WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 322 
 
 
 XIII. INTERIM REVIEW
637 
13.1 On 6 April 1998, Indonesia requested the Panel to review, in accordance with Article 15.2 of 
the DSU, certain aspects of the interim report that had been transmitted to the parties on 
24 March 1998.  On 7 April 1998, the European  Communities, Japan and the United States also 
requested the Panel to review the interim report.  N one of the parties requested the Panel to hold an 
additional meeting. 
13.2  We have reviewed the arguments and drafti ng suggestions presented by the four parties, and 
finalized our report, taking into account those comment s by the parties which we considered justified.  
In this context we have clarified the wording of certain paragraphs addressing some factual aspects of 
the various pieces of legislation under examination and revised paragraphs 2.1, 2.3, 2.28, 2.37, 2.44, 
3.1, 2.44, 3.1, 3.4(a), 5.126, 6.100, 7.87 to 7.91, 7.161, 7.163, 8.13, 8.160, 8.199, 8.332, 8.393, 8.418, 8.443, 8.444, and 10.4 to 10.12 of the descriptive part and paragraphs 14.10 , 14.86, 14.92, 14.107 and 
14.115 of the findings accordingly.  Some parties have also raised arguments with  regard to the 
description of their claims.  We have carefully revi ewed the claims of the complainants, as identified 
in the originals of their requests for establishmen t of panels, and revised paragraphs 14.15, 14.18, 
14.20, 14.21, 14.94, 14.124, 14.125 and 14.148 accordi ngly.  We have also revised paragraphs 14.210 
to 14.213 of the findings to more accurately  characterize the arguments of the European 
Communities.  Further, we have decided in light  of comments from the European Communities to 
delete paragraphs 14.198 and 14.199 and to modify paragraph 14.2 47.  In addition, we have made  
other minor modifications including those to para graphs 14.9, 14.38, 14.68, 14.73, 14.76, 14.77, 
14.94, 14.95, 14.133, 14.134, 14.149, 14.152, 14.176 and 15.1(a). 
13.3  Finally, we would like to address the issue of  the confidentiality of the interim report.  When, 
on 24 March 1998, we transmitted our  interim report to the parties, we clearly indicated that such 
report was confidential.  Indeed all panel proceed ings remain confidential until the panel report is 
circulated to WTO Members.  According to para graph (h) of Appendix 1 of the Council Decision on 
Procedures for the Circulation and Derestriction of WTO Documents
638 it is possible to maintain the 
restricted nature of any such panel report for 10 days after circulation to Members.  We had also  explicitly emphasized at our first meeting with the pa rties that the panel proceedings were confidential 
and that we expected all delegations to treat the present proceedings with utmost circumspection and 
discretion.  This was accepted by the parties.  We are seriously concerned to find out that parties 
(leaks from Japan and the United States have been br ought to our attention) have not respected this 
obligation  and have disclosed aspects of the interim re port.  We consider that this lack of respect of a 
specific requirement imposed by the Panel affects th e rights of the parties and the integrity of the 
dispute settlement process, and s hould not remain unmentioned.  
                                                     
 
637Pursuant to Article 15.3 of the DSU, the findings of  the panel report shall include a discussion of the 
arguments made at the interim review stage.  Consequen tly the following section entitled Interim Review is part 
of the Findings of this Panel Report. 
638 Decision adopted by the General Council on 18 May 1996, WT/L/160/Rev.1.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 323 
 
 
 XIV. FINDINGS
639 
A. Preliminary Rulings  
1. Presence of private lawyers as representatives of a party to the dispute  
14.1 As further detailed in paragra phs 4.1 to 4.35 of the Descrip tive Part, in connection with the 
first substantive meeting of the Panel with the par ties, Indonesia announced that two private lawyers 
were members of its delegation.  Following a request  by the United States to exclude those lawyers 
from the meeting, the Panel heard the arguments of th e parties on this issue.  On 3 December 1997, 
the Chairman announced the following ruling on behalf of the Panel: 
“I wish to inform the parties that having carefully reviewed the letters received in the 
preliminary matter before us, and having hear d the arguments of the parties, the Panel 
does not agree with the United States’ request  to exclude from meetings of the Panel 
certain persons nominated by the Gove rnment of Indonesia as members of its 
delegation.  We conclude that it is for th e Government of Indonesia to nominate the 
members of  its delegation to meetings of this Panel, and we find no provision in the 
WTO Agreement or the DSU, including the standard rules of procedure included 
therein, which prevents a WTO Member from determining the composition of its 
delegation to WTO panel meetings.  No r does past practice in GATT and WTO 
dispute settlement point us to a different c onclusion in this case.  In particular, we 
note that unlike in this present case, the working procedures of the Bananas III   Panel 
contained a specific provision requiring the pr esence only of government officials.   
 We would like to emphasize that all members of parties' delegations --  
whether or not they are government employees -- are present as representatives of their governments, and as such are subject to the provisions of the DSU and of the standard working procedures, including Articles 18.1 and 18.2 of the DSU and paragraphs 2 and 3 of those procedures.  In particular, parties are required to treat as 
confidential all submissions to the Panel a nd all information so designated by other 
Members; and, in addition, the Panel meet s in closed session.  Accordingly, we 
expect that all delegations will fully resp ect those obligations and will treat these 
proceedings with the utmost circumspection and discretion.  I would ask the four Heads of Delegation to confirm that all me mbers of their delegations are present as 
representatives of their  governments, and as such will abide by all of the applicable 
provisions; and therefore that the governments are responsible for the actions of their 
representatives.”
640   
14.2 The parties  accepted these prescriptions by the Panel and the four Heads of Delegation 
confirmed that all members of their delegations were present as representatives of their governments, 
and as such would abide by all of the applicable provisions.   
                                                      
639 Throughout this report, we have based our analysis on the ordinary meaning to be given to the terms 
of the provisions under examination in their context and in the light of their object and purpose.  In our analysis 
of the scope and purpose of these provisions we have also taken in to account past GATT and WTO panel 
reports and Appellate Body reports when we considered them relevant and applicable to the present dispute.  We are aware, however, that they are not binding, ex cept with respect to resolving the particular dispute 
between the parties to that dispute. Appellate Body Report on Japan - Taxes on Alcoholic Beverages , WT/DS8, 
10, 11, adopted on 1 November 1996, p. 14, hereafter called  Alcoholic Beverages (1996) . 
640 The Panel in referring to Bananas III , referred to the Appellate and Panel Reports on EC - Regime 
for the Importation, Sale and Distribution of Bananas , WT/DS27, adopted on 25 September 1997. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 324 
 
 
 2. The alleged loan to PT TPN as a measure cove red by the terms of reference of this panel
 
14.3 At the first meeting of the Panel with the parties, on 3 December 1997, Indonesia raised a 
preliminary objection to the United States’ claim wi th respect to a $US 690 million loan to PT TPN, 
on the basis that this loan was not within the Panel’ s terms of reference.  The arguments of the parties 
can be found in paragraphs 4.36 to 4.50 of the Descr iptive Part of this report.  After hearing the 
arguments of the parties, the Chairman announ ced the following ruling on behalf of the Panel: 
“In its first submission, the United States alleges that the Government of Indonesia 
directed certain government-owned and priv ate banks to provide PT TPN with a $690 
million loan as a component of the Nationa l Motor Vehicle Programme.  The United 
States claims that this government-directed loan is inconsistent with Article III:4 of 
GATT 1994 and Article 2 of the TRIMs Agreemen t, and that it is a specific subsidy 
which causes or threatens to cause serious prejudice to the interests of the United 
States.  Indonesia in its first submission alleg es that the loan is not within the Panel's 
terms of reference and asks us to so rule.  At its first meeting, we invited the parties to 
address this issue.   
We note that this Panel has standard terms of reference.  Therefore, in determining 
whether a measure is before us, we must examine the United States' request for establishment of a panel, which is found in  document WT/DS59/6.  Consistent with 
the findings of the Appellate Body in Bananas III
, we have carefully examined that 
request to ensure its compliance with both the letter and spirit of Article 6.2 of the 
Dispute Settlement Understanding.  We conc lude that the $690 million loan was not  
"identified as a specific measure" in that document as required by Article 6.2 of the 
DSU.  Indeed the United States states that  the loan was not identified in the U.S. 
request, because it had not yet been made.  Rather, the United States suggests that the 
loan is properly before the Panel becau se it is one aspect of the National Car 
Programme, which the United States considers to  be the subject of its request.  In our 
view, however, the United States in its request  has clearly identified the measures to 
be considered by the Panel, and those measures do not include this loan.  Accordingly, we conclude that the loan in question is not within the terms of 
reference of this Panel.” 
14.4 Consequently, we do not address any claims related to the said $690 million loan in our 
findings. 
3. Business proprietary information
 
14.5 At three points in its first submission, the United States indicated that it had further 
information relevant to its serious prejudice cl aims but that this information was "business 
proprietary" and that the United States was reluct ant to provide it to the Panel in the absence of 
"adequate procedures" to protect such information. 
14.6 At the first meeting of the Panel, Indonesia expressed concern that the United States would 
submit this information only in its second submissi on, thereby denying Indonesia an opportunity to 
respond in its second submission.  Accordingly, In donesia requested the Panel to require the United 
States to submit its confidential data  immediately.  Indonesia further st ated that it must be given an 
opportunity to review and respond fully to the data and to any additional argumentation based 
thereon.  The arguments of the parties can be found in paragraphs 4.51 to 4.60 of the Descriptive Part 
of this panel report.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 325 
 
 
 14.7 The Panel considered the request by Indonesia and on 3 December 1997 the Chairman 
announced the following ruling on behalf of the Panel: 
“We encourage all parties to submit relevant data to the Panel as early as possible.  
However, we have concluded that it would not be appropriate for us to require the 
United States to submit the information in ques tion in the context of this meeting.  It 
is a matter for each party to decide wh en and if to submit information and 
argumentation within the schedule set forth by the Panel.  In this respect, we note that 
there is no rule in the DSU or our working procedures that requires parties to submit  all factual information in their first submissi ons.  In fact, factual information is often 
provided in second submissions or in respon se to questions from a panel as the issues 
in the case come into sharper focus.  We see no reason to deviate from that approach 
in this case. 
 This does not mean that we do not ta ke seriously Indonesia's concern that it 
be allowed an opportunity to review a nd respond to any new data and to any 
additional argumentation based thereon.  We note that, at the second meeting of the 
Panel, parties will be able to address any new data and related argumentation 
presented in each others'  second submissions.  If, however, any party considers at the 
time of that meeting that it has not had an adequate opportunity to address any such data and argumentation, the party should so inform us at that time.  I can assure you 
that the Panel will take all reasonable steps to  insure that all parties have had a full 
opportunity to respond to the factual info rmation and argumenta tion submitted to the 
Panel. 
 Finally, we would like to remind all pa rties that Article 18.2 of the DSU does 
allow parties to designate information as confidential. Such designation will be 
respected by this Panel, the WTO Secretariat and the other parties to the dispute.  
Accordingly, we encourage all parties to s ubmit to the Panel such information as they 
consider may be helpful to the resolution of th is dispute.  In this respect, we note that 
the parties agree that the complainants alleging serious prejudice must demonstrate its existence by positive evidence.  If the United States considers that the information in 
question is necessary in order to meet that burden, and if it believes that Article 18.2 
is inadequate, the United States may propose to the Panel in writing, at the earliest 
possible moment, a procedure that it considers sufficient to protect the information in 
question.” 
14.8 The United States did not propose or request the Panel to adopt any such procedure. 4. Whether the National Car  programme has expi red and should therefore not be examined by 
this panel  
14.9 On 25 February 1998, Indonesia sent to the Chairman of the Subsidies Committee a letter in 
which it indicated that on 21 January 1998 the National Car programme was terminated and that 
regulations and decrees thereunde r had been revoked.  For Indonesia, the Presidential Instruction 
establishing the National Car programme was therefore “obsolete”.  A copy of that letter was officially notified to the Chairman of this Pane l.  Upon request of the Panel, all parties have 
commented on this notification by Indonesia.
641  We note that this communication from Indonesia 
came after the deadline of 30 January 1998 set by the Panel for submitting information and arguments 
in this case.  Further, the complainants challenge  whether the National Car programme has effectively 
                                                      
641 See paragraphs 4.61 to 4.110 of the Descriptive Part. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 326 
 
 
 been terminated and have requested the Panel to rule on all claims before it.  In any event, taking into 
account our terms of reference, and noting that any revocation of a challenged measure could be 
relevant to the implementation stage of the dispute settlement process, we consider that it is appropriate for us to make findings in respect of the National Car programme.  In this connection, we 
note that in previous  GATT/WTO cases, where a measure included in the terms of reference was 
otherwise terminated or amended after the comme ncement of the panel proceedings, panels have 
nevertheless made findings in respect of such a measure.
642  We shall therefore proceed to examine all 
of the claims of the complainants. 
B. Claims  
1. Claims of the complainants  
14.10 The various Indonesian measures at issue in th is dispute are described in paragraphs 2.3 to 
2.43 of the Descriptive Part of this report.  For the purpose of these findings, we shall generally 
categorize and refer to the measures as tho se adopted pursuant to the 1993 car programme,643 the 
February 1996 car programme644 and the June 1996 car programme645.  When we refer to the 
“Indonesian car programmes”, especially in the discussion on the general relationship between the 
provisions of the SCM Agreement and Article III of GATT, we include all the measures adopted 
pursuant to all  three car programmes.  When we re fer to the National Car pr ogramme we refer to the 
measures adopted pursuant to the February and Ju ne 1996 car programmes.  Our use of these general 
references is not intended to preclude discussion of the WTO compatibility of more specific aspects of 
the various car programmes.  We note, however, that Japan considers that most of Government 
Regulation No.20/1996 and Governme nt Regulation No. 36/1996 are not  related to the National Car 
Programme.  We also note that Government Regulati on No. 36/1996 has affected the level of benefits 
under the 1993 car programme. 
                                                      
642 See, e.g. Panel Report on United States - Measures Affecting Imports of Wool Shirts and Blouses 
from India , WT/DS33, adopted on 23 May 1997, (hereafter called “ Shirts and Blouses ”), the US restriction was 
withdrawn shortly before the issuance of the panel report;  Panel Report on  EEC - Restrictions on Imports of 
Dessert Apples, Complaint by Chile , adopted on 22 June 1989, BISD 36S/93; Panel Report on EEC-Restrictions 
on Imports of Apples, Complaint by the United States , adopted on 22 June 1989, BISD 36S/135; Panel Report 
on United States - Prohibition of Imports of Tuna and Tuna Products from Canada , adopted on 22 February 
1982, BISD 29S/91; Panel Report on EEC - Restrictions on Imports of Apples from Chile , adopted on 10 
November 1980, BISD 27S/98; and Panel Report on EEC - Measures on Animal Feed Proteins , adopted on 14 
March 1978, BISD 25S/49.  In the Panel Report on United States - Section 337 of the Tariff Act of 1930 , BISD 
36S/345, adopted on 7 November 1989 (hereafter called “ Section 337 "), the challenged measure was amended 
during the panel process but the panel refused to take into account such amendment.  We note that this is also 
the line taken by the Appellate Body in  Argentina - Measures Affecting Imports of Footwear, Textiles, Apparels 
and Other Items , WT/DS56, adopted on 22 April 1998, para. 64. 
643 Including the Decree of the Minister of Industry No. 114/M/S/6/1993, dated 9 June 1993 and its 
amendments; Decree of Minister of Finance No. 645/KMK.01/1993, dated 10 June 1993; Decree of Minister of Finance No. 647/KMK.04/1993, dated 10 June 1993; Decree of Minister of Finance No. 223/KMK.01/1995, 
dated 23 May 1995. 
644 Including the Presidential Instruction No. 2 and a ll of the implementing regulations and decrees (e.g. 
Government Regulation No. 20/1996, Decree of the Minister of Industry and Trade No. 31/MAP/S/2/1996, 
Decree of the Minister of Finance No. 82/KMK.01/1996), Decree of the State Minister for Mobilisation of 
Investment Funds/Chairman of the Investment Coordinating Board No.01/SK/1996, 27 February 1996, Decision of the State Minister For the Mobilization of Investment Funds/Chairman of the Capital Investment Co-
Ordinating Board, Number 02/SK/1996, 5 March 1996. 
645 Including the Presidential Decree No.42, 4 June 1996, Government Regulation No. 36/1996, Decree 
of the Minister of Industry and Trade No. 142/MAP/KEP/6/1996 and Decree of the Minister of Finance No. 
404/KMK.01/1996.   WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 327 
 
 
 14.11 We understand from the requests for establishm ent of the panel that the claims of the 
complainants are as follows: 
 (i) Local-content requirements
 
14.12 The European Communities and the United States claim that the local content requirements of 
the 1993 car programme (to which are linked tax benef its for finished motor vehicles incorporating a 
certain percentage value of domestic products an d customs duty benefits for imported parts and 
components used in motor vehicles incorporating a certain percentage va lue of domestic products) 
violate the provisions of Article III:4 of the General Agreement on Tariff and Trade of 1994 
(hereafter, “GATT”)646 and Article 2 of the Agreement on Trade-Related-Investment Measures 
(hereafter “TRIMs Agreement”). 
14.13 Japan, the European Communities and the Un ited States claim that the local content 
requirements of the February 1996 car programme (t o which are linked tax bene fits for National Cars 
incorporating a certain percentage value of domest ic products and customs dut y benefits for imported 
parts and components used in National Cars) viol ate the provisions of Article III:4 of GATT and 
Article 2 of the TRIMs Agreement. 
 (ii) Tax discrimination  
14.14 The European Communities and the United Stat es claim that the tax benefits of the 1993 car 
programme in favour of certain domestic cars viol ate the provisions of Article III:2 of GATT. 
14.15 The European Communities, Japan and the Unite d States claim that the tax benefits of the 
February 1996 car programme in favour of Nationa l Cars violate the provisions of Article III:2 of 
GATT.  The European Communities and the United Stat es claim that the tax benefits of the June 1996 
car programme in favour of National Cars viol ate the provisions of Article III:2 of GATT. 
14.16 The European Communities claim that the tax be nefits on finished motor vehicles of the 1993 
and the February and June 1996 car programmes, b ecause of the local content requirements, also 
provide an indirect tax benefit on parts and component s of the finished motor vehicles, in violation of 
Article III:2 of GATT. 
 (iii) MFN discrimination  
14.17 Japan, the European Communities and the United States claim that the tax benefits accorded 
to National Cars produced in Korea, under the J une 1996 car programme, violate Article I of GATT. 
14.18 Japan, the European Communities and the Unite d States claim that the customs duty benefits 
accorded to National Cars produced in Korea under the June 1996 car programme violate Article I:1 
of GATT. 
14.19 Japan and the European Communities claim that the customs duty benefits accorded on 
certain parts and components used for the produ ction in Indonesia of National Cars under the 
February 1996 car programme violate Article I of GATT. 
                                                      
646 Throughout this draft, “GATT”  will be used when referring to GATT 1994.  When references are 
made to GATT 1947, the Panel will be referring to the General Agreement on Tariff and Trade of 1947 which 
was terminated on 31 December 1995 by the Deci sion of 8 December 1994 adop ted by the Preparatory 
Committee for the WTO and the CONTRACTING PARTIES TO GATT 1947, PC/12-L/7583.  In discussions involving the comparison between provisions of GATT 1947 and parallel provisions in the WTO Agreement 
(including GATT 1994), we may use the expression GATT 1994 and GATT 1947. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 328 
 
 
 14.20 The European Communities claim as well that the customs duty benefits on certain parts and 
components used for the production of finished motor vehicles in Indonesia under the 1993 car programme, violate Article I of GATT.  We note, however, that the European Communities have not 
further argued this claim. 
 (iv) Absence of notification and partial administration
 
14.21 Japan claims that the National Car programme  violates Article X:1 of GATT, because it was 
not published promptly in such a manner as to en able governments and traders to become acquainted 
with it, and Article X:3(a) of GATT, because it has not been administered in a uniform, impartial and 
reasonable manner. 
 (v) Serious prejudice  
14.22 The European Communities and the United Stat es claim that the February and June 1996 car 
programmes constitute specific subsidies which cause serious prejudice to their interests within the 
meaning of Article 6 of the SCM Agreement. 
 (vi) Extension of the scope of existing subsidies  
14.23 The United States claims that the introductio n of the National Car programme and certain 
modifications to the 1993 car programme represen t an extension of the scope of existing subsidy 
programmes in violation of Artic le 28 of the SCM Agreement. 
 (vii) National treatment violation with r espect to the acquisition and maintenance of 
trademarks, and the use of trademarks  
14.24 The United States claims that the provisions of the National Car programme discriminate 
against nationals of other WTO Members with respect to the acquisition and maintenance of 
trademarks, and the use of trademarks as specifically  addressed in Article 20, in violation of Article 3 
of the TRIPS Agreement. 
(viii) Introduction of special requirements in respect of the use of trademarks  
14.25 The United States claims that the provisi ons of the National Car programme which were 
introduced by Indonesia during its transition period under the TRIPS Agreement put special 
requirements on nationals of other WTO Members in respect of the use of their trademarks inconsistent with Article 20 of the TRIPS Agre ement and are thus in violation of Indonesia’s 
obligations under Article 65.5 of that Agreement. 
2. Indonesia’s general defence
 
14.26 The general defense of Indonesia to th ese claims is that the SCM Agreement is lex specialis  
to this dispute.  For Indonesia this principle mean s that because the measures at issues are subsidies, 
they are governed exclusively by Article  XVI of GATT and the SCM Agreement.  
14.27 More specifically, we understand Indonesia’s argum ent to be two-fold.  First, in support of its 
defense that the only law applicable to this dis pute is the SCM Agreement, Indonesia submits that:  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 329 
 
 
 1. There is a general conflict
647 between Article III of GATT and the SCM Agreement 
(i.e. there is a conflict between the entirety of the SCM Agreement and the entirety of Article III).  Indonesia in its second subm ission expands this argument to include 
claims under Article I of GATT as well; 
2. The application to this dispute of Article III of GATT would reduce the SCM 
Agreement to “inutility”
648; 
3. General rules of treaty inte rpretation require rethinking the scope of Article III:8(b); 
4. Since Article III is not applicable, th e TRIMs Agreement is not applicable.  
Second, we understand that Indonesia argues that s hould Article III and/or the TRIMs Agreement be 
considered to apply to this disput e, there are specific conflicts betw een some of the provisions of the 
SCM Agreement, on the one hand, and some provisions  of Article III on which the complainants base 
their claims, on the other hand.  For Indonesia, any and all conflicts should be resolved in favour of 
the SCM Agreement which, according to Indonesia,  permits the car programmes under examination.  
We shall first address Indonesia’s argument that the only law applicable to this dispute is the SCM 
Agreement. 
C. Is the SCM Agreement the only “Applicable Law” to this Dispute ? 
1. General considerations  
14.28 In considering Indonesia’s defence that ther e is a general conflict between the provisions of 
the SCM Agreement and those of Article III of GATT,  and consequently that the SCM Agreement is 
the only applicable law, we recall first that in pub lic international law there is a presumption against  
conflict.649  This presumption is especially relevant in the WTO context650 since all WTO agreements, 
                                                      
647 In these findings, when we refer to general conflict we mean a conflict that is alleged to exist 
between the entirety of the SCM Agreem ent and the entirety of Article III, Ar ticle I or the TRIMs Agreement, as 
discussed in Section C of this report.  We consider whether there is a specific conflict between any specific 
provision of the SCM Agreement and Article III:2 of GATT in Section E hereafter.  
648 The Appellate Body Report on United States - Standards for Reformulated and Conventional 
Gasoline  (hereafter called Gasoline ) stated at page 23: “An interpreter is not free to adopt a reading that would 
result in reducing whole clauses or paragraphs of a tr eaty to redundancy or inutility.”, WT/DS2/AB/R, adopted 
on 20 May 1996. 
649 In international law for a conflict to exist between two treaties, three conditions have to be satisfied. 
First, the treaties concerned must have the same parties.   Second, the treaties must cover the same substantive 
subject matter. Were it otherwise, there would be no possib ility for conflict.  Third, the provisions must conflict, 
in the sense that the provisions must impose mutually exclusive obligations. “... [T]echnically speaking, there is 
a conflict when two (or more) treaty instruments contain obligations which cannot be complied with 
simultaneously. ...  Not every such divergence constitute a conflict, however. ... Incompatibility of contents is an 
essential condition of conflict”. (7 Encyclopedia of Public International Law  (North-Holland 1984), page 468).  
The lex specialis derogat legi generali  principle “which [is] inseparably linked with the question of 
conflict”(Idem., page 469) between two treaties or between two provisions (one arguably being more specific than the other), does not apply if the two treaties “.. deal  with the same subject from different point of view or 
[is] applicable in different circumst ances, or one provision is more far-reaching than but not inconsistent with, 
those of the other” (Wilfred Jenks, “The Conflic t of Law-Making Treaties”, The British Yearbook of 
International Law  (BYIL) 1953, at 425 et seq. ). For in such a case it is possible for a state which is a signatory 
of both treaties to comply with both treaties at the same  time.  The presumption agai nst conflict is especially 
reinforced in cases where separate agreements are conclu ded between the same parties, since it can be presumed 
that they are meant to be consistent with themselves , failing any evidence to the contrary.  See also E.W. 
Vierdag, “The Time of the "Conclusion" of a Multilateral Treaty: Article 30 of the Vienna Convention on the WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 330 
 
 
 including GATT 1994 which was modified by U nderstandings when judged necessary, were 
negotiated at the same time, by the same Members a nd in the same forum.  In this context we recall 
the principle of effective interpretation
651 pursuant to which all provisions of a treaty (and in the WTO 
system all agreements) must be given meaning, us ing the ordinary meaning of words.  Second, we 
note that Article III, which does not require the exis tence of any trade effect for it to be violated, 
occupies a particularly important place in the rul es governing the multilateral trading system as it 
serves, inter alia , as a guarantee of the effectiveness of negotiated tariffs.  The Appellate Body in its 
report on Japan -Taxes on Alcoholic Beverages  stated: 
“The broad purpose of Article III of avoidi ng protectionism must be remembered 
when considering the relationship between  Article III and other provisions of the 
WTO Agreement”.652 
We also note that Article III and Article XVI have  co-existed since the inception of the GATT system 
of rules.  In light of the above, we will a pproach allegations of conflicts with caution. 
2. Is there a general conflict between the SCM Agreement and Article III of GATT ? 
14.29 As noted, Indonesia in part bases its argument that the SCM Agreement is the only applicable 
law in this dispute on an assertion that the SCM Agre ement in its entirety conflicts with Article III in 
its entirety.  In considering Indonesia’s arguments, we recall that for a conflict to exist between two 
agreements or two provisions thereof, they must c over the same substantive matter.  Otherwise there 
is no conflict since the two provisions have different purposes.653  We recall also that Article III, 
which prohibits discrimination between imported and domestic products, and Article XVI, which 
regulates subsidies to producers, have been part of  GATT 1947 since its inception.  This implies that 
the drafters of GATT 1947 intended these two sets of pr ovisions to be complementary.  Indeed, this is 
confirmed by an examination of the resp ective coverage of the two provisions. 
14.30 Article III has always been a provision that is concerned with (and prohibits) discrimination 
between imported and domestic products.  By cont rast, the provisions of Article XVI of GATT 1947 
have dealt generally with the regul ation of subsidies to producers.  Article XVI of GATT 1947 did not 
address the issue of discrimination between importe d and domestic products that may occur when 
using such subsidies.  When such discrimination aro se, it was prohibited by the relevant provisions of 
Article III.  Subsidies which discriminated in fa vour of domestic products fell within the prohibition 
of the provisions of Article III by virtue of such di scrimination.  In this sense we agree with the 1992 
                                                                                                                                                                     
Law of Treaties and Related Provisions  ”, BYIL , 1988, at 100; Sir Robert Jennings/Sir Arthur Watts (ed.), 
Oppenheim's International Law , Vol. I., Parts 2 to 4, 1992, at 1280; Sir Gerald Fitzmaurice, “The Law and 
procedure of the Internationa l court of Justice”,  BYIL  , 1957, at 237; Sir Ian Sinclair, The Vienna Convention 
on the Law of Treaties , 1984, at 97. 
650 In this context we note that the WTO Agreement contains a specific rule on conflicts which is 
however limited to conflicts between a specific provisio n of GATT 1994 and a provision of another agreement 
of Annex 1A. We do not consider this  interpretative note in th is section of the report because we are dealing 
with Indonesia’s argument that there is a general conflict between Article III and the SCM Agreement, while the 
note is concerned with specific conflicts  between a provision of GATT 1994 and a specific provision of another 
agreement of Annex 1A. 
651 This would correspond to the ruling of the Appellate Body when it stated that a treaty may not be 
interpreted so as to reduce whole clauses to “inutility”.  See footnote 12 supra . 
652 Alcoholic Beverages(1996) , Appellate Body Report, p.16. 
653 We recall our discussion in footnote 13 above on the conditions for a conflict to exist.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 331 
 
 
 Malt Beverages
654 panel which discussed the relationship between the GATT rules on Article III and 
XVI and the related purpose of Article III:8(b): 
“5.8 The Panel noted that in contrast to Ar ticle III:8(a), where it is stated that "this  
Article shall not apply to  ... [government procurement]", the underlined words are not 
repeated in Article III:8(b).  The ordinary meaning of the text of Article III:8(b), 
especially the use of the words "shall not prevent", therefore suggests that Article III 
does apply to subsidies , and that Article III:8(b) only clarifies that the product-related  
rules in paragraphs 1 through 7 of Article  III "shall not prevent the payment of 
subsidies exclusively to domestic producers  (emphasis added)”. 
14.31 Has this situation changed with the expansi on of rules regulating subsidies now contained in 
the SCM Agreement?  Indonesia argues that the SCM Agreement now provides for an all 
encompassing definition and system of remedies for subsidies that would co nsequently exclude the 
relevance and application of the national treatment provisions of Article III.  
14.32 While it is true that the obligations in Sec tion A of Article XVI of GATT 1947 in respect of 
subsidies were limited compared to those provi ded in the new SCM Agreement, Article XVI of 
GATT 1947 did provide for a comprehensive framework regulating the provision of subsidies and so 
does  the SCM Agreement today.  Section A of Article XVI of GATT 1947 applied to “subsidies in 
general”; whereas Section B provided additional remedies for export subsidies.  The mere fact that in 
the SCM Agreement the remedies against subsidies ha ve been strengthened is not a sufficient reason 
to conclude  that in the WTO Agreement the st ructural relationship between the rules on national 
treatment on products and the rules on subsidies to pr oducers have been altered.   Moreover, the fact 
that the SCM Agreement, unlike Article XVI of GA TT 1947, contains a definition of subsidies does 
not suggest a different conclusion.  The absence of  a definition of “subsid y” in GATT 1947 did not 
make Article XVI of GATT 1947 inapplicable. 
14.33 As was the case under GATT 1947, we think that Article III of GATT 1994 and the WTO 
rules on subsidies remain focused on different problems.  Article III continues to prohibit 
discrimination between domestic and imported products in respect of internal taxes and other 
domestic regulations,  including local content requirements.  It does not “proscribe” nor does it “prohibit” the provision of any subsidy per se .  By contrast, the SCM Agreement prohibits subsidies 
which are conditional on export pe rformance and on meeting local content requirements, provides 
remedies with respect to certain  subsidies where th ey cause adverse effects to the interests of another 
Member and exempts certain subsidies from acti onability under the SCM Agreement.  In short, 
Article III prohibits discrimination between do mestic and imported products while the SCM 
Agreement regulates the provision of subsidies to enterprises. 
14.34 Contrary to what Indonesia claims, the fact th at a government gives a subsidy to a firm does 
not imply that the subsidy itself will necessarily discriminate between impor ted and domestic products 
in contravention of Article III of GATT.  Article  III:8(b) of GATT makes clear that a government 
may use the proceeds of taxes collected equally on  all imported and domestic products in order to 
provide a subsidy to domestic producers (to the exclusion of producers abroad).
655 
                                                      
654 Panel Report on  United States - Measures Affecting Alcoholic Malt Beverages , BISD 39S/206, 
adopted on 19 June 1992, hereafter called Malt Beverages  . 
655 See in support of this Malt Beverage s, op. cit.:“5.10 ... Ev en if the proceeds from 
non-discriminatory product taxes may be used for subsequent subsidies, the domestic producer, like his foreign 
competitors, must pay the product taxes due.” WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 332 
 
 
 14.35 Finally, the fact that, as a result of the Ur uguay Round, the SCM Agreement to some extent 
covers subject matters that were already covere d by other GATT disciplines is not unique.  This 
situation is similar to the relati onship between GATT 1994 and GATS.  In Periodicals
656 and in 
Bananas III657, the defending parties argued that since a set of rules on services exists now in GATS, 
the provisions of Article III:4 of GATT on distribu tion and transportation ha ve ceased to apply.  
Twice the Appellate Body has ruled that the scope of  Article III:4 was not reduced by the fact that 
rules on trade in services  are found in GATS: “The entry into force of the GATS, as Annex 1B of the WTO Agreement, does not diminish the scope of application of the GATT 1994.”
658 
14.36 Accordingly, we consider that Article III and the SCM Agreement have, generally, different 
coverage and do not impose the same type of obligations.659  Thus there is no ge neral conflict between 
these two sets of provisions. 
3. Would the application of Article III of GA TT to this dispute reduce the SCM Agreement to 
“inutility ”? 
14.37 Indonesia argues that general rules of treaty interpretation preclude finding that a subsidy 
permissible under the SCM Agreement is proscrib ed by Article III because, if Article III were 
applicable to this dispute, the entire SCM Agre ement would be reduced to “inutility”.  We note 
initially that in most cases the subsidies regulated  under the SCM Agreement will not be covered by 
the provisions of Article III:2 or III:4.  For instan ce, Article III:2 would not cover direct transfers of 
funds, e.g., loans and grants to firms, as this Article is concerned only with the application of indirect 
taxes on products.  Subsidies in these forms may be cont rary to Article III:4 to the extent that they are 
linked to measures which affect the internal sale, purchase, use, etc. of domestic goods.  The provision 
of raw materials by a government at a subsidised pri ce would not be contrary to either Article III:2 or 
Article III:4, unless it also contained a condition that affected as such the internal sale, offering for 
sale, etc. of goods. 
14.38 The same distinction is applicable to tax measures.  When subsidies to producers result from 
exemptions or reductions of indir ect taxes on products, Article III:2 of  GATT is relevant.  In contrast, 
subsidies granted in respect of direct taxes are ge nerally not covered by Article III:2, but may infringe 
Article III:4 to the extent that they are linked to other conditions which favour the use, purchase, etc. 
of domestic products. 
14.39 This is to say that the only subsidies that would be affected by the provisions of Article III are 
those that would involve discrimination between domestic and imported produc ts.  While Article III 
of GATT and the SCM Agreement may appear to overl ap in respect of certain measures, the two sets 
of provisions have different purposes and different  coverage.  Indeed, they also offer different 
remedies, different dispute settlement time limits and different implementation requirements.  Thus, 
                                                      
656 Panel and Appellate Body Reports on  Canada - Certain Measures Concerning Periodicals , 
WT/DS31, adopted on 30 July 1997, hereafter called Periodicals . 
657 Panel and Appellate Body Reports on EC - Regime for the Importation, Sale and Distribution of 
Bananas , WT/DS27, adopted on 25 September 1997, hereafter called Bananas III . 
658 Periodicals , op.cit., Appellate Body Report, p.19. 
659 This conclusion is confirmed, amongst other provisions, by the footnote to Article 32.1 of the SCM 
Agreement which recognizes that actions against subsidies remain possible under GATT 1994.  Article 32.1 of 
the SCM Agreement reads as follows: “No specific action against a subsidy of another Member can be taken 
except in accordance with the provisions of GATT 1994, as interpreted by this Agreement”.  The footnote 56 to this Article reads as follows: “This paragraph is not intended to preclude action under other relevant provisions 
of GATT 1994, where appropriate”.   WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 333 
 
 
 we reject Indonesia’s argument that the applicati on of Article III to subsidies would reduce the SCM 
Agreement to “inutility”. 
14.40 We note further that Indonesia’s argument would imply that every time a measure involves 
tax discrimination in respect of products, that measure should be consid ered a subsidy governed 
exclusively by the SCM Agreement to the exclusion of Ar ticle III:2.  It appears to us that this line  of 
argument would reduce Article III:2 to “inutility”, si nce the very explicit (and arguably only) purpose 
of Article III:2 is to deal with tax discrimination in respect of products. 
4. Article III:8(b) of GATT
 
14.41 In line with its two previous arguments, I ndonesia maintains the view that "the payment of 
subsidies" in Article III:8(b) of GATT must refer to  all subsidies identified in Article 1 of the SCM 
Agreement, not merely to the subset of "direct" s ubsidies.  Under this approach, any measure which 
constitutes a subsidy within the meaning of the SCM Agreement would not be subject to Article III of 
GATT.  In Indonesia's view, only this interp retation avoids rendering the SCM Agreement 
meaningless. 
14.42 Article III:8(b) of GATT provides as follows: 
“The provisions of this Article shall not pr event the payment of subsidies exclusively 
to domestic producers, including payments  to domestic producers derived from the 
proceeds of internal taxes or charges applie d consistently with the provisions of this 
Article and subsidies effected thr ough governmental purchases of domestic 
products.” 
14.43 We consider that the purpose of Article III:8( b) is to confirm that subsidies to producers do 
not violate Article III, so long as they do not have any component that introduces discrimination between imported and domestic products.  In our vi ew the wording “payment of subsidies exclusively 
to domestic producers” exists so as to ensure that onl y subsidies provided to producers, and not tax or 
other forms of discrimination on pr oducts, be considered subsidies fo r the purpose of Article III:8(b) 
of GATT.  This is in line with previous GATT panels
660 and WTO Appellate Body661 reports. 
14.44 We recall also that the type of interpreta tion sought by Indonesia was explicitly excluded by 
the drafters of Article III:8(b) when they rejected  a proposal by Cuba at the Havana Conference to 
amend the Article so as to read: 
“The provisions of this Article shall not preclude the exemption of domestic products 
from internal taxes as a means of indirect subsidization in the cases covered under 
Article [XVI]”.662 
14.45 The arguments submitted by Indonesia that its measures are only governed by the SCM 
Agreement clearly do not find any support in the wo rding of Article III:8(b) of GATT.  On the 
contrary, Article III:8(b) confirms that the obligati ons of Article III and those of Article XVI (and the 
SCM Agreement) are different and complementary: subsidies to producers are subject to the national 
treatment provisions of Article III when they discriminate between impor ted and domestic products. 
                                                      
660 Panel Report on EEC - Payments and Subsidies Paid to Processors and Producers of Oil Seeds and 
Related Animal-feed Proteins, BISD 37S/86, adopted on 25 January 1990; Panel Report on Italian 
Discrimination Against Agriculture Machinery, BISD 7S/6, adopted on 23 October 1958; and Malt Beverages, 
op.cit.. 
661 Periodicals , op.cit.. 
662 E/CONF.2/C.3/6, page 17;  E/CONF.2/C.3/A/W.32, page 2. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 334 
 
 
 14.46 We find, therefore, that Article III of GATT is generally applicable to the measures at issue in 
the present dispute. 
5. Is the TRIMS Agreement applicable to this dispute
? 
14.47 Indonesia argues that the TRIMs Agreement is not applicable to this dispute.  For Indonesia, 
since Article III does not apply to the measures unde r examination, being in conflict with the SCM 
Agreement, the TRIMs Agreement does not apply either.  Indonesia also argues that its car 
programmes are subsidies and therefore cannot  be trade-related investment measures. 
14.48 We note that we have found above that the provi sions of Article III are generally relevant and 
applicable to the present dispute.  We theref ore reject Indonesia's argument that the TRIMS 
Agreement is not applicable to the measures under examination becau se Article III does not apply to 
those measures.  We must now proceed to ex amine whether the Indonesian car programmes under 
examination can be covered at the same time by the provisions of the TRIMs Agreement and those of 
the SCM Agreement. 
14.49 In considering this issue of whether a meas ure covered by the SCM Agreement can also be 
subject to the obligations contained in the TRIMs Ag reement, we need to examine whether there is a 
general conflict between the SCM Agreement and the TRIMs Agreement.  We note first that the  
interpretive note to Annex IA of the WTO Agreement is not applicable to the relationship between the 
SCM Agreement and the TRIMs Agreement.  The issu e of whether there might be a general conflict 
between the SCM Agreement and the TRIMs Agreement would therefore need to be examined in the 
light of the general international law presumption against conflicts and the fact that under public 
international law a conflict exists in the narrow situation of mutually exclusive obligations for 
provisions that cover the same type of subject matter. 
14.50 In this context the fact that the drafte rs included an express provision governing conflicts 
between GATT and the other Annex 1A Agreemen ts, but did not include any such provision 
regarding the relationship between the other Anne x 1A Agreements, at a minimum reinforces the 
presumption in  public international law against conflic ts.  With respect to the nature of obligations, 
we consider that, with regard to local conten t requirements, the SCM Agreement and the TRIMs 
Agreement are concerned with different types of oblig ations and cover different subject matters.  In 
the case of the SCM  Agreement, what is prohibited is the grant of a subsidy contingent on use of 
domestic goods, not the requirement to use domes tic goods as such.  In the case of the TRIMs 
Agreement, what is prohibited are TRIMs in the form  of local content requirements, not the grant of 
an advantage, such as a subsidy.   
14.51  A finding of inconsistency with Article 3.1(b) of the SCM Agreement can be remedied by 
removal of the subsidy, even if the local conten t requirement remains applicable.  By contrast, a 
finding of  inconsistency with th e TRIMs Agreement can be remedied by a removal of the TRIM that 
is a local  content requirement even if the subsidy c ontinues to be granted.  Conversely, for instance, if 
a Member were to apply a TRIM (in the form of  local content requirement), as a condition for the 
receipt of a subsidy, the measure would continue to be a violation of the TRIMs Agreement if the 
subsidy element were replaced with some other form of incentive.  By contrast, if the local content 
requirements were dropped, the subsidy would con tinue to be subject to the SCM Agreement, 
although the nature of the relevant discipline unde r the SCM Agreement might be affected.  Clearly, 
the two agreements prohibit different measures.  We note also that under the TRIMs Agreement, the 
advantage made conditional on meeting a local cont ent requirement may include a wide variety of 
incentives and advantages, other than subsidies.   There is no provision contained in the SCM 
Agreement that obliges a Member to violate the TRIMs Agreement, or vice versa.    WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 335 
 
 
 14.52 We consider that the SCM and TRIMs Agreemen ts cannot be in conflict,  as they cover different 
subject matters and do not impose mutually exclusive obligations.  The TRIMs Agreement and the SCM Agreement may have overlapping  coverage in that they may both apply to a single legislative 
act, but they have different foci, and they impose different types of obligations. 
14.53 In support of this finding, we agre e with the principles developed in the Periodicals
663 and 
Bananas III664 cases concerning the relationship between two WTO agreements at the same level 
within the structure of WTO agreements.  It was made clear that, while the same measure could be 
scrutinized  both under GATT and under GATS, the sp ecific aspects of that measure to be examined 
under each agreement would be different.  In the present case, there are in fact two different, albeit 
linked, aspects of the car programmes for which the co mplainants have raised claims.  Some claims 
relate to the existence of local content requireme nts, alleged to be in violation of the TRIMs 
Agreement, and the other claims relate to the existe nce of subsidies, alleged to cause serious prejudice 
within the meaning of the SCM Agreement. 
14.54 To respond to an argument raised by Indonesia in the context of its discussion of the 
relationship between Article III of GATT and the SCM Agreement, we do not consider that the 
application of the TRIMs Agreement to this dis pute would reduce the SCM Agreement, and Article 
27.3 thereof, to  “inutility”.  On the contrary, with  Article 27.3 of the SCM Agreement, those subsidy 
measures of developing countries that are contingent  on compliance with TRIMs (in the form of local 
content requirement) and that are permitted duri ng the transition period provided under Article 5 of 
the TRIMs  Agreement, are not prohibited by Article  3.1(b) of the SCM Agreement, for the transition 
period specified in Article 27.3 of the SCM Agreement. 
14.55 We find that there is no general conf lict between the SCM Agreement and the TRIMs 
Agreement.  Therefore, to the extent that the Indonesian car programmes are TRIMs and subsidies, 
both the TRIMs Agreement and the SCM Agreem ent are applicable to this dispute. 
6. Conclusion  
14.56 In view of the above findings, we reject Indo nesia’s general defense th at the only applicable 
law to this dispute is the SCM Agreement.  We cons ider rather that the obligations contained in the 
WTO Agreement are generally cumulative, can be complied with simultaneously and that different aspects and sometimes the same aspects of a legislative act can be subject to various provisions of the 
WTO Agreement.  
14.57 We now turn to the cl aims of the complainants. 
D. Claims of Local Content Requirements
 
14.58 The European Communities and the United States claim that the 1993 car programme, by 
providing for local content requirements linked to tax benefits for finished cars incorporating a certain 
                                                      
663 In Periodicals , op. cit., the Appellate Body stated at page  19: “The entry into force of the GATS, as 
Annex 1B of the WTO Agreement, does not diminish the scope of application of the GATT 1994". 
664 In Bananas III , the Appellate Body stated in paragraph 221: “The second issue is whether the GATS 
and the GATT are mutually exclusive agreements. (...) Given the respectiv e scope of application of the two 
agreements, they may or may not overlap, depending on the nature of the measures at issue.  Certain measures 
could be found to fall exclusively within the scope of the GATT 1994, when they affect trade in goods.  certain 
measures could be found to fall exclusively within the scope of the GATS, when th ey affect the supply of 
services as services.  There is yet a third category of measures that could be found to fall within the scope of 
both the GATT 1994 and the GATS. (...) [W]hile the same  measure could be scrutinized under both agreements, 
the specific aspects of that measure examined  under each agreement could be different”. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 336 
 
 
 percentage value of domestic products, and to customs duty be nefits for imported parts and 
components used in cars incorporating a certain pe rcentage value of domestic products, violates the 
provisions of Article 2 of the TRIMs Ag reement, and Article III:4 of the GATT. 
14.59 Japan, the European Communities and the United States also claim that the 1996 car 
programme, by providing for local content require ments linked to tax benefits for National Cars 
(which by definition incorporate a certain percen tage value of domestic pr oducts), and to customs 
duty benefits for imported parts and components used  in National Cars, violates the provisions of 
Article 2 of the TRIMs Agreement and Article III:4 of the GATT. 
1. The relationship between the TRIM S Agreement and Article III of GATT
 
14.60 Since the complainants have raised claims that the local content requirements of the car 
programmes violate both the provisions of Article III:4 of GATT and Article 2 of the TRIMs Agreement, we must consider which claims to exam ine first.  For Indonesia, this issue does not arise 
because it  argues that the TRIMs Agreement does not add anything to Article III; it merely interprets 
Article III, elaborates the principles developed in the FIRA
665 panel report and applies them to trade-
related investment measures.  In deciding which cl aims to examine first, we must, initially, address 
the relationship between Article III of GATT and the TRIMs Agreement. 
14.61 In this regard, we note first that on its face the TRIMs Agreement is a fully fledged agreement 
in the WTO system.  The TRIMs Agreement is not  an “Understanding to GATT 1994”, unlike the six 
Understandings which form part of the GATT 1994.666  The TRIMs Agreement and Article III:4 
prohibit local content requirements that are TRIMs and therefore can be said to cover the same subject 
matter.  But when the TRIMs Agre ement refers to “the provisions of Article III”, it refers to the 
substantive aspects of Article III; that is to say, conc eptually, it is the ten paragraphs of Article III that 
are referred to in Article 2.1 of the TRIMs Agreem ent, and not the application of Article III in the 
WTO context as such.  Thus if Article III is not app licable for any reason not related to the disciplines 
of Article III itself, the provisions of Article III re main applicable for the purpose of the TRIMs  
Agreement.  This view is reinfor ced by the fact that Article 3 of the TRIMs Agreement  contains a 
distinct and explicit reference to the general exceptions to GATT.  If the purpose of the TRIMs 
Agreement were to refer to Artic le III as applied in the light of other (non Article III) GATT rules, 
there would be no need to refer to such general exceptions.667 
14.62 Moreover, it has to be recognized that the TR IMs Agreement, in addition to interpreting and 
clarifying the provisions of Article III where trad e-related investment measures are concerned, has 
introduced special transitional provisions including notification requirements.668 This reinforces the 
                                                      
665 Panel Report on Canada: Administration of the Foreign Investment Review Act , BISD 30S/140, 
adopted on 7 February 1984, hereafter called FIRA . 
666 The General Agreement on Tariffs and Trade 1994 ("GATT") is defined as to consist of: (a) the 
provisions in the General Agreement on Custom duties and Trade, dated 30 October 1947, annexed to the Final Act Adopted at the Conclusion of the Second Session of the Preparatory Committee of the United Nations 
Conference on Trade and Employment (excluding the Protocol of Provisional Application), as rectified, 
amended or modified by the terms of legal instruments wh ich have entered into force before the date of entry 
into force of the WTO Agreement; (b) the provisions of a series of the legal instruments (protocols and 
decisions) set forth below that have entered into force under the GATT 1947 before the date of entry into force 
of the WTO Agreement; (c) six Understandings on the in terpretation of provisions of GATT 1994;  and (d) the 
Marrakesh Protocol to GATT 1994. 
667 We note that a similar drafting technique was used with the TRIPS Agreement which cross-refers to 
provisions of other international treaties. 
668 We note that Indonesia has put emphasis on a particular statement of the Bananas III  panel 
concerning the relationship between Article III of GATT and the TRIMs Agreement.  We consider that that  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 337 
 
 
 conclusion that the TRIMs Agreement has an autonomous  legal existence, independent from that of  
Article III.  Consequently, since the TRIMs Agreemen t and Article III remain tw o legally distinct and 
independent sets of provisions of the WTO Agreement, we find that even if either of the two sets of 
provisions were not applicable the other one would remain applicable.  And to the extent that  
complainants have raised separate and distinct  claims under Article III:4 of GATT and the TRIMs 
Agreement, each claim must be addressed separately. 
14.63 As to which claims, those under Article III:4 of GATT or Article 2 of the TRIMs Agreement, 
to examine first, we consider that we should first examine the claims under the TRIMs Agreement 
since the TRIMs Agreement is more specific than Article III:4 as far as  the claims under consideration  
are concerned.  A similar issue was presented in Bananas III , where the Appellate Body discussed the 
relationship between Article X of GATT and Article  1.3 of the Licensing Agreement and concluded 
that the Licensing Agreement being more sp ecific it should have been applied first.
669  This is also in 
line with the approach of the panel and the Appellate Body in the Hormones670 dispute, where the 
measure at issue was examined first under the SPS Agreement since the measure was alleged to be an 
SPS measure. 
2. The application of the TRIMS Agreement  
14.64 Article 2.1 of the TRIMs Agreement provides that  
“ ... no Member shall apply any TRIM that is inconsistent with the provisions of 
Article III or Article XI of GATT 1994.”   
By its terms, Article 2.1 requires two elements to be  shown to establish a violation thereof: first, the 
existence of a TRIM; second, that TRIM is inconsistent with Article III or Article XI of GATT.  No 
claims have been raised with reference to a violation of Article XI of GATT. 
14.65 Article 2.1 of the TRIMs Agreement refers to Article III generally.  It is our view that the 
complainants have limited their TRIMs inconsistenc y claims to the aspects of the Indonesian car 
programmes that would violate the provisions of the TRIMs Agreement which prohibit any advantage 
conditional on meeting local content requirements.  In other words, while the complainants have 
claimed that some other aspects of the same car programmes also violate the provisions of Article III:2 of GATT, they have not claimed that the tax discrimination aspects of the measures per se 
violate the TRIMs Agreement.  Therefore, we will examine under the TRIMs Agreement, only the 
consistency of the local content requirements made effective through the custom duty and tax benefits 
of these car programmes.  Later, we shall examin e the consistency of the tax discrimination aspects 
per se  of these car programmes with the provisions of Article III:2 of GATT. 
                                                                                                                                                                    
 
statement has to be understood in the particular context of that dispute between two developed countries (no 
transition period was therefore applicable) where the pane l had already reached a conclu sion that the measure at 
issue violated Article III:4 of GATT.   Therefore there was no need to further discuss the TRIMs Agreement 
since any action to remedy the inconsistency found u nder Article III:4 of GATT would necessarily remedy 
inconsistencies under the TRIMs Agreement.  In the present case, we have to address the legal relationship 
between these two agreements. 
669 The Appellate Body in Bananas III  stated in paragraph 204:“Although Article X:3(a) of the GATT 
1994 and Article 1.3 of the Licensing Agreement  both apply, the Panel, in our view, should have applied the 
Licensing Agreement  first, since this agreement deals specifically, and in detail, with the administration of 
import licensing procedures.  If the Panel had done so, then there would have been no need for it to address the 
alleged inconsistency with Article X:3(a) of the GATT 1994.” 
670 Panel and Appellate Body reports on EC - Measures Concerning Meat and Meat Products 
(Hormones) Complaints by the United States and Canada , WT/DS26 and DS48, adopted on 13 February 1998, 
hereafter called Hormones . WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 338 
 
 
 14.66  We note also that Article 2.2 of the TRIMs Agreement  provides: 
“2.2 An Illustrative List of TRIMs that are inconsistent with the obligations of 
national treatment provided for in para graph 4 of Article III of GATT 1994 ... is 
contained in the Annex to this Agreement. 
14.67 The United States and the European Communities claim that any measure that falls within the 
description of Item 1(a) of the Illustrativ e List of the TRIMs Agreement constitutes per se  a TRIM 
inconsistent with Article 2 of the TRIMs Agreem ent.  For the United States, if any Member, in 
whatever context, requires the purch ase by an enterprise of a domestic product in order to obtain an 
advantage, that requirement by definition has in vestment consequences for such an enterprise, 
bringing the measure within the coverage of the TRIMs Agreement and confirming its violation 
thereof.  The United States adds that, even if the identification of a relationship to investment were 
necessary to prove an  inconsistency with th e TRIMs Agreement, the Indonesian measures under 
examination fulfil such a condition, because the meas ures necessitate an investment in Indonesia (as a 
producer of motor vehicles or motor vehicle parts and components) to qualify for the various tax and 
customs duty incentives.   
14.68 Japan rather argues that two elements must be  shown to establish a violation of Article 2 of 
the TRIMs Agreement: first, there must be a TRIM; second, the measure in question must be 
inconsistent with Article III of GATT (or with Article XI of GATT). 
14.69 The European Communities and Japan submit as well that the central aspect of the various 
measures included in the Indonesian car programmes is to develop domestic manufacturing capability 
of automobiles and automotive parts and components,  and that they thereby qualify as “investment”  
measures.  For these complainants, the Indonesian car  programmes are “trade related” because they 
encourage the use of domestic over imported parts and thereby affect trade. 
14.70 Indonesia argues that, while its subsidies may at  times indirectly affect investment decisions 
of the recipient of the subsidy or other parties, these decisions are not the object, but rather the 
unintended result, of the subsidy.  Indonesia adds  that many subsidies will result indirectly in 
increased investment.  Indonesia adds that these s ubsidies have not been adopted as investment 
regulations. Therefore, for Indonesia, the me asures under examination are not trade-related 
investment measures.  Indonesia al so supports the argument put forward by India, a third party, that 
the TRIMs Agreement is basically designed to gove rn and provide a level playing field for foreign 
investment, and that therefore measures relating to in ternal taxes or subsidies cannot be construed to 
be trade-related investment measures. 
14.71 We note that the arguments presented by the parties reflect different views on whether any 
requirement by an enterprise to purchase or use a domestic product in order to obtain an advantage, by 
definition falls within the Illustrative List or  whether the TRIMs Agreement requires a separate 
analysis of the nature of a measure as a trade-re lated investment measure before proceeding to an  
examination of whether the measure is covered by the Illustrative List.  However, if we were to 
consider that the measures in dispute in this case are in any event trade-related investment measures, it 
would not be necessary to decide this basic issue of interpretation.  We note in this regard that the 
United States and the European Communities have also  argued in the alternative that, even if it is 
necessary to show a relationship of a measure to i nvestment, any such requirement would be satisfied 
in the case under consideration. 
14.72 Therefore, we will first determine whether th e Indonesian measures are TRIMs.  To this end, 
we address initially the issue of whether the measure s at issue are “investment measures”.  Next, we  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 339 
 
 
 consider whether they are “trade-related”.  Fina lly, we shall examine whether any measure found to 
be a TRIM is inconsistent with the provisions of Article III and t hus violates the TRIMs Agreement. 
(a) Are the Indonesian measu res “investment measures
”? 
14.73 We note that the use of the broad term "investment measures" indicates that the TRIMs 
Agreement is not limited to measures  taken  specifically in regard to foreign  investment.  Contrary to 
India’s argument, we find that nothing in the TR IMs Agreement suggests that  the nationality of the 
ownership of enterprises subject to a particular measure is an element in deciding whether that 
measure  is covered by the Agreement.  We th erefore find without textual support in the TRIMs 
Agreement the argument that since the TRIMs Agreem ent is basically designed to govern and provide 
a level playing field for foreign investment, measure s relating to internal taxes or subsides cannot be 
construed to be a trade-related i nvestment measure.  We recall in this context that internal tax 
advantages or subsidies are only one of many ty pes of advantages which may be tied to a local 
content requirement which is a principal focus of  the TRIMs Agreement.  The TRIMs Agreement is 
not concerned with subsidies and internal taxes as such but rather with local content requirements, 
compliance with which may be encouraged through pr oviding any type of advantage.  Nor, in any 
case, do we see why an internal measure would n ecessarily not govern the treatment of foreign 
investment. 
14.74 We next consider whether the Indonesian measu res are investment measures.  In this regard, 
we consider the following extracts (emphases added) from the official Indonesian legislation relevant 
and instructive. 
14.75 With regard to the 1993 car programme, we note: 
- The “considerations section” of the Decree of the Ministry of Industry 
announcing the 1993 car programme states:  
“a. that within the framework of supporting and promoting the 
development of the automotive industry and/or the component 
industry  in the future, it is deemed necessary to regulate the local 
content levels of domestically produced motor vehicles or components in connection with the grant of incentives in the imposition of import duty rates; 
b. that in order to further stre ngthen domestic industrial development
 
by taking into account the trend of technological advance and the 
increase of the capability and mastering of industrial design and  
engineering, it is necessary to improve the relevant existing regulations already laid down;”
671 
- The "considerations section" of  the 1995 amendment to the 1993 car 
programme states:  
“That in the framework of further promoting of the development of 
the motor vehicles industry and /or domestically produced 
components , it is considered necessary to amend...”672 
                                                      
671 Decree of the Ministry of Industry No 114/M/S/6/1993, 9 June 1993. 
672 Decree of the Minister of Industry no 108/M/S/ 5/1995, on the amendment of  the attachment I to 
Decree of the Minister of Industry Number 114/M/S/6/1993, 23 May 1995. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 340 
 
 
 14.76 With regard to the February 1996 car programme, we note the following: 
- The title of the Presidential Instruction for the National Car programme 
(No.2) is “The Development
 of the National Automobile Industry”.673 
- Paragraph a) of the “Considering” section of the Government Regulation 
No.20 states: 
“that in the effort to promote the growth of the domestic automotive 
industry , it is deemed necessary to enact regulations concerning the 
Sales Tax on Luxury Goods upon the delivery of domestically 
produced motor vehicles”.674 
- In addition, the State Minister for Mobili zation of Investment Funds/Chairman of the 
Investment Coordinating Board issued a decr ee entitled “Investment Regulations within the 
Framework of the Realisation of the Estab lishment of the National Automobile Industry”675 
which emphasized that the new measures were in tended to promote investment, stating in its 
fifth considering: 
“5. that it is therefore necessary to issue a decree for the 
regulation of investment  in the national automobile industry.” 
- Article 2 of that same Investment Regulation by the Minister of State for 
Mobilization of Investment Funds/Chairma n of the Investment Coordinating Board 
provides: 
“In order to realise the development of the national automobile 
industry  as meant in Article 1: 
1. ... 
2. In the endeavour to realise the development of such national 
car industry, the investment approval will be issued to the automobile 
industry sector with tax facilities in accordance with legal provisions 
enacted specifically for such purpose. ” 
- The Decision relating to the investment facilities regarding the Determination of PT. 
Timor Putra National to Establish and Produce a National Car, entitled “Decision of the State 
Minister for the Mobilization of Investment Funds/Chairman of the Capital Investment Co-
ordinating Board” states: 
“1. That in implementing a national car industry it is deemed 
necessary to determine investment approval  for a car industry which 
will build and produce a national car. 
2. That in the framework of investment for the car industry, 
PT.Timor Putra National has submitted an application and working program to build a national car industry and has obtained domestic  
                                                      
673 Instruction of the President of the Republic of Indonesia No.2 of 1996, 19 February 1996. 
674 Government Regulation No. 20 of 1996, 19 February 1996. 
675 Decree of the State Minister for Mobilisation of  Investment Funds/Chairman of the Investment 
Coordinating Board No.01/SK/1996, 27 February 1996.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 341 
 
 
 investment approval
 (PMDN) NO.607/PMDN/1995, dated 9 
November 1995”.676 
14.77 With regard to the June 1996 car programme, we note that the “Considering” section of the 
Decree of the President of the Republic No. 4267677 on the Extension (June) to the February 1996 car 
programme provides: 
“a. that the development of the national car is aimed at 
improving the nation’s self-reliance  ... and to achieve this solid 
preparations and continuous support are necessary; b. that the preparation for domestic production of national cars 
require the availability of huge financing
 and therefore will be carried 
out in stages; c. that in connection with the preparations, it is considered necessary to establish a policy on the implementation stage of the production of national cars.” 
 - The “Considering” section of the Government Regulation No. 3667
678 states: 
“That within the framework of promoting the development of the 
automotive industry in the increased use of domestically produced 
automotive components , it is deemed necessary to grant Sales Tax on  
Luxury Goods facilities to the group of luxury goods upon delivery of certain motor vehicles” 
- The Elucidation to the Government Regulation No. 36 states:  
“Within the framework of speeding up the realisation of production 
of national motor vehicles using domestically made automotive 
components, it is necessary to promote the domestic automotive 
industry   in order to further its growth particularly in the face of 
global  competition.  One of the endeavours which can be exerted is 
the provision of a tax incentive in the form of exemption  from the 
assessment of Sales Tax on Luxury Goods on the delivery of certain 
motor vehicles which have achieved certain levels of local content.” 
14.78 We note also that Indonesia indicates679 that the objectives of the National Car programme 
include the following: 
- To improve the competitiveness of local companies and strengthen overall industrial 
development; 
- To develop the capacity of multiple-source auto parts and components; - To encourage the development of the automotive industry and the automotive component 
industry; 
- To bring about major structural changes in the Indonesian automobile industry; 
                                                     
 
676 Decision of the State Minister For the Mobilization of Investment Funds/Chairman of the Capital 
Investment Co-Ordinating Board; Number 02/SK/1996, 5 March 1996. 
677 Presidential Decree No.42 Concerning the  Produ ction of National Automobiles, 4 June 1996. 
678 Government Regulation No. 36/1996: The Amendment of Government Regulation No.50 of 1994 
Regarding the Implementation of Law No.8 of 1993 on Value Added Tax on Goods and Services and Sales Tax 
on Luxury Goods as amended by Law No.11 of 1994, as Lastly Amended by Government Regulation No. 20 of 
1996, 4 June 1996. 
679 See paragraph 6.51 of the Descriptive Part. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 342 
 
 
 - To encourage the transfer of technology and contribute to large-scale job creation; 
- To encourage car companies  to increase their local content, resulting in a rapid growth of 
investment in the automobile industry. 
14.79 Indonesia has also stated that PT TPN is a “domestic capital investment company”.
680 
14.80 On the basis of our reading of these measu res applied by Indonesia under the 1993 and the 
1996 car programmes, which have investment objec tives and investment features and which refer to 
investment programmes, we find that these measures are aimed at encouraging the development of a local manufacturing capability for finished motor ve hicles and parts and components in Indonesia.  
Inherent to this objective is that these measures nec essarily have a significant impact on investment in 
these sectors.  For this reason, we consider that these measures fall within any reasonable 
interpretation of the term “investment measures”.  We  do not intend to provide  an overall definition of 
what constitutes an investment measure.  We emph asize that our characterization of the measures as 
“investment measures” is based on an examination of  the manner in which the measures at issue in 
this case relate to investment.  There may be other measures which qualify as investment measures 
within the meaning of the TRIMs Agreement because th ey relate to investment in a different manner. 
14.81 With respect to the arguments of Indonesia that the measures at issue are not investment 
measures because the Indonesian Government does not regard the programmes as investment 
programmes and because the measures have not been  adopted by the authorities responsible for 
investment policy, we believe that there is nothing in  the text of the TRIMs Agreement to suggest that 
a measure is not an investment measure simply on the grounds that a Member does not characterize 
the measure as such, or on the gr ounds that the measure is not e xplicitly adopted as an investment 
regulation.  In any event, we note that some of th e regulations and decisions adopted pursuant to these 
car programmes were adopted by investment bodies. 
 (b) Are the Indonesian measures “trade-related
”? 
14.82 We now have to determine whether these i nvestment measures are “trade-related”.  We 
consider that, if these measures are local content requirements, they would necessarily be “trade-
related” because such requirements, by definition,  always favour the use of domestic products over 
imported products, and therefore affect trade. 
 (c) Illustrative List of the TRIMs Agreement  
14.83 An examination of whether these measures are c overed by Item (1) of the Illustrative List of 
TRIMs annexed to the TRIMs Agreement, which re fers amongst other situations to measures with 
local content requirements, will not only indicate whet her they are trade-related but also whether they 
are inconsistent with Article III: 4 and thus in violation of Artic le 2.1 of the TRIMs Agreement. 
14.84 The Annex to the TRIMs Agreement reads as follows: 
                                                      
680 See paragraph 6.50 of the Descriptive Part.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 343 
 
 
 “ANNEX 
ILLUSTRATIVE LIST 
1. TRIMs that are inconsistent with  the obligation of national treatment 
provided for in paragraph 4 of Article III of GATT 1994 include those which are 
mandatory or enforceable under domestic law or under administrative rulings, or 
compliance with which is necessary to ob tain an advantage, and which require: 
(a) the purchase or use by an enterprise of products of domestic origin or from 
any domestic source, whether specified in terms of particular products, in 
terms of volume or value of products, or in terms of a proportion of volume 
or value of its local production;”  
14.85 We note that all the various decrees a nd regulations implementing the Indonesian car 
programmes operate in the same manner.  They pr ovide for tax advantages on finished motor vehicles 
using a certain percentage value of local conten t and additional customs duty advantages on imports 
of parts and  components to be used in finished motor vehicles using a certain percentage value of 
local content.  We also note that under the June 1996 car programme, the local content envisaged in 
the February 1996 car programme could be performed  through an undertaking by the foreign producer 
of National Cars to counter-purchase Indonesian parts and components.   
14.86 For instance, the Decision to issue the Decr ee of the Minister of Industry Concerning The 
Determination of Local Content Levels of Do mestically Made Motor Vehicles or Components 
attached to the Decree of the Ministry of Industry announcing the 1993
681 car programme states in its 
Article 2: 
“(1) The Automotive Industry and/or the Components Industry may obtain certain 
Incentives  within the framework of importing needed Components, Sub-Components, 
basic materials and semi-Finished Goods, origin ating in one source as well as various  
sources (multi sourcing), if the production has reached/can achieve certain Local 
Content levels . (...) 
(3) The Local Content levels  of domestically made Motor Vehicles and/or 
Components which are eligible for Incentives  including their Incentive rates shall be 
those listed in Attachment I to this decree.” (emphasis added) 
The Instruction of the President of the Republic of Indonesia No.2 of 1996 of the National Car 
programme (dated 19 February 1998) states in its “INSTRUCT ... SECONDLY:  
 “WITHIN the framework of establishment of the National Car Industry: 
1. The Minister of Industry and Trade will foster, guide and grant facilities in 
accordance with provisions of laws in eff ect such that the national car industry: 
  a. uses a brand name of its own; 
  b. uses components produced domestically as much as 
possible ; 
c. is able to export its products.” (emphasis added) 
More specifically Regulation No. 20/1996 established the following sales tax structure where 
passenger cars of more than 1600cc an d jeeps with local content of less than 60% would pay 35% tax; 
                                                      
681 Decree of the Ministry of Industry No. 114/M/S/6/1993, 9 June 1993. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 344 
 
 
 passenger cars of less than 1600cc, jeeps with local content of more than 60%, and light commercial 
vehicles (other than jeeps using gas) would pa y 20% tax; and National Cars would pay 0% tax.
682  We 
recall that one of the requirements for designation as a “National Car” is that the local content rate 
must be 20% at the end of the first year, 40% at the end of the second year and 60% at the end of the 
third year.683  
14.87 We also note with reference to the June 1996 car programme, that the Decree of the President 
of the Republic of Indonesia Number 42 of 1996684 on the production of National Cars provides in 
Article 1: 
“National Cars which are made overseas by  Indonesian workers and fulfil the local 
content stipulated by the Minister of Industry and Trade will be treated equally to 
those made in Indonesia.” 
The Decree of the Minister of Industry and Trade adopted pursuant to this Presidential Decree 42 
states in Articles 1, 2 and 3: 
“Article 1 
Within the framework of preparations, th e production of national cars can be carried 
out overseas for a one-time maximum period of 1 (one) year on the condition that Indonesian made parts and components are used. 
Article 2 
The procurement of Indonesian made parts and components shall be performed through a system of counter purchase of parts and components of motor vehicles by 
the overseas company carrying out the produc tion and reexporting of national cars to 
Indonesia. 
Article 3 
The value of the Counter purchase referred to in Article 2 shall be fixed at the minimum of 25% (twenty-five percent) of the import value of the national cars 
assembled abroad (C&F value)”. 
14.88 We believe that under these measures complia nce with the provisions for the purchase and 
use of particular products of domestic origin is necessary to obtain the tax and customs duty benefits 
on these car programmes, as referred to in Item 1(a) of the Illustrative List of TRIMs. 
14.89 We need now to decide whether these tax and customs duty benefits are “advantages” in the 
meaning of the chapeau of paragraph 1 of that Illu strative List.  In the context of the claims under 
Article III:4 of GATT,  Indonesia has argued that  the reduced customs duties are not internal 
regulations  and as such cannot be covered by the wo rding of Article III:4.  We do not consider that 
the matter before us in connection with Indonesi a’s obligations under the TRIMs Agreement is the 
customs duty relief as such but rather the internal re gulations, i.e. the provisions on purchase and use 
of domestic products, compliance w ith which is necessary to obtain an advantage, which advantage 
here is the customs duty relief.  The lower duty ra tes are clearly “advantages” in the meaning of the 
chapeau of the Illustrative List to the TRIMs Agr eement and as such, we find that the Indonesian 
measures fall within the scope of the Item 1 of the Illustrative List of TRIMs. 
                                                     
 
682 See paragraphs 2.28 et seq . of the Descriptive Part.  Regulation No. 36/1996 increased the tax 
incentive available by providing that pa ssenger cars and light commercial vehi cles with a local content in excess 
of 60% would pay 0% tax.  See paragraphs 2.36 et seq . of the Descriptive Part. 
683 See paragraphs 2.24 et seq . of the Descriptive Part. 
684 The Decree of the Minister of  Industry and Trade Number: 142/MPP/Kep/6/1996 Regarding the 
Production of the National Car, 5 June 1996.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 345 
 
 
 14.90 Indonesia also argues that the local cont ent requirements of its car programmes do not 
constitute classic local content require ments within the meaning of the FIRA  panel (which involved a 
binding contract between the investor and the Go vernment of Canada) becau se they leave companies 
free to decide from which source to purchase  pa rts and components.  We note that the Indonesian 
producers or assemblers of motor vehicles (or motor vehicle parts) must satisfy the local content 
targets of the relevant measures in order to take  advantage of the customs duty and tax benefits 
offered by the Government.  The wording of the Illustrative List of the TRIMs Agreement makes it 
clear that a simple  advantage conditional on the use of domestic goods is considered to be a violation 
of Article 2 of the TRIMs Agreement even if the local content requirement is not binding as such.  We 
note in addition that this argument has also been rejected in the Panel Report on Parts and 
Components.
685 
14.91 We thus find that the tax and tariff benef its contingent on meeting local requirements under 
these car programmes constitute “advantages”.  Given this and our earlier analysis of whether these 
local content requirements are TRIMs and covered by the Illustrative List annexed to the TRIMs 
Agreement, we further find that they are in vi olation of Article 2.1 of the TRIMs Agreement. 
14.92 We note that a violation of Article 2.1 of the TRIMs Agreement may be justified under 
Articles 3, 4 or 5 of the TRIMs Agreement.686  However,  Indonesia has not invoked any of the 
general exceptions of GATT as referred to in Artic le 3 of the TRIMs Agreement, nor the provisions 
available to developing countries referred to in Artic le 4.  In addition, Indonesia does not claim that 
the measures in dispute benefit from the tr ansitional period under Article 5 of the TRIMs 
Agreement.687 
3. Article III:4 of GATT  
14.93 The complainants have claimed that the lo cal content requirements under examination, and 
which we find are inconsistent with the TRIMs Agreem ent, also violate the provisions of Article III:4 
of GATT.  Under the principle of judicial economy688, a panel only has to address the claims that must 
be addressed to resolve a dispute or which may help a losing party in bringing its measures into 
conformity with the WTO Agreement.  The local co ntent requirement aspects of the measures at issue 
have been addressed pursuant to the claims of th e complainants under the TRIMs Agreement.  We 
consider therefore that action to remedy the inco nsistencies that we have found with Indonesia’s 
                                                      
685 In Parts and Components , the panel recognized that requirements that an enterprise voluntarily 
accepts to gain government-provided ad vantages are nonetheless “requirement s” (italics in original): “5.21 The 
Panel noted that Article III:4 refers to “all laws, regulations  or requirements affecting (the) internal sale, offering 
for sale, purchase, transportation, distribution or use.”  The Panel considered that the comprehensive coverage of 
“all laws, regulations or requirements affecting ” the internal sale, etc. of impor ted products suggests that not 
only requirements which an enterprise is legally bound to carry out, . . . but also those which an enterprise 
voluntarily accepts in order to obtain an  advantage from the government co nstitute “requirements” within the 
meaning of that provision ... .”  Panel Report on EEC - Regulation on Imports of Parts and Components , BISD 
37S/132, adopted on 16 May 1990.  
686 We recall our view that Article III:8(b) of GA TT does not constitute a defense to any measure 
providing discrimination between imported and domestic products, including local content requirements.  See 
paragraph 14.43 supra . 
687 Article 5 of the TRIMs Agreement offers a transitional period to developing countries that allows 
them to maintain any notified TRIM, existing 180 days prior to 1 January 1995.  Such TRIMs are to be phased 
out by 1 January 2000.  Notifications under Article 5 were required to be made by 31 March 1995.  We note that on 23 May 1995, Indonesia made a notification with respect to its 1993 Incentive System to the TRIMs 
Committee under Article 5 of the TRIMs Agreement.  On 28 October 1996, Indonesia notified the TRIMs 
Committee that it was withdrawing its notification rela ted to automobiles because it considered that this 
programme was not a TRIM. 
688 As defined by the Appellate Body in Shirts and Blouses , op. cit., pp. 17-20. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 346 
 
 
 obligations under the TRIMs Agreement would nec essarily remedy any inconsistency that we might 
find with the provisions of Article III:4 of GATT.  We recall our conclusion that non applicability of 
Article III would not affect as such the application of the TRIMs Agreement.  We consider therefore 
that we do not have to address the claims under Article III:4, nor any claim of conflict between 
Article III:4 of GATT and the provisions of the SCM Agreement. 
E. Claims of Tax Discrimination
 
14.94 The three complainants claim that the sales tax benefits under the February 1996 car 
programmes are in violation of Article III:2 of GATT.  The United States and the European Communities also claim that the sales tax benefits of the 1993 and of the June 1996 car programmes 
are inconsistent with Article III:2.  Finally the European Communities claim that since the 1993 and 
the 1996 programmes provide for a level of tax appli cable on a finished product which is a function of 
its local content level, imported pa rts and components are, as a result, subject “indirectly” to a tax 
which is in excess of that indirectly appl ied on domestic like parts and components. 
14.95 We note that Indonesia has not submitted much  evidence or argument against the claims of 
the complainants that the car programmes tax, di rectly or indirectly, imported like or directly 
competitive products in violation of the national treat ment obligation of Article III:2.  Indonesia did 
state that most (but not all) parts and component s were tailor-made and that imported cars were not 
like domestic  cars.  However, Indonesia did not ar gue that these imported products were not or could 
not be directly competitive or substitu table to domestically produced products. 
14.96 Rather, Indonesia’s main defen se to these claims under Article II I:2 would appear to be that 
there is a conflict between Article III:2 of GATT and the SCM Agreement and that to apply 
Article III:2 to subsidies would reduce the SCM Agreem ent to “inutility”.  We shall first examine this 
defense by Indonesia. 
1. Is there a conflict between the provisions of   the  SCM Agreement and Article III:2 of GATT
? 
14.97 Indonesia argues that there is a conflict betw een Article III:2 and the SCM Agreement in that 
the obligations contained in Article III:2 of GA TT and the SCM Agreement are mutually exclusive.689  
For Indonesia, the obligations under both agreemen ts cannot be complied with at the same time 
without  the need to renounce explicit rights or au thorizations contained in  the SCM Agreement to 
maintain the subsidies at issue absent serious prej udice to like products.  Indonesia refers to the 
interpretative note to Annex 1A of GATT and the Bananas III  test.  All parties have entered into 
lengthy argumentation on the relevance, appli cation and consequences of these provisions.   
14.98 In examining this issue, we need not decide whether the test suggested by the Bananas III  
panel report with regard to the interpretative note to Annex 1 A is the correct one in the WTO context.  
Indonesia argues that there is a conflict because the SCM Agreement “explicitly authorizes” Members 
to provide subsidies that are prohibited by Artic le III:2 of GATT.  Assuming that such “explicit 
authorization” is the correct conflict test in the WTO context, we find that, whether or not the SCM 
Agreement is considered generally to “authorize” Me mbers to provide actionable subsidies so long as 
they do not cause adverse effects to the interests of another member, the SCM Agreement clearly does 
not authorize Members to impose discriminatory product taxes.  Nor does a focus on Article 27.3 
suggest a different approach.  Whether or not Artic le 27.3 of the SCM Agreement can be reasonably  
interpreted to “authorize”, explicitly or implicitly, the provision of subsidies contingent on the use of 
domestic over imported goods (an issue we do not here  decide), Article 27.3 is unrelated to, and 
cannot reasonably be considered to “authorize”, the imposition of discriminatory product taxes. 
                                                      
689 See paragraphs 5.145 to 5.204 of the Descriptive Part.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 347 
 
 
 14.99 We also recall that the obligations of the SCM Agreement and Article III:2 are not mutually 
exclusive.  It is possible for Indonesia to respect its obligations under the SCM Agreement without violating Article III:2 since Article III:2 is concerned with discriminatory product taxation, rather than 
the provision of subsidies as such.  Similarly, it is possible for Indonesia to respect the obligations of 
Article III:2 without violating its obligations under the SCM Agreement since the SCM Agreement 
does not deal with taxes on products as such but ra ther with subsidies to en terprises.  At most, the 
SCM Agreement and Article III:2 are each concerned with different aspects of the same piece of 
legislation.
690 
14.100 We find, therefore, that Article III: 2 is applicable to the present dispute. 
14.101 We shall now examine the validity of the co mplainants’ claims under Article III:2 of GATT. 
2. Article III:2 of GATT  
14.102 Article III:1 and III:2 of GATT provide as follows: 
“ National Treatment on Internal Taxation and Regulation  
 1. The contracting parties recogni ze that internal taxes and other 
internal charges, and laws, regulations a nd requirements affecting the internal sale, 
offering for sale, purchase, transportation, distribution or use of products, and internal  quantitative regulations requiring the mixtur e, processing or use of products in 
specified amounts or proportions, should not  be applied to imported or domestic 
products so as to afford prot ection to domestic production.* 
 2. The products of the territory of any contracting party imported into 
the territory of any other contracting party shall not be subject, directly or indirectly, 
to internal taxes or other internal char ges of any kind in excess of those applied, 
directly or indirectly, to like domestic products. Moreover, no contracting party shall 
otherwise apply internal taxes or other in ternal charges to imported or domestic 
products in a manner contrary to the pr inciples set forth in paragraph 1.*” 
The Note Ad to Article III:2 provides: 
“Paragraph 2  
A tax conforming to the requirements of th e first sentence of paragraph 2 would be 
considered to be inconsistent with the provisions of the second sentence only in cases 
where competition was involved between, on the one hand,  the taxed product and, on 
the other hand, a directly competitive or substitutable product which was not similarly 
taxed.” 
14.103 It has been established
691 that Article III:2 contains two standards, depending on whether the 
imported and domestic goods are cons idered to be “like products” subject to the requirements of the 
first sentence of Article III:2, or whether the impor ted and domestic goods are rather considered as 
being “directly competitive or substitutable goods” su bject to the requirements of the second sentence 
of Article III:2.  If a complainant raises a claim under the first sentence of Article III:2, it must 
establish that the imported products are taxe d “in excess” of any domestic like products.  If a 
                                                      
690 We refer to our discussion on this matter in Section C above, paragraphs 14.28 ff supra . 
691 Alcoholic Beverages(1996),  op. cit., Appellate Body Report, p. 17. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 348 
 
 
 complainant raises a claim under the second sentence of Article III:2, it must establish that the 
imported products are "not similarly taxed" to the domestic “directly competitive or substitutable 
goods” and that the dissimilar taxation is "applie d ... so as to afford protection to domestic 
production". 
 (a) Article III:2, first sentence
 
14.104 The European Communities su bmit a series of categories of goods which, it argues should be 
considered “like products” for the purposes of applyi ng Article III:2, first sentence, in the present 
case.692  The European Communities argue that the tax exemptions provided by the various car  
programmes under examination are not based on any f actor which in itself affects the properties, 
nature or quality of the products concerned or their end uses.  Rather the exemptions are based on the 
country of manufacture of the products; or on thei r level of local content; or on whether a motor 
vehicle is a National Car and has complied with certa in local content requirements or has incorporated 
a certain percentage of “counter-purchased” parts and components exported from Indonesia; or on the 
characteristics of the car manufacturers. 
14.105 Japan claims that  the tax benefits of the 1996 car pr ogrammes violate Article III:2, first 
sentence but limits its claim of like products to Na tional Cars and like imported automobiles.  The 
United States claims that National Cars and othe r Indonesian cars with more than 60 per cent local 
content are like imported motor vehicles.  Both Jap an and the United States argue that such imported 
products are taxed in excess of domestic like products. 
14.106 Indonesia does not specifically argue that the complainants have not demonstrated the 
elements necessary to establish a violation of Article III:2 (i.e. like products and differential 
taxation)693 ,but rather argues that Article III:2 of GATT is inapplicable because it prohibits what the 
SCM Agreement permits. We have already rejected this argument from Indonesia. 
14.107 To establish a violation of Article III:2, firs t sentence, complainants must prove that imported 
products are taxed “in excess” of domestic like products.  In examining the claims of the 
complainants, we note that Indonesia does not dispute that pursuant to the 1993 and 1996 car 
programmes imported motor vehicles are taxed in excess of the domestic products at issue.  For 
instance, more specifically, under the 1996 car progr ammes, National Cars are completely exempted 
from sales tax, and under the 1993 car programme (as modified by Regulation No. 36/1996) domestic 
passenger cars below 1600cc with greater than 60% local content are exempted from sales tax while 
imported sedans or domestic sedans with 60% or less local content are subject to a sales tax of 35%. 
14.108 Turning to the “like product” i ssue, in applying this test, we note that the term “like product” 
is not defined in GATT.  Past panels have recognized  that the term has different meanings in different 
GATT provisions, depending on the context and the object and purpose of those provisions.694  In this 
                                                      
692 See paragraph 5.16 of the Descriptive Part. 
693 We recall, on the issue of burden  of proof, that the complainant parties bear the burden of proof in 
that they must establish a prima facie  case of inconsistency with a provision before the burden of showing 
consistency with that provision  is taken on by the defendant party.  But, as noted by the Appellate Body in the 
Hormones  report: “It is also well to remember that a prima facie  case is one which, in the absence of effective 
refutation by the defending party, requires a panel, as a ma tter of law, to rule in favour of the complaining party 
presenting the prima facie  case”.   Appellate Body Report on Hormones , op.cit., para. 104. 
694 Panel Report on Japan - Customs Duties, Taxes and Labelling Practices on Imported Wines and 
Alcoholic Beverages , adopted on 10 November 1987, BISD 34S/83, para. 5.6, hereafter called Alcoholic 
Beverages (1987).  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 349 
 
 
 connection, it is useful to recall the Appellate Body's discussion of Article III in Alcoholic 
Beverages(1996)
695: 
"The broad and fundamental purpose of Artic le III is to avoid protectionism in the 
application of internal tax and regulatory measures.  More specifically, the purpose of 
Article III "is to ensure that internal measures ÿnot be applied to imported or 
domestic products so as to afford protection to domestic production’".696  ...   
Moreover, it is irrelevant that "the trad e effects" of the tax differential between 
imported and domestic produc ts, as reflected in the volumes of imports, are 
insignificant or even non-existent;  Artic le III protects expectations not of any 
particular trade volume but rather of the equal competitive relationship between 
imported and domestic products697”. 
14.109 In Alcoholic Beverages(1996)698 and Periodicals699, the Appellate Body endorsed the basic 
approach set out in the 1970 Report of the Working Party on Border Tax Adjustment: 
“... the interpretation of the term [like product] should be examined on a case-by-case 
basis. This would allow a fair assessment in each case of the different elements that 
constitute a similar product. Some criteri a were suggested for determining, on a 
case-by-case basis, whether a product is “similar”: the product’s end uses in a given market; consumers’ tastes and habits, wh ich change from country to country; the 
products properties, nature and quality”.
700 
14.110 Applying these criteria to the case at hand, we note that Japan specifically claims that, for 
purposes of Article III:2, four models of Japanese cars  that have been sold in the Indonesian market 
are like the National Car (i.e. the Timo r, which is based on the Kia Sephia701).  Those cars are the 
Toyota Corolla, the Mitsubishi Lancer, the Honda Ci vic and the Suzuki Baleno.  In support thereof, it 
notes the similar engine sizes:  1500cc for the Timo r, 1600cc for the others.  We note that the 
evidence before us demonstrates that these cars ar e categorized similarly in market segmentation 
studies, with the Baleno in Segment B (Supermini Segment), the Corolla and Civic in Segment C1 
(lower end of the Lower Medium Segment) and th e Lancer in Segment C2 (upper end of the Lower 
Medium Segment).702  In particular, at least as to the importe d models in Segment C1, it appears to us 
                                                      
695 Alcoholic Beverages(1996) , op. cit., Appellate Body Report, p.16. 
696 Panel Report on Section 337 , op. cit., para. 5.10. 
697 Panel Report on United States - Taxes on Petroleum and Certain Imported Substances , BISD 
34S/136, para. 5.1.9, hereafter called Superfund . 
698 Appellate Body Report on Alcoholic Beverages(1996) , op. cit., p.20. 
699 Appellate Body Report on Periodicals , op. cit., p.21. 
700 Report of the Working Party on Border Tax Adjustments, BISD 18S/97, para 18.  In  Alcoholic 
Beverages(1996) , the Appellate Body noted that “We believe th at, in Article III:2, first sentence of the GATT 
1994, the accordion of ‘likeness’  is meant to be narrowly squ eezed”.  Appellate Body Report on Alcoholic 
Beverages (1996) , op.cit., p.21. 
701 The DRI’s Global Automotive Group, a company whose clients appear to include all major auto 
manufacturers, including KIA, PT TPN’s National Car partner, identifies models sold in the Indonesian market 
by the more common model names used in other markets.  However, it is clear from the data provided by DRI that the “Sephias” referred to in th e Asian Forecast are in fact Timors imported from Korea or assembled in 
Indonesia.  Thus under the DRI’s classification the Timor falls within Segment C1 (lower end of the Lower 
Medium Segment). 
702 This market segmentation is based on the analysis made by the DRI’s Global Automotive Group.  
As further developed in paragraphs 14.177 et seq.  hereafter we have relied on this DRI study as an important 
element of our analysis for the purpose of determining the likeness of products pursuant to the claims under the SCM Agreement.  We find that in th is case the criteria used by DRI in ar riving at its market segmentation are 
appropriate to the determination of like pr oducts under Article III:2, first sentence. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 350 
 
 
 that these models of cars have the same end uses a nd the same basic properties, nature and quality.  
Given that these models are in the same market segm ents, there would not appear to be any relevant 
differences in respect of consumers' tastes and habi ts sufficient to render these products unlike.  We 
note, however, that both the Corolla and the Civic are imported into Indonesia in CKD (completely 
knocked down) form.  In our analysis of dete rmining the likeness of products pursuant to 
complainants’ claims under  the SCM Agreement, we have examined whether a CKD kit can be 
“like” a finished car.  We consider that, in the pr esent case, the same analysis is appropriate to the 
determination of like products under Article III:2, fi rst sentence.  From the evidence submitted, it is 
not clear whether the Civics sold in Indonesia can be considered to be imports of like products from 
Japan, as data provided by Indonesia in the Annex V (SCM) context indicate that the Honda models 
sold in Indonesia received benefits under the 19 93 car programme, implying that these models have 
more than 20% local content.  However, we need not  decide whether the Civic is or is not an imported 
like product, since we find that there is at least one model in market Segment C1, the Corolla, that 
does appear not to have received any such benefit, indicating that its percenta ge of Indonesian local 
content, if any, is minimal.  In our view, this  evidence is sufficient to  establish a presumption
703 of 
likeness between the Timor and Corolla for purposes of  Article III:2.  Since Indonesia has submitted 
no evidence or argument to rebut the presumption of likeness for the purposes of Article III:2, we find that imported products like the National Car exist for purposes of Article III:2. 
14.111 While the European Communities and the Un ited States did not identify specific car models 
that they alleged to be like products to the Na tional Car or other Indonesian cars for Article III:2 
purposes, we note that they did so for purposes of  their claims under the SCM Agreement.  In 
connection  therewith
704, we found after a detailed examination that several models in Segment C1 
(Ford Escort, Peugeot 306 and Opel Optima) were lik e the Timor.  We believe that in the present case 
the same facts which support a finding of likeness for the purpose of the SCM Agreement also support 
a finding of likeness for the purpose of the first sentence of Article III:2 of GATT. 
14.112 More importantly, we note that because of th e structure of the tax regime under examination, 
any imported like products would necessarily be ta xed in excess of domestic like products.  In 
considering the broader arguments put forward by th e complainants that the tax measures in dispute 
violate Article III:2 because they discriminate not on the basis of factors affecting the properties, 
nature, qualities  or end use of the products, but on or igin-related criteria, we recall that the Appellate 
Body decisions in Alcoholic Beverages(1996)  and Periodicals   suggest that the term "like products" 
as used in Article III:2 should be interpreted narrowly.705  We note, however, that in this case the "like 
products" issue is not the same as the "like products" issue in the Alcoholic Beverages(1996)  case.  
There, the internal  tax imposed on domestic shochu was the same as that imposed on imported shochu; the higher tax imposed on imported vodka was also imposed on domestic vodka.  Identical 
products (not considering brand differences) were  taxed identically.  The issue was whether the 
differences between the two products shochu and v odka, as defined for tax purposes, were so minor 
that shochu and vodka should be considered to be like products and therefore subject to the 
requirement of Article III:2, first sentence, that one should not be taxed in excess of the other.  Here, 
the situation is quite different.  The distinction be tween the products, which results in different levels 
of taxation, is not based on the products per se , but rather on such factors as the nationality of the 
producer or the origin of the parts and components contained in the product.  As such, an imported 
product identical in all respects to a domestic product, except for its origin or the origin of its parts 
and components or other factors not related to the pr oduct itself, would be subj ect to a different level 
of taxation. 
                                                     
 
703 Shirts and Blouses , op. cit., Appellate Body Report, p.14. 
704 See paragraphs 14.193 infra . 
705 Alcoholic Beverages(1996) , op. cit., Appellate Body Report, pp.19-20; Periodicals , op. cit., 
Appellate Body Report, p.22.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 351 
 
 
 14.113 In Periodicals , the Appellate Body recognized the possibility of using hypothetical imports to 
determine whether a measure violates Article III:2, although in that case the Appellate Body rejected 
the hypothetical example used by the Panel.
706  But this case is different.  Under the Indonesian car  
programmes the distinction between the products fo r tax purposes is based on such factors as the 
nationality of the producer or the origin of the parts and components contained in the product.  
Appropriate hypotheticals are therefore easily construc ted.  An imported motor vehicle alike in all  
aspects relevant to a likeness determination would be taxed at higher rate simply because of its origin or lack of sufficient local content.
707  Such vehicles certainly can exist (and, as demonstrated above, 
do in fact exist).  In our view, such an origin-based  distinction in respect of internal taxes suffices in 
itself to violate Article III:2, without the need to  demonstrate the existence of actually traded like 
products.708  This is directly in accord with the br oad purposes of Article III:2, as outlined by the 
Appellate Body in paragraph 14.108, infra . 
14.114 Thus, by providing for the imposition of  taxes on imported products in excess of taxes 
imposed on domestic like products, the tax provision s of the Indonesian car programmes violate the 
provisions of the first sentence of Article III:2 of GATT. 
 (b) Article III:2, second sentence  
14.115 In light of the foregoing finding under Article III:2, first sentence, we consider that it would 
not be necessary to examine the same programm es under Article III:2, second sentence.  We note, 
however, that any imported motor vehicle that woul d be directly competitive or substitutable to a 
domestic product at issue, would not be taxed simi larly to a National Car or to a finished motor 
vehicle that meets a certain local content value.  Indeed the large tax differential (for instance under 
the 1996 car programmes, National Cars are comple tely exempted from sales tax and under the 1993 
car programme - as modified by Regulation No. 36/1996 - domestic sedans below 1600cc and with 
greater than 60% local content are exempted from sales tax while imported sedans or domestic sedans 
with 60% or less local content are subject to a sale s tax of 35%) is clear evidence that the relevant 
products are not similarly taxed.  Finally, the natu re of the discrimination, which is to promote a 
national industry by giving it advantages vis-à-vi s imported products, is clearly designed so as to 
afford protection to domestic pr oduction, contrary to the second sen tence of Article III:2 of GATT. 
                                                      
706 Periodicals , op. cit., Appellate Body Report, pp. 20-21. 
707 Thus, although there is no evidence in the record  of such actual imports, it can be found that any 
imported motorcycles of 250 cc or less, which are like Indonesian made motorcycles of 250 cc or less, would be 
taxed in excess of the latter; any imported combines, minibuses, vans and pick-ups, which are like Indonesian 
made combines, minibuses, vans and pick ups, including those with a local content of  60 % or more, would be taxed in excess of the latter; any imported buses, which are like Indonesian made buses, would be taxed in 
excess of the latter; any imported sedans and stations wagons of less than 1,600 cc, which are like Indonesian 
made sedans and station wagons of less than 1,600 cc, including those with a local content of  60 % or more, would be taxed in excess of the latter. 
708 This finding is in accord with a number of previous panel reports concluding that differences in 
producers’ characteristics, which do not affect the pr oducts’ characteristics, ca nnot justify a different tax 
treatment of the products involved.  See, e.g., Malt Beverages , at para 5.19 ("beer produced by large breweries 
is not unlike beer produced by small breweries"); Gasoline , at para. 6.11 ("Article III:4 of the General 
Agreement deals with th e treatment to be accorded to like products; its wording does not allow less favourable 
treatment dependent on the characteristics of the producer."); Panel Report on United States  - Measures 
Affecting the Importation, Internal Sale and Use of Tobacco , adopted 4 October 1994, DS44/R, para. 97 ("The 
Panel thus considered that the system for calculation of the BDA on imported tobacco itself, not just the manner in which it was currently applied, was inconsistent with  Article III:2 because it ca rried with it the risk of 
discriminatory treatment of imports in respect of internal taxes.") WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 352 
 
 
 14.116 We find therefore that the various measures adopted pursuant to the Indonesian car 
programmes under examination, are inconsistent with  Article III:2 first and second sentences, in that 
the structure of the tax scheme is such that im ported products are taxed in excess of domestic like 
products and imported pro ducts which are directly competitive or substitutable to domestic products 
are also necessarily not similarly taxed so as to a fford protection to the domestic production of such 
products. 
14.117 In the light of the foregoing finding, we consider it unnecessary to address the European 
Communities’ claim that imported parts and components are subject “indirectly” to a tax which is in excess of that indirectly applied on domestic like parts and components since the sales tax applicable 
on a finished product varies according to its local content level. 
3. Article III:8(b) of GATT
 
14.118 Although it does not do so explicitly, Indonesia could be viewed as claiming that should 
Article III:2 be applicable, those of its measure s which are subsidies should be exempted from 
Article III through the application of Article III:8(b).709  
14.119 In our view, with regard to subsidies to producers, Article III:8(b) should be interpreted to 
mean that: 
1) if the subsidy benefit to producers derives from indirect taxes, there must be a prior 
collection on a non-discriminatory basis of such taxes; 
2) the subsidies must have been provided dir ectly to the producers, that is to say that 
Article III:8(b) does not cover a financial adva ntage that benefits producers indirectly (for 
example subsidies paid to consumers of products, produced by domestic producers). 
14.120 In this sense, we agree with the stat ement of the Appellate Body in the recent Periodicals  case 
where it approved the reasoning of the Malt Beverages  case on Article III:8(b). 
 “We [the Appellate Body] agree with the panel in United States - Malt Beverages  that:   
5.10 Article III:8(b) limits, therefore, the permissible producer 
subsidies to "payments" after taxes have been collected or payments 
otherwise consistent with Article III.   This separation of tax rules, 
e.g. on tax exemptions or reducti ons, and subsidy rules makes sense  
economically and politically.  Even if the proceeds from 
non-discriminatory product taxes may be used for subsequent subsidies, the domestic producer, like his foreign competitors, must 
pay the product taxes due.  The sep aration of tax and subsidy rules 
contributes to greater transparency.   It also may render abuses of tax 
policies for protectionist purposes more difficult,  as in the case where 
producer aids require additional legi slative or governmental decisions 
in which the different interests involved can be balanced.”710 
(emphasis added) 
                                                      
709 We have already discussed the scope and purpose of Article III:8(b) in Section C of this report.  We 
consider that one of the purposes of Article III:8(b) is to confirm the respective scopes  of Article III and Article 
XVI (and now the SCM Agreement). 
710 Periodicals , op. cit., Appellate Body Report, p. 34.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 353 
 
 
 We also agree with the following passage of Malt Beverages : 
“5.9 ... Any fiscal burden imposed by discriminatory internal taxes on imported 
goods is likely to entail a trade-distorti ng advantage for import-competing domestic 
producers, the prohibition of discriminatory internal taxes in Article III:2 would be 
ineffective if discriminatory internal ta xes on imported products could be generally 
justified as subsidies for competing domestic  producers in terms of Article III:8(b).” 
14.121 We find therefore that subsidies that result from product-tax discrimination are subject to the 
prohibitions of Article III:2 of GATT.  This is to say that the Indonesian measures involving tax exemptions and reductions, here on finished motor vehicles including National Cars, are fully subject 
to the prohibition against product-tax discrimination of Article III:2.   
14.122 Thus, Article III:8(b) of GATT does not provide  Indonesia with a defense to the claims that 
its car programmes violate the provisions of Article III:2 of GATT. 
F. Claims of MFN Discrimination
 
14.123 The three complainants clai m that the sales tax exemptions of the June 1996 car programme 
violate Article I:1 of GATT because they confer advantages of the type covered by Article I:1 which 
are conditional (25% counter-purchase requirement) and available de facto  only to imports of motor 
vehicles from Korea but not to imports of like products from other WTO Members. 
14.124 Japan, the European Commun ities and the United States also claim that the customs duties 
exemptions of the June 1996 car programme vi olate Article I:1 of GATT because they confer 
advantages of the type covered by Article I:1 which are conditional (25% counter-purchase 
requirement) and  available de facto  only to imports of motor vehicles from Korea but not to imports 
of like products from other WTO Members. 
14.125 Japan and the European Communities claim that the customs duty exemptions on parts and 
components of the February 1996 car programme violate Article I:1 of GATT because they confer advantages of the type covered by Article I:1 whic h are conditional (only if used in National Cars) 
and available de facto  only to imports of parts and components from Korea since the only National 
Car assembled in Indonesia is a replica of the Kia Sephia from Korea, and this, to the detriment of 
imports of “like” parts and components from other Members. 
14.126 The European Communities al so argue that the sales tax exemption provided to National Cars 
assembled in Indonesia under the February 1996 car programme violates Article I:1 of GATT because 
it provides an “indirect advantage” to parts and components assembled in National Cars; therefore this 
indirect advantage (covered by Article I of GATT) bene fits mainly, if not exclusively, imports of parts 
and components originating in Korea since the onl y National Car assembled in Indonesia is a replica 
of the Kia model Sephia from Korea, and this is to  the detriment of imports of “like” parts and 
components from other Members.
711 
                                                      
711 However the European Communities does not appear to have made such a claim (for what they 
label measure (d)) in their request for a panel.  We note also that in their request for establishment of a panel the 
European Communities claimed that the import duty relie f (what they label measure (a)) of the 1993 car 
programme violate the provisions of Article I:1 of GATT. However the European Communities did not further 
argue such latter claims in their submissions and oral presentations to the Panel. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 354 
 
 
 14.127 Indonesia argues that its measures are subsid ies governed exclusively by the SCM Agreement 
and therefore are not subject to Article I of GATT for the same reasons as it argued that Article III of 
GATT is not applicable to this dispute. 
14.128 Indonesia also notes that in all past cases where panels found de facto  discrimination 
violations, a particular result was mandated by governme nt action.  In none of them was the choice of 
supplier made by the private-party recipient of the subsidy found to cons titute government-mandated 
de facto   discrimination.  For Indonesia, the essential fact remains that a private-sector choice, not 
government direction, was the reason why there were  imports from Korea.  Such a private choice is 
not within the scope of Article I. 
14.129 Indonesia also adds that the June 1996 car pr ogramme has expired and will not be renewed.  
For Indonesia all claims related to this J une 1996 car programme are therefore moot.  The 
complainants respond that the government of Indonesi a does not forego its sales tax until a car is sold 
and that since  there are still some 20,000 cars not yet sold and/or imported,  the Panel should examine 
the measure.  In response to additional questions  from the Panel after the second meeting, Indonesia 
argued that PT TPN, the only company entitled to be nefits under the June 1996 car programme, failed 
the  “SUCOFINDO audit”
712 and, thus, none of the remaining cars will receive the customs duty or 
tax exemption. 
14.130 Indonesia also argues that the National Car and components and parts imported for it, are not 
“like” any passenger vehicles, components or parts imported from the territories of complainants as 
the parts and component are tailor-made  for the Indonesian National Cars. 
1. General defences of Indonesia  
(a) Is the SCM Agreement the only agreement app licable to this dispute at the exclusion of 
Article I of GATT ? 
14.131 We have already discussed in Section C above  why we consider that the SCM Agreement is 
not generally the only relevant and applicable ag reement to the measures under examination.  We 
found that the obligations contained in the WTO Agreement are generally cumulative and can be 
complied  with simultaneously.  We shall, therefore,  now proceed to the examination of the claims of 
the complainants that aspects of  the Indonesian car programmes vi olate the MFN obligations of 
Article I of GATT. 
14.132 Before we do this, we must address the argument put forward by Indonesia that the Panel 
cannot or should not address the claims regardi ng the June 1996 car programme because that 
programme has expired and because in any case PT TPN h as lost all its rights to any future benefits 
under that car programme. 
(b) Are the Claims Related to the June 1996 Car Programme Moot ? 
14.133 In its various submissions Indonesia claims th at the special one year permission granted to PT 
Timor under the June 1996 car programme was terminat ed and that any claims related thereto should 
be ignored by the Panel.   
14.134 In paragraph 14.9 above, we found that generally panels have  examined measures which were 
amended or terminated during the panel process and,  notwithstanding Indonesia’s allegation that the 
National Car programme was terminated, we decided to issue our report.  In this context we note that  
                                                      
712 See paragraphs 10.1 to 10.12 of the Descriptive Part.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 355 
 
 
 when the present panel proceedings commenced Pr esidential Decree 42/96, Decree 142/1996 of the 
Ministry of Industry and Governmental Re gulation 36/1996 had not been repealed.  
14.135 We also note that in the recent Wool Shirts  case, the panel faced a similar situation in that the 
United States withdrew its import restriction a few da ys after the interim review meeting.  The panel 
concluded: 
“in the absence of an agreement between the parties to terminate the proceedings, we 
think that it is appropriate to issue our fi nal report regarding the matter set out in the 
terms of reference of this Panel in or der to comply with our mandate [....]  
notwithstanding the withdrawal of the US restraint”.
713 
14.136 Under the circumstances, taking into account the terms of reference of this Panel, we consider 
that it is appropriate for us to address the me asures under the June 1996 car programme.  We shall 
proceed therefore to examine the claims of th e complainants and the defense of Indonesia. 
2. Criteria for an Article I of GATT violation  
14.137 Article I of GATT requires that any privileg es granted to imports of any country be accorded 
immediately and unconditionally to the like products orig inating in or destined for the territories of all 
other Members. 
“1. With respect to customs duties and charges of any kind imposed on or in 
connection with importation or exportation or imposed on the international transfer of 
payments for imports or e xports, and with respect to the method of levying such 
duties and charges, and with respect to all rules and formalities in connection with 
importation and exportation, and with respect to  all matters referred  to in paragraphs 
2 and 4 of Article III, any advantage, favour , privilege or immunity granted by any 
contracting party to any product originating in  or destined for any other country shall 
be accorded immediately and unconditionally to the like product originating in or 
destined for the territories of all other contracting parties.” 
14.138 The Appellate Body, in Bananas III , confirmed that to establish a violation of Article I, there 
must be an advantage, of the type covered by Ar ticle I and which is not accorded unconditionally to 
all “like products” of all WTO Members.  Following th is analysis, we shall first examine whether the 
tax and customs duty benefits are advantages of the types covered by Article I.  Second, we shall 
decide whether the advantages are offered (i) to  all like products and (ii) unconditionally. 
(a) Are the tax and customs duty benefits of  the February and June  1996 car programmes 
advantages of the types covered by Article I ? 
14.139 The customs duty benefits of the various Indonesian car programmes are explicitly covered 
by the wording of Article I.  As to the tax benefits  of these programmes, we note that Article I:1 refers 
explicitly to “all matters referred to  in paragraphs 2 and 4 of Arti cle III”. We have already decided 
that the tax discrimination aspects of the Nati onal Car programme were  matters covered by 
Article III:2  of GATT.  Therefore, the customs duty and tax advantages of the February and June 
1996 car programmes are of the type covered by Article I of GATT.   
                                                      
713 Panel Report on Shirts and Blouses , op. cit., para 6.2, affirmed by the Appellate Body.  WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 356 
 
 
 (b) Are these advantages offered “unconditionally” to all “like products
”? 
 (i) “like products ” 
14.140 The European Communities, following the same logic it used for the like product definition in 
its Article III claims, submit that  National Cars and their parts and components imported from Korea 
are to be considered ”like” any motor vehicle and parts and components imported from other 
Members.  The European Communities argue that imported parts and components and motor vehicles 
are all like the relevant domestic products since the definition of “National Cars” and their parts and 
components is not based on any factor which may affect per se  the physical characteristics of those 
cars and parts and components, or their end uses.  The United States argues that cars imported in 
Indonesia are like the Kia Sephia from Korea.  Japan argues that parts and components and cars 
imported from Japan, or any other country, and those imported from Korea constitute “like products”. 
14.141 We have found in our discussion of like pr oducts under Article III:2 that certain imported 
motor vehicles are like the National Car714.  The same considerations justify a finding that such 
imported vehicles can be considered like Nationa l Cars imported from Korea for the purpose of 
Article I.  We also consider that parts and components imported from the complainants are like 
imports from Korea.  Indonesia concedes that some parts and components are exactly the same for all 
cars.  As to the parts and components which arguabl y are specific to the National Car, Indonesia does 
not contest that they can be produced by the compla inants’ companies.  This fact confirms that the 
parts and components imported for use in the Nationa l Car are not unique.  As before, we note in 
addition that the criteria for benefitting from reduc ed customs duties and taxes are not based on any 
factor which may affect per se  the physical characteristics of those cars and parts and components, or 
their end uses.  In this regard, we note that past  panels interpreting Artic le I have found that a 
legislation itself may violate that provision if it could lead in principle to less favourable treatment of the same products.
715  
14.142 We find, therefore, that for the purpose of the MFN obligation of Article I of GATT,  
National Cars and the parts and components thereo f imported into Indonesia from Korea are to be 
considered ”like” other similar motor vehicl es and parts and components imported from other 
Members.   
 (ii) “unconditional advantages ” 
14.143 We now examine whether the advantages accorded to National Cars and parts and 
components thereof from Korea are unconditionally acco rded to the products of other Members, as 
required by Article I. The GATT case law is clear to the effect that any such advantage (here tax and 
customs duty benefits) cannot be made conditional on any criteria that is not related to the imported 
product itself. 
                                                      
714 We refer to our discussions in paragraphs 14.110 and 14.111 where we found that given that the 
Timor, Escort, 306, Optima and Corolla models are in the same market segments, there would not appear to be 
any relevant differences in respect of consumers' tastes a nd habits sufficient to render these products unlike.  In 
our view, this evidence is also sufficient to establis h a presumption of likeness between the Timor, Corolla, 
Escort, 306 and Optima for purposes of Article I of GATT.  Since Indonesia has submitted no evidence or 
argument to rebut the presumption of likeness for purposes of Article I of GATT, we find that at least these 
imported motor vehicles are like the National Car for purposes of Article I of GATT. 
715 See for instance the Panel Report on United States - Denial of Most-favoured-nation Treatment as to 
Non-rubber Footwear from Brazil , adopted on 19 June 1992, BISD 39S/128, para. 6.12.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 357 
 
 
 14.144 For instance, in the Panel Report on Belgian Family Allowances
716, the panel condemned a 
measure which discriminated against imports depending on the type of family allowances that was in 
place: 
“3. According to the provisions of para graph 1 of Article I of the General 
Agreement, any advantage, favour, privilege or immunity granted by Belgium to any 
product originating in the territory of any co untry with respect to all matters referred 
to in paragraph 2 of Article III shall be granted immediately and unconditionally to 
the like product originating in the territories of all contracting parties. Belgium has 
granted exemption from the levy under consid eration to products purchased by public  
bodies when they originate in Luxembourg a nd the Netherlands, as well as in France, 
Italy, Sweden and the United Kingdom. If the General Agreement were definitively 
in force in accordance with Article XXVI, it is clear that that exemption would have 
to be granted unconditionally to all other contracting par ties (including Denmark and 
Norway). The consistency or otherwise of the system of family allowances in force in 
the territory of a given contracting party with the requirements of the Belgian law 
would be irrelevant in this respect, and the Belgian legislation would have to be 
amended  insofar as it introduced a disc rimination between countries having a given 
system of family allowances and those which had a different system or no system at 
all, and made the granting of the exemption dependent on certain conditions .” 
(emphasis added) 
14.145 Indeed, it appears that the design and structur e of the June 1996 car programme is such as to 
allow situations where another Member’s like pr oduct to a National Car imported by PT PTN from 
Korea will be subject to much higher duties and sales taxes than those imposed on such National Cars.  
For example, customs duties as high as 200% can be imposed on finished motor vehicles while an 
imported National Car benefits fro m a 0% customs duty.  No taxes are imposed on a National Car 
while an imported like motor vehicle from another Me mber would be subject to a 35% sales tax.  The 
distinction as to whether one product is subject to  0 % duty and the other one is subject to 200% duty 
or whether one product is subject to 0% sales tax and the other one is subject to a 35% sales tax, 
depends on whether or not PT TPN had made a “deal ” with that exporting company to produce that 
National Car, and is covered by the authorization of June 1996 with specifications that correspond to 
those of the Kia car produced only in Korea.  In  the GATT/WTO, the right of Members cannot be 
made  dependent upon, conditional on or even aff ected by, any private contractual obligations in 
place.717  The existence of these conditions is inconsis tent with the provisions of Article I:1 which 
provides that tax and customs duty benefits accorded to products of one Member (here on Korean products) be accorded to imported like products from other Members “immediately and unconditionally”.
718 
14.146 We note also that under the February 1996 car programme the granting of customs duty 
benefits to parts and components is conditional to their being used in the assembly in Indonesia of a 
                                                      
716 BISD 1S/59, adopted on 7 November 1952. 
717 For instance in the FIRA  case, the Panel rejected Canada’s argument that the situation under 
examination was the consequence of a private contract wi th an investor: “5.6 The Pa nel carefully examined the 
Canadian view that the purchase undertakings should be considered as private contractual obligations of 
particular foreign investors vis-à-vis the Canadian government.  The Panel recognized that investors might have 
an economic advantage in assuming purchase undertakings, taking into account the other conditions under which the investment was permitted.  The Panel felt, how ever, that even if this were so, private contractual 
obligations entered into by investors should not adversely affect the rights which contracting parties, including 
contracting parties not involved in the dispute, possess under Article III:4 of the General Agreement and which they can exercise on behalf of their exporters.”  See FIRA , op. cit, para. 5.6. 
718 See Working Party Report on the Accession of Hungary , BISD 20S/34 adopted on 30 July 1973. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 358 
 
 
 National Car.  The granting of tax benefits is c onditional and limited to the only Pioneer company 
producing National Cars.  And there is also a third condition for these benefits: the meeting of certain 
local content  targets.  Indeed under all these car  programmes, customs duty and tax benefits are 
conditional on achieving a certain local content valu e for the finished car.  The existence of these 
conditions is inconsistent with the provisions of Article I:1 which provides that tax and customs duty 
advantages accorded to products of one Member (here on Korean products) be accorded to imported 
like products from other Members “immediately and unconditionally”. 
14.147 For the reasons discussed above, we cons ider that the June 1996 car programme which 
introduced discrimination between imports in the al location of tax and customs duty benefits based on 
various conditions and other criteri a not related to the imports th emselves and the February 1996 car 
programme which also introduce discrimination betw een imports in the allocation of customs duty 
benefits based on various conditions  and other criteria not related to the imports themselves, are 
inconsistent with the provis ions of Article I of GATT. 
14.148  Since the European Communities did not proper ly claim that the tax benefits of the February 
1996 car programme violated Article I
719, we cannot address the related alleged claim that under the 
same 1996 February car programme imported part s and components from Korea are subject to an 
indirect tax advantage (covered by Article I). 
G. Claims of Inadequate Publi cation and Partial Administration  
14.149 Only Japan has raised clai ms under Article X of GATT.  Japan claims that the National Car 
programme violates Article X:1 because Indonesia h as failed to publish trade regulations “promptly” 
and “in such a manner as to enable governments and traders to become acquainted with them”.  Japan 
further alleges that Indonesia has not set out the requirements for the National Car programme and has 
also failed to explain the requirements of its National Car programme during the consultations. 
14.150 Japan also claims that the June 1996 Nationa l Car program was administered in violation of 
Article X:3(a) which requires uniform, impartia l and reasonable administration of regulations, 
including those pertaining to rates of duty, taxes or  other charges.  Japan argues that in June 1996 
Indonesia authorized PT Timor to import automo biles duty free, although the counter-purchase 
requirement mentioned in the Decree, was not met.   For Japan, these facts constitute violations of 
Article X:3(a) since Indonesia administered its re gulations in a partial and unreasonable manner. 
14.151 Indonesia simply responds that Article X does not establish substantive obligations, but rather 
procedural and administrative obligations.  In any case, Indonesia submits that it has published its 
regulations and decrees in the statute books and Stat e Gazettes promptly after their adoption, and this 
is in conformity with Article X. 
14.152 We have already found that the measures adopted pursuant to the National Car programme 
violate the provisions of Articles I and/or III of GATT.  Therefore, we consider that it is not necessary to examine Japan’s claims under Article X of GATT. 
H. Claims of Serious Prejudice under Part III of the SCM Agreement
 
14.153 We next turn to the complainants' serious  prejudice claims.  The European Communities and 
the United States contend that the tariff and luxury sales tax exemptions provided by Indonesia 
                                                      
719 As mentioned before in their request for establishment of panel the European Communities did not 
claim that the tax benefits under the February 1996 (what the European Communities had labelled the measure 
(d)) violated Article I.  See paragraph (iii) of  the EC’s request for es tablishment of panel.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 359 
 
 
 through the National Car programme
720 are specific subsidies which have caused serious prejudice to 
their interests within the meaning of Article 5( c) of the Agreement on Subsidies and Countervailing 
Measures ("SCM  Agreement").721  Specifically, the complainants allege that the effect of alleged 
subsidies for the national car is (a) to displace or impede imports of like products of the European 
Communities and the United States into the Indonesian  market and (b) a significant price undercutting 
by the subsidized national car as compared with lik e EC and US products in the Indonesian market.  
The European Communities further contend, in the a lternative, that the alleged subsidies provided by 
Indonesia through the National Car programme threat en to cause serious prejudice to EC interests.722  
Indonesia argues that the tariff and tax benefits provided through the National Car programme do not 
cause or threaten to cause serious prejudice to th e interests of the European Communities or the 
United States. 
14.154 In addressing the EC and US claims, we will first consider whether the measures in question 
are specific subsidies within the meaning of the SCM Agreement.  Next we will consider whether 
Indonesia, as a developing country Member, may be subj ect to claims that subsidies provided by it  
have caused serious prejudice to the interests of ot her Members.  Finally, we must examine whether 
the European Communities and the United States have  demonstrated by positive evidence that the 
measures in question have caused serious prejudice or , in the case of the European Communities, have 
threatened to cause serious prejudice, to their in terests within the meaning of Part III of the 
SCM Agreement, either through displacement a nd impedance, price undercutting, or both.  A 
threshold question with respect to this final phase of  the analysis is to determine which EC and US 
products, if any, are like products to the National Car (the Timor) within the meaning of the SCM 
Agreement.   
1. Are the measures specific subsidies ? 
14.155 As with any analysis under the SCM Agreement,  the first issue to be resolved is whether the 
measures in question are subsidies within the meaning of Article 1 that are specific to an enterprise or 
industry or group of enterprises or industries within the meaning of Article 2.  It is to be recalled that 
the measures in question are: import duty and luxu ry sales tax exemptions on CBU Timors imported 
by PT TPN from Korea, import duty exemptions on pa rts and components used or to be used in the 
assembly of the Timor in Indonesia, and luxury sales tax exemptions on Timors assembled in Indonesia.  In this case, the European Communities,  the United States and Indonesia agree that these 
measures are specific subsidies within the meaning of those articles.  Specifically, they concur that the 
tariff and sales tax exemptions in question represen t government revenue forgone within the meaning 
of Article 1.1(a)(1)(ii) and that the measures c onfer a benefit on PT TPN within the meaning of 
Article 1.1(b) of the Agreement.  All three parties reiterated this view in response to a written question 
from the Panel.   Further, the European Communitie s, the United States and Indonesia agree that these 
subsidies are contingent upon the use of domes tic over imported goods within the meaning of 
Article 3.1(b), and that they are therefore deemed  to be specific pursuant to Article 2.3 of the 
                                                     
 
720 Neither the European Communities nor the United States has made a claim of serious prejudice 
arising from measures adopted pursuant to the 1993 car programme.  
721 Japan's request for establishment of a panel noted Japan's view that the measures pursuant to the 
National Car programme cause serious prejudice to Japan's interests, but did not ask this Panel to make a finding 
on this issue.  Rather, Japan reserved the right to request the establishment of a separate panel under Article 7.4 
of the SCM Agreement with respect to this issue.  
722 In its first submission, the United States claimed that the National Car progra mme also threatened to 
cause serious prejudice with respect to US exports of light trucks to Ind onesia.  The US threat claim was, 
however, related to an allegedly government-directed $690 million loan. The United States has informed us that, in light of our preliminary ruling that the loan is not with in our terms of reference, the United States is no longer 
pursuing this claim. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 360 
 
 
 Agreement.
723  In light of the views of the parties, and given that nothing in the record would compel 
a different conclusion, we find that the measures in  question are specific subsidies within the meaning 
of Articles 1 and 2 of the SCM Agreement. 
2. May the complainants bring a seri ous prejudice claim against Indonesia ? 
14.156 Article 27 of the SCM Agreement provides si gnificant special and differential treatment for 
developing country Members of the WTO, includi ng with respect to claims of serious prejudice 
arising from subsidies provided by developing c ountry Members.  Thus, Article 27.9 provides that 
Regarding actionable subsidies granted or  maintained by a developing country 
Member other than those referred to in pa ragraph 1 of Article 6, action may not be 
authorized or taken pursuant to Article 7 unless nullification or impairment of tariff 
concessions or other obligations under GA TT 1994 is found to exist as a result of 
such subsidy, in such a way as to displace or  impede imports of a like product into the 
market of the subsidizing de veloping country Member or unless injury to a domestic 
industry in the market of an importing Member occurs.  
In other words, Article 27.9 provides that, in the usual case , developing country Members may not  be 
subject to a claim that their actionable subsidies have caused serious prejudice to the interests of 
another Member.  Rather, a Member may only brin g a claim that benefits under GATT have been 
nullified or impaired by a developing country Member's  subsidies or that subs idized imports into the 
complaining Member have caused in jury to a domestic industry.  
14.157 The complainants do not contest that Indon esia is a developing country Member entitled to 
the special and differential treatment provided by Artic le 27.9.  Rather, they contend that Article 27.9 
is not applicable in this case because the subs idies in question fall under the provisions of 
Article 6.1(a),  i.e., that the ad valorem  subsidization of the Timor exceeds 5 per cent.  The European 
Communities  further contend, in the alternative,  that the subsidies fall under the provisions of 
Article 6.1(a) because, pursuant to Annex IV:4 to the Agreement, PT TPN is in a start-up situation 
and the overall rate of subsidizati on exceeds 15 per cent of the total funds invested.  Accordingly, the 
complainants consider that they are authorized under Article 27.8 to bring a serious prejudice claim. 
14.158 We agree that Article 27.8 allows a WTO Member to bring a serious prejudice claim with 
respect to subsidies provided by a developing co untry Member which fall within the scope of 
Article 6.1.  Article 27.8 provides that: 
There shall be no presumption in terms of paragraph 1 of Article 6 that a subsidy 
granted by a developing country Member resu lts in serious prejudice, as defined in 
this Agreement.  Such serious prejudi ce, where applicable under the terms of 
paragraph 9, shall be demonstrated by positive evidence, in accordance with the 
provisions of paragraphs 3 through 8 of Article 6. 
In other words, while a subsidy falling within the terms of Article 6.1 generally is presumed to cause 
serious prejudice to the interests of another Member, that presumption is not applicable where the 
subsidizing country is a developing country Member.  Instead, while such a subsidy by a developing 
country Member may be subject to a serious prejudi ce challenge, a complainant does not benefit from 
                                                      
723 See Section VIII:A of the Descriptive Part.  Th e European Communities and the United States also 
consider the subsidies to be specific on  the grounds that they ar e in fact made available to a single enterprise 
within a single sector.      WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 361 
 
 
 a presumption of serious prejudice; rather, a complainant must demonstrate the existence of serious 
prejudice by positive evidence.  
14.159 The question remains whether the subsidi zation challenged in this dispute satisfies the 
requirements of Article 6.1(a).  That provision states that "[s]erious prejudice sh all be deemed to exist 
in the case of . . . the total ad valorem  subsidization
14 of a product exceeding five per cent . . . ."  
Footnote 14 states that "[t]he total  ad valorem  subsidization shall be calculated in accordance with  
the provisions of Annex IV."  That Annex, in turn, sets forth a number of principles to be applied in calculating the total ad valorem  subsidization for purposes of Article 6.1(a).  Among the provisions of 
Annex IV is a special rule that, "[w]here the recipien t firm is in a start-up situation, serious prejudice 
shall be deemed to exist if the overall rate of s ubsidization exceeds 15 per cent of the funds invested." 
14.160 In their first submissions, both the Euro pean Communities and the United States submitted a 
number of calculations intended to de monstrate that the terms of Article 6.1(a) were satisfied in this 
case.  Thus, the European Communities provided calculations indicating that the ad valorem  
subsidization of Timors assembled in Indon esia ranged from 40 to 61 per cent, while the ad valorem  
subsidization of Timors imported from Korea ranged from 156 to 460 per cent.  In the alternative, the 
European Communities calculate that, if PT TPN is in  a start-up period, Article 6.1(a) applies because 
the overall rate of subsidization (219-225 per cent) exceeds 15 per cent of the total funds invested.  
The US  calculations, excluding the alleged $690 million loan found to be outside our terms of 
reference, indicate a rate of subsidization for Timors imported from Korea of between 54 and 166 per 
cent (depending on whether the import duty exemption on the Timors imported from Korea was 
expended in the year of receipt or allocated over a number of years), while the rate of subsidization 
for Timors assembled in Indonesia would be 49.37 per cent in 1998 and 44.65 per cent in 1999.  The United States considered that the start-up provisions of  Annex IV were not applicable in this case.     
14.161 The calculations provided by the Europ ean Communities and the United States present a 
variety of issues under Article 6.1(a) and Annex IV.  However, we do not need in this case to 
calculate the precise level of ad valorem  subsidization.  Rather, we need only determine whether the 
ad valorem  rate of subsidization exceeds 5 per cent.  This question is not in dispute here, since 
Indonesia calculates  that the ad valorem  subsidization conferred by the exemption from the luxury 
sales tax alone is 29.54 per cent for Timors imported from Korea, 26.20 per cent for Timors assembled at the Tambun plant, and 18.68 per cent for Timors to be assembled at the Karawang plant.  
Thus, the parties concur that the ad valorem  subsidization exceeds 5 pe r cent.  We do not see any 
basis to disagree with the parties that the ad valorem  subsidization is in excess of 5 per cent.  To the 
contrary, given that the luxury sales tax from which Timors are exempted is itself 35 per cent of the 
cost of the cars sold, it would appear inevitable that the ad valorem  subsidization resulting from such 
an exemption would exceed 5 per cent by any reasonable calculation. 
14.162 For the foregoing reasons, we find that the complainants are not precluded by Article 27 from 
seeking to demonstrate, by positive evidence, that  Indonesia has caused, through the effects of the 
subsidies at issue in this case, ser ious prejudice to their interests.
724 
3. Like product analysis  
14.163 As we have seen, both the European Comm unities and the United States claim that Indonesia 
has caused, through the subsidies provided under the National Car programme, serious prejudice to their interests.  They further allege that this  serious prejudice arises both from displacement or 
                                                     
 
724 Indonesia has also expressed the view that developing country Member subsidies are subject to a 
serious prejudice claim by vi rtue of the fact that they fall within the terms of Article 3.1(b) of the SCM 
Agreement.  In light of the foregoing finding, we do not need to address that issue.     WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 362 
 
 
 impedance  of their exports of passenger cars to  Indonesia and through significant price undercutting 
of their passenger cars by the subsidi zed Timor in the Indonesian market. 
14.164 Article 6.3 provides in relevant parts as follows:      Serious prejudice in the sense of paragraph (c) may arise in any case 
where one or several of the following may apply: 
 (a) the effect of the subsidy is to displace or impede the 
exports of a like product of another Member into the 
Market of the subsidizing Member; 
   ............. 
  (c) the effect of the subsidy is a significant price 
undercutting by the subsidized product as compared with the price of a like product  of another Member  
in the same market or significant price suppression, price depression or lost sales in the same market; 
   .............. (emphasis added). 
It is clear from the text of Article 6.3 that any an alysis of displacement or impedance or of price 
undercutting must focus on the effects of  the subsidy vis à vis the  like product
 to the subsidized 
product.  In this case, the European Communities and the United States have alleged that the subsidies 
in question are conferred on the Timor.  Accordingl y, our analysis of the effects of these subsidies 
must be performed in relation to their effects on pr oducts which are "like products" to that passenger 
car. 
(a) Types of Cars  
14.165 The first "like product" issue presented by th is dispute is which EC and US motor vehicles 
sold in Indonesia, if any, can properly be consid ered to be "like products" to the Timor within the 
meaning of the SCM Agreement.  The parties ha ve presented differing views as to how broadly or 
narrowly the concept of "like product" should be applied in this dispute.     
14.166 The European Communities assert that all motor vehicles falling within the category of 
"passenger cars" constitute a single category of "like product" for the purposes of the SCM 
Agreement, given that they all share the same basi c characteristics and serve an identical end-use.  
The European Communities contend that there are virtually limitless variations with respect to 
passenger cars, and that any effort to divide p assenger cars into two or more "like products" would 
inevitably yield arbitrary results because the Pa nel would be required e ither to choose among the 
criteria or to apply several criteria simultaneously.  Further, the European Communities point out that 
there are continua of products with respect to many of these criteria, and drawing lines along those 
continua would be arbitrary regardless of where the lines were drawn.  The European Communities 
argue in the alternative that, at the very least, the Opel Optima and Peugeot 306 must be considered to 
be "like" the Timor because, wh ile not identical, they have physi cal characteristics which closely 
resemble those of the Timor. 
14.167 The US approach to "like product" is narrower than that proposed by the European 
Communities.  The United States contends that four US  passenger cars sold or planned to be sold in 
Indonesia -- the Opel Vectra and Op tima, the Ford Escort and the Chrysler Neon -- are "like products"  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 363 
 
 
 to the Timor.  In support of this conclusion, the United States contends that these products have 
similar end-uses (to  transport passengers) and that, because the physical characteristics of these cars 
(e.g., size, weight, height, engine size) are similar or  virtually identical to those of the Timor, they 
"closely resemble" that car.  In support of its c onclusions, the United States cites what it considers to 
be highly authoritative market segmentation analysis applied by the DRI Global Automotive Group 
and reflected in a number  of DRI publications excerpts of which have been placed before the Panel,
725 under which the Timor, Optima, Escort and Neon are all classified as Segment C (Lower 
Medium Segment) passenger cars, while the Vectra is classified as Segment D (Upper Medium Segment) passenger cars. 
14.168 Indonesia takes issue with both the EC and US approaches to the "like product" question.  
Indonesia considers that, because an affirmative finding of serious prejudice would deprive Indonesia of a conditional right to provide subsidies, the concept of "like product" must be very narrowly 
construed, and that the burden of proof on complainan ts is particularly high.  Indonesia argues that the 
complainants have not met their burden of proving that products are like and of establishing 
acceptable like product categories.  Indonesia does not app ear to take issue with the principle that the 
analysis should be limited to passenger cars.  Howe ver, it notes that while all passenger cars share  
certain basic characteristics, they are still highly di fferentiated on the basis of numerous other physical 
and non-physical characteristics and thus should not be treated as "like".  In this case, Indonesia argues, because the Timor is highly differentia ted from US and EC models and is thus non-
substitutable, those products cannot be considered to be like products to the Timor.   Rather, Indonesia 
considers that the Timor and the Bimantara Cakra are in a market segment by themselves, "small 
budget" cars, while even the US and EC cars closes t to the Timor are in the "small normal/regular" 
market segment. 
14.169 In assessing the arguments of the parties, we are cognizant that the complainants are required 
to demonstrate the existence of serious prejudice by  positive evidence.  Thus, we agree with Indonesia 
that the complainants bear the burden of presen ting argument and evidence with respect to each 
element of their serious prejudice claims -- including the existence of effects on a "like product".  This 
is  consistent with the general princi ple, stated by the Appellate Body in Shirts and Blouses , that 
complainants must present evidence and argumen t sufficient to establish a presumption that a 
defending Member has acted in a manner in consistent with its WTO obligations.
726  We do not agree, 
however, that the complainants bear  a heavier than usual burden of proof in this dispute or that the 
concept of "like product" should be interpreted more narrowly than usual because Indonesia is a 
developing country Member.  The special and differe ntial treatment available to Indonesia is spelled 
out in Article 27 of the SCM Agreement, and it is s ubstantial.  But for that special and differential 
treatment, the subsidies in question would by Indonesia's own admission be prohibited under Article 3.1(b) of the SCM Agreement.  More over, because Indonesia is a developing country 
Member, Article 27.8 requires complainants to demo nstrate serious prejudice by positive evidence "in 
accordance with the provisions of para graphs 3 through 8 of Article 6" rather th an taking advantage of 
the rebuttable presumption of serious prejudi ce that otherwise would have applied under 
Article 6.1(a).  Article 27 does not, however, impos e a higher burden of proof on complainants than 
that normally applicable under Article 6, nor does it provide that the term "like product" is to be 
defined differently in the case of subsidizati on provided by a developing country Member. 
                                                     
 
725 Asian Automotive Industry Forecast Report of June 1997; World Car Industry Forecast Report of 
February 1997 .  
726 Shirts and Blouses , op. cit., Appellate Body Report, p. 13.  WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 364 
 
 
 14.170 Turning now to an analysis of the issue at ha nd, we note that the term "like product" is used in 
a variety of contexts within the WTO Agreement.
727  As it is used in most cases, the term is not 
defined, and numerous GATT and WTO panels have been required to a pply the term to particular  
factual situations.  The SCM Agreement, however, shares with the Agreement on Implementation of 
Article VI of GATT 1994 (ADP Agreement) a definition of the term "like product" that is not found 
elsewhere in the WTO Agreement.  Note 46 to Article 5.1 of the SCM Agreement provides that: 
Throughout this Agreement the term "like product" (produit 
similaire") shall be interpreted to  mean a product which is identical, 
i.e. alike in all respects to the product under consideration, or in the 
absence of such a product, another product which, although not alike 
in all respects, has characteristics closely resembling those of the product under consideration. 
Although this definition appears in Part V of  the SCM Agreement (relating to countervailing 
measures), the use of the clause "throughout this Agreement" makes clear that this definition is 
equally applicable to the provisions of Part III, including Article 6 relating to adverse effects.   
14.171 The definition of "like product" found in the SCM Agreement first a ppeared in the Kennedy 
Round Anti-Dumping Agreement
728 and, in spite of proposals for modifications during various 
negotiations, was carried virtually unchanged in to the Tokyo Round Anti-Dumping and Subsidies 
Codes729 and hence into the WTO SCM and ADP Agreements.  Thus, the definition of "like product" 
applicable in this dispute has existed for thirty years.   In light of this, and in spite of the fact that 
investigating authorities in anti-dumping and count ervailing duty cases have been wrestling with the 
concept of "like  product" for decades, it is surp rising that no GATT or WTO panel has yet been 
required to apply this definition of "like product" to particular facts, or even to provide any detailed 
discussion regarding the meaning of the term or its cl arification.  Thus, we are operating in uncharted 
territory in our consideration of this issue. 
14.172 In determining what criteria might be releva nt to performing "like product" analysis under the 
SCM Agreement, our point of departure must of cour se be the text of the SCM Agreement.  In this 
case, no party has argued that there is an "identic al" product that should be treated as the "like  
product" to the Timor.  Rather, the parties ha ve focused on the question of which cars have 
"characteristics closely resembling" those of the Timor. On its face, this term is quite narrow.  It is not 
enough that the products have characteristics which resemble the Timor; rather they must have 
characteristics which "closely" resemble the Timor.  The parties have identified a wide range of 
physical  characteristics which they consider may be relevant to this analysis.  In addition, Indonesia 
considers certain "non-physical" characteristics, cons umer perceptions and preferences to be relevant 
                                                      
727 For example, Articles I and III of GATT.  Article I:1: " . . . any advantage, favour, privilege or 
immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of 
all other contracting parties."  Article III:2: "The products  of the territory of any other contracting party shall not 
be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products."   Article III:4: "The products of the territory of any 
contracting party imported into the territory of any ot her contracting party shall be accorded treatment no less 
favourable than that accorded to like products of national origin . . . " 
728 Kennedy Round Agreement on Implementation of Article VI of the General Agreement on Tariffs 
and Trade, Article I.A(b). 
729 Tokyo Round Agreement on Implementation of Artic le VI of the General Agreement on Tariffs and 
Trade, Article 2.2; Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General 
Agreement on Tariffs and Trade, note 18 to Article 6.   WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 365 
 
 
 to the analysis.  Further, there ha ve been references to the uses to which a product may be put, to the 
substitutability of products, to price and to tariff classification principles. 
14.173 In our view, the analysis as to which cars ha ve "characteristics closely resembling" those of 
the Timor logically must include as an important element the physical characteristics of the cars in 
question.  This is especially the case because many of the other possible criteria identified by the 
parties are closely related to the physical characteris tics of the cars in question.  Thus, factors such as 
brand loyalty, brand image/reputation,  status and resale value reflect, at least in part, an assessment by 
purchasers of the physical characteristics of the cars being purchased.  Although it is possible that products that are physically very different can be put to the same uses, di fferences in uses generally 
arise out of, and assist in assessing the importance of , different physical characteristics of products. 
Similarly, the extent to which products are substituta ble may also be determined in substantial part by 
their physical characteristics.  Price differences also may (but will not necessarily) reflect physical 
differences in products.  An analysis of tariff classification principles may be useful because it provides guidance as to which physical distinctions between products were considered significant by 
Customs  experts.  However, we do not see that  the SCM Agreement precludes us from looking at 
criteria other than physical characteristics, where relevant to the like product analysis.  The term 
"characteristics closely resembling" in its ordinary meaning includes but is not limited to physical characteristics, and we see nothing in the context or object and purpose of the SCM Agreement that 
would dictate a different conclusion.
730 
14.174 Although we are required in this dispute to interpret the term "like product" in conformity 
with the specific definition provided in the SCM Agreement, we believe that useful guidance can 
nevertheless be derived from prior analysis of "like product" issues under other provisions of the 
WTO Agreement.  Thus, we note the statement of the Appellate Body in Alcoholic Beverages 
(1996)731 that, in this context as in any other, the issu e of "like product" must be considered on a case-
by-case basis, that in applying relevant criteria pa nels can only use their best judgement regarding 
whether in fact products are like, and that this  will always involve an unavoidable element of 
individual, discretionary  judgement.  With this in  mind, we now proceed to consider the application 
of these general principles to the case at hand. 
14.175 Turning first to the argument of the Eur opean Communities that all passenger cars should be 
considered "like products" to the Timo r, we consider that such a broa d approach is not appropriate in 
this case.  While it is true that all passenger cars "s hare the same basic physical characteristics and 
share an identical end-use", we agree with Indon esia that passenger cars are highly differentiated 
products.  Although the European Communities have  not provided the Panel with information 
regarding the range of physical characteristics of passenger cars, all drivers know that passenger cars 
may differ greatly in terms of size, weight, engine power, technology, and features.  The significance 
of these extensive physical differences, both in terms of the cost of producing the cars and in 
consumer perceptions regarding them, is manifested  in huge differences in price between brands and 
models.  It is evident that the differences, both physical and non-physical, between a Rolls Royce and 
a Timor are enormous, and that the degree of substitu tability between them is very low.  Viewed from 
the perspective of the SCM Agreement, it is almost  inconceivable that a subsidy for Timors could 
displace  or impede imports of Rolls Royces, or that any meaningful analysis of price undercutting 
                                                      
730 This interpretation is confirmed by the negotiating history of this definition. As noted above, this 
definition of "like product" is virtually unchanged from that which first appeared in the Kennedy Round Anti-Dumping Code.  Thus, the penultimate draft of that Code defined the term "like product" to mean a product 
which "has physical characteristics close to those of the exported product."  T.64/NAB/W/16, dated 3 March 
1967.  In the revised draft of 28 March 1967, the word "physical" had been deleted from the text, which was revised to the formulation ("characteristics closely resembling") that exists today.  T.64/NAB/W/17. 
731 Op. cit., pp. 19-23.  WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 366 
 
 
 could be performed between these two models.  In s hort, we do not consider that a Rolls Royce can 
reasonably be considered to have "characteristics closely resembling" those of the Timor.   
14.176 The European Communities contend that we mu st consider all passenger cars to be "like" 
because any effort to differentiate  between passenger cars with a multitude of differing characteristics 
would inevitably result in arbitrary divisions.  We  are aware that there are innumerable differences 
among passenger cars and that the identification of appropriate dividing lines between them may not 
be a simple task.  However, this does not in our vi ew justify lumping all such  products together where 
the differences among the products are so dramatic.  The parties to this dispute have submitted 
substantial data regarding a wide range of charact eristics of the Timor and of the models that the 
European Communities and United States consider to  be like products to the Timor.  We must 
endeavour to find some reasonable way to assess the relative importance of the various differences in 
the minds of consumers and to devise some sensible means to categorize passenger cars. 
14.177 One reasonable way for this panel to approach   the "like product" issue is to look at the 
manner in which the automotive industry itself has an alyzed market segmentation.  The United States 
and the European Communities have submitted in formation regarding the market segmentation 
approach taken  by DRI's Global Automotive Group, a company whose clients include all major auto 
manufacturers, including KIA, PT TPN's national car partner.  DRI's Asian Automotive Industry 
Forecast Report of June 1997  ("Asian Forecast ") divides passenger cars into five segments: Small 
Cars Segment  (Segment A), Supercompact Segment (Segment B), Lower Medium Segment 
(Segment C), Upper Medium Segment (Segment D) and Executive Segment (Segment E).  Three of 
those segments (C to E) are divided into subsegments 1 (lower end) and 2 (upper end).  While the 
Asian Forecast  does not identify the Timor, it does indicate that the Kia Sephia -- Timor's parent car -
- falls within the C1 Segment (low er end of Lower Medium Segment).
732  The Asian Forecast  also 
places the Optima and the 306 in the C1 Segment, while the Vectra is placed in the D1 (lower end of 
Upper Medium Segment).  The Escort and Ne on are not identified in the portion of the Asian 
Forecast  (Table 6 relating to sales in Indonesia) befo re the Panel, presumably because they are not 
sold in Indonesia.  However, market  segmentation data from DRI's World Car Industry Forecast 
Report of February 1997  ("World Forecast "), which appears to follows the same market segmentation 
approach as the Asian Forecast , places the Escort in the C1 Segm ent, while it places the Neon in the 
C2 Segment (upper end of Lower Medium Segment). 
14.178 The question remains whether the criteria used by DRI in arri ving at its market segmentation 
are appropriate to a "like product" analysis under th e SCM Agreement.  We consider that they are.  
The Asian Forecast  indicates that: 
DRI's segmentation of passenger car demand is designed to identify 
sets of products which car consum ers recognize as falling within 
competing categories.  No single vehicle attribute defines any 
segment;  rather the categorization is subjective, combining 
judgements on several items of vehicle specifications and purchaser perceptions.  In choosing five market segments, we have sought to identify five product types of appeal to different customers.   
The World Forecast  provides some further explanation regard ing DRI's market segmentation analysis.  
It states that: 
                                                     
 
732 DRI identifies models sold in the Indonesian market by the more common model names used in 
other markets.  However, it is clear from the sales data provided by DRI that the "Sephias" referred to in the 
Asian Forecast  are in fact Timors imported from Korea or assembled in Indonesia.    WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 367 
 
 
 This segmentation is effectively a hybrid in product space terms.  
This can be designed as a vector in vehicle size and price/market position.  To identify the vehicle market position a little more clearly we have subdivided the segments C to  E into lower end (1) and upper 
end (2).  
Thus, DRI has in its analysis considered the physi cal characteristics of the cars in question when 
designing its segmentation.  It has used as an init ial filter the size of the vehicle, but it has then 
divided cars of a given size into upper and lower end categories, and has moved luxury cars, regardless of size, from lower segments to the E seg ment.  We consider such an approach, which 
segments the market based on a combination of size and price/market position, to be a sensible one 
which is consistent with the criteria relevant to  "like product" analysis under the SCM Agreement. 
14.179 Indonesia notes that "like product" analysis ma y depend upon the market in question, and that 
DRI's segmentation analysis was developed for the European market.  Indone sia further argues that 
the Timor sold in Indonesia is not in fact identical to the Kia Sephia, but is rather an older model of 
the Sephia with a smaller engine and fewer featur es than the new Sephia.  In support of this 
proposition, it points to a US exhib it indicating that Sephia models so ld in the United States beginning 
in 1996 had a larger 1.8 litre engine and new features such as an improved suspension and airbags.  Indonesia also submitted data showing that the Se phia sold in the United States weighs from 68 to 
103 kg. more than the Timor S-515.  Indonesia h as not presented any evidence regarding the size of 
the engine for Sephias sold in Europe, so the implic ations of this evidence for the validity of DRI's 
market segmentation analysis are unclear.
733  It does not appear, however , that DRI considered these 
differences sufficiently important to merit classi fying the Timor sold in the Indonesian market 
differently from the Sephia sold in other markets.  Further, DRI apparently considers its segmentation 
analysis to be applicable to the Asian market genera lly and to the Indonesian market in particular, as it 
applies that analysis in the Asian Forecast . 
14.180 Indonesia further objects that the complainan ts have not submitted the full text of the Asian 
Forecast , and that the Panel should draw adverse infere nces from this fact.  However, the materials 
provided by the complainants appear to include that  portion of the Asian Report relating to market  
segmentation, and Indonesia has not given the panel an y reason to believe that relevant portions of the 
Asian Forecast  have been excluded.  Further, because the Asian Forecast  is not a document to which 
the complainants can control access, resort to ad verse inferences would not appear appropriate.  
Finally,  Indonesia objects that the DRI approach is limited solely to physical dimensions, and fails to 
consider other physical characteristics much less "a ctual market forces or competition."  As indicated 
by our discussion, however, Indonesia's argument on this score appears to be factually incorrect. 
14.181 In our view, the DRI market segmentati on analysis presented by the European Communities 
and the United States supports the view that all vehicles in the C1 Segment -- including the 306, 
Optima and Escort -- are "like products" to the Timo r within the meaning of the SCM Agreement.  By 
contrast, the DRI analysis places the Vectra and the Neon in different market segments (D1 and C2 respectively), and this in our view weakens the complainants' view that these products should be 
                                                     
 
733 The United States placed into the record a num ber of articles from US publications (the Washington 
Post, New York Times  and Car and Driver  magazine) suggesting that the Neon and the Sephia were competing 
in the same market segment  in the United States, wh ile Indonesia identified a publication (Automotive News) 
placing the Sephia in a separate class (budget) from that of the Neon and Escort (small).  None of these articles provided any explanation for the market segmentation selected.  In this context, we take note of evidence 
submitted by Indonesia regarding differences between th e Sephia sold in the United States and the Timor. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 368 
 
 
 considered to be "like" the Timor.
734  The complainants have not provided any explanation as to why 
the Panel should  consider DRI's market segment ation relevant yet overlook that segmentation where 
it is unfavourable to them.  To the contrary, the United States' argument regarding the Vectra in 
particular damns with faint praise.  The United St ates concedes that the Vectra "is positioned slightly 
higher in the market than the Timor", that it is longer and has a more  powerful engine.  The 
United States maintains only that the Vectra "is not  all that dissimilar" to the Timor, a test which 
would appear to fall short of the SCM Agreement's definition. 
14.182 While the DRI market segmentation analysis is useful, we are not prepared to rely on it 
without confirming, through an independent comparison of their physical characteristics, that the EC 
and US models in question are "like" the Timor.   The European Communiti es, the United States and 
Indonesia have all provided the Panel with detailed comparative information regarding the physical 
characteristics and performance of the models at issue.   This information vari es in some details, and it 
is not always clear which versions of partic ular models are being compared with which.735  
Nevertheless, the information befo re us generally provides a good overview of the similarities and 
differences between the models in question.  Ho wever, the parties have sometimes chosen to 
emphasize different physical characteristics and feat ures or to characterize differently the significance 
of the differences that exist.  In testing the DRI market segmentation approach, therefore, we will 
outline the Indonesian view of market segmentation in  Indonesia and then test that view against the 
physical characteristics and other  criteri a identified by Indonesia as significant. 
14.183 Indonesia's argument is that  the Timor is a "low-technology no-frills budget car" which fills a 
unique niche at the bottom of the Indonesian mark et.  Indonesia contends that a proper market 
segmentation for passenger cars would divide those car s into three classifications -- small, medium 
and large -- and that each of the classifications in turn should be divided into a budget, normal/regular 
and luxury categories.  Indonesia contends that the Timor and one other model (the Bimantara Cakra) 
are alone in the budget small car category.736  It considers that all of the specific EC and US models 
sold in Indonesia which are alleged to be "like" the Timor belong in a different category, that of small 
normal/regular cars. 
14.184 Indonesia's analysis begins with a comparison of various physical features of the Timor with 
those of other models -- Escort, 306, Optima, Vectra , Neon -- specifically alleged by complainants to 
be "like products" to the Timor.  Indonesia contends  that there are four basic physical characteristics 
or specification groupings that differentiate pass enger cars: passenger compartment, power plant, 
steering  and suspension and safety features.  Indonesi a considers that an examination of these four 
specification groupings demonstrates that the five mode ls identified above are not like products to the 
Timor.  We will examine each set of specification groupings in turn. 
14.185 With respect to passenger compartment, In donesia considers that the relevant aspects are 
interior dimensions and number of passengers.  Indonesia acknowledges that the Timor, Escort, 306, 
Optima and Neon are comparable in this regard.  However, Indonesia contends (and the complainants 
have not contested) that the Vectra has a subs tantially larger interior and accommodates five 
passengers as opposed to four p assengers for the other models.  
                                                      
734 Neither the European Communities nor the United States sell any B Segment cars in the Indonesian 
market, and we have not been asked to decide whether such cars are like products to the Timor for the purposes 
of the SCM Agreement. 
735 The submissions of the parties refer to at least two versions of the Timor (S-515 and S-515i), three 
versions of the Optima (GLS, CDX and CDX A-BAG) and two versions of the 306 (M/T and A/T). 
736 According to the European Communities, th e Cakra is a rebadged Hyundai Accent.   WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 369 
 
 
 14.186 With respect to power plant, the engine capacity of the Timor is 1498 cc.  That of the other 
five models, in ascending order, are the Esco rt (1597 cc), 306 (1761 cc), Optima (1796 cc), Neon 
(1996 cc) and Vectra (1998 cc).  Thus, the Timor does in  fact have the smallest engine of the group.  
On the other hand, the record indicates the Timor ha s a sixteen-valve engine, and at least one of the 
Timor models sold in Indonesia (the Timor S-515i)
737 has a dual overhead cam engine.  The other 
models all have single overhead cam engines, and the 306 and Optima have only an eight-valve engine.  According to data submitted by the par ties, while the power output of the Timor S-515 is 
58kw/5500rpm, that of the Timor S-515i is 77kw/5500rpm, as opposed to 66 kw/5400 rpm for the Optima, 70kw/6000 rpm for the 306, 75kw/5500 rpm fo r the Escort, 85 kw/5400 rpm for the Vectra, 
and 97kw/6000rpm for the Neon.
738  Accordingly, it would appear that the engine of the Timor S-515i 
is actually more powerful than those of the Optima , 306 and Escort, but somewhat less powerful than 
those of the Vectra and Neon. 
14.187 With regard to steering and suspension, I ndonesia differentiates between the Timor and the 
Escort, Vectra and Optima on the grounds that the latter three have power steering.  However, sales 
brochures for the Timor indicate that it has power steering as a standard feature, while the United 
States contends that the Escort has power steering as  an option only.  Thus, it would appear that with 
respect to this feature the Timor may actually be more advanced than the 306 and Neon.  Regarding 
suspension, although Indonesia's summary table sugg ests that there are differences between the Timor 
and all of the models compared to it, the detailed information supplied by Indonesia shows that all of 
the models have identical suspension:  in the fr ont "Independent MacPherson strut", and in the rear 
"fully independent multi-linked".739 
14.188 With respect to "safety features", Indonesia identifies the braking sy stem, fuel tank capacity 
and mileage, curb weight and passive restraints as  relevant features.  With respect to the braking 
system, all models would appear to have front disc and rear drum brakes.  The Vectra has ABS, and it appears that some models of the Optima and 306 ma y also have ABS, while the Timor and Escort do 
not (the Neon offers ABS as an option).  The fuel  tank capacity, in ascending order, is:  Timor (50 
litres), Optima (52 litres), Escort (55 litres), Neon (57 litres), 306 (60 litres), and Vectra (61 litres).  
Data regarding fuel efficiency were unavailable for most models.  The models weigh in at the 
following: Optima (980 kg), Timor (1055 kg), 306 (1100 kg), Neon (1102 kg), Escort (1110 kg) and Vectra (1150 kg).  Documentation submitted by I ndonesia shows that all models, except the Timor 
and 306, have airbags; however, the United States indi cated that the Indonesian version of the Escort 
would not have been equipped with airbags, wh ile documentation from the European Communities 
indicates that one Optima model has a single airbag while another does not. 
14.189 In our view, the data provided by the parti es tend to confirm the market segmentation analysis 
of DRI.  Even limiting ourselves to those features on which Indonesia has chosen to focus, the Timor 
does not appear to be notably inferior to the 306, Optima or Escort, and in fact in some respects may 
be superior to those models.   With respect to the Vectra, on the other hand, the superiority seems  
relatively clear -- the Vectra is th e heaviest passenger car in the gr oup (95 kgs more than the Timor), 
                                                     
 
737 Indonesia states in the Annex V process that the authorization to import the Timor from Korea 
applied both to the Timor S-515 and the S-515i and that the S-515i was the only national car produced in 
Indonesia.  Thus, it is clear that at least some -- and perhaps most -- of the Timors to be sold in Indonesia are in fact the S-515i model.  
738 While in its rebuttal submission, Indonesia indicated that the Optima's engine generated 
66kw/5400rpm, at another point it indicated that the Optima had a power of 87.3/5400rpm.  It would appear to the Panel, however, that the 66kw/ 5400rpm is the correct figure.    
739 Indonesia's summary table mentions differences in tyre size in the context of "steering and 
suspension".  It is not clear that tyre size is related to suspension, or is otherwise an important factor in defining 
the like product.  Moreover, Indonesia's detailed table tr eats tyre size as a separate feature, unrelated to 
suspension. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 370 
 
 
 shares honours with the Neon for the largest engine (roughly 500 cc larger than the Timor's), is the 
only one of the vehicles identified as appropriate fo r 5 passengers, and has all the features identified 
by Indonesia (power steering, ABS, airbags).  Th e case of the Neon is intermediate: it is heavier and 
has a larger engine than the Timor and most of the other models in question, but it is not notably 
better equipped than the Timor in other respects.  Thus, the data fit well with DRI's assessment that 
the Vectra is in a distinct market segment from the Timor while the Neon is in the upper end of the 
same market segment as the Timor. 
14.190 A number of other factors combine to sugg est that the Timor in fact belongs in the C 
Segment.  First, according to DRI's World Forecast , Kia -- producer of the Sephia, parent car to the 
Timor --produces and sells in the Korean market a range of passenger cars, including entrants in 
Segments A (Morning) and B (Avella and Pride).  Further, contrary to Indonesia's contention, DRI 
data show that several passenger cars classified by DRI in the B Segment (Suzuki Baleno, Toyota 
Starlet) are currently sold in the Indonesian market, and several others (Daihatsu Charade, Maleo 
Maleo) were sold in the Indonesian market as re cently as 1996.  We note that these B Segment cars 
would appear to be significantly smaller and, on the whole, less powerful than the Timor.
740   This 
undercuts  Indonesia's arguments that the Timor and the Bimantara Cakra are in a class by themselves at the bottom of the Indonesian market. 
14.191 In addition to comparing physical characteri stics, Indonesia argues that the Timor differs from 
the other models alleged to be "like products" in te rms of a variety of non-physical characteristics.  
Although Indonesia does not clearly identify which characteristics it considers to be non-physical, 
among the factors listed by Indonesia which arguably are not "physical characteristics" are brand 
loyalty, brand image/reputation, status, after-sal es service and resale value.  However, the only 
evidence cited by Indonesia in support of its view  that the Timor should be distinguished from the 
other models in question on these bases is a single sentence in a newspaper article submitted as an 
exhibit by the United States, stating that "dealer s say consumers ask a lot of questions about the 
quality of the Timor and the after-sales service."
741  Further, it is by no means clear that the models 
alleged to be "like" the Timor would necessarily fare  any better than the Timor with respect to these 
factors.  For example, Ford and Chrysler do not have a well-established bra nd in Indonesia, while 
sales of Peugeots and Opels have also been relatively small.  In short, Indonesia has provided almost 
no evidentiary support for its view that there are differences in non-physical characteristics which are 
important to this analysis. 
14.192 Finally, Indonesia seems to suggest that th e Timor's low price places it into a special market 
niche and thus renders it "unlike" the more expens ive US and EC models.  We do not preclude that 
price might be a relevant consider ation in performing "like product"  analysis, particularly where  
differences in price represent one way to assess the relative importance of differing physical characteristics to consumers.  In this case, however , the complainants allege that the Timor is being 
sold at undercutting prices as a result of subsidization.  If we were to conclude that the low price of  
the Timor in the Indonesian market were to render the Timor "unlike" other models which are similar 
in physical characteristics to the Timor but priced higher, the result would be that, in cases where the 
subsidization and resulting price undercutting were sufficiently high, price undercutting claims under 
Article 6 could never prevail.  T hus, we do not consider that the Timor's lower price is a basis to 
conclude that it is unlike the models alleged by  the complainants to be "like" the Timor. 
                                                     
 
740 It appears that the car identified by Indonesia as the Daihatsu G102 series is a rebadged Charade.  
According to figures supplied by Indonesia, the Starlet, Charade and Baleno weigh 725 kg, 845 kg and 965 kg 
(as opposed to 1055 kg for the Timor), and have engines generating 53, 56 and 87 kw respectively.  The Timor S-515i generates 77 kw. 
741 Indonesia's national-car plan sputters under gaze of WTO , in Nikkei Weekly, 17 November 1997.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 371 
 
 
 14.193 In conclusion, we consider that the Optima,  Escort and 306 are "like products" to the Timor 
within the meaning of the SCM Agreement.  The Vectra , in contrast, is not a like product to the Timor 
within the meaning of the SCM Agreement.  With r espect to the Neon, the issue is more difficult.  
That model is not categorized in a different segment by DRI but is in the higher end of the C segment, 
and although it is larger and more powerful than the Timor, does not have the clear superiority in its 
features demonstrated by the Vectra.  Thus, for th e purposes of our further analysis, we will assume  
arguendo  that the Neon is a like product to the Timor. 
(b)  Treatment of Cars Imported Unassembled
 
14.194 Indonesia maintains a duty of 200 per cent on imports of passenger cars, and as a result 
imports of CBU passenger cars (that is, completely-bu ilt-up cars) into Indonesia are very small.  In 
fact, almost all passenger cars imported into Indonesia, including the 306 and the Optima, are 
imported as CKD (completely knocked-down) kits and assembled in Indonesia.  The complainants 
have stated that the Escort and Neon would have been imported in CKD kit form and assembled in 
Indonesia as well.  Article 6.3 provides that serious prejudice may arise where the effect of the 
subsidy is "to displace or impede the imports of a like product of another Member into the market of 
the subsidizing Member" or is "a significant price undercutting by the subsidized product as compared 
with the price of a like product of another Member."  Thus, in the context of a displacement or impedance claim, the question arises whether imports of CKD kits are "imports of a like product [to the Timor] of another Member"  where the fina l passenger car assembled in Indonesia is a "like 
product" to the Timor.  In the case of price underc utting, the related question is whether a passenger 
car assembled in Indonesia from an imported CKD kit is a "like product of another Member." 
14.195 In response to questions posed by the Panel, the complainants provided the following 
information regarding the form in which thei r passenger cars were imported.  The European 
Communities indicated that virtually all cars were  exported to Indonesia in CKD kits.  These kits 
include "almost all" the parts and components necessary for assembling the cars, the only parts and 
components purchased in Indonesia being low cost universal components such as batteries and tires, 
or accessories such as radios, CD-players and lo udspeakers.  Further, the European Communities 
stated (and Indonesia did not contest) that data pr ovided by Indonesia during consultations indicated 
that the "local content" of EC passenger cars a ssembled in Indonesia ranged from 6.4 to 8.3 per cent 
in 1996 (it is unclear whether Indonesia considered  the Optima to be a US or EC passenger car;  the 
same data indicate that US passenger cars containe d between 7.7 and 11.1 per cent local content in 
1996).
742  The United States indicated that Escorts would have been ordered in groups of 20 vehicles, 
packaged in waterproof, pre-engineered cases.  The CKD kit would have contained "all of the 
individual parts necessary to build a complete Escort, except for locally procured parts and 
components, such as oil and gasoline."  The local content initially would have been well under 20 per 
cent, although Ford planned on increasing that over tim e.  The Neon would have been shipped in lots 
of 72 vehicles, filling 85 boxes.  The items to be s ourced locally would have included such things as 
paint, oil, gasoline and other commodities.  No US  or EC passenger car has achieved the 20 per cent 
local content level required to enjoy lowe r tariffs on imported parts and components. 
14.196 It is not contested by Indonesia that th e CKD kits imported or allegedly planned for 
importation into Indonesia are products "of another Member."  Thus, the issue is whether those kits "have characteristics closely resembling", and are thus  "like", completed Timors.  In this respect we 
note,  first, that the end uses of the imported CKD kits are the same as those of finished passenger cars 
                                                     
 
742 According to Indonesia, "[t]he local content of cars assembled in Indonesia is based on local value 
added . . . . [E]ach part and component is given an average weighted value with reference to a finished car (weight averaged over each car category) .  The level of manufacturing that o ccurs in Indonesia also is factored 
into the local content calculation."    WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 372 
 
 
 (although additional steps are required before that end use is achieved).  Second, given that the local 
content of the CKD kits is quite low, the overwhe lming majority of the components in the CKD kits 
not only closely resemble but are physically identical  to those found in the final product, with the only 
difference being that those compone nts are unassembled rather than assembled.  Thus, the question is 
whether the unassembled components can properly be c onsidered to be "like" the finished product  
assembled from those components, i.e., whethe r the difference between a product assembled and 
unassembled is sufficiently important that the unassembled product does not "closely resemble" the assembled product. 
14.197 We do not consider that an unassembled product ipso facto is not a like product to that 
product assembled.  Recalling the view of the Appellate Body that tariff classification may be a useful 
tool in like product analysis
743, we note that, under the General Ru les for the Interpretation of the 
Harmonized System: 
Any reference in a heading to an ar ticle shall be taken to include a 
reference to that article complete  or unfinished, provided that, as 
presented, the incomplete or un assembled article has the essential 
character of the complete or unfinished article. 
We think that a comparable approach to the relation between assemble d and unassembled products 
makes good sense in the context of this dispute.  It appears that, in order to avoid paying 200 per cent 
duties on CBU passenger cars, EC and US car prod ucers ship to Indonesia virtually complete CKD 
kits that are effectively "cars in a box."   Accordingl y, we believe that they can properly be considered 
to have characteristics closely resembling those of a completed car. 
(c) Products Not Originating in a Complaining Member  
14.198 Before turning to an analysis of adverse e ffects, we must first consider whether the United 
States may claim that it has suffered serious prej udice as a result of displacement/impedance or of 
price undercutting with respect to a product which do es not originate in the United States solely on the 
basis that the producer of that product is a "US company". 
14.199 We have determined that US and EC compan ies sell, or allegedly would be selling but for the 
subsidies provided pursuant to the National Car prog ramme, four passenger car models that are (or, in 
the case of the Neon, may be) "like products" to th e Timor: the Escort, the Optima, the 306 and the 
Neon.  During the course of the proceedings, both  the European Communities and the United States 
asserted that they had suffered serious prejudice as a result of the displacement/impedance and price 
undercutting of the Optima and the Escort.  In res ponse to a question from the Panel, the United States 
confirmed that CKD kits for the Optima were s ourced in the European Communities and that, had 
plans to sell the Escort gone ahead , those CKD kits also would have  been sourced in the European 
Communities.  The United States argues, however, th at the producers of those CKD kits (General 
Motors and Ford) are undeniably US companies, and that serious prejudice to US interests may arise 
as a result of displacement/impedance or price underc utting with respect to their products, wherever 
sourced. 
14.200 In considering this issue, our starting poin t is that both Article XVI of GATT and the SCM 
Agreement are Annex 1A multilateral agreements on trade in goods.  It comes as no surprise, 
therefore that in its discussion of serious pr ejudice, Article XVI:1 focuses on the effects of 
subsidization on trade in goods.  That article provides as follows: 
                                                      
743 Alcoholic Beverages (1996) , op. cit., Appellate Body Report, p. 21.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 373 
 
 
 If any contracting party grants or  maintains any subsidy, including 
any form of income or price support, which operates directly or indirectly to increase exports of any product from, or to reduce 
imports of any product  into, its territory, it shall notify the 
C
ONTRACTING PARTIES in writing of the extent and nature of the 
subsidization, of the estimated  effect of the subsidization on the 
quantity of the affected product or products imported into or 
exported from  its territory and of the  circumstances making the 
subsidization necessary. In any case in which it is determined that 
serious prejudice to the interests of any other contracting party is 
caused or threatened by any such subsidization , the contracting party 
granting the subsidy shall, upon request, discuss with the other contracting party or parties concerned, or with the  C
ONTRACTING 
PARTIES , the possibility of limiting the subsidization. (emphasis 
added). 
This focus on the trade effects of subsidization is carried over into Part III of the SCM Agreement.  
Article 5 provides that no Member should cause, through the use of any subsidy, "adverse effects to the interests of other Members."  One such adverse effect  is "serious prejudice to the interests of 
another Member," which the SCM Agreement indi cates is used in the same sense as in Article 
XVI:1.
744  Article 6.3 provides that serious prejudice ma y arise where one or several of four listed 
situations exist.  As we have seen, the United States a lleges two such situations, i.e., (i) that "the effect 
of the subsidy is to displace or impede the imports of a like product of another Member  into the 
market of the subsidizing Member"; and (ii) that "the effect of the subsidy is a significant price 
undercutting by the subsidized product as compared with the price of a like product of another 
Member  in the same market or significant price suppressi on, price depression or lost sales in the same 
market" (emphasis added). 
14.201 In our view, the text of Article XVI and of Part III of the SCM Agreement make clear that 
serious prejudice may arise where a Member's trade inte rests have been affected by subsidization.  We 
see nothing in Article XVI or in Part III that woul d suggest that the United States may claim that it 
has suffered adverse effects merely becau se it believes that the interests of US companies  have been 
harmed where US products  are not involved.  The United States has cited no language in 
Article XVI:1 or Part III suggesting that the nationa lity of producers is relevant to establishing the 
existence of serious prejudice.  Accordingly, given that serious prejudice may only arise in the case at hand where there is "displacement or impedance of  imports of a like product from another Member" 
or price undercutting "as compared with the like prod uct of another Member", we do not consider that 
the United States can convert such effects on produc ts from the European Communities into serious 
prejudice to US interests merely by alleging that  the products affected were produced by US 
companies. 
14.202 In light of our view that the existence of alleged harm to US companies  is not a basis for a 
claim of serious prejudice to the interests to th e United States, the question remains whether one 
Member may bring a claim that another Member has suffered serious prejudice as a result of subsidization.  In our view the answer is no.  It  will be recalled that Article 7 of the SCM Agreement 
sets forth the  steps to be taken by a Member which believes that it has suffered adverse effects within 
the meaning of Part III.  Article 7.2 provides that: 
                                                     
 
744 SCM Agreement, Note 13 to Article 5.  WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 374 
 
 
 A request for consultations unde r paragraph 1 shall include a 
statement of available evidence with regard to (a)  the existence and 
nature of the subsidy in question, and (b) the injury cau sed to the 
domestic industry, or the nullifica tion or impairment, or serious 
prejudice [footnote omitted] caused to the interests of the Member 
requesting consultations. 
It is clear from Article 7.2 that the dispute settlement procedures set forth in Article 7 may only be 
invoked by a Member where that Member believes that it has itself suffered serious prejudice as a 
result of subsidization. 
14.203 Our view on these issues is confirmed by Article 6.7, which allows a subsidizing Member to 
raise a defence to a displacement/impedance claim where "imports from the complaining Member" or "exports from the complaining Member" are affected by such factors as export prohibitions or restrictions, natural disasters, and arrangements li miting exports.  These provisions of Article 6.7 
assume that the products subject to a claim of serious prejudice arising from displacement or 
impedance originate in the complaining Member.  
14.204 For the foregoing reasons, we find that th e United States cannot assert that it has suffered 
serious prejudice as a result of displacement/impedance or price undercutting with respect to products that do not originate in the United States.
745 
4. Should the Panel consider the effects of s ubsidies provided pursuant to the June 1996 Car 
Programme ? 
14.205 It will be recalled that the National Car pr ogramme provides a number of subsidies for the 
Timor.  Under the February 1996 car programme, Timors assembled in Indonesia benefit from an 
exemption from import duties with respect to imported parts and components, as well as an exemption 
from the luxury sales tax, provided those Timors meet  specified local content requirements.  Under 
the June 1996 car programme, PT TPN was authorized to import up to 45,000 CBU Timors from 
Korea exempt from (200 per cent) import duties during the period 30 June 1996 to 30 June 1997 and 
to sell those Timors free of luxury sales tax provided that certain requirements regarding counter-purchase and use of Indonesian worker s in Korea were satisfied.  It  will further be recalled that 
Indonesia submitted the results of an audit indicatin g that those requirements had not been met, and 
indicated that a process would begin to seek repaymen t of the subsidies provide d with respect to those 
Korean-origin Timors.  Indonesia now argues that the Panel should not consider the effects of the 
subsidies provided pursuant to the June 1996 car pr ogramme because it has now expired.  Because 
assembly on a significant scale of the Timor in Indonesia has not yet begun,
746 subsidies pursuant to 
the "February 1996 programme" have yet to be provi ded to any substantial degree.  Thus, Indonesia 
contends, no actual serious prejudice may be found to exist.   
14.206 We do not agree with Indonesia that we are precluded from considering the effect of subsidies 
pursuant to the June 1996 car programme when anal ysing whether the subsidies in this case have 
caused serious prejudice to the interests of the compla inants.  We agree with the complainants that in 
                                                      
745 We note that the issue addressed here is not  whether the United States need demonstrate the 
existence of trade effects in order to establish the nu llification or impairment of benefits arising from the 
violation of a provision of the WTO Agreement.  It is well established that in such cases no demonstration of actual trade effects is required.  Superfund , op. cit..  Rather, we are addressi ng a situation where the existence of 
adverse effects is the essence of the claim.   
746 PT TPN is temporarily assembling 1,000 units per year at a plant in Tambun.  Its full-scale facility 
at Karawang, which will have an annua l capacity of 63,000 Timors, was not to begin production until sometime 
in 1998.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 375 
 
 
 this case there are a variety of different subsidy measures provided pursuant to a single National Car 
programme, and that it makes little sense to treat each  one separately when analysing the existence of 
serious prejudice.  Rather, we must assess the "effect  of the subsidies" on the interests of another 
Member to determine whether serious prejudice exists, not the effect of "subsidy programmes."  We 
note that at any given moment in time some paymen ts of subsidies have occurred in the past while 
others have yet to occur in the future.  If we were to  consider that past subsid ies were not relevant to 
our serious prejudice analysis as they were "expire d measures" while future measures could not yet 
have caused actual serious prejudice, it is hard to imagine any situation where a panel would be able 
to determine the existence of actual serious prejudi ce.   Thus, we decline to proceed on the course 
suggested by Indonesia.
747 
5. Displacement and Impedance  
14.207 Having determined that certain EC and US passenger car models are (or, in the case of the 
Neon, may be) like products to the Timor, we must  next examine whether the complainants have 
demonstrated that the effect of the subsidies provided pursuant to the National Car programme has 
been to displace or impede the exports of those models from the Indonesian market.   
(a) Market Share Data  
 (i) Relevance of Article 6.4  
14.208 Before proceeding to an examination of the market share data submitted by complainants, we 
must consider the threshold legal issue of whether Article 6.4 of the SCM Agreement is relevant to a 
dispute, such as this, where the adverse effects allege d by the complainants relate to displacement or 
impedance of a like product into the market of th e subsidizing Member under Article 6.3(a).  That 
Article provides as follows: 
For the purpose of paragraph 3(b) , the displacement or impeding of 
exports shall include any case in whic h, subject to the provisions of 
paragraph 7, it has been demonstrated  that there has been a change  in 
relative shares of the market to the disadvantage of the 
non-subsidized like product (over an appropriately representative 
period sufficient to demonstrate clea r trends in the development of 
the market for the product concerned, which, in normal circumstances, shall be at least one year).  "Change in relative shares 
of the market" shall  include any of the following situations:  
(a) there is an increase in the market share of the subsidized product;  
(b) the market share of the subsidized product remains constant in 
circumstances in which, in the absen ce of the subsidy, it would have 
declined;  (c) the  market share of the subsidized product declines, 
but at a slower rate than would have been the case in the absence of 
the subsidy. (emphasis added). 
The European Communities and the United States ac knowledge that Article 6.4 on its face does not 
apply to the displacement and impedance claims in this dispute, as their claims are based on Article 
6.3(a) (effect in the market of the subsidizing Me mber) while Article 6.4 only applies "for the purpose 
                                                     
 
747 We recall that, late in the Panel process, Indonesia indicated that it had terminated subsidies 
pursuant to the National Car programme.  For the reasons set forth in paragraph 14.9 supra , we nevertheless will 
proceed to consider whether subsidies pursuant to the National Car programme are causing serious prejudice to 
the interests of the European Communities and the United States. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 376 
 
 
 of" Article 6.3(b) (effects in the market of a thir d country).  The complainants argue, however, that 
there is no reason why the  type of analysis set fort h in Article 6.4 should not be appropriate also in 
the case of claims of displacement and impedance of imports from the market of the subsidizing 
country.  Indonesia, by contrast, contends that Article 6.4 is not relevant to this dispute. 
14.209 The significance of this issue in terms of th e obligations on the complainants is considerable.  
If the type of analysis set forth in Article 6.4 is  appropriate in this case, then the complainants 
arguably could make a prima facie  case of displacement or impedance simply by demonstrating that 
the market share of a subsidized product has increas ed over an appropriately representative period.  If, 
on the other hand, the type of analysis set forth in Article 6.4 is not appropriate in this case, then the 
complainants must demonstrate that " the effect of the subsidy  " is to displace or impede imports into 
Indonesia, that is, that they have lost export sales to Indonesia that they would otherwise have made  
and that those export sales were lost as a result of the subsidies provided pursuant to the National Car 
programme. 
14.210  We agree with Indonesia that Article 6.4 is not relevant in this case.  The drafting of the 
provision is unambiguous, and the specific reference to Article 6.3(b) creates a strong inference that 
an Article 6.4 type of analysis is not
 appropriate in the case of Article 6.3(a) claims. The complainants 
have identified nothing in the context of the provision or the object and purpose of the SCM Agreement that would suggest a different conclusion.     
14.211 Our conclusion does not of course mean that mark et share data are irrelevant to the analysis of 
displacement or impedance into a subsidizing Member 's market.  To the contrary, market share data 
may be highly relevant evidence for the analysis of such a claim.  However, such data are no  more 
than evidence of displacement and impedance caused by subsidization, and a demonstration that the 
market share of the subsidized product in th e subsidizing Member has increased does not ipso facto  
satisfy the requirements of Article 6.3(a).         
 (ii) Actual Sales and Market Share Data
 
14.212 Having determined that the EC and US mode ls in the C1 Segment (and arguably those in the 
C2 Segment) are "like" the subsidized Timor, we consider it appropriate to analyze market shares for 
the C Segment.748  A review of the data provided by Indonesia under the Annex V procedure 
demonstrates that the Timor quickly gained a ve ry substantial share of the Indonesian C Segment 
passenger car market upon its introduction.  As show n in Table 1, the Timor was not sold in 1995 and 
thus had a zero share of the C Segment market.  In 1996, the year of introduction, the Timor captured 
a 16.9 per cent share of the Indonesian C Segment, while during the period January - May 1997 (the 
latest period for which we have been provided with  data), that market share had climbed to 42.4 
percent.  Table 2 breaks this market share data down on a quarterly basis.  These data indicate that Timor had no sales until the fourth quarter of 1996.  In  that quarter, its market share in the C Segment 
reached 40.9 per cent.  It dropped to 38.8 per cent for the first quarter of 1997 but during the partial 
second quarter for which we have da ta (April-May) that share had climbed to 47.7 per cent.   
14.213 In assessing whether this change in market share in fact amounted to a displacement or 
impedance of imports of EC and US origin products into Indonesia, our starting point is actual market 
shares for the three EC models we have found to be  like products, and for the one US model which we 
assume  arguendo  to be a like product, to the Timor.  The Neon was never introduced into the 
                                                     
 
748 According to data supplied during the Annex V process, only one passenger car model in the C2 
Segment currently is sold in Indonesia (the Mitsubishi Lancer).  Thus, excluding C2 Segment passenger cars when calculating market shares would increase the absolu te market shares of the Timor and of EC C1 models 
somewhat, but would not affect the relative shares.   WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 377 
 
 
 Indonesia market (allegedly because of the National Car programme), and the market share of US-
origin passenger cars in the C Segment of the Indon esian passenger car market was therefore zero.  
Because the Escort also was neve r introduced into the Indonesian market, the EC market share data 
are based solely on sales of the 306 and the Optima.  As shown in Table 1, infra  at p.385, the 
European Communities in 1995 had an Indonesian mark et share in the C Segment of 2.4 per cent.  
The EC share climbed to 5.7 per cent in 1996, but dropped to 3.7 per cent for the period for which we have data (January - May 1997).  Table 2, infra  at p. 386, breaks down these data on a quarterly basis.  
This analysis shows that in the first three quarters of 1996, EC market share in the C Segment ranged from 6.9 to 7.8 per cent.  In  the fourth quarter of 1996 (the quarter in which the Timor first entered 
the market), EC market share dropped to 3.7 per cent.   In the first quarter of 1997, EC market share 
fell even further to 3.3 per cent, and remained at  a relatively low 4.2 per cent in the partial second 
quarter for which we have  data (April-May 1997). 
14.214 Focusing on market shares alone, the data be fore us show a potentially significant correlation 
between the introduction of the subsidized Timor and the decline in EC market share in the C 
Segment of the Indonesian market.  The quarterly da ta show that the EC market share for C Segment 
cars in Indonesia increased substantially during the first three quarters of 1996, but that, in the fourth quarter of 1996, coincident with the introduction of  the Timor, the European models' market share 
dropped to 3.7 per cent, where it remained on averag e during the first five months of 1997.  Thus, 
there seems to be little question that the EC mark et share in the C Segment dropped substantially 
relative to that  of the subsidized Timor, and the close correlation in time between the introduction of 
the Timor and the drop in EC market sh are suggests a causal link between the two. 
14.215 If Article 6.4 of the SCM Agreement applied in  this dispute, this showing of a change in 
relative market shares to the disadvantage of th e non-subsidized like product might well have been 
sufficient to establish the European Communities' prima facie  case of displacement or impedance.
749  
In the absence of that article, however, it is not  enough for the European Communities to demonstrate 
a decline in relative market share; rather, the European Communities must demonstrate that "the 
effect of the subsidy is to displace or impede the imports" of an EC-origin "like product" into the 
Indonesian market, i.e.,  that some imports that would have occurred did not occur as a result of the subsidies.  While declining market share may be rele vant to establishing such a situation, we consider 
that we must proceed further with the analysis and look at actual sales figures for the products in 
question. 
14.216 In spite of their declines in  market share, the absolute volume of sales of the relevant EC 
models did not significantly decline after the intr oduction of the Timor.  Rather, sales of C Segment 
vehicles from the EC were 419 units in 1995 and 1, 445 units in 1996.  For 1997 we have full data 
from the Annex V process on the C Segment only for January - May, and this shows EC sales of 611 units, which amounts to 1,466 units on an annualized b asis.  We also have sal es figures for the Optima 
(257 units) and 306 (656 units) for the peri od January - August 1997 from the European 
Communities.   These figures, totalled and annualized , show sales of 1,370 units for 1997.   On a 
quarterly basis, sales of the Optima and 306 rema ined relatively constant during the period from the 
fourth quarter of 1996 through May  1997 at between 300 and 400 units per quarter
750. 
                                                      
749 Assuming that the eight months of post-Timor data were considered to be "an appropriately 
representative period sufficient to demonstrate clear trends in the development of the market for the product 
concerned" within the meaning of Article 6.4.  
750 In fact, the quarterly figure for th e partial second quarter, if it con tinued for the rest of the quarter, 
would actually be 423 units, the highest quarter in the period 1995-second quarter 1997.  Treating the period 
June-August as a quarter, EC C Segment sales amounted to 302 units.   WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 378 
 
 
 14.217 The explanation for the loss of market share with no decline in absolute sales volume is that 
the size of the Indonesian market expanded after the introduction of the Timor.  What is particularly 
relevant here is that the increase in the size of the market was largely attributable to sales of the 
Timor.  In particular, between the third and four th quarters of 1996, the market for C Segment cars 
increased by 6,326 units, of which the Timor accounted  for 4,278 units (68 %).  A similar pattern was 
evident during the first five months of 1997.  Thus , relatively stable EC sales volumes in a rapidly 
expanding market resulted in market share dec lines but not in declines in absolute volumes. 
14.218 We agree with the European Communities that  a complainant need not demonstrate a decline 
in sales in order to demonstrate displacement or impeda nce.  This is inherent in the ordinary meaning 
of those terms.  Thus, displacement relates to a situation where sales volume has declined, while  
impedance relates to a situation where sales which otherwise would have occurred were impeded.  
The question before us is therefore whether the market share and sales data above would support a 
view that, but for the introduction of the subsidi zed Timor, sales of EC C Segment passenger cars 
would have been greater than they were.  
14.219 In a usual case, a decline in market share in a stable or growing market, corresponding in time 
with the introduction of a subsidized product, might  suggest that sales would have been higher but for 
the introduction of the subsidized product.  This would be particularly the case where, in the period 
prior to the introduction of the subsidized product, the market share of the non-subsidized product had 
been rising.  In this case, however, Indonesia conte nds that the introduction of the subsidized Timor 
was itself responsible for the rapid expansion of th e market through the introduction of a new, highly 
affordable passenger car within th e reach of first-time buyers.   While the European Communities 
dismisses this argument as "purely speculative," the sales data in terms of volume of sales discussed above provide some support for this view.  Thus, one possible interpretation of the data is that, if the 
subsidized Timor had not been introduced, the In donesian C Segment market would have remained 
relatively stable or in any event would have posted during the last quarter of 1996 and the first eight 
months of 1997 more gradual increases, comparable  to those experienced during the period between 
the first quarter of 1995 and the second quarter of 1996. 
14.220 Assuming that, had the subsidized Timor not been introduced, the Indonesian C Segment 
market would have remained stable or grown at a more moderate rate duri ng the period for which we 
have data, the question is whether sales of EC C Se gment models in absolute terms would have been 
higher than those actually achieved.   Here, th e data are inconclusive. While the European 
Communities contend that its market share had been steadily increasing and that this trend would have 
continued but for the introduction of the subsidized Timor, actual sales consis ted of only two models, 
the Optima and 306.
751  As Table 2 shows, quarterly sales data  for the Optima do not demonstrate any 
clear upward trend in  the six quarters prior to the introduction of the subsidized Timor.752  Rather, the 
increase in EC sales was a result of the introduction of the 306 in the first quarter of 1996.  While the 
European Communities state that 1996 sales of the 306 (1,086 units) were 400 units lower than 
planned, we have no knowledge of the basis for those sales forecasts.  Sales of  the 306 for partial year 
1997 were at an annualized rate of between 984 units (January - August data ) and 1,070 units 
(January to May data), down slightly from the an nualized rate in the first half of 1996 of 1,214 
                                                      
751 The European Communities pointed in its submissions to the rapid growth in its overall share of the 
Indonesian passenger car market from 1993 (9.9 per cent) to 1995 (23.72 per cent).  However, this rapid growth 
in market share, which reflects EC ga ins in high-end vehicles such as Mercedes and BMW, is not relevant to 
displacement or impedance of "lik e products" to the Timor.    
752 It is possible that Optima sales would have increased upon the introduction of a new model.  We 
discuss Opel's plans to introduce a new model of the Optima in paragraphs 14.228 to 14.232 infra .   WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 379 
 
 
 units.
753  Thus, if we assume that in the absence of th e Timor the market would have remained stable 
or continued a more gradua l increase through  August 1997,754 and that the 306 would have 
maintained the market share it ha d achieved in the first half of 1996, these sales might have been 
expected to increase at most sli ghtly.  Such a conclusion is, in an y event, highly speculative based on 
the facts available.755 
14.221 Finally, we note the limitations inherent in the data before us.  Full information about sales in 
the C Segment of the Indonesian market is only ava ilable through May 1997, i.e., for less than three 
quarters after the introduction of the Timor.  Add itional information regarding sales of the Optima and 
306 through August 1997 cannot be placed in the context of the overall market situation.  Further, the 
volume of sales of the EC models in question is smal l, to the point where the statistical significance of 
the changes in volume may be questioned.  We not e, for instance, that the sales volume for the 
Optima in 1995 (a year not affected by the subsid ized Timor) jumped from 36 units in the first quarter 
to 186 units in the second quarter before dropping to 98 and 99 units in the third and fourth quarters 
espectively. 
14.222 In short, the dramatic fall in EC market sh are in the C Segment is not in this case decisive 
evidence of displacement or impedance, as the data  lend some credence to th e Indonesian view that 
the introduction of the subsidized Timor actually cr eated much of the market growth.  Thus, we are 
required to speculate as to how the market would have  performed in the absence of the introduction of 
the Timor, and as to the share of the market which EC models could have been expected to obtain in 
that hypothetical situation.  It is quite possible th at the Indonesian market would have remained stable 
or increased somewhat in late 1996 and early 1997,  even without the introduction of the subsidized 
Timor, and that EC models would have at least ma intained their market shar e, such that EC sales 
would have increased slightly. This conclusion is however highly tentative, and does not in our view 
satisfy the requirement, in the present case, that  serious prejudice be demonstrated by positive 
evidence. 
                                                      
753 The European Communities have stated that Opel has not ordered any new CKD Optimas since 
June 1996, although assembly of Optimas (presumably from inventory) continues. 
754 We note that the Indonesian economy entered a period of serious difficulties beginning in the late 
summer of 1997.  Thus, we must treat the European Communities' figures for January-August 1997 cautiously, particularly in the absence of any overall figure s for the Indonesian mark et after May 1997.   
755 Sales of the 306 actually climbed slightly from the third quarter (229 units) to the fourth quarter 
(250 units) of 1996, after the introduction of the Timor.  It seems likely, however, that -- as argued by the United 
States -- the market as a whole in the third quarter was depressed in anticipation of the introduction of the 
Timor.  Thus, third quarter 1996 data may not be reliable.   WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 380 
 
 
 Table 1 
Analysis of Market Share for "C " Class Automobiles in Indonesia
 
By Year  
(Units) 
Model 1995 1996 Jan-May 1997 Jan-August 
1997 
Toyota Corolla/Corona 8,415 7,116 2,537 N/A 
Honda City/Civic 2,358 4,112 2,317 N/A 
Nissan Sunny/Sentra 960 1,686 864 N/A 
Ford Laser 2,814 3,597 1,720 N/A 
 Mitsubishi Lancer 1,597 1,360 149 N/A 
Mazda 323/MR 90 868 597 80 N/A 
 Bimantara Cakra* 0 1,058 1,012 N/A 
Daewoo Nexia* 0 20 305 N/A 
Opel Optima 419 359 165 257 
Peugeot 306 0 1,086 446 656 
Timor* 0 4,278 7,058 N/A 
 Total 17,431 25,269 16,653 N/A 
European models:     Quantity  Market share   
419 
2.4%  
1,445 
5.7%  
611 
3.7%   
913 
N/A 
Timor:  Market share 0% 16.9% 42.4% N/A 
N/A Not available *The DRI sales figures, on the basis of which the "C" class models were identified, refer to the 
Bimantara Cakra as the Hyundai Accent, to the Daewoo Nexia as the Daewoo Cielo, and to the Timor 
as the Kia Sephia. 
Source
: AV/3, attachment A-39/1-B, except January -August data, which were provided by the 
European Communities  
  WT/DS54/R, WT/DS55/R, 
 WT/DS59/R, WT/DS64/R
 Page 381Table 2 
Analysis of Market Share for "C " Class Automobiles in Indonesia  
Quarterly  
  (Units) 
 
Mfr/Model 1995 1996 1997 
 I II III IV I II III IV I II  
(April-
May) III  
(June-
August) 
Toyota Corolla/Corona 2,093 2,451 2,044 1,827 2,405 1,687 1,420 1,604 1,448 1,089 N/A 
Honda City/Civic 703 566 440 649 1,209 1,477 522 904 1,767 550 N/A 
Nissan Sunny/Sentra 0  223 233 504 233 307 646 500 561 303  N/A 
Ford Laser 0 748 799 1,267 611 1,179 759 1,048 951 769 N/A 
Mitsubishi Lancer 543 204 421 429 100 357 231 672 75 74  N/A 
Mazda 323/MR 90 54 107 322 385 181 183 147 86 69 11 N/A 
Bimantara Cakra* 0 0 0 0 0 0 89 969 709 303 N/A 
Daewoo Nexia*  0 0  0 0 0 0 0 20 163 142 N/A 
Opel Optima 36 186 98 99 74 57 95 133 87 78 92 
Peugeot 306 0 0 0 0 275 332 229 250 242 204 210 
Timor 0 0 0 0 0 0 0 4,278 3,848 3,210 N/A 
Total 3,429 4,485 4,357 5,160 5,088 5,579 4,138 10,46
4 9,920 6,733 N/A 
European models: 
 Quantity 
 Market share  
36 
1.1%  
186 
4.2%  
98 
2.2%  
99 
1.9%  
349 
6.9%  
389 
7.0%  
324 
7.8%  
383 
3.7%  
329 
3.3%  
282 
4.2%  
302 
N/A 
Timor:  Market share 0 0 0 0 0 0 0 40.9% 38.8% 47.7% N/A 
N/A - Not available. 
*The DRI sales figures, on the basis of which the "C" class models were identified, refer to the Bimantara Cakra as the Hyundai  Accent, to the Daewoo Nexia as the Daewoo 
Cielo, and to the Timor as the Kia Sephia. 
Source : .... AV/3, attachment A-39/1-B, except June-August 1997 data, which were pr ovided by the European Communities . WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 382 
 
 
 (b) Non-introduction of New Models
 
14.223 The complainants' arguments of displacement and impedance are not limited to the effects of 
the subsidies provided pursuant to the National Car pr ogramme on models currently sold in Indonesia.  
Rather a key element of their arguments would appear  to be that, but for those subsidies, they would 
have proceeded with plans to introduce new C Se gment models, thereby increasing their sales and 
exports of passenger cars like the Timor to the Ind onesian market.  Specifi cally, the complainants 
contend that, but for the National Car programme, the Escort and Neon would have been introduced 
to the Indonesian market.  It is further claimed that a new model of the Optima would have been 
introduced. 
14.224 As previously noted, we consider that di splacement and impedance may exist not only where 
there has been a decline in sales, but also where it is demonstrated that, in the absence of a subsidy, 
sales would have increased.  Of course, the complainan ts have the burden to demonstrate their serious 
prejudice claim by positive evidence.  With this in  mind, let us examine the information presented by 
the complainants in support of these contentions. 
 (i) EC-Origin Model  
14.225 The complainants have argued that Ford w ould have introduced the EC-origin Escort in the 
Indonesian market but for the subsidies provided under the National Car programme to the Timor.  
Specifically the European Communities have alleged that, "[a]t the time the National Car programme 
was adopted, Ford was about to start importing CKD Escorts made at its plant in Saarlouis (Germany)."  Both the European Communities and the United States have stated that Ford had already 
committed US$1 million to the Escort programme.  The source for these statements would appear to 
be a joint letter from GM and Ford to the US  Trade Representative, dated 27 November 1996.
756   
This letter indicates that the US$1 million commitment "included production and assembly equipment, tooling, component parts and engineering, all of which were in Indonesia prior to the National Vehicle programme."  It further indicates that Ford had "an approved investment plan of 
$US56.0 million with the feasibility of future invest ment in assembly to be determined based upon the 
needs of the market and manufacturing requirements, " and that "Ford's total planned investment was 
committed to the establishment of Escort in the ma rket with both local assembly and increasing local 
content, ultimately reaching 40% by the fourth year."  The European Communities indicated that, 
under a 1995 business plan, Ford would have export ed substantial quantities of CKD Escorts to 
Indonesia,
757 while the joint letter indicated projected sal es of 15,100 Escorts in the first four years.758   
                                                      
756 See paragraph 8.298 of the Descriptive Part. 
757 The European Communities contend that, according to a business plan adopted in 1995, Ford would 
have exported to Indonesia the following quantities of CKD Escorts: 
 
1996 1,323 1997 3,468 1998 5,156 1999 7,370 2000 12,026 2001 13,867 
2002 16,026 2003 18,433         
 
758 The joint letter also makes a variety of broade r statements regarding Ford's commitment to the 
Indonesian market.  However, in light of evidence in the record suggesting that Fo rd sources its Indonesian 
products in a number of countries, including Japan, thes e more general claims are of limited value to a specific 
assessment of whether EC-origin like products  to the Timor would have been sold in the Indonesian market.     WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 383 
 
 
 14.226 The complainants have also alleged the existe nce of plans to replace the existing Optima with 
a new model.  The European Communities state th at Opel had "advanced plans" to expand and 
upgrade its assembly facilities in Indonesia, including  the introduction of a new model of the Optima, 
while the United States states that GM "was consid ering investing in plant expansion, and had 
approval to bring in new models of the Opel Optima and Opel Vectra."  The United States asserts that, 
while the precise figures are confidential, GM's bus iness plan called for sales of Optimas and Vectras 
"in excess of 1,000 cars in 1996 and around 3,0 00 cars in 1997, with progressive increases in 
subsequent years."  The joint letter discussed above contains similar information.  The parties have 
not informed the Panel what portion of these pl anned sales would have been of the Optima.  
14.227 In the context of a claim of serious prej udice arising from displacement or impedance, we 
must review the above information with an eye to whether it demonstrates that (i) there were concrete 
plans to increase sales of EC-origin passenger cars to the Indonesian market through the introduction 
of new models; and that (ii) the new models were not introduced because of the subsidies pursuant to 
the National Car programme.   
14.228 Several factual elements have been allege d which could support the European Communities' 
assertions regarding the existence of concrete plans to introduce the Escort into Indonesia.  We note 
the European Communities' statemen t that there was an  "approved plan" to invest $US56 million for 
assembly of the Escort in Indonesia.  Clearly, su ch information could be highly relevant to our 
analysis.  The factual information before us with r espect to such a plan is, however, extremely limited, 
and supporting documentation non-existent.  Thus, we  do not know, for instance, by whom and at 
what level this plan was "approved."
759 Similarly, the fact that Ford projected substantial sales of the 
Escort in Indonesia could be highly relevant, but we  know nothing about the bases for the projections.  
Under these circumstances, it is difficult for the Panel to  judge the weight to be given to these factors.  
The concreteness of Ford's plans is to some ex tent confirmed by the statement of the European 
Communities that Ford had already spent US$1 m illion to acquire productio n equipment which was 
already in Indonesia; such a commitment of res ources suggests the Ford had moved beyond mere 
consideration of the Escort project and was in the process of implementation.760 With respect to the 
reasons why Ford abandoned its plans to introduce the Escort into Indonesia, however, no direct 
evidence has been presented by the complainants.  The United States cites Ford estimates that, if it 
had introduced the Escort in the Indonesian market, the Timor would have undercut the price of the 
least expensive version by at least US$5000.  We  have no basis to judge, however, whether this 
assessment had been made at the time Ford abandoned its project nor whether it represented the basis 
for the abandonment of those plans. 
14.229 With respect to the Optima,  there is even less factual ev idence to support the European 
Communities' assertions than with respect to the E scort.  Basically, the complainants are asking the 
Panel to conclude that the new model of the Optim a would have been introduced but for the National 
Car programme on the basis of a statement regarding the existence of "advanced plans" and a 
statement that GM had approval to bring in the new model of the Optima.  While this type of 
information could be highly relevant to the issue,  the Panel again lacks any detailed evidence.  We 
have been presented with virtually no information about these "advanced plans," e.g., whether a final 
decision had been taken within GM management and whether funds had been committed.  With 
respect to the question of approval to bring in the Optima, we assume that this means approval by the 
                                                      
759 The plan apparently was not "approved" by the Government of Indonesia, as Indonesia has stated 
that Ford "did not submit a single application for approval of the development of passenger car production or 
assembly facilities in Indonesia during the period 1993 to  the present."  See  paragraph 8.357 of the Descriptive 
Part. 
760 Indonesia does not challenge that this is a factua lly correct statement.  It does, however, seek to 
discount the significance of the amount involved in light of Ford's size and huge global sales volume.   WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 384 
 
 
 Government of Indonesia, but we have no further information.  Regarding the reasons why these plans 
were abandoned, again we have no evidence beyond th e statements of company representatives in the 
joint letter and in newspaper articles.
761  
 (ii) US-Origin Models  
14.230 The only US-origin model which the United St ates has alleged would have been sold in the 
Indonesian market but for subsidies provided pursua nt to the National Car programme is the Neon.  
The following represents the argument and record befo re the Panel with respect to that allegation. 
14.231 The United States stated in its first submi ssion that, prior to the introduction of the National 
Car programme, Chrysler assembled Jeeps in Indonesia,  and that Chrysler "had plans to introduce the 
Neon but, like GM and Ford, it had to abandon  these plans once the National Motor Vehicle 
Programme was introduced."  Its cited sources for th is statement were articles in two publications,762 
which contain no further information beyond that found in the US submission.  In its second submission, the United States repeated that "Chr ysler was planning to introduce the Neon to the 
Indonesian passenger car market, but that Chrysl er, too, had to cancel its plans following the 
introduction of the National Car programme."   In  its response to a question from the Panel, the 
United States stated that "the Chrysler Neons would have been sourced from the United States; 
specifically, from Chrysler's plant in the state of Illinois."  The United States indicated in its oral 
statement at the Panel's second meeting that "Chrys ler's plan called for 1,000 - 2,000 Neons in 1997", 
and in response to a question from the Panel indicate d that, "[a]ccording to Chrysler officials, the 
launch date for the Neon project would have been mid-1997 had the project not been cancelled due to 
the National Car Programme."  Finally, the United States at the second meeting submitted as an 
exhibit a letter from Chrysler dated 19 December 1997 stating that, "[a]s noted in the attachment, 
announcement of the National Motor Vehicle Prog ramme rendered non-viable Chrysler plans for 
additional investment in Indonesia."  The fu ll text of that attachment is as follows: 
Chrysler Corporation - Indonesia  
- Prior to introduction of the National Motor Vehicle Programme, Chrysler was 
already assembling Jeep Cherokee and Wrangler vehicles in Cikarang, West Java.  Chrysler, together with Lippo Group and Ningz Pacific, was studying an assembly joint venture located in Lippo City to assemble Neon passenger 
cars and other passenger vehicles.  Planned investment in this joint venture would have been more than $150 million.   Although the precise figures are 
confidential, Chrysler's business plan called for initial sales of more than 
15,000 vehicles per year, including 1,000 to 2,000 Neons per year, with volumes progressively rising thereafter. 
- Chrysler's plan for investment in Indonesia was part of a broader Asian 
strategy under which Chrysler was al ready manufacturing or selling vehicles 
in Thailand, Malaysia, China, Taiwan and Japan. 
- However, because of the National Motor Vehicle Programme, Chrysler had 
to put its plans for additional investment in Indonesia on hold, and did not 
                                                     
 
761 The European Communities attaches as an exhibit in support of this statement an article in the 
Financial Times, GM Halts Indonesia Move Over National Car Policy (date illegible).  That article quotes a GM 
official extensively regarding plans to halt new investments as a result of the National Car programme; however, it states that the official "did not  indicate the scale or nature of the expansion being put on hold."    
762 See paragraph 8.300 of the Descriptive Part.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 385 
 
 
 proceed to the final approval stage.  In addition, Chrysler was forced to 
significantly reduce production of Jeep vehicles at its existing assembly plant.  Based on Chrysler's internal estimates, if Chrysler had gone ahead with its plans to produce and sell the Neon in Indonesia, the Timor Kia Sephia would 
have undercut the price of the least e xpensive version of the Neon by more 
than $5,000. 
14.232 The evidence before the Panel regarding the intention to introduce the Neon to the Indonesian 
market is in our view extremely limited.  We are told that Chrysler was "studying" an assembly joint 
venture to assemble the Neon in Indonesia, but we  have no basis to judge how concrete those plans 
were.
763  With respect to the reason why those plan s were cancelled, we are presented with no 
supporting argumentation or evidence beyond the ba ld statements of the United States and of 
Chrysler. 
 (iii) Assessment  
14.233 The Panel notes certain factual elements whic h indicate the existence of plans to introduce the 
Escort, a new model of the Optima and the Neon to  the Indonesian market.  This information, if 
properly developed and documented, might have b een highly probative.  However, the evidence is 
very general, and supporting documentation, with  the exception of newspaper reports and letters 
prepared by GM, Ford and Chrysler for the purpose of this dispute, is non-existent.  This makes it 
very difficult for the panel to assess the degree of commitment of the companies to the plans, much 
less the reasons why those plans were abandoned.764 
14.234 We do not mean to suggest that in WTO di spute settlement there are any rigid evidentiary 
rules regarding the admissibility of newspaper reports  or the need to demonstrate factual assertions 
through contemporaneous source information.  Howeve r, we are concerned that the complainants are 
asking us to resolve core issues relating to adverse trade effects on the basis of little more than general 
assertions.  This situation is particularly disturbing, given that the affected companies certainly had at 
their disposal copious evidence in support of the claims of the complainan ts, such as the actual 
business plans relating to the new models, governme nt documentation indicating approval for such 
plans (assuming the "approval" referred to by the complainants with respec t to the Optima means 
approval by the Indonesian government), and corp orate minutes or internal decision memoranda 
relating both to the initial approval, and the sub sequent abandonment, of the plans in question.765   
14.235 We note the United States' stated concern for the confidentiality of company business plans. 
However, an invitation by the Panel for proposals to  ensure adequate protection of such information 
was not taken up.766   While complainants cannot be requi red to submit confidential business 
information to WTO dispute settlement panels, neith er may they invoke confidentiality as a basis for 
                                                      
763 As with respect to Ford, Indonesia states that  Chrysler had not applied for approval to develop 
passenger car production or manufacturing facilities since 1993. 
764 Indonesia offered a variety of explanations why in its view Chrysler, Ford and GM did not proceed 
with their plans to introduce new models into the Indonesian market.  These included the small size and 
dominance of Japanese manufacturers in that market; inadequate return on investment resulting from low profit margins on entry-level cars; and more attractive investme nt incentives in other Asian countries.  In the absence 
of adequate evidence from the complain ants, the Panel lacks a factual basis to accept or reject these alternative 
explanations.   
765 For example, if Ford and Chrysl er in fact abandoned their plans to introduce the Escort and Neon 
after determining that the Timor would undercut the prices of those models by US$5000, contemporaneous 
company documents reflecting this assessment could have been submitted and might  have been highly probative. 
766 See paragraphs 14.5 to 14.8, supra .     WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 386 
 
 
 their failure to submit the positive evidence require d, in the present case, to demonstrate serious 
prejudice under the SCM Agreement.   
(c) Conclusion
 
14.236 In the view of the Panel, neither th e European Communities nor the United States has 
demonstrated by positive evidence that the effect of  subsidies to the Timor pursuant to the National 
Car programme has been to displace or impede imports of like passenger cars from the Indonesian 
market within the meaning of Article 6.3(a) of the SCM Agreement. 
6. Price Undercutting  
14.237 In addition to arguing that serious prejudice has been caused to their interests through  
displacement or impedance of their exports to Indon esia, the complainants assert that the subsidized 
Timor significantly undercuts the prices of EC a nd US like products in the Indonesian market. 
14.238 In determining whether serious prejudice with in the meaning of Article 5(c) arises from price 
undercutting, we must first consider Article 6.3(c) of the SCM Agreement.  That provision states that 
"serious prejudice in the sense of paragraph 5(c) may arise in any 
case where one or several of the following apply:  
   ......... 
(c) the effect of the subsidy is a significant price undercutting by the subsidized product as co mpared with the price of a 
like product of another Member  in the same market or 
significant price suppression, price depression or lost sales in 
the same market; 
    ........ 
Further elaboration on the application of Article  6.3(c) is provided in Article 6.5 of the SCM 
Agreement, which provides as follows: 
For the purpose of paragraph 3(c), price undercutting shall include 
any case in which such price undercutting has been demonstrated 
through a comparison of prices of the subsidized product with prices of a non-subsidized like product supplied to the same market.  The comparison shall be made at the same level of trade and at comparable times, due account being taken of any other factor affecting price comparability.  However, if such a direct comparison 
is not possible, the existence of price undercutting may be 
demonstrated on the basis of export unit values.  
(a) United States
 
14.239 As noted in paragraph 14.213, no U.S.-origi n passenger car that is a "like product" to the 
subsidized Timor currently is sold in Indonesia.   In the absence of any such sales in the Indonesian 
market, the United States by definition cannot dem onstrate that the effect of the subsidies provided 
pursuant to the National Car programme was a si gnificant price undercutting by the subsidized 
product as compared with the price of a like product of the United States in the Indonesian market.  In 
any event, we note that the United States did not present any information regarding the price at which 
the Neon, the sole US-origin passenger car allegedly planned for sale in Indonesia, would have been 
sold in that market.  Rather, the United States me rely made the unsubstantiated statement that, if  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 387 
 
 
 Chrysler had gone ahead with its plans to sell the Neon in Indonesia, the Timor would have undercut 
the price of the least expensive model of the Neon by more than US$5000.  We do not consider that 
such a conclusory statement, unb acked by any supporting explanation, calculations or documentation, 
is sufficient to meet the United States' burden to  demonstrate the existence of a significant price 
undercutting by positive evidence. 
14.240 For the foregoing reasons, we find that th e United States has not demonstrated through 
positive evidence that the effect of the subsidies to  the Timor pursuant to the National Car programme 
was to cause serious prejudice to the interests of the United States through a significant price 
undercutting as compared with the price of US-o rigin like products in the Indonesian market. 
(b) European Communities 
 
14.241 We now turn to the EC argument that the pr ices of the subsidized National Cars significantly 
undercut the prices of like passengers cars importe d from the European Communities.  In support of 
their price undercutting arguments, the European Communities rely on data regarding the list and 
market prices for passenger cars sold in Indonesia which show that the Timor has both a list and a 
market price which are much lower than the list an d market prices for the 306 and the Optima, which 
we have determined to be  like products (of another Member) to the Timor. 
14.242 With respect to list prices, data submitted by Indonesia during the Annex V process show that 
the Timor had the lowest list price of any passenge r car in the Indonesian market except the Mazda 
MR-90 as of November 1996 and March 1997 .  As sh own in Table 3, the list prices for the Timor 
(ranging from 33 million rupiahs for the S-515 to 36.9  million rupiahs for the S-515i Metallic) were 
far lower than that of the Optima (70 million rupi ahs) and the lowest-priced model of the 306 (59.5 
million rupiahs).767  
                                                      
767 See paragraphs 8.384 to 8.387 of the Descriptive Part. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 388 
 
 
  
Table 3 
List Prices
 
(Rupiah) 
 
Model August 1995 November 1996 March 1997 
TIMOR 
S 515 1500 cc Solit - 33,000,000 33,000,000 
S 515 1500 cc Metalic - 33,500,000 33,500,000 
S 515i 1500 cc Solit - - 36,400,000 
S 515i 1500 cc Metalic - - 36,900,000 
PEUGEOT 
306 M/T, 1761 cc - 62,500,000 63,000,000 
306 A/T, 1761 cc - 64,750,000 65,500,000 
306 M/T, 1761 cc - 59,000,000 59,500,000 
OPEL 
Optima GLS 1900 cc 65,500,000 69,500,000 70,000,000 
14.243 With respect to market prices, the data before  the Panel relate only to the last quarter of 1996 
and were provided by the European Communities during the Annex V process (see Table 4).768  These 
data do not indicate whether the model under consid eration is the S-515 or the S-515i.  It would 
appear from the list price information, however, that in November 1996 the Timor S-515i was not yet available in the Indonesian market, and it thus seems probable that the price identified for the Timor is 
for the S-515.  The data show that the Timor's market price was the same as its list price, while the 
Optima and 306 both sold at a discount from list pr ice.  Even after those discounts, however, the 
Timor S-515 had a price advantage of 27.25 million rupiahs over the model of the 306 for which we have market price information and of 23.25 m illion rupiahs over the lowest-price model of the 
Optima. 
                                                     
 
768 See paragraphs 8.289-8.290 of the Descriptive Part.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 389 
 
 
 Table 4 
List and Market Prices
 
(Fourth Quarter 1996; Rupiah) 
Model List price Market price 
Kia Timor 35,750,000 35,750,000 
Peugeot 306 PST 64,0 00,000 63,000,000 
 Opel Optima GLS 69,500,000 59,000,000 
Opel Optima CDX 74,000,000 62,000,000 
Opel Optima CDX - A-Bag 76,000,000 64,000,000 
14.244 Article 6.5 of the SCM Agreement requires that, when performing an analysis of price 
undercutting under Article 6.3(c), "[t]he comparison [o f prices] shall be made at the same level of 
trade and at comparable times, due account bei ng taken of any other factor affecting price 
comparability."  In this case, the 306 and Optima are imported in CKD form, and if the prices of these 
CKD cars were compared to prices of finished  Timors, the difference between the assembled and 
unassembled cars clearly would be a factor affecting price comparability.  Further, to the extent that 
there are transaction prices for the CKD cars, these would presumably be at a different level of trade than the retail prices for the finished Timor.  Th ese potential problems of comparability do not arise in 
the price comparisons proposed by the European Communities, however, as the prices they propose 
for comparison are retail prices for finished 306s, Optimas and Timors.  It would appear that the prices are in fact at the same level of trade and at comparable times, and Indonesia has raised no 
concern in this regard.  Rather, the key issue with re spect to this claim would appear to be whether the 
European Communities have taken due account of  other factors affecting price comparability. 
14.245 Indonesia argues that Article 6.5, taken in c onjunction with the positiv e evidence standard set 
forth in Article 27.8, means that the European Communities have the burden of quantifying and making appropriate price adjustments for the physical characteristics and consumer preferences and perceptions that distinguish the Timor from the Op tima and the 306.  Indonesia submitted a table 
identifying specific physical differences between the three models.  In addition, it submitted a second 
table listing various physical and non-physical characteristics (power, technology, comfort, safety, 
workmanship, brand image) and rating the three mo dels with respect to the characteristics on a scale 
of L (low) through H2 (high).  In Indonesia's view , the Timor ranked low in all these regards, while 
the Optima and the 306 ranked medium or medium-high.
769  In Indonesia's view, the European 
Communities have failed to meet their burden with  respect to adjustments for these differences and 
accordingly have failed to demonstrate the exis tence of a significant price undercutting through 
apples-to-apples comparisons. The European Communiti es argue that there are no relevant physical 
differences which may affect significantly price comp arability and state that there are no physical or 
other product differences, or any other factor, that could account for the 43-52% price undercutting 
which they allege to exist. 
14.246 In examining the arguments of the parties, we  first turn to the issue of identifiable physical 
differences between the Timor, the Optima and the 3 06.  The record in this dispute includes extensive 
information about the physical characteristics of the models in question,770 and this information 
                                                      
769 See paragraphs 8.221 to 8.225 of the Descriptive Part. 
770 See Section VIII.B.3 of the Descriptive Part. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 390 
 
 
 reflects a variety of potentially significant differen ces in physical characteristics between the models.  
These include differences between the Timor and one or both of the other models in terms of the size, 
features and power of the engines; tyre size; safety features (ABS, airbags); and extra features (alarm system, rear folding seats, interior trim).  While th ese differences are not sufficient to render the three 
models unlike, they must clearly affect price comparability to some extent. 
14.247 Given that the existence of these physical di fferences is clear from the record, and that the 
burden in this case is on the complainants to de monstrate the existence of serious prejudice by 
positive evidence, it would have greatly facilitate d the work of the Panel had the European 
Communities made some effort to quantify the im pact of these differences on price comparability.  
We specifically requested the European Communities to identify any differences, including 
differences in physical characteristics, that coul d affect price comparability, and to explain how 
allowance should be made with respect to them.
771  Their failure to respond in detail to this request 
has resulted in a thin record with respect to this issue, and in a closer case where the degree of the 
price differential was not so large might well have been fatal to their claim.   
14.248 Nevertheless, the information on the record in  this dispute does allow us to take account of 
some of the salient physical differences between the three models.   In this respect, we first note that 
the seemingly most significant difference between th e Timor on the one hand and the Optima and the 
306 on the other is engine size.  Specifically, the Timo r's engine is 263cc smaller than that of the 306 
and 298cc smaller than that of the Optima.  Th e European Communities have argued, the record 
confirms, and Indonesia has not contested, however, th at any potential advantage of the Optima and 
the 306 over the S-515 in terms of power due to their larger engine size was compensated for by the 
introduction of a sixteen-valve, dual overhead cam injection engine in the S-515i; in fact, the S-515i's engine generates more power than that of either the Optima or the 306.  As indicated above, only list 
price (and not market price) information is availabl e with respect to the Timor S-515i.  However, we 
note that the difference in the list prices of the S-515 and 515i provides an indication of the possible 
difference in market prices of the two models.  In particular, the difference in list price between the S-
515 (which is equipped with an engine less powerfu l than those of the Optima and 306) and the S-
515i (which, as previously noted, is equipped with an  engine more powerful than those of the Optima 
and the 306) was 3.9 million rupiahs in March 1997.   Thus, by adjusting the market price for the 
Timor S-515 upward by this difference in list prices between the S-515 and S-515i, we can take 
account of the differences between the Timor S-515, the Optima and the 306 with respect to engine 
power.  
                                                     
 
771 At its first meeting with the parties, the Panel asked the parties the following question: 
In its first submission, the EC states that the Timor S-515 significantly undercut the prices of 
the closest EC models, the Peugeot 306 and Opel Optima. . . . Article 6.5 of the SCM 
Agreement states that, when performing a pri ce comparison, "due account shall be taken of 
any other factor affecting price comparability ."  Are there factors that affect price 
comparability?  Specifically, are there any diff erences between the models which must be 
taken into account when comparing these prices ?  If so, please identify these factors, and 
explain in detail how these factors should be  taken into account when  performing the price 
comparison. 
The European Communities responded that: 
The EC believes that there are no relevant "other factors" (including differences in physical 
characteristics) which may affect significantly price comparability between, on the one hand, 
the Timor S-515 and, on the on e hand, the Opel Optima and Peug eot 306.  Indonesia itself has 
not been able to identify any such "other fact or", let alone any factor which may account for a 
level of price undercutting of 50%.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 391 
 
 
 14.249 Indonesia notes that the Timor does not come equipped with airbags, while one model of the 
Optima does.  With respect to th is feature, however, we know from price list information provided by 
Indonesia that the Optima CDX w ith airbag costs two million rupiahs more than the same model 
without an airbag, and that the Optima GLS does not come equipped with an airbag at all; thus, we 
can also discount for this physical difference by r estricting our comparison to the price of the Optima 
GLS, which does not come equipped with an airbag. 
14.250 What of the remaining physical differences?   Although the record is conflicting, it would 
appear that some models of the Optima and the 306  may have ABS (anti-skid braking system), while 
the Timor S-515i does not.  The Optima comes equi pped with an alarm system, while the Timor S-
515i does not.  The fuel tanks of the Optima and 306 are slightly larger than those of the Timor S-
515i.  The rear seats of the Optima and the 306 fold  down, while that of the Timor S-515i does not.  
The Optima and the 306 have larger tires than the Timor S-515i.  The Timor S-515i has cloth seats, while the Optima has velour seats and one model of the 306 has leather seats.  Some versions of the 
Optima and the 306 have light alloy wheels, while th at is an option for the Timor S-515i.  The Optima 
has "additional headlamps", while the Timor S-515i does not. 
14.251 These foregoing differences, for which the Eu ropean Communities have not made allowance 
in their price comparisons, are not insignificant, an d it seems clear to us that consumers would be 
willing to pay a premium for some of them at leas t.  However, we note that the United States has 
identified and sought to place a value on a number of features of the S-515i (such as tilt steering, mud flaps, colour key bumpers, and colour key/foldab le mirrors) which the Optima at least lacks, and 
which may to some extent offset the value of some of the features of the Optima.  More 
fundamentally, looking specifically at the November 1996 market prices for the Timor S-515, the Optima and the 306, and even after adding 3.9 m illion rupiahs to the price of the Timor S-515 to 
account for the differences in engine power between that model and the S-515i, the price of the Timor 
undercuts the price of the least expensive Optima (without airbag) by 19.35 million rupiahs (33 per 
cent)
772 and undercuts the price of the 306 by 23.35 million rupiahs (37 per cent)773 . While the 
physical differences between the Timor, the Optima and the 306 for which we have not been able to 
make due allowance clearly would affect their pri ces, we agree with the Eu ropean Communities that 
the differences identified in the preceding paragraph could not possibly account for these enormous differences in price.   
14.252 This is confirmed by the fact that, accordin g to price data submitted by Indonesia, the Timor 
not only is priced lower than the C Segment Optima and the 306, but in March 1997 had a list price in 
the Indonesian market
774 that was also significantly lower than  the list prices of such B Segment cars 
as the Toyota Starlet (48.1 million rupiahs) and the Suzuki Baleno (44.75 million rupiahs).  A 
comparison of the physical characteristics of the Timo r S-515 with those of the Starlet is particularly 
instructive.  The Starlet is a le sser car than the Timor S-515 in almost every respect, including length 
(3.72 metres for the Starlet, 4.36 metres for the Timor); weight (725 kg for the Starlet, 1,055 kg for 
the Timor); engine size (1,296 cc for the Starle t, 1,498 cc for the Timor); and engine power (53 
kw/6,200 rpm for the Starlet, 58 kw/5,500 for the Timor S-515, 77 kw/5500 rpm for the Timor S-515i).  Like the Timor, the Starlet lacks ABS and airbags.  Yet the list price of the top-of-the-line 
Timor S-515i is 11.2 million rupiahs less than that of the Starlet. 
                                                     
 
772 Market price of Optima GLS (59 million rupi ahs) [minus] market price of Timor S-515 
(35.75 million rupiahs) [plus] the difference between list price of Timor S-515 Solit and Timor S-515i Metalic 
(3.9 million rupiahs) [equals] 19.35 million rupiahs.   
773 Market price of the 306 PST (63 million rupiahs) [minus] market price of Timor S-515 (35.75 
million rupiahs) [plus] the difference between list price of Timor S-515 Solit and Timor S-515i Metalic 
(3.9 million rupiahs) [equals] 23.35 million rupiahs. 
774 33 million rupiahs for the S-515i Solit, 36.9 million rupiahs for the S-515i Metalic. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 392 
 
 
 14.253 Indonesia also argues the existence of numerous  non-physical differences between the Timor, 
the Optima and the 306.  We note, however, that wh ile the record clearly demonstrates the existence 
of differences in physical characteristics between the models in question, Indonesia has presented 
little if any evidentiary support for their propositio n concerning non-physical differences (such as 
brand image or after-sales service) between the m odels.  While we agree with Indonesia that the 
European Communities bear the burden of proof to de monstrate the existence of all elements of their 
serious prejudice claim, including the existence of price undercutting, the record does not show that 
there are any significant non-physical differences fo r which due allowance must be made, much less 
any differences that could account for the extent of  the differences in price between the Timor, the 
Optima and the 306. 
14.254 We note that under Article 6.3(c) serious prejudice may arise only where the price 
undercutting is "significant."  Altho ugh the term "significant" is not defined, the inclusion of this 
qualifier in Article 6.3(c) presumably was intended to ensure that margins of undercutting so small 
that they could not meaningfully affect supplie rs of the imported product whose price was being 
undercut are not considered to give rise to serious prej udice.  This clearly is not an issue here.  To the 
contrary, it is our view that, even taking into account  the possible effects of these physical differences 
on price comparability, the price undercutting by th e Timor of the Optima and 306 cannot reasonably 
be deemed to be other than significant. 
14.255 Finally, we note that serious prejudice may arise under Article 6.3(c) only where the price 
undercutting is "the effect of the subsidy."  In th is case, we agree with the European Communities that 
Indonesia, in information that it provided in the Annex V process effectively concedes that the tariff 
and tax subsidies under the National Car programme are responsible fo r the significant level of price 
undercutting.  The table cited by the European  Communities contains da ta for 1998 and 1999 
regarding the Timor S515i that will be assembled at the Karawang facility.  Row 4 of that table (Unit 
Dealer Price) indicates that the effect of the tariff and tax subsidies of the National Car programme is 
to lower the price of the Timor S-515i by US$7,243-9,158, i.e., by approximately 33-38 per cent.
775 
14.256 For the foregoing reasons, we find that the effe ct of the subsidies to the Timor pursuant to the 
National Car programme is to cause serious prejudice to the interests of the European Communities in 
the sense of Article 5(c) of the SCM Agreemen t through a significant price undercutting as compared 
with the price of EC-origin like products in the Indonesian market. 
7. Threat of Serious Prejudice  
14.257 The European Communities argue that, if the Panel were to find that the evidence did not 
warrant a finding of actual serious prejudice, the facts support a finding that subsidies provided pursuant to the National Car programme pose a threat  of serious prejudice to the interests of the 
European Communities.  In light of our affirmative finding of actual serious prejudice, it is not necessary to reach this alternative claim. 
I. Claims under Article 28 of the SCM Agreement
 
14.258 Finally, we turn to the United States' cl aim under Article 28 of the SCM Agreement.  The 
United States argues that, via Decree No. 223/1995, Decree No. 82/1996, and Regulation No. 36/1996, Indonesia has extended the scope of its local content-based tariff and tax subsidies for 
certain motor vehicles in violation of Article 28.2.   Indonesia responds that Article 28.2 applies only 
to subsidies that are "inconsistent" with the SC M Agreement, and since Article 27.3 of the SCM 
Agreement exempts Indonesia's local content subs idies from the prohibition that would otherwise 
                                                     
 
775 See paragraphs 8.395 and 8.408 of the Descriptive Part.  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 393 
 
 
 apply under Article 3.1(b), these subsidies are not "inconsistent" with the Agreement and thus not 
subject to Article 28. 
14.259 Article 28 of the Agreement provides as follows: 
Existing Programmes  
28.1 Subsidy programmes which have been established within the territory of any 
Member before the date on which such a Member signed the WTO Agreement and 
which are inconsistent with th e provisions of this Agreement  shall be: 
(a) notified to the Committee not late r than 90 days after the date of 
entry into force of the WTO Ag reement for such Member;  and 
(b) brought into conformity with the pr ovisions of this Agreement within 
three years  of the date of entry into force of the WTO Agreement for 
such Member and until then shall not be subject to Part II. 
28.2 No Member shall extend the scope of any such programme , nor shall such a 
programme be renewed upon its expiry. (emphasis added). 
14.260 Article 28.1 of the SCM Agreement sp ecifies that subsidy programmes which are 
"inconsistent with the provisions of this Agreem ent" must be notified to the Committee within 90 
days after the date of entry into force of the WTO Agreement for the Member and brought into conformity with the provisions of the SCM Agreemen t within three years of that date.  Article 28.2 
specifies that no Member shall extend the scope of "a ny such programme."  In our view, this reference 
to "any such programme" can only refer back to th e types of programmes identified in Article 28.1.  
Accordingly, the question we must address is whet her Indonesia has extended the scope of a subsidy 
programme which is "inconsistent" with the provisions of the SCM Agreement. 
14.261 We consider that the ordinary meaning of th e term "inconsistent with the provisions of this 
Agreement", when read in its context, cannot reas onably be considered to extend to the Indonesian 
subsidy programmes under review in this dispute.   The United States concedes that, under Article 
27.3 of the SCM Agreement, the prohibition of paragraph 3.1(b) of the SCM Agreement does not 
apply to the Indonesian programmes for a period of five years from the date of entry into force of the WTO Agreement, i.e., until the year 2000.  The United  States contends that the term "inconsistent" is 
not synonymous with "prohibited", and implies that  a subsidy programme may be inconsistent with 
the provisions of the SCM Agreement if it satisfies th e substantive conditions of Article 3, whether or 
not the Article 3 prohibitions are applicable.  In  the SCM Agreement, however, the drafters have 
chosen to express the concept of subsidies meeting th e substantive conditions of  Article 3 by referring 
to subsidies "falling under the provisions of Article 3"  (See
 Article 2.3).  If they had intended to 
express the same concept in Article 28, they  could have used comparable language.   
14.262 Because we consider that the Indonesian s ubsidy programmes under review in this dispute are 
not "inconsistent" with the provisions of the SCM Agreement within the meaning of Article 28, we 
reject the claims of the United States that I ndonesia has extended the scope of certain subsidy 
measures in violation of Article 28.2 of the SCM Agreement. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 394 
 
 
 J. Claims under the TRIPS Agreement
 
14.263 As we understand it, the United States is making the following claims: 
- Indonesia is in violation of its obligatio ns under Article 3 of the TRIPS Agreement on 
national treatment because the provisions of its National Car Programme discriminate 
against nationals of other WTO Members with respect to the acquisition and 
maintenance of trademarks, and the use of trademarks as specifically addressed in Article 20 of the TRIPS Agreement; 
- Indonesia is in violation of its obligatio ns under Article 65.5 of the TRIPS Agreement 
because provisions of the National Car Programme which were introduced by 
Indonesia during its transition period under the TRIPS Agreement put special 
requirements on nationals of other WTO Members in respect of the use of their trademarks which are inconsistent with th e provisions of Article 20 of the TRIPS 
Agreement. 
1.  Article 3
 
14.264 Article 3 of the TRIPS Agreement, en titled "National Treatment", reads as follows: 
"1. Each Member shall accord to the nationals of other Members treatment no 
less favourable than that it accords to its ow n nationals with regard to the protection3 
of intellectual property, subject to the exceptions already provided in, respectively, the Paris Convention (1967), the Berne C onvention (1971), the Rome Convention or 
the Treaty on Intellectual Property in Respect of Integrated Circuits.  In respect of 
performers, producers of phonogram and br oadcasting organizatio ns, this obligation 
only applies in respect of the rights provi ded under this Agreement.  Any Member 
availing itself of the possibilities provided in Article 6 of the Berne Convention (1971) or paragraph 1(b) of Article 16 of the Rome Convention shall make a 
notification as foreseen in those pr ovisions to the Council for TRIPS. 
2. Members may avail themselves of the exceptions permitted under 
paragraph 1 in relation to judicial and administrative procedures, including the designation of an address for service or the appointment of an agent within the jurisdiction of a Member, only where su ch exceptions are necessary to secure 
compliance with laws and regulations which are not inconsistent with the provisions 
of this Agreement and where such practi ces are not applied in a manner which would 
constitute a disguised restriction on trade. 
_______________  
3For the purposes of Articles 3 and 4, "protection" shall include matters 
affecting the availability, acquisition, scope, maintenance and enforcement of 
intellectual property rights as well as those matters affecting the use of intellectual 
property rights specifically addressed in this Agreement." 
14.265 As mentioned earlier, in regard to ma tters covered by the expression "protection of 
intellectual property" in respect of which WTO Members are required to grant national treatment, the United States has made claims in regard to thr ee of the items specified in the footnote, namely 
"acquisition", "maintenance", and "those matters affecting the use of intellectual property rights 
specifically addressed in this Agreemen t", in this case in Article 20.    WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 395 
 
 
 14.266 As a preliminary point, we note that I ndonesia has been under an obligation to apply the 
provisions of Article 3 since 1 January 1996, Article  3 not benefiting from the additional four years of 
transition generally provided by Article  65.2 to developing country Members. 
(a)  Acquisition of trademarks
 
14.267 According to the United States, Indonesia discr iminates against foreign nationals in respect of 
the acquisition of trademarks, because any trademark that could apply to a "national motor vehicle" 
must be acquired by an Indonesian company, be that company a joint venture or a wholly-owned 
Indonesian company.   
14.268 The TRIPS Agreement requires WTO Members to  provide certain treatment to the nationals 
of other WTO Members in respect of the protection of their intellectual property.  The issue to be 
examined therefore in regard to th e United States' claim relating to the "acquisition" of trademarks is 
whether, under the Indonesian law and practice whic h is before us, the treatment accorded to foreign 
nationals in respect of the acquisition of trademark rights, through the applicab le procedures, is less 
favourable than that accorded to  the Indonesian company in the National Car Programme.  We do not 
consider that any evidence has been  produced in this case to support such a claim.  The facts brought 
before us do not point to any difference in the a pplicable law for acquiring trademark rights between 
that applying to companies of other WTO Member s and that applying to the company operating under 
the National Car Programme.  It is true that the cars marketed under the National Car Programme 
have to bear a trademark belo nging to an Indonesi an-owned company whic h has created that 
trademark, and, therefore, that trademarks owne d by United States' and other foreign companies may 
not be employed for this purpose.  While this ma y give rise to questions regarding the scope for the 
use of trademarks owned by United States' comp anies on cars under the National Car Programme, it 
does not, in our view, pose a problem regarding the acquisition of trademark rights.  The fact that only certain signs can be used as trademarks for meeti ng the relevant qualifications under the National Car 
Programme, and many others not, does not mean that  trademark rights, as stipulated in Indonesian 
trademark law, cannot be acquired for these ot her signs in a non-discriminatory manner. 
14.269 We therefore find that the United States has not  demonstrated that Indonesia is in breach of its 
obligations under Article 3 of the TRIPS Agreement in respect of the acquisition of trademark rights. 
(b) Maintenance of trademarks
 
14.270 The United States has advanced two arguments as to why, in its view, the Indonesian system 
discriminates against United States nationals in r espect of the maintenance of trademark rights.  The 
first argument is that the Indonesian system puts United States companies in a position that, if they 
were successful in becoming a partner in the Nati onal Car Programme, they would be unlikely to use 
in Indonesia the mark normally used ("global" ma rk) on the vehicle marketed as a "national motor 
vehicle" in Indonesia, for fear of creating conf usion (i.e., confusion resulting from using different 
marks on the same car), and consequently it was more  likely that the "global" mark would be subject 
to cancellation for non-use in Indonesia.776 
14.271 We do not accept this argument for the follo wing reasons.  First, no evidence has been put 
forward to refute the Indonesian statement that the system, in requiring a new, albeit Indonesian-
owned, trademark to be created, applies equally to pre-existing trademarks owned by Indonesian 
                                                      
776 Many countries provide in their national legislation that failure to use a trademark during a certain 
period of time (under the TRIPS Ag reement a minimum of three years) may lead to the cancellation of the 
registration of the mark.  The purpose is to avoid the trademark register becoming clogged with unused marks.  
Various provisions of the TRIPS Agreement relate to this matter, notably Article 19. WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 396 
 
 
 nationals and foreign nationals.  Second, if a fore ign company enters into an arrangement with a 
Pioneer company, it would do so voluntarily, with  knowledge of any consequent implications for its 
ability to maintain pre-existing trademark rights,  as indeed the United States itself has acknowledged 
in its submissions to the Pane l (see paragraph 11.32 above).   
14.272 The second argument advanced by the United St ates relating to discrimination in respect of 
the maintenance of trademark rights is that foreign ho lders of trademarks in Indonesia are at a de facto 
disadvantage in meeting use requirements in re lation to the Indonesian holder of a trademark 
satisfying the National Car Programme requirements, b ecause the tariff, internal tax and other benefits 
to which the Indonesian company is entitled give it a competitive advantage in the marketing of cars 
bearing trademarks over foreign companies.   
14.273 In considering this argument, we note that any customs tariff, subsidy or other governmental 
measure of support could have a "de facto" effect of  giving such an advantage to the beneficiaries of 
this support.  We consider that considerable caution needs to be used  in respect of "de facto"  based 
arguments of this sort, because of the danger of reading into a provision obligations which go far 
beyond the letter of that provision and the objectives of the Agreement.  It would not be reasonable to 
construe the national treatment obligation of the TR IPS Agreement in relation to the maintenance of 
trademark rights as preventing the grant of tariff,  subsidy or other measures of support to national 
companies on the grounds that this would render the maintenance of trademark rights by foreign companies wishing to export to that market relatively more difficult. 
14.274 For the above reasons, we find that the United States has not demonstrated that Indonesia is in 
breach of its obligations under Article 3 of the TR IPS Agreement in respect of the maintenance of 
trademark rights. 
(c) Use of trademarks as specifically addressed in Article 20
 
14.275 As is made clear by the footnote to Article  3 of the TRIPS Agreement, the national treatment 
rule set out in that Article does not apply to use of intellectual property rights generally but only to 
"those matters affecting the use of intellectual property rights specifically addressed in this 
Agreement".  In putting forward its claim on this  point, the United States has developed arguments 
relating to the use of trademarks specifically addr essed by Article 20 of the TRIPS Agreement.  It is 
the first sentence of this Article, which is entitled "Other Requirements", to which the United States 
has made reference.  This sentence reads as follows:   
"The use of a trademark in the course of trade shall not be unjustifiably encumbered 
by special requirements, such as use with a nother trademark, use in a special form or 
use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings." 
14.276 The main issues before us in examining this cl aim of the United States are therefore:  first, is 
the use of a trademark to which the Indonesian law and practices at issue relates "specifically 
addressed" by Article 20;  and, second, if so, does this  aspect of the system discriminate in favour of 
Indonesian nationals and against those of other WTO Members.   
14.277 In taking up the first of these questions, the issue to be considered initially is whether the 
Indonesian law and practices in question constitute a special requirement that might encumber the use 
of the trademarks of nationals of other WTO Members in terms of Article 20 of the TRIPS 
Agreement.  The United States has put forward tw o basic arguments on this question, which are 
similar to the arguments it has put forward also in  regard to the maintenance of trademarks (see 
paragraphs 14.270 and 14.270 above).  The first argume nt is that a foreign company that enters into  WT/DS54/R, WT/DS55/R,  
 WT/DS59/R, WT/DS64/R  Page 397 
 
 
 an arrangement with a Pioneer company would be encumbered in using the trademark that it used 
elsewhere for the model that was adopted by the National Car Programme.  We do not accept that this 
argument establishes an inconsistency with the provisi ons of Article 20, for the reason, as indicated in 
paragraph 14.271 above, that, if a foreign compa ny enters into an arrangement with a Pioneer 
company it does so voluntarily and in the knowledge of  any consequent implications for its ability to 
use any pre-existing trademark.  In these circum stances, we do not consider the provisions of the 
National Car Programme as they relate to trademarks  can be construed as "requirements", in the sense 
of Article 20. 
14.278 The second United States argument is that non -Indonesian car companies are encumbered in 
using their trademarks in Indonesia by being put  at a competitive disadvantage because the cars 
produced under the National Car Programme bearing the Indonesian trademark benefit from tariff, 
subsidy and other benefits flowing fro m that programme.  In regard to this argument, we also feel that 
the points developed in our earlier discussion of th e United States claims regarding the maintenance 
of trademarks are relevant, in particular in pa ragraph 14.273 above.  Moreover, the United States has 
not explained to our satisfaction how the ineligib ility for benefits accruing under the National Car 
Programme could constitute "requirements" imposed  on foreign trademark holders, in the sense of 
Article 20 of the TRIPS Agreement. 
14.279 For the reasons outlined a bove, we find that the United Stat es has not demonstrated that 
Indonesia is in breach of its obligations under Article  3 of the TRIPS Agreement in respect of the use 
of trademarks specifically addressed in Article 20. 
2. Article 65.5 in Conj unction with Article 20
 
14.280 Article 65.5 of the TRI PS Agreement reads as follows:  
"5. A Member availing itself of a transitiona l period under paragr aphs 1, 2, 3 or 4 
shall ensure that any changes in its laws , regulations and prac tice made during that 
period do not result in a lesser degree of consistency with the provisions of this 
Agreement." 
14.281 The question, therefore, to  be examined in considering this claim of the United States is 
whether during the transitional period to which Indo nesia is entitled in respect of the application of 
the provisions of Article 20 Indonesia has made any ch anges in its laws, regulat ions and practice that 
have resulted in a lesser degree of consiste ncy with the provisions of that Article. 
14.282 The arguments put forward by the United States in support of its claim are essentially the 
same as those that have been considered in para graphs 14.277 and 14.278 abov e.  For the reasons set 
out in those paragraphs above, we find that the Un ited States has not demonstrated that measures have 
been taken that reduce the degree of consistency with the provisions of Article 20 and which would 
therefore be in violation of Indonesia's obligati ons under Article 65.5 of the TRIPS Agreement. 
XV. CONCLUSIONS AND RECOMMENDATIONS 
15.1 In the light of the findings above,  
(a) We conclude that the local content requirem ents of the 1993 and of the 1996 February car 
programmes to which are linked (i) sales tax bene fits on finished motor vehicles incorporating a 
certain percentage value of domes tic products or on National Cars a nd (ii) customs duty benefits for 
imported parts and components used in finished mo tor vehicles incorporating a certain percentage WT/DS54/R, WT/DS55/R,  
WT/DS59/R, WT/DS64/R Page 398 
 
 
 value of domestic products or used in National Cars  violate the provisions of Article 2 of the TRIMs 
Agreement. 
(b) We conclude that the sales tax discriminati on aspects of the 1993 and the February and June 
1996 car programmes in favour of domestic motor vehi cles incorporating a certain percentage value 
of domestic products and National Cars violat e the provisions of Article III:2 of GATT. 
(c) We conclude that the customs duty and sales tax benefits of the J une 1996 car programme in 
favour of imported National Cars and the customs dut y benefits of the February 1996 car programme 
in favour of imported parts and components to be  used in National Cars assembled in Indonesia 
violate Article I of GATT. 
(d) We conclude that the European Communities have demonstrated by positive evidence that 
Indonesia has caused, through the use of specific s ubsidies provided pursuant to the National Car 
programme, serious prejudice to the interests of the European Communities within the meaning of 
Article 5(c) of the SCM Agreement. 
(e) We conclude that the United States has not  demonstrated by positive evidence that Indonesia 
has caused, through the use of specific subsidies provided pursuant to the National Car programme, 
serious prejudice to the interests of the United States  within the meaning of Article 5(c) of the SCM 
Agreement. 
(f) We conclude that Indonesia has not viol ated Article 28.2 of the SCM Agreement. 
(g) We conclude that the United States has not de monstrated that Indonesia is in breach of its 
obligations under Article 3 of the TRIPS Agreement in respect of the acquisition of trademark rights 
or the maintenance of trademark rights or in respect  of the use of trademarks specifically addressed in 
Article 20 of the TRIPS Agreement nor has it demonstr ated that measures have been taken that reduce 
the degree of consistency with the provisions of Ar ticle 20 and which would therefore be in violation 
of Indonesia's obligations under Ar ticle 65.5 of the TRIPS Agreement. 
15.2 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed 
under a covered agreement, the action is considered prima facie  to constitute a case of nullification or 
impairment of benefits under that agreement.  A ccordingly, we conclude that to the extent that 
Indonesia has acted inconsistently with the provis ions of covered agreements, as described in the 
preceding paragraph, it has nullified or impaired the benefits accruing to the complainants under those 
agreements. 
15.3  With respect to the conclusion of serious  prejudice to the interests of the European 
Communities, Article 7.8 of the SCM Agreement pr ovides that, “[w]here a panel report or an 
Appellate Body report is adopted in which it is de termined that any subsidy has resulted in adverse 
effects to the interests of another Member within the meaning of Article 5, the Member granting or 
maintaining the subsidy shall take appropriate steps to remove the adverse effects or shall withdraw 
the subsidy.”  
15.4  The Panel recommends  that the Dispute Settlement Body  request Indonesia to bring its 
measures into conformity with its obligations under the WTO Agreement. 
__________