Document: 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
Date: 6 April 1998
Document codes: WT/DS54/R; WT/DS55/R; WT/DS59/R; WT/DS64/R
Complainant: Japan
Respondent: Indonesia
Third parties: India, South Korea, U.S.
Dispute stage: Panel
Agreements cited: Art. 3, 6, 28.2, 5  Subsidies and Countervailing Measures (SCM)Art. I:1, X:1, X:3(a), III:2, III:4  GATT 1994Art. 2  Trade-Related Investment Measures (TRIMs)

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 parties 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 should 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. Consequently 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

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 heard 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 presence 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

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 announced 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 private 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

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 argumentation 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

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 programme 644 and the June 1996 car programme 645. 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 all 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

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 violate 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 States claim that the tax benefits of the June 1996
car programme in favour of National Cars violate 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 June 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

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 Article 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 dispute is the SCM Agreement, Indonesia submits that:
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

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 context 650 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 Agreement and the entirety of Article III, Article 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 possibility 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 concluded 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

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 approach 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 respective 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 regulation 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

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 imported 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

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 general 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 indirect 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

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”, since 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 imported 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

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 continues 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

14.52 We consider that the SCM and TRIMs Agreements 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 existence 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 Agreement are applicable to this dispute.
6. Conclusion
14.56 In view of the above findings, we reject Indo nesia’s general defense that 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

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 Agreement, 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

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 two 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 panel had already reached a conclusion 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

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

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 thus 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 Agreement 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

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

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. 4267 677 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 indicates 679 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 Production 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

- 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 they 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 Article 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.
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 WT/DS59/R, WT/DS64/R

“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 obtain 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 effect 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 and 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

passenger cars of less than 1600cc, jeeps with local content of more than 60%, and light commercial
vehicles (other than jeeps using gas) would pay 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 1996 684 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 passenger cars and light commercial vehicles 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.
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 WT/DS59/R, WT/DS64/R

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 violation 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 “requirements” (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

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 applicable 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 applied 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 substitutable 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 GATT 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, application 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” Members 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

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 protection 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 principles 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” subject 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.
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WT/DS59/R, WT/DS64/R

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 certain 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

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 Sephia 701). 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 products under Article III:2, first sentence.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

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

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 production, contrary to the second sentence 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

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 legislative 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

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) benefits 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

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

when the present panel proceedings commenced Pr esidential Decree 42/96, Decree 142/1996 of the
Ministry of Industry and Governmental Regulation 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 the 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 originating 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

(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 Car 714. 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

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 Panel 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

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 allocation 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 provisions 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 regulations 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 establishment of panel.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

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 Communities, 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 programme 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 within 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

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 country 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 injury 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

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 shall 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 subsidization 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, serious 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

impedance of their exports of passenger cars to Indonesia and through significant price undercutting
of their passenger cars by the subsidized 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 Optima, the Ford Escort and the Chrysler Neon -- are "like products"
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

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 complainants 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 differentiated 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 paragraphs 3 through 8 of Article 6" rather than 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 subsidization 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

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 Article 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

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

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 regarding 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

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 exhibit indicating that Sephia models sold 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 generally 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 any 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 Timor 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 number 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 the Sephia sold in the United States and the Timor.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

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 varies 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 criteria 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 passengers 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, the Cakra is a rebadged Hyundai Accent.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

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 suggests 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

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

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 lower 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

(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." Accordingly, 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 does 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 response 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

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 alleges 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 interests 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

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 repayment of the subsidies provided 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 addressing 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 annual 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

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 Member) 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

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 increased 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 data (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

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 share 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 basis. We also have sales 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

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 declines 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 during 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 consisted 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 "like 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

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. Additional 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 small, 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 subsidized 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 figures for the Indonesian market 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

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

Table 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 provided by the European Communities.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

(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 programme 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 investment 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 sales 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

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 planned 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 respect 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

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 before 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 full 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

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 subsequent 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

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 and 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

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, unbacked 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-origin 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 passenger car in the Indonesian market except the Mazda
MR-90 as of November 1996 and March 1997 . As shown 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 rupiahs) 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

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

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. These 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 respect 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 positive 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

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 one hand, the Opel Optima and Peugeot 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

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 that 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

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 this 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

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 the 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 Agreement 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 "any 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

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 organizations, 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 provisions 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 Agreement", in this case in Article 20.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

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 Members 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 other 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

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 Panel (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 holders 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, because 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

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 from 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 paragraphs 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 consistency 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 United 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 obligations 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

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 violate 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 demonstrated 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 Article 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.