9.
43Inparticular,IndonesiaconfirmedthatitstillcannotexplainthemeaningoftherequirementofPresidentialDecreeNo.
42thatNationalCarsimportedfromKoreamustbe"made.
.
.
byIndonesianworkers".
JapanaskedwhetherthismeansthatimportedNationalCarsmustbemadeexclusivelybyIndonesianworkersor,ifnot,whatpercentageofparticipationisrequired.
Evenatthisverylatestage,however,Indonesiacouldnotanswersuchabasicquestion.
632SeeIndonesiaExhibit43,question1.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage3189.
44Furthermore,thediscussionatthefirstPanelmeetingrevealedsomeadditionalfactswhichconstituteanotherviolationofGATTArticleX:1.
AtthefirstPanelmeeting,theEuropeanCommunitiesasked:(i)whereisthedecisionoftheMinisterofIndustryandTradegrantingPioneerstatustoPTTimor,and(ii)whereisthedecisiongrantingNationalCarstatustotheTimorS-515TheGovernmentofIndonesia:(i)inrespondingtothefirstquestion,circulatedDecreeoftheDirectorGeneralforMetal,MachineryandChemicalIndustriesNo.
002/SK/DJ-ILMK/II/1996of27February1996,and(ii)astothesecondquestion,respondedthatthereexistedaletter(No.
1039/DJ-ILMK/X/1997of21October1997)andindicatedthatitwouldsubmitanEnglishtranslation.
However,theGovernmentofJapanhadneverseenthesedocumentsinanypublicationaccessiblebeforethemeetinginDecember1997.
Inotherwords,theseregulationswerenotpublishedpromptlyinsuchamannerastoenabletheGovernmentofJapantobecomeacquaintedwiththem.
9.
45Therefore,theGovernmentofJapansubmits,inadditiontoitsargumentthattheGovernmentofIndonesiadidnotcomplywithGATTArticleX:1withrespecttotheJune1996Programme,thatitalsoviolatedArticleX:1inconnectionwiththeFebruary1996Programme.
X.
ADDITIONALARGUMENTSREGARDINGWHETHERTHEJUNE1996PROGRAMMEISANEXPIREDMEASURE,ANDTHEIMPLICATIONSIFSOA.
ArgumentsofIndonesia10.
1Indonesiaargues,inrespondingtoalloftheclaimspertainingtotheJune1996programmethatthisprogrammehasexpired,andthereforeisnotrelevanttotheworkofthePanel.
IndonesiafurtherarguesthatTPNwillberequiredbylawtorepayallbenefitsreceivedundertheprogramme,becausethecounterpurchaserequirementsoftheprogrammewerenotmet.
Insupportofthisargument,IndonesiasubmittedalettercontainingtheresultsofanauditofTPN'scompliancewiththeserequirements.
Indonesia'sargumentsinthisregardareasfollows:10.
2Theexemptionsoncegrantedarenowbeingremoved.
Thebenefitsconferredbythesubsidy(dutiesandluxurytaxes)havingbeenremoved,thesubsidynolongerexistsandallargumentsrelatingtotheJune1996measuresshouldbeignoredbythePanel.
10.
3Also,withrespecttoclaimsunderArticleIoftheGeneralAgreement,complainantsarguedthattheJune1996measureswerestillineffectbecausetheluxurytaxwouldnotbeforegoneontheunsoldcarsuntiltheyweresold.
Thisisnotcorrect.
Thetaxisduewhenthedutiesaredueandthentheconsumerreimbursesthecompanyatthetimeofsale(TPN,ofcourse,wasexemptfromthisrequirement).
Secondly,TPNfailedtheSucofindoauditand,thus,noneoftheremainingcarswillreceivetheluxurytaxexemption.
So,evenacceptingComplainants'position,theJune1996measureshaveterminated.
Thus,thePanelshouldrejectComplainants'ArticleIarguments.
10.
4Indonesiafurtherargued,inresponsetoaquestionfromthepanel,asfollows:WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage3191.
EnforcementProcedures10.
5TheresultsoftheauditperformedbySucofindohavebeenprovidedtotheMinisterofIndustryandTrade.
Hewillreviewthereport,thenwillnotifytheMinisterofFinanceofTPN'sfailure.
10.
6TheMinisterofFinancewilltheninstructtheDirector-GeneralofCustomstotakeappropriateaction.
ThisinstructionwillbeforwardedtotheDistrictOfficeoftheportofentrythroughwhichtheTimor'swereimported,andthatOfficewillissuealettertoTPNdemandingpaymentofthecustomsimportdutiesandluxurysalestaxduebyvirtueofTPN'sfailuretosatisfythecriteriaoftheNationalCarProgrammeforthefirstyear.
10.
7TPNwillhave30daystorespondtothisdemand.
WithinthatperioditmayeitherpaytheamountdueorfileaprotestwiththeDirector-GeneralofCustoms.
Ifitdoesnotrespondwithin30days,theDistrictOfficewillsendasecondletterdemandingpaymentwithin14days.
IfTPNdoesnotrespond,actionwillbetakentocollecttheamountdemanded.
10.
8IfTPNfilesaprotestwiththeDirector-General,hewillrenderadecisionwhethertouphold,rejectormodifythedecisionoftheDistrictOfficewithin60days.
10.
9IftheDirector-GeneralupholdstheDistrictOffice,TPNmustpaytheamountduewithin60daysorpetitionforreviewbytheTaxDisputeSettlementBody.
Thedecisionofthisindependentreviewauthorityisbinding.
TPNwouldberequiredtopaythedutiesandluxurytaxamountsdeterminedtobeduebeforeitwouldbeeligibletoappealtotheBody.
Thepaymentisrequiredtobeincash.
10.
10AsrequiredbyArticle38oftheCustomsLaw,paymentbyTPNmust,inadditiontotheprincipaldue,includeinterestatthestatutoryrateof2percentpermonthbeginningwiththedateoftheletterfromtheDistrictOfficedemandingpayment.
(Thisisaseverepenalty.
AsnotedbytheUSatparagraph91ofitsFirstSubmissionandintheFord/GMletter(USExhibit38),thehistoricalIndonesianCPIincreaseis8to10percentperyear.
(This,ratherthantemporary,aberrationalshort-terminterestratescausedbyashort-termcurrencydepreciation,shouldbethebenchmark.
)2.
EffectofNon-FulfilmentofConditionsfortheFirstYearoftheProgramme10.
11DecreeoftheMinisterofFinanceNo.
82/KMK.
01/1996provides:IftheobligationtofulfilthelocalcontentlevelsfornationalautomotiveindustrialcompaniesasdeterminedbytheMinisterofIndustryandTradeatacertainstageisnotmet,thenationalautomotiveindustrialenterpriseconcernedshallpaytheimportleviesowingattherelevantstagebeforebeingallowedtocontinueenjoyingthefacilitiesreferredtoinparagraph(2).
10.
12AsprovidedinthisDecree,thebenefitsofexemptionfromcustomsdutiesandluxurysalestaxwillbesuspendedonceitis"determined"thatTPNhasnotmettherequirementsoftheNationalCarProgrammeforthefirstyear.
Thiswilloccur30daysaftertheDistrictOfficedemandsTPNtopaythecustomsimportdutiesandluxurysalestax.
FromthattimeuntilsuchtimeasTPNpaysthedutiesandluxurysalestaxdeterminedtobedue,itwillnotbeentitledtoreleaseCKD'sorpartsfromcustomscontrolunlessitpaysthedutiesandtaxesnormallyowingincash.
Onceitpaysthisamount,itwillresumeentitlementtotheexemption.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage320B.
ArgumentsoftheUnitedStates10.
13TheUnitedStatespresentsarebuttaltotheargumentthatthemeasurehasexpiredandthereforeisnotrelevanttothePanel'sworkinthecontextofitsclaimsunderArticleI:1ofGATT1994.
(SeeSectionVII.
E.
3)Inaddition,withrespecttotheimplications,ifanyofaneventualrepaymentbyTPNofthebenefitsundertheprogramme,theUnitedStatesmakesthefollowingarguments:10.
14AsafactualmatteritsimplyisnotestablishedthatthetariffandtaxbenefitsconferredonTPNunderDecreeNo.
42/96everwillbereimbursed.
Asthediscussionduringthequestionandanswerperiodatthe13Januarysessionmadeclear,itwilltakesometimebeforeitisestablishedthatTPNisevenrequiredtoreimbursetheGovernmentofIndonesia(GOI).
First,therelevantGOIauthoritiesmustissueabilltoTPN,anactionwhichapparentlyhasyettobedoneandforwhichthereapparentlyisnosetdeadline.
AccordingtoIndonesia,thiswillnothappenuntiltheauditreportisfirstreviewedbytheMinisterofIndustryandTrade,whothenrefersthemattertotheMinisterofFinance.
10.
15Theissuanceofabillthentriggersa30-dayperiodinwhichTPNcanfileanadministrativeappealwiththeDirectorGeneralofCustoms.
Oncethisisdone,theDirectorGeneralthenhas60daysinwhichtoruleontheappeal.
Thereafter,assumingtheDirectorGeneraldeniesTPN'sappeal,TPNhas60dayswithinwhichtoinitiateproceedingsbeforetheIndonesianTaxDisputeSettlementOffice.
IndonesiadidnotanswertheUSquestionregardingthetypicaldurationofthislastprocess,althoughIndonesiadidaverthattherearenofurtherappealspermittedfromdecisionsoftheTaxDisputeSettlementOffice.
10.
16Moreover,awhollyseparatequestioniswhether,attheendofwhatappearstobealengthyprocess,themoneyowedactuallywillbereimbursedtotheGOI.
BearinmindthatasofthetimethisPanelgotunderway,theamountowedinimportdutiesalonewasinexcessofUS$736million,andthisdoesnotincludetheamountsowedinunpaidluxurytaxes.
Italsodoesnotincludeinterest,which,accordingtotheIndonesiaconsistsof2percentamonth,notwithstandingthatIndonesiaappearstohaveenteredintoaperiodofhyperinflation.
TPNalreadyhastakenouta$690millionloan(althoughonlyaportionoftheloanhasbeendrawndown)thatitwasabletoobtainonlyduetothedirectinterventionofGOIofficialsatthehighestlevel.
HowisTPNgoingtorepaysuchsumsIfTPNcannotrepaytheseamounts,willtheGOIwaiverepaymentAtthesecondmeetingofthePanel,IndonesiaconfirmedthattheGOI,likemostgovernments,hastheauthoritytowaiverepaymentofdutiesandtaxesowed.
Moreover,puttingasideanystatutoryorregulatorywaiverauthority,onemustassumethatbecausethesubsidiesweregrantedpursuanttoPresidentialDecree,theirrepaymentalsocanbewaivedpursuanttoPresidentialDecree.
10.
17Thefactofthematteristhatitmaytakeyearsbeforethisissueissortedout,anditwouldbeunfairtotheUnitedStatestodeferthePanel'sissuanceofitsreportbeforetheissueisresolved.
Atthispoint,theUnitedStatesbelievesthattheproperapproachistotreatthesubsidiesasiftheyarenotsubjecttorepayment.
TPNhashadthebenefitofthesubsidiessinceDecreeNo.
42/96becameoperational,itstillhasthesubsidies,andithaspricedtheTimorKiaSephiaandcausedseriousprejudicetotheinterestsoftheUnitedStatesbymeansofthosesubsidies.
IfTPNultimatelyhastorepaythesubsidies,thenIndonesiawillbeintheconvenientpositionofhavingcompliedwithwhatwehopewillbethePanel'srecommendationthatIndonesiawithdrawthisparticularsubsidy.
IfTPNdoesnotrepaythesubsidies,thenthatissomethingthatcanbedealtwithattheimplementationstageofthisdispute.
Itwouldbetrulyperverse,however,toallowthesubsidiesbestowedunderDecreeNo.
42/96toescapescrutinyduetotheconvenientlytimedWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage321announcement(thedaybeforethesecondmeetingofthePanel)oftheresultsofanaudit,anauditthatapparentlyonlytriggers,ratherthanends,alengthydomesticinternalprocess.
XI.
CLAIMSRAISEDUNDERTHETRIPSAGREEMENTA.
ClaimsraisedbytheUnitedStates11.
1TheUnitedStatesclaimsthatthegrantof"NationalMotorVehicle"benefitsonlytomotorvehiclesbearingauniqueIndonesiantrademarkownedbyIndonesiannationalsdiscriminatesagainstforeign-ownedtrademarksandtheirownersandisinconsistentwithArticles3,20and65oftheTRIPSAgreement.
ThefollowingaretheUnitedStates'argumentsinsupportoftheseclaims:11.
2AdistinguishingfeatureoftheNationalMotorVehicleprogrammeistherequirementthat,inordertoreceivethebenefitsofthatprogramme,the"nationalmotorvehicle"mustbearauniqueIndonesiantrademarkownedbyIndonesiannationals.
PresidentialInstructionNo.
2/1996,inreferringtothe"nationalautomobileindustry,"setsforthasoneofthecriteriaforthatindustrythe"us[e]oftrademarkscreatedbyrelevantindustrialcompanies".
Inestablishingtherequirementsfora"nationalmotorvehicle,"DecreeNo.
31/1996mandatesthe"use[of]trademarkscreatedbyrelevantindustrialcompaniesthemselvesandnotyetregisteredbyotherpartiesinIndonesia,andownedbyIndonesiancompanies/citizens.
.
.
".
Thisrequirementdiscriminatesagainstforeign-ownedtrademarksandtheirowners,andisinconsistentwithArticles3,20and65oftheTRIPSAgreement.
11.
3Article3oftheTRIPSAgreementrequiresnationaltreatmentintheprotectionofintellectualpropertyrights,includingtrademarks.
633Inpertinentpart,Article3.
1providesthefollowing:1.
EachMembershallaccordtothenationalsofotherMemberstreatmentnolessfavourablethanitaccordstoitsownnationalswithregardtotheprotectionofintellectualproperty.
.
.
.
(footnoteomitted).
11.
4Footnote3toArticle3.
1providesasfollows:ForthepurposesofArticles3and4,"protection"shallincludemattersaffectingtheavailability,acquisition,scope,maintenanceandenforcementofintellectualpropertyrightsaswellasthosemattersaffectingtheuseofintellectualpropertyrightsspecificallyaddressedinthisAgreement.
(emphasisadded).
11.
5Inaddition,Article20,whichdealsspecificallywithtrademarks,prohibitstheimpositionofspecialrequirementsontheuseofatrademark.
Inpertinentpart,Article20providesthefollowing:Theuseofatrademarkinthecourseoftradeshallnotbeunjustifiablyencumberedbyspecialrequirements,suchasusewithanothertrademark,useinaspecialformoruseinamannerdetrimentaltoitscapabilitytodistinguishthegoodsorservicesofoneundertakingfromthoseofotherundertakings.
.
.
633Article3refersto"intellectualproperty,"whichisdefinedinArticle1.
2oftheTRIPSAgreementas"allcategoriesofintellectualpropertythatarethesubjectofSections1through7ofPartII.
"Section2oftheTRIPSAgreementisentitled"Trademarks.
"WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage32211.
6ThegrantofsignificantbenefitsundertheNationalMotorVehicleprogrammetoproducersofa"nationalmotorvehicle"bearingaunique,IndonesiantrademarkisinconsistentwithbothArticle3andArticle20.
First,thesebenefitsresultinasignificantcommercialdisadvantagetocompaniesthatdobusinessunderanestablishedorforeign-ownedtrademark,andtheonlywayforsuchcompaniesto"leveltheplayingfield"istoceasetheuseoftheirownmarkandattempttoacquireanIndonesiantrademarkconsistentwiththerequirementsoftheNationalMotorVehicleprogramme.
Asaresult,foreignnationalsareprovidedwithtreatmentlessfavorablethanthatprovidedIndonesiannationals,contrarytoArticle3oftheTRIPSAgreement.
11.
7Second,theineligibilityforbenefitsundertheNationalMotorVehicleprogrammeoffirmsusinganestablishedorforeign-ownedtrademarkconstitutesaspecialrequirementontheuseofatrademarkinthecourseoftradethatisprohibitedbyArticle20oftheTRIPSAgreement.
11.
8Moreover,thesemeasuresareinconsistentwiththetransitionalarrangementsofArticle65oftheTRIPSAgreement.
Article65.
2providesasfollows:AdevelopingcountryMemberisentitledtodelayforafurtherperiodoffouryearsthedateofapplication,asdefinedinparagraph1,oftheprovisionsofthisAgreementotherthanArticles3,4and5.
(emphasisadded).
11.
9UnderArticle65.
2,IndonesiaiscurrentlysubjecttotherequirementsofArticle3.
Therefore,itsviolationofArticle3isnotprotectedbythefour-yeartransitionperiodofArticle65.
2.
11.
10Inaddition,Article65.
5oftheTRIPSAgreementprovidesasfollows:AMemberavailingitselfofatransitionalperiodunderparagraphs1,2,3or4shallensurethatanychangesinitslaws,regulationsandpracticesmadeduringthatperioddonotresultinalesserdegreeofconsistencywiththeprovisionsofthisAgreement.
BecausetherestrictionsoftheNationalMotorVehicleprogrammeregardingtrademarkscameintoforceafter1January1995(thedateofentryintoforceoftheWTOAgreement),theyareinconsistentwiththestandstillprovisionsofArticle65.
5.
BecausetheyareinconsistentwithArticle65.
5,Indonesia'sviolationofArticle20isnotprotectedbyArticle65.
2.
B.
ResponsebyIndonesiatotheclaimsraised11.
11IndonesiaarguesthatthetrademarkusageprovisionoftheNationalCarProgrammeisconsistentwithArticles3,20and65oftheTRIPSagreement,inrespondingtotheclaimsraisedunderthatAgreement.
ThefollowingareIndonesia'sargumentsinthisregard:11.
12PresidentialInstructionNo.
2of1996setsforthrequirementsforachieving"pioneer"statusdesignation.
Oneoftherequirementsisthatthecompanyreceivingthedesignationuse"abrandnameofitsown".
Inotherwords,toreceivethesubsidiesavailableunderthepolicy,anationalcarcompanymustsellthatcarusinga"new"brandname;thebrandnamecannotbeonepreviouslyorconcurrentlyregisteredinanothercountryandusedtosellcars.
11.
13ComplainantUnitedStatesassertsthatthebrandnamerequirementviolatesIndonesia'sobligationsunderArticles3,20and65oftheAgreementonTrade-RelatedAspectsofIntellectualPropertyRights(theTRIPSAgreement).
Asdemonstratedbelow,thisassertionisincorrect.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage3231.
ThebrandnamerequirementisconsistentwiththenationaltreatmentobligationofArticle3oftheTRIPSAgreement11.
14Article3oftheTRIPSAgreementestablishesanationaltreatmentobligationcoveringintellectualproperty.
AccordingtoArticle3:EachMembershallaccordtothenationalsofotherMemberstreatmentnolessfavourablethanthatitaccordstoitsownnationalswithregardtotheprotectionofintellectualproperty.
.
.
.
(Footnoteomitted.
)11.
15Indonesiahascompliedwiththisdirective.
ThebrandnamerequirementappliesinexactlythesamefashiontoIndonesianandnon-Indonesiancompanies.
Neithermayuseapre-existing,pre-registeredbrandnameforanationalcar.
Indonesianandnon-Indonesiancompaniesmustmeetthesamerequirement—theymustestablishanewbrandnameforanationalcar.
11.
16Thus,thefactthatanIndonesiannationalcarcannotbecalleda"FordMustang"ora"ChryslerLeBaron"ora"ChevroletCamaro"ora"CadillacCoupeDeVille"isirrelevant.
ItdoesnotindicatethatArticle3hasbeenviolatedbecausethebrand-namerequirementappliestoallpartiesinpreciselythesamefashion.
Nomatterwhatcompaniesmakeanationalcar,thecarsmustbesoldundernew,Indonesian-registeredbrandnames.
2.
ThebrandnamerequirementisconsistentwiththeobligationsofArticle20oftheTRIPSAgreement11.
17Article20oftheTRIPSAgreementsetsforthspecific"otherrequirements"concerningtrademarks.
Asdemonstratedbelow,however,noneoftheserequirementsisgermanetothebrand-namerequirement.
AccordingtoArticle20,"[t]heuseofatrademark.
.
.
shallnotbeunjustifiablyencumberedbyspecialrequirements"suchas"usewithanothertrademark,useinaspecialformoruseinamannerdetrimentaltoitscapabilitytodistinguishthegoodsorservicesofoneundertakingfromthoseofotherundertakings".
Inanofficial,legallymandatedcommunicationtoitsCongress,theUnitedStatesGovernmentdeclaredthatthepurposeofArticle20istosafeguardtheroleofatrademarkasanindicationofthesourceofthetrademarkedproduct.
63411.
18Thus,Article20isnotrelevanttothebrand-namerequirement.
Requiringanewtrademarkinordertoreceivethesubsidiesunderthenationalcarprogrammedoesnotservetodeceiveorconfusepeopleregardingthesourceofthetrademarkedproduct.
Itdoesnotencumberanexistingtrademarkwithspecified"specialrequirements".
634Inthe"StatementofAdministrativeAction,"whichtheUnitedStatesGovernmentwasrequiredbylawtosubmittoitsCongressaspartoftheUSprocessforimplementingtheWTOagreements,theUnitedStatesdescribesthepurposeofArticle20oftheTRIPsAgreementasfollows:Article20safeguardstheroleofatrademarkasanindicationofthesourceofthetrademarkedproductorservicebyprohibitingimpositionofspecialrequirements,suchasusewithanothertrademark,thatcouldimpairthisrole.
Membercountriesmay,however,requirethefirmorpersonproducingthegoodsorservicestoincludeitstrademarkalongwith,butnotlimitedto,thetrademarkdistinguishingthegoodsorservicesatissue.
UruguayRoundTradeAgreements,TextsofAgreements,ImplementingBill,StatementofAdministrationActionandRequiredSupportingStatements,HouseDocument103-316,Vol.
Iat984,103dCong.
,2dSess.
(27September1994)(emphasisadded).
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage32411.
19Moreover,evenifArticle20werenotlimitedtounjustifiedencumbrancesonexistingtrademarks,itstillwouldnotapplytotherequireduseofanewtrademark.
TheUnitedStatescharacterizesthebrandnamerequirementasprecludingtheuseofUStrademarks,averysubstantialinfringementwereittrue.
HadthenegotiatorsmeantArticle20tocoveraninfringementassubstantialasthatallegedbycomplainantUnitedStates,theywouldhavespecifiedsointhetextoftheArticle.
However,theydidnot.
Article20dealswiththeencumberingoftrademarkusagethroughtiestoothertrademarksorrequirementsthatreducebrand-namerecognition.
But,theseimportantissuesarenotraisedbythebrandnamerequirementatissuehere.
11.
20Moreover,asdiscussedbelow,undertheprovisionsofArticle65.
2,IndonesiacurrentlyisexemptfromArticle20.
3.
Article65exemptsIndonesiafromcertainprovisionsoftheTRIPSAgreement11.
21Article65establishesthescheduleforwhenMembercountriesmustcomplywiththeTRIPSAgreement.
AllMembersaregivenaone-yeargraceperiod(generallycalculatedfrom1January1995(thedateofentryintoforceoftheWTOAgreement))beforetheymustcomplywiththeTRIPSAgreement.
635DevelopingcountryMembersreceiveanadditionalfour-yeargraceperiodbeforetheymustcomplywiththeTRIPSAgreement(apartfromcertain,specifiedarticles).
63611.
22Thus,underArticle65,Indonesiahasuntil1January2000beforeitmustcomplywiththevastmajorityoftheTRIPSAgreement.
BecauseArticle3isoneofthespecifiedexceptions,Indonesiaisnotexemptfromcomplyingwiththenationaltreatmentobligation.
However,theArticle65.
2exemptiondoesapplytoArticle20.
Therefore,inadditiontothereasonsdemonstratedabove,duetotheArticle65.
2graceperiod,IndonesiacannotnowbefoundtohaveviolatedArticle20oftheTRIPSAgreement.
635SeeTRIPSAgreement,Article65.
1.
636SeeTRIPSAgreement,Article65.
2.
AreviewofArticle65.
5demonstratesthatthelengthofthisperiodisnotshortenedbyArticle65.
5astheUnitedStatesasserts.
Evenifitwere,asestablishedabove,thebrandnamerequirementdoesnotviolatetheprovisionsoftheTRIPSAgreementand,thus,Article65.
5isnotimplicated.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage3254.
AUScarcompanywouldnothavebeenprecludedfrombeingaNationalCarproducer11.
23Asdemonstratedbefore,theUnitedStatesTRIPScomplaintreducestotheargumentthataUnitedStatescompanycannotbeanationalcarproducer.
HadaUnitedStatescompanymadeanacceptableoffertoTPN,thatcompany'smarkwouldnothavebeeninfringedorderogatedbecausetheUScompanywouldhaveremainedfreetosellitscarsinIndonesia,undertheUSbrand,atthesametimeitparticipatedwithTPN.
Thecarswould,inanycase,notbeidentical.
TheUScar,manufacturedbyaUSentity,wouldoccupyamuchdifferent(higher)slotintheIndonesianmarketthanwouldtheNationalCarbuiltbyanIndonesiancompany.
Also,aswiththeSephiaversustheTimor,thecars'specificationslikelywoulddiffersignificantly.
C.
RebuttalargumentsmadebytheUnitedStates11.
24ThefollowingaretheUnitedStates'rebuttalargumentstoIndonesia'sresponsetotheclaimsraisedonthebasisofprovisionsoftheTRIPSAgreement:11.
25WithrespecttotheTRIPSAgreement,IndonesiaclaimsthatthereisnoviolationofArticle3becausethebrandnamerequirementoftheNationalCarProgrammeappliesinthesamemannertoIndonesianandforeigncompanies.
Thisissimplyfalse,becauseaccordingtotherelevantimplementingmeasures,onlyIndonesiancompaniesareeligiblefortheNationalCarProgramme,andonlyIndonesiancompaniesmayobtaina"nationalcar"trademark.
Thisisblatantdiscriminationagainstforeignnationals.
11.
26Moreover,initsdiscussionofArticle3,Indonesiaconvenientlyomitsfootnote3tothatarticle,whichstatesthat"protection"forpurposesofArticles3and4includes"thosemattersaffectingtheuseofintellectualpropertyrightsspecificallyaddressedinthisAgreement".
(Emphasisadded).
11.
27Inthecontextofthatfootnote,Indonesia'spracticesinrespectofnationalcartrademarksdiscriminateagainstforeignnationalsandtheprotectionaccordedtheirrightsinseveralrespects.
First,Indonesiadiscriminatesinrespectoftheacquisitionofanationalcartrademark.
IndonesiaadmitsthatanytrademarkthatcouldapplytoanationalcarmustbeacquiredbyanIndonesiancompany,bethatcompanyajointventureorawholly-ownedIndonesiancompany.
Thisisaclearviolationofnationaltreatment.
11.
28Second,therequirementtousea"new"Indonesiantrademarkonanationalcardiscriminatesagainstownersofexistingmarksinrespectofthemaintenanceofthemark.
Itisunlikelythattheownerofthemarknormallyused(globalmark)onthevehiclemarketedasa"nationalcar"inIndonesiawillbeabletousethatmarkwithoutcreatingconfusion(i.
e.
,confusionresultingfromusingdifferentmarksonthesamecar).
Consequently,itismorelikelythattheglobalmarkwillbesubjecttocancellationfornon-useinIndonesia.
Finally,Indonesiadiscriminatesinrespectoftheprotectionaccordedglobalmarks,becausesuchamarkcannotbeusedonanationalcar.
11.
29Becausethedefinitionof"protection"asappliedinTRIPSArticle3appliesthenationaltreatmentobligationinrespectofuseofintellectualpropertyrightstomattersspecificallyaddressedintheTRIPsAgreement,useofatrademarkisspecificallyaddressedintheAgreementinArticle20.
AlthoughArticle3anditsfootnotedonotrequirethatapracticeviolateboththenationaltreatmentobligationandtheprovisionspecificallyaddressingtheparticularuseoftheright,thatisthesituationinthiscase.
Indonesia'spracticeviolatesbothTRIPSArticle3andArticle20.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage32611.
30TheUnitedStatesbelievesthatIndonesia'spracticesviolateArticle20oftheTRIPSAgreement,becausetheyconstituteaspecialrequirementthatunjustifiablyencumbersuseofthetrademarkintrade.
Onecannotuseanexistingtrademarkonanationalcareventhoughittellstheconsumermoreabouttheactualsourceofthecarthanthenewmarkthatmustbeobtainedtoqualifyasanationalcar.
Moreover,thebenefitsaccruingfrombeinganationalcararesuchthatmarketingothercars(whichcarryapre-existingtrademark)ismadedifficult.
ThistacticisunjustifiableinthatitisakintosayingthattheIndonesianGovernmentwantstodevelopabrandname,i.
e.
,atrademark,andwilldosobyeliminatingotherbrandsofcarsfromthemarket.
11.
31FurtherregardingArticle20,Indonesiaagainengagesinaconvenientomissionbydeleting,initsquotationofArticle20,thephrase"inthecourseoftrade".
Thatphrase,however,isveryimportant.
IfuseofapreviouslyorconcurrentlyregisteredtrademarkprecludesaccesstothebenefitsoftheNationalCarProgramme,thatcertainlydiscouragestheuseofthemarkinthecourseoftrade,therebyencumberingitsusewithinthemeaningofArticle20.
Ataminimum,thereisdefactodiscriminationagainstforeignnationalsandtheirtrademarks,becauseIndonesianholdersofatrademarksatisfyingthenationalcarrequirementsaretreatedbetterthanforeignholdersofinternationalmarks.
Putdifferently,theencumbranceimposedbythetrademarkrequirementoftheNationalCarProgrammeonpreviouslyorconcurrentlyregisteredtrademarksconstitutesaban-theultimateencumbrance-ontheuseofsuchtrademarksoncertainproducts.
11.
32Inaddition,arequirementthatatrademarkowneruseadifferenttrademarkfromthatwhichitusesintherestoftheworldtoobtainaspecialadvantageinIndonesiacouldputtheregularmarkatriskofcancellationfornon-useinIndonesia.
BecausethetrademarkownerwouldbechoosingtousetheuniqueIndonesianmark,itwouldnotbeabletoarguethatitsnon-usearoseindependentlyofitswill.
11.
33Inshort,Indonesia'slimitedinterpretationofthepurposeofArticle20isnotborneoutbythetext.
Moreover,Indonesia'scitationtotheUSStatementofAdministrativeAction("SAA")doesnotproveanything,becausetheSAAmerelyreferredtoonesetofpracticesthatcouldbedealtwithunderArticle20.
ItwasnotthepurposeofthisdocumenttocatalogueallthepossiblewaysinwhichArticle20couldbeviolated,norwouldithavebeenfeasibletodoso.
Inparticular,thedraftersofthatdocumentcouldnothaveforeseentheparticularmethodusedbyIndonesiatoviolateArticle20.
11.
34IndonesiaassertsthattheIndonesianfirmsseekingNationalCarproducerstatus"wouldhavejumpedatthechancetohaveanarrangement"withaUSautomanufacturer.
Inotherwords,Chrysler,forexample,couldhavestoodintheshoesofKiaMotors,andcouldhavebeenthesupplierofthe"TimorChryslerNeon",evenifitwouldnothavebeentherecipientofthesubsidiesundertheNationalCarProgramme.
11.
35However,considerthepricethatChryslerwouldhavehadtopaytobeasupplierofthe"TimorChryslerNeon.
"ItcouldhavesuppliedTPN(orsomeotherIndonesiancompany)withfinishedNeonsorNeonkits,but,undertheNationalCarProgramme,itcoulddosoonlyifitagreedtohavetheNeonsrebadgedas"Timors".
Ifitagreedtosuchadeal,Chryslerwouldhavehadtoforegoallofthebenefitsthatgoalongwithsellingaproduct,andestablishingaproductinamarket,underitsowntrademark.
Indonesianpurchasersofourhypothetical"NeonNationalCar"wouldbecomefamiliarwith,anddevelopaloyaltyto,theTimortrademark,nottheChryslertrademark.
11.
36Inshort,thespecialtrademarkrequirementoftheNationalCarProgrammeconstitutesanunjustifiableencumbranceontheuseofatrademarkinthecourseoftrade.
AforeigncompanywithitsowntrademarkthatseekstoparticipateintheNationalCarProgrammemustrelinquishitsWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage327trademarkrights.
Ifitchoosenottorelinquishitstrademarkrights,itmustfaceunfaircompetitioninthemarketplace.
11.
37ItmaywellbetruethatKia,givenallofitsproblems,waswillingtorelinquishtherightsguaranteeditbytheTRIPSAgreement.
However,thefactthatKiawaswillingtoforegoitsrightsdoesnotmeanthatitisacceptable,orconsistentwiththeTRIPSAgreement,toimposesuchencumbrancesontherightsofnationalsofotherMembers.
11.
38NorwouldarequirementthattwotrademarksbeusedonaproductbelegitimateunderArticle20oftheTRIPSAgreement.
TheTRIPSnegotiatorsintendedtostopthistypeofpractice,and,inparticular,discussedapriorpracticeofIndiathatrequiredsuchlinkages.
Specificexamplesoflinkedtrademarksthatwerediscussedwere"Lahil-Pepsi"and"Modi-Xerox.
"11.
39Indeed,theexpresslanguageofArticle20condemnssuchapractice,bystatingasfollows:"Theuseofatrademarkinthecourseoftradeshallnotbeunjustifiablyencumberedbyspecialrequirements,suchasusewithanothertrademark.
.
.
".
(Emphasisadded).
Thus,eveniftheIndonesianauthoritiescouldallowanationalcartobeartwomarks,includingamarkownedbyaforeigncompany(andthelanguageoftherelevantmeasureswouldseemtoprecludethis),suchapracticewouldviolateArticle20.
11.
40Article20oftheTRIPSAgreementprohibitsunjustifiableencumbrances,imposedthroughspecialrequirements,ontheuseofatrademarkinthecourseoftrade.
Anillustrativelistofsuchencumbrancesfollows.
Prohibitedencumbrancesclearlymustencompassmeasuresthataffectsuchafundamentalissueastherightorabilitytousethetrademark.
IfanexistingtrademarkcannotbeusedonaNationalCar,evenifthatmarkaccuratelyreflectsthesourceofthecaroritsarts,useofthatmarkclearlyhasbeenencumberedand,intheviewoftheUnitedStates,withoutjustificationotherthanadesiretolimitaccesstothebenefitsoftheNationalCarprogramme.
11.
41TheUnitedStatesbelievesthatthefocusunderArticle20shouldnotbeontheprecise"specialrequirement",butontheeffectoftherequirement;i.
e.
,doesitunjustifiablyencumberuseofthetrademark.
ThefactthatthetextofArticle20includes"useinamannerdetrimentaltoitscapabilitytodistinguishthegoodsorservicesofoneundertakingfromthoseofotherundertakings"asoneexampleofaspecialrequirementclearlyindicatesthatotherspecialrequirementscanactasencumbrancesonuseofamarkintrade.
WhileeliminatingencumbrancesthatunjustifiablyaffecttheabilityofatrademarktodistinguishthegoodsorservicesofoneundertakingfromanotherisakeyobjectiveofArticle20,itisnotthesoleobjective.
Therighttoregisteratrademark,eveninitspreferredform,withouttherightorabilitytouseitintradeinthatformismeaningless.
11.
42Thus,theprohibitiononuseofanestablishedorforeign-ownedtrademarkonaNationalCarconstitutesanunjustifiableencumbranceontheuseofthetrademarkinthecourseoftrade.
Thespecialrequirementusedtoimplementthisunjustifiedencumbranceisessentiallythatanewmark,ownedbyanIndonesiannational,beregisteredandusedonthecar.
IntheviewoftheUnitedStates,thisistheultimateencumbrance—itisabanonuseofthetrademarkoncertainproducts.
11.
43Finally,withrespecttothetransitionalrulesinArticle65,IndonesiasimplyignorestheplaintextofArticle65.
5.
ThatprovisionstatesthataMemberavailingitselfofatransitionalperiod,suchasIndonesiahere,shallensurethat"anychangesinitslaws,regulationsandpracticesmadeduringa[transitionalperiod]donotresultinalesserdegreeofconsistencywiththeprovisionsofthisAgreement.
"BecausetheNationalCarProgrammepost-datestheentryintoforceoftheWTOAgreementandviolatesArticle20,itisinconsistentwithArticle65.
5,andIndonesiamustreturntothepre-violationstatusquoante.
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage328XII.
THIRDPARTYARGUMENTSA.
India12.
1Indiamadethefollowingargumentsasathirdpartytothepanelproceedings:12.
2RelatingtotheallegedviolationoftheTRIMsAgreementbyIndonesia,itisamatterofrecordthatIndonesiahadnotifiedthemeasuresalreadytakenbyittotheTRIMsCommitteeinMay1995.
However,inOctober1996IndonesiaonreexaminationoftheirmeasuresfeltthattheycouldnotbetermedasTRIMsandconsequentlytheywithdrewtheirabovenotification.
12.
3Therearetwoproceduralissuesrelatingtothismatterwhichthecomplainantshaveraisedinthiscaseonwhichwewouldliketocommentbeforecomingtothesubstantiveissue.
Firstly,ithasbeenimpliedthataMembercannotwithdrawanotification,oncesubmittedtotheWTO.
Thisisanavermentthatwecannotaccept.
WestronglyfeelthatMembershavetherighttobothamendortoevenwithdrawanyoftheirnotifications,providedtherearesufficientgroundsjustifyingsuchaction.
Consequently,wefeelthatIndonesiawasfullywithinitslegalrightstowithdrawthenotificationithadmadetotheTRIMscommittee.
12.
4Thesecondproceduralissue,thementionofwhichwefindinthecomplainantsfirstsubmission,relatestotheallegedineligibilityofIndonesiatobenefitfromcertaintransitionalprovisionssimplybecauseitsnotificationwasnotsubmittedontime.
WenotethatIndonesia'smeasures,aswewillelaboratealittlelater,arenotTRIMs.
However,wewouldliketostronglystateourpositionthatdelayinnotifyingameasure,nomatterunderwhichprovision,cannotinanywaybeconstruedasdiminishingthebenefitsthatanyMembermayhavebyvirtueofitbeinginaspecialcategory,suchasadevelopingcountry.
Whileweagreethatdelayinnotifyingmeasuresshouldideallynotoccur,itmustatthesametimealsoberealizedthatsmalldelegationsoftenhaveconstraintsofresourceswhichattimesleadstoanunintendeddelayinthenotificationoftheirmeasures.
Itisforthisreasonthatwebelievethatanysuchproceduraldelaysshouldnotmitigatethebenefitswhichanymembermayotherwisebeeligiblefor,underacoveredagreement.
12.
5ComingtothesubstanceofthelegalissuerelatingtotheTRIMsAgreement,thecomplainantshavestatedthatthemeasurestakenbyIndonesiaareviolativeofArticle2oftheTRIMsAgreement.
Asweareallaware,Article2.
1oftheTRIMsAgreementstatesthat"nomembershallapplyanyTRIMthatisinconsistentwiththeprovisionofArticleIIIofGATT1994".
TheemphasishereisnodoubtontheapplicationbyMembersofameasurewhichcanbesaidtobeatrade-relatedinvestmentmeasure.
ItisthereforeevidentthatweneedtoabinitiobeclearwhetherthesaidmeasurestakenbyIndonesiacomewithintheambitofbeingtraderelatedinvestmentmeasuresornot.
12.
6GoingbacktothedraftingoftheTRIMsAgreement,theAgreementisbasicallydesignedtogovernandtoprovidealevelplayingfieldforforeigninvestmentinthirdcountries.
Itisevidentthatanymeasuretakenbyacountryrelatingtoitsinternaltaxesorsubsidies,asIndonesiahasdone,cannotthereforebeconstruedtobeatrade-relatedinvestmentmeasure.
ThisisparticularlyimportantwhenweviewthefineprintintheTRIMsAgreementwhichinfactdoesnotaddanynewobligationstoMembers,sinceitmerelystatesthatameasurewhichisatrade-relatedinvestmentmeasureshouldnotbeviolativeofArticleIIIorXlofGATT1994.
ThisinterpretationhasbeenupheldintherecentreportofthepanelontheEuropeanCommunitiesregimefortheimportation,saleanddistributionofbananasinwhichithasbeenstatedthat"theTRIMsAgreementessentiallyinterpretsandclarifiestheprovisionsofArticleIII(andalsoArticleXl)wheretrade-relatedinvestmentmeasuresareconcerned.
Thus,theTRIMsAgreementdoesnotaddtoorsubtractfromthoseGATTobligations".
WT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage32912.
7IndonesiahaspointedoutinitssubmissionthatitsmeasuresareinthenatureofsubsidiesspecificallyprovidedtotheautomobileindustryandthereforecomewithinthepurviewoftheSubsidiesAgreementandnottheTRIMsAgreement.
WehavecarefullygonethroughthefirstsubmissionsmadebythecomplainantsaswellastheRepublicofIndonesia.
WewouldliketobringonrecordthatweagreewithwhatIndonesiahasstatedthatthemeasurestakenbyitareentirelyintheformofsubsidiesandtheirlegalityorotherwisethereforeneedstobeexaminedinthelightofprovisionsoftheAgreementonSubsidiesandCountervailingMeasures,andnottheTRIMsAgreement.
Indiastronglyfeelsandhasstateditspositioninearlierforaalso,thatsubsidiesshouldbegovernedsolelybytheSubsidiesAgreement.
Therehasbeenconsistencyinourstandandintheinterpretationinvariousfora,thatjustasinvestmentmeasurescannotbepresumedtobeaformofsubsidization,subsidiestoocannotbepresumedtobetraderelatedinvestmentmeasures.
12.
8WithregardtotheinterpretationofcertainprovisionsoftheSubsidiesAgreement,wewouldliketowholeheartedlyendorsewhathasbeenstatedbyIndonesiainitswrittensubmission.
Inparticular,wewouldliketostatethatweentirelyagreewithIndonesiathat(a)Article27.
3oftheSubsidiesAgreementdoesnotprecludetheintroductionorexpansionofdomesticcontentsubsidies;(b)thedomesticcontentsubsidyisnotwithinthescopeofArticle27.
4oftheSubsidiesAgreementsinceitisnotanexportsubsidyandsinceIndonesiaisadevelopingcountry;and(c)thedomesticcontentsubsidyisnotwithinthescopeofArticle28.
2becauseitisnotinconsistentwiththeSubsidiesAgreement.
12.
9Comingtothesecondissueonwhichwewouldliketostateourposition,viz,thatrelatingtoArticleIofGATTi.
e.
,theprovisionforMFNtreatment.
Ithasbeenarguedthat,underthemeasurestakenbyIndonesia,theKiacarbeingproducedinKoreahasbeengrantedspecialanddifferentialtreatment,ascomparedtocarsbeingproducedelsewhere,andisthereforeviolativeoftheMFNprinciple.
WehavecarefullyperusedtheregulationsanddecreesissuedbytheRepublicofIndonesiain1996.
Innoneofthesedecreesdowefindmentionofanyspecificcountry,includingKorea.
Itisthereforeevidentthatwhilethepresidentialdecreeandothernotificationsrefertonationalmotorvehicles,theydonotinanywaymandatepreferentialtreatmentofautomobilesortheircomponentsorpartsfromanycountry.
Purelyfromalegalviewpoint,itisthereforeclear,thattheabovereferredregulationshavenotviolatedtheMFNprinciplesincetheyhavenotconferredanyspecialprivilegestocarsortheirpartsbeingmanufacturedinaparticularcountry.
12.
10Inthiscontext,wedonotagreewiththeargumentputforthbysomeofthecomplainantsthatevenifaparticularregulationdoesnotmentionacountrybyname,butitseffectistobenefitaparticularproduceroracountry,thenitisviolativeoftheMFNprinciple.
Wefindnolegalstrengthinthisargument,sinceitisclearthatanyautomobilemanufacturerbasedinanycountrycouldhave,andinfactcan,availofthespecificbenefitsandsubsidizationprogrammeintroducedbyIndonesia,providedtheyfulfiltheconditionsspecifiedinthesaidregulation.
ThefactthatnoothercountryhassofarapproachedtheRepublicofIndonesiainthisregardcannotthereforebeconstruedasanindicationthatthesaidprovisionhasviolatedtheMFNprinciple.
12.
11Beforeconcluding,wewouldliketorefersomeoftheargumentsputforthbyIndonesiaregardingthestepstakenbyIndonesiatodiversifyproductionandtoderegulateinternationaltradesothatthecountrycouldcontinueinitscommitmenttowardseconomicreform.
WhatissignificantisthatthesestepsweretakeneventhoughIndonesia'stotalexternaldebthadreachedUS$108billionin1995andthatthedeficitinIndonesia'scurrentaccounthadmorethandoubledinoneyeartoUS$6.
8billioninthesameyear.
AlthoughweagreethatthesestatisticshavenodirectbearingontheissuesforconsiderationbeforethePanel,wewouldliketohighlightthefactthatWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage330developingcountriesoftenneedtotakestopstobolstertheireconomyandtoovercomeproblemsofimbalancesinregionaldevelopment.
Wewouldsuggestthatthemultilateraltradingsystemexaminestheinitiativestakenbythesecountriesintheoverallpursuitofeconomicdevelopmentintheircontext.
12.
12WeallstandtogainfromtheWTOsystemifwedevelopreasonableandcoherentinterpretationsdetachedfromshort-termeconomicandcommercialinterest.
Thiswouldassistpanelsintheirsearchfortherightinterpretations,particularlyinevolvingareassuchastheTRIMsAgreementandtheAgreementonSubsidiesandCountervailingMeasures.
B.
Korea12.
13Koreamadethefollowingargumentsasathirdpartytothepanelproceedings:1.
Preliminaryjurisdictionalissue12.
14OneofthebasictenetsoftheDSUistoallowthecomplainingpartywithtradegrievancestostateperspicuouslytheallegedoffendingmeasureswhichitseekstochallengeandhasdeclaredinconsistentwithWTOobligations.
TheobviousintentofthisrequirementistoprovidethememberstatewithanopportunitytoeffectivelyexamineandrespondtochargesthatthelaworpracticeisatransgressiontotheWTOAgreementsand,ifnecessary,takecorrectivemeasurestoremedythesituation.
ThiswasconfirmedintheAppellateBodyrulingontheEuropeanCommunities-RegimefortheImportation,SaleandDistributionofBananaswhichstatesthat"claims.
.
.
mustallbespecifiedsufficientlyintherequestfortheestablishmentofapanelinordertoallowthedefendingpartyandanythirdpartiestoknowthelegalbasisofthecomplaint".
TheDraftersoftheDSU,cognizantoftheimportanceofidentifyingthemeasurestobechallenged,insertedArticle6.
2whichreads:Therequestfortheestablishmentofapanelshall.
.
.
identifythespecificmeasuresatissueandprovideabriefsummaryofthelegalbasisofthecomplaintsufficienttopresenttheproblemclearly.
12.
15TheUnitedStatesdiscussesindetailhowtheUS$690millionloanmadetoTimorPutraNasionalcontravenesArticleIII:4ofGATTl994andArticle2ofTRIMsAgreement.
TheUnitedStatesfurtherarguesthattheloanconstitutesaspecificsubsidywhichcausesseriousprejudice.
12.
16TheloantowhichtheUnitedStatesalludes,however,isnotapartofthetermsofreferencebecauseitwasneverspecificallyidentifiedasameasureatissueinthe12June1997requestoftheUnitedStatesfortheestablishmentofapanel.
ThemostrecentAppellateBodyrulingintheBananascaseshedslightontheDSUArticle6.
2requirement.
TheAppellateBodystates:WedonotagreewiththePanelthat"eveniftherewassomeuncertaintywhetherthepanelrequesthadmettherequirementsofArticle6.
2,thefirstwrittensubmissionsoftheComplainants'cured'thatuncertaintybecausetheirsubmissionsweresufficientlydetailedtopresentallthefactualandlegalissuesclearly".
.
.
Ifaclaimisnotspecifiedintherequestfortheestablishmentofapanel,thenafaultyrequestcannotbesubsequently'cured'byacomplainingparty'sargumentationinitsfirstwrittensubmissiontothepanelorinanyothersubmissionorstatementmadelaterinthepanelproceeding.
12.
17Itisalsonoteworthythattheloanwasprovidedafterthecreationofthepanel.
IntheUnitedStates-MeasuresAffectingAlcoholicandMaltBeveragescase,CanadaendeavouredtoWT/DS54/R,WT/DS55/R,WT/DS59/R,WT/DS64/RPage331reservetherighttoinvokenewmeasureswhichmayariseduringthepaneldeliberation.
Thepanelconcludedthatits"termsofreferencedonotpermitittoexamineanynewmeasurewhichmaycomeintoeffectduringthePanel'sdeliberations".
12.
18Asthetermsofreferencedonotidentifytheloanandthedefectcannotsubsequentlybecuredbyafirstsubmission,thepanelshouldavoidrulingonanyclaimsmadebytheUnitedStatesinconnectionwiththeAugust1997loan.
2.
SubstantiveIssues12.
19First,aswasrightlypointedoutinthesubmissionsofthepartiestothedispute,nothinginthelegislationbyIndonesiaestablishingeithertheFebruary1996ortheJune1996programmeexplicitlymandatespreferentialtreatmentofproductsfromanyspecificcountry.
Anationalcarproducerhasthefreedomtochoosetheoriginoftechnologyandofthecomponentandpartsusedintheproduction.
12.
20KiaMotorCorporationhasbecomeabeneficiaryofsuchpreferentialtreatmentbyhavingsimplybeenchosenbyPTTimorPutraNasionalasapartnerforajointventure.
Theterm'jointventure'isusedinageneraldescriptivesenseandnotasalegalcharacterizationofthearrangementasprovidedforintherelevantlawsofIndonesia.
12.
21Second,initsfirstsubmission,theGovernmentofIndonesiaarguesthattheexemptionsandreductionsofimportdutiesandluxurytaxfortheproducersofanationalcarisnotinconsistentwiththeprovisionsofSubsidiesandCountervailingMeasuresAgreement("SCM"),because,underArticle27.
3ofSCM,IndonesiaisnotsubjecttotheprovisionsofArticle3.
1(b)ofSCMasadevelopingcountryforaperiodoffiveyears.
12.
22Ifsuchanargumentisacceptedbythepanel,KoreaisoftheviewthatIndonesia'simportdutiesandluxurytaxsubsidiesshouldnotberegulatedbyArticleIorIIIofGATT1994,because,intheeventofconflictbetweenSCMandGATT1994,theprovisionsofSCMshallprevailtotheextentoftheconflictasprovidedforinGeneralInterpretativeNotetomultilateralagreementsontradeingoods.
AreferencetoArticlesIandIIIofGATT1994andtheSCMAgreementreflectsapreliminaryviewoftheKoreanGovernmentwithoutprejudicingthepositionsonthisparticularissueofthepartiesdirectlyinvolved.
12.
23Finally,aswasaccuratelystatedbyIndonesia,theSportageisnotandwillnotbecomeeligiblefortheNationalCarProgramme.
Therefore,complaintspertainingtoKiaSportageareirrelevanttothepresentcase.