Document: WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R Page 149 VII. ARTICLE I:1 CLAIMS A. Claims raised by Japan
Date: 12 December 1995
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)

VII. ARTICLE I:1 CLAIMS
 A. Claims raised by Japan

1. The National Car Programme of February 1996
7.1 Japan claims that the National Car Programme of February 1996 (See Section III.A) violates
Article I:1 of GATT 1994. The following are Japan's arguments in support of this claim:
(a) Article I:1 of GATT 1994 requires imme diate and unconditional MFN treatment for
imported parts and components
7.2 The National Car Programme introduced in February 1996 accords a special advantage
including exemption from customs duty to automotive parts and components imported or to be
imported from Korea for use in assembling National Ca rs. This advantage c onstitutes a violation of
Article I:1 of GATT 1994 which requires the "imme diate and unconditional" extension of general
most-favoured-nation treatment to imports from memb er countries relative to the treatment of
imports of like products from any other country.
7.3 As the 12 December 1995 letter from the President Director of TPN to the State Minister for
the Mobilization of Investment Coordinating Boar d shows clearly, TPN, which is currently the only
National Car producer, has expressed its intention to rely on Kia Motors, Korea. In particular, the
President Director of TPN stated plainly that the company applied to obtain approval to "(1)
[m]anufacture four-wheeled motor vehicl es with the 'TIMOR' brand name at the KIA Motors Corp.,
South Korea factory which are then to be delivered to Indonesia in SKD form with a local production
of 65,000 units from 1996, 1997, and 1998; [and] (2) [m]anufacture four-wheeled motor vehicles with
the 'TIMOR' brand name at third party's/parties' licensed assembly plant(s) in Indonesia with its
primary material imported from overseas ( KIA Motors Corp. ) starting from full-CKD and gradually
decreasing by the use of local components/parts with a total production from 1997, 1998, and 1999 of
125,000 units." (Italics added.) The correspondence between the President Director and the State
Minister shows that both of them understood that most of the parts and components for assembling
national cars in Indonesia would be imported from Ko rea at least in the initial stages and that they
intended to effectuate this understa nding. Accordingly, TPN is expected to import many of the parts
and components for the purpose of assembling Nati onal Cars only from Kia. The preferential
treatment for National Cars, including the duty-free treatment of imported parts and components in
particular, is likely to lead to benefits for im ports of parts and components from Korea, compared
with those from other countries.
7.4 Article I:1 of the GATT provides as follows:
"With respect to customs duties and charges of any kind imposed on or in connection
with importation or exportation or imposed in the international transfer of payments
for imports or exports and with respect to the method of levying such duties and
charges, and with respect to all rules a nd formalities in connection with importation
and exportation, and with respect to all ma tters referred to in paragraph 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 pr oduct originating in or destined for the
territories of all other parties."
7.5 In EC - Bananas III, a recent WTO panel articul ated the following three-part test to determine
whether an import measure violates Article I:1:
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[an import measure] is inconsistent with the European Communities' obligations
under Article I:1 [if] it constitutes [1] an advantage
 [2] of the type covered by
Article I that is accorded to [products from one country or group of countries] but [3]
which is not accorded to like products from all Members ...333 (emphasis added).
The National Car Programme must be evaluated under the same three-part test. It violates Article I:1
because the customs duty and luxury tax exemptions (1) confers an advantage, (2) of the type
covered by Article I:1, (3) to imports of automotive parts and components from Korea but not to
imports of like products from other WTO members.
7.6 In addition, Article I:1 requires that MFN treatment be accorded "immediately and
unconditionally", but the National Car Programme also violates this requirement.
(b) The National Car Programme of February 1996 in practice grants benefits only to
automotive parts and components imported or to be imported from Korea in violation
of Article I:1 of the GATT 1994
7.7 The February 1996 Programme grants benefits only to automotive parts and components from
Korea. As such, it impermissibly provides advant ages to Korean parts and components that are not
accorded to parts and components from other WTO Memb ers, in violation of Article 1 (regardless of
whether or not the Programme constitutes a subsidy). In addition, such advantages can be accorded to
imported parts and components from other countries onl y if they are for use in National Cars, in
violation of the Article I:1 requirement of " unconditional" most favoured nation treatment. The
discrimination in practice in favour of parts and components from Korea is precisely the sort of
discrimination that preceding panels have long held to be inconsistent with Article I:1.
 (1) Indonesia grants benefits solely to imports from Korea
7.8 While National Cars are required to meet certain local content levels, the balance of the parts
and components necessary to assemble National Cars is imported. Indonesia provides the sole
National Car producer, PT Timor, with the benef its of duty free treatment of such parts and
components.
7.9 While there is no reference to Korea or a Ko rean company in Indonesia's regulations which
establish and regulate the National Car Programme, the intended beneficiary of the Programme, PT
Timor, has intended, since even prior to the formal establishment of the Programme, to import parts
and components for assembly of National Cars only from a Korean company. Even before the
initiation of the Programme, the State Minister for the Mobilization of Investment Coordinating Board
supported this intent and Indonesia effectuated it through Presidential Instruction No.2/1996. 334
Accordingly, only certain automobile parts a nd components from Korea are granted duty free
treatment, while parts and components from any other country including Japan are not.
7.10 Indonesia also provides a luxury tax exemption for National Cars. On its face, this measure
gives advantages to the sales of National Cars. In addition, the luxury tax exemption also indirectly
benefits parts and components impor ted or to be imported from Korea for the purpose of assembling
National Cars. The increase of the National Cars' mark et share, thanks to th e luxury tax exemption,
would naturally expand sales and profits of Kia. As parts and components for assembly of National

333 Report of the Panel on EC - Bananas III, para.7.194.
334 Letter dated 27 December 1995 from Mr. Sany oto Sastrowardoyo, State Minister for the
Mobilization of Investment Coordinating Board to Mr. Hutomo Mandala Putra, President Director of PT. Timor
Putra Nasional (Japan Exhibit 35).
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Cars are imported only from Kia, such indirect bene fits are to be exclusively granted to Kia's parts
and components. Accordingly, only certain part s and components from Korea are granted indirect
benefits of the luxury tax exemption, while pa rts and components from any other country including
Japan are not.
(2) The benefits for imports from Korea cons titute an advantage that is covered by
Article I:1
7.11 The duty free treatment is an "advantage" prohibited under Article I:1 because duty free
treatment obviously is an advantage with respect to "customs duties and charges of any kind imposed
on or in connection with importation. The luxury tax exemption is also an "advantage" prohibited
under Article I:1 because the exemption relates to "int ernal taxes or other internal charges" that are
"matters referred to in paragraph 2 ... of Article III." Accordingly, the first and second part of the
EC - Bananas III three-part test are satisfied.
(3) The advantage is not accorded to "like products" from any country other than Korea
7.12 Article I:1 of GATT 1994 obliges the GOI to acco rd the advantage to "like products" from all
WTO Members, not only from Korea.
7.13 With respect to the "likeness", the discussion in terms of Article III should apply with equal
force. First, the Report of the Working Party on Boarder Tax Adjustments 335 suggests that the
criteria, such as "the product's end users, consumer s' tastes and habits, and the product's properties,
nature and quality", should be used " for interpreting 'like or similar products' generally in the various
provisions of GATT 1947". 336 Also in the Spain - Tariff Treatments of Unroasted Coffee the panel
found whether the products in their end-use are "reg arded as a well-defined and single product" to be
relevant in determining whether they are "like products"337, for the purpose of Article I:1.
7.14 Under the preceding criteria, parts and components imported from Japan, or any other
country, and those imported from Korea for assembly of National Cars constitu te "like products" for
the purpose of Article I:1. Parts and components from Japan and those imported from Korea for
assembly of National Cars are in their end-use regarded as a single product, that is, parts and
components for use in the assembly of automobil es. Similarly, automotive parts and components
imported from Korea and those imported from Japan and other countries share the same or similar
properties, nature and quality. Thus, the third part of the EC - Bananas III three-part test is satisfied.
(4) The advantage is not accorded "unconditionally"
7.15 Article I:1 of GATT 1994 also obliges the GOI to accord all advantages "unconditionally".
7.16 Under Indonesia's Programme, in order to benefit from the duty free treatment and the
indirect effect of the luxury tax exemption, parts and components must meet certain prerequisites; i.e.,
they must be for the assembly of National Cars. Accordingly, the Programme establishes "conditional
most-favoured-nation" treatment and, therefore, violates Article I:1.338

335 Working Party Report on Border Tax Adjustment, para.18.
336 Report of the Appellate Body on Japan-Alcoholic Beverages II, p.20.
337 Spain - Tariff Treatment of Unroasted Coffee , L/5135, adopted 11 June 1981 (BISD 28S/102)
para. 4.7.
338 In the 1973 Working Party Report on the "Accessi on of Hungary," the GATT secretariat stated that
"the prerequisite of having a co-operation contract [between the Hungarian government and importing
companies] in order [for importing companies] to bene fit from certain tariff treatment appeared to imply
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(c) The fact that Indonesia's legislation does not explicitly discriminate in favour of
Korean products cannot be a defence
7.17 Indonesia may contend that its regulati ons only establish requirements for preferential
treatment, but without preference for any specific country, and, therefore, are consistent with
Article I:1.339 However, this defence cannot prevail for the following reasons.
7.18 First, in the precedent cases, including the Belgian Family Allowances 340, Spain Coffee , and
EEC - Imports of Beef from Canada 341 cases, the panels have found th at measures are inconsistent
with Article I even if they do not explicitly manda te discrimination between countries, as long as they
introduce discrimination between countries. In this case, Indonesia's measures obviously have
introduced discrimination between Korean produ cts and other countries' products. Moreover,
Indonesia established the measures, well knowing that they would have such effects. Therefore,
Indonesia's measures appear to intend to discrimin ate, and in practice do discriminate, between
products from those countries.
7.19 In United StatesStandards for Re formulated and Conventional Gasoline , the Appellate Body
emphasized the relevance of such "knowledge" in the context of Article III:4 violation:
In our view, [the failure to mitigate re gulatory impact on foreign suppliers] go[es]
well beyond what was necessary for the Panel to determine that a violation of Article
III:4 had occurred in the first place. The resulting discrimination must have been
foreseen, and was not merely inadvertent or unavoidable.
342
Since the text of Article I:1 is no less stringent than that of Article III:4, the prior recognition and the
impact of discrimination should be prima facie evidence of an Article I:1 violation. Thus although
Indonesia may argue that the pioneer company is free to import from anyone, anywhere, Indonesia
obviously knew how the benefits of the programme w ould be distributed among their trading partners
and assisted the execution of the plan. In sum, this is a case of active intervention, which violates the
Article I:1 of GATT 1994.
7.20 Second, as discussed, Article I:1 prohibits "conditional" most-favoured-nation treatment.
Therefore, even if the regulations set out no preference for any specific country, they are
"conditional," and thus inconsistent with Article I:1.
(d) The fact that only a certain portion of products from Korea are granted preferential
treatment cannot be a defence either
7.21 Indonesia may contend that only a certain portion, or not all, of parts and components from
Korea are granted preferential treatment, and that, therefore, the measure is not inconsistent with
Article I:1. However, this defence also fails, for the following reasons.

conditional most-favoured-nation treatment and would, th erefore, not appear to be compatible with the
[GATT]." (BISD 20S/34) (1974), at 36 para.12 adopted 30 July 1973.
339 In fact, Indonesia has presented this sort of argument in its replies to questions posed by Japan in the
context of the updated subsidies notification. See SUBSIDIES/Replies to Questions posed by Japan concerning
the Updating Notification of INDONESIA [G/SCM/Q2/IDN/9] (Japan Exhibit 20).
340 Belgian Family Allowances, G132 (BISD 1S/59, 2S/18 and 7S/68), adopted 7 November 1952.
341 EEC - Imports of Beef from Canada L/5099 (BISD 28S/92), adopted 10 March 1981.
342 Report of the Appellate Body on United States - Standards for Reformulated and Conventional
Gasoline (WT/DS2/AB/R) p.28.
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7.22 First, the text of Article I:1 requires that any advantage to "any product" originating in any
country shall be accorded to the like products from other Members of the WTO. The text does not
prohibit advantages only when they are granted to "all products" or "most pr oducts" from a particular
country. Thus, the GOI's possible contention must fa il because it ignores the text of Article I. Indeed
the recent WTO panel decision in the EC - Bananas III
 case confirmed that "Article I:1 obliges a
Member to accord any advantage granted to any prod uct originating in any country to the like product
originating in the territories of all other Members, in respect [e.g.] of matters referred to in
Article III:4."343
7.23 Further, the 1989 GATT panel report on US - Section 337 of the Tariff Act of 1930 stated as
follows:
The 'no less favourable' treatment requirement [is] an expression of the underlying
principle of equality of treatment of importe d products as compared to the treatment
given either to other foreign products, unde r the most favoured nation standard, or to
domestic products, under the national treatment standard of Article III .... The 'no less
favourable treatment' requirement of Article III:4 [and, by analogy, Article 1.1] has to
be understood as applicable to each individual case of imported products.344
In the context of the Article III:2 violation, the WTO Appellate Body quoted this language from the
Section 337 panel report to support its own conclusion that "dissimilar taxation of even some
imported products as compared to directly co mpetitive or substitutabl e domestic products is
inconsistent with the provisions of the second sentence of Article III:2". 345 (Emphasis added.) The
same reasoning was followed by other GATT/WTO pane ls (or Appellate Body) reports including the
US Beverages panel which concluded that, with regard to Article III, the fact that only certain
domestic products are treated preferentially does not cu re an Article III inconsistency. There is no
reason to apply a different rule with respect to Article I:1.
2. The Extended National Ca r Programme of June 1996
7.24 Japan claims that the extended National Car Programme of June 1996 (See Section III.A)
violates Article I:1 of GATT 1994. The following are Japan's arguments in support of this claim:
(a) Indonesia granted benefits solely to im ports of CBUs from Korea (i.e., National Cars
assembled at the Kia factory in Korea) in violation of Article I:1 of GATT 1994
(1) Indonesia granted benefits solely to imports from Korea
7.25 Indonesia granted the duty free treatment and the luxury tax exemption solely to CBUs
(i.e. National Cars assembled at the factory of Kia) imported from Korea.
7.26 Although it is not known whether the application for the authorization specified that the
imports came from Korea, in fact all Timor cars imported under the June Programme have come from
Kia in Korea, as Indonesia has confirmed. It is not at all adventitious, since Sedan/S515 -1500cc is a
copy of Kia's Sephia model and, therefore, no foreign company, other than Kia, may produce the
S515. Further, this fact was also easily predic table due to the statement in the 12 December 1995
letter of the president director of TPN to the State Minister for the Mobilization of Investment

343 Report of the Panel on EC - Bananas III, para. 7.194.
344 United States - Section 337 of the Tariff Act of 1930 , L/6439 (BISD 36S/345), paras. 5.11, 5.14,
adopted 7 November 1989.
345 Report of the Appellate Body on Canada - Periodicals, page 28.
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Coordination Board. This letter stated that TPN wi shed to "manufacture four-wheeled motor vehicles
with the 'TIMOR' brand name at the KIA Motors Corp., South Korean factory which is then to be
delivered to Indonesia in SKD form ..." (italics added) in the initial three years and, therefore,
substantial production or involvement of Kia at least at the initial stage was expected from the outset.
(2) Indonesia violates Article I:1 of the GATT 1994

7.27 As discussed with regard to the "Februar y 1996" Programme (Section VII.A.1), the duty free
treatment and luxury tax exemptions are advantag es accorded only to imports (in this case, imported
CBUs) from Korea but not to imports (of CBUs) from Japan or any other country. As Indonesia
admitted, the status of a "pioneer" company is no t granted automatically. Indeed after over one and a
half years, PT Timor is still the only company which has been granted this privileged status. It is
even conceivable that PT Timor will remain the ex clusive beneficiary of the Programme, because it is
hard to imagine that there will be many "Nati onal" cars, granting unconditionally most favoured
treatment to all trading partners in the end. In li ght of the magnitude of the privilege, it is difficult to
believe that the present status is merely accidental . In addition, the fact that the 25 per cent
counter-purchase requirement is imposed, which inhe rently limits the number of qualified exporting
companies or countries, is expected to bring bene fits only to the Korean company or Korea. Thus,
this discriminatory treatment clearly constitutes the violation of Article I:1 of the GATT 1994. The
arguments made in the context of the February 1996 Programme (See Section VII.A.1) are equally
applicable to the advantages given to the imports of CBUs from Korea.
(b) The fact that the previous authorization has expired cannot be a defence

7.28 Indonesia may contend that the authoriza tion made in June 1996 expired on 30 June 1997
and, therefore, the Government of Japan has no legal interest in contesting this authorization.
7.29 However, Presidential Decree No.42/1996 remains in effect. (See Section X). Indonesia may
designate other models to be imported as Nati onal Cars, under Presidentia l Decree No.42/1996.
Further, at least one more vehicle model manufactured by Kia has been reported to be included in the
National Car programme and to be eligible to recei ve authorization for importation as a National Car.
On 5 November 1996, Kia announced in Seoul, Korea that "the company plans to manufacture 50,000
utility vans a year in Indonesia beginning in 1998. 'After discussions with our joint venture partner
PT Timor Putra Nasional and the Indonesian Governme nt, we have agreed to include production of
utility vans in Indonesia's national-car project,' Kia's Executive Vice President Kim Seung-ahn said."
A PT Timor spokesman confirmed that "Yes, we do ha ve such a plan and I think it will be included
(in the national car programme)."
346 In May 1997, Mr. Soemitro Soerachmad, chief executive of PT
Timor's distribution subsidiary, said "'the company [ PT Timor] had agreed with Kia Motors of South
Korea to import the Sportage, a small sport utilit y vehicle, from early 1998.'... . The Sportage, a
lightweight sports utility vehicle, called the J520i in Indonesia, will ..... qualify for the same tax and
tariff breaks enjoyed by the Timor ... . However, Mr. Soemitro indicated early batches of the new
model might have to be imported from Korea in completely built-up form pending completion of a
new plant."347 Therefore, the Government of Japan faces a tangible threat of further, renewed harm
by reason of Indonesia's standing regulations.
7.30 Moreover, some preceding pa nels have examined measures and presented complete reports
even though the relevant measures were terminated during the panel process, even prior to the

346 The Indonesian Observer , "PT Timor plans to manufacture utility vans", 6 November 1996, (Japan
Exhibit 54).
347 Financial Times, "Jakarta Plans New National Car", May 1997 (Japan Exhibit 55).
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formation of the panel.
348 Therefore, the fact that the aut horization made in June 1996 expired on
30 June 1997 is irrelevant to this proceeding.
B. Claims Raised by the European Communities
7.31 The European Communities claims that the following measures are inconsistent with
Indonesia’s obligations under Article I:1 of GATT:
(1) the exemption from customs duties on imports of National Cars;
(2) the exemption from the Sales Tax on Luxury Goods for imported National Cars;
(3) the exemption from the Sales Tax on Luxury Goods for National Cars assembled in
Indonesia; and
(4) the exemption from customs duties on imports of parts and components for the
assembly of National Cars in Indonesia.
7.32 The following are the European Communities' arguments in support of these claims:
7.33 Article I:1 of GATT is expressed as follows:
With respect to customs duties and charg es of any kind imposed on or in connection
with importation ... 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 any other country shall be accorded
immediately and unconditionally to the lik e product originating in .... all other
contracting parties.
1. Measures concerning the importation of National Cars

7.34 Exemptions (1) and (2) infringe Article I: 1 because they provide an “advantage” which de
facto benefits only imports of motor vehicles of the Kia brand originating in Korea, to the exclusion
of imports of “like” motor vehicles originating in other Members.
 (a) The measures provide “advantag es” covered by Article I:1 of GATT
7.35 GATT Article I:1 applies, inter alia, to any advantage granted by a Member “with respect to
customs duties ... imposed on or in connection with importation ....” . Accordingly, the exemption
from customs duties on imports of National Cars is a measure covered by Article I:1.
7.36 Article I:1 of GATT also applies to any advantage granted with respect to “all matters
referred to in paragraph 2 ... of Article III”. Article III:2 refers to “internal taxes or other internal
charges”. As shown above, the Sales Tax on Luxury G oods is an “internal tax” within the meaning of
Article III:2. Therefore, the exemption from the Sales Tax on Luxury Goods is also an advantage
covered by Article I:1.

348 EEC Measures on Animal Feed Proteins, L/4599, adopted 14 March 1978 (BISD 25S/49); See also,
United States - Prohibition of Imports of Tuna and Tuna Products from Canada , L/5198, adopted on
22 February 1982 (BISD 29S/91).
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 (b) The cars covered by the measures are “like” other cars

7.37 As shown above, the defin ition of “National Cars” is not based on any factor which may
affect per se the physical characteristics of those cars or their end uses. Consequently, in principle
National Cars imported from Korea are ”like” any motor vehicle imported from other Members.
 (c) The measures benefit only and exclusivel y imports of Kia cars originating in Korea
7.38 Article I:1 of GATT does not prohibit only measures which discriminate formally and openly
according to the country of origin of the importe d goods. Measures worded in generally applicable,
origin neutral terms have also been found to infri nge Article I:1 in instances where de facto they
benefited only or mainly imports from a certain Me mber. This has been recently confirmed by the
Appellate Body in EC - Regime for the Importation, Sale and Distribution of Bananas, where it stated
that:
Articles I and II of the GATT have been applied, in past practice, to measures
involving ‘de facto’ discrimination .349
7.39 As examples of that practice, the Appella te Body referred to the Panel reports on Spain -
Tariff treatment of Unroasted Coffee350; EEC - Imports of Beef from Canada 351; and Japan - Tariff on
Imports of Spruce-Pine-Fir (SPF) Dimension Lumber352.
7.40 Presidential Decree 42/96 has been carefully drafted so as to avoid any appearance of
discrimination among Members. On paper, Preside ntial Decree 42/96 allows Pioneer Companies to

349 Appellate Body Report on EC - Regime for the Importation, Sale and Distribution of Bananas ,
adopted on 25 September, WT/DS 27/AB/R, para 232.
In the same report, the Appellate Body affirmed the Panel’s findings that the “operator category rules”,
the “activity function rules” and the “h urricane licence rules” applied by the Community in order to allocate
licences for importing bananas under a tariff quota violated the Most-Favoured-Nation obligation contained in
Article II of GATS because in respect of each of those measures a major ity of the service suppliers of ACP
origin fell within the “more favoured” category of supplie rs and/or a majority of the “like” suppliers of the
Complainants’ origin were fo und in the “less favoured” category. In reaching this conclusion, the Appellate
Body rejected an argument by the Co mmunity to the effect that the m easures pursued a “legitimate policy” and
were not “inherently discriminatory ”. According to the Appellate Body , the “aims” of a measure are not
“relevant” in order to establish whether it affords de facto Most-Favoured-Nation treatment (at paras. 240-248).
350 In Spain - Tariff Treatment of Unroasted Coffee (adopted on 11 June 1981, BISD 28S/102,
111-112). the Panel concluded that by applying different tariff rates to different varieties of coffee which had
been previously found to be “like”, Spain had infringed its obligations under Article I:1 The Panel noted that
the complainant, Brazil, exported to Spain mainly those varieties that were subject to higher import duties. Thus,
even if the application by Spain of different tariff rates to different coffee varieties was formally origin neutral,
imports from Brazil were discriminated de facto vis-à-vis imports from other countries that exported mainly the
varieties subject to the lower duty rates.
351 In EEC - Imports of Beef from Canada (adopted on 10 March 1981, BISD 28S/92, 113) the Panel
examined a tariff concession for high quality beef granted by the Community during the Tokyo Round. The
Panel did not consider necessary to judge whether the terms of the concession were in themselves
discriminatory. The Panel limited itself to note that a regulation implementing the concession required a
certificate of authenticity issued and endorsed by one of the authorities included in an annex to that regulation.
The annex in question listed only a US agency, it being specified that this agency was empowered to certify
only meat of US origin. In light of this, the Panel concluded that the measures at issue
“...in their present form had the effect of preventing access of like produc ts from other origin than the
United States, thus being inconsistent with the most favoured nation principle in Article I of the General
352 Japan - Tariff on Imports of Spruce-Pine-Fir (SPF) Dimension Lumber, adopted on 19 July 1989
BISD 36S/167.
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import duty free and tax free National Cars from any count ry in the world. De facto, however, all
the cars which have so far benefited from Presidential Decree 42/96 were of Korean origin. This is not
fortuitous. Presidential Decree 42/96 was conceive d and applied from the outset by the Indonesian
authorities with the deliberate and sole purpose of permitting the importation duty free and tax free by
PT TPN of Kia cars made in Korea only, and no other cars.
7.41 The Indonesian authorities have acknowledged publ icly that it is their policy to reserve the
benefits of the National Car Pr ogramme exclusively for PT TPN. At a press conference held on 15
March 1996, Indonesia's Minister of Industry and Trade, Mr. Tunky Ariwibowo, announced the
Indonesian Government's policy of reserving the benefits of the National Car Programme for PT TPN.
Since then, this policy has been reiterated by Mr. Ariwibowo and other senior officials on many
occasions.
353 That policy is confirmed by the fact that, as of date, PT TPN remains the only company
which has been granted Pioneer status, even t hough other Indonesian car producers have also
requested that status. Thus, in practice, President ial Decree 42/96, even if drafted in generally
applicable terms, had but a single addressee and beneficiary: PT TPN.
7.42 The decision of the Indonesian authorities to reserve the benefits of the National Car
Programme for PT TPN entailed also a conscious, even if not explicit, decision by those authorities to
grant the benefits provided by Presidential Decr ee 42/96 only with respect to imports of cars
manufactured by Kia in Korea.
7.43 When adopting Presidential Decree 42/96, the Indonesian authorities could not have ignored
that PT TPN would take advantage of that measure in order to import exclusively motor vehicles
made by Kia in Korea. In particular, since they well were aware that:
- Mr Hutomo Mandala Putra, the owner of PT TPN, had set up a joint venture with
Kia for the assembly of Kia cars in Indonesia already in 1993;
- the first National Car which PT TPN planne d to assemble in Indonesia (the Timor
S-515) is a version of an already existing Kia model, the Sephia;
- Kia’s main operating facilities for the assemb ly of the Sephia are located in Korea.
7.44 Indeed, there is evidence in the record showing that Presidential Decree 42/96 was adopted in
response to a precise request from PT TPN to be allowed to import specifically motor vehicles
manufactured by Kia in Korea, and no other kind of motor vehicles. As discussed in the factual part,
in a letter dated 12 December 1995, PT TPN asked the approval of the Indonesian authorities for inter
alia:

353 “Indonesia backs its Trade Policy for Auto Makers”, Asian Wall Street Journal , Jakarta, 18 March
1996 (EC Exhibit C-1); “Jakarta’s tax breaks for car firm unfair: Japan”, The Strait Times, Singapore, 24 March
1996 (EC Exhibit C-2); “The prospects for national cars”, Business News , Jakarta, 18 April 1996 (EC Exhibit
C-3). “Govt not to grant incentives for Bimantara cars”, The Jakarta Post , Jakarta, 1 June 1996 (EC Exhibit
C-4); “Another Suharto son launches Indonesia car”, Reuters, Jakarta, 23 July 1996 (EC Exhibit C-7);
“National car plan presses on in Indonesia”, Financia l Times, 9 July 1996 (EC Exhibit C-6); “Bimantara’s
request for car policy review refused”, The Jakarta Post
, Jakarta, 6 June 1996 (EC Exhibit C-5); “Only one car
firm to get protection”, The Jakarta Post, Jakarta, 15 November 1996 (EC Exhibit C-8); “Only one car firm to
get protection”, The Jakarta Post
, Jakarta 15 November 1996 (EC Exhibit C-8); “Indonesia backs its Trade
Policy for auto makers” Asian Wall Street Journal , 18 March 1996 (EC Exhibit C-1); “Only one car firm to get
protection”, The Jakarta Post, Jakarta, 15 November 1996 (EC Exhibit C-8).
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

1. Manufacture four wheeled motor vehicles with the “TIMOR” brand name at the Kia
Motors corp., South Korean factory which is then to be delivered to Indonesia in
SKD form [..].
3. Import vehicles in SKD resulting from production referred to in point 1 using
domestic (Indonesian) components/parts exporte d to the Kia Motors Corp. plan with
exemption of Import Duty, Additional Import Duty and Tax on Luxury Goods (Ppn
BM) for such vehicles.
7.45 The subsequent implementation of Preside ntial Decree 42/96 provides further confirmation
that this measure was devised with the exclusiv e purpose of permitting the importation duty free and
tax free by PT TPN of cars manufactured by Kia in Korea.
7.46 On 7 June 1996, PT TPN was authorised on the basis of Presidential Decree 42/96 to import
45,000 cars. This authorization remains to date the only one issued pursuant to Presidential
Decree 42/96. The authorization specifies the "kind/type
" of the cars to be imported in the following
terms: “sedan S/515 - 1500 cc ”. The technical specifications of the S-515 are the same as those of
Kia’s model “Sephia”. Thus, even if the authorization did not direct expressly PT TPN to purchase the
cars from any particular source, it was implicit in its terms that it covered only cars made by Kia in
Korea.
7.47 In light of the above considerations, it co mes as no surprise that each and every one of the
39,727 cars imported by PT TPN under Presidential Decree 42/96 as of 30 June 1997, the date on
which the aforesaid authorization expired, were manufactured by Kia and imported from Korea.
2. Measures concerning the assembly of National Cars in Indonesia
7.48 Exemptions (3) and (4) violate Article I: 1 of GATT because they provide an “advantage”
which de facto benefits mainly, if not exclusivel y, imports of parts and components originating in
Korea, to the detriment of imports of “like” parts and components from other Members.
 (a) The measures provide “ advantag es” covered by Article I:1 of GATT
7.49 As discussed, GATT Article I:1 applies to an y advantage granted by a Member with respect
to the imposition of customs duties on or in c onnection with the importation of goods. Thus, the
exemption from customs duties on imports of parts and components for the assembly of National Cars
is an “advantage” covered by Article I:1.
7.50 Article I:1 also applies to any advantage gran ted with respect to “all matters referred to ... in
paragraph 2 ... of Articles III”. The Sales Tax on L uxury Goods is an internal tax and, therefore, a
“matter” referred to in Article III:2. The exemption from that tax of the sales of National Cars
assembled in Indonesia represents an “advantage” not only for the National Cars as such but,
indirectly, also for the parts and components assemb led therein. That indirect “advantage” is also
covered by Article I:1.
(b) Parts and components made in South Ko rea are “like” other parts and components
7.51 The mere fact of being manufactured in Ko rea does not confer to parts and components any
specific physical characteristics or end uses which make them “unlike” parts and components
manufactured elsewhere.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

(c) The measures will benefit mainly, if not ex clusively, imports of parts and components
from South Korea
7.52 The first National Car to be assembled in Indonesia by PT TPN (the Timor S-515) is but a
re-badged replica of Kia’s model Sephia. Most of the parts and components assembled by Kia into its
model Sephia are manufactured in Korea by Kia itself or its affiliates or by independent part makers
linked to Kia by long standing supply relationships.
7.53 For PT TPN, it would make no commercial sen se to try and import the parts and components
for assembling the Timor S-515 from other suppliers estab lished in third countries. This was already
anticipated by PT TPN in its letter of 12 Decemb er 1995, in which it requested the approval of the
Indonesian authorities for:
2. Manufacture four-wheeled vehicles with the “TIMOR” brand name at third
party’s/parties licensed assembly plant(s) in Indonesia with its primary material
imported from overseas (Kia Motors Corp.) starting from full-CKD and gradually
decreasing by the use of local components [...]
7.54 As a result, de facto the tariff and tax bene fits for the assembly of National Cars in Indonesia
will benefit predominantly, if not exclusively, impor ts of parts and components originating in Korea,
thereby infringing Article I:1 of GATT.
C. Claims Raised by the United States
7.55 The United States claims that Indonesia’s exempti on of CBU Kia Sephia sedans imported
from Korea from import duties and the luxury tax violates Article I:1 of GATT 1994. The following
are the United States' arguments in support of this claim:
7.56 Under Presidential Decree No. 42/1996, “n ational motor vehicles” produced abroad were
“granted the same treatment as that of national automobiles produced in Indon esia”. This meant that
CBU Kia Sephia sedans could be imported from Kor ea without being subject to (a) the 200 per cent
tariff on imported CBU passenger cars; and (b) the 35 pe r cent luxury tax. This preferential treatment
accorded to motor vehicles imported from Korea violates Article I:1 of GATT 1994.
7.57 Article I:1 provides, in pertinent part:
With respect to customs duties and charg es of any kind imposed on or in connection
with importation ... 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 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 ... any other country shall be accorded
immediately and unconditionally to the like pr oduct originating in ... the territories of
all other contracting parties.
7.58 The exclusive exemption from the 200 per cent tariff and the 35 per cent luxury tax of Kia
Sephia sedans imported from Korea clearly constitutes an “advantage, favour, privilege or immunity”
within the meaning of Article I:1 that is not “accorded immediately and unconditionally to the like
product originating in ... the territories of all othe r contracting parties”. Imports of CBU passenger
cars that are “like” the Kia Sephia ar e ineligible for the same treatmen t. Instead, they are put at a
competitive disadvantage by being subject to the 200 per cent tariff and the 35 per cent luxury tax. As
such, this exemption violates Article I:1.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

7.59 Indonesia has gone on record as asserting that this tariff and tax exemption does not violate
Article I:1 “because it does not direct recipients of the subsidy to import automobiles from any
particular country. Private parties designated as national car companies are free to import qualifying
automobiles from any country”.
354
7.60 This attempted justification of such a blat antly WTO-inconsistent measure is disingenuous, at
best. At the time Presidential Decree No. 42/1996 was issued, the Government of Indonesia already
had approved the Kia Timor joint venture as the so le producer of a “national motor vehicle” and the
sole beneficiary of benefits under the National Moto r Vehicle programme. This project called for the
production/assembly in Indonesia of Kia Sephia sedan s, to be renamed the Timor S515 and S515i
sedans. Indeed, Indonesia has claimed that it will not extend “national motor vehicle” benefits to any
other vehicle to be produced by the Kia Timor joint venture.355 Therefore, there was one car, and only
one car, that could be imported as a “national motor vehicle”, and that was a Korean car, the Kia
Sephia sedan.
7.61 Moreover, the Government of Indonesia provided the one-year exemption from import duties
and the luxury tax to facilitate the production/asse mbly in Indonesia of the Timor Kia Sephia sedan.
As stated by the Minister of Industry and Trade: "This aims at accelerating the production process of
Timor so that [the car] can quickly enter the ma rket. The government gives PT Timor Putra Nasional
a period of 12 months, from June 1996 through June 1997, to assemble the cars in Kia’s factory in
Korea."
356
7.62 In light of this, it simply is incredible to cl aim, as does Indonesia, that private parties, either
TPN or Kia Timor, were “free to import qualifyi ng automobiles from any source”. The objective of
the one-year tariff and tax exemption on imported “national motor vehicles” was to facilitate the entry
into the Indonesian market of the Timor Kia Sephia sedan - the only designated “national motor
vehicle” at the time. This objective could not have been accomplished if Kia Timor or TPN were free
to import any vehicle from any source they chose, such as an Opel Optima or a Ford Escort.
Therefore, in reality, only Kia Sephia sedans from Ko rea were eligible for the preferential treatment
accorded by Presidential Decree No. 42/1996.
7.63 Indeed, this case is analogous to the EEC Beef case
, in which the panel found a violation of
Article I in a situation where “exports of like products of other origin than that of the United States
were in effect denied access to the European Co mmunities market considering that the only certifying
agency authorized to certify th e meat ... was a United States agency mandated to certify only meat
from the United States”.357 Just as only USDA-certified beef was eligible for access to the European
Communities market in EEC Beef , in the instant case, the only motor vehicle “certified” for tariff-
and tax-free treatment under Presidential Decree No. 42/1996 was the Kia Sephia sedan from Korea.

354 G/SCM/Q2/IDN/9 (23 May 1997), p. 3.
355 In responding to a question under the Annex V procedure, Indonesia stated, “[T]he Government
does not intend to grant National Car benefits to PT. Ti mor Putra Nasional (‘TPN’) for other models". (AV/14,
p.4, Question #10(a)) and “In accordance with Manufacturing Licence for TPN, TPN also plans to produce or
and assemble Timor commercial cars (Category I and IV). However, the Government of Indonesia maintains its
position that the only national car produced in Indonesia is the S515i model sedan.” (AV/16, p.3,
Question #12/28(b)).
356 “Indonesia’s ‘National Car’ to Be Built in S. Korea”, The Reuter Asia-Pacific Business Report , 5
June 1996 (US Exhibit 14, pp. 62-63).
357 “EEC - Imports of Beef from Canada , L/5099, Report of the Panel adopted 10 March 1981,
BISD 28S/92, para. 4.2(a).
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

D. Indonesia's response to the claims raised under Article I:1 of GATT 1994

7.64 The following are Indonesia's arguments in response to the cl aims raised under Article I:1 of
GATT 1994:
1. The June 1996 Programme expi red 30 June 1997, so there can be no present violation of
Article I of GATT 1994
 (a) The legal authority for the June 1996 Programme expired on 30 June 1997
7.65 By its terms, the June 1996 programme was a one-time, one-year progr amme. Article 2 of
Decree of the President No. 42/1996 (4 June 1996) 358, which provided the underlying authority for
the programme, declared expressly:
The equal treatment contemplated in Artic le 1 is only granted once for a maximum
period of one year and for amounts stipulated by the Minister of Industry and Trade.
(Emphasis added.)
The limitation to a one-time, one-year grant is reaffirmed in Decree of the Minister of Industry and
Trade No. 142/MPP/Kep/6/1996 (5 June 1996), which implemented the Presidential Decree. 359
Article 1 thereof states:
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. (Emphasis added.)
7.66 These limitations are reflected in the authorization for TPN to import Timor S515 sedans
under authority of the June 1996 programme. The "Recognition of Registered Importer/Sole Agent
(IT/AT)," file number 1410/MPP/6/1996, signed by the Minister of Industry and Trade on
7 June 1996, notes in its title th at it is valid through 30 June 1997. 360 It includes the following
limitation in paragraph 1 of its te rms and conditions: "Only to import a total of 45,000 units of sedan
with importation period limited to 30 June 1997" (emphasis added).361
7.67 On 30 June 1997, the legal authority for the June 1996 programme expired as scheduled and
the importation authority provided by "Recogniti on" number 1410/MPP/6/1997 ceased to be valid. 362
No comparable programme has been or will be author ized. Therefore, not only did the imports which
Complainants claim violate Article I of the Gene ral Agreement cease over four-and-one-half months
ago, there is no legal authority under which they could resume. The June 1996 programme has ended
and, as demonstrated below, has no relevance to these proceedings.

358 Indonesia Exhibit 6.
359 Indonesia Exhibit 7.
360 Indonesia Exhibit 13.
361 Indonesia Exhibit 13.
362 Id.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

(b) Because the programme and the authority under which it was granted have
terminated, there is no basis for an affirmative determination by the Panel
7.68 Article 19.1 of the DSU provides that:
[w]here a panel or the Appellate Body conclud es that a measure is inconsistent with a
covered agreement, it shall recommend that the Member concerned bring the measure
into conformity with that agreement. (Footnote omitted.)
Article 3.7 of the DSU confirms that this forward- looking remedy - elimination of an inconsistent
measure - is the only WTO-consistent remedy. (Compensation is expressly recognized as "a
temporary measure pending the withdrawal of the measure which is inconsistent with a covered
agreement.")
7.69 The measure has been elim inated because the June 1996 programme and the legal authority
under which it was granted expired on 30 June 1997. Therefore, even if the measure had been
inconsistent with a provision of the WTO (which Indonesia does not accept), there is nothing further
to remedy. Under such circumstances, it would be inappropriate for the Panel to do more than note
the expiry of the programme and declare that no determination is warranted as to the claimed
inconsistency of the expired programme.
(c) Prior Panel decisions support the refu sal to rule on an expired measure
7.70 In Thailand-Restrictions on Importa tion of and Internal Taxes on Cigarettes
(7 November 1990), BISD 37S/200, the complaint in cluded allegations regarding an excise tax and a
business and municipal tax. Prior to the panel's decision, Thailand issued regulations applying a
single excise tax rate for all cigarettes (impor ted and domestic) and rem oving cigarettes from the
products subject to the business and municipal tax. Even though the underlying authority to reimpose
discriminatory taxes remained in effect, the pane l concluded that the current regulations were
consistent with Thailand's GATT obligations. The me re fact that by subsequent regulation Thailand
conceivably could reintroduce taxes that discriminat ed against imports was insufficient to warrant a
ruling of inconsistency. (See id. paras. 84-86 and 88 at pp. 227-28.)
7.71 In Thai Cigarettes the fact that the measures as they existed at the time of the panel's decision
were not inconsistent with the General Agreement was sufficient to warrant a negative ruling by the
panel. In the instant case, the June 1996 programme has ended and the very authority under which it
was promulgated has expired.
7.72 The decision of the 1989 panel in Chile's co mplaint with respect to EEC - Restrictions on
Imports of Dessert Apples (22 June 1987), BISD 36S/93, also is instructive. Chile urged the panel to
rule that the European Communities should offer compensation to Chile because a ruling that the
measures should be withdrawn would be meani ngless because the measures had lapsed. The panel
refused to make a finding of "retroactive pr ejudice" and to recommend compensation. (See id .
para. 12.35 at p. 137.)363
7.73 In sum, prior panel decisions also support the conclusion that where, as here, a programme
and its underlying legal authority have expired, the panel should declare that no decision on the merits
of the alleged inconsistency with Article I of the General Agreement is appropriate.

363 The Government Procurement panel in Norway-Procurement of Toll Collection Equipment for the
City of Trondheim (13 May 1992), GPR/DS2/R, reached the same conclusion. See id., paras. 4.17-4.26.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

2. Indonesia has not violated Article I of GA TT 1994 because it did not grant an advantage to
automobiles or parts originating in one c ountry that it did not accord to like products
originating in other countries
(a) Indonesia did not grant an advantage to automobiles or parts originating in one
country
7.74 Complainants concede that nothing in th e regulations or decrees establishing either
the February 1996 or the June 1996 programmes 364 mandates preferential treatment of automobiles,
components or parts from any particular country. 365 Decree of the State Minister for the Mobilisation
of Investment Funds No. 01/SK/1996 (27 February 1996) 366 expressly states that a national car
producer has the freedom to determine the source s of technology and of components and parts.
Further, the 7 June 1996 “Rec ognition of Registered Importer/Sole Agent (IT/AT),” file number
1410/MPP/6/1996, the document in which one would most expect to find such direction, contains no
such limitation.367 Indeed, there is nothing in the Recognition (or in any other official document) that
even implies such an intention.
(b) That TPN made a commercial decision, without government involvement, to enter
into a commercial relationship with a pa rticular company does not constitute a de
facto violation of Article I
7.75 Every automotive company around the world ma kes corporate decisions as to its suppliers,
some of which are located in different countries. The mere fact that a company like TPN receives a
subsidy does not constitute a de facto violation of Ar ticle I of the General Agreement. TPN is free to
import automobiles, components and parts from what ever sources it chooses. In all of the panel
reports cited by Complainants, the responding govern ment had established a legal structure which in
fact compelled or led to a particular result.
7.76 In Spain-Tariff Treatment of Unroasted Coffee (11 June 1981), BISD 28S/102, the
government’s differential tariff treatment of “mild” coffee and other varieties of coffee was found to
be discriminatory. In European Econom ic Community-Imports of Beef from Canada
(10 March 1981), BISD 28S/92, the only agency authorized by the European Communities regulation
to certify beef as high-quality beef was a United States Government agency the mandate of which was
limited to certification of United States beef. Also, Japan miscites th e Reformulated Gasoline
 case368
as standing for the proposition that measures violate Article I if they “introduce” discrimination. This
characterization is incorrect. Rather, the decision declares that United States authorities must have
foreseen that the two separate regulatory regimes that they had established were discriminatory.
7.77 In each of the three above-cited cases, d espite the absence of explicit discrimination, a
particular result was mandated by government acti on. In none of them was the choice of supplier
made by the private-party recipient of the subs idy found to constitute govern ment-mandated de facto
discrimination.

364 As demonstrated in Section III, above, there can be no violation of Article I with respect to the June
1996 programme since it expired on 30 June 1997. Howeve r, even if the programme were still in effect (which
it is not), it would not be inconsistent with Article I for the reasons set out in this section.
365 See Sections VII.A and B. See also Indonesia’s Statement to the Committee on Subsidies and
Countervailing Measures in response to questions posed by Japan (G/SCM/Q2/IDN/9 (23 May 1997) at p. 3).
366 Indonesia Exhibit 4.
367 Indonesia Exhibit 13.
368 Report of the Appellate Body, United States-Standards for Reformulated and Conventional
Gasoline, WT/DS2/AB/R (29 April 1996).
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

7.78 Even if certain Government officials were aware of TPN’s corporate intention to use Kia as a
supplier, the legal structure of the national car progra mme did not compel or lead to this private-party
decision or to imports from Korea. 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 of the General Agreement.
(c) The Timor S515 and components and parts imported for it are not “like” any
passenger vehicles, components or parts imported from the territories of complainants
7.79 The “like product” concept is used in sev eral GATT articles. As confirmed by drafting
history, precedent and legal scholars, the meani ng of the phrase depends on the context in which it
appears. With regard to its use in Ar ticle I, the world’s leading GATT scholar,
Professor John Jackson, states:
[T]here were scattered discussions in the preparatory meetings that yielded some
illustrations of the meaning of like products, particularly as used in the MFN clause.
At one point it was asked whether “all cereals would be considered ‘like products’ or
only wheat?” and an answer given was th at only wheat “would be considered as a
‘like product.’” At a later conferen ce, it was asked whether autos under 1,500
kilograms would be like products to those over 1,500 kilograms , in the case of a tariff
classification that drew this distinction, a nd the inquirer was assured that this would
not be the case.
The term “like products,” as used in Article I (MFN), can probably be considered in
the light of the above preparatory concepts.369
7.80 The narrow scope of the “like product” concep t in Article I is emphasized by The Australian
Subsidy on Ammonium Sulphate and the EEC - Measures on Animal Feed Proteins panel reports,
which note that, unlike Article III:2, in which effects on both “like products” and “directly
competitive or substitutable products” are relevant, the MFN obligation of Article I is limited to “like
products”.370
7.81 Passenger vehicles are highly differen tiated; numerous physical and nonphysical
characteristics determine each model’s properties, na ture and quality and, t hus, consumers’ tastes,
habits and preferences. These defining characteris tics include quality, reputa tion, price, ride and
comfort, standard features, safety features, available options, exterior size, interior space, engine size,
technology, fuel type and fuel efficiency. Complain ants have failed to establish that there is any “like
product” to the Timor S515 in their unsuccessful effo rts to establish serious prejudice, and they must
also fail in the context of Article I. There simply is no car that matches the requisite physical and
nonphysical characteristics of the Timor S515 to be considered a “like product” to it.
7.82 The same failing is true with regard to Complainants’ arguments regarding automotive
components and parts. Government experts have calculated that 93 per cent (by value) of the
components and parts of the Timor are tailor-made to the specifications of that brand. The same is
true (likely with slight variations in the percentage ) with respect to all brands and types. (One does
not and cannot, for example, use GM component s in BMW sedans or Mercedes components in

369 John Jackson, World Trade and the Law of GATT (1969) § 11.4 (emphasis added)(footnotes
omitted).
370 Report of the Working Party on The Australian Subsidy on Ammonium Sulphate (3 April 1950),
BISD II/188 (para. 8 at p. 191). Report of th e Panel on EEC - Measures on Animal Feed Proteins (14 March
1978), BISD 25S/49 (para. 4.20 at p. 68).
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Toyota sedans.) Tailor-made components and parts th at cannot be used in other makes and models
are not “like products”. Indeed, they are not even "directly competitive or substitutable". Thus, for
assembled Timors and Timor components and parts, there can be no violation of GATT Article I since
there are no “like products” which are discriminated against.
3. The June 1996 Programme was a subsidy that ex pired and, therefore, there is no violation of
Article I of GATT 1994
 (a) The June 1996 Programme Has Expired and Will Not Be Renewed
7.83 As Indonesia has stated ad nauseam, the June 1996 Programme has expired and will not be
renewed. One would think these statements would suffice. But Japan, ignoring Indonesia’s
numerous, direct pronouncements, insists that, during the consultations, Indonesia stated that the
“June 1996 Presidential Decree ‘is still in effect …’”. Well, of course th at is what Indonesia said. All
of the consultations occurred well before 30 June 1997, the date th e measure terminated. The June
1996 subsidy has ended and all of Complainants’ argumentation regarding it is moot.
(b) As to Unsold Timors, the Fact That th e Luxury Tax Is Not Forgone Until Sale Is a
Subsidies Agreement Issue, Not an Article I Issue
7.84 In June 1996, pursuant to Presidential Decree No. 42/1996 371 ,TPN received a one-year
subsidy for national cars made overseas. This treatment was necessary because TPN needed to import
built-up Timors to establish the required marketi ng network and introduce a national car to the
Indonesian buying public prior to the time that domestic production feasibly could begin.
The policy contained one quantity and two temporal limitations:
• the subsidy was granted only for the quantit y of autos specified by the Minister of
Industry and Trade (45,000 units);
• the subsidy was limited to one year; and
• the subsidy was granted only once.
7.85 Complainants accurately repeat Indonesia’s re port that not all of the Timors imported under
the June 1996 subsidy have yet been sold. 372 They note that the Government does not forgo the
luxury tax until each car is sold. This also is true.
7.86 The problem with complainants' arguments is that they fail to accept that the June 1996
measure is a subsidy. Thus, regardless of whether or not it still is in effect (it is not in effect), it is a
subsidy and, as such, is subject to the Subsidies Agreement, not Article I.
7.87 Indonesia, in response to a question from the panel, subsequently further argued as follows
regarding the process of importation and customs clearance373:

371 Indonesia Exhibit 6. See also Decree of the Minister of Industry and Trade
No. 142/MPP/Kep/6/1996 (Indonesia Exhibit 7), dated 5 June 1996 and, per Article 5 thereof, effective on that
date. This decree was published promptly in the State Gazette, as is true regarding all decrees of the Minister of
Industry and Trade.
372 The Government’s most current data is that, as of 31 October 1997, only 17,507 Timors imported
under the subsidy remained unsold.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

7.88 Article 2 of Customs Law No. 10/1995
374 provides that a product is considered "imported"
when it arrives in the customs territory of Indonesia (i.e. the territory of the Republic of Indonesia). A
translation of the relevant sections of the Customs Law is attached.
7.89 The importer of the product is responsible for payment of the appropriate customs import
duties, VAT, sales luxury tax, and advance payment of income tax at the moment of importation. In
this case, the importer is TPN.
7.90 The importer is entitled to customs clearan ce upon presentation to the customs authorities of a
customs declaration and proof of payment of the du ties and taxes owing. Under Article 42 of the
Customs Law, this obligation may be satisfied by payment of cash or deposit of security acceptable to
Customs. In this case, under authority of Mini ster of Finance Decree No. 404 and Government
Regulation No. 36, TPN was required to deposit a gua rantee to cover the value of the customs import
duties and luxury sales tax from which it would be ex empt if it satisfied the requirements of the
National Car Programme. TPN also was obligated to payment, in cash, of the VAT and income tax.
7.91 After importation and before completion of the customs clearance procedure, a product may
be kept in "bonded storage". (See Article 44 of the Customs Law.) Bonded storage areas are operated
by private entities, the importer or someone else with whom the importer has made a commercial
arrangement, but they are under the control of Custom s. The private party pays all costs associated
with the facility and storage of the goods there. (In this case, then, TPN is incurring all costs
associated with storage of the imported CBU's which have not received customs clearance.)
(c) Even if the Panel finds that Article I does apply, TPN, and Not Kia, was the
beneficiary of the import duty exemption, the programme was not country-specific
and complainants import no like product, so Article I was not violated
(1) TPN, and Not Kia, was the beneficiary of the June 1996 Programme
7.92 As Indonesia has demonstrated, TPN was the be neficiary of the June 1996 subsidy. TPN was
the importer of record for all of the Timors. TPN is a 100 per cent Indonesian-owned entity. Kia
received no benefit from the Programme, other than be ing paid by TPN as one of its suppliers. Thus,
even if the Panel finds that Article I does apply, no country was “advantaged” or “favoured” within
the meaning of Article I.
(2) The June 1996 Programme Was Not Country Specific
7.93 Complainants concede that nothing in the re gulations or decrees establishing the February and
June 1996 programmes mandates or even expressly provides for preferential treatment of imports
from a particular country. They claim, though, that Indonesia’s anticipation that TPN would associate
with Kia transforms the otherwise benign Progra mme into one that violates Article I because the
Government, they assert, knew that the benefits would go to Kia, a Korean company.

373 Indonesia made the following additional arguments on th is point: "Also with respect to claims
under Article I of GATT 1994, the complainants argued that the June 1996 measures were still in effect because
the luxury tax would not be foregone on the unsold cars until they were sold. This is not correct. The tax is due
when the duties are due and then the consumer reimburses the company at the time of sale (TPN, of course, was
exempt from this requirement). Secondly, TPN failed the Sucofindo audit (See Section X) and, thus, none of
the remaining cars will receive the luxu ry tax exemption. So, even accep ting complainants' position, the June
1996 measures have terminated. Thus, the Panel should reject complainants' Article I arguments."
374 Indonesia Exhibit 50.
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 WT/DS59/R, WT/DS64/R

7.94 This argument is flawed for many reas ons, as a glimpse through the prism of commercial
reality makes clear. First, complainants’ assertions reduce to the understandable plaint that they lost a
contest. TPN could have and likely would have preferred to select any of complainants’ producers for
this venture, including companies such as Fiat, Renault or Mazda. TPN needs technology and
stability in the National Car Programme, two attribut es which Kia lacks. So, in addition to having a
huge incentive to select one of complainants’ makers , TPN had several disincen tives to select Kia.
Why, then, did it select Kia? It selected Kia for one reason and one reason only: unlike
complainants’ makers, which guard even their cas t-off technologies, Kia was willing to transfer
technology (including production technology and trai ning) to TPN, and to do so for a commercially
reasonable price.
7.95 The United States stoutly states that “the irony of this dispute is that the United States auto
manufacturers sought to help Indonesia achieve its objective, but have been precluded from doing so”
by the National Car Programme. This is utter nonsense. Had a single United States manufacturer
come up with a reasonable offer, the Indonesian firms seeking pioneer status would have jumped at
the chance to have an arrangement with such a prestigious partner.
7.96 The same is true of Japan and the European Communities. Each of the three complainants
now complains about losing a contest it never even entered in earnest.
7.97 Second, of course Indonesia knew that TPN ha d a technical services arrangement with Kia.
Well aware of the lack of technology and know-h ow in Indonesia, the Government of Indonesia
would not have favourably entertained TPN’s applica tion if it were not advised of the technical and
technological support for which TPN had contracted. Without the checks and balances complainants
criticize, the Government could not ensure the leg itimacy and strength of the proposed development.
Indonesia needs a real national car industry making r eal cars that the majority of Indonesians can
afford. The lack of project oversight complainants advocate is simply irresponsible.
7.98 As discussed above, TPN c ould have selected any company it wished to develop a national
car; it made a commercial decision to select Kia. Complainants have not and cannot counter these
facts.
 (3) Complainants import no like product

7.99 Complainants concede that Article I is vi olated only if, among other things, complainants’
like products are disadvantaged or disfavoured. Here , there can be no violation of Article I because,
among other reasons, complainants import no like product, as discussed above.
E. Rebuttals to Indonesia's response
1. Rebuttal Arguments made by Japan
7.100 The following are Japan's rebuttal arguments to Indonesia's responses to the claims under
Article I:1 of GATT 1994:
7.101 The February 1996 Programme and the June 1996 Programme provide benefits to certain
Korean automotive parts and components and to cer tain Korean CBUs, resp ectively, that are not
provided to like Japanese products, in violatio n of the most-favoured-nation obligation of GATT
Article I:1.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

(a) Indonesia's actions in structuring, adopting, and expanding the National Car
Programme ensures that Korean products r eceive tax and tariff benefits denied to
Japanese Products and, thus, constitute the violation of GATT Article I
(1) New evidence strengthens the Government of Japan's position that Indonesian
Government measures deny MFN Treatment to Japanese products
7.102 Indonesia argues that the National Car Programme does not explicitly discriminate between
Korean products and other imports, and that any ad vantage given to Korean products results from a
private commercial arrangement and not from governmental action.
7.103 The Indonesian argument is wrong as a factua l matter, because it is the Indonesian regulatory
regime which created the discrimination against Japan ese products. It is irrelevant for these purposes
that the discrimination is not express on the face of Indonesian Government documents. The
discrimination is plainly evident upon examination of the governmental measures and is an integral
part of the National Car Programme. In receiving PT Timor's several applications, responding to
them, and developing, implementing, and expand ing the National Car Programme, Indonesia has not
only known that the Programme would benefit Korean products and no other imports, but has also
ensured that this would happen.
7.104 The Indonesian Government's central and essen tial role in the discriminatory measures has
already been shown (See Section VII.A). The Jap anese argument has been further strengthened by
new evidence that has come to light.
7.105 The February 1996 Programme was designed a nd intended to accord benefits exclusively to
PT Timor and Kia products. This was clear from PT Timor's application for Indonesian Government
assistance in October 1995 and from subsequent co rrespondence between PT Timor and the State
Minister for the Mobilization of Investment Coordinating Board.
375
7.106 In particular, the "National Car Programme" began to be discussed at the latest in October
1995.376 In particular, these proceedings have show n that Mr. Hutomo Mandala Putra, president
director of PT Timor, sent a letter to Mr. Sanyoto Sastrowardoyo, State Minister for the Mobilization
of Investment Coordinating Board on 12 Decembe r 1995 and requested import duty and luxury tax
exemptions for PT Timor. 377 To this request, Minister Sanyoto Sastrowardoyo responded by letter of
27 December 1995 "we fully support your plan to immediately realize the project." 378 It is made even

375 See Application Letter dated 19 October 1995 from Mr. Hutomo M.P., President Director of
PT. Timor Putra Nasional to Mr. Sanyoto Sastrowardoyo, State Minister for the Mobilization of Investment
Funds/Chairman of the Capital Investment Co-ordinating Board. (English translation) (Japan Exhibit-33,
Indonesia Exhibit 25); Letter dated 12 December 1995 from Mr. Hutomo M.P., Pr esident Director of PT.
Timor Putra Nasional to Mr. Sanyoto Sastrowardoyo, State Minister for the Mobilization of Investment
Funds/Chairman of the Capital Investment Coordinating Board. (English translation) (Japan Exhibit 34); Letter
dated 27 December 1995 from Mr. Sanyoto Sastrowardoyo, State Minister for the Mobilization of Investment
Funds/Chairman of the Capital Investment Co-ordina ting Board to Mr. Hutomo Mandala Putra, President
Director of PT. Timor Putra Nasional. (English translation) (Japan Exhibit 35).
376 Application Letter dated 19 October 1995 from Mr. Hutomo M.P., President Director of PT. Timor
Putra Nasional to Mr. Sanyoto Sastrowardoyo, State Mini ster for the Mobilization of Investment Coordinating
Board. (English translation) (Japan Exhibit 33).
377 Letter dated 12 December 1995 from Mr. Hutomo M.P., President Direct or of PT. Timor Putra
Nasional to Mr. Sanyoto Sastrowardoyo, State Minister for the Mobilization of Investment Coordinating Board.
(English translation) (Japan Exhibit 34).
378 Letter dated 27 December 1995 from Mr. Sany oto Sastrowardoyo, State Minister for the
Mobilization of Investment Coordinating Board to Mr. Hutomo Mandala Putra, President Director of PT. Timor
Putra Nasional. (English translation) (Japan Exhibit 35).
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more clear by the State Minister's "Domes tic Investment Approval" of 9 November 1995
(No.607/I/PMDN/1995 (11/09/95)), which the Govern ment of Indonesia provided to the Panel.
379
That document, and its attachments, reveal that the Government of Indonesia approved PT Timor's
production of automobiles in Indonesia more than three months before the announcement of the
February 1996 Programme and expressly stated that "Kia technology [was] to be developed into local
technology".
7.107 Another result of the advance coordi nation between PT Timor and the Indonesian
Government is that only PT Timor was in a position to apply in a timely manner for Pioneer status
under the February 1996 Programme. PT Timor a pplied for Pioneer status on 28 February 1996
380,
just one day after the Government of Indonesia enact ed Decree of the State Minister for Mobilization
of Investment Funds/Chairman of the Capital Investment Co-ordinating Board No. 01/SK/1996 381,
which formally established the February 1996 Prog ramme. On the same day, the Government of
Indonesia first disclosed the February 1996 Programme by way of press release to the public and
other automobile companies.
382 At the first Panel meeting, the G overnment of Indonesia revealed for
the first time the decree granting Pioneer status to PT Timor (Ministry of Industry and Trade decree
No.002/SK/DJ-ILMK/II/1996), which, oddly, was da ted 27 February 1996, one day before PT
Timor's application. Although the Government of Indonesia submitted the cover letter of the PT
Timor's application as Attachment No. 14 of its First Submission, it failed to include the attachments
thereto, which, according to the cover letter, set forth the details of PT Timor's working proposals,
which cover such matters as share ownership, design and engineering, source of technology,
development of production facilities, use of components, etc.
383 The Panel should infer from
Indonesia's failure to submit PT Timor's working pr oposals that they further confirm that, from the
beginning, the Indonesian Government and PT Timor worked hand-in-hand to develop measures that
would funnel benefits exclusively to PT Timor and imports from Korea.
7.108 The June 1996 Programme was also designed and intended to accord benefits exclusively to
PT Timor and Kia. The Government of Indonesia essentially concedes this point in its First
Submission, admitting that the June 1996 Prog ramme "was necessary because [PT Timor] needed to
import built-up Timors to establish the required mark eting network and introduce a national car to the
Indonesian buying public prior to the time that domestic production feasibly could begin". (See
Section II.B.2). Even more to the point, Indonesia has submitted a letter dated May 28, 1996, from
PT Timor to the Indonesian Minister of Industry and Trade, which clearly states that PT Timor
applied for the production of "motor vehicles under Timor S515 trade mark at Kia Motors Co. South

379 Indonesia Exhibit 15.
380 See Letter (No.071/PD/TPN/II/96) dated 28 Fe bruary 1996 from Mr. Hutomo M.P., President
Director of PT. Timor Putra Nasional to State Minister for the Mobilization of Investment Funds / Chairman of
the Capital Investment Co-ordinating Board. (Indonesia Exhibit 14).
381 Japan Exhibit 29.
382 Indonesian Observer , “Govt unveils new national car programme” (29 February 1996) (Japan
Exhibit 70); The Asian Wall Street Journal , “Suharto Project For National Car shocks Industry - version of a
Kia Sedan to be Called Timor, Son’s Firm Benefits” (29 February 1996) (Japan Exhibit 71); Jakarta Post , “PT
Timor given tax exemptions” (29 February 1996) (Japan Exhibit 40); Indonesian Observer “Car Producers
‘surprised’ by new govt ruling (29 February 1996) (Japan Exhibit 41); and Bisnis Indonesia, “Tunky: PT. Timor
has Adapted Impres 02/1996, (29 February 1996). All of these news articles indicated that the press release
announcing this programme was made on 28 February 1996. On 27 February 1996, two days before, a
newspaper article reported the production of Kia- Timor car s in Indonesia, but this article did not refer to the
National Car Programme at all. (Jakarta Post
, Kia of S. Korea to produce cars in Indonesia (27 February 1996)
(Japan Exhibit 72).
383 Indonesia submitted the working proposals on 12 January 1998, in response to a request from
Japan. (Indonesia Exhibit 46).
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Korea
, to be shipped to Indonesia, totalling 65,000 units of motor vehicles for 1996-1997." 384 The
Government of Indonesia, under Ministry of Industry and Trade's Recognition as Registered Importer/
Sole Agent (IT/AT) of Motor Vehicles (Number: 1410/MPP/6/1996) dated 7 June 1996, approved PT
Timor's request, specifically designating the Timo r S515, with detailed specifications in its
attachment, as the car that could be imported and sold free of duties and luxury taxes.385 In taking this
action, the Indonesian Government fully knew that the designated model was and would be
manufactured solely at the Kia facilities in Korea and established a legal regime that ensured that only
Korean products would benefit from the June 1996 Programme.
(2) The National Car Programme denies unconditional MFN treatment to Japanese
products and ensures that Korean products receive tax and tariff benefits denied to
Japanese products
7.109 The Indonesian argument is also wrong as a matter of law. Certain Korean automobiles and
automotive parts and components have been imported into, and sold in, Indonesia at favourable tariff
and tax rates that are not available to other imports under Indonesian law. That is the very definition
of a denial of MFN treatment.
7.110 The Indonesian argument that the discrimination results from decisions of PT Timor is clearly
wrong, because it is the government, not a private co mpany, that sets the discriminatory tariff and
luxury tax rates. PT Timor operates in the discr iminatory environment created by the Indonesian
Government. Moreover, it is clearly the Government of Indonesia, not PT Timor, that established the
Presidential Decree that accords advantages to imported automobiles on the conditions that the
exporting enterprise purchase certain amounts of Indonesian parts and components and employ
Indonesian workers. As discussed (See Section V II.A), GATT Article I:1 requires any advantage to
be accorded unconditionally . As the precedent cases show 386, granting this kind of advantage
conditioned upon certain requirements is clearly a "conditional" advantage within the meaning of
GATT Article I:1. This means that, even if the advantage accorded to products from Korea were an
advantage available to like products from all other WTO Members, subject to the same conditions, the
National Car Programme would still violate GATT Article I:1.
(3) The Precedent GATT/WTO Cases Support Japan's Argument
7.111 Indonesia alleges that the precedent panel ca ses do not support Japan's argument that such
governmental actions constitute a violation of GAT T Article I:1. In reality, the GATT and WTO
precedents also undercut the Government of Indonesia's position.
7.112 First, it should be noted that Indonesia itself concedes that previous panels have found
violations of Article I:1 in circumstances where "despite the absence of explicit discrimination, a
particular result was mandated by government action" or where a legal structure "in fact compelled or
led to a particular result." As demonstrated (See SectionVII.A), the National Car Programme
provides exactly such a legal structure that compels or leads to a particular result, namely, granting

384 Letter dated 28 May 1996 from Mr. Hutomo M.P., President Director of PT. Timor Putra Nasional
to Minister of Industry and Trade of the Republic of Indonesia (Indonesia Exhibit 18).
385 The recognition of registered importer/sole agent (IT/AT) of motor vehicle (number:
1410/MPP/6/1997) and its attachment (Indonesia Exhibit 13).
386 Panel Report on Belgian Family Allowances , G/32, adopted on 7 November 1952, BISD IS/94.
Working Party Report on Accession of Hungary, adopted on 30 July 1973, BISD 20S/34.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

advantages only to Korean products. Therefore, in its attempt to rebut Japan's arguments, Indonesia
has instead conceded the point.
387
7.113 It should be also recalled that the Appe llate Body recently reconfirmed the importance of
de facto as well as de jure non-discrimination. In Bananas III , the Appellate Body explicitly stated,
"Article I and II of the GATT 1994 have been applied, in past practice, to measures involving de facto
discrimination," referring to the panel report in European Economic Community - Imports of Beef
from Canada.388
(b) Indonesia's bizarre assertion that no goods are like Timors or parts and components
for Timors is simply wrong
7.114 Indonesia contends that the complainants, including Japan, have failed to establish for
purposes of Article I that there are any like products to the Timor sedans and the automotive parts and
components used to assemble them. Indonesia’s discussion of both the factual similarities and the
relevant legal precedent is misleading and incorrect.
(1) Japanese companies produce cars like imported National Cars from Korea
7.115 As discussed (See Section V.A.1), it is also virtually meaningless to discuss "likeness" in this
case. The National Car Programme discriminates be tween certain Korean goods and all other imports
based on whether or not they could be qualified as "National Cars," thus favouring only Korean
products, and does not base its discrimination on any ot her characteristics of the products. Even if a
product that is manufactured in Japan is identical to a product manufactured in Korea in connection
with the National Car Programme, the Korean pr oduct would receive more favourable tariff and
internal tax treatment than the Japanese product. Identical products are unquestionably like products,
so there is no reason for further analysis of what characteristics make products like, when the measure
at issue even discriminates between identical products.
7.116 Indonesia attempts to obfuscate the very cl ear discrimination embedded in its National Car
Programme by arguing for a novel and extraordinar ily narrow definition of "like product." Indonesia
would have this Panel believe that the Timor S-515 sedan is so unique as to be "unlike" every other
automobile in the world. If that position we re adopted, Indonesia would be free to impose any
discriminatory taxes or other discriminatory policies it saw fit against imported automobiles.
7.117 Indeed, the logic of the Indonesian position is that every car model is unique, so each and
every WTO Member would be free to discriminate against any and all imported models. That position
would effectively eliminate the core GATT disciplines of MFN treatment and national treatment from
the automotive sector. Such a narrow view of "likene ss" could also drastically limit the application of
those GATT disciplines to all other manufactured products.

387 The Government of Indonesia also states that Japan "miscites" the US - Gasoline case, since "the
decision declares that United States authorities must have foreseen that the two separate regulatory regimes that
they had established were discriminatory." It further states, "[e]ven if certain Government officials were aware
of TPN's corporate intention to use Kia as a supplier, the legal structure of the national car programme did not
compel or lead to this priv ate-party decision or to imports from Kor ea." However, again, it has already been
fully demonstrated that the Indonesian authorities must have foreseen the discriminatory results and also that the
legal structure of the National Cars Programme did compel and lead to the results. Therefore, the Government
of Indonesia essentially admits its violation of GATT Article I.
388 Appellate Body Report on Bananas III, para. 232.
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(2) Japanese companies produ ce automotive parts and components like those imported
from Korea for assembly of National Cars
7.118 Indonesia even goes so far as to claim that "there are no 'like products'" to "Timor
components and parts." This claim is based on Indonesia's theory that no product can be like a
customized component. The mere fact that a part or component is customized for assembly in a
particular car model does not mean that it is ipso facto unlike other automotive parts and components.
The reality is that a part or component may be cu stomized only in a very minor respect and that a
manufacturer can readily adapt a single standard part or component to customize it for a variety of car
models.
7.119 Based on the Government of Japan's genera l understanding of the nature of automotive parts
and components, it is true that automobile makers very often provide specifications for parts and
components that are applied only for one model. Am ong automobiles of the same type or in the same
class, however, power-related parts and components (such as engines, transmissions, and brakes),
tires, batteries, wheels, lamps, seats, etc. are of ten interchangeable with only minor adjustments.
Accordingly, when the specifications for the pa rts and components for particular models are
determined, a single manufacturer may produce and supply parts and components adapted to the
specific needs of a variety of models.
7.120 Under these circumstances, it is clear that , regardless of whether parts or components are
"tailor-made" for a particular model, there often ar e many "like" products within a category of parts
and components (such as engines, transmissions, brak es, etc.) that are produced by the same or other
manufacturers for other models.
7.121 The Government of Indonesia may argue that the parts and components used for the assembly
of Timors are different from th is general characterization and ar e not interchangeable with minor
adjustments from parts and components used in other models. Even if that were true, however, it
would not mean that such products are necessarily " unlike" all other products within the meaning of
GATT as alleged by Indonesia. Moreover, it would confirm Japan's argument that de facto the
National Car Programme only benefits those part s and components imported from Kia Motors in
Korea.
7.122 Thus, Japanese manufacturers may produce a nd ship the exact same parts and components
with the necessary customization. However, the Indonesian measures would nevertheless provide less
favourable treatment to the Japanese products, whic h cannot be used for assembling National Cars,
than they accord to certain Korean products. In any event, the Government of Indonesia's theory
regarding customized parts and components must fail to excuse all of the discrimination against
imports, because by Indonesia's own admission the Timor S-515 does use some non-customized parts
and components. (See Section VII.D.)
(3) Indonesia's Extremely Narrow View of "Like Products" Has No Support in the
GATT/WTO Precedents
7.123 Indonesia offers no serious support for its extremely narrow conception of likeness. The only
two GATT Panel decisions cited are wholly irrelevant. The Government of Indonesia cites Australian
Subsidy on Ammonium Sulphate and EEC - Measures on Animal Feed Proteins 389 , for the
proposition that the Article I concept of "like prod ucts" is narrower than the Article III concept of

389 Panel Report on Australian Subsidy on Ammonium Sulphate , adopted on 3 April 1950,
GATT/CP.4/39; and Panel Report on EEC - Measures on Animal Feed Proteins , L/4599, adopted on
14 March 1978, 25S/49.
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 WT/DS59/R, WT/DS64/R

"like" or "directly competitive or substitutable pr oducts," which is perfectly obvious and has nothing
to do with the scope of the "like products" concept itself. Thus, those cases dealt with completely
different situations from the instant case.
(4) The limited sales of foreign CBUs in the Indonesian Market Do Not Justify
Indonesia’s discriminatory measures
7.124 Indonesia indicates that sales of foreign CBUs are limited in the Indonesian market, and thus
Japan has no grounds for claiming harm. (See Section VII. D.) However, in fact, all that the sole data
indicates is how effective Indonesia's measures have been in impeding the entry of imported sedans to
Indonesia. Indonesia banned all sedan imports un til 1993. The current tari ff rate on CBU's is still
prohibitive at 200 per cent ad valorem.
7.125 Needless to say, Japanese car manufacturers do produce, and have the capacity to export,
various types of sedans which are almost the same as, and certainly "like", the Timor in every relevant
respect, including engine displacement, dimensions, maximum power and so on.
7.126 It is true that few of these products were exported to Indonesia as of 1997, which is quite
rational considering Indonesia's protective trade polic ies, such as the 200 per cent tariff rate. If ever
the Government of Indonesia should stop imposing pr ohibitively high import tariffs and luxury taxes
on these imported sedans, as it actually does for certain Korean sedans under the June 1996
Programme, Japanese car manufacturers can and will certainly start exporting them to Indonesia.
7.127 This means that the small number of lik e imported products has been created by the
Government of Indonesia itself. In other words, what the Government of Indonesia is attempting to
do in its submission is to justify its discriminator y National Car Programme by virtue of the small
volume of imports, when that circumstance has been caused by the Government of Indonesia's own
long-standing protective trade policies. Under Ind onesia's reasoning, a WTO Member that maintains
an import ban would be allowed to maintain it fo rever, because there would be no imports and so no
other Member would have legal standing to challenge the import ban.
7.128 As a matter of course, previous Panels under GATT or WTO have ne ver permitted this kind
of justification. GATT Panels have held that a "demonstration that a measure inconsistent with
[GATT Articles] has no or insignificant effects woul d ... not be a sufficient demonstration that the
benefits accruing under that provision had not been nullified or impaired" 390, which has been
reaffirmed by the Appellate Body in the Bananas III case. 391 Moreover, in the Canada-Periodicals
case where a tax policy was examined under GATT Article III:2, but imports of like products did not
exist in the market because of the import prohibiti on, the Appellate Body, as well as the Panel, found
that "hypothetical imports ... have to be considered." 392 The only alternative was to decline to
examine the GATT Article III issue because of the non-existence of imports.
7.129 In the present case, it is quite apparent that a "hypothetical" viewpoint should also be taken
for the sake of examining GATT Article I, instead of allowing trade-impeding measures to help
GATT-inconsistent measures to evade WTO review.

390 See , in particular, Panel Report on United States - Taxes on Petroleum and Certain Imported
Substances, L/6175, adopted on 17 June 1987, BISD 34S/136, para. 5.1.9.
391 Appellate Body Report on Bananas III, paras. 252-253.
392 Panel Report on Canada - Periodicals, para. 5.23. Appellate Body Report on Canada - Periodicals,
p.19.
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WT/DS59/R, WT/DS64/R

7.130 Finally, it should be also noted that Indon esia's argument is irrele vant with respect to
automotive parts and components, as Japanese co mpanies export substantial quantities of those
products to Indonesia.
393
(c) The June 1996 Programme is still valid and effective and can and should be reviewed
by the Panel
7.131 Japan makes the following arguments, which are not limited to the context of Article I:1, but
rebut Indonesia's arguments in general.
7.132 Indonesia seeks to remove the entire June 1996 Programme from the Panel’s scrutiny by
claiming that the Programme has expired. While Indonesia contends that the June 1996 Programme
as a whole ended on 30 June 1997, the facts are cl ear that only the authorization to PT Timor to
import National Cars duty free expired then. The Programme itself, including the luxury tax
exemption for customers of PT Timor, remains in full force and effect, with the Government of
Indonesia free at any time to make further authorizations. Moreover, even if the Programme actually
expired at the end of June as alleged, this Pane l has full authority to address the Government of
Japan’s challenges to the Programme. The Panel should exercise its authority, because not ruling here
would encourage WTO Members to enact “one-time” measures, or declare that general measures have
expired, to escape WTO review.
(1) The June 1996 Programme is still in full force and effect

7.133 Indonesia has conceded that Presidential D ecree No.42 and Decree of Minister of Industry
and Trade No.142/96 "have not been repealed by [any] positive action of the Indonesian
Government". According to Indonesia's admission, these decrees "were drafted in general terms and
applied to any national car company". A simple revi ew of the decrees confirms that they have not
expired by their terms, so they must remain in effect until "repealed by [a] positive action".
7.134 Even with respect to PT Timor, the measures still remain in effect. Because the luxury tax is
collected at the time of sale, not at the time of im portation, admitted by the Government of Indonesia,
PT Timor will continue to benefit from the luxury ta x exemption for its customers at least until such
time as all 40,000 Imported National Cars have been sold. To the best knowledge of the Government
of Japan, there are still thousands of Imported National Cars which remain unsold.
7.135 Further, the June 1996 Programme also should be regarded as remaining in effect from the
viewpoint that the Government of Indonesia h as not completed its compliance audit for the
Programme, according to its admission at the first Panel meeting.394
7.136 In short, the June 1996 Programme is still ope rational and has not expired, contrary to the
Government of Indonesia’s recent allegation.
7.137 Indonesia alleges that its own previous stat ement that the "June 1996 Presidential Decree is
still in effect ..." is irrelevant because it was ma de before 30 June 1997. That argument is wrong.
Perhaps Indonesia has forgotten that it made th is statement on 15 September 1997 - nearly three
months after Indonesia now claims that the programme expired.

393 Japan Exhibit 76.
394 As indicated in Section X.A, Indonesia has submitted evidence alleged to demonstrate that TPN
failed the audit. (Indonesia Exhibit 47).
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 WT/DS59/R, WT/DS64/R

7.138 Even more striking, Indonesia has made an admission that completely undercuts its own
argument. By conceding that over 17,000 Timors im ported from Korea remain to be sold and that
"the Government does not forego the luxury tax until each car is sold," Indonesia has admitted that the
June 1996 Programme, at least in the context of the luxury tax exemption, is still in effect today.
(2) Even if the June 1996 Programme expired at the end of June 1997, the Panel can and
should rule on it
7.139 It has been the usual practice of GATT/WTO panels to rule, at least, on measures that were
effective at the time the panel’s terms of reference were fixed, even if such measures later became
ineffective before the panel rendered its ruling.
395
7.140 This Panel was established on 12 June 1997, and the terms of reference were determined on
the same date, in accordance with the requests of the Government of Japan and the European
Communities. The Government of Japan’s request for the establishment of a panel specifically
referred to the June 1996 Programme and Indonesia has never expressed any objection to the terms of
reference of this Panel. Although the terms of reference were slightly revised in July 1997, that
revision was made only to accommodate the participat ion of the United States, and that revision does
not affect the terms of reference of this Panel as far as the specific measures referred to by the
Government of Japan are concerned.
7.141 Therefore, even if the June 1996 Programme expired on 30 June 1997, as Indonesia newly
alleges, it is undisputed that the Programme was in effect when the Panel's terms of reference were
fixed on 12 June 1997. Therefore, the Panel can and should rule on the Programme's inconsistency
with Indonesia's WTO obligations.
 (3) None of the precedent cases c ited by Indonesia supports its argument

7.142 Indonesia cited three GATT Panel decisions in support of its contention that the Panel may
not rule on “expired” measures. However, its citations are both misleading and inaccurate.
7.143 Indonesia cites EEC - Restrictions on Imports of Dessert Apples - Complaint by Chile and
Norway - Procurement of Toll Collection Equipment for the City of Trondheim 396 for its contention

395 Several panels have adjudicated claims involving measures that had expired or were no longer being
applied, but that had been applied when the panel's terms of reference were fixed. See , Panel Report on
United States - Measures Affecting Imports of Woven Wool Shirts and Blouses , WT/DS33/R, upheld by the
Appellate Body, WT/DS33/AB/R, adopted on 23 May 1997 (ruling on a measure that was revoked after the
Panel was established); Panel Report on EEC - Measures on Animal Feed Proteins , adopted on 14 March 1978,
BISD 25S/49 (ruling on discontinued measures that had terminated after the terms of reference of the Panel had
already been agreed); Panel Report on United States - Prohibitions on Imports of Tuna and Tuna Products from
Canada, adopted on 22 February 1982, BISD 29S/91, 106, para.4.3. (ruling on the GATT consistency of a
measure withdrawn after establishment of the Panel but before agreement on the Panel's terms of reference); and
Panel Report on EEC - Restrictions on Imports of Apples from Chile , adopted on 10 November 1980,
BISD 27S/98 (ruling on a measure which had terminated before agreement on the Panel’s terms of reference but
was specifically included in the terms of reference). All these cases show that the Panel may rule on the
consistency with WTO agreements of the measures that expired after the establishment of a Panel. The
US - Gasoline Panel also supports this position by stating "it had not been the usual practice of a panel
established under the General Agreement to rule on meas ures that, at the time the panel's terms of reference
were fixed, were not and would not become effective," at para. 6.19. (Emphasis added).
396 Panel Report on EEC - Restrictions on Imports of Dessert Apples - Complaint by Chile (Dessert
Apples"), L6491, adopted on 22 June 1989, 36S/93. Norway - Procurement of Toll Collection Equipment for
the City of Trondheim ("Trondheim"), (GPR.DS2/R) adopted by the Committee on Government Procurement
on 13 May 1992.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

that Panels may not review the WTO consistency of expired measures. In fact, both Panel decisions
flatly contradict the Government of Indonesia's positi on. Both Panels reviewed the expired measures
and concluded that such measures violated obligations under GATT and the Agreement on
Government Procurement, respectively. It should be especially noted that the Trondheim
 Panel
stated:
[T]he panel also believed that, in cases concerning a particular past action, a panel
finding of non-compliance would be of significance for the successful party: where
the interpretation of the Agreement was in dispute, panel findings once adopted by
the Committee, would constitute guidance for future implementation of the
Agreement by Parties.
It was only after reaching these conclusions that th e Panels declined to recommend compensation for
the expired measures. But compensation is not at i ssue here. Rather, what Japan is asking this Panel
is, like the Dessert Apples and Trondheim Panels, to find that Indonesia's measures are inconsistent
with its WTO obligations.
7.144 The other Panel Report cited by Indonesia, Thailand - Restrictions on Importation of and
Internal Taxes on Cigarettes,397 also fails to support its position. The passage cited by Indonesia does
not discuss the issue of whether a Panel may review such measures. Instead, in circumstances where
a Member repealed its GATT-inconsistent mandato ry legislation, while leaving discretionary
legislation that may be applied in a GATT-incons istent manner, the Panel declined to find the
discretionary legislation to be inconsistent with GATT as long as it was not applied in a
GATT-inconsistent manner. The Panel did not r each any decision with respect to the expired
legislation. But that is completely different from Indonesia's assertion that panels cannot or should
not review expired measures.
7.145 In sum, none of the GATT panel preceden ts cited by Indonesia support its position.
 (4) Indonesia's attempt to circumvent th is Panel's review should not be allowed
7.146 Finally, the Panel should reject Indonesia' s attempt to escape its review by recasting the
June 1996 Programme as a one-time-only measure th at has expired. Otherwise, the disciplines
established through the past fifty year effort to liberalize global trade would be severely weakened. If
a panel could not rule on the WTO consistency of a measure that was in effect when the panel's terms
of reference were established merely because a Me mber informed the panel that the measure had
"expired", without so much as formally revoking it, the ability of WTO members to evade WTO
review is all too obvious. If this sort of evasion is tolerated, the Uruguay Round's historic effort to
create an effective system for resolving trad e disputes will be crippled, the WTO disciplines
themselves will be gravely weakened, and the goals of the WTO will be frustrated.
2. Rebuttal Arguments made by the European Communities

7.147 The following are the European Communities' rebuttal arguments to Indonesia's responses
to the claims under Article I:1 of GATT 1994:

397 Panel Report on Thailand - Restrictions on Importation of and Internal Taxes on Cigarettes,
DS10/R, adopted 7 November 1990, 37S/200.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

(a) The fact that the authorisation granted to PT TPN expired in June 1997 does not
prevent the Panel from ruling on the compatibility of that measure with Article I:1
7.148 According to Indonesia, the authorisation granted to PT TPN for importing duty free and tax
free 45,000 passenger cars from Korea expired as of 30 June 1996. On that ground, Indonesia has
requested the Panel to refrain from ruling on the comp atibility of that measure with GATT Article I:1.
The European Communities opposes that request and respectfully urges the Panel to rule on this
claim, like on all the other claims contained in its terms of reference.
7.149 Although the above mentioned authorisation has expired, Presidential Decree 42/96, on the
basis of which that authorisation was issued, still remains in force. Furthermore, both Presidential
Decree 42/1996 and its implementing measure Decree 142/1996 are generally a pplicable regulations.
Therefore, new authorisations may be granted in respect of other National Cars.398
7.150 Indonesia claims that “no comparable progra mme has been or will be authorised". Yet, the
wording of Presidential Decree 42/96 and Decree 142/1996 suggests that the Indonesian Government
has no discretion to deny this benefit once a car has been certified as a National Car. 399 Moreover,

398 Indonesia disclosed the existence of a letter from the Ministry of Industry and Trade “denying
National Car benefits for a Sportage-type vehicle”. (See Section VII.)
The basis for that decision is doubtful. It would appear that a Pioneer Company is not required to have
each of its models recognised as a National Car by means of a specific decision. At the very least, Indonesia has
not disclosed any such decision recognising the Timor S-515 as a National Car. The record only contains a
decision of the Director General fo r Metal, Machinery and Chemical Indu stries No 002/SK/DJ-Ilmk/II/1996
(Indonesia Exhibit 41) appointing PT TPN as a Pioneer Company and a subsequent decision of the State
Minister for Mobilisation of Investment Funds (D ecree 02/SK/1996, EC Exhibit A-11) confirming that
appointment.
Indonesia has admitted that no formal decision recognising the Timor S-515 as a National Car had been
issued. Nevertheless, Indonesia made the extraordinary argument that the decision to limit the grant of National
Car status to the Timor S-515 is “inherent” in the title of Decree 02/SK/1996 which, according to the translation
of that decree provided by Indonesia, reads ”The determination of PT Timor Putra Nasional to Establish and
Produce A National Car”. In this regard, it is worth noti ng that according to the tr anslation of that Decree
submitted by the European Communities (Exhibit EC A-11), which was made in tempore non suspecto by what
Indonesia describes elsewhere as a “p rivate entity”, the title of Decree 02/SK/1996 is “Stipulation of PT Timor
Putra Nasional to develop and produce National Cars
”. Identical formula is used in Article 1 of the same
Decree. Note also that Indonesia’s own description of the document in the Index of Attachments of its First
Submission reads “Confirmation of PT Timor Putra Nasional as the Company to Develop and Produce National
Automobiles.”
Even if the Sportage was not granted National Car benefits, other models produced by PT TPN or by
Bimantara (whose application for Pioneer status is still under consideration) can still be granted those benefits.
399 Article 1 of Presidential Decree 42/96 reads as follows:
 “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”.
 This wording only leaves discretion to the Minister of Industry and Trade for stipulating the
level of local content. There is no indication that the Indonesian authorities may refuse the benefit to a car
previously certified as a National Car (assuming that such certification is necessary. See the previous footnote)
 Article 2 of Presidential Decree 42/1996 is also drafted in mandatory terms:
 “The equal treatment contemplated in Article 1 is granted only once for a maximum period of
one year and for amounts to be stipulated by the Minister of Industry and Trade”
 Again, the Minister of Industry and Trade is left discretion to stipulate the “amounts”, but
there is no indication that the benefit can be refused. The term “once” is ambiguous. It could mean that the
benefit is granted only once in respect of each Natio nal Car or only once to each Pioneer Company. The
interpretation now made by Indonesia, according to which “once” means that the Government of Indonesia will
grant no new authorisation to import National Cars duty and tax free is contrived and unconvincing. It suffices
to note that the last day of the one-year period (30 June 1997) was not specified in Presidential Decree 42/1996
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

these assurances appear to be contradicted by th e fact that neither Presidential Decree 42/96 nor
Decree 142/1996 have been repealed.
7.151 Furthermore, it is important to note that, in accordance with Article 2 of Decree 42/96 any
further authorisations will have, like the one grante d in respect of the Timor S-515, a duration of only
one year. Therefore, any such authorisation will ha ve expired before a new Panel has time to rule
on it.
7.152 The European Communities’s request that th e Panel rule on the expired measure is supported
by prior Panel decisions. Under GATT 1947, several panels
400 considered measures that were no
longer in force in cases where, as in the present case, the measures we re still in force at the time the
Panel was established401 and the terms of reference set and/or where there was a threat of recurrence.
7.153 This practice has continued under the WTO Ag reement. In US - Standards for Reformulated
Gasoline402 , the Panel decided not to rule on a disc ontinued measure, but only because the measure
had been terminated before the terms of reference were established and was unlikely to be renewed. In
US - Measures affecting imports of Woven Wool Shirts and Blouses from India, the Panel decided
that:
in the absence of an agreement between th e 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 United States restraint"403 404

or in any other generally applicable measure known to all potential beneficiaries of Presidential Decree 42/1996
but only in the import authorisation given to PT TPN in the “Recognition of Registered Importer/Sole Agent,
file number 1410/MPP/6/1996”.
400 See for instance the Panel Report on EEC - Restrictions on Imports of Dessert Apples, Complaint by
Chile , adopted on 22 June 1989, BISD 36S/93; the Panel Report on EEC - Restrictions on Imports of Apples,
Complaint by the United States, adopted on 22 June 1989, BISD 36S/135; the Panel on United States -
Prohibition of Imports of Tuna and Tuna Products from Canada, adopted on 22 February 1982, BISD 29S/91;
the Panel Report on EEC - Restrictions on Imports of Apples from Chile, adopted on 10 November 1980, BISD
27S/98; and the Panel Report on EEC - Measures on Animal Feed Proteins, adopted on 14 March 1978, BISD
25S/49.
Although the defendant claims that “prior Panel decisions support the refusal to rule on an expired
Measure”, it can point but to a single instance where a Panel decided not to rule on a measure withdrawn after
the establishment of the Panel, namely the Panel Report on Thailand - Restrictions on Importation of and
Internal Taxes on Cigarettes , adopted 7 November 1990, BISD 37S/200. That Panel report stands out as an
aberration and subsequent decisions by WTO Panels dealing with the same issue do not refer to it.
401 The Panel requested by the European Communities was established by the DSB at its meeting of 12
June 1997 (see WT/DS55/7, WT/DS64/5 and WT/DS54/7).
402 Panel report on United States - St andards for Reformulated Gasoline , WT/DS2/R, adopted on
20 May 1996, para 6.19
403 Panel report on United States - Measures Affecting Imports of Woven Wool Shirts and Blouses
from India, adopted on 23 May 1997, WT/DS33/R, para 6.2
404 In Argentina - Certain measures affecting Impor ts of Footwear, Textiles, Apparel and Other Items
(WT/DS56/R, at pp 83-86, unadopted) the Panel decided not to rule on a measure which was revoked after the
circulation of the request for the establishment of a Pane l but before the Panel was established. The Panel also
noted that there was no evidence that the measure would be re-introduced.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

(b) It is irrelevant that the Indonesian Government did not mandate expressly PT TPN to
import automobiles or parts originating in Korea
7.154 There is ample and indisputable evidence that the Indonesian Government (and not merely
“certain officials”) (See Section VII:D) was perfectly aware that PT TPN would take advantage of the
measures in dispute to import the Timor S-515 (a nd subsequently parts and components thereof) from
Korea, and not any other passenger car from any other Member:
- the sole owner of PT TPN had set up a joint venture with KIA to assemble KIA cars
in Indonesia already in 1993. That joint venture obtained an investment permit from
the Indonesian Government.
405
- the investment approval issued to PT TPN by the Indonesian Government on
9 November 1995 states expressly that the passenger cars to be assembled at
Karawang Plant “will use KIA technology to be developed into local technology".
406
- by letter addressed to the State Minister for the Mobilisation of Investment Funds on
12 December 1995, PT TPN requested approval of a programme “to realise the
national automobile project”. That programme envisaged inter alia the importation of
motor vehicles manufactured by KIA in Korea as well as the importation, at a
subsequent stage, of parts and component s supplied by KIA for the assembly of cars
in Indonesia.
407
- by letter dated 28 May 1996, PT TPN requested authorisation to “produce motor
vehicles under Timor S-515 trade mark at KIA Motor Co. South Korea, to be shipped
to Indonesia ..." 408
- the "Recognition of Registered Importer/Sole Agent" 409 issued to PT TPN on
7 June 1996 does not specify the source of the imports. Nevertheless, that
recognition was issued in response to PT TPN’s letter of 28 May 1997. Moreover,
the specifications attached to the Recognition correspond to those of the KIA Sephia.
7.155 It is of course impossible for the European Communities to ascertain whether, in addition to
being aware of PT TPN’s choice and of its conse quences, the Indonesian Government directed or
influenced that choice. Given the importance attached by the Government of Indonesia to the National
Car Programme, it is hard to believe that it had no say ing in such a crucial issue as the choice of KIA.
Furthermore, the facts of this case which have b een disclosed until now by Indonesia evidence that
throughout the process of conception and implementation of the National Car Programme, private and
government action have been so timely and harmonious ly concerted as to be almost indistinguishable.
PT TPN requested approval for developing a Na tional Car before such a programme existed.
410
When the National Car Programme was eventually approved, it provided benefits which corresponded
precisely to those requested by PT TPN several mo nths before. Even more extraordinary, PT TPN

405 The European Communities has never referred to PT TPN as a joint venture with KIA. The
European Communities notes that Mr Hutomo Mandala, the sole owner of PT TPN, and KIA had established a
joint venture in 1993 called PT Indauda Putra Nasional Motors. During the first meeting with Panel, the
Government of Korea admitted the existence of some kind of joint venture arrangement between KIA and PT
TPN. (See Section XII.B).
406 Indonesia Exhibit 15.
407 Indonesia Exhibit 24
408 Indonesia Exhibit 18.
409 Indonesia Exhibit 13
410 Indonesia Exhibit 24
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

was granted Pioneer Status by the Ministry of Industry and Trade
411 just a few days after the adoption
of the Programme412 and before PT TPN had time to file its formal request.413 A similar sequence of
facts took place in May/June 1996. On 28 Ma y 1996 PT TPN asked authorisation to “produce”
National Cars in Korea. 414 On 6 June 1996, the Government approved Presidential Decree 42/96
creating that possibility. The next day, the Minist ry of Trade and Industry granted PT TPN’s request
of 28 May 1996.415
7.156 In any event, whether or not PT TPN’s choi ce was free or was influe nced by the Indonesian
Government is ultimately irrelevant. The measure attacked by the European Communities is not PT
TPN’s choice but the legal consequences knowin gly and willingly attached by the Indonesian
Government to that choice. The existence of a de facto violation of GATT Article I:1 is not
dependent upon the content of PT TPN’s choice. If instead of teaming-up with KIA, PT TPN had
chosen a Japanese partner, the scheme put in place by the Indonesian Government would still have led
necessarily to the same consequence that only impor ts from a Member would have benefited from the
tariff and tax preferences.416
(c) The automobiles and parts covered by the measures are like any other automobiles
and parts
7.157 Indonesia’s allegation that the Timor S-515 is not like any of the cars imported from the
European Communities is not only f actually incorrect (See Section V.A.2) but also totally irrelevant.
In order to establish a violation of GATT Article I:1 the European Communities is not required to
show that the measure concerned has had any actual effects on its exports to Indonesia. Instead, it is
sufficient for the European Commun ities to show that if a “like” product had been exported from the
European Communities it would have not benefite d from the same advantages as the Timors S-515
imported from Korea.
7.158 The tariffs and tax benefits granted by Indonesia to the Timors S-515 imported from Korea
are based on three conditions:
- first, the cars must be National Cars manufactured by, or at least for, a Pioneer
company;
- second, they must have been manufacture d with the participation of Indonesian
nationals;

411 Indonesia Exhibit 41. This decision was disclosed by Indonesia only during the First Meeting with
the Panel. According to Indonesia, it was “overlooked in cluding it in the list of tran slated documents”. In fact,
however, the existence of this decision had not been mentioned by Indonesia. Indonesia instead said that PT
TPN was designated as a Pioneer Company on 5 March 1997 by means of Decree 02/SK/1996.
412 In contrast, Bimantara’s application is still awaiting a formal reply, more than one year after it was
filed. PT Multimotor France’s request was never answered.
413 Indonesia Exhibit 14
414 Indonesia Exhibit 18
415 Indonesia Exhibit 13
416 Indonesia’s attempt to distinguish the present case from EC - Imports of Beef from Canada (adopted
10 March 1981, BISD 28S/92) and Spain - Tariff Treatment of Unroasted Coffee (adopted on 11 June 1981,
BISD 28S/102) fails. It is obvious that “in none of them was the choice of the supplier made by the private party
recipient of the subsidy found to constitute government-m andated de facto discrimination”, since none of those
two cases involved any subsidy! Instead, it is more relevant to note that the Spanish Government did not have
more “direction” over the varieties of coffee grown by the favoured Colombian producers than the Indonesian
Government had over PT TPN’s allegedly private choice. In both cases, the Government relied on a fact which
was not under its control but which was known to it in orde r to apply a measure that had the necessary result of
benefiting only imports from a certain source.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

- third, they must incorporate a certain percentage of counter-purchased parts and
components imported from Indonesia.
7.159 It is obvious that none of the above three conditions affects per se the physical characteristics
of the National Cars, nor therefore makes those cars unlike any other cars which are or may be
exported from the European Communities. A passenger car manufactured in the European
Communities which is identical in all respects (and th erefore indisputably “like”) to the Timors S-515
imported by PT TPN would still be refused the tari ff and tax exemptions provided by presidential
Decree 42/1996, simply because it is not a National Car manufactured by/for PT TPN.
7.160 Indonesia also alleges that 93 per cent of the parts for the Timor S-515 are tailor made for that
model. Hence, according to Indonesia, they ar e not “like” parts for other cars, which are also
customised. This argument cannot be accepted. It would lead to the absurd result that even if two cars
were “like” when imported in assembled state, thei r individual parts and components could never be
considered as “like” when imported separately. If upheld, Indonesia’s argument would make possible
for a Member to apply as many different import duty ra tes on a certain type of parts as models of cars
are assembled within its territory . Carried to its logical conclusion, Indonesia’s reasoning would have
the effect of placing all the trade on customised parts and components beyond the reach of the
numerous WTO rules, including some of the most basic ones, which rely upon the notion of “like
product”. For that reason, the EC considers that customised parts and components, including those
for the assembly of cars, must be deemed “like” if they are sufficiently similar in terms of physical
characteristics and end uses, even if they are not interchangeable. For these purposes, two customised
parts should be considered as having sufficiently sim ilar end-uses when they are intended for use in
products which are themselves “like”.
3. Rebuttal Arguments of the United States

7.161 As demonstrated (See Section VII.C) Indon esia violated Article I:1 of GATT 1994 when it
authorized, for a period of one year, the importation and sale in Indonesia of completely built-up Kia
Sephia sedans free of Indonesia’s 200 per cent tariff and 35 per cent luxury tax. 417 In its first
submission, Indonesia offered three arguments in response, none of which has merit.
(a) The One-Year Exemption Is Not a "Dead Measure"
7.162 Indonesia’s first argument is that the one- year authorization has expired because TPN may
not import any additional tax- and duty-free Sephias . Thus, according to Indonesia, the one-year
authorization has expired (or, in trade law jargon, is a “dead measure”) and the Article I:1 claim is
moot.
7.163 As a factual matter, this argument is incorr ect. Although it may be true that TPN is not
authorized to import additional tax- and duty-free Se phias for the moment, this does not mean that the
relevant measures are no longer in effect. With respect to the exemption of these Sephias from the
luxury tax, there are a host of Sephias that were imported under the one-year authorization, but that
remain unsold. In its Annex V response, Indonesi a stated that these Sephias would be exempt from
the luxury tax when they are sold.418
7.164 Likewise, the tariff incentives are still in eff ect. It has been widely reported that as a
condition for receiving the one-year authorization, TPN was required to satisfy the first-year 20 per

417 The United States noted that with respect to Indonesia's violation of Article I:1, the United States, at
the second meeting of the Panel, agreed with the points made by Japan and the European Communities.
418 AV/15, United States follow-up question #12/27, and Indonesia’s response thereto in AV/16.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

cent local content requirement of the National Car Programme.
419 In addition, TPN was required to
post a bank guarantee to the Directorat General of Customs to guarantee repayment of the foregone
duties if the Kia Timor venture failed to meet the 20 per cent requirement. These reports are
consistent with Decree 82/1996 and Decree 36/1997, both of which refer to possible repayment by the
national car company if local content levels are not met and to a requirement to submit a bank
guarantee to Indonesia authorities to ensure such repayment.420
7.165 A statement in Indonesia's initial Annex V r esponse refers to the bank guarantee, and states
that “the subsidy will be granted after th e auditing of local content [is] achieved.” 421 In addition, at
the first meeting of the Panel, the Indonesian re presentatives confirmed that the audit had not been
completed. What this means is that as of December 4, 1997, well after this Panel was established, the
one-year tariff incentives conferred on TPN remain ed conditional, and could be recouped by the
Government if TPN and Kia Timor failed the audit.
7.166 In short, the measures authorizing the one -year tax- and tariff-incentives are still operational
and have not expired.
7.167 Moreover, Indonesia's assertion that it will not gr ant such exemptions in the future is carefully
worded. In its responses to questions 3(1) and 3(2) from Japan (Indonesia Exhibit 43), Indonesia says
that it will not grant any future tariff and ta x exemptions under Presidential Decree No. 42/96 . These
responses do not rule out the authorization of future tariff and tax exemptions new decrees. Given the
apparent ease with which such decrees can be issued, the Panel should rule on the complainants'
Article I claims to ensure that Indonesia is put on notice that the authorization of similar exemptions
in the future constitutes a violation of Article I.
7.168 Moreover, as a legal matter, previous panels have reviewed the consistency of measures that
ceased to be effective after the date on which a panel and its terms of reference were established.422 In
this case, the measures in question continue to be e ffective well after the date on which this Panel and
its terms of reference were established.
 (b) Indonesia conferred an advantage to a country
7.169 Indonesia also argues that it did not violate Article I:1 because it allegedly did not grant an
advantage to automobiles originating in Korea. Instead, according to Indonesia, TPN was free to
import duty- and tax-free cars from whatever source it chose.
7.170 This assertion simply is contradicted by the facts. The document authorizing these
importations, Decree No. 1410/MPP/6/1996, did not permit TPN to import any passenger car it chose,
but instead expressly authorized only the importation of the “TIMOR Sedan/S515 - 1500cc.”.
Moreover, as Indonesia admits:
This treatment was necessary because TPN needed to import built-up Timors to
establish the required marketing network and introduce a national car to the
Indonesian buying public prior to the time that domestic production could begin.
423

419 US Exhibit 23.
420 Indonesia Exhibits 21 and 9.
421 AV/14, Attachment U-16/1.
422 United States - Measures Affecting Imports of Woven Wool Shirts and Blouses from India,
WT/DS33/R, Report of the Panel adopted on 23 May 1997, para. 8.1; and EEC - Measures on Animal Feed
Proteins, Report of the Panel adopted on 14 March 1978, BISD 25S/49.
423 See section VII.D.3(b).
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

This objective could be accomplished only by th e importation of Kia Sephias from TPN’s joint
venture partner, Kia Motors of Korea. It could not have been accomplished by importing and selling,
for example, GM Opels, Ford Escorts, or Chry sler Neons. To paraphrase Indonesia’s own statement
regarding the Reformulated Gasoline
 case, the Indonesian authorities must have foreseen that the
regime they were establishing was discriminatory.
7.171 In this regard, the Appellate Body recently reaffirmed the importance of the principle of
de facto, as well as de jure , non-discrimination. In Bananas III , the Appellate Body stated the
following in connection with the MFN obligation under Article II of GATS: “Moreover, if Article II
was not applicable to de facto discrimination, it would not be difficult ... to devise discriminatory
measures aimed at circumventing the basic purpose of that Article.”.424 Here, Indonesia has attempted
to circumvent the basic non-discrimination principle of Article I of GATT 1994.
7.172 One issue that Japan and the European Communities did not address is Indonesia's argument
that TPN, not Kia, was the beneficiary of Decree No. 42/96, and that Kia received no benefit other
than being paid by TPN as one of its suppliers. First, the United States would note that Article I
applies to products, not business entities. Neverthel ess, in the view of the United States, being paid
for products one supplies constitutes an advantage, favour, or privilege within the meaning of Article
I:1, particularly when the ability to be paid is attributable to a special exemption from tariffs and taxes
that is not extended to suppliers from other c ountries. Accepting Indonesia's arguments would open
up a tremendous loophole in Article I, because one al ways could argue that those advantaged by non-
MFN behaviour are importers rather than suppliers.
(c) The passenger cars in question are like products to the Kia Sepia Sedan
7.173 Finally, Indonesia asserts that the comp lainants have failed to establish for purposes of
Article I that there is any “like product” to the Timor Kia Sephia sedan. Arguing that passenger
vehicles are highly differentiated, Indonesia asserts th at: “There simply is no car that matches the
requisite physical and nonphysical characteristics of the Timor S515 to be considered a ‘like product’
to it.” (See section VII.D.2(c).)
7.174 To the contrary, the United States provided more than enough evidence in its first submission
to establish that GM Opels, Ford Escorts, and Ch rysler Neons are “like products” to the Timor Kia
Sephia. Indonesia has not provided any evidence to the contrary, but simply has asserted that there is
no passenger car “identical” to the Sephia. However, product identity is not required for purposes of a
“like product” analysis under Article I, especially in the case of consumer products, such as passenger
cars, that by their very nature will be differe ntiated from one another for reasons of product
competition. If product identity were required, Article I would be a dead letter in the case of
consumer products.425
VIII. CLAIMS UNDER THE SCM AGREEMENT
8.1 The European Communities and, in its request for the establishment of a panel, the
United States, both claim that the measures under the 1993 programme and the National Car

424 European Communities - Regime for the Importation, Sale and Distribution of Bananas ,
WT/DS27/AB/R, Report of the Appellate Body adopted 25 September 1997, para. 233.
425 In this regard, in Japan - Taxes on Alcoholic Beverages, WT/DS8/AB/R, Report of the Appellate
Body adopted 1 November 1996, p. 24, the Appellate Body affirmed the panel’s finding that shochu and vodka
are “like products” for purposes of Article III:2, first sentence, a provision that the Appellate Body stated should
be narrowly construed. Anyone who has tasted shochu and vodka knows that those two beverages are not
“identical.”
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

programme cause serious prejudice to their interests in the sense of Article 6 of the SCM Agreement.
However, in its first submission, the United States clarified that it was limiting its claim of serious
prejudice to subsidies provided under the Na tional Car programme. In addition, the United States
claims that, in modifying the 1993 programme, a nd adopting the National Car programme, Indonesia
has violated Article 28.2 of the SCM Agreement.
8.2 In this dispute, all parties making arguments concerning serious prejudice (i.e., the European
Communities and the United States in their claims, and Indonesia in its responses) agree that the
tariff and tax measures under the 1993 programme and the National Car programme are specific
subsidies. The United States and Indonesia disagree as to whether the $690 million loan is a specific
subsidy. The following are the parties arguments in this regard:
 A. Existence of specific subsidies

1. The measures at issue are subsidies
 (a) Arguments of the European Communities
8.3 The following are the European Communities' arguments that the measures at issues are
"subsidies" within the meaning of Article 1 of the SCM Agreement:
8.4 Article 1.1 of the SCM Agreement states in the relevant part that:
For the purposes of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a Government or any public body
within the territory or any body with in the territory of a Member .... i.e.
where:
(ii) government revenue th at is otherwise due is foregone or not collected
(e.g. fiscal incentives such as tax credits);
and
(b) a benefit is thereby conferred
8.5 The measures at issue provide for th e granting of three types of incentives:
- customs duty relief for parts and compone nts intended for assembly into National
cars;
- exemption from the Sales Tax on Lu xury Goods for National Cars; and
- customs duty relief for National Cars imported from Korea.
8.6 Both the customs import duties and the Sales Tax on Luxury Goods are imposed, collected,
and appropriated by the Indonesian Government. Accordingly, they constitute “Government revenue”.
8.7 The importation into Indonesia of motor vehicles and of parts and components thereof is
legally subject to the payment of customs duties. Likewise, sales of passenger cars are legally subject
to the payment of the Sales Tax on Luxury Goods. Thus, by granting the incentives under
consideration, the Government of Indonesia is “foregoing revenue” that would otherwise be “due” .
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

8.8 The measures provide a direct “benefit” to t hose persons and entities that, in the absence of
the incentives, would be responsible for the payment of the duties/taxes, i.e. to PT TPN. For the
above reasons, it must be concluded that the in centives provided under the National Car Programme
constitute “subsidies” in the sense of Article 1 of the SCM Agreement.
(b) Arguments of the United States

8.9 The United States argues that the tariff and tax incentives and the government-directed $690
million loan under the National Motor Vehicle progra mme constitute subsidies within the meaning of
Article 1.1 of the SCM Agreement. The following are the United States' arguments in this regard:
8.10 The tariff and tax incentives and the governm ent-directed $690 million loan to TPN under the
National Motor Vehicle programme constitute subsidies within the meaning of Article 1.1 of the SCM
Agreement, because they each entail (1) a financial contribution; and (2) the conferral of a benefit.
8.11 With respect to the tariff and tax incentives, the Government of Indonesia admits that these
incentives constitute subsidies. (See e.g., Section VII.C.) However, independent of this admission,
these tariff and tax incentives meet the definition of a subsidy under Article 1.1. The exemption from
import duties on parts used to produce the “national motor vehicle” (the Timor Kia Sephia sedan), the
one-year exemption from duties of CBU Kia Sephia sedans imported from Korea, and the effective
exemption from the luxury tax on sales of Timor Kia Sephia sedans (whether imported in CBU form
from Korea or assembled in Indonesi a) clearly constitute “government revenue that ... is foregone”
within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement. As such, they constitute a
“financial contribution.” Moreover, they confer a benefit by lowering the recipient’s costs and
allowing the product in question, the Timor Kia Sephia sedan, to be sold at a lower price than would
be the case absent the tariff and tax exemptions.
8.12 With respect to the government-direct ed $690 million loan, the loan falls under
Article 1.1(a)(1)(iv), which defines a “financial contribution” as existing where:
a government makes payments to a funding mechanism, or entrusts or directs a
private body to carry out one or more of the type of functions illustrated in (i) to (iii)
above which would normally be vested in the government and the practice, in no real
sense, differs from practices normally follo wed by governments ... . (emphasis
added).
As described above, the evidence is overwhelming that the Government of Indonesia directed the
consortium of government-owned and private banks to provide the $690 million loan to TPN. In so
doing, the Government was directing a private body to carry out the function illustrated in
Article 1.1(a)(i); i.e., to provide a concessiona l loan. Such concessional financing normally is
provided by government lending institutions or other public bodies.
8.13 Finally, the government-directed loan confe rred a benefit on TPN. By ordering the banks to
lend to TPN, the Government conferred two types of benefits on TPN: (a) TPN received financing
that it otherwise would not have been able to obtain; and (b) even assuming that TPN could have
received financing of a comparable size, the terms of the financing were more favourable than the
terms that TPN would have received absent the Government’s involvement. (See Section V.C.3).426

426 Indonesia disputes the fact that the $690 million government-directed loan to TPN is a subsidy, but
has not provided any evidence that the loan is not a subsidy. Instead, Indonesia makes the bare assertion that the
GOI had no role in the granting of the loan, but that the GOI since has done an independent investigation and
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

 (c) Arguments of Indonesia

8.14 Indonesia also argues that the measures at issue are subsidies in the sense of Article 1 of the
SCM Agreement. These arguments are set forth in pa rt in Section V.D. See also Indonesia's further
arguments in this regard in Section VIII.A.3, below.
2. The measures at issue are specific
 (a) Arguments of the European Communities
8.15 The European Communities argues that the subsidies are contingent upon compliance with
local content requirements and, accordingly, are “specific” in the sense of Article 2 of the SCM
Agreement. The following are the European Communities' arguments in this regard:
8.16 Article 1.2 of the SCM Agreement stipulates that:
A subsidy as defined in paragraph 1 shall be subject to the provisions of Part II or
shall be subject to the provisions of Part III or V only if such a subsidy is specific in
accordance with the provisions of Article 2.
8.17 According to Article 2.3 of the SCM Agreement,
Any subsidy falling under the provisions of Article 3 shall be deemed to be specific.
8.18 Article 3.1 of the SCM Agreement then states that:
 3.1 .... the following subsidies within th e meaning of Article 1, shall be prohibited:
(b) subsidies contingent, whether solely or as one of several other conditions
upon the use of domestic over imported goods
8.19 The grant of duty relief on imports of part s and components is contingent upon the finished
vehicle or the parts and components into wh ich the imported goods are assembled reaching a
minimum local content percentage. Similarly, the grant of the exemptions from the Sales Tax on
Luxury Goods is conditional upon the motor vehi cles concerned meeting certain local content
requirements. Finally, the grant of duty relief for imports of National Ca rs is conditional upon the
overseas manufacturer of the cars purchasing a certain amount of Indonesian parts and components

determined that the loan was granted on commercial terms. However, Indonesia does not offer any evidence to
support its assertions or to rebut the evidence provided by the United States in its first submission.
In this regard, while the Panel has ruled that the US claims concerning the loan are inadmissible, the
loan remains relevant to this case. Cf., Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel
and Other Items, WT/DS56/R, Report of the Panel issued 25 November 1997, para. 6.15. Indonesia asserted at
the first meeting of the Panel that after TPN's start up phase, the "market will determine the winners and the
losers, as it should". Indonesia Statement to the Panel, page 2. This statement is simply contradicted by the fact
that the GOI ordered a consortium of banks to provide a $690 million loan to TPN on preferential terms. The
loan is a subsidy, and, with a 10-year term, has a 10-year allocation period. In other words, TPN will be deemed
to be receiving subsidies from the loan for the next ten years. The existence of the loan belies Indonesia's claim
that, as of 1999, the "market" will determine the winner s and losers. Moreover, Indonesia's claim that the GOI
played no role in the provision of the loan is so at odds with the reported facts that it calls into question the
credibility of other factual assertions made by the GOI in this case.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

and incorporating them into the products exported to Indonesia.
427 Thus, three types of incentives at
issue are “contingent upon the use of domestic over imported goods” within the meaning of
Article 3.1 (b) and, accordingly, must be deemed “specific” in the sense of Articles 1.2 and 2 of the
SCM Agreement.
8.20 Even if the subsidies at issue were not contingent upon the use of domestic over imported
goods, they would still be “specific” pursuant to Articl e 2.1 of the SCM Agreement, since eligibility
is limited to certain enterprises belonging to a cer tain industry and which meet certain non objective
criteria. Furthermore, the decision whether to gran t the subsidies is a discretionary one and, in
practice, the benefits have been granted to only one enterprise: PT TPN.
8.21 Indonesia does not dispute that the measures are “specific subsidies” subject to the provisions
of the SCM Agreement. Indeed, the measures were notified by Indonesia pursuant to Article XVI:1 of
the GATT and Article 25 of the SCM Agreem ent on 28 October 1996, simultaneously with
Indonesia’s withdrawal of its previous notifi cation of some of the measures under the TRIMs
Agreement.
428 Furthermore, in connection with this dis pute, Indonesia admits that the measures at
issue constitute subsidies contingent upon local content.
8.22 The European Communities also argues that Indonesia admitted during consultations that
the June 1996 programme as well as the February 1996 programme are specific subsidies.429
 (b) Arguments of the United States
8.23 The United States argues that the tariff and tax benefits and the government-directed
$690 million loan under the National Motor Vehicle programme are specific within the meaning of
Article 2 of the SCM Agreement. The following are the United States' arguments in this regard:
8.24 Under Article 1.2 of the SCM Agreement, in order for a subsidy to be actionable under Part
III of the SCM Agreement, the subsidy must be “specific in accordance with the provisions of
Article 2”. The tariff and tax subsidies and the government-directed $690 million loan under the
National Motor Vehicle programme meet the specificity requirements of Article 2.
8.25 First, each of these subsidies is specific unde r Article 2.3, which provides: “Any subsidy
falling under the provisions of Article 3 shall be d eemed to be specific”. Because the tariff and tax
subsidies under the National Motor Vehicle programme are contingent on satisfying the local content
requirements for a “national motor vehicle”, these subsidies fall under Article 3.1(b) of the SCM

427 This incentive could also be characterised as a subsidy contingent upon export performance of the
type prohibited by Article 3.1 (a) of the SCM Agreement.
428 G/SCM/N/16/IDN. See also G/SCM/Q2/IDN/9 dated 23 May 1997
429 Thus, for instance, in reply to a written question from the Community, Indonesia stated that:
Under both the February 1996 and the June 1996 decrees, instructions and regulations,
companies that satisfy the designated criteria are exempted from the luxury tax and customs
import duties. All of the requisite elements of a subsidy are involved: a financial contribution
by the government by virtue of revenue foregone; a benefit to the recipients by virtue of
exemption from the luxury tax and customs import duties, and specificity, by virtue of
limitation of the subsidy to those companies that meet the criteria of the February 1996 and
the June 1996 decrees, instructions and regulations. Among the criteria for receipt of subsidies
under the February 1996 and the June 1996 decrees, instructions and regulations is the
obligation to achieve designated rates of local content. This constitutes ‘subsidies contingent
.... upon the use of domestic over imported goods’ within the meaning of Article 3.1 (b) of the
SCM Agreement. See also Indonesia’s replies to questions from the Community, dated
25 November 1995, at points 2.a, 5.h, 5.I, and 6.l. (EC Exhibit B-4)
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Agreement, which refers to “subsidies continge nt, whether solely or as one of several other
conditions, upon the use of domestic over imported goods”. Likewise, the government-directed $690
million loan also falls under Article 3.1(b), b ecause the evidence overwhelmingly demonstrates that
the Government ordered the provision of the loan due to TPN’s status as a participant in the
production of a “national motor vehicle.” This stat us, in turn, was contingent on the satisfaction of
the local content criteria of the National Motor Vehicle programme.
8.26 Second, these subsidies also are specific unde r Article 2.1 of the SCM Agreement, which sets
forth criteria for determining specificity with respect to subsidies other than prohibited subsidies and
regional subsidies.
430 Article 2.1 provides as follows:
In order to determine whether a subsidy, as defined in paragraph 1 of Article 1, is
specific to an enterprise or industry or group of enterprises or industries (referred to
in this Agreement as “certain enterprises”) within the jurisdiction of the granting
authority, the following principles shall apply:
(a) Where the granting author ity, or the legislation pursuant to which the granting
authority operates, explicitly limits acce ss to a subsidy to certain enterprises,
such subsidy shall be specific.
(b) Where the granting author ity, or the legislation pursuant to which the granting
authority operates, establishes objective criteria or conditions governing the
eligibility for, and the amount of, a s ubsidy, specificity shall not exist,
provided that the eligibility is automatic and that such criteria and conditions
are strictly adhered to. The criteria or conditions must be clearly spelled out
in law, regulation, or other official document, so as to be capable of
verification.
(c) If, notwithstanding any appearan ce of non-specificity resulting from the
application of the principles laid down in subparagraphs (a) and (b), there are
reasons to believe that the subsidy may in fact be specific, other factors may
be considered. Such factors are: use of a subsidy programme by a limited
number of certain enterprises, predomin ant use by certain enterprises, the
granting of disproportionately large amount s of subsidy to certain enterprises,
and the manner in which discretion has been exercised by the granting
authority in the decision to grant a subs idy. In applying this subparagraph,
account shall be taken of the extent of diversification of economic activities
within the jurisdiction of the granting authority, as well as of the length of
time during which the subsidy programme has been in operation. (footnotes
omitted).
8.27 With respect to the tariff and tax subsidi es, these are specific under paragraph (a), because
Presidential Instruction No. 2/1996 and the various implementing decrees and regulations limit access
to these subsidies to producers of motor vehicles. In other words, the subsidies are limited to a single
industry, the automotive industry.
8.28 Finally, the tariff and tax subsidies are speci fic under paragraph (c). These subsidies are used
only by Kia Timor and TPN, which clearly constitute “a limited number of certain enterprises” within
the meaning of paragraph (c), second sentence. Mo reover, the decision to limit these subsidies to
Kia Timor and TPN constitutes the exercise of discr etion within the meaning of paragraph (c), second

430 Regional subsidies are dealt with in Article 2.2.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

sentence. The only explanation given for limiting th ese subsidies to Kia Timor and TPN is that it is
the Government of Indonesia’s policy to do so. If true, this type of exercise of a government’s policy
prerogatives is the paradigm of a discretionary decision.
8.29 With respect to the government-directed $690 million loan, the evidence demonstrates that
this loan was “special credit” provided to a single firm, TPN.
431 At a time when the Government of
Indonesia was clamping down on credit and cancelling other large projects 432, TPN was able to obtain
a massive loan package on very favourable terms that would no t have been available to similarly
situated firms. Clearly, the provision of this loan is specific within the meaning of Article 2.1(c).
8.30 Moreover, putting aside the evidence the United States has provided, it should be emphasized
that, in the Annex V process, Indonesia refused to provide information that would have permitted a
more thorough analysis of the specificity of the loan under Article 2.1(c). In Question 29(b) of
AV/15, the United States sought information relati ng to the specificity of the government-directed
$690 million loan. In particular, the United Stat es asked the following: "Please describe other recent
projects financed by state bank-led consortia, in cluding the amount of financing provided and the
terms of the financing." Indonesia refused to respon d, stating that it "question[ed] the relevance of
this request to the Annex V process."
433
8.31 Clearly, information relating to the specificity of a subsidy is relevant to the Annex V process,
which, pursuant to paragraph 2 of Annex V, is aimed at obtaining "such information from the
government of the subsidizing Member as neces sary to establish the existence and amount of
subsidization . . . " In light of Indonesia's non-c ooperation with respect to information concerning the
loan, the Panel should draw an adverse inference pursuant to paragraph 7 of Annex V and find the
government-directed $690 million loan to be specific.

431 "Analysts Warn About Loans for Timor Car", Jakarta Post , 13 August 1997 (US Exhibit 14,
pp. 163-165).
432 The decision to grant the $690 million loan pa ckage came at a time when the Government of
Indonesia, due to the depreciation of the rupiah and overly aggressive lending by banks, was clamping down on
credit and canceling large projects, th ereby making the loan to TPN all the more extraordinary. As one
commentator noted of the decision to grant the $690 million loan, “The move appears to contradict government
policy to clamp down on credit growth.” (“Jakarta Plans New ‘National’ Car,” Financial Times
 (London),
7 May 1997, p. 4 (US Exhibit 14, pp. 110-111).) Indeed, the President of Indonesia, in his state of the nation
address, announced “that all projects that were not a national priority would be shelved given the ‘new realities’
facing the country." (“Timor Car Project Not to Be Re scheduled in Face of Currency Crunch,” Agence France
Presse, 20 Aug. 1997 (US Exhibit 14, pp. 170-171)). It was further reported that:
President Soeharto, in his National Day Addr ess last Saturday, called on the business
community to select projects for implementation carefully in view of the currency upheaval
currently confronting the economy. Soeharto said the government and business should review
their investment projects to ascertain which shou ld be given top priority and which should be
postponed.
(“Timor Car Project Won’t Be Rescheduled,” Jakarta Post , 21 August 1997 (US Exhibit 14, pp. 172-
173); See also, “Indonesia: Jakarta Pledges to Cut Big Projects,” Financial Times (USA ) (17 September 1997)
<http://www.usa.ft.com/hippocampus/v4514e.htm> (US Exhibit 15, pp. 3-4) .) As a result, according to the
Coordinating Minister for Economy and Finance, the Government “took stock of projects accordin g to their
scale of priority. Obviously, high priority programs will not be axed.” However, when asked by reporters
whether the Timor car project would be rescheduled, the Coordinating Minister responded that “the term
‘national’ classifies it as a high priority project.” (“Ministers Review Projects Rescheduling,” Business Daily, 8
Sept. 1997 (US Exhibit 14, pp. 174-175).) This followed an earlier statement by the Coordinating Minister that
“Everyone must support the [national car] program.” (“ 13 Banks Ordered to Finan ce Timor Car Project,” The
Jakarta Post, 7 May 1997, p. 12 (US Exhibit 14, pp. 112-114)).
433 AV/16, p. 3.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

(c) Arguments of Indonesia

8.32 Indonesia also argues that the Government's gran t of exemptions and reductions in import
duties and the luxury tax to certain manufacturers and assemblers of automobiles and automotive
parts are specific in the sense of Article 2 of th e SCM Agreement. These arguments are set forth in
part in Section V.D. See also Indonesia's further arguments in this regard in the following section.
(3) Indonesia's arguments that th e measures are specific subsidies

8.33 The following are Indonesia's further arguments (in addition to those in Section V.D) that the
measures at issue are specific subsidies:
8.34 Articles 1 and 2 of the Subsidies Agreement de fine a specific subsidy. They provide in the
relevant part that "a subsidy sh all be deemed to exist if ... ther e is a financial contribution by a
government” where:
"government revenue that is otherwi se due is foregone or not collected"
(Article 1.1(a)(l)(ii)); and
a benefit is thereby conferred that is "specific to an enterprise or industry or group of
enterprises or industries" (Article 2.1).
8.35 Under the 1993 incentive programme, the Gove rnment foregoes or does not collect revenue
that is otherwise due by granting an exemption from or reduction in the rate of import duties on
automotive parts and components. Thus, there is the requisite financial contribution by the
Government.
8.36 The February 1996 national car programme exempts companies designated by the
Government as producers of a national car from the payment of either import duties on automotive
parts and components or the luxury tax. The Government, therefore, foregoes or does not collect
revenue otherwise due from specific enterprises. (See also section V.D.2(a).)
8.37 In addition, the subsidy under the 1993 incentive programme falls under the provisions of
Article 3 of the Subsidies Agreement. Thus, by virt ue of Article 2.3 of that Agreement, there is the
requisite specificity. The same is true of the February 1996 programme.
8.38 Indonesia also indicates at several points in its arguments that the June 1996 programme is
(or was) a specific subsidy. (See, e.g., Section VII.D.3 and Section X.A). See also the arguments of
the European Communities , above, quoting an Indonesian response to a written question in
consultations.
 B. Serious Prejudice Claims

1. Summary of claims
8.39 The European Communities and the United States note that the National Car Programme
provides three types of benefits for National Cars in Indonesia: exemption from import duties on parts
and components used for the assembly of Nationa l Cars; exemption from import duties on National
Cars imported from Korea; and exemption from th e Sales Tax on Luxury Goods on National Cars,
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

whether imported from Korea or assembled in Indonesia. These incentives constitute “specific
subsidies” within the meaning of Articles 1 and 2 of the SCM Agreement.
434
8.40 The European Communities and the United States observe that the subsidies are contingent
upon the use of domestic over imported parts and com ponents. As such, they would be prohibited by
Article 3.1(b) of the SCM Agreement, were it not because, as a developing country Member,
Indonesia benefits from the temporary exception to th at prohibition provided in Article 27.3 of the
SCM Agreement.
8.41 The European Communities and the United States claim that, nonetheless, the subsidies
cause “adverse effects” to their respective interests in the form of “serious prejudice” within the
meaning of Articles 6 and 27 of the SCM Agreement. Specifically, the subsidization of the National
Cars has caused serious prejudice by (i) displacing or impeding imports of motor vehicles of
European Communities and United States manufacturers into the Indonesian market; and (ii) resulting
in significant price undercutting of motor vehi cles of European Communities and United States
manufacturers in the Indonesian market. Therefore, Indonesia is required, in accordance with Article
7.8 of the SCM Agreement, to withdraw them or to take appropriate steps to remove their adverse
affects.
2. Basis for serious prejudice as a cause of action against Indonesia as a developing country

8.42 The European Communities and the United States argue, and Indonesia acknowledges
that serious prejudice can be a cause of action against Indonesia in this dispute. The European
Communities and the United States argue that such claims can be ra ised only if one of the situations
described in Article 6.1(a) of the SCM Agreement ex ists. Indonesia indicates that 6.1(a) situations
can be a basis for serious prejudice claims against developing countries, but that serious prejudice as a
cause of action against developing countries also can be reached directly where the subsidies in
question fall under the provisions of Article 3 of th e Agreement. The following are the arguments of
the European Communities, the United States, and Indonesia in this regard.
(a) Arguments of the European Communities

(1) The subsidies are actionable under Part III of the SCM Agreement .
 The subsidies would be “prohibited” by Ar ticle 3.1 (b) of the SCM Agreement but for the
temporary exception for developing countries provided in Article 27.3 of the SCM Agreement.
8.43 Article 3.1 (b) of the SCM Agreement prohibits subsidies that are:
“... contingent, whether solely or as one of several other conditions, upon the use of
domestic over imported goods”.
8.44 This prohibition is subject to the tempor ary exception provided in Article 27.3 of the SCM
agreement, which states that:
The prohibition of paragraph 1(b) of Article 3 shall not apply to developing country
members for a period of five years, and sh all not apply to least developed country

434 The Community considers that the benefits granted for the assembly of other motor vehicles and
parts and components thereof under the 1993 Deregulation Package and under the National Car Programme are
also “specific subsidies” within the meaning of Articles 1 and 2 of the SCM Agreement. Nevertheless, the
Community has decided no to take action against those subsidies under Part III of the SCM Agreement within
the framework of the current dispute. The Community reserves its right to do so in the future, if necessary.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Members for a period of eight years from the date of entry into force of the WTO
Agreement.
8.45 As shown above, the subsidies at issue ar e contingent upon compliance with local content
requirements and, accordingly, fall within the prohibition laid down in Article 3.1 (b).
8.46 Nevertheless, given Indon esia’s status as a “developing country Member”, the prohibition of
Article 3.1(b) will not apply to the measures in dis pute for a period of five years from the entry into
force of the WTO Agreement, i.e. until 1 January 2000.
(2) Article 27.3 does not preclude the “actionability” of the subsidies under
Part III of the SCM Agreement
8.47 By its own words, Article 27.3 of the SCM Agreement excludes the application of the
prohibition contained in Article 3.1(b) only, a nd of no other provision of the SCM Agreement.
Therefore, Article 27.3 does not confer immunity against actions based on other provisions of the
SCM Agreement and, in particular, against action under Part III of the SCM Agreement.
8.48 This is further confirmed by the express wo rding of Article 5 of the SCM Agreement, which
provides that:
No Member should cause, through the use of any subsidy referred to in paragraphs 1
and 2 of Article 1, adverse effects to th e interests of other Members... [emphasis
added]
8.49 Thus, Article 5 applies w ith respect to all specific subsidies within the meaning of
paragraphs 1 and 2 of Article 1 of the SCM Ag reement, including those which are prohibited by
Article 3. As demonstrated above, the measures at issue are specific subsidies. Consequently,
Indonesia is subject in respect of those measures to the disciplines laid down in Article 5 of the SCM
Agreement.
(3) The subsidies cause “adverse effects” to the interests of the Community in
the form of “serious prejudice”
8.50 Article 5 of the SCM Agreement lists th ree different types of “adverse effects”:
serious injury to the domestic industry of another Member;
nullification or impairment of benefits accruing directly or indirectly to other Members under
GATT 1994, in particular the benefits of concessions bound under Article II of GATT 1994;
prejudice to the interest of another Member.
8.51 Footnote 13 to subparagraph (c) of Ar ticle 5 of the SCM Agreement specifies that:
"The term ‘serious prejudice to the interests of another Member’ is used in this
Agreement in the same sense as it is used in paragraph 1 of Article XVI of GATT
1994 and includes threat of serious prejudice".
8.52 The Community claims and will demonstrate be low that the subsidies at issue cause “adverse
effects” to its interests in the form of “serious prejudice”.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

(4) The European Communities is not precluded by Article 27.9 of the SCM
Agreement from invoking “serious prejudice”
8.53 Article 27.9 of the SCM Agreement provides th at, where a subsidy is granted by a developing
country Member, “serious prejudice” can only be invoke d if the subsidy in question falls within one
of the categories “referred to” in Article 6.1 of the SCM Agreement.
8.54 Article 6.1 “refers”, inter a lia, to subsidies where the total ad valorem subsidization of the
product concerned exceeds 5 per cent on the value of sales (or 15 per cent on the value of the total
invested funds in the case where the recipient is in a start-up situation). As shown below, in the
present case the amount of subsidisation is well above that percentage by any possible measurement.
Accordingly, Article 27.9 of the SCM Agreement does not prevent the Community from invoking
“serious prejudice” with respect to the subsidies in dispute.
(5) The subsidies would be presumed to cause “serious prejudice” to the
Community’s interests but for Indonesia’s status as a developing country
Member
8.55 Article 6.1 provides that serious prejudice in th e sense of Article 5 © shall be deemed to exist
where the total ad valorem subsidisation of the products concerned exceeds 5 per cent on the relevant
sales value (or 15 per cent on the value of invested f unds where applicable). As demonstrated below,
in the present case the amount of subsidization exceeds by far that threshold. Thus, in accordance
with Article 6.1, the subsidies at issue would have to be deemed to cause “serious prejudice” to the
European Communities.
8.56 Nevertheless, Article 27.8 of the SCM Agreement stipulates that the presumption of
Article 6.1 shall not apply where, as in the presen t case, the subsidy is granted by a developing
country Member. Article 27.8 further states that, in that case, serious prejudice must be demonstrated
by positive evidence, in acco rdance with the provisions of paragra phs 3 through 8 of Article 6 of the
SCM Agreement.
(6) The subsidization is massive
8.57 The European Communities have calculated the amount of total ad valorem subsidization on
the basis of data supplied by Indonesia and in acco rdance with the provisions contained in Annex IV
of the SCM Agreement. The results of that calculation are summarized in the table below:
 Product Subsidization rate Period
 Timor S-515 219-225% Start-up period
 all cars (based on Nov 1995-April 1999
 estimated invested funds)
 Timor S-515 156-460% Oct. 1996-June 1997
 imported from Korea
 (based on value of sales)
 Timor S-515 49-61% May 1998-Dec. 1998
 assembled in Indonesia
 (based on estimated
 value of sales) 40-50% 1999
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

8.58 A detailed explanation of the calculation of the amount of subsidization is provided below:
(a) Methodology

8.59 In accordance with Paragraph 1 of Annex IV of the SCM Agreement, the amount of the
subsidies must be calculated “in terms of cost to the granting government”.
8.60 In the present case, the “cost to the gran ting government” is the amount of the import duties
and of the Sales Tax on Luxury Goods not collected by the Indonesian Government pursuant to the
National Car Programme.
435
8.61 In principle, the rate of ad valorem subsid ization must be calculated by expressing the subsidy
amount as a percentage of the sales value of the pr oducts benefiting from the subsidy. Nevertheless,
by way of exception, Paragraph 4 of Annex IV provid es that where the recipient firm is in a start-up
situation the following rule shall apply instead:
Where the recipient firms is in a start-up situation, serious prejudice shall be deemed
to exist if the overall rate of subsidis ation exceeds 15 per cent of the total funds
invested. For purposes of this paragraph, a start-up period is deemed not to extend
beyond the first year of production.
8.62 According to Footnote 65, start-up situations include
"instances where financial commitments for product development or construction of
facilities to manufacture products benefiting from the subsidy have been made, even
though production has not begun".
8.63 The incentives provided in respect of the fini shed cars imported from Korea and in respect of
the cars assembled at Tambun Plant are transiti onal measures until PT TPN starts its own production
at Karawang Plant. In view of this, it may be cons idered that PT TPN is still in a “start-up situation”
in the sense of Paragraph 4, which situati on began with the incorporation of PT TPN in
November 1995 and will run until one year after production starts at Karawang Plant (i.e. until the end
of April 1999). On that assumption, the rate of ad valorem subsidisation received by PT TPN would
have to be calculated by expressing the total amount of the subsidies to be received by PT TPN during
the said start-up period as a percentage of PT TPN’s estimated total invested funds.
8.64 If it was considered that PT TPN is not in a “start-up situation” within the meaning of
Paragraph 4, the ad valorem subsidisation rate would have to be calculated by expressing the amount
of each subsidy as a percentage of the relevant sal es value in accordance with the rules contained in
Paragraphs 2 and 3 of Annex IV.
8.65 In the case of the exemption from the Sal es tax on Luxury Goods, this calculation seems
unnecessary. Since the Sales Tax on Luxur y Goods takes the form of an ad valorem tax on the net
sales value of the cars, the ad valorem rate of subsidisation may be c onsidered to equal the rate at
which that tax is generally applied to the category of products concerned, i.e. 35 per cent.

435 In the Report by the Informal Group of Experts to the Committee on Subsidies and Countervailing
measures (G/SCM/W/415) it is recommended that:
the cost to the government of tax exemptions, deductions, holidays and any similar measures
be calculated as the amount of revenue that the government otherwise would have collected”
(recommendation 12, at para A. 1)
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

8.66 As regards the subsidy in the form of impor t duty relief, Paragraph 3 of Annex IV provides
that where a subsidy is tied to the production or sale of a given product, the relevant sales
denominator for the calculation of the rate of ad valorem subsidisation shall be:
"the total value of the recipient firm sale’s of that product in the most recent
12-month period, for which sales data is av ailable, preceding the period in which the
subsidy is granted".
8.67 In the present case, however, PT TPN did not sell any motor vehicles in the period preceding
the granting of the subsidies. This makes it impossible to establish the sales denominator in
accordance with the rule contained in Paragraph 2. In view of this, it is considered appropriate to use
instead the sales data made available by Indonesia for the period October 1996-June 1997.
8.68 The generally applicable import duty rate on CBU passenger cars is higher than the applicable
import duty rate on imports of pa rts and components, including CKD kits. Furthermore, it can be
expected that the customs value of the CBU Ti mors S-515 imported from Korea will be higher than
the customs value of the parts and components impor ted from Korea for assembly in Indonesia. As a
result, the ad valorem subsidisation of the cars imported from Korea by PT TPN and sold during the
period October 1996-June 1997 is likely to be highe r than the rate of subsidization of the cars
assembled at Tambun Plant as from June 1997 and at Karawang Plant as from May 1998.
8.69 For the above reasons, it seems appropriate to calculate separately the subsidization rate of the
cars imported from Korea and the subsidisation rate of the cars assembled in Indonesia. Since
production at Karawang Plant has not started yet a nd Indonesia has not made available the necessary
data with respect to the production at Tambun Plant, the calculation of the subsidization rate of the
cars assembled in Indonesia must necessarily be based on the estimates for the amount of
subsidization and for the sales value of the cars to be assembled at Karawang Plant provided by
Indonesia in the framework of the Annex V Procedure.
 (b) Calculation based on invested funds during the “start-up” period

8.70 According to PT TPN’s investment permit, the estimated total investment by PT TPN is
Rp. 975,800 million.
8.71 The total amount of subsidization receive d by PT TPN during the start-up period may be
estimated as follows:
Subsidies on cars Rp. 1,914,252 million*
imported from South Korea
Subsidies on cars n.a
assembled at Tambun Plant
Subsidies on cars to be assembled Rp. 104,304-131,904 million**
at Karawang Plant during 1998
Subsidies on cars to be assembled Rp. 118,888-148,688 million**.
at Karawang Plant during Jan-Apr 1999
Total Rp. 2,137,444-2,194,844 million
*Total amount of uncollected duties as calculated in 3.1+35 per cent of total sales value mentioned
under point 3.1
**Based on Attachment A-28
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

8.72 Thus, on this basis, the ad valorem amount of subsidization would be:
 2,137,444 million-2,194,688 million/975,800 million x 100 = 219 %-225%
 (c) Calculation based on value of sales

 (i) Subsidies on imported passenger cars
8.73 The amount of subsidization of the cars im ported by PT TPN from Korea equals the amount
of customs duties not collected upon importation into Indonesia plus the amount of uncollected luxury
taxes.
8.74 The applicable customs duty on imports of CBU passenger cars is 200 per cent. 436 Thus, the
amount of uncollected customs duties will be the amo unt that results from applying that percentage to
the total import value of the cars.
8.75 According to Indonesia’s Response to the European Communities Questionnaire in the
Annex V Procedure437 , the import value of the cars was the following:
 June-December 1996 US$131,242,800
 January-June 1997 US$237,210,266
 Total US$368,453,066
8.76 The amount of uncollected import du ties may thus be estimated as follows:
 JuneDecember 1996 US$262,485,600 (= Rp. 629,965,440,0004 438 )
 JanuaryJune 1997 US$474,420,532 (= Rp. 1,138,609,277,800)
 Total US$736,906,132 (= Rp. 1,768,574,716,800)
8.77 In turn, according to Indonesia’s Response
439 , the sales value of the imported cars was the
following:
 October-December 1996 Rp. 153,002,850,000
 January-June 1997 Rp. 263,218,585,000
 October 1996-June 1997 Rp. 416,221,435,000

436 AV/3, at point 23.
437 Id. at point 21.

438 All amounts in US$ have been converted into Rp at the rateUS$1 = Rp. 2,400.

439 AV/3 at point 22.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

8.78 The ad valorem subsidisation rate corresponding to the non collection of import duties is thus
the following:
 October-December 1996 412%
 January-June 1997 433%
 October 1996-June 1997 425%
8.79 The total ad valorem subsidization rates which result from adding the above percentages to
the rate of subsidization corresponding to the ex emption from the Sales Tax on Luxury Goods (35 per
cent) are:
 October-December 1996 447%
 January-June 1997 468%
 Total 460%
8.80 The above calculation does not make any adjustment for the fact that as of 30 June 1997,
28,391 cars had not been sold yet out of 39,727 cars imported. In view of that, it is perhaps more
appropriate to calculate the amount of ad valorem subsidization on the basis of the average unit
import value for the period June 1996/June 1997 a nd the average unit sales value for the period
October 1996/June 1997.
8.81 On the basis of the data provided in Indon esia’s Response, the unit import value for the period
June 1996/June 1997 was US$9,275.
8.82 Accordingly, the uncollected amount of import duties per unit was US$9,275 x 200% =
US$18,550 (= Rp.44,520,000).
8.83 In turn, the unit sales value for the period October 1996/June 1997 was Rp. 36,716,781.
8.84 On this basis, the ad valorem rate of subsidization resulting from the non collection of import
duties would be:
 (44,518,560 /36,761,782) x 100 = 121 %
8.85 This percentage, added to the subsidization rate corresponding to the exemption from the
Sales Tax of Luxury Good, results in a total ad valorem subsidization rate of:
 121% + 35% = 156%
 (ii) Subsidies on Passenger cars assembled at Karawang Plant

8.86 In the Attachment A-28 to its Response in the Annex V Procedure (AV/3), Indonesia has
estimated the amount of the subsidies to be grante d in respect of the assembly of passenger cars at
Karawang Plant as follows:
 1998 1999
 Import duty US$15.99-23.12 million US$51.80 - 74.89 million
 Luxury Tax US$27.47-31.84 million US$96.81-110.97 million
 Total US$43.46-54.96 million US$148.61-185.86 million
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

8.87 In the same Attachment, Indonesia gives th e following estimate of the sales value of those
cars:
 1998 US$89.56 million
 1999 US$373.18 million
8.88 On the basis of the above estimates, the total rate of ad valorem subsidisation would be the
following :
 1998 48.5-61.4%
 1999 39.8-49.8%
8.89 In response to a question from the United Stat es, Indonesia has stated that “Items 3 to 8 of
Attachment A-28 are also applicable to the Tambun Plant”.
440 Accordingly, the above calculation
may be considered to constitute also an accurate est imate of the total subsidisation rate of the cars
assembled at Tambun Plant.
 (b) Arguments of the United States
(1) Because the subsidies provided unde r the National Motor Vehicle programme
exceed 5 per cent ad valorem, the subsidies fall under Article 6.1(a) of the
SCM Agreement and are actionable under Articles 27.8 and 27.9
8.90 For purposes of this dispute, the United States assumes that Indonesia is a developing
country. Therefore, under Articles 27.8 and 27.9 of the SCM Agreement, a serious prejudice case
may be brought against Indonesia only if the Indonesian subsidies are of a type described in Article
6.1. Article 6.1(a) refers to subsidies where "the total ad valorem subsidization of a product exceed[s]
5 per cent". (Footnote omitted). With respect to the subsidies provided under the National Motor
Vehicle programme, the subsidies vastly exceed 5 pe rcent. Therefore, a serious prejudice case may
be brought against Indonesia.
(2) The one-year authorization to impor t Korean-made Kia Sephia sedans free of
Indonesia’s 200 per cent tariff on CBU p assenger cars, alone, results in a
subsidy in excess of 5 per cent
8.91 As shown below, the subsidies provided as a result of Presidential Decree No. 42/1996, alone,
are well above the 5 per cent threshold. The authorization to import CBU Kia Sephia sedans free of
Indonesia’s 200 per cent tariff on CBU passenger cars resulted in a subsidy of 122 percent, assuming
that the entire amount of the subsidy is attributed solely to the one-year period in 1996-97 for which
the authorization was in effect.
441
8.92 However, it would not be appropriate to allocat e this subsidy solely to this one-year period,
because of the tremendous size of the subsidy and the fact that the one-year authorization is a "non-
recurring" subsidy. Therefore, this subsidy must be allocated over several years. The United States
submits that in the absence of sp ecific guidance in the SCM Agreem ent regarding the mechanics of
subsidy allocation over time, the recommendations made by the Informal Group of Experts

440 AV/16 at point 12.28.c

441 See Table 13.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

established under the auspices of the SCM Committee o ffer a reasonable basis for dealing with this
issue.
442
8.93 By way of background, footnote 14 to Article 6.1(a) provides that "[t]he total ad valorem
subsidization shall be calculated in accordance with the provisions of Annex IV". Annex IV to the
SCM Agreement is entitled "Calculation of the Tota l Ad Valorem Subsidization (Paragraph 1(a) of
Article 6)". Although Annex IV contains some general principles regarding subsidy calculation,
footnote 62 to Annex IV provides: “An unders tanding among Members should be developed, as
necessary, on matters which are not specified in this Annex or which need further clarification for
purposes of paragraph 1(a) of Article 6.” To that end, on 13 June 1995, the SCM Committee
established an Informal Group of Experts (“IGE” ) to make recommendations concerning calculation
rules for purposes of Annex IV and Article 6.1(a).443 On 25 July 1997, the IGE submitted to the SCM
Committee its recommendations.444
8.94 Recommendation 1 of the IGE Report deals with the question of “expensing” (allocating
subsidies to the year of receipt) versus “allocati ng” (allocating subsidies over two or more years).
Paragraph 2 of Recommendation 1 states that "n on-recurring subsidies should be presumptively
allocated ...". The IGE provided the following explanation for this recommendation:445
The frequency and size of a subsidy were deemed relevant to the question of
expensing versus allocating. Just as it is recommended that recurring and/or small
subsidies be expensed, so is it recommended that non-recurring and/or large subsidies
generally be allocated. One consideration in this context is that it might be illogical
to expense very large subsidies due to the likely substantial impact that such subsidies
would have on the recipient companies beyond the year in which they were received.
For example, it is likely that non-recurring la rge subsidies would be used to purchase
fixed assets, or even if not so used, would free up a comparable amount of company
funds for this purpose.
8.95 The SCM Committee has not yet adopted the recommendations of the IGE, and those
recommendations, of course, are not binding on this Panel. However, in light of Annex IV,
paragraph 7, as well as the Tokyo Round Commi ttee Guidelines, the IGE’s recommendations
regarding the allocation of non-recurring subsidies ma ke sense, and should be followed in this case.
The one-year tariff exemption provided to TPN on imports of Korean-made Kia Sephia sedans was a
huge subsidy, the Government of Indonesia has asserted that this subsidy will not recur, and this
tremendous gift of money frees up a comparable amount of TPN’s funds to purchase assets for its
Indonesian production/assembly facility.
8.96 The next question is how to allocate the one-y ear tariff exemption over time. In this regard,
Recommendation 2, paragraph 1, of the IGE Report states: "As a general principle, the average useful
life of assets should be used as the allocation period for subsidies subject to allocation." Paragraph 2
of Recommendation 2 then sets out a hierarchy of b ases from which to determine the average useful
life of assets, ranging from "Information for the indivi dual firm or firms receiving the subsidy" to

442 Although Annex IV does not provide detailed calcu lation rules on this particular point, it clearly
contemplates the allocation of subsidies over time, because paragraph 7 refers to “[s]ubsidies . . . the benefits of
which are allocated to future production ... .” In addition, the Tokyo Round Subsidies Code Committee adopted
“Guidelines on Amortization and Depreciation” that also called for the allocation of certain subsidies over time.
BISD 32S/154.
443 G/SCM/5 (22 June 1995).
444 Report by the Informal Group of Experts to the Committee on Subsidies and Countervailing
Measures, G/SCM/W/415 (“IGE Report”).
445 IGE Report, p. 5, para. 11.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

"Information for other firms producing the product ou tside the country in question." Paragraph 3 of
Recommendation 2 sets forth a formula for calculating the average useful life of assets.
8.97 The United States does not have information fo r the firms in question, and has not been able
to develop information based on the formula set forth in paragraph 3 of Recommendation 2.
Therefore, as a reasonable surrogate, the United St ates has used a 12-year allocation period based on
the class life of assets for manufacturers of motor ve hicles as set forth in the regulations of the US
Internal Revenue Service.
446 Using a 12-year, straight line allocation method, this results in a subsidy
of 10.18 per cent for the one-year period during whic h the duty-free authorization was in effect. (See
below.) Although this method under estimates the size of the subsidy 447, the amount is still well in
excess of the 5 per cent threshold.
(3) The inclusion of the other subsidies provided under the National Motor
Vehicle programme simply increases the amount by which the total ad
valorem subsidization exceeds 5 per cent
8.98 As demonstrated, a consideration of mere ly one component of the National Motor Vehicle
programme establishes that the level of subsidizati on is in excess of 5 pe rcent and that a serious
prejudice case may be brought against Indonesia. Ho wever, for the sake of completeness, the United
States notes, as shown below, that the exemption of the Timor Kia Sephia from the luxury tax results
in a subsidy of 44 per cent for 1997 448 and an estimated subsidy of 35 percent for 1998 and 1999. 449
The exemption under the National Motor Vehicle programme from import duties on parts results in an
estimated subsidy of 14 per cent for 1998 and 9 per cent for 1999.
450 Finally, the government-directed
$690 million loan results in a conservatively calcula ted estimated subsidy of 7.1 per cent in 1998,
28.95 per cent in 1999, and 5.3 per cent in 2000.451
(4) Calculation of subsidization from the one-year tariff exemption on CBU
imports of the Kia Sephia from Korea
8.99 If the subsidy attributable to the one-year tariff exemption on CBU imports of the Kia Sephia
from Korea is “expensed” (allocated to the year of receipt), the resulting subsidy is 122.18 per cent ad
valorem. This figure is derived as follows:

446 See Table 14 and accompanying note.
447 This method underestimates the subsidy a ttributable to the one-year tariff exemption, because
Recommendation 3, paragraph 1, of the IGE Report provides the following: “It is recommended, where
subsidies are allocated over time, that subsidy amounts be adjusted fully for inflation and include a portion of
the ‘real’ interest rate.” If this adjustment were made, the amount of the subsidy would increase.
448 See Table 15.
449 See Table 16.
450 See Table 17.
451 See Table 21.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Table 13
One-Year Tariff Exemption (Expensed

Step 1 Determine the US$ value of importations during the one-year period
(1996-97). Based on Attachment U-12 to AV/14, this figure is
US$368,453,066.
Step 2 Multiply the value of importati ons by 200% to arrive at the total
subsidy amount in US$. ($368,453,066 x 200% =$736,906,132).
Step 3 Determine the total sales valu e during the same period. Based on
Attachment U-12, this figure is Rp. 418,221,435,000.
Step 4 Divide the total sales value by the total number of units sold to arrive
at an average sales value in Rp. of cars sold. (418,221,435,000/
11,336 = Rp. 36,893,210.57).
Step 5 Multiply the average sales value by the number of units imported to
arrive at the total sales value in Rp. of the cars imported.
(36,893,210.57 x 39,727 = 1,465,656,576,238.97).
Step 6 Convert the Rp. sales value into dollars by dividing by 2430 (the
conversion rate provided by Indonesia in Attachment A-28 to AV/14.
(1,465,656,576,238.97/ 2430 = $603,150,854.42).
Step 7 Divide the total subsidy amount by the total sales value to arrive at the
subsidy percentage. ($736,906,132.00/ $603,150,854.42 = 122.18%).
8.100 If the subsidy attributable to the one-year tariff exemption on CBU imports of the Kia Sephia
from Korea is "allocated over time ", as it should be, the resulting subsidy is 10.18 per cent ad
valorem. This figure is derived as follows:452

452 Note that this calculation does not adjust for the "time value of money". If such an adjustment were
made, as the United States believes it should be, the subsidy would increase.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Table 14
One-Year Tariff Exemption (Allocated)

Step 1 The total subsidy amount calculated in Step 2, Table 13
($736,906,132) is divided by 12, the number of years over which the
subsidy should be allocated. 453 This results in an allocated subsidy
amount for 1996-97. ($736,906,132/ 12 = $61,408,844.33).
Step 2 Divide the allocated subsidy amount for 1996-1997 by the total sales
figure to arrive at the subsidy percentage ($61,408,844.33/
$603,150,854.42 = 10.18%).
(5) Calculation of subsidization from th e exemption from the 35 per cent luxury
sales tax
8.101 For the period 1996-97, the subsidy attributable to the exemption of the Timor Kia Sephia
from the 35 per cent luxury tax is 44.43 per cent.454 This figure is derived as follows:

453 The period of 12 years is based on the class life (in years) for manufacture of motor vehicles set
forth in the Class Lives tables of th e Modified Accelerated Cost Recovery System of the U.S. Internal Revenue
Service. 1997 US Master Tax Guid e [CCH], ¶190. Because the Unite d States was unable to develop
information concerning the actual life of assets for Kia Timor or for the automotive industry as a whole (either
in Indonesia or worldwide), it has used the Class Lives tables as the best information otherwise available to it.
454 This figure relates to sales of imported CBU Kia Sephias from Korea during the one-year period
authorized under Presidential Decree No. 42/1996. A lthough, after June, 1997, Kia Timor began to assemble
Timor Kia Sephias in Indonesia, the data provided by Indonesia in its Annex V responses does not permit the
calculation of the precise amount of subsidization attri butable to the exemption from the luxury tax of cars
assembled in Indonesia during the second half of 1997. However, given the nature of the subsidy, one can
assume that the amount was around 35 per cent ad valorem.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Table 15
Luxury Tax Exemption (1996-97)

Step 1 Attachment U-12 to AV/14 states that the luxury sales tax is calculated on the basis of
cost of goods sold. However, Indonesia did not provide a value for cost of goods
sold, nor did it provide sales information for the 28,391 imported Kia Sephias that,
according to Indonesia, had not yet been sold . However, AV/16, p. 3, indicates that
all of the imported Kia Sephias will be exempt from the luxury tax when sold.
Therefore, the calculation must be based on the estimated sales value of cars that were
imported during 1996-97.
Step 2 Determine the US$ value of importa tions during the period (1996 97). Based on
Attachment U-12 to AV/14, this figure is $368,453,066.
Step 3 Using Attachment A-30/1 to AV/14 as a guide, it is assumed that the value of
importations equals the CIF price referred to in that attachment.
Step 4 Attachment A-30/1 shows that the amount of luxury sales tax is equal to 146.6259 per
cent of the CIF price. However, this fi gure is based on the assumption that imported
CBU cars are subject to the 200 per cent tari ff, an assumption which does not hold for
the Kia Sephias imported under Presidential Decree No. 42/1996. Therefore, by
eliminating the effect of the 200 per cent tariff, the factor for the luxury tax is reduced
to 72.6 per cent.
Step 5 Multiply the total CIF value by 72.6 per cent to arrive at the US$ value of the luxury
tax exempted. ($368,453,066 x .726 = $267,496,925.90).
Step 6 Determine the total sales value for the same period. Based on Attachment U-12, this
figure is Rp. 418,221,435,00.00.
Step 7 Divide the total sales value by the total number of units sold to arrive at an average
sales value in Rp. of cars sold. (Rp. 418,221,435,000/ 11,336 = Rp. 36,893,210.57).
Step 8 Multiply the average sales value by the number of units im ported to arrive at the total
sales value in Rp. of importations. (Rp. 36,893,210.57 x 39,727 =
Rp. 1,465,656,576,238.97).
Step 9 Convert the Rp. sales value into dollars by dividing by 2430 (the conversion rate
provided in Attachment A-28) (Rp. 1,465,656,576,238.97/ 2430 = $603,150,854.42).
Step 10 Divide the total amount of the tax exempt ed by the total sales value to arrive at the
subsidy percentage. ($267,496,925.90/ $603,150,854.42 = 44.43%.
8.102 For 1998 and 1999, the estimated ad valorem subsidy rate attributable to the luxury tax
exemption is 35.20 per cent. This figure is derived as follows:
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Table 16
Luxury Tax Exemption (1998-99

Step 1 According to Attachment U-12, AV/14, the luxury tax is calculated
based on the cost of goods sold. Agai n, Indonesia did not provide this
value in its Annex V responses.
Step 2 Using Attachment A-30/2, AV/14, as a guide, we know that the luxury
sales tax amount is 96.8793% of the CIF value. The CIF value can be
obtained through information provided in Attachment A-28, AV/14.
Step 3 Indonesia did not indicate how the values in Attachment A-28 relate to
the values in Attachment A-30/2. Therefore, certain assumptions have to
be made. Logically, it seems that the “dealer price” in A-28 is the same
as the “sole agent sales price” in A-30/2. Attachment A-30/2 shows that
the “sole agent sales price” is 426.3768 per cent of the CIF price. Given
this assumption, calculate the average dealer’s price (without subsidy -
since we are trying to determine what part of that price is attributable to
the luxury sales tax). [($22,170+$24,085)/2 = $23,127.50]
Step 4 Calculate the average CIF price by dividing the average dealer’s price by
426.3768 per cent. [$23,127.50 / 426.3768% = $5,424.19]
Step 5 Next, determine the estimated number of units to be sold.
[Attachment A-28]. In 1999, there are sales estimated in both the
domestic and export markets. Assuming that the luxury sales tax would
not be paid on exported cars, use only the number of units sold
domestically in the calculation.
[1998 - 6,000] [1999 - 25,000]
Step 6 Multiply the number of units sold by the average CIF price to determine
the total CIF value of sales.
[1998 - 6,000 x $5,424.19 = $32,545,157.24]
[1999 - 25,000 x $5,424.19 = $135,604,821.84]
Step 7 Multiply the total CIF value by 96.8793 per cent to arrive at the total
amount of luxury tax exempted.
[1998 - $32,545,157.24 x 96.8793% = $31,529,520.52]
[1999 - $135,604,821.84 x 96.8793% = $131,373,002.16]
Step 8 Determine the total value of sales for the period. [Attachment A-28]
[1998 - $89,560,000.00] [1999 - $373,180,000.00 (domestic only)]
Step 9 Divide the total amount of tax exempted by the total sales to arrive at the
% of subsidization.
[1998 - $31,529,520.52 / $89,560,000.00 = 35.20%]
[1999 - $131,373,002.16 / $373,180,000.00 = 35.20%]
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

(6) Calculation of subsidization fro m the exemption from import duties on
imported automotive parts
8.103 According to Indonesia, TPN’s one-year authorization to import CBU Kia Sephias from
Korea duty-free has expired, and Kia Timor is now assembling Timor Kia Sephias in Indonesia.
Under the National Motor Vehicle programme, as the producer of a "national motor vehicle", Kia
Timor benefits from the tariff exemption on impor ted automotive parts. For 1998 and 1999, the
estimated ad valorem subsidy rate attributable to the exemption from import duties on automotive
parts is 14.17 per cent and 9.45 per cent, respectively.455 This figure is derived as follows:
Table 17
Tariff Exemption on Parts (1998-99)
Step 1 To determine the import duty exemption, we must know the total value of
importations. This value was not provided in Indonesia’s Annex V
responses. Therefore, we must extrapolate the value from what Indonesia
did provide.
Step 2 Determine the amount of local content in the cars sold. [Attachment A-28,
AV/14] [1998 – 40%] [1999 - 60%]
Step 3 From this, assume that the amount of imported content is:
[1998 - 60%] [1999 – 40%]
Step 4 To determine the CIF value of the completed car, follow the steps
described above in connection with the luxury tax subsidy for 1998-99,
Table 16, to arrive at the average CIF value of $5,424.19.
Step 5 Multiply the average CIF value by the percentage of imported parts to
obtain the average CIF value of importations. Then multiply that amount
by the number of cars sold to arrive at the total CIF value of importations.
[1998 - $5,424.19 x 60% x 6000 = $19,527,094.34]
[1999 - $5,424.19 x 40% x 25000 = $54,241,928.74]
(Note - For the number of units sold, the number sold solely in the
Indonesian market was used because import duty exemption on parts
incorporated into an exported product arguably would not be considered an
actionable subsidy.)
Step 6 Multiply the value of importations by 65 per cent to arrive at the amount of
import duty exemption.
[1998 - $19,527,094.34 x 65% = $12,692,611.32]
[1999 - $54,241,928.74 x 65% = $35,527,253.68]
Step 7 Divide the total value of import duty exemptions by the total sales value to
arrive at the % of subsidization.
[1998 - $12,692,611.32 / $89,560,000.00 = 14.17%]
[1999 - $35,527,253.68 / $373,180,000.00 = 9.45%]

455 Again, the data provided by Indonesia in its Annex V response do not permit the calculation of a
subsidy rate for those Timor Kia Sephias assembled in Indonesia during the latter part of 1997.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

(7) Calculation of subsidization fro m the government-directed $690 million loan

8.104 With respect to the g overnment-directed $690 million loan to TPN, the United States
estimates the amount of the subsidy to be 7.1 per ce nt in 1998, 28.95 per cent in 1998, and 5.3 per
cent in 2000. The United States calculated these percentages in the following manner.
8.105 As noted above, newspaper reports indicated that the terms of the loan were 3 per cent over
the 3-6 month deposit rate, a maturity of 10 years, and a grace period of 3 years. Thus, the first task is
to determine the interest rate to be paid by TPN, which is based on the 3-6 month deposit rate.
Because Indonesia did not provide this rate in its Annex V responses, the United States was forced to
rely on other sources. The most recent informa tion available to the United States is from The
Economist Intelligence Unit Limited (April 1997) (EIU) 456 ,which indicates that as of the end of
February 1997, the average rate on Bank Indonesia certificates was 8.75 per cent. 457 Adding 3 per
cent to this figure results in an interest rate on the $690 million loan of 11.75 per cent.
8.106 The next task is to determ ine the “benchmark” interest rate against which TPN’s interest rate
should be judged. Because the Government of Indonesia did not provide the loan to TPN directly, but
instead directed banks to provide the loan, it would be inappropriate to use the Government’s cost as
the benchmark. Instead, one must use the cost of the actual lender; in this case, the banks. The cost to
a bank is reflected in the interest rate that it would charge a comparable commercial borrower. Again,
because the Government of Indonesia refused to provide relevant information in its Annex V
responses, the United States has been forced to estim ate the benchmark interest rate based on the best
information otherwise available to it.
8.107 The United States began with the rate on a 10-year "Yankee Bond" that the Indonesian
Government began to issue in July 1996. 458 According to EIU, the rate on this US$ denominated
bond was set at 7.825 per cent, 1 percentage point above the 10-year Treasury bond rate. 459 The use
of a US$ denominated benchmark is appropriate , because in AV/16, p. 4, Answer 13, Indonesia
referred to a US$ denominated rate.
8.108 The United States added a spread of seven pe rcent to the Yankee Bond rate of 7.825 per cent.
According to EIU, p. 28 (Exhibit 16), Indonesian bank spreads range from three to seven percentage
points, depending on the reputation of the client . As discussed above, TPN was not a reasonable
credit risk for a loan of the magnitude of $690 million. 460 Therefore, a bank would have charged the
maximum spread to a commercial borrower compar able to TPN. Adding 7 per cent to the Yankee
Bond rate results in an interest rate of 14.825 per cent.
8.109 Finally, the United States added on a "risk prem ium" to more accurately reflect the fact that
TPN was an unsound credit risk. In other words, a bank lending to a borrower comparable to TPN
would have charged more than 14.825 per cent in orde r to cover its (the bank’s) costs. In the absence
of any other information, the United States relied on the methodology used by the US Department of
Commerce to calculate a risk premium under th e US countervailing duty law. Under this

456 US Exhibit 16.
457 According to EIU, these certificates are the primary tools used by Bank Indonesia to control interest
rates and money supply.
458 See EIU, p. 3 (US Exhibit 16).
459 Because it is highly unlikely that anyone but th e US Government is in the business of issuing
US$ denominated Treasury bonds, the United States assu med that the reference in EIU to the 10-year Treasury
bond rate is to the 10-year US Treasury bond rate.
460 In this regard, the United States emphasizes that in the Annex V process, Indonesia refused to
answer questions regarding TPN’s financial situation. See AV/15, Question 12/29(d) and AV/16, Question
12/29(d).
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

methodology, in the case of a company considered to be “uncreditworthy,” the Department of
Commerce adds to the "benchmark" interest rate an amount equal to 12 per cent of the prime rate in
the country in question. Here, the United States used 10.825 per cent as the prime rate. This was
based on the Yankee bond rate (7.825) plus 3 per cen t, 3 per cent being the low spread for bank
lending.
461 12 per cent of 10.825 equals 1.29 per cent. A dding 1.29 per cent to the benchmark rate of
14.825 results in a final benchmark rate of 16.124.
8.110 Having determined the interest rate paid by TPN (11.75 per cent) and the cost to the banks
(16.124 per cent), we next must calculate a "grant equivalent" of the benefit received by TPN from the
loan. The first step in this process is to calculate the net present value of payments under the loan to
TPN and the benchmark loan. The difference in payments between the two loans constitutes the
subsidy.
8.111 Assuming that there will be interest-onl y payments during the 3-year grace period, and
assuming an 11.75 per cent interest rate, the payment schedule for the loan to TPN is as follows:
Table 18
Payment Schedule for Loan to TPN
Year Beginning
Balance
Add:
Interest
Less:
Payment
Ending
Balance
0 0 0 (690,000,000) 690,000,000
1 690,000,000 81,075,000 81,075,000 690,000,000
2 690,000,000 81,075,000 81,075,000 690,000,000
3 690,000,000 81,075,000 81,075,000 690,000,000
4 690,000,000 81,075,000 149,994,645 621,080,355
5 621,080,355 72,976,942 149,984,645 544,062,652
6 544,062,652 63,927,362 149,994,645 457,995,368
7 457,995,368 53,814,456 149,994,645 361,815,179
8 361,815,179 42,513,284 149,994,645 254,333,817
9 254,333,817 29,884,224 149,994,645 134,223,396
10 134,223,396 15,771,249 149,994,645 (0)
8.112 Using 16.124 per cent as the interest rate, th e payment schedule for the benchmark loan is as
follows:

461 EIU, p. 28 (US Exhibit 16).
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Table 19A
Payment Schedule for Benchmark Loan

Year Beginning
Balance
Add:
Interest
Less:
Payment
Ending
Balance
0 0 0 (690,000,000) 690,000,000
1 690,000,000 111,255,600 111,255,600 690,000,000
2 690,000,000 111,255,600 111,255,600 690,000,000
3 690,000,000 111,255,600 111,255,600 690,000,000
4 690,000,000 111,255,600 171,477,239 629,778,361
5 629,778,361 101,545,463 171,477,239 559,846,584
6 559,846,584 90,269,663 171,477,239 478,639,008
7 478,639,008 77,175,754 171,477,239 384,337,523
8 384,337,523 61,970,582 171,477,239 274,830,866
9 274,830,666 44,313,729 171,477,239 147,667,355
10 147,667,355 23,809,884 171,447,239 0
8.113 Having calculated payment schedules for both the loan to TPN and the benchmark loan, we
now must calculate the net present value of the paym ent differentials. This results in the following
schedule, using a standard net present value calculation and a discount rate of 16.124 per cent:
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Table 19B
Payment Differential

Year TPN Loan
Payment
Benchmark
Loan
Payment
Payment
Differential
NPV of
Pmt. Diff.
0 0 0 0 0
1 81,075,000 111,255,600 30,180,600 25,989,976
2 81,075,000 111,255,600 30,180,600 22,381,227
3 81,075,000 111,255,600 30,180,600 19,273,559
4 149,994,645 171,477,239 21,482,594 11,614,049
5 149,994,645 171,477,239 21,482,594 10,173,650
6 149,994,645 171,477,239 21,482,594 8,761,023
7 149,994,645 171,477,239 21,482,594 7,544,541
8 149,994,645 171,477,239 21,482,594 6,496,970
9 149,994,645 171,477,239 21,482,594 5,594,855
10 149,994,645 171,477,239 21,482,594 4,818,001
Total 240,919,960 122,847,850
8.114 Having calculated a "grant equivalent" of the loan payment differential of US$122,847,850,
the next step is to translate this lump sum into annual benefits. For this purpose, the United States has
prorated the amount of the “grant equivalent” over a 10-year period based on the life of the loan to
TPN. An amount is added to each annual allocation to account for the time value of money of the
remaining unallocated portion, using a discount rate of 16.124 per cent. Using a "declining balance"
formula, these two amounts are added together and divi ded by one plus the discount rate to obtain the
amount of the "grant equivalent" allocable to any on e year. This results in the following schedule of
annual benefits:
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Table 20
Annual Benefit from Loan

Year Benefit to Year
0 0
1 27,636,640
2 25,930,879
3 24,225,117
4 22,519,355
5 20,813,594
6 19,107,832
7 17,402,070
8 15,696,308
9 13,990,547
10 12,284,785
8.115 The final calculation step is to translat e the annual subsidy amount into an ad valorem
percentage:
Table 21
Annual Subsidy Rate for Loan (1998-2000)
 1998 1999 2000
Benefits in US$ 27,636,640 25,930,879 24,225,117
Sales in US$ 387,569,0434 462 89,560,000 453,180,000
Subsidy 7.1% 28.95% 5.3%

462 The United States has assumed that payment on the TPN loan will not begin until 1998, thus
rendering 1998 “Year 1" of the loan. In addition, pu rsuant to paragraphs 2 and 3 of Annex IV of the SCM
Agreement, the denominator in the ad valorem subsidy calculation is based on sales in the preceding year.
Accordingly, the denominator for the 1998 subsidy is based on 1997 sales, the subsidy for the 1999 subsidy on
1998 sales, and the subsidy for the 2000 subsidy on 1999 sales.
The figures for 1998 and 1999 sales (Column 1999 and Column 2000) were taken from
Attachment A-28, AV/14. The figure for 1997 sales (Column 1998) was estimated based on data in
Attachment U-12, AV/14. The United States calculated the total sales value of cars imported during a particular
year by calculating an average sales price.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

(c) Arguments of Indonesia regarding serious prejudice as a cause of action in this
dispute
8.116 The subsidies at issue technically fall w ithin the scope of Article 3.1(b) as "subsidies
contingent (whether solely or as one of sever al other conditions) upon the use of domestic over
imported goods". As Indonesia is a developing countr y, it is within the ambit of Article 27.3 of the
SCM Agreement, which provides that "[t]he prohibiti on of paragraph 1(b) of Article 3 shall not apply
to developing country Members for a period of five years...from the date of entry into force of the
WTO Agreement (i.e., until 1 January 2000)". Instead , the provisions of Articles 5 to 7 regarding
"actionable" subsidies apply.
8.117 Subsidies which are not “prohibited” may be either “actionable” or “non-actionable.” The
subsidies involved in this dispute do not meet the crit eria of Article 8 of the Agreement, and so must
fall into the residual category of “actionable” subsidies. This rationale for application of Articles 5 to
7 must be used because the language of Article 27.7 is ambiguous. It states that:
The [remedial] provisions of Article 4 shall not apply to a developing country
Member in the case of export subsidies which are in conformity with the provisions
of paragraphs 2 through 5. The relevant [remedial] provisions in such a case shall be
those of Article 7. (Emphasis added.)
8.118 “Export” subsidies and “domestic content” subsidies are not synonymous. The former are
covered by Article 3.1(a) and Annex I of the Ag reement, while the latter are covered by Article
3.1(b). Given the context of Article 27.7 (including its citation to Article 27.3), the drafters of the
Agreement clearly meant Article 27.7 to cover domestic content subsidies, as well as export subsidies.
This is confirmed by the analysis above. Under Article 32 of the Vienna Convention on the Law of
Treaties, recourse to supplemental means of interpre tation is permissible in this instance due to the
ambiguity of the text of Article 27.7.
8.119 The European Communities and the United Stat es assert that the actual and alleged subsidies
of the National Car programme bestowed by the June 1996 programme, the February 1996
programme and the $US690 million loan exceed the 5/15 per cent ad valorem thresholds established
by Article 6.1(a) of the Subsidies Agreement. They properly recognize, however, that Article 27.8
stipulates that serious prejudice in terms of Article 6.1(a) shall not be presumed where, as here, the
subsidy is granted by a developing country Member . Rather, in such a case, a complainant must
demonstrate serious prejudice by positive evidence in accordance with the provisions of paragraphs 3
through 8 of Article 6.
8.120 Thus, whether proceeding on the basis of Ar ticle 6.1(a) or independently on the bases of
Article 6.3, complainants must demonstrate seri ous prejudice by positive evidence in accordance with
the provisions of paragraphs 4 through 8 of Article 6 before the remedial powers of Article 7.8 may be
applied.
8.121 In response to a question from the Panel, Indonesia indicated that the approximate ad
valorem amount of subsidization conferred on the Timor by the exemption from the luxury tax was as
follows:
 CBUs imported from Korea 29.54%
 Timors assembled at Tambun 26.20%
 Timors produced at Karawang 18.68%
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

3. Like product

 (a) Scope of "like" models
 (1) Arguments of the European Communities
8.122 The European Communities asserts for purposes of its serious prejudice claims that all
passenger cars must be considered as “like” products. The following are the European
Communities' arguments in this regard:
8.123 In order to assess the effects of the subsidi es under consideration it is necessary to define first
the scope of the relevant category of “like products”.
8.124 For that purpose, footnote 46 to Article 15.1 of the SCM Agreement provides the following
guidance:
Throughout this agreement the term “lik e 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 charact eristic closely resembling those of the
product under consideration
8.125 All motor vehicles falling within the categor y of “passenger cars”, as defined in Indonesia’s
regulations, constitute a single cat egory of “like products” for the purposes of the SCM Agreement
given that they all share the same basic physical ch aracteristics and serve an identical end-use. Thus,
the passenger cars exported from the European Communities are like the Timor S-515.
8.126 Indonesia takes an unduly restrictive view of what constitutes a “like product”. To paraphrase
the Appellate Body, Indonesia has squeezed the “a ccordion of likeness” to a point where it can no
longer sound any note.
8.127 Presently, there are more than 60 differen t models of passenger cars being sold in the
Indonesian market. Yet, Indonesia would have the Pa nel to believe that the Timor S-515 is so unique
that none of them is “like” the Timor S-515. By th e same token, it could be claimed that each of the
other models of passenger cars sold in Indonesia constitutes also a category of like products on its
own. If upheld by the Panel, Indonesia’s approach would render the provisions of Part III and Part V
of the SCM Agreement inapplicable except in those cases where subsidies are granted with respect to
commodities or similarly homogeneous products.
8.128 The starting point for determining whethe r the cars exported from the European Communities
are “like” the Timor S-515 must be the definition of the term “like product” contained in footnote No
46 of the SCM Agreement. That definition makes it perfectly clear that in order to be “like”, two
products need not be identical. In the absence of identical products, two products having “closely
resembling characteristics” must be considered as “like” products. It is evident that the Timor S-515
and the passenger cars exported from the European Co mmunities are not identical. Yet, they have
sufficiently resembling characteristics to be considered as “like”.
8.129 The European Commun ities agrees with the proposition that the term “like products” must be
construed narrowly in the context of the SCM Ag reement. Nevertheless, the European Communities
consider that the definition of “like product” cont ained in footnote No 46 of that SCM Agreement
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

already embodies
 such a narrow interpretation. An even na rrower interpretation of the definition itself
is unwarranted.463
8.130 It is true that, within the category of passe nger cars, there are virtually limitless variations in
respect of factors such as size, weight, engine type, cylinder capacity, engine power, transmission
system, equipment, body design, colour, etc. 464 Nevertheless, those variations do not affect the
essential similarity of all passenger cars nor prevent them from being “like” products.
8.131 Any attempt to define two or more sub-cat egories of “like products” within the category of
passenger cars on the basis of any of those criteria wo uld unavoidably yield arbitrary results. First of
all, it would require to make a necessarily arb itrary choice among all possible criteria, the only
alternative being to combine several criteria simulta neously at the risk of multiplying ad infinitum the
categories of "like" products. Furthermore, in resp ect of many of those criteria (e.g. size or cylinder
capacity), there is a full continuum of products. Drawing a line within that continuum would be
arbitrary, regardless of where the line is drawn. Thus, for instance, a distinction between “large” and
"small" passenger cars would be arbitrary because there would always be more “likeness” between the
smallest large car and the largest small car than between products at either end of each of the two
categories.
8.132 If, despite the above, the Panel took the view that not all passengers cars are “like products”,
the European Communities submit that, at the very le ast, the Opel Optima and the Peugeot 306 must
be considered as being “like” the Timor S-515. Th e table below contains an exhaustive comparison
of their physical characteristics. That comparison confirms beyond doubt that the Timor S-515 and the
European Communities models concerned, albeit not alike in all respects, have closely resembling
characteristics. The European Communities also has submitted sales brochures of the Timor S-515,
the Peugeot 306 and the Opel Optima.

463 Indonesia’s claim that the notion of “like product” should be construed even more narrowly in the
context of an exception granted in favour of developing Members is simply non-sensical. The notion of “like
product” is an objective one and cannot have different meanings depending on the GDP level of the subsidising
country Member.
464 Some of the criteria enumerated by Indonesia as being relevant for a like product determination are
too subjective (e.g. “reputation”) or vague (e.g. “quality” or “ride and contort”) for being measurable. Price is
not relevant for a like product determ ination, especially when as in th e present case one of the products
concerned benefits from a huge subsidy, and the imported products are subject to the payment of very high
import duties. As noted by the Panel Report on Japan - Customs Duties, Taxes and Labelling Practices on
Imported Wines and Alcoholic Beverages, adopted on 10 November 1987, BISD 34/119:
“...like products do not become “unlike”... merely because of .... differences in their prices, which were
often influenced by external measures (e.g. customs duties) and market conditions (e.g. supply and demand,
sales margins)”
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Table 22
Comparison of Certain Models

Marque
Make
Modele
Basic model
Peugeot
306
1.8
St
Peugeot
306
1.8
St LM
Opel
Optima
1.8
GLS
Opel
Optima
1.8
New CDX
Timor
S515
1.5
Timor
S515i
1.5
I/Mechanical Features
Length (mm) 4,240 4, 240 4,329 4,329 4,360 4,360
Height (mm) 1,367 1, 367 1,410 1,410 1,390 1,390
Width (mm) 1,692 1, 692 1,688 1,688 1,692 1,692
Wheel Base (mm) 2,580 2,580 2,517 2,517 2,500 2,500

Petrol or Diesel Engine XU7 JP XU7JP MPFI MPFI 85C EFI
Cubic Capacity (cm3) 1, 761 1,761 1,796 1,796 1,498 1,498
Number of Cylinders 4 4 4 4 4 4
Number of
Valves/Cylinder
8V 8V 8V 8V 8V 16V
Maximum Power
(DIN/ch)
103 103 118 118 - -
Nbr RPM 6,000 6,000 5,400 5,400 - -
Maximum Power
(JIS/ch)
 82 105
Nbr RPM 5,500 5,500
Maxi torque (DIN) 16.0 16.0 16.3 16.3 - -
Maxi torque (JIS) 12.2 15.0
Nbr RPM 3,000 3,000 3,200 3,200 2,500 4,000
Carburetor/Injection I I I I C I

Manual Gear Box (NB.
of Speeds)
5 5 5 5 5 5
Automatic Gear Box
(NB. of Speeds)
- - - - - -
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Marque
Make
Modele
Basic model
Peugeot
306
1.8
St
Peugeot
306
1.8
St LM
Opel
Optima
1.8
GLS
Opel
Optima
1.8
New CDX
Timor
S515
1.5
Timor
S515i
1.5
Brakes
(Disc/drums/Ventil.)
VD/DR VD/DR D/DR D/DR VD/DR VD/DR
Anti-lock Brake system - - - X - -
Power Steering X X X X X X

II/Outside Features
Number of Doors 4 4 4 4 4 4
Additional Headlamps - - X X - -
Bodyside Mouldings X X X X X X
Rear Spoiler - - - - X X
Light Alloy Wheels - X X X - -
Tyre Size 185/65/R14 185/65/R14 195/60/ R14 195/60/R14 175/70/R13 175/70/R13
Metallic Paint X X X X - O
Tinted Glass X X X X X X

III/Inside Equipment
Air Bag (1/2) - - - 1 - -
Side Impacts Beams X X X X X X
Central Door Locking X X X X X X
Adjustable Steering
Column
X X X X - X
Electric Windows
Front/Rear
F/R F/R F/R F/R X X
Electric Windows
(Front/1 Touch)
FR/one T FR/one T FR/one T FR/one T - X
Driver Side Mirror
Manu./Electr.
E E E E M E
Passenger Side Mirror
Manu./Elec.
E E E E M E
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Marque
Make
Modele
Basic model
Peugeot
306
1.8
St
Peugeot
306
1.8
St LM
Opel
Optima
1.8
GLS
Opel
Optima
1.8
New CDX
Timor
S515
1.5
Timor
S515i
1.5
Alarm System - - X X - -
Air Conditioning X X X X X X
Radio Equipment X X X X - X
Height Adjust. Frt Seats
Manu./Elec
M M M M M M
Rear Seat Folding 1/3-2/3 1/3-2/3 1/3-2/3 1/3-2/3 - -
Rear Head Restraints X X X X X X
TRIM VELOURS LEATHER V ELOURS VELOURS CLOTH CLOTH
Number of Rear Seat
Belts
3 3 3 3 3 3
3rd Braking Light X X X X X X
8.133 Should the Panel take the view that it is necessary to distinguish two or more “segments”
within the category of passenger cars, the Eur opean Communities would refer the Panel to the
classification made in the DRI Reports. According to the DRI Reports, the models of passenger cars
sold in Indonesia between 1994 and 1997 may be classified into four segments, as follows:
Segment B (“Supermini Class”): Daihatsu Charade, Suzuki Baleno, Suzuki Esteem, Toyota Starlet;
Segment C (“Lower Medium Class”): Daewoo Cielo, Ford Laser, Honda City, Honda Civic, Hyundai
Accent/Bimantara Cakra, Peugeot 306, Opel Opti ma, Mitsubishi Lancer, Mazda 323, Mazda MR 90,
Toyota Corolla, Toyota Corona, Kia Sephia/Timor S-515;
Segment D (“Upper Medium Class”): Audi A4, Daewoo Cielo, Ford Telstar, Honda Accord, Hyundai
Elantra/Bimantara Nenggala, Mazda 626, Mitsubishi Galant, Opel Vectra, Peugeot 405/406;
Segment E (“Executive Class ”): Audi A6, BMW 3 Series, BMW 5 series, BMW 7 series, Mercedes
Benz C class, Mercedes Benz E class, Mercedes Benz S class, Nissan Cedric, Nissan Zafiro, Toyota
Crown, Volvo U.
 According to the DRI Reports, no model was sold within Segment A (“Utility Class”).
8.134 Indonesia cannot reasonably deny that the Timo r and the EC cars, and in particular the Opel
Optima and the Peugeot 306, have closely resembli ng physical characteristics. For that reason,
Indonesia is forced to emphasize the importance of what it terms "non-physical characteristics". (See
Section VIII.B.3). These include a long list of vague and essentially subjective criteria, such as
"brand reputation", "status", "quality", "reliability ", etc. which cannot be properly measured and
compared. If the Panel upheld Indonesia's view that two vehicles which have closely resembling
physical characteristics may nevertheless not be " like" because of differences in factors such as
"quality" or "brand reputation", it would be opening the door to all kinds of arbitrary and abusive
distinctions. An examination of prior Panel reports shows that alleged differences regarding
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

non-physical characteristics have never been regarded as determinant for a like product determination.
For instance, in the 1987 case on Japan - Taxes on Alcoholic Beverages
465, Japan claimed that high
quality Scotch whisky was not "like" domestic Japanese whisky of inferior quality. The Panel rightly
ignored those arguments and concluded that all whisky was "like". In relative terms, there is no more
difference between a Mercedes and a Timor than between a premium brand of malt Scotch whisky
and a Japanese brand of second grade whisky made by adding water to a concentrate.
8.135 To be precise, the European Communities' position is that cars which have closely resembling
physical characteristics do not become "unlike" si mply because of alleged differences in so-called
"non-physical characteristics."
8.136 "Riding comfort" is determined by the physi cal characteristics of a car. The same is true of
"quality". "Reputation for quality" is one of the factors which make up the "brand image of a
product." It is obvious that "brand image" may in fluence consumers' choices. In the European
Communities' view, however, mere differences in brand image do not suffice to make two products
"unlike". Moreover, this criterion is largely su bjective, cannot be accurately measured, and may
change over time. For instance, by definition new entrants lack an established "brand image". Thus,
on Indonesia's construction, a subsidizing Member could always claim that subsidies for the
establishment of a new domestic industry cannot cause "serious prejudice" to imports.
 (2) Arguments of the United States
8.137 The United States argues that the passenger cars which, but for the National Motor Vehicle
programme, United States motor vehicle manufacturers would have sold in Indonesia, are “like” the
Timor Kia Sephia sedan. The following are the United States' arguments in this regard:
8.138 Footnote 46 of the SCM Agreement de fines “like product” in the following manner:
Throughout this Agreement the term “lik e product” (“produit similaire”) shall be
interpreted to mean a product which is iden tical, 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.
8.139 Obviously, this definition provides only ge neral guidance, and a case-by-case analysis is
necessary to determine whether a particular product is “like” another. In this regard, the guidance
provided by the Appellate Body in connection with the application of the “like product” concept for
purposes of the WTO agreements is particularly apt:466
No one approach to exercising judgement will be appropriate for all cases. The
criteria in Border Tax Adjustments should be examined, but there can be no one
precise and absolute definition of what is "like". The concept of "likeness" is a
relative one that evokes the image of an accordion. The accordion of "likeness"
stretches and squeezes in different places as different provisions of the WTO
Agreement are applied. The width of the acco rdion in any one of those places must
be determined by the particular provision in which the term "like" is encountered as

465 Panel report on Japan - Customs Duties. Taxes and Labelling Practices on Imported Wines and
Alcoholic Beverages adopted 10 November 1987, BISD 34S/83, 118.
466 “Japan - Taxes on Alcoholic Beverages ,” WT/DS8/R, Report of the Appellate Body, adopted
1 November 1996, p. 22.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

well as by the context and the circumstances that prevail in any given case to which
that provision may apply.
Factors which should be considered in applying a case-by-case analysis include “a product’s end-uses
in a given market, consumers’ tastes and habits , which change from country to country, and the
product’s properties, nature and quality."
467
(a) The passenger cars that the United Stat es would have sold in Indonesia are
comparable to the Timor.
8.140 With this analytical framework in mind, le t us now turn to an analysis of specific passenger
cars of US motor vehicle manufacturers. Because of the National Motor Vehicle programme, there
currently are virtually no passenger cars of US manufacturers that are imported and sold in
Indonesia.468 However, the passenger cars that were im ported and sold in Indonesia prior to the
introduction of the National Motor Vehicle programme were “like” the Timor Kia Sephia sedan. In
addition, the passenger cars that, but for the Na tional Motor Vehicle programme, would have been
imported and sold in Indonesia are “like” the Timor Kia Sephia sedan.
8.141 Prior to the introduction of the National Mo tor Vehicle programme, General Motors sold two
passenger cars under its “Opel” brand that easily ca n be considered as “like” the Timor Kia Sephia
sedan. These are the Opel Optima and the Opel Vectra.
8.142 The Opel Optima and the Timor Kia Sephia both fall within “Segment C” of the motor
vehicle market (lower medium class passenger cars). 469 Moreover, as set out in Table 23, below, the
specifications for the Optima and the Timor Kia Sephia are quite comparable. The size and weight of
the two cars are virtually identical, while the Optima has a slightly bigger engine.
8.143 With respect to the Opel Vectra, while it is positioned slightly higher in the market than the
Optima or the Timor Kia Sephia 470, in terms of specifications, as set out in Table 23, it is not all that
dissimilar to the Timor Kia Sephia. The Vectra is slightly larger than the Timor Kia Sephia (e.g., the
Vectra is about 100mm longer than the Timor Kia Sephia), and has a more powerful engine.
However, both cars share the same end-uses; i.e., to transport passengers.
8.144 Turning to Ford, Ford had well-advanced pl ans to import and sell Ford Escorts in Indonesia,
plans that Ford had to abandon in light of the National Motor Vehicle programme and the introduction
of the heavily subsidized Timor Kia Sephia sedan. Like the Timor Kia Sephia, the Escort falls in
Segment C of the passenger car market. 471 A comparison of specifications, as set forth in Table 23,
confirms the similarities between the Escort and the Timor Kia Sephia and the fact that the Escort is
“like” the Timor Kia Sephia. The Timor Kia Sephia is a little bit longer (65mm) and a little bit higher
(44mm) than the Escort, while the Escort is a little bit wider (183mm) and has a slightly larger engine
(1597cc versus 1498cc for the Timor Kia Sephia).

467 Id., p. 21, citing to Report of the Working Party on Border Tax Adjustments, BISD 18S/97, para. 18.
468 See AV/13, p. 3 (Question 6) and Attachment 8 (Question 6).
469 See McGraw-Hill World Car Industry Forecast Report , February 1997, pp. 284-85, included as
Annex 1 to AV/2. Cars falling within a particular market segment will roughly be of the same size, be in the
same price range, and share the same target customers.
470 The Vectra falls within “Segment D” (upper medium class) of the passenger car market. Id.
471 See McGraw-Hill World Car Industry Forecast Report , February 1997, pp. 284-85, included as
Annex 1 to AV/2.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

8.145 The following table demonstr ates that the Timor Kia Sephia, the Opel Optima, and the Ford
Escort are quite comparable in terms of specifications:
472
Table 23
Timor, Escort, and Opel Specifications
Items Timor S515
Ford
Escort4dr
“Ghia”
Notchback
Manual
Transmission
Opel Optima Opel Vectra
Dimensions
1. Overall length (mm) 4,360 4,295 4,329 4,477
2. Overall width (mm) 1,692 1,875 1,688 1,707
3. Overall height (mm) 1,390 1,346 1,410 1,425
4. Wheel base (mm) 2,500 2,523 2,517 2,637
5. Turning circle (m) 5.1 10 4.9
6. Curb weight (kg) 1,055 1,145 980
Engine
1. Type 4 cyl, inline,
SOHC, carburetor
4 cyl., Zetec
inline
4 cyl., 8 valves,
Multi-Port Fuel
injection (MPFI)
4 cyl., 8 valves Multi-
Port Fuel injection
(MPFI)
2. Displacement (cc) 1, 498 1,597 1, 796 1,998
3. Max. Power 85PS/5,500rpm l75@ 5500 118 PS/5,400 rpm 136 hp
Transmission
Gear Ratio:
-1st 3.417 3.10 3.58 --
-2nd 1.895 1.19 2.14 --
-3rd 1.296 1.28 1.48 --
-4th 0.906 0.95 1.12 --
-5th 0.738 0.76 0.89 --
-Reverse 3.736 3.615 3.333 --
8.146 Finally, with respect to Chrysler, Chrysler had plans to import and sell its Neon passenger car
in Indonesia. The table below presents a comparison of the specifications of the Neon and the Timor
Kia Sephia. The data show that the Chrysler Neon closely resembles the Timor Kia Sephia, and, thus,
can be considered a “like product” to the Sephia. The Neon is only 4 mm longer, 16 mm wider, and

472 Source: US companies.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

5 mm taller than the Sephia, and is only 54 k ilogrammes heavier. Also, although the Neon has a
larger engine, both the Neon and the Timor Kia Sephia fall within the C segment, and, thus, in the
view of the industry, compete for the same customers.
473 As such, the Neon can safely be considered
as “like” the Timor Kia Sephia.
8.147 The specifications for the Chrysler Neon that would have been sold in Indonesia but for the
National Car Programme are as follows:
Table 24
Timor and Neon Specifications
Items Timor S515 Chrysler Neon
Dimensions
1. Overall length (mm) 4,360 4,364
2. Overall width (mm) 1,692 1,708
3. Overall height (mm) 1,390 1,395
4. Wheel base (mm) 2,500 2,642
5. Turning circle (m) 5.1 10.8
6. Curb weight (kg) 1,055 1,109
Engine
1. Type 4 cyl, inline, SOHC,
carburetor
4 cyl. inline MPI
SOHC
2. Displacement (cc) 1,498 1,996
3. Max. Power 85 PS/5,000rpm 98@ 5,850 rpm
8.148 To summarize, the passenger cars that US ma nufacturers did import and sell in Indonesia, as
well as the passenger cars that they would have impor ted and sold in Indonesia, can be considered as
“like products” to the Timor Kia Sephia. While none of these US passenger cars is “identical” to the
Timor Kia Sephia, identity between motor vehicl es is not required under the SCM Agreement. If
identify of products were required, it is difficult to fathom how there ever could be a serious prejudice
dispute (or a countervailing duty proceeding, for that matter) involving motor vehicles or any other
type of consumer good, where slight variations in models or products are made for the very purpose
of distinguishing products in competition with one an other. Instead, under the SCM Agreement, it is
enough that one product has “characteristics closely resembling” those of the subsidized product. The
Opel Optima and Vectra, the Ford Escort, and the Chrysler Neon each satisfy this standard.

473 Id.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

 (b) The GM Opel Blazer is comparable to the Kia Sportage

8.149 As noted above, Kia Timor’s plans call fo r the assembly and sale in Indonesia of the Kia
Sportage, to be known as the Timor J520i. When introduced, the Timor Kia Sportage will compete
directly with GM’s Opel Blazer, which GM continues to import and assemble in Indonesia.
8.150 A comparison of specifications demonstrates that the Blazer and the Timor Kia Sportage are
comparable products:
474
Table 25
Sportage and Blazer Specifications
Engine Sportage Blazer DOHC
Type 2.0L DOHC, 4cyl, 16v 2.2L DOHC, 4cyl.
Horsepower 130hp 5500 rpm 138hp 5600 rpm
Torque 127 lb-ft 4000rpm 195 Nm 3800 rpm
Transmission 5 spd man 5 spd man
Brake Front disc/Rear drum with rear ABS Front disc/Rear drum with ABS
Dimension
Wheel base 2650mm 2718mm
Length 4245mm 4602mm
Width 1730mm 1690mm
Height 1650mm 1508mm
Fuel capacity 60L 76L
Head room 1005.8mm 1005mm
Leg room 1130.3mm 1078mm
(c) Indonesia’s arguments concerning “like product” are incorrect as a matter of law
8.151 Finally, let us consider the heart of Indon esia’s defense; namely, that none of the passenger
cars that would have been sold by US manufacturer s can be considered a “like product” to the Timor
Kia Sephia sedan for purposes of footnote 46 of the SCM Agreement. Putting aside the fact that
Indonesia did not make this argument in connection w ith the United States claim of serious prejudice,
Indonesia nevertheless is, once again, wrong on the facts and the law.

474 Source: US companies. The United States also believes that Jeep Cherokees and Wranglers are
comparable to the Sportage, but lacks detailed specifications.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

8.152 Indonesia begins its like product legal analys is with an accurate quotation of footnote 46,
noting that in the absence of an id entical product, a like product can consist of a product which “has
characteristics closely resembling
 those of the product under consideration.” (Emphasis added).
Because this language obviously undermines Indonesi a’s entire case, Indonesia dismisses the quoted
phrase as “amorphous and skeletal” and never refers to it again.
8.153 However, as the Appellate Body has so ofte n noted, a treaty interpreter must start with the
language of the treaty.475 The SCM Agreement does not require identity of products, but only a close
resemblance. All of Indonesia’s subsequent legal argumentation is designed to do nothing more than
divert the Panel’s attention from what the SCM Agreement actually says.
8.154 Next, Indonesia makes the extraordinary argum ent that the ability to bring a serious prejudice
case against a developing country Member constitutes a so-called “exception” to the “right” conferred
on Indonesia by the SCM Agreement to subsidize. As such, Indonesia argues, this exception,
including the definition of “like product,” must be narrowly construed. This is utter nonsense.
8.155 As a general matter, the United States does not agree with the principl e that simply because a
particular provision or agreement can be labelled as an “exception” to something else, that provision
or agreement must be mechanically and narrowly construed. In the Wool Shirts case, India made a
similar argument, and the Appellate Body rejected it. 476 Moreover, it is ludicrous to suggest that like
product analyses differ depending upon whether the complainant is challenging the subsidies of a
developed or a developing Member.
8.156 However, even assuming that this mechanical rule of treaty interpretation applies, Indonesia’s
application of it is 180 degrees backward. If ther e is an “exception” in Article 27 of the SCM
Agreement, it is that developing country Members are excepted from the general prohibition against
the use of local content subsidies and the remedies available to combat such subsidies that require no
showing of adverse trade effects. Thus, if the pr inciple suggested by Indon esia is to be correctly
applied, this Panel must interpre t all relevant provisions in such a way as to limit the exceptional
treatment afforded by Article 27.3. In the cont ext of this case, this means, among other things,
interpreting the term “like product” broadly, not narrowly.477
 (d) Indonesia’s arguments concerning “like product” are incorrect as a matter of fact
8.157 Having disposed of Indonesia’s legal argu ments concerning like product, let us turn to
Indonesia’s factual arguments. As discussed a bove, Table 23 compares the specifications for the
Timor Kia Sephia, the Ford Escort, and two typ es of Opels, the Optima and the Vectra. This
comparison establishes the close physical rese mblance between these products. However,
notwithstanding the fact that physical characteris tics are a standard criterion in identifying like
products, Indonesia simply dismisses this comparison as “unduly restrictive”.
8.158 With respect to end-use, another standard like product criterion, the United States noted that
these cars all have the same end-use; namely, the tran sport of persons. Here, too, Indonesia dismisses
this criterion as irrelevant.

475 India - Patent Protection for Pharmaceu tical and Agricultural Chemical Products , WT/DS50/AB/R,
Report of the Appellate Body issued 19 December 1997, para. 45.
476 United States - Measure Affecting Imports of Woven Wool Shirts and Blouses , WT/DS33/AB/R,
Report of the Appellate Body adopted 23 May 1997, page 19.
477 Carried to its logical conclusion, a correct and consistent application of Indonesia’s argument would
result in Indonesia bearing the burden of proving that serious prejudice has not occurred. Of course, this is the
type of burden shifting that India proposed in Wool Shirts, and that the Appellate Body rejected.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

8.159 Instead, Indonesia recycles the same argumen t it made in connection with Article I of GATT
1994, which is that consumers consider numerous physical and non-physical characteristics in making
their purchasing decisions. While this is true in a general sense, it proves nothing, and Indonesia
offers no evidence as to how this factor justifies the conclusion that Escorts, Neons, and Opel Optimas
and Vectras are not “like” the Sephia. Of cour se, consumer products, including passenger cars, are
different from each other, because product differen tiation is one of the means by which products
compete. However, the fact that consumer produc ts inevitably will not be identical to one another
does not mean that they cannot be considered as “closely resembling” one another for purposes of
identifying a “like product” under the SCM Agreement. If products had to be “identical” (or virtually
identical) in order to be considered “like,” it would be impossible to bring a serious prejudice case (or
a countervailing duty case, for that matter) against a subsidized consumer product.
8.160 There are a few “facts” that Indonesia throws out in order to confuse the issue. First, it notes
that the DRI/McGraw-Hill market segmentation ca tegories were developed in the context of the
European market. Even if true, Indonesia do es not explain how this renders these categories
inappropriate for purposes of this case or the Indonesian auto market. Indeed, DRI/McGraw-Hill uses
these categories for purposes of its authoritative Asia Automotive Industry Forecast Report
.478
8.161 Second, Indonesia notes that cars with th e same nameplate often differ significantly from
market to market. Even if true, Indonesia offe rs no evidence that the passenger cars in question do
differ significantly.
8.162 Third, Indonesia cites the fact that for HTS purposes, passenger cars are distinguished on the
basis of total cylinder capacity, with breakpoints at 1000cc, 1500cc, and 3000cc. However, these
breakpoints are arbitrary, and provide no basis for concluding that the US passenger cars are not like
products to the Sephia simply because the Sephia, at 1,498cc, falls two “cc’s” below the breakpoint.
Moreover, Indonesia does not explain why, if 1500cc is such a significant breakpoint, it chose 1600cc
as the breakpoint for conferring tax incentives under Government Regulation No. 36/1996.
8.163 Finally, notwithstanding all of the money and resources that Indonesia reportedly has devoted
to this case, Indonesia apparently has been able to find only one document, (Indonesia
Attachment 12), that groups the Sephia in a different category from the Escort and Neon. However,
neither the document itself nor Indonesia explains how these categories were drawn.
8.164 The United States has provided more than sufficient evidence to establish that the US
passenger cars in question “closely resemble” the Ti mor Kia Sephia and, thus, are “like” the Sephia.
In response, Indonesia has presented only flawed legal arguments and virtually no evidence.
 (e) Market segment

8.165 It is important to put the issue of “market seg ments” in a proper and legally relevant context.
Article 6.4 of the SCM Agreement indicates that displacement or impedance includes a situation
where there has been a change in relative shares of the market to the disadvantage of the non-
subsidized like product. In analysing changes in relative market sh ares, the United States generally

478 US Exhibit 29 presents two pages of DRI promotional materials that attest to the authoritative nature
of the DRI Global Automotive Group. Note in particular that the selected list of clients includes familiar names
in this case, such as Chrysler, Fo rd, GM, Honda, Hyundai, Kia, Mitsubishi, Nissan, and Toyota. The United
States does not take the position that the DRI market segmentation is dispositive with respect to the like product
issues in this case. Rather, DRI' s market segmentation confirms what a traditional like product analysis
demonstrates; namely, that the Timor Kia Sephia is "like" the products that US manufacturers would have sold
in Indonesia but for the National Car programme.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

agrees with the statement by Indon esia that, to be meaningful, market share data must be calculated
for the market segment into which the like products fall.
8.166 Having said that, however, it also is important to note that, based on Indonesia’s own data, by
the end of May, 1997, the Timor Kia Sephia had achieved a market share of 26.53 per cent. See
AV/14, Attachment U-21/6. Although it is not readily apparent from Attachment U-21/6 itself, when
one examines Attachments U-21/4-B and U-21/5-B to AV/14, it is clear that the 26.53 percent figure
represents the Timor Kia Sephia’s share of the market that includes all
 passenger cars sold in
Indonesia.479
8.167 In the view of the United States, the attainme nt of a 26.53 per cent market share in less than
one year more than satisfies the requirements of Article 6.4. Eliminating certain passenger cars from
the market segment used by Indonesia in its calculations (i.e., all passenger cars) simply increases the
market share attained by the Timor Kia Sephia, thereby making the serious prejudice case against
Indonesia all the more damning. Thus, unless the Pane l were of the view that the attainment of a
26.53 per cent market share did not demonstrate serious prejudice, attempting to place all of the
passenger cars sold in Indonesia into their approp riate market segments would appear to be an
exercise that is somewhat tangential to the issues raised in this case.
8.168 Nevertheless, in order to be responsive to the Panel’s qu estions, the United States suggests
that instead of “reinventing the wheel”, the Pane l might want to rely on the market segmentation
categories actually used by the automobile industry. Such an approach seems particularly appropriate
in light of the fact that “[t]he GATT 1994 is a commercial agreement, and the WTO is concerned,
after all, with markets.” Japan - Taxes on Alcoholic Beverages, supra, page 26.
8.169 Applying this approach, the Timor Kia Se phia falls into the “C” segment, which includes
“lower medium class” cars. (See above for a disc ussion of automobile market segment categories.)
Other C segment passenger cars that are sold (or that, but for the National Car Programme, would
have been sold) in Indonesia include: Opel Optima , Ford Escort, Chrysler Neon, Peugeot 306, Toyota
Corolla, Honda City, Honda Civic, Nissan Sunny, Mitsubishi Lancer, Daewoo Nexia, Hyundai
Accent, and the Mazda 323. It is possible that the Bimantara Cakra or Nenggala models also may fall
into the C segment, but the United States lacks suffi cient information at this time to make any
definitive statements regarding these two models.
8.170 Alternatively, it would be reasonable for th e Panel to find that the relevant market segment
also includes the “D” segment of “upper medium cl ass” passenger cars. If th e market segment were
defined as comprising all medium class cars in both the C and D segments, additional cars that are
sold (or that, but for the National Car Programme, w ould have been sold) in Indonesia include: Opel
Vectra, Honda Accord, Peugeot 405, 406, and 606, Toyota Corona and (possibly) the Crown, Nissan
Sentra, Mitsubishi Galant, and Mazda 626.

479 AV/14, Attachment U-21/4-B provides sales figures for passenger cars that benefited from subsidies
during the period 1995-1997. The “Total” column for 1997 indicates that as of May, 1997, the total sales
volume for these passenger cars was 12,413, of which the Timor Kia Sephia accoun ted for 7,058. AV/14,
Attachment U/21-5-B provides sales figures for passenger cars that did not benefit from subsidies during the
period 1995-1997. The “Total” column for 1997 indicates that as of May 1 997, 14,038 of these cars were sold.
Thus, the total number of passenger cars (both subsidized and non-subsidized) sold in Indonesia during the
period January - May, 1997 was 26,451. The 7,058 Timor Kia Sephias sold during this period accounted for
26.68 percent of this total. Presumably, an arithmetic error on the part of the individual preparing AV/14
accounts for the difference between the 26.53 percent figure in Attachment U/21-6 and the 26.68 percent figure
derived from Attachments U-21/4-B and U-21/5-B.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

8.171 Indonesia makes much of the fact that the passenger car market is segmented and that car
manufacturers devote substantial resources to establis hing and targeting different market segments.
(See Section VIII.B.3.) However, this fact is not new, and it is consistent with the United States
position that the Timor Kia Sephia falls within the "C" segment of the passenger car market.
Likewise, it is not a new fact that an individual auto manufacturer will try to produce and sell one or
more cars within each segment of the passenger car market.
8.172 Consider, for example, Kia Motors, TPN's joint venture partner in the National Car
Programme. US Exhibit 30 consists of page 211 of DRI's Asian Automotive Industry Forecast Report

November 1997. Exhibit 30 demonstrates that Kia offers products in passenger car segments A
through E, and usuall y offers more than one car in each segment. Strikingly, however, the Sephia is
Kia's sole entry in the "C" segment.
8.173 Indonesia also makes much of the fact that there are numerous differences between passenger
cars. However, this, too, is not a new fact, and it is exactly the point the United States has been
making throughout this case; namely, that consum er products, including passenger cars, compete on
the basis of numerous differences between products . Product characteristics within similar categories
will vary among competing models within general ba nds or market segments. However, this is not
enough to render cars within the same market class as "unlike" each other.
8.174 As an example, consider US Exhibit 31. E xhibit 31 is a summary of the various features that
Ford has touted as making the Escort preferable to, and distinguishable from, its competition. The
United States submits that while these features may distinguish the Escort from its competition, they
are not enough to render the Escort "unlike" its co mpetition. By the same token, the fact that the
Timor Kia Sephia may have features that distingui sh it from its competition is insufficient to render
the Timor "unlike" its competition.
8.175 Indonesia argues that so-called "non-physical characteristics" render the Timor "unlike" and
non-competitive with the passenger cars of the US ma nufacturers that are at issue in this case. The
United States questions whether, on balance, a ny such differences exist, and Indonesia has not
presented any evidence of such characteristics.
8.176 In this regard, TPN, Ford, and Chrysler each were (or would have been) new entrants to the
Indonesian passenger car market (and General Motors was only a relatively new entrant) with little, if
any, developed brand image or loyalty. While Indonesian consumers may well have formulated a
perception that the cars of US ma nufacturers are of superior quality as compared to the Timor, such
perceptions likely would be balanced by the undoub ted patriotic feelings that Indonesian consumers
would have with respect to the Timor as the first Indonesian National Car.
8.177 On balance, Indonesia appears to be arguing that if consumer choices were determined solely
on the basis of the market, the Timor would have lost out to the Opel Optima, the Ford Escort, and the
Chrysler Neon. With this, the United States wholehear tedly agrees, and that is the very crux of this
dispute. What this dispute is about is that the choi ces of Indonesian consumers were not left to the
market, but instead were distorted by the massive subsidies provided by the Government of Indonesia.
These subsidies enabled the Timor to undercut the prices of competitive products so significantly, that
a significant number of consumers appear to have been willing to make a trade-off between quality
and price. However, the fact that consumers ma de this choice is not enough to render the Timor
"unlike" the other cars in its class for the purposes of the SCM Agreement.
8.178 Now let us turn to the specifics of Indonesia's model comparisons. At the outset the
United States takes issue with Indonesia's assertion that there are four basic physical attributes or
specification groupings that differentiate passenger car s and that contribute to segmenting the market.
(See Section VIII.B.3, Tables 26 and 27.) Indonesi a claims that these attributes are: power plant;
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

steering and suspension; safety features; and passenger compartment. In the view of the United States,
there are three factors that segment the market: power plant, vehicle size, and overall features.
8.179 Having said that, however, let us assume that Indonesia's approach is correct and consider
Indonesia's product comparisons. A close look at the comparisons reveals that (1) they fail to rebut the
evidence presented by the United Stat es that the GM Opels, the Ford Escort, and the Chrysler Neon
are like the Timor Kia Sephia; and (2) Indonesia's comparisons are not even accurate.
8.180 First, however, the United States should note that Indonesia's product comparisons in
Table 27 are inaccurate, because Indonesia compares the Timor S515, the base model for the Timor
Kia Sephia. Indonesia fails to mention the Timor S 515i, the fuel injected model which was imported
under the one-year authorization and which, according to Indonesia's own Annex V response is "[t]he
only Timor car produced in Indonesia." See
 AV/14, Attachment 28.
8.181 With respect to the category of"power plant, " Indonesia finds the US cars in question to be
non-comparable to the Timor. (See Table 26.) The Un ited States does not agree that these differences
render the cars in question non-comparable to the S 515. However, let us insert the Timor S515i into
the comparison. The Timor S515i has a double -overhead cam (DOHC), 16 valve engine. By
comparison, the Chrysler Neon has only a single -overhead cam (SOHC) engine, although it also has
16 valves. The Opel Optima has only an SOHC, 8 valve engine. Based on industry estimates, these
differences between the Timor S515i and the Opel Optima are worth approximately Rp. 2.5
million.
480
8.182 Thus, while the Opel Optima and Chrysler Ne on have a larger engine displacement than the
Timor S515i, the S515i has a DOHC, 16 valve engine, whereas the Neon has only an SOHC, 16 valve
engine and the Optima only an SOHC, 8 valve engine . As for the Escort, its engine displacement is
only 99 cc's more than that of the S515i. (In th is regard, the United States notes that Indonesia
incorrectly lists the Neon's engine displacement as 2,000 cc. As clearly set forth in evidence submitted
by the United States (Table 23), the Neon's engine displacement is 1,996 cc.)
8.183 In the view of the United States, these diffe rences are insufficient to warrant the conclusion
that, in terms of power plant, the US cars do not "closely resemble" the Timor S515i or the S515
within the meaning of the "like product" definition in the Subsidies Agreement.
8.184 Turning to what Indonesia refers to as th e category of"steering and suspension", Indonesia
finds the US cars to be non-comparable based on the presence of power steering and tire size. (See
Table 26 and accompanying notes.) However, according to Timor sales brochures, both the S515 and
the S515i have power steering as a standard feature . (See European Communities Exhibit D-4.)
Moreover, according to Ford officials, power stee ring on the Escort is an option, not a standard
feature, worth approximately US$200.
8.185 As for larger tire size, this is a designed option that depends upon anticipated road conditions
and generally is defined as a standard feature of minimal value to consumers.
8.186 In short, the US cars cannot be considered "unlike" the S515 or the S515i on the basis of
steering and suspension.
8.187 Turning to what Indonesia calls "safety featur es", with respect to brakes, Indonesia cites the
fact that the Neon has antilock brak es. However, this is an optional feature on the Neon, as clearly set
forth in Table 27. With respect to the Escort, Indon esia claims that the Escort has rear disc brakes,

480 See US Exhibit 32.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

but this is incorrect. As set forth in US Exhibit 33, page 3, the Escort has rear drum brakes, just like
the Timor. Finally, there are no differences between the Opel Optima and the Timor with respect to
brakes.
8.188 With respect to airbags, according to Ford officials, Ford did not include airbags in its
Indonesia launch plans for the Escort. The Neon, however, would have had airbags.
8.189 With respect to fuel economy, the United States has some difficulty understanding how this
constitutes a "safety feature." Nevertheless, accord ing to the US Department of Energy, the fuel
economy of the Sephia is comparable to, and in some cases better than, that of the Escort and the
Neon. US Exhibit 34 contains excerpts from the US Department of Energy Fuel Economy Guide:
Model Year 1997. US Exhibit 35 summarizes the data from this guide with respect to the Sephia, the
Escort, and the Neon. As can be seen, the Sephia actua lly has superior mileage to the versions of the
Escort and Neon that have automatic transmissions . Note also that Indonesia does not provide any
source for the fuel economy figures contained in Table 27.
8.190 Turning from fuel economy to vehicle weight, in a note to Table 27, Indonesia cites only the
fact that the Opel Vectra is heav ier than the Timor, thus conceding that Timors, Neons, Escorts, and
Optimas have comparable weights.
8.191 Finally, in the same note to Table 27, Indonesia cites the fact that the Ve ctra has a larger fuel
tank than does the Timor, thereby conceding th at Timors, Neons, Escorts, and Optimas have
comparably sized fuel tanks. In this regard, the Un ited States would note that it does not believe that
fuel tank size plays much of a role, if any role, in consumer purchasing decisions.
8.192 In summary, insofar as "safety features" are concerned, Indonesia's analysis is inaccurate and
fails to rebut the US evidence that the cars of US manufacturers are "like" the Timor Kia Sephia.
8.193 Finally, with respect to the category of "passenger compartment," in Table 26, Indonesia
concedes that Timors, Neons, Escorts, and Optimas are comparable.
8.194 Thus, Indonesia's own comparisons, when corr ected for inaccuracies, demonstrate that the US
cars in question are "like" the Timor. However, the United States should note that Indonesia ignores
or downplays certain facts that, according to Indon esia, should form a part of any "like product"
analysis. We already have mentioned the fact that th e engine of the Timor S515i has certain attributes
that make it more desirable than the engines in th e Optima and the Neon. In addition, Indonesia fails
to cite the fact that the Timor S515i has tilt steeri ng, mud flaps, colour key mirrors and bumpers, and
a foldable mirror, all of which are attractive features to consumers.
8.195 Moreover, Indonesia ignores the fact that the US manufacturers, as new (or relatively new)
entrants into the Indonesian p assenger car market, have little, if any, brand loyalty base or a
well-developed brand image. Ford, for example, has only one after-sales service outlet in Indonesia.
8.196 Finally, the United States would like to ca ll the Panel's attention to US Exhibit 36, which
contains excerpts from the Catal ogue de la Revue Automobile '96
, described by industry officials as
an authoritative source. In the entry for the Sephia, the Sephia is described as "techniquement parenté
aux Mazda 323/Ford Escort USA/Mercury Tracer." Tr anslated, this means that the Sephia is, among
other things, technologically related to the Escort.
8.197 As the United States has explained, the Esco rt is Ford's entry in the "C" segment of the
passenger car market. Given the fact that the Sephia is technologically related to the Escort, it seems
fair to say that the Timor Kia Sephia falls within that same segment and is a "like product" to the
other cars in that segment.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

 (f) Indonesia's arguments concerning the burden of proof are incorrect

8.198 Indonesia claims that the United States has faile d to satisfy its burden of proof. In the view of
the United States, it has more than satisfied its burden as articulated by the Appellate Body in Wool
Shirts, of presenting a prima facie case of serious prejudice. The first and second submissions of the
United States establish all of the elements for a serious prejudice case. Instead, it is Indonesia that has
failed to rebut the US case. Of course, Indonesia is hard put to rebut the evidence cited by the United
States, because much of it is Indonesia's own evid ence, submitted in the course of the Annex V
process.
8.199 Indonesia presents a new argument that the burde n of proof on complainants is higher in this
case because Indonesia is a developing country an d the ability to bring a serious prejudice case
against it allegedly is a derogati on of its "right" to provide local content subsidies. (See section
VIII.B.3(a)(3).) This is an expansion on Indon esia's earlier argument that "like product" must be
interpreted differently in this case because of Indonesia's developing country status.
8.200 The United States addressed Indonesia's earlier argument in section VIII.B.3(a)(2).
Indonesia's expansion of its argument brings the ar gument even more clearly within the scope of the
Wool Shirts case, where the Appellate Body rejected India's argument that the burden of proof
changes simply because a particular provision may be labeled as an exception to something else.
Significantly, in its submission, Indonesia does not mention the Wool Shirts report when it advances
its "derogation" argument.
 (3) Indonesia's arguments
(a) The European Communities and the United States have not met their clear burden of
demonstrating serious prejudice to a like product on the basis of positive evidence
8.201 The European Communities and the United St ates implicitly or directly accuse Indonesia of
making diversionary arguments on the threshold like product issue. It is they, however, who are
engaging in such tactics. Both complainants criticize Indonesia’s like product observations, but in
doing so they seek to obscure a fundamentally importa nt procedural matter. Namely, that it is they,
not Indonesia, that have the burden of demonstra ting what are appropriate like products within the
meaning of the Subsidies Agreement. Their failure - indeed, their inability - to demonstrate that the
Timor is like any European Communities or US car is fatal to their serious prejudice claims.
8.202 Moreover, even if the Eur opean Communities and US cars were found to be like the Timor,
no serious prejudice would exist or would arise because such cars do not compete with the Timor.
The Timor is a no-frills budget car which has tapped a new class of buyers and created a niche at the
bottom of the highly segmented passenger car market.
(b) Complainants have not met their substantia l burdens of proof with respect to the like
product issue
8.203 It is obvious that neither the European Communities nor the United States has met its clear
burden of establishing appropriate like products or of demonstrating by positive evidence that any
appropriate and relevant like products have suffered or are thr eatened with serious prejudice. As
discussed below, their failure to satisfy the ap plicable burdens of proof renders their SCM
Agreement-based arguments an empty exercise.
8.204 Both complainants have rejected in the most general terms its position that none of the
vehicles they sell (or allegedly would have sold) in Indonesia are like the Timor, but, as discussed in
detail below, neither has attempted in any meaningful way to address and rehabilitate the fundamental
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

flaws in its “like product” analysis. This acti on and inaction reflects an altogether unacceptable
disregard for the appropriate and recognized requ irement that a complainant has the burden of
establishing acceptable “like products” for analytical purposes.
481
8.205 The failure of the European Communities and the United States to meet their burden of proof
on the like product issue eviscerates their entire se rious prejudice arguments because they have a
correlative obligation to prove serious prejudi ce to their like products by positive evidence. 482 N o
amount of creative argumentation or irrelevant da ta can satisfy the app licable positive evidence
standard where, as here, a complainant fails to ca rry its burden of establishing the proper universe of
like products. In order to have any meaning and to support an affirmative determination, the indicia
of serious prejudice must flow from apples-to-apples comparisons. As discussed elsewhere in this
submission, Complainants have, however, devel oped and adduced apples-to-oranges “evidence” that
is based on faulty like product analyses.
(c) The term "like product" must be very narrowly construed and applied in this
proceeding
8.206 Footnote 46 to the Subsidies Agreement provides:
Throughout this Agreement the term "like product" ("produit similaire") shall be
interpreted to mean a product which is iden tical, 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.
8.207 The somewhat amorphous and skeletal phrase, "characteristics closely resembling," may be
fleshed out through reference to prior GATT and WT O cases, but it is well established that the "like
product" concept is fluid and its meaning de pends on the context in which it is used.
483 As the WTO
Appellate Body has stated:484
No one approach to exercising judgment will be appropriate for all cases. The criteria
in Border Tax Adjustments should be examined, but there can be no one precise and
absolute definition of what is "like". The concept of "likeness" is a relative one that
evokes the image of an accordion. The accordion of "likeness" stretches and
squeezes in different places as different provisions of the WTO Agreement are

481 See Japan-Taxes on Alcoholic Beverages (1 November 1996),WT/DS8/R, 117, para. 6.14
(complainant has burden of proof to show like product in Article III:2 dispute); see generally
Argentina-Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items (25 November 1997),
WT/DS 56/R, 90-91, para. 6.35.
482 The positive evidence standard of the Subsidies Agreement is especially significant in this case
because an affirmative finding of serious prejudice would operate to deprive Indonesia, as a developing country,
of its right to provide certain subsid ies. A derogation of Indonesia’s right in this case places an exceedingly
high burden of proof on Complainants. See generally Canada-Administration of the Foreign Investment Review
Act (FIRA ) (7 February 1984), BISD 30S/140, 164, para. 5.20; Japan-Restrictions on Imports of Certain
Agricultural Products (22 March 1988), BISD 35S/163, 226-27, para. 5.1.3.7; EEC-Restrictions on Imports of
Dessert Apples--Complaint by Chile (22 June 1989), BISD 36S/93, 125, para. 12.3.
483 See, e.g., Japan-Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic
Beverages (10 November 1987), BISD 34S/83 (paras. 5.5 and 5.6 at pp. 113-115); Canada-Import Restrictions
on Ice Cream and Yoghurt (5 December 1989), BISD 36S/68 (para. 67 at p. 87); United States-Measures
Affecting Alcoholic and Malt Beverages (19 June 1992), BISD 39S/206 (paras. 5.71-5.75 at pp. 293-294).
484 Japan-Taxes on Alcoholic Beverages , WT/DS8/AB/R (1 November 1996), Report of the Appellate
Body, at p. 21.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

applied. The width of the accordion in an y one of those places must be determined
by the particular provision in which the term "like" is encountered as well as by the
context and the circumstances that prevail in any given case to which that provision
may apply.
8.208 Factors which have been considered in applying a case-by-case analysis include a product's
end-uses in a given market; consumer's tastes and ha bits, which change from country to country; and
the product's properties, nature and quality.
485 The tariff treatment of products is another factor that
has been considered. 486 Thus, although interpretations of th e phrase in one context can promote a
better appreciation of the phrase in another context, it is essential to relate the specific interpretation
and application to the purpose of the article being construed. 487 Here, the term "like product" must be
very narrowly defined.
8.209 At the Havana Conference, it was stated that the words "like product" meant the same product
in the context of Article VI of the GATT (antidumping and countervailing duties). 488 The 1959
Report of the Group of Experts on "Anti-dumping a nd Countervailing Duties" stated that, in the
dumping context, the "term should be interprete d as a product which is identical in physical
characteristics subject, however, to such variations in presentation which are due to the need to adapt
the product to special conditions in the market of the importing country (i.e., to accommodate
different tastes or to meet specific legal or statutory requirements)." 489 The exact same definition set
forth in footnote 46 of the Subsidies Agreement first appeared in the 1967 and 1979 anti-dumping and
countervailing duty agreements.490 This history amply demonstrates that the "like product" concept is
to be very narrowly construed and restrictivel y applied in anti-dumping and subsidy proceedings. 491
This is because the imposition of discrimin atory anti-dumping and countervailing duties are
exceptions to the general most-favoured-nation obligation of Article I of the GATT.492
8.210 The same logic applies with equal force here. The numerous developing country carve-outs
in the Subsidies Agreement (e.g., Article 27) reveal the WTO Members' recognition and acceptance of
the necessity of subsidy measures to promote critical development programmes in such countries. In
other words, the universe of benefits extended to developing countries under the Subsidies Agreement
includes the right (albeit conditional) to provide subsidies. Therefore, because an affirmative finding
of the threat of serious prejudice to a "like produc t" would operate to deprive a developing country

485 See , e.g. , Working Party Report on Border Tax Adjustments (2 December 1970), BISD 18S/97
(para. 18 at pp. 101-102); United States-Taxes on Petroleum and Certain Imported Substances (17 June 1987),
BISD 34S/136 (para. 5.1.1 at p. 154); United States-Measures Affecting Alcoholic and Malt Beverages
(19 June 1992), BISD 39S/206 (para. 5.24 at p. 276); United States-Standards for Reformulated and
Conventional Gasoline, WT/DS2/R (20 May 1996), Report of the Panel, at pp. 36-37, para. 6.8.
486 See, e.g., Working Party Report on the Australian Subsidy on Ammonium Sulphate (3 April 1950),
BISD II/188 (para. 8 at p. 191); EEC-Measures on Animal Feed Proteins (14 March 1978), BISD 25S/49
(para. 4.2 at p. 63); Japan-Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic
Beverages (10 November 1987), BISD 34S/83 (para. 5.6 at p. 115); United States-Standards for Reformulated
and Conventional Gasoline, WT/DS2/R (20 May 1996), Report of the Panel, at p. 37, para. 6.9.
487 See, e.g., EEC-Imports of Beef from Canada (10 March 1981), BISD 28S/92 (para. 4.2 at p. 98);
United States-Measures Affecting Alcoholic and Malt Beverages (19 June 1992), BISD 39S/206 (paras. 5.24
and 5.25 at p. 276 and para. 5.71 at pp. 293-294).
488 E/CONF.2/C.3/SR.30, p. 5.
489 L/978, adopted on 13 May 1959, BISD 8S/145 (para. 12 at p. 149).
490 See BISD 15S/24, 25; BISD 26S/171, 172; BISD 26S/56, 65 fn. 1.
491 See generally Japan-Customs Duties, Taxes and Labelling Practices on Imported Wines and
Alcoholic Beverages (10 November 1987), BISD 34S/83 (para. 5.6. at p. 115).
492 See United States-Countervailing Duties on Fr esh, Chilled and Frozen Pork from Canada
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Member of this generally available right, "like product" must be narrowly construed.
493 A derogation
of Indonesia's right in this case therefore pl aces an exceedingly high burden of proof on
Complainants494, and Complainants have not met this burden.
(d) With regard to Timor sales, no like product of the European or the United States has
been seriously prejudiced
8.211 Notwithstanding their claims and criticisms of Indonesia’s like product approach, neither the
European Communities nor the United States sells an y car models in Indonesia that are like the
Timor. For the purposes of this proceeding, like prod uct determinations must be made with reference
to numerous physical and non-physical characteris tics and consumer perceptions and preferences.
Complainants’ like product arguments are woefully inadequate because they fail to address the full
range of relevant characteristics and perceptions.
(e) The European Communities assertions concerning the Opel Optima and the
Peugeot 306 are incorrect and misleading
8.212 The European Communities ass erts, in effect, that Indonesia’s approach to the like product
concept is “clearly too restrictive” because at least one of the 60 different models of passenger cars
sold in Indonesia must be like th e Timor. Putting aside where the burden of proof resides, and the
European Communities’s failing in that regard, the European Communities’s point is very wide of the
mark. The issue here is whether any EC passenger cars are like the Timor, not whether any other cars
are like the Timor.
8.213 The European Communities’ s recycled serious prejudice arguments are a hodgepodge of
general and specific data. The European Commun ities has proffered general market share data
covering the entire passenger car market, while also making price undercutting, sales and market
share arguments limited to the Opel Optima and the Peugeot 306. The European Communities tips its
hat to the like product concept by narrowing the fo cus to two models it claims are within the same
segment as the Timor, but, to date, it has furnished no specific information or data to support the
“likeness” of these products. Again, and at the risk of being repetitive, this makes European
Communities data on market share, sales and pr ice undercutting useless. Moreover, as shown in
Tables 26 and 27, the Timor is not like the Opel Optima or the Peugeot 306.
(f) The United States has sold no like products in Indonesia and its assertions regarding
the GM Opels, Ford Escort and Chrysler Neon are misplaced and speculative
8.214 The United States cannot demonstrate seri ous prejudice because it has not satisfied the
essential like product predicate. As demonstrated in Tables 26 and 27, the Ford Escort, Chrysler
Neon and Opel Optimas and Vectras are not like the Timor.495

493 See generally Japan-Restrictions on Imports of Certain Agricultural Products (22 March 1988),
BISD 35S/163 (para. 5.2.2.3 at p. 230); Canada-Import Restrictions on Ice Cream and Yoghurt
(5 December 1989), BISD 36S/68 (para. 59 at p. 84); EEC-Restrictions on Imports of Apples--Complaint by the
United States (22 June 1989), BISD 36S/135 (para. 5.15 at p. 164); Norway-Procurement of Toll Collection
Equipment for the City of Trondheim (13 May 1992), BISD 40S/319 (para. 4.5 at p. 336).
494 See generally Canada—Administration of the Foreign Investment Review Act (7 February 1984),
BISD 30S/140 (para. 5.20 at p. 164); Japan-Restrictions on Imports of Certain Agricultural Products
(22 March 1988), BISD 35S/163 (para. 5.1.3.7 at pp. 226-227); EEC-Restrictions on Imports of Dessert Apples-
-Complaint by Chile (22 June 1989), BISD 36S/93 (para. 12.3 at p. 125).
495 The United States attempts to buttress its position by asserting that “there is plenty of evidence that
in the US market the Sephia is considered to be in the same category as the Escort and Neon.” This is unavailing
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

8.215 Further to the like product issue, the United States suggests that the legal analysis should be
confined to consideration of the most basic physi cal characteristics and end uses of passenger cars.
Such an analysis would be inappropriate, however, because it is overly simplistic.
8.216 The United States takes Indonesia to task fo r extending its analysis beyond the definition of
“like product” found in footnote 46 to the Subsidies Ag reement, but this is un justified and, at best,
disingenuous. The United States states: “Obviously, this definition provides only general guidance,
and a case-by-case analysis is necessary to determine whet her a particular product is ‘like’ another.
…Factors which should be considered in applying a case-by-case analysis include ‘a product’s end
use in a given market, consumer’s tastes and hab its, which change from country to country, and the
product’s properties, nature and quality.”
496 The United States also has noted its agreement with
Indonesia that “consumers consider numerous physi cal and non-physical characteristics in making
their purchasing decisions.” This irrefutable fact is amply borne out by the following statement
appearing in Ford Motor Company’s 1996 annua l report to the US Securities and Exchange
Commission:
Ford’s share [of industry sales] is influenced by the quality, price, design,
driveability, safety, reliability, economy and utility of its products compared with
those offered by other manufacturers, as well as by the timing of new model
introductions and capacity limitations. Ford’s ability to satisfy changing consumer
preferences with respect to type or size of vehicle and its design and performance
characteristics can affect Ford’s sales and earnings significantly.
497
8.217 The wide range of acknowledged factors th at must be considered in identifying which
products are like the Timor further points up the failu re of the US (and the EC) to satisfy the burden
of proof discussed above.
(g) Indonesia's position on the like product issue does not render the Subsidies
Agreement inapplicable to consumer products
8.218 The European Communities and the Unite d States separately argue, in essence, that
Indonesia’s like product analysis is too restrictiv e because requiring identity between passenger cars
would effectively exclude consumer products from the scope of the Subsidies Agreement. Those
arguments are fallacious.
8.219 Indonesia has never claimed that products must be identical to be considered like one another.
Indeed, Indonesia agrees that some differentiation can exist among like products. It is critical to
emphasize, however, that the concept of differentia tion must be carefully circumscribed, taking due
account of the types of products at issue. For ex ample, while relatively minor and inconsequential
differences exist among many consum er products - such as blenders, can openers and toaster ovens -
passenger cars are very highly diffe rentiated products. Two cars mi ght even closely resemble one
another in terms of their most basic physical char acteristics, but yet still be highly differentiated on
the basis of numerous other physical and non-phys ical characteristics, including design, quality,

for three reasons. First, the Kia Sephia marketed in the United States is a much more advanced car than the
Timor--the differences are so great that the Sephia is not “like” the Timor. See Indonesia Exhibit 42 at pp. 8-9.
Second, analysts’ perceptions of the US market have no relevance to the Indonesian market. Finally, even if
such perceptions were relevant, not all analysts put the Sephia in the same category as the Escort and Neon. See
Indonesia Exhibit 12.
496 United States citing Japan-Taxes on Alcoholic Beverages (1 November 1996), WT/DS8/R, Report
of the Appellate Body, 22.
497 Ford Motor Company 1996 Annual Report to US Securities and Exchange Commission in Form
10-K at 5 (Indonesia Exhibit 44).
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

durability, driveability, safety, reliability, brand lo yalty, brand image/reputation, status, after-sales
service, fuel consumption and resale value.
498 This multitude of differentiating features among cars,
as well as their much higher cost, distinguishes them from nearly all other consumer products. Thus,
although it may be difficult to determine appropria te like product categories for the purposes of this
proceeding, that difficulty does not support the sweeping assertions of the European Communities and
the United States that the adoption of Indonesia’s sp ecific approach to the like product issue in this
case would make it impossible to bring a serious prejudice case against a subsidized consumer
product.
499
8.220 Product differentiation is significant to the like product issue for another reason. It is
recognized that where there is high degree of product differentiation, products are less substitutable,
and price is less likely to be a determining factor in purchasing decisions. The exceptionally high
degree of product differentiation between the Ti mor S515 and the European Communities and United
States group of purportedly like cars makes them non-subs titutable. This is important because, as the
panel in Japan-Taxes on Alcoholic Beverages recognized, all like products are “directly competitive
or substitutable products.”500 Thus, because the Timor and none of the proposed comparison models
are substitutable or “directly competitive,” they cannot be considered like products.501
 (h) Market segment
8.221 Numerous physical and non-physical attri butes and consumer perceptions determine the
market segment into which any given model falls. These various factors, include, but are not limited
to: brand loyalty; quality; brand imag e/reputation; reliability; design; durability; utility; resale value;
ride and comfort; driveability; standard features; safety features; available options; exterior size;
interior space; fuel economy; after-sales service; engi ne size and technology; transmission type; and
suspension type.
8.222 The physical attributes and specifications of the Timor set forth by Indonesia in Table 27, as
well as the non-physical attributes and perceptions listed above, place the Timor in the market
segment composed of budget small passenger cars. The Timor taps new entrants to the car market
through this market segment. The same physical and non-physical attributes and perceptions place
the Ford Escort, Opel Optima and Vectra, and Chrysler Neon (and Peugeot 306) at the top of the more
elevated small car segment.
8.223 The relative positions of the Timor and th e United States (and the European Communities)
comparison models are amply demonstrated by reference to just their most basic physical differences
(These positions are reinforced and made wider by the different non-physical attributes and

498 For example, as shown in Table 27, the Timor S515 and Mercedes-Benz C180 have many physical
similarities, but one cannot reasonably consider them to be like products.
499 Those assertions also are be lied by the many successful coun tervailing and antidumping duty
proceedings in the EC, the US and other countries that have involved consumer products. The local authorities
there have used the same or a very similar like product approach as that appearing in the Subsidies Agreement.
See generally Certain Electric Fans fr om the People’s Republic of China
, USITC Pub. 2461 (December 1991);
Certain Personal Word Processors from Japan , USITC Pub. 2411 (August 1991); Top-of-the-Stove Stainless
Steel Cooking Ware from Korea and Taiwan, USITC Pub. 1936 (January 1987).
500 Japan-Taxes on Alcoholic Beverages (1 November 1996),WT/DS8/R, 121, para. 6.22. Although the
Panel there was addressing Article III and the Interpretive Notes in Ad Article III, its general statement in this
regard applies with equal force here.
501 The notion of competition and its importance is clearly reflected in the text of the Subsidies
Agreement. Competition is the motive force underlying all of the indicia of serious prejudice presented in
Article 6.3: the displacement or impeding of imports, significant pri ce undercutting, significant price
suppression, price depression, lost sales, or lost market share.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

perceptions of each model.) There are four basic physical attributes or specification groupings that
differentiate passenger cars and contribute to seg menting the market: power plant; steering and
suspenion; safety features; and passenger compartment.
8.224 The power plant grouping includes: engine c onfiguration and engine size; transmission type;
horsepower; and torque. The steering and suspension grouping includes: suspension type; drive
wheels; steering system; tyre size; and turning cycle. The safety feature grouping includes: braking
system; fuel tank capacity and mileage; curb weight; and passive restraint. The passenger
compartment grouping includes: interior dimensions and number of passengers.
8.225 The following table highlights the most signi ficant physical differences that make the Timor
"unlike" the proposed comparison models:
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Table 26
United States and European Communities - Proposed Comparisons

 Ford Escort Peugeot 306 Chrysler Neon Opel Vectra Opel
Optima
Power Plant502 N N N N N
Steering and
Suspension503
N N N N N
Safety Features504 N N N N N
Passenger
Compartment505
Y Y Y N Y
Y = Comparable to the Timor S515
N = Not Comparable to Timor S515
8.226 The full data from which the analysis in Table 26 is derived are presented in the table below:

502 In comparison to the Timor, these cars have larger engines with greater horsepower and torque. The
Neon has an automatic transmission, which is also available for the Peugeot.
503 In comparison to the Timor, the Escort, Vectra and Optima have power steering and the Peugeot,
Neon, Vectra and Optima have larger tires.
504 In comparison to the Timor, the Neon, Vectra, and Peugeot have ABS; the Escort has rear disc
brakes; the Escort, Neon, Vectra and Optima have air bags; Escort and Neon have superior fuel economy; the
Opel Vectra is heavier; and fuel tanks of the Vectra and Peugeot are larger.
505 Interior space (based on exterior measurements) and the number of passengers accommodated are
approximately the same, except for the Vectra, which seats an additional passenger.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Table 27
Comparison of Cars
Item Timor
S515
Ford
Escort
Chrysler
(Dodge Neon)
Opel
Vectra
Opel
Optima
Peugeot
306
Mercedes-Benz
C-180
1. Engine Size (cc) 1, 498 1,597 2,000 1,998 1,796 1,761 1,799
2. Engine
Configuration and
 Number of Valves

SOHC, 4 Cyl.
Carburetor,
16 Valves
DOHC, 4 Cyl.
Injection, 16 Valves
OHC, 4 Cyl.
Injection
SOHC, 4 Cyl.
Injection
SOHC, 4 Cyl.
Injection
SOHC, 4 Cyl.
Injection
4 Cyl.
Injection
3. Suspension
Front: Independent,
MacPherson Strut

Rear:
Fully Independent,
Multi-linked

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

4. Brakes
1. Front
2. Rear
 3. ABS

Disc Brake
Drums

Disc Brake
Disc Brake

Disc Brake
Drums
Yes

Disc Brake
Drums
Yes

Disc Brake
Drums

Disc Brake
Drums
Yes

Disc Brake
Disc Brake
Yes
5. Drive
 (Front Wheel)
Yes Yes Yes Ye s Yes Yes No
6. Steering Rack & Pinion,
with collapsible
column
Rack & Pinion,
power-assisted
 Rack & Pinion,
power steering
Rack & Pinion,
power steering
Adjustable Column
(angle) control
under steering
wheel, power
steering

7. Transmission (Manual 5 or
Automatic)
Manual
5 Speed
Manual
5 Speed
Automatic
3 Speed
Manual
5 Speed
Manual
5 Speed
Manual
5 Speed
Manual
5 Speed
8. Horsepower
 (kw/rpm)
58/5,500 75/5,500 97/6,000 80.9/ 5,400 66/5,400 70/6,000 122/5,500
9. Torque (kgm/rpm) 122/2,500 134/3, 000 129/5,000 173/2,600 163/ 3,200 148/3,000 199/3,750
10. Fuel Tank Capacity (litre) 50 55 57 61 52 80 75
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Table 27 - Continued

Item Timor
S515
Ford
Escort
Chrysler
(Dodge Neon)
Opel
Vectra
Opel
Optima
Peugeot
306
Mercedes-Benz
C-180
11. Overall Fuel
 Efficiency (km/ltr)
- Urban
 - Suburban

12.3
13.9

9.5
29.7

24.2

5.8

12. Curb Weight 1,055 1,110 1,102 1,245 980 1,100 1,280
13. Height 1,390 1,346 1,320 1,425 1,410 1,383 1,389
14. Width 1,692 1,875 1,687 1,841 1,688 1,689 1,720
15. Length 4,360 4,295 4,295 4,477 1,239 4,232 4,487
16. Wheel Base (mm) 2, 500 2,523 2,600 2,637 2,517 2,580 2,690
17. Turning Cycle (metres) 4.95 5 5.33 4.99 5.45 5.37
18. Tyre Size 175/70R13 175/70R13 185/65R 14 195/60R15-87H 195/60R15 185/60R14 195/65R1591H
19. Number of Passengers 4 4 4 5 4 4 4
20. Air Conditioning Yes Yes Yes Yes Yes Yes Yes
21. Air Bags No Ye s Yes Yes Yes No Yes
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

 (i) The Neon is not "like" the Timor

8.227 In addition to the differe nces already noted, data presented by the United States shows that
the Neon is downright luxurious compared to the sp artan Timor. According to the United States, the
Neon includes the following equipment as standard features:
 - compact disc player;
 - an electric sunroof; and
 - the new, low-force airbags.
506
8.228 These items are not even offered as options on the Timor. Yet they are standard on the one
United States-made car the United States claims is li ke the Timor. Also, even the limited physical
data on the Neon provided by the United States demonstrates that there are other significant physical
differences between the Neon and the Timor. (See Table 23.)
8.229 Moreover, the United States ef fectively concedes that the Timor is perceived in Indonesia just
as Indonesia has described it to this Pa nel - as a lower-quality, budget car. 507 Of course, as Indonesia
has discussed and the United States has acknowledged , consumers' perceptions are critical to their
purchasing decisions.
8.230 Particularly instructive is the United Stat es' acknowledgement that the Sephia and the Timor
are not the same car. In an attempt to sidestep the issue, the United States states that "the only
difference ... is the 'Timor' sticker and, perhaps, th e country of origin of some of the parts." The
United States then notes in passing that "the vers ion of the Sephia sold in the United States has a
slightly larger engine than the version sold in Indonesia."
8.231 Furthermore, the United States engages in a fa r more egregious manipulation of data when it
discusses the power of the two cars. We bring to th e Panel's attention the fact that the United States
has presented misleading data in a side-by-side comparison of the Timor and the Neon. The
United States presents a horsepower figure (which the United States labels "HP") in describing the
Timor's power output, but a kilowatt-at-rpm figure for the Neon without noting the change in the
measurement. The result is an 85 to 98 comparison, instead of the appropriate 85 to 129 horsepower
comparison, which, of course, undercuts the United States' position. Moreover, we note that, insofar
as the Neon is a US-made car, Chrysler markets it based on horsepower. We trust that the United
States did not use this bait and switch intentiona lly to mislead the Panel, hoping that the improper
comparison would go unnoticed.
8.232 Indonesia already has demonstrated conclusive ly what the United States still seeks to avoid
admitting: even the Sephia is not "like" the Timor. The Timor is the Sephia of years gone by. Unlike
any producer from the United States, the European Communities or Japan, Ki a was willing to license
its outdated technology at a fair price, but not even Kia was willing to licence its current technology.
 (b) CKDs as "like" finished Timors

8.233 According to the parties, the GM Opel Optima and Vectra, the Ford Escort, the Peugeot 306
and the Chrysler Neon, among other models, are (or would be) imported into Indonesia in
Completely-Knocked-Down ("CKD") (rather than CBU) form. Once in Indonesia, they are
assembled and sold. The European Communities and the United States argue that these imports in

506 US Exhibit 24, p. 18 lists these items as standard equipment for the Neon.
507 Id., p. 35 (article notes potential buyers' concerns about the Timor's quality and after-sales service).
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

CKD form are "like" finished Timors. Indonesia disagrees. The following are the parties arguments
in this regard:
 (1) Arguments of the European Communities

8.234 The proposition that CKD cars must be considered as "like" to assembled complete
passengers where the CKD kit alrea dy has the "essential character" of the complete car is supported
by a generally accepted principle of customs classifica tion, now contained in Rule 2(a) of the General
Rules for the Interpretation of the 1996 Harmonised System. According to this principle:
Any reference in a heading to an article shal l be taken to include a reference to that
article incomplete or unfinished, provide d that, as presented, the incomplete or
unfinished article has the essential character of the complete or finished article. It
shall also be taken to include a reference to that article complete or finished (or
falling to be classified as complete or finished by virtue of this rule), presented
unassembled or disassembled
8.235 Given that Indonesia grants import duty relie f for the importation of parts and components for
the assembly of passenger cars when the local conten t of the cars into which they are assembled is
more than 20 per cent, imported CKDs may be considered as having the “essential character” of a
complete car in those cases where they have not benefited from import duty relief.
8.236 The criteria applied by Indonesia in order to classify the same products when imported into
Indonesia still remain unclear. Indeed, the mere fact that those CKD kits benefit from a lower import
duty rate does not necessarily mean that they are not classified within the same HS six-digit code as
CBU cars. If it was confirmed that the CKD kits ex ported from the EC are classified by Indonesia as
parts and components, rather than as passenger cars, the necessary implication would be that
Indonesia does not follow General Interpretative Rule 2(a).
8.237 At any rate, whether or not Indonesia adheres in practice to General Interpretative Rule 2(a) is
totally irrelevant to this dispute. The Eur opean Communities has invoked General Interpretative
Rule 2(a) in support of its contention that CKD kits and CBU cars have "closely resembling
characteristics" and, therefore, are "like" produc ts for the purposes of the SCM Agreement. That
argument has a general relevance and remains valid, irrespective of whether the importing Member
concerned in a particular dispute complies with that rule or not.
8.238 In response to a question from the Panel re garding the condition in which the CKD kits are
imported, and the nature and amount of value added in Indonesia, the European Communities stated
the following:
8.239 Virtually all EC cars (of all models) are e xported to Indonesia as CKD kits. The kits already
include almost all the parts and componentes nece ssary for assembling the cars. The only parts and
components which are purchased in Indonesia are low cost universal components, such as batteries
and tyres, or accessories such as radios, CD-players and loudspeakers. As a result, the percentage of
local added value is very low in all cases. Accord ing to the data provided by Indonesia in response to
a question raised by the United States during the c onsultations, (see table below) in 1996, the local
content percentage of the EC models assembled in Indonesia ranged from 6.4 per cent to 8.2 per cent.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Table 28
Local Content

Kind Of Vehicles Original
country
Local Content (%)
 1994 1995 1996
I. Commercial Car
 Category I Japan 12.201 - 61.016 6.398-48.127 6.470 - 45.398
 United States 29.078 - -
 European
Community
- 5.760 -
 Category II Japan 31.815 - 37.502 23.404 - 33.672 24.610 - 33.976
 United States - - -
 European
Community
21.604 25.353 - 28.109 22.005 - 22.517
 Category III Japan 31.164 - 36.6 21 30.431 - 36.060 25.295 - 34.819
 United States - - -
 European
Community
23.061 - 31.634 29.273 - 30.964 22.529 - 23.280
 Category IV Japan 1.000 - 31.994 2.725 - 30.796 3.977 - 30.162
 United States 2.200 - 11.800 2.200 -
 European
Community
- 4.682 4.689
II. Passenger Car

Japan 5.000 - 42.968 6.231 - 42.248 6.908 - 42.165
 United States 6.000 7.536 - 11.200 7.663 - 11.066
 European
Community
5.000 - 6.327 6.222 - 7.858 6.388 - 8.292
 Korea - 5.016 - 8.304 6.529 - 8.300
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

 (2) Arguments of the United States

8.240 The United States agrees with the European Communities that CKD passenger cars must be
considered as "like to the assembled complete pa ssenger cars in those cases where the CKD kit has
already the 'essential character' of the complete ca r" for the reasons set forth by the European
Communities. The United States would add that, to a large extent, world tr ade in automobiles is
conducted in the form of the export and import of unassembled vehicles, as opposed to completely
built-up, finished vehicles. Certainly that is the case in Indonesia, where the only passenger car that
has been imported in CBU form and in sizeable quantities was the Kia Sephia during the one-year
period in which the tariff and tax exemptions were in effect. Because a CKD passenger car has the
essential character of a complete car, it would exalt form over substance to find that a CKD passenger
car is not a like product to a finished car.
8.241 In response to a question from the Panel re garding the condition in which the CKD kits are
imported, and the nature and amount of value added in Indonesia, the United State s stated the
following:
8.242 In the case of Ford, the Esco rt CKD kits would have been ordered in groups of 20 vehicles;
i.e., an order could be for any multiple of 20 vehicl es, such as 20, 40, 60, etc. The kits would have
been packaged in waterproof, pre-engineered cases to accept the exact content of the kit, such as the
correct number of hoods, fenders, engines, etc. The pre-engineered cases then would have been
placed in standardized cargo containers for delivery to the port and subsequent ocean shipment. 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.
8.243 With respect to local conten t, the initial local content of Ford Escorts would have been well
below the 20 per cent threshold for obtaining ta riff incentives under the 1993 Programme, although
Ford planned on increasing the local content over time.
8.244 With respect to the Chrysler Neon, the kits would have been shipped in lots of 72 vehicles.
Because under the project, as planned, Neons would have had less than 10 per cent local content, this
would have resulted in 85 boxes per lot. The United States does not have a complete list of the
components that would have been sourced from Indonesi a. According to Chrysler officials, however,
due to the low local content, the items that would have been sourced locally would have included such
things as paints, oils, gasoline, and other commodities.
8.245 The United States has requested, but not received, information from General Motors
concerning the precise composition of its CKD kits.
 (3) Arguments of Indonesia

8.246 CKD cars are not "like" fini shed cars. Although various Customs regimes classify for tariff
purposes incomplete, unfinished or unassembled produc ts and finished products under the identical
HTS number, this fact in and of itself does not ma ke a completed "ready-to-sell" automobile a like
product to an incomplete, unfinished or unassembled car that after importation requires the addition of
critical components, labour, capital resources and equipment before it is "ready-to-sell".
8.247 Designation of unassembled and assembled prod ucts as like products results in comparisons
between articles that are physically dissimilar with different customers and customer expectations.
These resultant apples-to-oranges comparisons are economically and legally meaningless.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

8.248 The phrase "essential character" is a tariff classifi cation concept. It is not a concept that can
be used as the dispositive factor when complainan ts attempt to cobble together an unworkable
comparison analysis.
 (c) "Imports" from/"exports" by complainant

8.249 In response to a ques tion from the Panel, the United States addressed the question of whether
serious prejudice to the interests of the United Stat es could arise in terms of displacement/impedance
and price undercutting where the products being displaced/impeded or whose prices were being
undercut were not of US origin. The following are the United States' arguments in this regard:
 (1) Arguments of the United States
8.250 With respect to the Escorts that Ford planned to import into Indonesia, according to Ford’s
project plan for Indonesia, they would have been sourced from Europe. With respect to the Opel
Optimas and Vectras imported into Indonesia, it is the understanding of the United States that imports
of Opel Optimas and Vectras have ceased as a result of the National Car programme, although it is
possible that cars from inventory may still be availabl e for sale in Indonesia. Prior to the introduction
of the National Car programme, Opels were source d from Europe. With respect to the Chrysler
Neons to be imported into Indonesia, they wo uld have been sourced from the United States;
specifically, from Chrysler’s plant in the state of Illinois.
8.251 It is the understanding of the United States that there are no passenger cars of US origin, in
CBU or CKD form, that currently are imported into Indonesia. See AV/13, US Answer to
Question #6. While the stray import of a US-origin passenger car cannot be ruled out, as
demonstrated below, the US manufacturers cancelled their plans to export passenger cars to Indonesia
due to the introduction of the National Car programme. Therefore, at present, vehicle exports (other
than trucks) of US origin consist of kits of GM (Opel) Blazers and Jeep Cherokees, both of which fall
into the category of “light commercial vehicles.”
8.252 It is the view of the United States that serious prejudice to the interests of the United States in
terms of displacement/impedance and price unde rcutting may arise where the products being
displaced/impeded or whose prices are being undercut are not of US origin. The reasons for this are
as follows:
8.253 Article 6.1 of the SCM Agreement refers to "[s]erious prejudice in the sense of paragraph (c)
of Article 5 ... ." Article 5(c), in turn, refers to "serious prejudice to the interests of another Member".
In addition, footnote 13 to Article 5(c) states as fo llows: "The term 'serious prejudice to the interests
of another Member' is used in this Agreement in the same sense as it is used in paragraph 1 of
Article XVI of GATT 1994, and includes threat of serious prejudice." The second sentence of
Article XVI:1 states as follows: "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 re quest, discuss with the other contracting party or
parties concerned, or with the CONTRACTING PARTIES, the possibility of limiting the
subsidization." Thus, one has to start with Article XVI:1.
8.254 The second sentence of Article XVI:1, by its terms, does not limit a Member's right to
complain about serious prejudice to situations where the products that are being affected by subsidies
are of that particular Member's origin. Instead, Article XVI:1 refers to a Member's "interests", the
ordinary meaning of which is "the state of being co ncerned or affected esp. with respect to advantage
or well-being". Because General Motors and Ford are undeniably US companies, the United States
has a legitimate concern with respect to the well-bei ng of those companies. Thus, actions that affect
those companies, or products produced and sold by th ose companies, affect the interests of the United
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

States within the meaning of Article XVI:1. In other words, under Article XVI:1, the United States
has an "interest" in exports from the EC of the products of US companies, such as General Motors and
Ford. The standard of Article XVI:1, through foot note 13, is incorporated into Part III of the SCM
Agreement as a basic principle. Had a different r esult been intended, the drafters could have easily
used different language.
8.255 It is true that some of the provisions of Ar ticle 6 do and some do not mesh perfectly with this
basic principle. Paragraphs (a) through (c) of Article 6.3, for example, simply refer to the effects on
like products from "another Member", as opposed to products from the complaining Member, and are
consistent with the basic principle of Article XVI:1 and Article 5(c). Paragraph (d) of Article 6.3 does
not refer to the effects on like products at all.
8.256 On the other hand, Article 6.7, which describ es situations in which serious prejudice shall not
arise under Article 6.3, refers to im ports or exports from the complaining Member. In the view of the
United States, however, the specific rules in Article 6.7 should be in terpreted in light of the basic
principle in Article XVI:1, as incorporated into Ar ticle 5©, and should not be used to override the
basic principle.
 (2) Arguments of Indonesia

8.257 Indonesia argues that the fact that no products of US origin are sold in Indonesia means that
the United States has no claim of serious prejudice. The following are Indonesia's arguments in this
regard:
8.258 The United States admits that:
"there are no passenger cars of United States origin, in CBU or CKD
form, that currently are imported into Indonesia";
Opel Optimas and Vectras importe d into Indonesia were and would
be sourced from the European Communities, not from the United
States; and
even if the so-called "plans" of the Big Three were relevant, only one United States
company - Chrysler - ever considered exporting a US-made product from the
United States to Indonesia (a CKD Neon). Opel sources from the European
Communities and the United States admit that Ford would have sourced any Escorts
destined for Indonesia from Europe.
 Thus, the United States has reduced its serious prejudice claim to one, quite simple,
inadequately substantiated allega tion: But for the Indonesian measures, Chrysler would have gone
forward with its supposed "plans" to try to sell the Ne on in Indonesia. Even if this were true, it would
not amount to serious prejudice. Therefore, the Panel should reject the United States claims and reject
its complaint.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

4. Article 6.3(a) of the SCM Agreement - displacement/impedance of imports

 (a) Arguments of the European Communities
8.259 The European Communities claims that the subsidies at issue cause “serious prejudice” to
the interests of the Community in the way described in paragraphs (a) and (c) of Article 6.3 of the
SCM Agreement. The following are the European Communities' arguments in support of this
claim:
8.260 In accordance with Article 6.3 of the SC M Agreement, serious prejudice in the sense of
Article 5 © may arise:
.... in any case where one or several of the following apply:
(a) 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;
(b) the effect of the subsidy is to displace or impede the exports of a like product of
another Member from a third country market;
(c) the effect of the subsidy is a significan t 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”;
(d) the effect the subsidy is an increase in the world market share of the subsidizing
Member in a particular subsidised primary product or commodity as compared to the
average share it had during the previous period of three years and this increase
follows a consistent trend over period when subsidies have been granted.
8.261 The use of the alternative conjunction “or” in the chapeau of Article 6.3 clearly indicates that
the presence of one of the factors listed in that provision may be sufficient to establish the existence of
serious prejudice.
8.262 The Community claims and will demons trate here below that the subsidies under
consideration cause serious prejudice to the interest s of the Community in the manner described in
paragraphs (a) and (c) of Article 6.
(1) Subsidized National Cars have displaced and impeded imports of passenger cars from
the European Communities
8.263 Although PT TPN entered the Indonesian market only in October 1996, by the end of that
year sales of the Timor S-515 already accounted for more than 10 per cent of the total annual sales of
passenger cars in that market during 1996. During 1997, sales of the Timor S-515 have continued at a
steady pace. As shown in the table included in Anne x C-2, by the end of the first semester of 1997,
the market share of the Timor S-515 had reached 26. 52 per cent. In other words, thanks to the
massive subsidisation provided by the Indonesian Government, PT TPN has been able to capture
more than a quarter of the Indonesian market for passenger cars in just nine months.
8.264 PT TPN’s successful entry into the Indonesian market has take n place, to a significant extent,
at the expense of imports from the Community. Ind eed, sales of the heavily subsidized Timor S-515
have both “replaced” existing imports of Community passenger cars and “impeded” a further increase
in Community imports.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Table 29
Sales of Passenger Cars - Market shares

 1993 1994 1995 1996 1997*
Timor - - - 10.10 26.52
EC** 9.9 18.28 23.72 24.09 16.15
Japan*** 89.8 81.52 69.08 59.85 50.49
Other 0.2 0.21 7.19 5.95 6.83
* April-May 1997
** Includes sales of the Opel Optima and the Opel Vectra
*** Includes sales of the Ford Laser and the Ford Telstar
Source: AV/3 (data derived from attachments A-39/1-A through A-39/5-B).
8.265 Since 1992 and until 1996, exports of passenge r cars from the Community grew at a faster
pace than demand, resulting in a significant gain in te rms of market share. As shown in Table 29, the
market share held by passenger cars imported fro m the Community nearly doubled between 1993 and
1994, from 9.9 per cent to 18.28 per cent, and increased again the following year to 23.72 per cent.
8.266 In 1996, this trend was abruptly interrupted by the entry into the mark et of the Timor S-515.
Thus, the Community’s share for 1996 was only marginal ly higher (24.09 per cent) than its share for
1995 (23.72 per cent). During the first half of 1997, the share held by European Communities imports
fell dramatically to only 16.15 per cent, the lowest level since 1993.
Table 30
Sales of the Opel Optima and the Peugeot 306 - Units

 1995 1996 1997* 1997**
Opel Optima 419 359 165 257
Peugeot 306 - 1,017 443 656
Total 38,826 42,345 26,607 49,568
* April-May
** August 1997, based on da ta from the EC industry
Source: AV/3 (Attachment A-39/1-B).
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Table 31
Market shares of the Opel Optima and the Peugeot 306

 1995 1996 1997* 1997**
Opel Optima 1.08 0.85 0.62 0.52
Peugeot 306 - 2.40 1.66 1.32
* April-May
** August, based on data from the EC industry.
Source: AV/3 (Attachment A-39/1-B).
8.267 Tables 30 and 31 show the impact of the introduction of the Timor S-515 on the sales of the
Opel Optima and of the Peugeot 306, the two Comm unity models which are the closest in terms of
specifications and price to the Timor S-515.
8.268 The Peugeot 306 was not sold in Indonesia duri ng 1995. In 1996, Peugeot sold 1,017 units of
this model, 400 units less than it had originally planned. During the first eight months of 1997 the
number of cars sold was only 656 (984 units on an annualized basis, i.e. 33 units less than in 1996).
And this despite a substantial increase in overall demand. Indeed, by the end of August 1997, total
sales of passenger cars in Indon esia already exceeded by almost 20 per cent the volume sold during
the whole of 1996. As a result, the market share of this model shrank from 2.4 per cent in 1996 to just
1.3 per cent during the first eight months of 1997.
8.269 The sales of the Opel Optima fell from 419 units in 1995 to 359 units in 1996. During the
first eight months of 1997, Opel sold 257 units of th is model. In terms of market share, this represent
a decline from 1.08 per cent in 1995 to 0.85 per cent in 1996 and to only 0.52 per cent during the first
eight months of 1997. Due to the depressed sales situation, Opel has not ordered any new CKD
Optimas from the European Communities since 1996.
8.270 The negative effects of the National Car Pr ogramme are not limited to those felt by those
Community brands/models that were already presen t in the Indonesian market. The National Car
Programme has also preempted other Community brands/models from entering the Indonesian
market.
8.271 Thus, for instance, when the National Car Programme was adopted, Ford was about to start
importing CKD Escorts made at its plant in Saarlouis (Germany). With that purpose, Ford had already
invested close to US$1 million worth of tooling in Indonesia. The market upheaval caused by the
launching of the National Car Programme forced Ford to suspend indefinitely those plans.
508
8.272 Similarly, prior to the approval of the National Car Programme, Ge neral Motors/Opel had
advanced plans to expand and upgrade its assembly facilities in Indonesia. According to those plans,
the Opel Optima and the Opel Vectra were to be re placed by new Opel models. In June 1996, General

508 According to a business plan adopted in 1995, Ford would have exported to Indonesia the following
quantities of CKD Escorts:
 1996 1997 1998 1999 2000 2001 2002 2003
 1,323 3,468 5,156 7,370 12,026 13,867 16,026 18,433
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Motors/Opel announced that the planned investme nts were put on hold because of the situation
created by the National Car programme.
509 Since then, General Moto rs/Opel has discontinued the
production in Indonesia of the Opel Vectra. As shown above, although the Op el Optima is still being
assembled in Indonesia, sales of that model are dwindling.
8.273 Indonesia makes partial and misleading stat ements which aim at minimising the importance
of the European Communities interests in this case and, thereby, also the seriousness of the prejudice
suffered by the European Communities. Thus, Indonesia argues that:
- in 1995 European Communities brands accounted for only 3.3 per cent of total
vehicle production in Indonesia;
- exports of motor vehicles and parts to Indonesia were under US$300 million in 1995;
- European Communities exports consist of Mercedes and BMWs which do not
compete with the "small, low technology Timor".
8.274 The percentage mentioned by Indonesia relate s to the total market for motor vehicles. The
European Communities complaint concerns only the ma rket for passenger cars. In that market the
European Communities share reached 24 per cent in 1996.
8.275 Admittedly, in absolute terms the Eur opean Communities exports of passenger cars to
Indonesia are small. The reason for this, however, is that the Indonesian market itself is still very
small (42,346 units in 1996). Indonesia’s market for passenger cars nevertheless has considerable
growth potential, especially in the middle and small segments. The National Car programme threatens
to dislodge the European Communities exporters fro m the positions they have taken already in that
market and prevent them from taking advantage of that growth.
8.276 In any event, it is obvious that the existence of “serious pr ejudice” in the sense of Articles 5
and 6 of the SCM Agreement is not dependant up on the absolute size or monetary value of the
“prejudice”. The “seriousness” of the prejudice must always be assessed in relation to the market
concerned.
8.277 Sales of models in the high segment of the market still account for a majority of the European
Communities exports to Indonesia. To a large extent , this reflects the structure of the Indonesian
market, where cars falling within the small and mi ddle segments have accounted traditionally for a
smaller share than in more mature markets. N onetheless, contrary to the impression that Indonesia
would like to convey to the Panel, the European Communities does not export to Indonesia only
Mercedes and BMWs. In 1996, sales of the Peugeot 306 and the Opel Optima accounted for 15 per
cent of the EC exports.
8.278 Indonesia alleges that:
- "... sales of passenger cars carrying EC brand names increased from 8,554 units in
1995 to 9,526 units in 1996"
- "... the market share developments are meaningless ... Market share and demand
growth are not necessarily correlated. Many extraneous factors influence this
relationship, including changes in customer preferences..."

509 See e.g. “GM Halts Indonesia move over national car policy”, Financial Times, 13 June 1996 (EC
Exhibit C-10).
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- "... Timor tapped a new class of buyers and created a new market niche at the bottom"
8.279 Comparison of the sales figures for 1995 and 1996 can be misleading, since the Timor S-515
only entered the market in October 1996. A comparison of the corresponding figures for 1996 (10,075
units) and 1997 (10,714 units on an annualized basis
510) shows that the increase in sales of European
Communities imports was less “substantial” than clai med by Indonesia (ca. 6 per cent). Furthermore,
even that modest overall increase masks the fact that during 1997 sales of the Opel Optima have
stagnated and sales of the Peugeot 306 have fallen in absolute terms.
8.280 In any event, displacement or impedance of imports in the sense of Article 6.2 of the SCM
Agreement may exist not only where imports fall in ab solute terms but also in cases where there is a
decrease in their market share. This is implicit in the notion of “impedance”, which purports to
cover the situation where subsidized goods do no t displace any pre-existing imports but rather
pre-empt imports (including additional imports) from taking place.
8.281 The argument that a loss of market share may constitute serious prejudice is further confirmed
by Article 6.4 of the SCM Agreement, which provides that:
For the purposes of paragraph 6.3 (b), the di splacement or impeding of exports shall
include any case in which .... it has been demons trated that there has been a change in
relative shares of the market to the di sadvantage of the non-subsidized like product
over an appropriately representative period su fficient to demonstrate clear trends in
the development of the market for the product concerned, which, in the 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 ...
Although, by its own words, Article 6.4 applies to th ird-country market situations, there is no reason
why the same type of analysis should not be a ppropriate also in the case of displacement or
impedance of imports from the market of the subsidizing country.
8.282 It is worth recalling that, in accordance w ith Article 15.4 of the SCM Agreement, market
shares are one of the relevant factor in establishi ng whether subsidies imports have caused "injury to
the domestic industry" of another Member for the pur poses of both Article 5 (a) and Part V of the
SCM Agreement.
8.283 Indonesia’s contention that "... market share and demand growth are not necessarily
correlated" and that "... many extraneous factor s influence this relationship, including changes in
customer preferences..." is but a mere truism. The European Communities has shown that the fall in
market share of European Communities imports has taken place simultaneously with a parallel
increase in the market share of subsidized domest ic products which have undercut significantly the
prices of the European Communities imports. Furthermore, that decrease has interrupted brusquely an
upward trend. All this is more than sufficient ev idence to conclude that th e decline in the market
share of European Communities im ports has been caused by the subsidies at issue and not by any
other "extraneous factor". Especially, since Indon esia has not provided any evidence whatsoever that
"other factors" may have caused the sudden decreas e in the market share of European Communities
imports.
8.284 Indonesia's proposition that the Timor has generated entirely its own demand is purely
speculative and cannot be demonstrated. Demand fo r passenger cars, and in particular for passenger

510 Based on Indonesia Exhibit 40.
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cars within the same segment as the Timor, had grown steadily over the past few years. It would have
continued to increase even without the National Ca r Programme. That "natural" increase of the
market has been captured by the Timor S-515, at th e expense of other non-subsidized cars, together
with any additional demand allegedly created by the National Car Programme.
8.285 Indonesia's argument that the Timor has "tapped into a new class of consumers" and created
its own demand is, in fact, again the same pr oposition as Indonesia's threshold argument that the
Timor is not "like" the European Communities cars. The notion of "competitive" products is broader
and encompasses that of "like" products. If the Eu ropean Communtiy cars are "like" the Timor, it
follows necessarily at they compete with the Timor for the same customers. It is conceivable that, due
to its very low subsidized price, the Timor may have generated some additional demand for passenger
cars. Yet, the Timor has captured not only that a dditional demand but also sales to customers which,
in the absence of the National Car Programme, wo uld have purchased other "like" non-subsidized
passenger cars.
 (b) Arguments of the United States

 (1) Information concerning serious prejudice
(a) The Timor Kia Sephia rapidly acquired a substantial share of the Indonesian
market and significantly undercut the prices of other passenger cars in its
class
8.286 The introduction of the National Motor Ve hicle programme and the announcement that a
"national motor vehicle", the Timor Kia Sephia sed an, would soon be on the market at a price of
Rp. 35 million had an immediate impact on the market. Soon, there were reports in the press that, as
of the beginning of 1996, car sales were falli ng as Indonesians postponed new vehicle purchases in
anticipation of Timor’s entry.511 "Car industry executives predicted that while the Indonesian new car
market was growing, the cheap Timor ‘national car’ would lead people to switch brands rather than
promote dramatic industry-wide sales growth".512
8.287 These predictions proved accurate. Although the success of the Timor Kia Sephia was not as
great as TPN officials predicted, it nonetheless ca ptured a sizeable share of the Indonesian passenger
car market. Attachment A-39/6 to AV/3 provides the market share of the Timor Kia Sephia.
According to Attachment A-39/6, the Timor Kia Sephi a went from a market share of zero in February
1996 (when the National Motor Vehicle programme was announced and Kia Timor was named as the
producer of the "national motor vehicle") to a 10.11 per cent market share by the end of 1996. By the
end of May 1997, the end of the period covered in Attachment A-39/6, the market share of the Timor
Kia Sephia had catapulted to 26.53 per cent in little more than one year.
8.288 The reason why the Timor Kia Sephia could ach ieve such a significant market penetration in
so short a period of time is simple: the Timor Kia Sephia was, and is, the cheapest passenger car in its

511 “Early Launching for National Car,” Business Times (Singapore), July 9, 1996, p 7 (US Exhibit 14,
pp. 96-97); see also “Indonesia’s Ghost Car Gives Japan Makers a Shudder,” Reuters World Service ,
10 May 1996 (Exhibit 14, pp. 33-35).
512 “Indonesia Car May Not Meet Local Content Cl ause,” The Reuter Asia-Pacific Business Report ,
29 July 1996 (US Exhibit 14, pp. 103-104).
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class on Indonesian roads.
513 Because of the huge tariff and ta x subsidies it enjoys, the Timor Kia
Sephia can be sold for 50 per cent of the price of its rivals.514
8.289 The data on list prices for passenger ca rs in Indonesia provided by Indonesia through the
Annex V procedure attests to the tremendous pri ce advantage enjoyed by the Timor Kia Sephia.
(Attachment A-40/1 to AV/3) As these data demonstrate, the Timor Kia Sephia significantly undercut
the prices of every passenger car in its class:515
Table 32
List Prices
Manufacturer & Passenger Car Model November 1996 price
in rupiahs
March 1997 price
in rupiahs
Timor Kia Sephia S515 metallic 33.5 million 33.5 million
Timor Kia Sephia S515i metallic 36.9 million
Opel Optima GLS 1800cc 69.5 million 70 million
Toyota Corolla M/T 1600cc 71.1 million 68.3 million
Toyota Corolla A/T 1600cc 74.8 million 71.8 million
Mitsubishi Lancer M/T 1600cc 64.0 million 65.0 million
Mitsubishi Lancer A/T 1600cc 67.0 million 68.0 million
Mitsubishi Lancer DOHC 1800cc 72.0 million 72.0 million
Honda Civic 4dr, GKP 1600cc 72.5 million 71.2 million
Honda Civic 4dr, AKP 1600cc 76.2 million 74.9 million
Peugeot 306 M/T 1761cc 62.5 million 63.0 million
Peugeot 306 A/T 1761cc 64.8 million 65.5 million
Daewoo Nexia DOHC 1500cc 43.0 million

513 “Indon Domestic Car Sales Race up by 41 per cent in May,” Business Times (Singapore ), 17 June
1997 (US Exhibit 14, pp. 138-139).
514 “Bumpy Road Ahead for Motoring Plans,” South China Morning Post, 8 June 1997 (US Exhibit 14,
pp. 132-135). In this regard, because of the high tariffs on imported auto motive parts and the 35 percent luxury
tax on passenger cars, “car prices in Indonesia are among the highest in th e world.” “Indonesia Draws More
Criticism Over Car Plan,” The Nikkei Weekly, 17 June 1996, p. 1 (US Exhibit 14, pp. 80-83).
515 The passenger cars included in the table fall within “Segment C” of the motor vehicle market. See
McGraw-Hill World Car Industry Forecast Report, February 1997 , pp. 284-85, included in Annex 1 to AV/2.
Cars falling within a particular market segment will be of roughly the same size, be in the same price range, and
share the same target customers. Segment C includes “lower medium class” passenger cars.
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8.290 Significant price undercutting by the Timor Kia Sephia appears when one compares market
prices instead of list prices. Annex 3 to AV/2 contains market prices for the last quarter of 1996.
Using these data the market prices for passenger cars in Segment C were as follows:
Table 33
Market Prices

Manufacturer & Passenger Car Model 4 th Quarter 1996 price in rupiahs
Kia Timor Sephia 35.75 million
Opel Optima GLS 59 million
Opel Optima CDX 62 million
Opel Optima CDX A-BAG 64 million
Toyota Corolla 1.6XLI 66.35 million
Toyota Corolla 1.6 SEG MT 71.35 million
Toyota Corolla 1.6 S-CRUISE MT 74.85 million
Toyota Corolla 1.6 SEG AT 75.25 million
Mitsubishi Lancer 1.6 MT 65 million
Mitsubishi Lancer 1.6 AT 70.5 million
Mitsubishi Lancer 1.8 MT 75.5 million

(b) As a result of the National Motor Vehi cle programme and the introduction of the
heavily subsidized Timor Kia Sephia, US motor vehicle manufacturers abandoned
their plans to export passenger cars to the Indonesian market
8.291 The phenomenal market penetration of the Ti mor Kia Sephia came, in part, at the expense of
US motor vehicle manufacturers. Prior to the in troduction of the National Motor Vehicle programme
and the subsidized Timor Kia Sephia, General Motors , Ford, and Chrysler each had plans to increase
their penetration of the Indonesian passenger car market. However, each company had to abandon or
suspend its plans as a result of the National Motor Vehicle programme.516

516 In addition, the United States should note that it has additional information in its possession
documenting the plans of Ford, GM, and Chrysler. However, because this information is business proprietary,
the United States is reluctant to provide it to the Pane l unless the Panel establishes adequate procedures to
protect such information.
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 (i) General Motors

8.292 In the case of GM, it already had invested $110 million in an assembly plant in Bekasi, West
Java, that produced about 7,000 Chevy Blazers (ba dged as “Opels” in Indonesia), Opel Optimas and
Opel Vectras per year. 517 GM had established 34 full service dealerships and, as of November 1996,
had 550 employees in Indonesia.518 It was considering investing in plant expansion, and had approval
to bring in new models for the Opel Optima and Opel Vectra. 519 Although the precise figures are
confidential, GM’s business plan called for sales of Opel Optimas and Vectras in excess of 1,000 cars
in 1996 and around 3,000 cars in 1997, with progressive increases in subsequent years.520
8.293 However, because of the National Motor Ve hicle programme, GM had to put its plans for
additional investment in Indonesia on hold. 521 In addition, GM cut back its existing assembly plant
from two production shifts to one. 522 According to Indonesia’s own information, GM sold only
549 Opels in Indonesia in 1996, and only 176 in the first half of 1997.523
8.294 In addition to affecting sales volumes, the introduction of the subsidized Timor Kia Sephia
also affected GM’s prices. During the peri od September 1995 - Septem ber 1996, the company’s
transaction prices in Indonesia were reduced by $7,000 per unit. 524 Moreover, GM’s Business
Plan/Budget called for price increases on Opel Op timas and Vectras in line with historical
price/inflation trends in Indonesia. Historically, the Consumer Price Index (CPI) has increased 8-
10 per cent annually in Indonesia, and automotive pr icing closely tracks the CPI. However, the
introduction of the Timor Kia Sephia resulted in an ar tificial flattening of motor vehicle prices, while
the CPI continued to increase.
525
 (ii) Ford
8.295 In the case of Ford, it had well-advanced plan s to import and sell Ford Escorts in Indonesia.526
Ford had committed to the development of a join t venture, had assigned four full-time employees in
Indonesia, and was actively pursuing the acquisition of assembly facilities in Indonesia. 527 Ford had
committed assets of $1 million that included producti on and assembly equipment, tooling, component
parts, and engineering, all of which were in In donesia prior to the announcement of the National

517 See, e.g .,“Like Father, Like Son; Indonesia’s Proposed ‘National Car’ Has Plenty of International
Critics--and a Familiar Face at the Helm,” Time, 10 June 1996, p. 40 (US Exhibit 14, pp. 69-71); see also “GM
Halts Plans for Indonesia Car; Firm Requests Clarifi cation on National Car Policy,” The Dallas Morning News,
12 June 1996, p. 6B (US Exhibit 14, pp. 75-76).
518 Source: US companies.
519 Source: US companies.
520 These figures are slightly higher than the projections concerning the Indonesian
production/assembly of Opels set forth in East Asian Automotive Growth Markets, Summer 1994 , pp. 370-371,
which was included as part of Annex 1 to AV/2.
521 “GM Freezes Indonesian Investment; Policies Cr eate an ‘Unlevel Playing Field’,” Automotive
News, 17 June 1996, p. 38 (Exhibit 14, pp. 84-85); see also “A Furious Flap Over Favouritism,” Business
Week, July 8, 1996 (US Exhibit 14, pp. 92 95).
522 Source: US companies.
523 AV/3, Attachment A-39/5-B.
524 Source: US companies.
525 Source: US companies.
526 “Ford Seeks Inroads in Booming Asian Auto Market,” The Reuter European Business Report ,
25 April 1996 (US Exhibit 14, pp. 29-30).
527 Source: US companies; see also “Like Father, Like Son; Indonesia’s Proposed ‘National Car’ Has
Plenty of International Critics -- and a Familiar Face at the Helm,” Time , 10 June 1996, p.40 (US Exhibit 14,
pp. 69-71).
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Motor Vehicle programme.
528 Ford had an approved investment plan of $56 million, with the
feasibility of future investment in assembly to be determined based upon the needs of the market and
manufacturing requirements.529 These plans were part of a broader Asian strategy which already had
resulted in investments of $700 million in India, $500 million in Thailand, $350 million in China, and
$100 million in Vietnam, and Ford’s total investment in Indonesia easily could have been in line with
Ford’s investments in these other countries in the region.530
8.296 In terms of projected sales volume, the Esco rt was projected to achieve 5.2 per cent, 10 per
cent, 10.5 per cent, and 11 per cent in the first four years after its introduction in 1996, or
approximately 15,000 units over the first four years.
531
8.297 However, like GM, Ford had to scrap its plans in light of the National Motor Vehicle
programme.532 As a result, the projected 15,000 sales of Ford Escorts will not take place. Based on
the company’s estimates, if Ford had gone ahead w ith its plans and imported and sold Escorts in
Indonesia, the Timor Kia Sephia would have undercut the price of the least expensive version of the
Escort by more than US$5,000.533
 (iii) Joint letter from Ford and General Motors
8.298 The United States submitted a joint letter from Ford and General Motors, prepared in the
context of this dispute, describing "data necessary to establish serious prejudice" and addressing
"questions submitted by Indonesia to the United States" . (US Exhibit 38.) The following is the text
of this letter:
 "All of the American automotive manufacturers are global companies with
manufacturing, component, and assembly operations around the world. Ford,
General Motors and Chrysler were the originators of the modern automotive industry,
and today actively participate in more than 130 countries, have more than 1,000,000
employees, in excess of 30,000 dealers worldwide, and annual revenues of more than
$300 billion. Diverse multi-national corpor ations, whether American or European,
develop and commit products to be assemble d in various countries but are still the
property of the originating corporation in their respective home country. Products
that are shared by multi-national American corporations are no less American
because they are distributed/assembled/manufactured in the countries when the assets
are located.
 Ford and General Motors have consen sed on this response to the Indonesian
question to the USTR and to supply the requested WTO data necessary to establish
serious prejudice.

528 Source: US companies.
529 Source: US companies.
530 Source: US companies; see also “Ford Seeks Inroads in Booming Asian Auto Market,” The Reuter
European Business Report, 25 April 1996 (US Exhibit 14, pp. 29-30).
531 Source: US companies.
532 Source: US companies; see also “Like Father, Like Son; Indonesia’s Proposed ‘National Car’ Has
Plenty of International Critics--and a Familiar Face at the Helm,” Time , 10 June 1996, p.40 (US Exhibit 14,
pp. 69-71).
533 Source: US companies.
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 DATA NECESSARY TO ESTABLISH SERIOUS PREJUDICE
(1) - Ford proposed to support the Indonesian market with American,
European and Japanese sourced products.
 - Ford committed to the developmen t of a joint venture, has assigned
four full-time foreign service employees to Indonesia, and was
actively pursuing the acquisition of assembly facilities in the market.
 - GM has invested $110 million for 3 products: Opel Optima, Opel
Vectra and Opel Blazer.
 - The Opel Blazer is in production and GM had approval to bring in
new models for Opel Optima and Opel Vectra
 - The National Vehicle Programme fo rced GM and Ford to liquidate
inventories under difficult terms:
 - Sales were lost due to depressed market conditions
- Significant incremental merchandising costs were
incurred to relieve inventories
- Prices/revenues were negatively impacted
- Timor had significant negative impact on GM and new foreign based
suppliers particularly in the suppression of component and sales
volumes.
 - Future investment for Ford and GM is on "hold".
 - September 1995 to September 1996 the overall market is down
(16.8%) which negatively affected volumes and prices.
 - GM transaction prices were reduced by $7,000/unit
 - Ford transaction prices were down by $6,500/unit
 - Perceived instability in the "Regulatory Framework" is negatively
impacting ability to attract new investors (suppliers and dealers) and
new product investment by manufacturers.
 - GM cut back their current assembly plant from 2 shifts to 1 shift of
production.
 - GM anticipates a further (15%) reduction in Blazer retail sales if
Kia/Timor Sportage is added to the National Vehicle Programme.
(2) - Ford cancelled the Escort programme as a direct result of the National
Vehicle Programme after having committed assets of $1.0 million.
This included production and assembly equipment, tooling,
component parts, and engineering all of which were in Indonesia
prior to the National Vehicle Programme.
- Plans to export to third countries, both vehicles and components, are,
or will be negatively affected. Reduced volumes in Indonesia as a
result of the National Vehicle Programme has caused higher
component costs. At the same time, Korean suppliers will enjoy
higher volumes and potentially lower costs due to the monopolistic
relationship in Indonesia.
- Opel Vectra and Optima are regi onal products. Plans to utilize
domestic suppliers in Indonesia to reduce the cost base for other
regional assemblies of products have been cancelled due to
postponement of the Vectra and Optima production in Indonesia.
(3) - The impact of the announcement of the National Vehicle Programme
in Indonesia was a depression of sales in all potentially impacted
retail market segments. The impact on these segments were:
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Percentage Point Change 1996 versus 1995
Segments
 June CYTD (PP Chg) September CYTD
(PP Chg)
B Segment (50%) (29.1%)
C Segment +31% +9.2%
Total Passenger Car (1.2%) (5.5%)
Category I (22.6%) (23.6%)
Category IV (24.5%) (25.4%)
Non-Effected Segments +12.4% +11.7%

- It is clear that when the Nati onal Vehicle Programme was announced,
which included the sport utility "Sportage" as Timor 520i, the retail
sales were depressed because consumer s were waiting to evaluate the
impact of the National Vehicle Programme.
- Manufacturers responded to the announcement by increasing
incentives in the market to include , but not limited to, free extended
warranties, free or low interest rate financing, and free service
contracts that included both parts and labour, all of which were
especially true in the C Segment where the impact was expected to be
the most immediate.
- These merchandising efforts artificially
 increased the sales volumes
in the C Segment, through June versus June a year ago, until
inventories were considered by manufacturers to be reasonably
aligned, June through September retail sales then plummeted (30.4%)
versus the same period last year.
- In those segments where the National Vehicle Programme was
expected to have little or no direct impact on the industry increased.
Through June CYTD these segments grew +12.4% and through
September CYTD they maintained this growth at +11.7%.
- Ford's Escort and Sport Utility pr ogrammes were developed to be the
regional basis of Ford's ASEAN and AICO strategy. Indonesia was
to be a pivotal manufacturing centre for AICO complementation.
(4) - All elements of this question were addressed above in 1 through 3
except for price suppression.
- The GM Business Plan/Budget called for price increases on Optima,
Vectra and Blazer. These were in line with the historical
price/inflation trends in Indonesia. These increases have not been
possible to offset the CPI increases.
- Historically the CPI has increased 8-10% annually in Indonesia. This
is running consistent for 1996 and the forecast for 1997. Historically,
and based on economic principles, automotive pricing closely tracked
the CPI as the CPI reflects the cost st ructure. This is an established,
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normal, cost/price economic structure in the automotive industry for
OEM's and component suppliers
- Due to the National Vehicle Programme announcement, prices are
artificially flat or decreasing while the CPI continues to increase.
- The Timor is Korean manufactured today and is operating in a
different economic structure than ot her manufacturers in Indonesia.
This is further compounded by the unique exclusion of duties and
taxes on Timor.
QUESTIONS SUBMITTED BY INDONESIA TO THE UNITED STATES
A. Indonesia, in mid-1993 took steps to deregulate the automotive industry. US
automotive interests viewed this as a very positive and progressive approach to
opening the Indonesian market, and when s ubsequent actions undertaken in 1994 and
1995 reinforced this trend, it revitali zed automotive manufactu rers' interest in
Indonesia.
In February 1996, the Indonesian Govern ment announced a regressive automotive
policy that provides preferential tariff a nd tax treatments for one company. In
addition the regulations precluded US or other foreign automotive manufacturers
from participating due to restrictive practices relating to foreign equity participation
and product naming.
Overall, the US automotive manufacturers believe the National Vehicle Programme
damages Indonesia's interests and the Indonesian automotive industry.
We had firm plans to assist the development of the industry in Indonesia, and to make
Indonesia a key part of our ASEAN, Asia a nd global plans. This is now all on hold
due to the change in policy direction cont ained in the National Vehicle Programme.
The US automotive manufacturers require renewed confidence in the Indonesian
Government if they are to increase, or even maintain, their investments and
commitment to Indonesia.
B. 1. - All passenger cars are directly impacted by PT Timor and the
Blazer is indirectly impacted because of the passenger car
substitution effect and the associated announcement of the
"Sportage".
 - All of the passenger cars were impacted by volume depression,
price sensitivity, and transaction price reductions in order to be as
competitive as was realistically possible given the tariff and tax
inequities.
 2. - The Ford Escort and Laser, and Opel Optima and Vectra are petrol
engines, 4 door sedans that compete in the C Segment of the
industry and are immediately impacted by PT Timor
 3. - Escort was projected to achieve 5.2%, 10.0%, 10.5% and 11.0% in
the first four years after introduction in 1996 or 15,100 units over
the first four years. The cancellation of Escort totally eliminated
these sales.
 - Laser was projected to sell 1,400 units over the same four year
period.
 - Total projected lost unit sales/revenues at retail for Ford is 16,500
units over the four year period.
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 4. - The local content plan for Escort was just under 20% at launch,
progressing to over 20% within 2 years, and over 40% local content
within 4 years. This was the committed local content plan that was
part of the implementation plan for Escort.
 - GM purchases 45% of Blazer's components locally from 67
suppliers and 55% is imported from 21 locations in 11 countries
around the world.
 5. - Both Ford's and GM's vehicles have worldwide component
sourcing, and vehicle manufacturing/assembly was to be
accomplished in Indonesia.
 6. - Products that are the result of multi-national corporations and their
affiliated suppliers worldwide ar e home country funded and should
thus be considered as home c ountry corporate products without
regard to the country of sourcing.
C. 1. - Ford had an approved invest ment plan of $56.0 million with the
feasibility of future investment in assembly to be determined based
upon the needs of the market and manufacturing requirements.
 - GM has invested $110.0 million in an assembly plant for Optima,
Vectra and Blazer, GM's total investment plan was up to $750
million in Indonesia.
 2. - Ford's total planned investme nt was committed to the establishment
of Escort in the market with both local assembly and increasing
local content, ultimately reaching 40% local content by the fourth
year.
 - Local content and assembly plans were being implemented for
Laser and Telstar as well as future planned product introductions for
Indonesia.
 3. - American automotive investment plans have been placed on "hold"
pending the determination of the revised regulatory environment,
the National Vehicle Programme, the economic stability, and the
political future of Indonesia.
 4. - General Motors has invested $110 million in a plant in Bekasi, and
launched the Opel Blazer, Optima and Vectra. They have
established 34 full service dealerships and currently have 550
employees in Indonesia.
 - GM had approval to introduce new models for both Optima and
Vectra, which is now on "hold".
 - Ford was in the process of launching the Ford Escort, finalizing
plans to establish a joint venture in Indonesia and acquiring a
manufacturing facility.
 - Ford's plan was part of an Asian strategy which already has resulted
in investments of:
 $700 million in India
 $500 million in Thailand
 $350 million in China
 $100 million in Vietnam
 - Ford was developing plans to launch two major vehicle programmes
in Indonesia - one with a product designed and developed primarily
for Indonesia.
 - The Ford's total investment in these programmes could have been in
line with Ford investments in other countries in the region.
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 - All future investment by GM and Ford are on "hold"."
 (iv) Chrysler

8.299 As for Chrysler, prior to the introduction of the National Motor Vehicle programme, it
assembled Jeep Cherokees in Cikarang, West Java.534 It 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.
8.300 The United States submitted two newspaper articles in connection with its arguments
regarding Chryler's plans. The texts of these articles follow:
"A FURIOUS FLAP OVER FAVOURITISM":535
 "A major Asian country has rigged its auto market. General Motors, Ford
and Chrysler, which had high hopes of cracking the market, are up in arms. The
stakes are so high that US Commerce Secretary Mickey Kantor was scheduled to visit
in late June for a showdown with his trade counterparts.
 The country isn't Japan or China. It's Indonesia, the largest market in
booming Southeast Asia. Just how the Government of President Suharto drew the
wrath of Detroit's Big Three is a fascinating case study of how things work in
Indonesia. The Japanese are also irritated with Suharto and are attacking his
"national car" programme, which gives a pr ominent role to South Korea's embattled
Kia Motors Corp.
 Indonesia has an annual per capita income of only $1,000, but the Big Three
expect the market to grow rapidly as Indonesians get richer and a young population
matures. Even though the Japanese control 95 per cent of the market, Ford Motor Co.
sent in a management team early this year to expand a small operation that sells Ford
Lasers as taxis into a manufacturer of Eur opean-engineered Escorts. General Motors
Corp. and Chrysler Corp. were moving ahead with similar plans. KEEPING MUM.
But the Indonesian Government spoiled the party in February. By decree, a new
company run by President Suharto's youngest son, 33-year-old Hutomo Mandala
Putra, will be allowed to sell imported sedans from Kia for less than half the price of
competing models - that is, about $15,00 0 compared with $30,500 for a Toyota
Corolla. The deal is typical in a country known for the pervasive business interests of
the President's family.
 Under the arrangement, Kia will ship its four-door Sephia sedan to Indonesia
without paying import duty or luxury tax. The car will come in under the Timor
brand name of the new national carmaker, Kia-Timor Motor, which is 70 per cent
owned by Hutomo. Kia owns the remain ing 30 per cent and is contributing 30 per
cent of the new company's $100 million capital. The plan is for the venture to start
assembling the cars in Indonesia next year and eventually export some.
 Few Indonesians dare to criticize th e programme, since the presidential
palace deals harshly with opponents. But the new company's impact on the
Indonesian market has been impossible to hide: consumers are waiting for the

534 “Like Father, Like Son; Indonesia’s Proposed ‘N ational Car’ Has Plenty of International Critics--
and a Familiar Face at the Helm,” Time, 10 June 1996, p. 40 (US Exhibit 14, pp. 69-71).
535 A Furious Flap Over Favouritism", Business Week, 8 July 1996, p.14 (US Exhibit 14, pp.99-95).
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

bargain-basement sedan to roll off the pier later this year. With monthly sales down
at least 10 per cent, the Association of Indonesian Automotive Industries says this
year's sales could fall far short of the 383,000 cars sold in 1995. That helps explain
why the Japanese are threatening to take Indonesia to the World Trade Organization
for a ruling on its car programme. "This is against WTO rules", complains an official
of Japan's Ministry of International Trade & Industry.
 In addition to the WTO threat, the Amer icans are trying to use the prospect of
withheld investment to force Suharto to budge. With about $110 million invested,
GM is still assembling Opel Vectras, Opel Astras, and Chevrolet Blazers but has
delayed expansion plans. Chrysler is making Jeep Cherokees and had planned to
introduce the Neon and a minivan, but now those plans are on hold. Members of
Ford's recently arrived management team ha ve been left idle, with their children
enrolled in the local international school. TIT FOR TAT. Indonesian officials see
poetic justice for Japan: Toyota Moto r Corp. has resisted demands from its
Indonesian partner, Astra International, to rev up exports of the $19,000 Toyota
Kijang utility vehicle, because that would mean it would be competing with other
Toyota assemblers in Asia. For its part, th e Government defends the Kia deal, saying
Indonesia has no time to lose if it is to get ready for lowering its trade barriers to
fellow members of the Association of Southeast Asian Nations in 2003.
 Getting the Timor project up and running will be difficult. It is already
behind schedule, and supply will probab ly not meet demand, says F. Soeseno,
Secretary-General of the Association of Indonesian Automotive Industries. Kia-
Timor Motor will be allowed to import 40,0 00 of the 1.5-litre sedans until June 1997,
by which time the company is supposed to have started assembly at a new plant that
has yet to be built. The percentage of Indon esian-made parts is to increase steadily to
60 per cent by September 1999 - a schedule Toyo ta officials say will be impossible to
keep. Critics also say the Timor will be hamstrung without st rong distribution and
service networks.
 But Kia vows to make the deal work and is staking $400 million to build the
assembly plant. To meet local content requirements, it plans to help 30 Korean parts
suppliers form joint ventures with Indonesi an companies. One reason Kia is so
determined is that it is getting squeezed in the home market by Hyundai Motor and
Daewoo Motor - and now the mighty Samsung group is charging into the auto
industry. Some analysts believe Kia's ve ry survival as an independent manufacturer
may hinge on making the Indonesian deal work. Small wonder that Kia Executive
Vice-President Kim Seung-Ahn says: "Kia is fully committed to helping Indonesia
develop a national car".
 Some of Kia's backers, however, say th ey are against the Timor deal. Ford
owns 33.4 per cent of Mazda and 9.4 per cent of Kia. Mazda in turn owns 7.5 per
cent of Kia. Indonesian officials hint th at Ford and Mazda are quietly pleased with
their backdoor entrance into Indonesia, through Kia. But both Ford and Mazda deny
that. "What we would get is peanuts", say s Terry Emrick, Ford's top executive in
Indonesia. "It has absolutely no effect". Ford executives add that most Indonesian
consumers still won't be seeing their company's branded products. STEPPING
BACK. Ultimately, industry analysts e xpect the Government to yield to the
international uproar, possibly by keeping the national car programme in place but at
the same time reducing tariffs on competi ng models. The Americans might not be
big beneficiaries if they are too heavy-handed and anger the Indonesians. Although
Japan protested forcefully at first, Toky o seems to be stepping back and letting
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Washington confront Suharto, says Andrew H. Card Jr., Chief Executive of the
American Automobile Manufacturers Assn. "Japan doesn't have a long history of
standing at the front of the line", says Card.
 Moreover, unlike the Americans, Toyota has not put its plans on hold for a
new plant near Jakarta. So while the Bi g Three sulk, Toyota could quietly increase
the local content of its Kijang beyond the 60 per cent level, allowing it to be sold free
of duty and luxury taxes. "The Indonesian s will in one way or another have to
accommodate the Japanese", concludes John Bonn ell, Director of Southeast Asia for
Automotive Resources Asia Ltd. in Bangkok. So, too, are the Koreans likely to
persevere. The key question is whether th e Americans will prove as adept at playing
the game Indonesian-style.
 Anatomy of an Indonesian Controversy

 A DEAL IS CUT The son of Indon esian President Suharto makes a pact
with Kia Motor of South Korea to make a "na tional car" for the country. At first, the
Sephia sedan will be assembled in Korea but brought into Indonesia duty-free.
 JAPANESE OUTRAGE This underm ines Toyota, which is assembling
vehicles in a joint venture with Astra In ternational. Toyota and other Japanese
makers persuade the Government of Prim e Minister Ryutaro Hashimoto to protest
Kia's sweetheart agreement.
 AMERICAN ANGER General Motors, Fo rd, and Chrysler, which had been
contemplating making big investments in Indonesia, delay those plans. US
Commerce Secretary Mickey Kantor was scheduled to arrive in Jakarta to protest the
Kia deal.
 BACKDOOR WINNERS? Ford owns a controlling stake in Mazda, and
both companies own minority shares in Kia. The Sephia, meanwhile, is largely based
on Mazda designs and parts. But Ford says this channel into Indonesia is not
adequate."

"GM FREEZES INDONESIAN INVESTMENT; POLICIES CREATE AN 'UNLEVEL PLAYING
FIELD'"
536
 "General Motors has put plans for a dditional investment in Indonesia on held
because of that country's "national car" project.
 Donald Sullivan, GM's Asian and Pacifi c Operations President, said here that
the automaker has no intention of pulling out of Indonesia, however.
 "We currently have $110 million invested in a relatively new plant in
Indonesia. We're there to stay", he said at a press conference announcing details of
GM's new Thai plant.

536 "GM Freezes Indonesian Investmen t: Policies Create an 'Unlevel Playing Field'", Automotive
News, 17 June 1996, p.38 (US Exhibit 14, pp.84-85).
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

 But he added, "We've been very disap pointed" by Jakarta's new national car
policies. Those policies, he said, create an "unlevel playing field" for auto companies
in Indonesia.
 Sullivan said GM had been considering investing in a plant expansion, as
well as unspecified infrastructure-related areas. He did not respond to a request to
say how much GM had been planning to invest.
 Both Ford Motor Co. and Chrysler Corp. shelved proposed Indonesian
projects earlier this year in the wake of the new policy. Chrysler was close to a
decision to begin assembling Neons from knockdown kits, while Ford was
considering a small assembly plant.
 As previously reported, Indonesian President Suharto issued a decree in late
February that granted import-duty and l uxury-sales tax exemptions for a "national
car", the Timor, to be produced by a join t venture between Korea's Kia Motors Ltd.,
and Suharto's youngest son, Hutomo (Tommy) Mandala Putra.
 The tax breaks will allow the car to be priced at about half the sticker of
competing models.
 Under blistering criticism from Japan, the United States and the European
Union, Indonesia recently revised the policy so as to allow other companies to qualify
for the tax breaks if their Indonesian-assemble d cars have local content of at least 60
per cent.
 A second revision, though, would allow the Timor to be built in Korea for up
to a year while a plant in Indonesia is constructed, if Indonesian workers do the actual
assembly work in Korea.
 The former revision appeared aimed at placating the Japanese, but the latter
one greatly fanned Japanese resentment of the po licy. Infuriated by the prospect of a
car assembled in Korea being given preferential tax treatment over Japanese vehicles
assembled in Indonesia, Japan last week m oved closer to filing a complaint over the
policy with the World Trade Organization."
8.301 Prior to the introduction of the National Car Programme, Chrysler already was assembling
Jeep Cherokee and Wrangler vehicles in Cikarang, West Java. Chrysler, together with Lippo Group
and Ningz Pacific, was studying an assembly joint venture in Lippo City to assemble Neon passenger
cars and other passenger vehicles.
537 The planned investment in this joint venture would have been
more than US$150 million. Chrysler’s business pl an 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. The Neons would have been sourced from the United States; specifically from Chrylser's
plant in the state of Illinois.
8.302 Chrysler’s plan for investment in Indonesi a was part of a broader Asian strategy under which
Chrysler already was manufacturing or selling vehi cles in Thailand, Malaysia, China, Taiwan and

537 See also Indonesia Exhibit 11.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

Japan. Indeed, Chrysler recently decided to expand its Singapore ope rations and intensify its sales
campaign in Asia, concentrating particularly on the Neon and its Jeep vehicles.
538
8.303 However, because of the National Car Progra mme, Chrysler was forced to put its plans for
additional investment in Indonesia on hold, and di d not 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 estimates, if Ch rysler had gone ahead with its plans to sell the
Neon in Indonesia, the Timor Kia Sephia would have undercut the price of the least expensive version
of the Neon by more than US$5,000.539
8.304 The United States submitted a letter from Chrysler, prepared in the context of this dispute,
summarizing Chrysler's "activities in Indonesia around the time the National Motor Vehicle
Programme was announced". (US Exhibit 39.) The following is the text of the information provided
in that letter:
"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 already 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 proceed to
the final approval stage. In addition, Ch rysler was forced to significantly reduce
production of Jeep vehicles at its existing assembly plant. Based on Chrysler's
internal estimates, if Chrysler had gone ah ead with its plans to produce and sell the
Neon in Indonesia, the Timor Kia Sephia w ould have undercut the price of the least
expensive version of the Neon by more than $5,000."
(c) Under the SCM Agreement, the one-year tariff and tax exemptions continue to
provide actionable subsidies that cause serious prejudice
8.305 With respect to Indonesia’s "dead measure s" argument, it is premised on carving up the
National Car programme into a series of individual pr ogrammes. However, there is no basis for this
type of legal surgery, because all of the indivi dual components of the National Car programme refer
back to Presidential Instruction No. 2/1996, the do cument which gave birth to the single National Car
programme. Indeed, in its first submission, Indon esia is inconsistent in this regard, sometimes
referring to certain measures as "programmes" in thei r own right, and at other times referring to them
as "aspects" of a single programme, the National Car programme.

538 “Still on the Right Road,” Asian Business, November, 1997 (US Exhibit 24, pp. 16-23).
539 A comparison of the specifications of the Timor S515 and the Chrysler Neon is provided in
Table 23.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

8.306 In addition, as a legal matter, there is no basis in the SCM Agreement for carving up the
National Car programme in this manner. Article 6.1(a), the provision on which the US claim of
serious prejudice is based, refers to the "total ad va lorem subsidization of a product", not the "total ad
valorem subsidization of a product under a particular programme". Likewise, paragraphs 2 and 4 of
Annex IV refer to the “overall rate of subsidization.”
8.307 In addition to being based on a faulty le gal premise, Indonesia is wrong on the facts. The
United States has explained above how Indonesia’s “dead measures” argument is wrong with respect
to the US claim regarding Article I of GATT 1994. However, even assuming for purposes of
argument that Indonesia’s argument is correct with respect to Article I, it is not correct for purposes of
the SCM Agreement. This is beca use the subsidies provided under the one-year authorization are, by
Indonesia’s own admission, "non-recurring" subsidies. As demonstrated in the first US submission,
these subsidies must be allocated to future time periods, something that Indonesia has not disputed
and cannot dispute.
8.308 Because these subsidies must be allocated to future periods, they continue to benefit sales of
the Timor Kia Sephia and continue to cause serious prejudice, regardless of whether the Sephias sold
were imported from Korea or assembled in Indone sia. In addition, because these subsidies are
allocated to future periods, they remain subsidies th at can be withdrawn within the meaning of Article
7.8 of the SCM Agreement, possibly by means of TPN repaying the subsidies to Indonesia.
 (d) The other components of the National Car programme cause serious prejudice

8.309 Indonesia’s next argument is that the com ponents of the National Car programme other than
the one-year tariff and tax exemption could not have caused serious prejudice. This argument is
equally flawed.
8.310 First, as noted above in connection with Indonesia’s “dead measures” argument, there is no
basis in the SCM Agreement for carving up the National Car programme into individual programmes.
8.311 Second, Indonesia argues that the Tambun pl ant is producing only 1,000 vehicles per year.
Even if true, this does not dispel the fact that these vehicles are subsidized, nor does it reflect the
anticipated annual production of the Timor Kia Sephi a, which Indonesia estimated at 6,000 units per
year in 1998, and 35,000 units per year in 1999. See AV/14, Attachment A-28. Nor does it reflect the
fact that the passenger car market in Indonesia is re latively small. In addition, Indonesia’s reference
to the Cikampek plant, where the Sportage will be built, is misleading, because it is designed to make
the Panel believe that the additional capacity afford ed by that plant will not benefit the Sephia.
However, the Sephia also will be built at Cika mpek, the Tambun facility being only a temporary
facility pending the completion of the Cikampek plant.
8.312 In short, through the subsidies that it curren tly is receiving, the Kia Timor joint venture will
have the wherewithal to maintain, and expand upon, the 26 per cent market share that it already has
achieved. Moreover, by means of the subsidies th at it currently is receiving, the Kia Timor Sephia
can continue to be sold at prices that significantly undercut the prices of like products.
8.313 Finally, Indonesia’s arguments simply misch aracterize what has happened in this case. As a
result of the introduction of the National Car programme and the sale at cut-rate, subsidized prices of
the Timor Kia Sephia, like passenger cars of US manufacturers were driven out of the Indonesian
passenger car market or precluded from entering it. The subsidies currently in effect, including the
subsidies under the one-year authorization, merely en sure that US passenger cars will continue to be
excluded from the Indonesian market.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

8.314 Thus, this is not a “threat” case as Indonesia would have this Panel be lieve. To the contrary,
it is a case of current and continuing serious prejudice.
8.315 The tariff and tax subsidies provided unde r the National Motor Vehicle programme have
displaced or impeded like products of US motor vehicle manufacturers from the Indonesian market,
within the meaning of Article 6.3(a). In add ition, these subsidies resulted in significant price
undercutting by the subsidized Timor Kia Sephia sedan as compared with the price of like products of
US motor vehicle manufacturers, within the meaning of Article 6.3(c).
(e) The tariff and tax subsidies under the Na tional Motor Vehicle programme displaced
or impeded imports of passenger cars of US motor vehicle manufacturers into the
Indonesian market
8.316 Under Article 6.3(a) of the SCM Agreement, serious prejudice exists 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." With respect to imports of GM, Ford, and Chrysler passenger cars, this
situation is precisely what occurred in Indonesia as a result of the National Motor Vehicle programme
and the introduction of the subsidized Timor Kia Sephia sedan.
8.317 Attachment A/39/6 to AV/3 provides the market share of the Timor Kia Sephia. According to
Attachment A/39/6, the Timor Kia Sephia went from a market share of zero in February 1996 (when
the National Motor Vehicle programme was announced and Kia Timor was named as the producer of
the “national motor vehicle”) to a 10.11 per cent share of the market by the end of 1996. By the end
of May 1997, the last period covered in Attachment A/39/6, the market share of the Timor Kia Sephia
had catapulted to 26.53 per cent.
8.318 This phenomenal market penetration came, in part, at the expense of the passenger cars of
GM, Ford, and Chrysler. As set forth in AV/15, in response to Indonesia’s Question 6, each of these
companies had plans to increase its penetration of the Indonesian passenger car market, but each
company had to abandon or suspend its plans as a result of the National Motor Vehicle programme.
540
Numerous news reports substantiate the existen ce of these plans, as well as the deathblow dealt to
them by the announcement of the National Motor Vehi cle programme and the fact that the three firms
would be forced to compete against the massively subsidized Timor Kia Sephia.541
8.319 Although the precise figures are confidential, in the case of GM, which already was selling its
Opel passenger cars in Indonesia when the National Motor Vehicle programme was introduced, GM’s
business plan called for sales of Optimas and V ectras in excess of 1,000 cars in 1996 and around

540 Like other automotive manufacturers in Indonesia, the passenger cars exported to Indonesia by
Ford, Chrysler, and GM (like the Timor Kia Sephia itself) would have been in the form of kits that would have
undergone final assembly in Indonesia. “Because of hi gh duties on imports, the bulk of vehicles sold in
Indonesia are locally assembled by joint ventures set up with local companies.” “Jakarta Policy Stalls
Expansion Plans; Japanese Firms Rethink Strategy After Suharto’s ‘National Car’ Decree,” The Nikkei Weekly,
25 March 1996, p.1 (US Exhibit 14, pp. 19-23).
541 See, e.g., “Like Father, Like Son; Indonesia’s Proposed ‘National Car’ Has Plenty of International
Critics--and a Familiar Face at the Helm,” Time , 10 June 1996, p. 40 (US Exhibit 14, pp. 69-71); ”GM Halts
Plans for Indonesia Car; Firm Requests Clarification on National Car Policy,” The Dallas Morning News ,
12 June 1996, p. 6B (U S Exhibit 14, pp. 75-76); “GM Freezes In donesian Investment; Policies Create an
'Unlevel Playing Field’,” Automotive News, 17 June 1996, p. 38 (US Exhibit 14, pp. 84-85); see also “A
Furious Flap Over Favouritism,” Business Week, 8 July 1996 (US Exhibit 14, pp. 92-95); “Ford Seeks Inroads
in Booming Asian Auto Market,” The Reuter European Business Report , 25 April 1996 (US Exhibit 14,
pp. 29 30).
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

3,000 cars in 1997, with progressive increases in subsequent years.
542 According to Indonesia’s own
information, however, GM sold only 549 Opels in 1996, and only 176 in the first half of 1997.543
8.320 In the case of Ford, the company projected sales volumes in Indonesia for the Escort of over
1,000 units in 1996, over 3,000 units in 1997, with steady annual increases thereafter.544
8.321 Regarding Chrysler, accordi ng 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.
8.322 The United States notes, however, that the preci se timing of such sales is not critical to a
serious prejudice analysis in this case. Chrysler was shut out of the market, and it will continue to be
shut out of the market as long as TPN continues to benefit from massive subsidies. In the meantime,
the market share of the Timor shot to over 26 pe r cent of the total Indonesian passenger car market
and significantly undercut the prices at which the Neon would have been sold. TPN is well-
positioned to increase its market share while new entr ants, such as Chrysler remain shut out of the
Indonesian market. In the view of the United States , this satisfies the criteria for serious prejudice
under Article 6.3 of the SCM Agreement.
8.323 In this regard, the United States would like to memorialize an exchange that took place at the
second meeting of the Panel. The United States made the point that Indonesia appeared to be arguing
that the US claim of serious prejudice could succeed only if the US manufacturers had first gone
forward with their plans, notwithstanding the in troduction of the National Car Programme. The
United States observed that such a requirement w ould force companies facing massively subsidized
competition to engage in commercially irrational beha viour, and that it could not have been the intent
of the drafters of the SCM Agreement to make irra tional behaviour by private firms a prerequisite to
relief under the SCM Agreement. This is particularly true in light of the fact that one of the purposes
of the SCM Agreement was to establish a more ef fective multilateral remedy against subsidies that
cause adverse effects. Certainly, in this case it wo uld have been foolhardy for the US companies to
proceed with their plans in light of the artificial 50 per cent price advantage that the Timor Kia Sephia
enjoyed due to the subsidies provided by the Government of Indonesia.
8.324 In response, Indonesia stated that it was not arguing that the US companies actually had to
have made sales, but that the companies had to ha ve had "credible" plans to enter, or expand their
presence in, the Indonesian passenger car market.
8.325 In the view of the United States, the ev idence provided by the United States concerning the
plans of General Motors, Ford, and Chrysler more than establishes the credib ility of those plans.
Indonesia has not argued that the evidence presented by the United States is inaccurate, and Indonesia
has not offered evidence of its own to rebut the evidence put forward by the United States.
8.326 Finally, the plans of the US companies must be put in context. In terms of population,
Indonesia is the fourth largest country in the world. Indonesia is in Asia, a region in which each of
the US companies has been seeking to expand its presence. General Motors already was selling
passenger cars in Indonesia, and continues to sell s ports utility vehicles. Chrysler also continues to
sell sports utility vehicles. Ford sells taxis. In lig ht of all of these factors, it seems implausible that

542 These figures are slightly higher than the projections concerning the Indonesian
production/assembly of Opels set forth in East Asian Automotive Growth Markets, Summer 1994, pp. 370-371,
which was included as part of Annex 1 to AV/2.
543 AV/3, Attachment A/39/5-B.
544 The precise figures constitute business proprietary information that the United States is reluctant to
provide to the Panel absence adequate procedures to protect such information.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

the companies would not have gone forward with their plans had the National Car Programme not
been introduced.
8.327 In the view of the United States, the Panel's task should be to answer the following question:
"Is it more likely than not, b ased on the evidence, that the US companies would have gone forward
with their plans had the National Car Programme not been introduced?" In the view of the
United States, the evidence in this case clearly warrants the answer "Yes".
8.328 Overall, prior to the announcement of th e National Motor Vehicle programme, the three US
companies had plans to spend more than US$750 mi llion to increase their presence in the Indonesian
motor vehicle market.
545 However, the US companies had to abandon their plans for importing and
selling passenger cars in Indonesia. While each of the three companies is a highly competitive
automobile manufacturer, their business decisions - unlike TPN’s - are necessarily governed by
commercial considerations. With the onset of the National Motor Vehicle programme, the
introduction of the Timor Kia Sephia, and the prospect of competing against the Indonesian Treasury,
the three US companies were forced to abandon th eir plans, and could only watch as the Timor Kia
Sephia quickly acquired 26 per cent of the Indonesian market.
(1) The evidence on sales trends shows that the subsidies provided under the
National Car programme have caused displacement or impedance
8.329 Indonesia claims that the sales numbers show no discernible impact of the Timor Kia Sephia
on the sales trends of US-brand passenger cars. 546 Because this is one of the few instances in which
Indonesia actually discusses facts, these "facts" warrant close scrutiny.
8.330 With respect to General Motors, the data cited by Indonesia shows that sales of GM Opels
began to decline in 1996, the year in which th e National Car programme wa s introduced. However,
Indonesia does not refer to its own data, which demons trates that during the first half of 1997, Opel
sales declined even further. In addition, Indonesia totally ignores the fact that General Motors had
plans to increase its sales of Opels to over 1,0 00 cars in 1996 and around 3,000 cars in 1997, with
progressive increases thereafter. Indonesia also ignores the well-documented fact that General Motors
had to cancel its expansion plans following the introduction of the National Car programme.
8.331 In the case of Ford, Indonesia simply pr ovides sales figures for Ford Lasers, a car sold
exclusively to the taxi market. Given Indon esia’s insistence elsewhere that a "like product"
comparison calls for passenger cars to be virtually id entical, the relevance of taxi sales to a serious
prejudice case involving passenger cars is puzzling, a nd Indonesia offers no explanation. Moreover,
Indonesia provides no response concerning Ford’s well- publicized plans to introduce the Ford Escort
to the Indonesian passenger car market.
8.332 Finally, in the case of Chrysler, Indon esia correctly notes that Chrysler did not market
Chrysler-brand passenger cars in Indonesia during 1994-96. However, Indonesia simply ignores the
fact that Chrysler was planning to introduce the Neon to the Indonesian passenger car market, but that
Chrysler, too, had to cancel its plans following the introduction of the National Car programme.
8.333 In addition to ignoring the evidence, Indonesia ignores the law. Article 6.4 of the SCM
Agreement, which provides guidance concerning the an alysis of market displacement or impedance,
states as follows:

545 Source: US companies.
546 The United States must emphasize that this argum ent was not made in connection with the US
claim of serious prejudice. However, it is addressed here in anticipation of Indonesia “rethinking” its defence.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

For the purposes of paragraph 3(b), the disp lacement or impeding of exports shall
include any case in which, subject to the pr ovisions of paragraph 7, it has been
demonstrated that there has been a change in the relative shares of the market to the
disadvantage of the non-subsidized like pr oduct over an appropriately representative
period sufficient to demonstrate clear 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 mark et” shall include any of the following
situations: (a) there is an increase in the market share of the subsidized product ... .
8.334 What happened in the Indonesian passenger car market over the last year fits perfectly within
Article 6.4. The subsidized Timor Kia Sephia an d the non-subsidized GM Opels, Ford Escort, and
Chrysler Neon effectively started with a market shar e of zero. Each of the companies in question had
plans to increase the market share of its cars. However, through subsidies, the Timor Kia Sephia
captured 26 per cent of the Indonesian passenger car ma rket, while the other cars remained at zero.
This is a classic situation of displacement or impedance.
547 Moreover, while Article 6.4, by its terms,
applies to third-country market situations, there is no reason why this type of analysis is not suitable
with respect to the displacement or impedance of imports from the market of the subsidizing
Member.548
 (2) The Timor does not occupy a special niche
8.335 In addition to claiming that the Timor is not "like" other cars, Indonesia argues that the Timor
does not compete with Opels, Escorts, or Neons because allegedly "the Timor has tapped into a new
class of consumers and created a niche at the bottom of the market". Indonesia also claims that "a
consumer who purchases ... a Toyota, Opel or Peugeot is extremely unlikely to purchase a Timor, and
vice versa". All of this constitutes an effort on the part of Indonesia to talk around the undeniable fact
that, in one year, the Timor Kia Sephia acquired over 26 per cent of the total Indonesian passenger car
market.
8.336 Significantly, Indonesia provides no evidence to support its assertions regarding a new market
niche. The market data discussed on page 21 of In donesia's second submission, which relates to all
passenger cars, simply shows that the overall Indonesi an passenger car market has grown slightly. It
does not disprove that the Timor has, through subsidization, stolen sales from US manufacturers in the
lower-medium passenger car class.
8.337 If the Timor does occupy a special niche, it is the niche of "heavily subsidized lower-medium
class car". However, for serious prejudice purposes, th e fact that a product is heavily subsidized, and
thus can significantly undercut the prices of its co mpetition, cannot be used as a basis for concluding
that there is no competition or that the products in question are not "like" each other.
8.338 Moreover, Indonesia is simply incorrect that market share data is not an indicia of serious
prejudice. Nothing in Article 6.3(a) precludes a co nsideration of market share data, and its use is
consistent with Article 6.3(b), which also deals with displacement or impeding of imports. In this
regard "displace" means "to crowd out: take th e place of". Webster's Third New International
Dictionary. Market share data provides a measure of the extent to which the Timor has "crowded out"

547 Moreover, as previously noted, if certain pa ssenger cars are excluded from the market share
calculation, the market share of the Timor Kia Sephia is increased.
548 Indeed, Indonesia would be hard-pressed to contest the application of Article 6.4, having already
argued that the Panel should analyze threat of seriou s prejudice under Article 6 based upon the countervailing
duty standards for threat of injury contained in Article 15.7 of the SCM Agreement.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

or "taken the place of' like products from US manufacturers, and thereby cause serious prejudice to
the interests of the United States.
 (3) The prejudice caused to like pr oducts of US manufacturers was serious

8.339 Indonesia attempts to argue that whatever harm US interests may have suffered, it is not
enough to be considered "serious" within the meani ng of the Subsidies Agreement. Again, however,
in advancing this argument, Indonesia discusses to tal sales figures rather than sales of passenger cars
that are "like" the Timor.
8.340 Moreover, Indonesia totally ignores the sales that the US manufacturers would have made but
for the introduction of the National Car programme. GM's plan called for around 3,000 sales of Opels
in 1997, Ford's plan called for roughly 2,000 Escorts in 1997, and Chrysler's plan called for between
1,000 to 2,000 Neons in 1997. Even if the US manufacturers only achieved one-half of the lower end
of their projections, this still would have amounted to roughly 3,000 cars, which, in the Indonesian
passenger car market, is a considerable amount. The fact that these sales have not occurred is not
"trifling," as Indonesia would have this Panel believe.
(4) Indonesia has not provided anv evid ence to rebut the fact that US
Manufacturers had well-developed plans to enter, or increase their presence
in, the Indonesian passenger car market
8.341 Finally, let us discuss the US manufacturers' plans for the Indonesian market. Significantly,
Indonesia does not challenge the existence of these plans or offer evidence aimed at disproving the
existence of these plans. Indeed, the only eviden ce offered by Indonesia on this particular issue
supports the position of the United States. S ubmitted as US Exhibit 37 is a document entitled
"Indonesia's Automotive Market," which was submitte d by Indonesia as Indonesia Exhibit 11 (first
submission). Pages 3-4 of US Exhibit 37 discuss th e plans of each of the three US manufacturers and
describe how these plans were cancelled or suspended as a result of the National Car Programme.
8.342 Rather than attempting to rebut the eviden ce presented by the United States (which Indonesia
knows it cannot do), Indonesia instead relies on th e procedural defense that the United States
allegedly has not presented enough evidence to tr igger Indonesia's obligation to present rebutting
evidence. However, as stated by the Appellate Body in the Wool Shirts case, at page 14, the burden
on the United States, as the complainant, merely is to adduce "evidence sufficient to raise a
presumption that what is claimed is true." In the vi ew of the United States, it has more than satisfied
this burden by providing information obtained from the US companies and information contained in
newspaper articles and trade journals.
8.343 In addition, to satisfy Indonesia's insistence that the United States provide documents straight
from the companies themselves, the United States has submitted documents containing information
jointly submitted by Ford and General Motors to the Office of the US Trade Representative
(USTR)549 ,and information submitted by Chrysler to USTR 550. The United States emphasizes that
there is little new information contained in th ese documents, because most of the information
contained in these documents was also contained in the US first and second submissions. The United
States trusts that the submission of these documents will put an end to Indonesia's accusations that the
United States has relied on hearsay evidence.

549 US Exhibit 38.
550 US Exhibit 39.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

(5) As a factual matter, it is simply not established that the tariff and tax benefits
conferred on TPN under Decree No. 42/96 will ever be reimbursed
8.344 The United States argues, in connection with its argume nts regarding whether the June 1996
programme is an expired measure, that it is not established that the tariff and tax benefits conferred on
TPN under Decree No. 42/96 will ever be reimbursed. These arguments are set forth in Section X.B.
 (c) Response by Indonesia
8.345 The following are Indonesia's responses to the complainants' arguments regarding
displacement or impedance of imports:
(1) The complainants' presentation with respect to actual serious prejudice to
their interests is irrelevant because it re lates solely to the alleged effects of
the terminated June 1996 Programme
8.346 The complainants' collect ive serious prejudice allegations encompass only the National Car
programme, which they allege has three compone nts: (i) the June 1996 programme, which provided
conditional exemptions from import duties and the l uxury tax for imported national cars; (ii) the
February 1996 programme, which provides cond itional exemptions from the luxury tax and from
import duties on parts and components used for the assembly of national cars in Indonesia; and
(iii) the August 1997 US$690 million loan to TPN.
551
(2) To establish serious prejudice, complainants must prove that a subsidy exists
and that it is causing or threatens to cause serious prejudice
8.347 In order to maintain a claim of serious prejudice, the complainants must establish both:
1. the existence of a measure conferri ng an actionable or prohibited subsidy552; and
2. adverse effects in the form of serious prejudice to their interests resulting from the
measure conferring the subsidy.553
Thus, in short, the complainants must show that a subsidy exists and that it causes or threatens adverse
effects resulting in serious prejudice. The comp lainants have not made and cannot make this
showing.
(3) Complainants’ allegations of serious prejudice fail because they have not
demonstrated that an existing subsidy measure has resulted in actual serious
prejudice
8.348 The complainants allege that their inte rests have suffered serious prejudice through the
displacement or impedance of imports (Article 6. 3(a)) and price undercutting (Article 6.3(c)) by the
national car during 1996 and the first half of 1997. They rely heavily on contemporaneous sales and
price data provided by the Government in the Anne x V process, but fail to acknowledge that the sales

551 As demonstrated, complainants' arguments concerni ng the loan are irreleva nt because the loan and
related issues are not within the scope of this Panel pr oceeding. Also, in any case, the loan was delivered on
commercial terms.
552 See Subsidies Agreement, Article 1.1. See also Subsidies Agreement, Articles 3.1.(b), 5, 6 and 7,
each of which refers to extant subsidies.
553 See Subsidies Agreement, Articles 5(c) and 6. The phrase, “serious prejudice to the interests of
another Member,” includes the threat of serious prejudice. See Subsidies Agreement, fn. 13.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

and price data relating to the national car during 1996 and 1997 (to date) relate exclusively to national
cars that benefitted solely from the June 1996 programme. As discussed above, the June 1996
programme terminated in its entiret y in June 1997. Thus , even if Complainants' assertions regarding
actual serious prejudice in 1996 and 1997 were correct (which they are not), this harm would not be
cognizable in this proceeding because the underlyi ng measure complained of has already been
withdrawn. Complainants’ claims, therefore, are moot.
554
8.349 At the same time, the two 555 remaining components of the National Car Programme could not
have caused actual serious prejudice to either Comp lainants' interests. TPN did not begin assembling
the national car in Indonesia under the February 1996 programme until June 1997. Moreover, the
Tambun Plant at which the national car is being assembled will produce vehicles at the rate of only
1,000 units per year.
8.350 The August 1997 loan to TPN will be used to fund the construction of the Cikampek Plant,
where the Sportage will be built. As discussed above, however, the Sportage will not be designated as
a "national motor vehicle" and will not benefit from the tariff and tax subsidies extended under the
February 1996 programme. Additionally, even if the August 1997 loan were deemed to confer a
subsidy on the Sportage, actual serious prejudice c ould not arise because no vehicles have yet been
built.
8.351 In sum, the June 1996 programme has b een withdrawn and neither the February 1996
programme nor the August 1997 loan has caused act ual serious prejudice to the complainants'
interests. The practical effect of the foregoing analysis is to leave intact and relevant only the
complainants' threat of serious prejudice allegations. As demonstrated below, like the complainants’
claims of actual serious prejudice, these allegations lack merit and do not require or warrant any
remedial action.
(4) The complainants' allegations regard ing the cancellation of their companies'
plans for the Indonesian market have not been adequately substantiated
8.352 A similar evidentiary failure plagues the European Communities and United States assertions
regarding the plans and/or projections of GM, Ford and Chrysler for the Indonesian market.
Complainants have attempted to provide a thin veneer of authenticity to their various claims regarding
the companies’ plans and/or sales projections by c iting to newspaper and trade articles, but this is
wholly inadequate. The positive evidence standard of the Subsidies Agreement, along with the many
uncertainties of business and the inherently specula tive and fluid nature of plans and projections,
requires much more than this. The European Communities and US claims should be summarily
dismissed because they have not been substantiated with even a single source document.556
8.353 A closer look at the United States' allegations concerning the plans of the Big Three is also in
order. First, as a preliminary matter, Indonesia notes that it has contested and does contest the

554 Indeed, the Subsidies Agreement, in its entiret y, is designed to provide a remedy for existing
subsidy measures. This is demonstr ated most clearly in Article 7.8, which directs Members maintaining a
subsidy measure found to cause seriou s prejudice either to withdraw the measure or to remedy the adverse
effects.
555 Actually, only one measure, the February 1996 policy, remains because th e August 1997 loan to
TPN is outside the scope of this proceeding and, in any case, was delivered on commercial terms. In order to be
thorough, however, the loan is discussed as well.
556 See Argentina-Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items
(11 November 1997), WT/DS 56/R, 91, para. 6.40 (“adversary is obligated to provide the international tribunal
with relevant documents which are in its sole possession”). Indonesia reserves the right to comment on any
such documents or materials which might be supplied by the EC or the US.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

existence of "well-developed" Big Three plans to enter or expand in Indonesia's market for passenger
cars. Where are these claimed "business plans"? Th e United States has failed to introduce any source
documentation concerning them. At most, the Unite d States has established that company personnel
have informed reporters, or reporte rs have speculated, that the Big Three had "plans" to invest in
Indonesia and such "plans" allegedly were frustrat ed by the National Car Programme. This is not
positive evidence; in fact, it does not even rise from the level of hear-say.
8.354 Second, the so-called "plans" appear not to be "plans" at all, but, at most, plans to develop
plans. According to the United States, the "plans " break down as follows for each manufacturer. For
both Ford and GM, the United States' rebuttal mentions no "plan" to export US-made autos to
Indonesia. Moreover, Chrysler, the only remain ing manufacturer, had no firm plan to enter
Indonesia's passenger car market. Rather, according to the United States, Chrysler "was studying" a
joint venture in Indonesia to assemble Neon passenger cars and other passenger vehicles.
557 Studying
or considering a joint venture is not the same as having a concrete plan. And, on top of this, the
United States again has failed to provide positive evidence, as it must, to support any of these claims.
8.355 The United States claim regarding Chrysl er is based not on positive evidence, but on
hear-say. This also is true of the European Communities allegations concerning the plans of Ford and
GM. For their claims to have any merit at all, the European Communities and the United States
would have to prove by positive evidence that:
first, they had documented plans to import cars like the Timor;
second, the National Car Programme in fact caused the compani es to cancel their
 claimed plans;
third, had they continued with their plans, a substantial number of their cars would
have been sold in Indonesia had the National Car Programme not been
instituted; and
fourth, the National Car Programme would negatively have impacted their sales such
that serious prejudice would have resulted.
8.356 However, neither the European Commun ities nor the United States has satisfactorily
addressed these interrelated factors, much less provided even minimal support for these points.
Rather, they have claimed, without adducing a single substantiating source document, that the
companies had plans to enter Indonesia's market that were foiled by the Timor.
8.357 In this regard, Indonesia notes that Ford and Chrysler did not submit a single application for
approval of the development of passenger car pr oduction or assembly facilities in Indonesia during
the period of 1993 to the present. In sum, Ford and Chrysler have never had any real plans to produce
or assemble a like product in Indonesia. Moreove r, in 1993, GM submitted to Indonesia a passenger
car production and assembly plan, which Indonesia approved. Not only is there no evidence to
support the termination of any plans, since 1993, GM has continued to expand it s operations. In fact,
in November of 1997, GM submitted to Indon esia an application to significantly expand its
production and assembly operations in Indonesia. I ndonesia approved this application in December
1997. These facts belie the claims of the Europ ean Communities and United States regarding serious
prejudice. They also demonstrate that, if any abandoned plans existed, the United States and the
European Communities could introduce evidence of th e plans that the Indonesian government already
would have copies of - the request for approval of new or expanded operations in Indonesia. Thus,

557 Id. at para. 12, p. 3.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

the Panel should not allow Complainants to hide their lack of evidence behind the cloak of
confidentiality.
8.358 Indonesia accordingly submits that the Panel's consideration of this issue should focus on the
complete lack of positive evidence to support th e United States and European Communities claims,
and the fact that, even accepting the United States and European Communities stories, the Big Three
do not have and never had any concrete, confirmed plans to sell a car like the Timor in Indonesia.
8.359 We also urge the Panel to note the incons istencies and the narrow ing trend in the United
States presentations. First, the United States argued th at all of the Big Three sold or would have sold
like products in Indonesia; now it argues that none of them sell like products in Indonesia and that
only Chrysler was considering doing so. One wonders what tomorrow's admission will be.
8.360 In sum, Indonesia should not be penalized for what the United States claims, but has not
properly established, were business plans, projections or decisions by United States-based companies.
Indonesia asks the Panel to find the United States ar guments baseless and to reject the United States
complaint.
(5) Sales of the Timor have not a ffected sales in Indonesia of US-based
passenger car manufacturers for three basic reasons
8.361 Sales of the Timor have not affected sales in Indonesia of US-based passenger car
manufacturers for three basic reasons. First , US-based manufacturers compete in a market segment
dominated by Japanese-based manufacturers.558 To date, their marketing efforts have stumbled badly.
8.362 Second , US-based manufacturers' claimed "efforts" to sell passenger cars that compete with
the Timor are either non-existent, nebulous, or purely speculative. For example, Ford makes much of
the fact that it has assigned four foreign service employees to Indonesia and invested US$1 million in
Indonesia.559 Ford has 370,000 employees worldwide and its automobile segment alone registers
sales of US$118 billion.560 Obviously, Ford's commitment to Indonesia (other than to Indonesia's tax-
free taxi market) is virtually non-existent. Chrysler 's commitment to the Indo nesian market is greater
than Ford's, but it is directed not at the passenge r car segment but to sales of Jeep-type vehicles.
Chrysler Cherokees and Wranglers do not compete with Timor sedans. Chrysler's attempt to show
serious prejudice in the Timor passenger car segment by introducing its "plans" to assemble Neons in
Indonesia is unpersuasive. Chrysler statements that it "... was studying an assembly joint venture ...
[p]lanned investment "... and "the precise figures are confidential ..."561 are vague and unsupported.
There is not one piece of evidence on the record of this proceeding that supports these statements.
8.363 Indonesia has bared its soul in presenting its case to this Panel and responding to the
complainants' questions. Complainants should not be able to succeed before this Panel by relying on
wisps of intra-corporate marketing brainstorming wh ile failing to provide substantive real-world data
to the Panel for scrutiny by all parties.
8.364 General Motors' presentation, although s uperficially more compelling than Ford's or
Chrysler's, misses the point entirely. GM goes to gr eat lengths to detail its investment in the Opel

558 As Japan has previously acknowledged in this proceeding, Japan does not market a car that
competes with the Timor.
559 US Exhibit 38, pp. 1-2.
560 Ford 10-Q (1996) and "Ford Motor Company - The History of Ford Motor Company - An American
Legend".
561 US Exhibit 39, Page 2.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Optima, Opel Vectra and Opel Blazer, however, GM has never sold more than a few hundred of these
vehicles in Indonesia. GM's claim of lost potential sales thus is purely speculative.
8.365 The history of GM's marketing efforts in Indonesia is a much better barometer of the real
situation. GM's history of sales efforts in Indonesi a is one of sporadic, unfocused marketing efforts
that have each failed to penetrate the target mark et - the Japanese-dominated passenger car segment.
GM has no-one to blame but itself for failure to successfully compete with the Japanese in Indonesia
for a share of that value-added market. As Indonesi a continually has stressed through an analysis of
physical characteristics, the Optima, Vectra and Blazer do not compete with the Timor.
8.366 Third
, Timor sales do not affect sales by US-based passenger car manufacturers because other
issues, rightly or wrongly, have dissuaded the "B ig Three" from investing the capital necessary to
successfully sell passenger cars in Indonesia. The US finally has acknowledged that the Big Three's
decisions to place a "hold" on their "plans" for I ndonesia was based on factors other than the National
Car Programme. The Indonesian market is domin ated by the Japanese. Th e Japanese are firmly
entrenched, and Japanese vehicles hold approximately 90 per cent of the market. 562 This fact alone
makes it difficult for the Big Three to justify millions of dollars of capital investments. Furthermore,
Indonesia's road transportation infrastructure is in the early stages of development and its personal use
market represents a small percentage of a relatively small market.563
8.367 Simply put, the reasons the Big Three "withdrew from" or "failed to enter" the Indonesian
market have nothing to do with the National Car Programme. They withdrew because (1) the market
for small cars is too small to justify and sustain the necessary capital investments and, in any case, is
dominated by Japan; (2) the low annual per capita in come in Indonesia results in a minute high-profit
market niche that is dominated by Mercedes-Be nz and BMW that precludes penetration by the Big
Three; (3) low-income, entry-level automobiles such as the Timor do not provide the per-unit profit
necessary to generate investment returns that the Big Three enjoy in their important markets - North
America and Europe; and (4) the investment in centives provided in countries such as Thailand are
better than those provided in Indonesia.564
8.368 In conclusion, US-based manufacturers did not suffer serious prejudice due to Indonesia's
National Car Programme. The Timor, because of its low-income, entry-level appeal, does not
compete with US-based automobiles. US-based manufacturers' automobiles are positioned to
compete in other market segments, against Japanese mode ls in Indonesia and in the rest of the world.
The Indonesian market is dominated by the Japanese, per-unit profit margins would become very thin
if the US were to compete, and the higher profit per-unit market niche is dominated by BMW and
Mercedes-Benz. Thus, for the Big Three to make the investments necessary to compete in Indonesia
would be incompatible with the short-horizon, qua rterly profit maximization principles that drive US-
based manufacturers.
(6) Even if the European Communities and US cars were found to be like the
Timor, no serious prejudice exists or will arise because they do not compete
with the Timor
8.369 Assuming, arguendo, that the European Communities and US cars were found to be like the
Timor, this would not be tantamount to determin ing that the National Car programme has caused or
will cause serious prejudice to European Comm unities and US interests. The like product
determination merely establishes the proper analyti cal framework in which to consider, in turn,

562 US Exhibit 37, Page 1.
563 Id.
564 Id.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

whether the separate components of the programme have caused serious prejudice to complainants’
interests.
565 In other words, it is not enough for complainants to show that the Timor is subsidized and
that, at the same time, their commercial welfare ha s declined or not improved as expected. Rather,
they must demonstrate the existence of a causal link between the two events. As discussed below, the
European Communities and the United States have no t shown and cannot show this requisite linkage
because the Timor is a low-end, no-frills budget car th at is not in the same market segment as the
more-advanced, state-of-the-art Escort, Neon, Optima, Vectra or Peugeot 306.566
8.370 Available sales data for 1996 and 1997 reveal that the Timor has tapped into a new class of
consumers and created a niche segment at the bottom of the market. 567 These data also show that
sales in the non-Timor segments have increased, desp ite the introduction of the Timor. Total sales by
all manufacturers increased from 38,826 cars in 1995 to 42,346 cars in 1996, for a total increase of
3,520 cars. The Timor was introduced in 1996 and 4,278 units were sold. Total sales by all
manufacturers increased from 28,265 units in the first three quarters of 1996 to 53,033 cars during the
first three quarters of 1997, for a nearly two-fold increase of 24,768 cars. Timor sales of 11,853 cars
in the first three quarters of 1997 accounted for less than one-half of this phenomenal growth.
8.371 The sales data set forth in the followi ng table also demonstrate that the European
Communities and the US positions (and Japan’s position) in the marketplace have improved since the
Timor was introduced.568

565 This causation requirement is apparent from th e text of the Subsidies Agreement. Article 5
provides: “No Member should cause, th rough the use of any [specific] subsidy …, (c) serious prejudice to the
interests of another Member.” (footnote omitted) Articles 6.2 and 7.1 speak of subsidies “resulting” in serious
prejudice. Articles 6.3(a) and (c) respectively state that serious prejudice may arise where “the effect of the
subsidy is to displace or impede the imports of a like product” and “the effect of the subsidy is a significant
price undercutting …of a like product.” “Effect” is defined as: “Something accomplished, caused, or produced;
a result, consequence. Correlative with CAUSE.” Th e Compact Oxford English Dictionary at p.496 (2d ed.
1987).
566 The US also claims that the Timor J520i is lik e the GM Opel Blazer and will pose a threat to US
light commercial vehicles. Indonesia need not, however, address this claim because the Timor J520i is not and
will not be covered by the National Car Program. Cert ificate of Registration of Mark/Type/Variant of Motor
Vehicle, No. 1039/DJ-IIMK/X/1997, Department of Industry and Trade of the Republic of Indonesia, the
Directorate General for Metals, Machinery and Chemical Industry (Indonesia Exhibit 42, Attachment E).
567 The Indonesian passenger car market can be properl y examined only on a segmented basis. That
market (like all other car markets) is characterized by a very high degree of market differentiation and
specialization. Thus, a consumer who purchases a Merc edes-Benz or BMW or, for that matter, a Toyota, Opel
or Peugeot, is extremely unlikely to purchase a Timor, and vice versa. See generally United States-Measures
Affecting Alcoholic and Malt Beverages (19 June 1992), BISD 39S/206, 294, para. 5.73.
 Car manufacturers devote very substantial res ources to establishing and targeting different
market segments and smaller niches in their production, advertising and marketing. For example, GM follows a
strategy of selling dozens of different models where co mpetitors sell just a few. This “needs segmentation”
approach is designed to aim vehicles more precisely at buyers based on buyers’ specific demographics, attitudes
and desired car features. See Daniel McGinn, Divi de and Conquer: Meet the Researcher Behind GM’s
Controversial Marketing Strategy , Newsweek, 1 December 1997, at pp.50 and 52 (Indonesia Exhibit 42,
Attachment B).
568 Opel Optima and Vectra sales are attributed to the EC.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Table 34

 1995 1996 1997 569 1Q/3Q 1997 1Q/3Q 1996
EC 9,213 10,075 11,093 8,320 7,653
US 2,880 3,652 4,456 3,342 2,594
Japan 23,941 21,693 34,304 25,728 16,718
Others/CBU
Imports
2,792 2,648 5,053 3,790 1,300
Timor 0 4,278 15,804 11,853 0
TOTAL 38,826 42,346 70,710 53,033 28,265
Source: Gaikindo; Government of the Republic of Indonesia
8.372 In sum, the foregoing data run contrary to the European Communities and US assertions that
sales of the Timor have displaced or impeded imports of the claimed like products.570
8.373 Finally, Indonesia notes that the operative st andard for remediation is “serious prejudice.”
This concept does not lend itself to ready meas urement and, accordingly, its meaning has not
crystallized despite its relevance to many GATT proceed ings. This does not, however, mean that it is
without content.
8.374 Article 31.1 of the Vienna Convention on the Law of Treaties provides: "A Treaty shall be
interpreted in good faith in accordance with the or dinary meaning to be given to the terms of the
treaty in their context and in light of its object and purpose." "Serious" is defined as: "Weighty,
important, grave; (of quantity or degree) considerable, not trifling".
571
8.375 The European Communities and the United Stat es point to specific, concrete sales data for
only the Opel Optima and Vectra and the Peugeot 306. GM sold 549 Opels in Indonesia in 1996 and
284 Opels from January through September 1997 ( 379 units on an annualized basis); 1,086 Peugeot
306’s were sold in 1996 and 762 (1,016 annualized ) were sold through September 1997. Thus, even
when taken together, the net decline in sales fo r the three models from 1996 (1,635 cars) to 1997

569 Annualized on the basis of January through September 1997 sales.
570 Of course, this standard is not even applicable if the Panel determines that cars assembled by EC or
US manufacturers in Indonesia from imported kits are not like the Timor. Indonesia notes that the EC and the
US rely heavily on market share trends and the US refers to Article 6.4 of the Subsidies Agreement for guidance
in analyzing market displacement or im pedance. First, only Articles 6.3(a) and (c) pertain to this case and they
do not refer to market share as an indicia of serious prej udice. Second, historical and current market share data
are meaningless, because the Timor’s establishment of a new market segment has fundamentally transformed
the Indonesian passenger car market. Thus, in order to have even limited meaning, market share data must be
compiled on a segment-specific basis. As for the EC’s suggestion that sales of the Opel Optima and
Peugeot 306 should not have declined in 1997 because of a substantial increase in general demand, sales,
demand growth and market share are not necessarily correlated. The EC itself has observed: “Since 1992 and
until 1996, exports of passenger cars from the Community [to Indonesia] grew at a faster pace than demand,
resulting in a significant gain in terms of market share.”
571 The Compact Oxford English Dictionary at p.1716 (2d ed. 1987).
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

(1,395 cars) will be only approximately 240 cars. These cars represent only approximately 1.5 per
cent of projected total European Communities and US sales in 1997 (15,549 cars). Thus, even if the
drop in sales could be attributed to the Timor (and it cannot), such a minuscule decline could hardly
be considered anything other than trifling and certainly cannot serve as the basis for a finding of
serious prejudice.
 (7) The EC has failed to prove serious prejudice

8.376 The European Communities fo cuses on sales of EC-produced cars in Indonesia with passing
reference to the plans of Ford and GM. (Indon esia acknowledges that the EC does not attempt to
claim any United States-produced cars as its own.) The European Communities originally had argued
that the Opel Vectra also is like the Timor, but now apparently concedes this was an error.
8.377 Thus, apart from the European Communities' allegations concerning Ford and GM plans, the
success of the European Communities' complaint hinges on the European Communities demonstrating
by positive evidence, first, that the Opel Optima or the Peugeot 306 is like the Timor and, second, that
Indonesia's measures have caused serious prejudice by impacting sales of these cars.
8.378 The European Communities has not met either of these burdens. Even putting aside the many
important, non-physical characteristics that must be considered in establishing like products here,
Indonesia already has demonstrated, and the European Communities' like product matrix 572 confirms,
that the Timor is not like the Op tima or the 306 when only physical characteristics are considered.
Also, the European Communities has presented no positive evidence demonstrating that the Timor has
had any impact on European Communities sales. Although Indonesia has not commissioned or
performed any econometric or market research on this point, the data we have seen suggest that the
Japanese models, many of which are like the Optima and the 306, are continuing to dominate the
market segments above the Timor. If the European Communities is losing sales, then it is losing them
to the Japanese like products, not to the "unlike" Timor. Therefore, Indonesia asks that the Panel
reject the European Communities' arguments and dismiss the European Communities' Complaint.
8.379 Further to the last point, Indonesia notes th at, notwithstanding the positive evidence standard,
none of the complainants has undertaken econometric or market studies to support their positions. A
study would allow the Panel to evaluate the vari ous other criteria the European Communities deems
"too subjective" or "too vague". Yet they have not done so. Had Indonesia the burden of proof or
persuasion, the Panel and Parties already would have the data in front of them. Complainants have
avoided any thorough investigation or analysis of the Indonesian market because they know such
analysis would confirm Indonesia's position.
8.380 Rather than engaging these important issues, the European Communities continues to advance
its idea that all passenger cars are like products, i. e., Mercedes-Benzes, Bentleys, Yugos and Timors
compete for the same customers. It has no choice but to do so because only by avoiding causality can
it succeed.
8.381 Later, the European Communities plays fast and loose with market share data, asserting that
the European Communities accounts for 24 per cent of Indonesia's market, but failing to mention that
the vast majority of this share is from sales of "models in the high segment of the market"
(i.e., BMWs, Mercedes-Benzes and Volvos). Moreov er, the European Communities ignores the fact
that Japan's sales have increased by over 50 per cent.

572 EC Exhibit D-3.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

8.382 The truth, or "truism", as the European Co mmunities says, is that the Timor taps a different
market segment. The European Communities states that "[t]he proposition that the Timor has
generated entirely its own demand is purely specula tive and cannot be demonstrated". But, first,
Indonesia's presentation is not speculative; it is ba sed on a reasoned view of the market and TPN's
marketing intention for the Timor. Indonesia's view, unlike that of th e European Communities,
accounts for the phenomenal growth in Japan's sales. Second, Indonesia's view can be demonstrated.
More importantly, however, Indonesia does not bear the burden of proof here. The European
Communities does. It has failed to prove its allega tions, and so the Panel should reject the European
Communities' assertions and dismiss the European Communities' complaint.
5. Article 6.3(c) of the SC M Agreement—Price Undercutting

 (a) Arguments of the European Communities
8.383 The following are the European Communities' arguments regarding price undercutting by
subsidized national cars:
(1) The prices of the subsidized National Cars undercut significantly the prices of
like passenger cars imported from the Community
8.384 In accordance with Article 6.3 of the SC M Agreement, serious prejudice may arise, inter
alia, where the effect of the subsidy is a significant price undercutting by the subsidized product as
compared with the price of the like product of another member.
8.385 The massive subsidies granted to PT TPN ha ve allowed this company to price the Timor
S-515 well below the passenger cars imported from the Communities.
WT/DS54/R, WT/DS55/R,
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8.386 Table 35 ranks all the passenger cars of up to 1,800 cc offered in the Indonesian market
according to their listed sale price. They show that the Timor S-515 was the least expensive model on
sale in Indonesia in November 1996 and again in March 1997, with the only exception of the Mazda
MR-90, a relatively old model which was sold in very small quantities
573.
Table 35
Listed prices in Indonesia for passenger cars of up to 1800 cc
 November 1996
Model Price (thousand Rp)
Mazda MR-90 30,200
Timor S515 Solit 33,000
Timor S515 Metalic 33,500
Suzuki Baleno SY 416 43,500
Bimantara Cakra MT 45,000
Bimantara Cakra AT 48,650
Toyota Starlet 47,800
Honda City GM 50,975
Ford Laser GHIA saloon 58,800
Peugeot 306 M/T 59,000
Bimantara Nenggala M/T 53,100
Peugeot 306 M/T 62,500
Bimantara Nenggala A/T 63,500
Mitsubishi Lancer M/T 64,000
Peugeot 306 A/T 65,500
Mitsubishi Lancer A/T 67,000
Opel Optima GLS 70,000
Toyota Corolla M/T 71,100
Lancer DOHC 72,000
Honda Civic 4 Door NB GKP 72,490
Toyota Corolla A/T 74,800
Honda Civic 4 Door NB AKP 76,190
Toyota Corona 80,700
Source: AV/3, Attachment A-40/1.March 1997

573 102 units in 1996 and 16 during the first half of 1997. See AV/3, Attachment A-39/1- B.
WT/DS54/R, WT/DS55/R,
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Model Price (thousand Rp)
Mazda MR-90 30,000
Timor S515 Solit 33,000
Timor S515 Metalic 33,500
Timor S515 I Solit 36,400
Timor S515 I Metalic 36,900
Bimantara Cakra MT 39,900
Daewoo Nexia DOHC 43,000
Bimantara Cakra AT 43,450
Suzuki Baleno SY 416 44,750
Toyota Starlet 48,100
Honda City GM 51,300
Bimantara Nenggala M/T 53,100
Bimantara Nenggala A/T 57,000
Ford Laser GHIA Saloon 59,000
Peugeot 306 M/T 59,500
Peugeot 306 M/T 63,000
Ford Laser GHIA Saloon 63,200
Mitsubishi Lancer M/T 65,000
Peugeot 306 A/T 65,500
Mitsubishi Lancer A/T 68,000
Mazda Astina 68,300
Toyota Corolla M/T 68,300
Opel Optima GLS 70,000
Honda Civic 4 Door NB GKP 71,160
Toyota Corolla A/T 71,800
Lancer DOHC 72,000
Honda Civic 4 Doors 74,860
Toyota Corona 81,200

8.387 More particularly, the data evidence that the Timor S-515 undercut significantly the prices of
the closest Community models in terms of specifica tions. In November 1996, the price of the Timor
S-515’s most expensive version was 43 per cent lower than the price of the least expensive version of
the Peugeot 306 and 52 per cent lower than the pri ce of the Opel Optima. As of March 1997, the
margins of price undercutting were almost identical.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

 (b) Arguments of the United States

8.388 The United States submits that the tariff and tax subsidies provided under the National Motor
Vehicle programme have resulted in significant pr ice undercutting by the Timor Kia Sephia. The
following are the United States' arguments in this regard.
8.389 Under Article 6.3(c) of the SCM Agreement, serious prejudice exists where "the effect of the
subsidy is a significant price undercutting by the subs idized product as compared with the price of a
like product of another Member in the same market ... ." Article 6.5 elaborates on the analysis of
price undercutting:
For the purpose of paragraph 3(c), price undercutting shall include any case in which
such price undercutting has been demonstrat ed through a comparison of prices of the
subsidized product with prices of a non-subs idized 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 othe r 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.
 (1) Tariff and tax subsidies

8.390 Put simply, the Timor Kia Sephia is the cheapest car on Indonesian roads. 574 Because of the
huge tariff and tax breaks it enjoys, the Timor Kia Sephi a can be sold for 50 percent of the price of its
rivals.575
8.391 The newspaper accounts are consistent with th e hard data. As set forth in Table 31, above,
the Timor Kia Sephia S515 sold for Rp. 33.5 million, while the Opel Optima GLS (the least expensive
Opel) sold for Rp. 69.5 million. In other words, the Timor Kia Sephia sold for less than one-half the
price of the Opel Optima. In March, 1997, this pr ice gap increased slightly, as the Timor Kia Sephia
sedan continued to sell for Rp. 33.5 million, whil e the price of the Opel Optima GLS increased
slightly to Rp. 70 million. Even the fuel-injected version of the Timor Kia Sephia, the S515i, sold for
only Rp. 36.9 million in March 1997.
8.392 With respect to the Ford Escort, Ford, of course, abandoned its plans to sell the Escort in
Indonesia due to the National Motor Vehicle progr amme. However, based on company figures, the
Timor Kia Sephia S515 would have undercut the price of the least expensive version of the Escort by
more than US$5,000.576
8.393 Moreover, the Timor Kia Sephia did not significantly undercut the prices of only US
passenger cars. It significantly undercut the pri ces of every passenger car in its class sold in
Indonesia, as demonstrated in Tables 32 and 33, above.
8.394 The reasons why the Timor Kia Sephia coul d so significantly undercut the prices of its
competition are obvious. First, the Timor Kia Sephia was not subject to import duties, whether

574 “Indon Domestic Car Sales Race up by 41 pe r cent in May,” Business Times (Singapore ),
June 17, 1997 (US Exhibit 14, pp. 138-139).
575 “Bumpy Road Ahead for Motoring Plans,” South China Morning Post, 8 June 1997 (US Exhibit 14,
pp. 132-135).
576 The United States has precise figures regarding the planned prices for Ford Escorts in Indonesia.
However, these figures constitute business proprietary info rmation that the United States is reluctant to provide
to the Panel absence adequate procedures to protect such information.
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imported from Korea in CBU form during 1996-1997 or as kits from July 1997 onward. Second, the
Timor Kia Sephia is not subject to the 35 per cent luxury tax.
8.395 Information provided by Indonesia (Attachment A-28 to AV/3) effectively concedes that the
tariff and tax subsidies under the National Moto r Vehicle programme are responsible for the
significant level of price undercutting. This table contains data for 1998 and 1999 regarding the
Timor Kia Sephia S515i that will be assembled at the Karawang facility. Row 4 of the table (Unit
Dealer Price) indicates that the effect of the tariff and tax subsidies of the National Motor Vehicle
programme is to lower the price of the Timor Kia Sephia sedan by US$7,243-9,158.
8.396 The United States does not n ecessarily accept the accuracy of the da ta in this table. For one
thing, it does not deal with the 1996-97 period during which the tariff subsidy was even greater due to
the exemption of imports of CBU Kia Sephias from the 200 per cent tariff. Therefore, it does not
reflect the price impact of this particular subsidy. In addition, during the Annex V process, Indonesia
refused to explain the basis on which “unit cost” was estimated in the table, the figure from which
“unit dealer cost” apparently was derived.
577 Nevertheless, the table constitutes an admission as to the
tremendous impact of the tariff and tax subsidies on the price of the Timor Kia Sephia.
 (c) Responses by Indonesia
8.397 The following are Indonesia's responses to the complainants' arguments regarding price
undercutting.
 (1) Price comparisons made
8.398 The European Comm unities and the United Stat es claim price undercutting by the Timor, but
their position is fallacious because it is based on a mi sleadingly simplistic comparison of list prices.
The Subsidies Agreement and commercial reality require that other factors affecting price
comparability be considered.
8.399 Article 6.5 of the Subsidies Agreement re quires that price comparisons must take "due
account … of any other factor affecting price compar ability". This requirement, in conjunction with
the positive evidence standard, means that Complain ants have the burden of quantifying and making
appropriate price adjustments for the physical characteristics and consumer preferences and
perceptions that distinguish the Timor from their ma nufacturers’ products. This task may be difficult,
but it is absolutely indispensable. In the same vein , Article 6.3(c) requires that there be "significant
price undercutting". As reflected in Article 6. 5, the existence of any price undercutting and a
determination as to its significance necessitates an apples-to-apples comparison.
578

577 In AV/15, in Question 12/28(a), the United States renewed its earlier request for an explanation of
the estimated unit cost for cars to be produced at the Ka rawang facility. (Karawang is the district in which
Cikampek is located). In AV/16, p. 3, instead of answering the question, Indonesia referred the United States to
Table A-30/2 of Attachment U-12. However, Table A-30/2 merely provides a list of costs in relative terms, and,
as such, cannot be used as a basis for estimating unit costs in absolute terms. In other words, under Table A-
30/2, if one starts with a cost of X, the final price will be 616.9X. However, Table A-30/2 does not allow one to
determine what X is.
578 Although not directly applicable, it is instructive to note that local authorities which administer
WTO-consistent antidumping and countervailing duty regimes routinely split a like product category into
numerous specific products when making price comparisons among products for injury assessment purposes.
For example, in the 1992 antidumping duty investigation of Minivans from Japan
, the US International Trade
Commission and the parties acknowledged and wrestled with the difficult task of determining the comparability
of various minivan models. The Commission, with the parties’ input, eventually subdivided the unitary minivan
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

 (2) Factors affecting price comparability

8.400 Numerous physical and non-physical factors and consumer perceptions affect the price
comparability of passenger cars. These include, but ar e not limited to: brand loyalty; quality; after-
sales service, brand image/reputation; reliability; desi gn; durability; utility; resale value; ride and
comfort; driveability; standard features; safety features; available options; exterior size; interior
space; fuel economy; engine size and technology; transmission type; and suspension type. As
demonstrated in Tables 26 and 27 above, there ar e numerous physical differences between the
proposed comparison models that must be taken into account when comparing their prices. The
above-identified non-physical attributes and consumer perceptions also require such an accounting.
8.401 One possible approach to quantifying the pri ce effects of certain physical differences would
be to consider the surcharges commonly assessed by dealers for enhanced feat ures, such as a larger
engine and advanced engine technology; special sa fety features (e.g., anti-lock brakes and air bags);
trim packages; interior appointments (e.g., power windows and locks and sound system); and an
automatic transmission. Of course, the usefuln ess of such surcharges as bases for adjustments would
be constrained by their limited cross-model transferability.
8.402 Quantifying the price effects of other physical and non-physical factors and perceptions is
much more difficult because specific surcharges do not exist. One way to gauge the price premium
consumers willingly pay for the unique packages of features offered by the Peugeot 306 and Opel
Optima would be to design and conduct targeted c onsumer surveys. Such surveys are commonplace
in the automotive industry.579
6. Adjustments for factors affecting price comparability
 (a) Arguments of Indonesia
8.403 As shown, numerous "other factors" affect the price comparability of the Timor, the Peugeot
306 and the Opel Optima and these factors must be taken into account when assessing the European
Communities (and the United States) price undercu tting claims. Indonesia respectfully notes the
burden of establishing like products properly rests with complainants.
 (b) Arguments of the European Communities
8.404 The European Comm unities has shown that:
- the Timor S-515 was the least expensive passenger car on sale in Indonesia in
November 1996 and again in March 1997;
- specifically, in November 1996, the pri ce of the Timor S-515’s most expensive
version was 43 per cent lower than the pric e of the least expensive version of the
Peugeot 306 and 52 per cent lower than the price of the Opel Optima. As of March
1997, the margins of price undercutting were almost identical.
8.405 Indonesia has not provided any evidence in order to rebut the above claims. Instead,
Indonesia’s only arguments with respect to the existence of price undercutting are the following:

like product category into fifteen sp ecific products for price-comparison purposes. See Minivans from Japan ,
USITC Pub. 2529 (July 1992) at pp.5 and A-100 (Indonesia Exhibit 45).
579 See generally Daniel McGinn, Divide and Conquer: Meet the Researcher Behind GM's
Controversial Marketing Strategy , Newsweek, 1 December 1997 at pp. 50-52 (Indonesia Exhibit 42,
Attachment B).
WT/DS54/R, WT/DS55/R,
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- Article 6.5 of the SCM Agreement requires that any price comparisons shall be made
at the same level of trade, at comparable times and due account must be taken of any
other factor affecting price comparability. The European Communities has not
attempted to account for "any other factors" in its analysis.
- The Mazda MR-90 and the Ford Laser are so ld at prices below those charged for the
Timor.
8.406 All the price comparisons made by the Eu ropean Communities are based on the listed retail
prices provided by Indonesia itself (in Attachment A-40/1 to its Annex V Response). The European
Communities understands that all the prices mentioned in that information are at the same level of
trade (namely, at retail level) and correspond to the same period of time (November 1996 and March
1997). The European Communities believes that ther e 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 othe r hand, the Opel Optima and the Peugeot 306.
Indonesia itself has not been able to identify any such "other factor", let alone any factor which may
account for a level of price undercutting of 50 per cent.
8.407 Further, the European Communities is not aw are of any "other factor" (including differences
in physical characteristics) which may explain the massive price undercutting by the Timor.
Indonesia cannot place upon the European Communities the burden of proving the negative, i.e. that
no "other factor" is responsible for the price unde rcutting. The evidence adduced by the European
Communities is more than sufficient to raise a presu mption that the subsidies in dispute have caused
significant price undercutting. If Indonesia considers that the price differences are due to any "other
factor", it is for Indonesia to prove it.
8.408 In any event, the data contained in In donesia's Annex V response confirm that the price
undercutting is essentially attributable to the s ubsidies received by PT TPN. According to the
following table (provided by Indonesia AV/3, Attachme nt A-28), the estimated dealer prices for the
Timor during 1998 will be between US$22,170 and US$24,085 "without subsidy" and USD 14,927
"with subsidy". The estimated pri ce "with subsidy" is almost the same as PT TPN's listed price for
the Timor as of March 1997, which price undercut th e listed price for the least expensive version of
the Peugeot 306 (US$24,405) by 39 per cent. In contrast, the estimated price "without subsidy" for
the Timor would have undercut the listed price of th e Peugeot 306 by only between 1 and 9 per cent.
In other words,according to Indonesia's own estim ates, the subsidies received by PT TPN would
account for between 77 and 97 per cent of the price difference between the Timor and the
Peugeot 306.
WT/DS54/R, WT/DS55/R,
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Table 36
Timor Cars Manufactured In Karawang Plant
 US$1 = Rp. 2430
No. Item 1997 1998 (estimat ed) 1999 (estimated) Remarks
1 Capacity (unit) NA 63,000 63,000
2 Output NA 6,000 35,000 The only Timor car produced in
Indonesia is the S-515i DOHC -
1500 cc.
3 Unit cost (US$)
a. with subsidy
b. without subsidy

NA
NA

7,000 - 9,000
9,664 - 12,852

7,000 - 9,000
9,664 - 12,852

4 Unit dealer price (US$)
a. with subsidy1
b. without subsidy2

NA
NA

14,927
22,170 - 24,085

14,927
22,170 - 24,085

5 Sales in Indonesia
a. Unit
b. US$ (million)

NA
NA

6,000
89.56

25,000
373.18

6 Export
a. Unit
b. US$ (million)

NA
NA

0
0

10,000
70 - 90

7 Local content (%) NA 40 60
8 Subsidy (US$ million)
a. import duty
b. luxury sales tax

NA
NA

15.99 - 23.12
27.47 - 31.84

51.80 - 74.89
96.81 - 110.97

 Note : 1Dealer price is calculated without Luxury Sales Tax, Import Duty and Registration Fee.
 2Dealer price is calculated without Registration Fee.
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8.409 As noted, the Mazda MR-90 is an old mode l. The European Communities believes that there
have been no sales of this model since May 1997 and that between January and April of 1997 only
19 units were sold. The Ford Laser is sold exclusiv ely for use as a taxi, free of customs duties and of
sales taxes. Therefore, any comparison with the prices of models which are subject to import duties
and sales taxes is meaningless.
 (c) Arguments of the United States

8.410 Indonesia takes a perfunctory stab at ar guing that the price analyses conducted by the
United States and the European Communities are fl awed. Indonesia does not assert that these price
comparisons were not made at the same level of trad e or at comparable times, but instead asserts that
the Complainants failed to account for "any other fact ors" within the meaning of Article 6.5. Aside
from the fact that Article 6.5 does not impose a bur den on the complaining party to adjust for “any
other factors,” but instead identifies such factors as something for a panel to consider, the United
States does not know of any such factors, and Indonesia has not identified any. Essentially, Indonesia
is seeking to have the Panel impose on the United States and the European Communities the burden of
proving the negative; i.e., that "other factors" do not exist.
8.411 Moreover, as stated by numerous commentator s, the only factor responsible for the significant
price undercutting by the Timor Kia Sephia is subsid ies, and the 50-60 per cent price advantage that
these subsidies confer.
580
8.412 The United States is unaware of any other factor that would account for the massive price
undercutting of like products by the Timor Kia Seph ia. As numerous analysts have recognized, this
price undercutting is attributable to the huge subsidies provided by Indonesia. 581
8.413 In the view of the United States, the party that would benefit from having an "other factor"
being taken into account under Artic le 6.5 should bear the burden of proving the existence of such a
factor and its effect on price comparability. Othe rwise, as the United States has already noted, the
opposing party would bear the bur den of proving the negative, an unreasonable burden which is
typically impossible to satisfy and which the drafte rs of the SCM Agreement could not have intended,
given that one of the purposes of the SCM Ag reement was to create an operational multilateral
remedy against subsidies.
8.414 In that regard, the relevant provisions of the Anti-dumping Agreement, which deals
extensively with issues or price comparability, provide useful guidance on this point. Indeed,
Indonesia has previously acknowledged that concepts developed in the anti-dumping context can be
relevant to an analysis of serious prejudice.
8.415 Article 2.4 of the Anti-dumping Agreement deals with the topic of making a fair comparison
between normal value and export price, and provides that due allowance shall be made for a variety of
factors, including "any other differences which are al so demonstrated to affect price comparability".

580 See, e.g., “Jakarta’s Car Wars,” Business Times (Singapore), 28 May 1996 (US Exhibit 14, pp. 46,
48); “Indonesia Draws More Criticism Over Car Plan,” The Nikkei Weekly , 17 June 1996 (US Exhibit 14, pp.
80-81); “Bumpy Road Ahead for Motoring Plan,” South China Morning Post , 8 June 1997 (US Exhibit 14, pp.
132-133); and “Indonesia Company: Suharto Clan’s Business Activities,” EIU Viewswire , 28 July 1997 (US
Exhibit 14, pp. 154, 156).
581 See, e.g., "Jakarta’s Car Wars", Business Times (Singapore), 28 May 1996 (US Exhibit 14, pp. 46,
48); "Indonesia Draws More Criticism Over Car Plan, The Nikkei Weekly, 17 June 1996 (US Exhibit 14, pp.
80-81); "Bumpy Road Ahead for Motoring Plan", South China Morning Post , 8 June 1997 (US Exhibit 14, pp.
132-133); and "Indonesia Company: Suhart o Clan’s Business Activities", EIU Viewswire , 28 July 1997 (US
Exhibit 14, pp. 154, 156).
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In other words, the party seeking an allowance mu st demonstrate the effect of a factor on price
comparability. The last sentence of Article 2.4 states : "The authorities shall indicate to the parties in
question what information is necessary to ensu re a fair comparison and shall not impose an
unreasonable burden of proof on those parties." Thus Article 2.4 appears to impose the burden of
proof on the party seeking an allowance or an adju stment to normal value or export price, although
the burden imposed cannot be an unreasonable one.
8.416 The United States cannot speak for the practice of all Members, but certainly the practice of
the US authorities responsible for administering th e US anti-dumping law is to impose the burden of
proof on the party seeking an adjustment, whether th e party be an exporter seeking an adjustment that
will lower a dumping margin or a domestic party seeking an adjustment that will increase a dumping
margin.
8.417 By the same token, an evenhanded applicati on of Article 6.5 would be to impose the burden
of proof on the party claiming the existence of any "o ther factor affecting price comparability". This
avoids the imposition of the unreasonable burden of proving the negative.
8.418 The United States would also note that Article 6. 5 refers to "due account being taken of "other
factors". The ordinary meaning of "due" is "fitting or appropriate". As the United States has
previously stated, it is unaware of any factors ot her than the subsidies provided by Indonesia that
would account for the massive price undercutting reflect ed in sales of the Timor Kia Sephia. Also, as
previously stated, even Indonesia's own data show that subsidies cause the price of the Timor Kia
Sephia to be between US$7,200-9,100 lower than would otherwise be the case. AV/14, Attachment
A-28, note 4.
8.419 It is submitted that even if it is assumed for purposes of argument that the United States bears
the burden of taking "due" account of other fact ors, the United States has met its burden of
establishing that no account for such factors is "due" in this case.
7. Additional EC rebuttals to Indonesia's responses to serious prejudice claims

(a) The subsidies received by PT TPN pursuant to Presidential Decree 42/96 have not
been withdrawn
8.420 Indonesia’s first argument is based on th e wrong premise that there are two different
"programmes", each providing different subsidies. In reality, however, there is but a single National
Car Programme based on Presidential Instru ction 2/96. Presidential Decree 42/1996 does not
introduce a new "programme". The sole purpose of Presidential Decree 42/1996 was, by its own
words, to extend on a temporary basis to Nati onal Cars imported from Korea the "same treatment" 582
already granted in February 1996 to National Cars assembled in Indonesia.
8.421 Moreover, Indonesia’s first argument makes th e fundamental error of confusing the measure
granting a subsidy with the subsid y itself. A subsidy continues to exist - and, therefore, may be
"withdrawn" or its adverse effects “removed” in the sense of Article 7.8 of the SCM Agreement - for
as long as it continues to benefit the sale of goods by the recipient firm, even if the measure granting
that subsidy has already expired.
8.422 In the present case, the permit given to PT TPN for importing 45.000 units of the Timor
S-515 duty and tax free from Korea expired as of 30 June 1997. Yet, the subsidies received by PT

582 See Article 1 of Presidential D ecree 42/1996 in EC Exhibit A-13. The translation provided by
Indonesia (Attachment 6) states that imported National Cars “will be treated equally ...”.
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TPN pursuant to that authorization have not been "withdrawn". Sales of pa ssenger cars by PT TPN
after 30 June 1997 have continued to benefit from those subsidies and, as a result, to cause serious
prejudice to the interests of the European Communities.
8.423 In this regard, the European Communities notes and agrees with the argument made by the
United States to the effect that the subsidies granted under the one-year authorization to import cars
from Korea duty and tax free are non-recurring subsidi es and therefore should be allocated to future
time periods.
8.424 Furthermore, even if the total amount of the subsidies had to be attributed to the passenger
cars imported from Korea before 30 June 1997, it rema ins that more than 70 per cent of those cars
had not been sold yet as of that date. In fact, it can be estimated that if sales of the Timor S-515
continue at the same pace as until now, the last Timor S-515 imported from Korea under Presidential
Decree 42/1996 will not be sold until March 1999. This cannot be explained away simply as an
"inventory overhang".
8.425 Indonesia does not address directly the evidence of serious prejudice submitted by the
European Communities. Allegedly, because it need not do so given that the Timor S-515 is unlike
any other passenger car and that, in addition, the so-called “June 1996 Programme” has already
expired. In reality, because Indonesia cannot provide any evidence to rebut the EC claim, which is
based on evidence supplied by Indonesia itself as part of its Annex V response.
(b) Indonesia's suggestion that the fact that the import duty and luxury tax benefits with
respect to CBUs imported from Korea under the June 1996 programme will be
reimbursed or not provided precludes a finding of serious prejudice is incorrect
8.426 According to Indonesia, all the benefits granted under the so-called June 1996 programme
were already "provided" before 30 June 1996. Th e relevant question, therefore, is whether those
benefits continue to have effects. As long as those benefits are not effectively and definitively
reimbursed by PT TPN (increased with an appropriate amount of interest), it cannot be considered
that the subsidies have ceased to produce effects.
8.427 The letter that Indonesia has submitted indi cating that the Timors imported as CBUs from
Korea do not meet legal requirements to receive National Car benefits is a letter from SUCOFINDO
to the Indonesian Government, which contains th e results of an audit conducted by SUCOFINDO.
The European Communities understands that the Indonesian Government has not yet taken any formal
decision ordering the reimbursement based on SUCO FINDO's audit. Moreover, assuming that such
decision was taken, it is likely to be appealed by PT TPN. Even if that appeal was unsuccessful, it
would still be possible for the Indonesian Government to "forgive" PT TPN's debt.
8.428 In sum, PT TPN has not yet reimbursed an y of the unpaid taxes and duties and it is still
uncertain whether it will be required to do so in the future. Thus, there is no reason to assume that the
subsidies have ceased or will cease to cause serious pr ejudice. In those circumstances, the Panel is
required to rule on this claim, like on all other claims included in its terms of reference.
(c) The subsidies granted under the Nationa l Car Programme for the assembly of
passenger cars will continue to cause serious prejudice to the Community industry
8.429 The permit issued to PT TPN for importing Timor S-515 cars duty free and tax free from
Korea expired on 30 June 1997. Nonetheless, the sales of those cars, together with the sales of
subsidized cars assembled by PT TPN in Indonesia, will continue to cause serious prejudice to the
Community interests in the foreseeable future.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

8.430 As of 30 June 1997, the number of Timors S-515 imported duty free and tax free from Korea
and not yet sold was 28,391. In comparison, the total demand for passenger cars during 1996 was
42,345 units. Thus, the number of Timors S-515 imported from Korea and not yet sold as of
30 June 1997 would have been sufficient to cover almost 70 per cent of the total Indonesian demand
for passenger cars during the whole of 1996. As already noted, those cars will not be subject to the
Sales Tax on Luxury Goods when they are sold.
8.431 From June 1997 and until May 1998, PT TPN will assemble the Timor S-515 at the Tambun
Plant. According to Indonesia, th is Plant has a production capacity of 3,000 cars per year and is
currently producing at the rate of 1,000 cars per year.
8.432 As from May 1998, PT TPN will start producing the Timor S-515 at its own plant in
Karawang. According to the investment permit approved by the BKPM, the Karawang Plant is
designed to produce 120,000 cars per year, of which 80,000 sedans. In comparison, the forecast
demand for passenger cars during 1998 and 19 99 is 64,000 and 72,000, respectively.
583 Thus,
Karawang Plant will have more than sufficient pr oduction capacity to supply 100 per cent of the
Indonesian demand during the next two years.
8.433 According to the more conservative estimat es now produced by the Indonesian authorities for
the purposes of this dispute, the production capacity of Karawang Plant will be 63,000 units. 584
Though less than originally planned, this capacity will still be sufficient to cover almost 100 per cent
of the expected demand for 1998.585
8.434 According to the same estimates, the actual output of Timors S-515 will be 6,000 units in
1998 and 35,000 units in 1999, of which 25,000 for sale on the Indonesian market. 586 This means that
the Indonesian Government expects that, despite an unexplained very low rate of capacity utilization,
in 1999 Karawang Plant will supply over 35 per cent of the forecast total sales in the Indonesian
passenger car market. In other words, the Indonesi an authorities are counting on a further 10 per cent
increase in PT TPN’s market share between now and 1999.
8.435 As shown above, the estimated subsidization rate (on sales value) of the cars assembled by PT
TPN in Indonesia is lower than the corresponding rate for cars imported from Korea but still very
substantial. This will enable PT TPN to conti nue to undercut significantly the prices of the
Community cars. In fact, according to PT TPN’s own estimates, the retail price for the cars
assembled at Karawang Plant, will be virtually th e same as the 1997 prices for the cars imported from
Korea.587
8.436 The European Communities has established not only that the National Car Programme has
caused serious prejudice but in addition that it will con tinue to do so in the fo reseeable future. This
claim is not to be confused with a claim of th reat of serious prejudice. Since the National Car
Programme has already caused serious prejudice, there is no need for the EC to show that it threatens
to cause serious prejudice. The EC has submitted also a claim of threat of serious prejudice, but only
in the alternative, i.e. in the eventuality that the Panel was to find that the National Car Programme
has not caused actual serious prejudice. (See Section VIII.B.7.)

583 Data from DRI’s report on ”East Asian Automotive Growth Markets” included in AV/2, Annex 2.
584 AV/3, Attachment A-28.
585 Data from DRI’s report on ”East Asian Automotive Growth Markets” included inAV/2, Annex 2.
586 AV/3, Attachment A-28.
587 In AV/3, Attachment A-28, Indon esia has indicated that the es timated unit dealer price “with
subsidy” for the Timors S-515 assembled at Karawang Plant during 1998 and 1999 will be US$14,927. This
price is almost identical to PT TPN current prices. Thus, according to AV/3, Attachment A - 40/1, in
March 1997 PT TPN’s listed retail prices for the Timor S-515 ranged from US$13,535 to US$14,861.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

8.437 The European Comm unities has shown that:
- As of 30 June 1997, the number of Ti mors S-515 imported duty and tax free from
Korea and not yet sold was 28,391. As mentioned above, if sales of the Timor S-515
continue at the same pace as until now, it may be estimated that the last Timor S-515
imported from Korea will not be sold until March 1999.
- From May 1998, the Timor S-515 will be ass embled at Karawang Plant. According to
the investment permit issued by the Indonesian Government to PT TPN, this Plant
has been designed to produce 80,000 sedans per year.
- According to Indonesia’s Annex V respon se, the actual output of Timor S-515 at
Karawang Plant will be 6,000 units in 19 98 and 35,000 units in 1999, of which
25,000 for sale on the Indonesian market. In comparison, until September of this year,
PT TPN sold 13,476 units. This means that PT TPN expects to increase its sales by
almost 40 per cent between now and 1999.
- In its Annex V Response, Indonesia has adm itted that the current prices for the Timor
S-515, and consequently the level of price undercutting, will remain unchanged
during 1998 and 1999.
8.438 Indonesia has not advanced any evidence whatso ever to rebut the above allegations. It could
hardly do so, since they are all based on data provided by Indonesia itself in its Annex V Response.
8.439 The European Communities pres ents a rebuttal to the argument that the measure has expired
and therefore is not relevant to the Panel's work in the context of its claims under Article I:1 of GATT
1994. (See Section VII.E.2) In addition, with resp ect to the implications, if any, of an eventual
repayment by TPN of the benefits under the programme, the European Communities makes the
following arguments:
8.440 According to Indonesia, all the benefits granted under the so-called June 1996 programme
were already "provided" before 30 June 1996. Th e relevant questions, therefore, is whether those
benefits continue to have effects. As long as those benefits are not effectively and definitively
reimbursed by PT TPN (increased with an appropriate amount of interest), it cannot be considered
that the subsidies have ceased to produce effects.
8.441 The letter submitted by Indonesia is a letter from SUCOFINDO to the Indonesian
Government which contains the results of an audit conducted by SUCOFINDO. The European
Communities understands that the Indonesian Government has not taken yet any formal decision
ordering the reimbursement based on SUCOFINDO's audit. Moreover, assuming that such decision
was taken, it is likely to be appealed by PT TPN. Even if that appeal was unsuccessful, it would still
be possible for the Indonesian Government to "forgive" PT TPN's debt.
8.442 In sum, PT TPN has not reimbursed yet any of the unpaid taxes and duties and it is still
uncertain whether it will be required to do so in the future. Thus, there is no reason to assume that the
subsidies have ceased or will cease to cause serious pr ejudice. In those circumstances, the Panel is
required to rule on the serious prejudice claim, li ke on all other claims included in its terms of
reference.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

8. Additional United States arguments concer ning serious prejudice the government-directed
$690 million loan
8.443 As demonstrated above, the tariff and tax subsidies provided under the National Motor
Vehicle programme have caused serious prejudice to the interests of the United States. The
government-directed $690 million loan to TPN exacerbat ed the serious prejudice that already existed
at the time when the Government of Indonesia ordered the banks to provide the loan.
8.444 As a result of the concessional financing provided to TPN through the intervention of the
Indonesian Government, TPN’s costs of doing business will be reduced even further. This continued
Government backing will ensure that TPN and its joint venture, Kia Timor, continue to enjoy a
competitive advantage vis-a-vis their competitors in the Indonesian passenger car market, and that
imports of passenger cars from US motor vehicle ma nufacturers will (a) continue to be displaced or
impeded from the Indonesian market; and (b) w ill continue to experience significant price
undercutting from the subsidized Timor Kia Sephia sedan.
9. Claims of threat of serious prejudice under the SCM Agreement
 (a) Claim of the European Communities
8.445 The European Communities claims that, in the alternative, the subsidies granted under the
National Car Programme to passenger cars pose a threat of serious prejudice to the Community
interests. The following are the European Communities' arguments in support of this claim.
8.446 As demonstrated above, the subsidies gran ted under the National Car Programme have caused
actual serious prejudice to the Community interests and will continue to do so in the foreseeable
future.
8.447 Nonetheless, assuming arguendo that the Panel considered that the available evidence does
not warrant a finding of actual serious prejudice, th e facts discussed above in order to demonstrate
that the subsidies in question will continue to cause serious prejudice to the Community industry are
more than sufficient to conclude that the Nationa l Car Programme poses a threat of serious prejudice
to the Community interests.
 (b) Claim of the United States

8.448 The United States claims that the subsidies under th e National Motor Vehicle Programme
have caused a threat of serious prejudice to the inte rests of the United States within the meaning of
Article 6 and 27 of the SCM Agreement. The following are the United States arguments in support
of this claim:
 (1) Claim as raised
8.449 The United States has demonstrated that the National Motor Vehicle programme already has
resulted in serious prejudice insofar as passenger car s are concerned. However, these subsidies also
threaten serious prejudice with respect to US expor ts of light commercial vehicles to the Indonesian
market. As indicated above, Kia Timor plans to assemble its own version of the Kia Sportage, a light
commercial vehicle, to be sold in Indonesia as th e Timor J520i. As discussed below, the Timor Kia
Sportage also will benefit from subsidies, and likel y will have the same adverse effects on US light
commercial vehicles as the Timor Kia Sephia had on US passenger cars.
8.450 By way of background, note 13 to Article 5© of the SCM Agreement provides that the term
“serious prejudice” includes “threat of serious prejudice”. Although the SCM Agreement does not
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

address in detail the elements of a threat of serious prejudice case, logically, the elements for such a
case should be the same as for a serious prejudice case. The principal difference between the two
types of cases is that in a serious prejudice case, all of the elements already exist, whereas in a threat
of serious prejudice case, all of the elements need not have come to pass.
8.451 In this case, the United States has previous ly demonstrated that three of the four necessary
elements already exist. The government-directed $ 690 million loan (1) constitutes a subsidy, (2) is
specific, and (3) exceeds 5 per cent ad valorem. Be cause the ostensible purpose of this subsidy is to
fund the construction of the Cikampek facility where the Timor Kia Sportage will be assembled, the
loan confers a subsidy on the Sportage.
588
8.452 In addition, the United States has shown that US light commercial vehicles imported and sold
in Indonesia are "like" the Timor Kia Sportage. As set forth in Table 25, based on a comparison of
specifications, the GM Opel Blazer is sufficiently si milar to the Sportage to be considered a "like
product".
589
8.453 The only remaining question is what the eff ects will be of the Timor Kia Sportage once it is
introduced into the Indonesian market some time next year. Based on the pricing strategy employed
by TPN in connection with the Timor Kia Sephia, it is reasonable to assume that TPN will take
advantage of the subsidies it receives from the Gove rnment to significantly undercut the prices of its
competition within the meaning of Article 6.3©. As such, a threat of serious prejudice exists.
(2) Claim not pursued due to Panel's ruling on the admissibility of the
$690 million government-directed loan
8.454 The United States claim of threat of seri ous prejudice was limited to the impact of the
subsidized Sportage on light commercial vehicles of US manufacturers. The threat of serious
prejudice claim was based on the re lated claim that the US$690 million government-directed loan to
TPN (the purpose of which was to finance the c onstruction of the Cikampek plant at which the
Sportage will be assembled) constitutes an actionabl e subsidy. Because the Panel has dismissed the
US claim regarding the loan, the United States is not currently pursuing its claim of threat of serious
prejudice.
8.455 However, while the Panel has ruled that the US claims concerning th e loan are inadmissible,
the loan remains relevant to this case. Cf., Argentina - Measures Aff ecting Imports of Footwear,
Textiles, Apparel, and Other Items , WT/DS56/R, Report of the Panel issued 25 November 1997,
para. 6.15. Indonesia asserted at the first meeting of the Panel that after TPN's start-up phase, the
market will determine the winners and the losers, as it should." Indonesia's Statement to the Panel,
page 2. This statement is simply contradicted by the fact that the Government of Indonesia ordered a
consortium of banks to provide a $690 million loan to TPN on pref erential terms. The loan is a
subsidy, and, with a 10-year term, has a 10-year allocation period. In other words, TPN will be
deemed to be receiving subsidies from the loan for the next ten years. The existence of the loan belies
Indonesia's claim that, as of 1999, the "market" will determine the winners and the losers. Moreover,
Indonesia's claim that the Government of Indonesia played no role in the provision of the loan is so at
odds with the reported facts that it calls into ques tion the credibility of other factual assertions made
by the Government of Indonesia in this case.

588 To date, the Government of Indonesia has insisted that the Timor Kia Sportage will not be
designated as a “national motor vehicle” and will not benefit from the tariff and tax subsidies under the National
Motor Vehicle programme. Be that as it may, an issue remains as to whether the tariff and tax subsidies
provided to the Sephia also provide benefits to the Sportage.
589 The United States also believes that the Jeep Cherokee and Jeep Wrangler are “like” the Sportage.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

 (c) Response by Indonesia

8.456 Indonesia responds to the threat of serious prejudice claims raised by the European
Communities and the United States by arguing that these complainants must demonstrate a threat of
serious prejudice by positive eviden ce in accordance with the provisions of paragraphs 3 through 8 of
Article 6. The following are Indonesia's arguments in this regard:
8.457 The specific threat allegations of the EC relate solely to the putative effects of the
February 1996 component of the National Car Progra mme and the specific threat allegations of the
United States relate solely to the putative effects of the August 1997 loan.
590 As discussed above,
these allegations implicate the 5 per cent ad valorem standard of Article 6.1(a), as well as the
generally available serious prejudice standards of Article 6.3. This does not, however, result in the
application of different types of threat analyses to these different bases for actionability.
8.458 In this case, Article 27.8 operates to appl y the general standards of Article 6.3 to any
Article 6.1(a) allegations. As demonstrated belo w, complainants have failed to show by positive
evidence, as they must under either Article 6.1(a) or 6.3, that their interests are threatened with serious
prejudice.591
(1) The actual and alleged subsidies provided pursuant to the February 1996 National Car
Programme or the August 1997 loan to TPN, respectively, do not threaten serious
prejudice to European Communities or US interests
8.459 Paragraphs (a) and (c) of Article 6.3 apply to the European Communities and United States
threat of serious prejudice allegations. Both paragraphs expressly focus on the effect of the subsidy at
issue on a "like product" of another Member. This threshold concept significantly limits the scope of
the effects analysis that is to be undertaken here . As discussed above, Indonesia disagrees with the
complainants' like product arguments.
 (a) Complainants' threat allegations are based on inappropriate like product analyses
8.460 The complainants' threat allegations are b ased on inappropriate like product analyses. The
EC takes an unduly expansive approach, boldly asser ting that all motor vehicles falling within the
category of passenger cars, as defined in Indonesia' s regulations, constitute a single category of like
products. The United States, in contrast, takes an unduly restrictive approach, looking only at limited
engine, transmission, brake and dimension data for the Sportage and the Opel Blazer.
592 As discussed

590 The EC speaks generally of the continued effects of the terminated June 1996 programme and of the
“estimated subsidisation rate (on sales value) of the cars assembled by PT TPN in Indonesia” and the United
States asserts generally that National Car Programme subsid ies threaten serious prejudice to US exports of light
commercial vehicles, but such generalized pleading fails to satisfy even the most rudimentary positive evidence
or due process standards.
591 Thus, although the US Annex IV calculations regarding the August 1997 loan are flawed in several
critical respects, the Government needs not here address their validity and accuracy. Also, although not within
the scope of their specific threat allegations, and thus not germane, the same holds true for the application by the
US and the EC of the 5%/15% tests to the February and June 1996 aspects of the National Car Programme. The
calculations relating to the June 1 996 programme are moot because the programme has been terminated.
Similarly, the calculations relating to the February 1996 programme are moot b ecause the only evidence of
actual serious prejudice that is adduced relates exclusively to the now-terminated June 1996 programme.
Article 6.1(a) is not implicated by the February 1996 programme because, as demonstrated below, Complainants
have failed to satisfy the evidentiary standard imposed by Article 27.8 with respect to threat of serious prejudice.
592 Although not relevant, this errant approach also contaminates the like product analysis relied upon
by the US with respect to passenger cars. The reliance of the US and, to a lesser extent, the EC on the
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

above, the Sportage is not (and will not be) a natio nal car. Moreover, the application of customary
like product criteria demonstrates the specious nature of each complainant’s approach.
8.461 The end-use criterion offers no guidance here because widely dissimilar vehicles, such as
buses, motorcycles, vans and cars, serve to tran sport people and carry cargo. Indeed, animals and
human-drawn means of conveyance also serve these purposes.
8.462 With respect to cars, consum er's tastes and habits and the product's properties, nature and
quality are inseparable. Contrary to the positi ons taken by the European Communities and the
United States, the markets for passenger cars an d light commercial vehicles are very highly
differentiated. It is widely recognized that c onsumers consider numerous physical and non-physical
characteristics in making their purchasing decisions: qua lity; reputation; price; resale value; ride and
comfort; standard features; safety features; available options; exterior size; interior space; engine size
and technology (e.g., horsepower, in-line/V configuration, valve design); fuel efficiency; etc.
593
8.463 Finally, that with respect to tariff treatme nt, passenger cars are distinguished on the basis of
total cylinder capacity and fuel type (gasoline versus diesel), with Harmonized Tariff System
breakpoints occurring at 1000cc, 1500cc and 3000cc. 594 In this respect, it is especially important to
note that the Timor is one of the few passenger cars sold in Indonesia with a cylinder capacity of less
than 1500cc.595
8.464 In sum, although it may be difficult to determine appropriate like product categories for the
purposes of this proceeding, it should be abundantly clear that the categories urged by the European
Communities and the United States are not appropriate . This is especially so considering that a
restrictive interpretation of that phrase is re quired here. The European Communities and the
United States have not met their burden of prov ing that products are like and of establishing
acceptable like product categories.
596 As further discussed below, th eir failure to adduce appropriate
evidence on those bases results in thei r failure to affirmatively demonstrate, as they must, that their
interests are threatened with serious prejudice thro ugh the effects of the February 1996 programme or
the 1997 loan to TPN.

DRI/McGraw-Hill market segmentation categories is also misplaced. Fi rst, the DRI/McGraw-Hill categories
pertain to the European , not the Indonesian, car market. See AV/2, at Annex 1, p. 284. Second, cars with the
same nameplate often differ significantly from market to market. Finally, there is disagreement among industry
authorities as to how to segment the market. For exampl e, a US industry authority places the more-advanced
US version of the Kia Sephia in a "Budget" category, wholly apart from the Escort, Neon, and any Opel
Optima-equivalent GM model. See Indonesia Exhibit 12.
593 Indeed, if all that mattered was a car’s general market segment, we would not observe the very
significant price spreads that exist be tween cars in the same segment. For example, as set forth by the United
States in Table 31, the March 1997 list price for a Daewoo Nexia DOHC 1500cc was 43 million rupiah, while
the list price for a Honda Civic 4-door, AKP 1600cc was nearly 75 million rupiah.
594 See HTS Category 87.03. A number of countries also consider other factors (e.g., interior space;
body type; number of cylinders; height) in further subdividing this category for statistical and other purposes.
595 It is also noteworthy that two other vehicles fitting in the HTS 1000cc to 1500cc category (the
Mazda MR-90 (1400cc) and the Ford Taxi (1300cc)), are sold at prices below those charged for the Timor. See
AV/14, at Attachment U-22/1 at 3; AV/13, at Attachment 7.
596 See generally Japan-Taxes on Alcoholic Beverages, WT/DS8/R (1 November 1996), Panel Report,
at p. 117, para. 6.14 (complainants have burden of proof to show like product in Article III:2 dispute).
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

(b) Complainants have failed to demonstrat e that the effects of the February 1996
Programme or the August 1997 loan to TPN threaten serious prejudice
(1) The threat of serious prejudice standard
8.465 As a threshold matter, it is important to emphasize that the threat of serious prejudice standard
must be very exacting. 597 For example, unsubstantiated conjecture, speculation and assumptions
certainly could not constitute the "positive eviden ce" called for by Article 27.8. Moreover, the
temporal dimension is also critical, given the flui dity of the economic and business environments (on
both macro and micro levels). Projections and for ecasts may be carefully developed, but they are all
too susceptible to revision. Thus, the more remote an item is in time, the less reliable it is as a current
indicator of future developments. In sum, the threat alleged must be real and imminent, and the threat
standard must be applied cautiously and judiciously, especially when the rights of a developing
country Member are at stake.
(2) The EC assertions

8.466 The European Communities: (i) asserts that future sales of the national cars imported under
the June 1996 programme will cause (unspecified) seri ous prejudice; (ii) implies that national cars
assembled in Indonesia under the February 1996 pr ogramme will displace or impede European
Communities imports; and (iii) argues that TPN will be able and currently plans to set retail prices
that will undercut significantly the prices of EC cars in 1998 and 1999. None of these points,
however, supports an affirmative threat finding.
8.467 As for the European Communities' specific assertions, any overhang in the inventory of
imported national cars is irrelevant to this proceed ing. These cars benefitted only from the June 1996
programme, which has terminated.
8.468 The EC's future displacement/impedance 598 and price undercutting 599 arguments are also
without merit. As discussed above, the European Communities' failure to develop and adduce like
produce-specific evidence strips their already sketchy threat argument of any validity.

597 Article 15.7 of the Subsidies Agreement, which pertains to the imposition of countervailing
measures, is especially instructive in th is respect. It provides, in pertinent part: “A determination of a threat of
material injury shall be based on facts and not merely on allegation, conjecture or remote possibility. The
change in circumstances which would create a situation in which the subsidy would cause injury must be clearly
foreseen and imminent.” Article 15.8, in turn, extends an additional cautionary note, even where the imposition
of countervailing measures is warranted: “With respec t to cases where injury is threatened by subsidized
imports, the application of countervailing measures shall be considered and decided with special care.”
Further guidance can be found in the pronouncements of various GATT bodies that have addressed the
same threat concept in the anti-dumping context. The Report of the Group of Experts on “Anti-dumping and
Countervailing Duties” states: “With resp ect to cases where material injury is threatened by dumped imports,
the Group stressed that the application of anti-dumping measures had to be studied and decided with particular
care.” (13 May 1959) BISD 8S/145 (para. 16 at p. 150)(emphasis in original). The Committee on Anti-
dumping Practices stated: “[A]nti-dumping relief based on the threat of injury must be confined to those cases
where the conditions of trade clearly indicate that material injury will occur imminently if demonstrable trends
in trade adverse to domestic industry continue, or if clearly foreseeable adverse events occur.”
Recommendation Concerning Determination of Threat of Material Injury
 (21 October 1985), BISD 32S/182
(para. 5 at p. 183). See also Korea-Anti-dumping Duties on Imports of Polyacetyl Resins from the United States
598 Although not applicab le here, GATT panels addressing displacement/impedance claims have
imposed a high burden of proof on the complainants, requiring them to provide clear and substantial evidence to
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

8.469 Nevertheless, the fact that the national car does not and will not compete significantly with
EC cars is borne out by historical data. For example, notwithstanding the June 1996 programme, total
Indonesian sales of passenger cars carrying Eur opean Communities brand names increased from
8,554 units in 1995 to 9,526 units in 1996.
600 Moreover, taking 1996 as the reference year, the
breakdown of passenger car sales by brand was as follows: Mercedes-Benz, 3,829 units (40.2 per
cent of total European Communities sales); BMW, 3,608 units (37.9 per cent); Peugeot, 1,401 units
(14.7 per cent); and Volvo, 688 units (7.2 per cent). 601 It simply strains credulity to suggest that the
small Timor is or will be a rival of Mercedes-Benz , BMW, Peugeot or Volvo. Thus, the historical
data are yet another factor refuting the Europ ean Communities' assertions that the national car
threatens to cause (or, in fact, has caused) serious prejudice to the European Communities' interests.
(3) The US claim
8.470 The United States threat allegation is one-dime nsional, focusing solely on the putative effects
the yet-to-be-built Sportage will have on sales of th e GM Opel Blazer. The United States first asserts
that the August 1997 loan to TPN constitutes a spec ific subsidy that exceeds 5 per cent ad valorem,
and claims all that is in question is what the effects will be of the Sportage when it is introduced into
the market.602 The United States then simply asserts that "[b]ased on the pricing strategy employed by
TPN in connection with the Timor Kia Sephia, it is reasonable to assume that TPN will take
advantage of the subsidies it receives from the Gove rnment to significantly undercut the prices of its
[the Sportage’s] competition within the meaning of Article 6.3(c)." This is no more than
unsubstantiated, unvarnished speculation that does no t even remotely approach the type of positive
evidence required by the SCM Agreement. This f act, coupled with the inadequate US like product
analysis discussed above, is fatal to the threat allegation of the United States.
8.471 Further, Indonesia has informed the complain ants and the Panel that it will not grant National
Car status to a Sportage-type vehicle.603

support their claims. See French Assistance to Expo rts of Wheat and Wheat Fl our (21 November 1958),
BISD 7S/46 (para. (c) at p. 55); EC—Refunds on Exports of Sugar (6 November 1979), BISD 26S/290
599 Of course, Article 6.5 requires th at any price comparisons shall be made at the same level of trade
and at comparable times and that due account must be taken of any other factor affecting price comparability.
Neither the EC nor the US has even attempted to account for “any other factors” in its analysis.
600 See AV/14, at Attachment U-21/1-B (does not include Opel brand). Both the US and the EC
include sales of Opel in their statistics and serious prejudice calculations. The Government asks that the Panel
issue a ruling regarding which of the Complainants should be allowed to claim Opel sales as its own.
The EC understandably ignores its substantial increas e in sales and instead focuses on market share,
claiming that its market share increased “only marginally” from 1995 to 1996 and “fell dramatically” during the
first half of 1997. Such market share developments ar e meaningless, however. As the EC itself states: “Since
1992 and until 1996, exports of pa ssenger cars from the Community grew at a faster pace than demand,
resulting in significant gains in terms of market share. ” This demonstrates that market share and demand
growth are not necessarily correlated. Many extraneous factors influence this relationship, including changes in
customer preferences.
601 See AV/14, at Attachment U-21/1-B.
602 Notwithstanding the US allegation, the loan is not a subsidy because its terms are fully consistent
with commercial considerations and, in any case, the loan is outside the scope of this proceeding. The
Government, however, needs not debate the point here because the alleged effects do not threaten serious
prejudice to US interests.
603 In this regard, Indonesia has submitted to the complainants and to the Panel a letter to TPN from the
Ministry of Industry and Trade denying National Car benefits for a Sportage-type vehicle (No. 1039/DJ-
ILMK/X/1997 of 21 October 1997, Indonesia Exhibit 42, Attachment E).
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

C. Claim under Article 28 of the SCM Agreement
604
1. Claim raised by the United States
8.472 The United States claims that Indonesia has extended the scope of its tariff and tax subsidies
in a manner inconsistent with Article 28.2 of the SCM Agreement. The following are the United
States' arguments in support of this claim:
8.473 Indonesia first introduced its system of local content-based tariff and tax incentives in 1993,
well before the date on which Indonesia signed th e WTO Agreement and the date on which the WTO
Agreement entered into force for Indonesia. Howe ver, after the WTO Agreement entered into force
with respect to Indonesia, Indonesia extended the sc ope of those subsidies. In so doing, Indonesia
violated Article 28.2 of the SCM Agreement.
8.474 To begin with, the tariff and tax incentiv es provided under the 1993 programme constitute so-
called “import substitution” or “local content” subsid ies within the meaning of Article 3.1(b) of the
SCM Agreement. First, they satisfy the defin ition of a “subsidy” under Article 1.1 of the SCM
Agreement, because they (a) result in government re venue that is foregone; and (b) they confer a
benefit by lowering a firm’s tariff and/or tax bill. Indeed, Indonesia has conceded that these measures
constitute subsidies. Second, these subsidies fall within the purview of Article 3.1(b) because they are
“contingent ... upon the use of domestic over importe d goods”. Thus, these subsidies are prohibited
under Article 3 of the SCM Agreement.
8.475 Although Indonesia’s tariff and tax incentives satisfy the definition of a prohibited subsidy,
Indonesia is not currently subject to the prohibitio n of Article 3.1(b), because it is a developing
country. Under Article 27.3 of the SCM Agreement, “[t]he prohibition of paragraph 1(b) of Article 3
shall not apply to developing country Members for a period of five years . . . from the date of entry
into force of the Agreement.”
8.476 However, while Indonesia is not currently subject to the provisions of Article 3.1(b)
prohibiting the use of local content subsidies, Indonesia is subject to the provisions of Article 28.2 of
the SCM Agreement that prohibit the extension of the scope of subsidy programmes that are
inconsistent with the provisions of the SCM Agreement. Article 28, which is entitled “ Existing
Programmes,” applies to “[s]ubsidy 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 provis ions of this Agreement ... .”
605 Article 28.2 provides the following: “No
Member shall extend the scope of any such program me, nor shall such a programme be renewed upon
its expiry.”
8.477 Indonesia has extended the scope of its pre- WTO tariff and tax subsidies in several ways.
First, Decree No. 223/1995 revised the ta riff subsidies previously available under
Decree No. 645/1993 with respect to passenger car parts. The revision was as follows:

604 Japan, in its first submission alleged that Indonesia had violated Article 28 of the SCM Agreement.
Japan did not, however, make a claim with respect to this alleged violation.
605 Article 28.1, SCM Agreement.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Table 37
Passenger Car Parts

Local Content Rates Import Duty Rates
Decree No. 645/1993
Import Duty Rates
Decree No. 223/1995
less than 20% 100% 65%
20% to 30% 80% 50%
more than 30% and up to 40% 60% 35%
more than 40% and up to 50%606 40% 20%
more than 50% and up to 60%607 40% 10%
more than 60% 0% 0%
8.478 As the above table demonstrates, in the ca se of tariff incentives for passenger car parts, by
creating new gradations of local content rates (i .e., the 40-50 per cent range and the 50-60 per cent
range), Decree No. 223/1995 extends the range of th e incentives available. For example, in the case
of an assembler of passenger cars with a local content of 41 per cent, under Decree No. 645/1993, that
assembler would have had to boost its local conten t to over 60 per cent in order to obtain the
incremental benefit of an import duty rate of 0 pe r cent. Because 60 per cent local content may be an
unattainable goal, the assembler w ould have had no incentive to increase local content beyond 41 per
cent.608 However, under Decree No. 223/1995, th e assembler need not pass the 60 per cent local
content target in order to obtain an additional s ubsidy; instead, it can reduce its import duty rate from
20 per cent to 10 per cent by achieving a local content rate of only 51 per cent.
8.479 Decree No. 82/1996 also extends the scope of the pre-WTO tariff incentives. Under
Decree No. 82/1996, the producer or assembler of a “national motor vehicle” pays no import duties on
imported parts if the vehicle has a local content of 20 per cent in the first year or 40 per cent in the
second year. In the case of passenger cars, a producer or assembler of a passenger car with a local
content rate of 20 per cent would have paid im port duties at the rate of 80 per cent under Decree
No. 645/1993, while a producer or assembler of a car with a local content rate of 40 per cent would
have paid import duties at the rate of 60 per cent. Clearly, the adjustment of import duty rates from
80 per cent and 60 per cent to zero constitutes an extension of the scope of the tariff subsidy.
8.480 Second, Indonesia has extended the scope of its pre-WTO tax incentives. Recall that under
Decree No. 647/1993, passenger cars with a cylinder ca pacity of less than 1600cc and jeeps were
subject to a preferential luxury tax rate of 20 per cent, provided that the local content of such vehicles
exceeded 60 per cent. Thus, Decree No. 647/1993 constituted an import substitution subsidy with
respect to jeeps and certain passenger cars, the amount of the subsidy being the difference between the

606 Decree No. 645/1993 only had a category of 40% to 60%.
607 Decree No. 645/1993 only had a category of 40% to 60%.
608 Indeed, most observers consider the attainment of 60% local content for passenger cars as extremely
problematic. “In Defence of the National Car Project,” Business Times (Singapore ), 10 June 1996 (US Exhibit
14, pp. 72-74).
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

preferential 20 per cent rate and the 35 per cent rate applicable to the corresponding vehicles with a
local content of 60 per cent or less.
8.481 However, Regulation No. 36/1996 increased th e amount of the tax s ubsidy and expanded the
types of vehicles eligible for the subsidy. Unde r Regulation No. 36/1996, the luxury tax is reduced
from 20 per cent to zero for motor vehicles with a local content in excess of 60 per cent. In addition,
instead of limiting the tax subsidy to jeeps, Regulation No. 36/1996 makes the tax exemption
applicable to all light commercial vehicles. Finally , a “national motor vehicle” is subject to a luxury
tax of zero even though it is only required to have a local content of 20 per cent in the first year and
40 per cent in the second year.
8.482 In summary, that Indonesia has significantly extended the scope of its pre-WTO local content
subsidies. In so doing, Indonesia has acted inconsis tently with the provisions of Article 28.2 of the
SCM Agreement.
8.483 Indonesia has not contested the United States ' description of the precise manner in which
Indonesia extended the scope of these subsidies. Indonesia makes two arguments in response:
(1) because Article 27.3 does not contain an expres s standstill provision comparable to the standstill
provision concerning export subsidies in Article 27.4, the drafters must have intended to preclude a
standstill provision for local content subsidies; and (2) local content subsidies used by developing
country Members are not “inconsistent with the prov isions of the Agreement” within the meaning of
Article 28.1. The United States submits that both arguments are wrong.
8.484 The first argument ignores the text of Article 28 and the drafting history of Article 27.3. With
respect to the text, Article 28, by its terms, applies to all Member s, not merely developed country
Members. If the drafters had intended that Ar ticle 28 apply only to deve loped country Members,
presumably they would have said so explicitly. Instead, the provisions of Article 28 apply to all
Members, except as modified by other provisions of the Agreement. While Article 27.3 may modify
the deadlines in Article 28.1(b) for eliminating subsidies that are inconsistent with the SCM
Agreement, Article 27.3 does not modify the notif ication requirements of Article 28.1(a) or the
standstill requirements of Article 28.2.
8.485 Concerning the drafting history of Article 27.3, in the discussion of the TRIMs Agreement,
above, the United States has demonstrated how Article 27.3 was a last minute insertion into the text of
the SCM Agreement that was intended to avoid proh ibiting those local content subsidies that would
be permitted under the transition provisions of the TRIMs Agreement. In making this last minute
insertion, not all of the necessary conforming chang es were made. For example, Article 27.7 of the
SCM Agreement clarifies that the expedited pro cedures of Article 4 do not apply to a developing
country Member in the case of export subsidies which are in conformity with the provisions of
paragraphs 2 through 5. Article 27.7 should have been revised to in clude a reference to local content
subsidies, but it was not, and one must read this om itted reference into Article 27.7, as all the parties
in this case have done.
8.486 Therefore, the absence of a standstill provisi on in Article 27.3 comparable to the provision in
Article 27.4 should not be interpreted as a deliberate decision by the drafters to exclude developing
country local content subsidies from the general standstill obligation of Article 28.2. This is
especially true in light of the comparable standstill provision in Article 5.4 of the TRIMs Agreement.
8.487 Turning to Indonesia’s argument that local content subsidies of developing country Members
are not “inconsistent with” the provisions of the SCM Agreement, “inconsistent with” simply is not a
synonym for “prohibited by.” If the drafters had intended that Article 28.1 encompass only subsidies
that are prohibited by the SCM Agreement, they easily could have used the more precise phrase
“prohibited by”.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

8.488 Finally, Indonesia’s limited interpretation of Article 28 is inconsistent with the object and
purpose of the SCM Agreement, which was to in crease disciplines on the use of export and local
content subsidies. Although the deadline for elim ination of these subsidies is phased in for certain
classes of economies, nowhere is there a provisi on in the SCM Agreement that expressly condones
the unilateral extension of, or increase in, these types of subsidies during the phaseout period. To the
contrary, the only two provisions in the SCM Agr eement that expressly address this issue, Articles
27.4 and 28.2, condemn such extensions or increases.
8.489 In summary, Indonesia has failed to rebut the existence of a violation of Article 28.2 of the
SCM Agreement.
2. Response of Indonesia

8.490 Indonesia responds to the claim under Article 28.2 of the SCM Agreement by arguing that
Article 27.3 of the Agreement permits Indonesia, as a developing country, to maintain the subsidies
granted under the 1993 and February 1996 Programmes. The following are Indonesia's arguments in
this regard:.
(a) Indonesia is subject to Article 27.3
8.491 Entitlement to the subsidies granted unde r both the 1993 and February 1996 programmes and
the level of the subsidy granted to each recipient depends upon the percentage of locally sourced parts
and components in a particular car model or automotive component. Therefore, as noted, these
subsidies technically fall within the scope of Article 3.1(b) as "subsidies contingent (whether solely or
as one of several other conditions) upon the use of domestic over imported goods". As discussed
above, Indonesia, as a developing country, is with in the ambit of Article 27.3 of the Subsidies
Agreement, and thus benefits from an exemption from the prohibition of Article 3.1(b) for a five year
period.
(b) Article 27.3 does not preclude the intr oduction or expansion of domestic content
subsidies
8.492 Article 27.3 does not preclude Indonesia, as a developing country, from introducing or
expanding domestic content subsidies. The Article states in full:
The prohibition of paragraph 1(b) of Article 3 shall not apply to developing country
Members for a period of five years ... from the date of entry into force of the WTO
Agreement.
Article 27.4 in contrast precludes a "developing co untry Member referred to in paragraph 2(b)" [of
Article 27] (i.e., developing countries other than least-developed countri es and countries with per
capita GNP of less than $1,000 per annum) from "increas[ing] the level of its export subsidies."
8.493 Under the rules of treaty interpretation refl ected in the Vienna Convention on the Law of
Treaties, the inclusion of a prohibition on new or expanded export subsidies under Article 27.4 and
the absence of any such prohibition as to domestic content subsidies under Article 27.3 can only mean
that there is no such preclusion under Article 27.3. If the drafters of the Subsidies Agreement had
intended to preclude the introduction or expansion of domestic content subsidies, they would have
done so expressly in Article 27.3, as they did with respect to export subsidies in Article 27.4.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

(c) The domestic content subsidy is not within the scope of Article 27.4 because it is not
an "export" subsidy and Indonesia Is an Annex VII developing country
8.494 The relevant part of Article 27.4 reads as follows:
27.4 Any developing country Memb er referred to in paragraph 2(b ) shall phase out
its export subsidies within the eight-year period, preferably in a progressive manner.
However, a developing country Member sh all not increase the level of its export
subsidies, and shall eliminate them within a period shorter than that provided for in
this paragraph when the use of such export subsidies is inconsistent with its
development needs. (Emphasis added; footnote omitted.)
8.495 By its terms Article 27.4 applies only to "expor t" subsidies. "Export subsidies" is a term of
art referring to subsidies defined in Article 3.1(a) of the Subsidies Agreement:
subsidies contingent, in law or in fact, whether solely or as one of several other
conditions, upon export perform ance, including those illustrated in Annex I.
(Footnotes omitted.)
The term does not include domestic content subsidies, which are defined separately in Article 3.1(b).
8.496 The distinction between export and domestic c ontent subsidies is also explicit in Article 27,
which sets out special and differential treatment for e ach of the two types of subsidies. Articles 27.2
and 27.4 deal with export (Article 3.1(a)) subsidies, while Article 27.3 deals with domestic content
(Article 3.1(b)) subsidies. Accordingly, the condition set out in Article 27.4 does not apply to
Indonesia's Article 3.1(b) domestic content subsidy.
8.497 Moreover, even if Article 27.4 did apply to domestic content subsidies (which, to repeat, it
does not), the preclusion against increasing the level of subsidies would not apply to Indonesia.
Article 27.4 applies to "[a]ny developing country Member referre d to in paragraph 2(b) [of
Article 27]." By its terms it does not
 apply to Article 27.2(a) de veloping country Members—those
"referred to in Annex VII" of the Subsidies Agreement. 609 Indonesia is an Annex VII developing
country Member - it is so listed in paragraph (b) of that Annex. For this reason as well, Indonesia's
domestic content subsidy is not covered by the provisions of Article 27.4.
(d) The domestic content subsidy is not within the scope of Article 28.2 because it is not
inconsistent with the SCM Agreement
8.498 Article 28.2, regarding ex tension of subsidy programmes, does not apply to Indonesia as a
developing country. Article 28 is a phase-out provi sion for subsidy programmes that existed on the
date the WTO entered into force and that were in consistent with the Subsidies Agreement. The
Article reads in full:

609 Complainants cannot succes sfully assert that the second senten ce of Article 27.4 is not limited to
developing country Members referred to in paragraph 2(b) of Article 27. The first sentence of Article 27.4
expressly refers to paragraph 2(b) countries. The third sentence refers to desired extension of the eight-year
phase-out requirement for export subsidies. It can apply only to paragraph 2(b) countries because paragraph
2(a) (i.e., Annex VII) countries are not required to phase out their export subsidies within eight years. In
addition, the second sentence itself speaks of eliminating export subsidies “within a period shorter than that
provided for in this paragraph.” (Emphasis added.) That period can only be the eight-year period for phase-out
of export subsidies by paragraph 2(b) countries. Acco rdingly, analysis of the te xt of the second sentence of
Article 27.4 and of its context confirm that the entirety of Article 27.4 applies only to paragraph 2(b) countries.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

28.1 Subsidy programmes which have been estab lished 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 later than 90 days after the date of entry into
force of the WTO Agreement for such Member; and
(b) brought into conformity with the provisions 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.)
8.499 Article 28.2 applies only to subsidy programm es which are inconsistent with the provisions of
the Subsidies Agreement. Thus, the reference in Article 28.2 to "any such programme" can only refer
to subsidy programmes which are "inconsistent" w ith the Agreement and must be "brought into
conformity" with its provisions.
8.500 Indonesia's domestic content subsidies under the 1993 incentive programme were in effect on
1 January 1995 (the date the WTO Agreement entered into force) and were not then (and are not now)
inconsistent with the provisions of the Subsidies Agreement. Only subsidies which are prohibited are
inconsistent with the Subsidies Agreement. A Memb er shall "neither grant nor maintain" a prohibited
subsidy (Article 3.2), and if one is found to exist, the Member is to "withdraw the subsidy without
delay" (Article 4.7). "Actionable" subsidies (incl uding subsidies by developing countries that are not
prohibited by virtue of Article 27.3), on the other hand, are not inconsistent with the Agreement.
They may be granted, but if they are subsequently determined to result in adverse effects to the
interests of another member, "the Member granting or maintaining such subsidy shall take appropriate
steps to remove the adverse effects or shall withdr aw the subsidy" (Article 7.8). In other words,
actionable subsidies are consistent with the Agreem ent, but any adverse trade effects caused by them
must be remedied.
IX. ARTICLE X CLAIMS
A. Claims Under Article X:3(a) of GATT 1994
1. Claims Raised by Japan
9.1 Japan claims that the extended National Car Progr amme was administered in violation of
Article X:3(a) of GATT 1994. The following are Japan's arguments in support of this claim:
(a) Article X:3(a) of the GATT 1994 requi res uniform, impartial and reasonable
administration of regulations
9.2 Article X:3(a) of GATT 1994 establishes that:
Each contracting party shall administer in a uniform, impartial and reasonable manner
all its laws, regulations, decisions and rulings of the kind described in paragraph 1 of
this Article.
Laws, regulations, decisions and rulings under Article X:1 include, in particular, those pertaining "to
rates of duty, taxes or other charges".
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

9.3 The Appellate Body report in the EC - Bananas III
 case emphasized that Article X:3(a) does
"not apply to the laws, regulations, decisions and rulings themselves , but rather to the administration
of those laws, regulations, decisions and rulings.".610
(b) Indonesia granted benefits to automobiles imported by PT Timor in violation of
Article X:3(a) of GATT 1994
9.4 In June 1996, Indonesia authorized PT Timo r to import automobiles duty free in accordance
with the provisions of Presidential Decree No. 42, although the counter-purchase requirement, which
is clearly set out in the Decree of the Minister of Trade and Industry No. 142/MPP/Kep/6/1996611 ,was
obviously not met. The Indonesian trade statistics show that it is quite unlikely that TPN and Kia
have met the 25% counter-purchase requirement, whic h is clearly set forth in the governmental
decree.612 Following this authorization, almost 40,000 automobiles were imported duty free, and sales
of those automobiles were also exempted from the luxury tax as discussed. These facts constitute
violations of Article X:3(a) of GATT 1994, for the following reasons.
9.5 First, Presidential Decree No.42/1996 613 and the Decree of the Minister of Trade and Industry
No.142/MPP/Kep/6/1996 fall within the scope of Article X:1 of GATT 1994, since they are obviously
regulations pertaining "to rates of duty, taxes or other charges".
9.6 Second, Indonesia granted authorization to PT Timor, resulting in exemptions from duties and
the luxury tax, clearly in violation of the Presidential Decree No. 42 and the Decree of the Minister of
Trade and Industry No.142/MPP/Kep/6/1996. In other words, Indonesia administered its regulations
in a partial and unreasonable manner.
9.7 Therefore, Indonesia granted benefits to au tomobiles imported by PT Timor in violation of
Article X:3(a) of GATT 1994.
2. Response of Indonesia

9.8 Indonesia argues that Japan's contention that th e provision of "Pioneer Status" to TPN
violated Article X:3(a) of GATT 1994 Is Incorrect. The following are Indonesia's arguments in this
regard.
(a) Japan's contention that the provision of "Pioneer Status" to TPN violated
Article X:3(a) of GATT 1994 is incorrect
9.9 Japan erroneously claims that Indonesia has acted inconsistently with the obligations of
Article X:3(a) of the General Agreement to admini ster laws, regulations, decisions and rulings in a
uniform, impartial and reasonable manner. Indonesia has not violated Article X:3(a).

610 Report of the Appellate Body on EC - Bananas III, para. 200.
611 Decree of the Minister of Trade and Industry No.142/MPP/Kep/1996 (Japan Exhibit 43).
612 During the period from January 1996-December 1996, the total amount of automotive parts and
components exported from Indonesia to Korea was $5,777,843, which includes not only parts and components
for "Sedan/S515-1500cc", but also for other models produced by Kia Motors and for vehicles produced by other
Korean companies (see Japan Exhibit 50). On the other hand, the value of the National Cars imported from Kia
Motors during the period from June 1996 through December 1996 was $131,242,800 (see Japan Exhibits 30 and
31). Accordingly, it is quite obvious that, as far as the period from June 1996 through December 1996 is
concerned, the value of the counter-purchase by Kia could never amount to 25 per cent of the import value of
the National Cars (i.e. $32,810,700).
613 Presidential Decree No.42/1996 (Japan Exhibit 9).
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

9.10 First, as discussed in the context of GATT Article I (See Section VII.D), the June 1996
programme expired, as scheduled, on June 30 1997, and w ill not be renewed. Since the programme
and the authority under which it was granted have terminated, there is no basis for an affirmative
determination by the Panel.
9.11 Second, TPN was designated to build and pr oduce a national car in Decision of the State
Minister for the Mobilization of Investment Funds No. 02/SK/1996 (5 March 1996).
614 The decision
was based on:
- TPN's request to be selected to build a car (TPN Letter No. 071/PD/TPN/II/96
(28 February 1996))615;
- TPN's obtaining domestic investme nt approval (No. 607/I/PMDN/1995
(9 November 1995))616 ; and
- TPN's fulfillment of all the criteria and require ments to be designated to build a national car
as set out in Decree of the State Minister for Mobilization of Investment Funds
No. 1/SK/1996 (27 February 1996))
617 ,which in turn implements Instruction of the President
No. 2/1996 (19 February 1996).618
9.12 Like Kia, any Japanese company could have sought to participate in the National Car
Programme. None have done so. If they had, th ey would have been judged by the same criteria
applied to TPN (those of Instruction of the Presi dent No. 2/1996 and the regulations and decrees
implementing the Instruction). The programme would have been administered in a uniform, impartial
and reasonable manner. Accordingly, no basis exis ts for Japan's contention that Indonesia acted
inconsistently with the obligations of Article X:3(a) of the General Agreement.
(b) Indonesia has complied fully with the letter and the spirit of Article X, which, in any
case, does not establish substantive obligations
9.13 Indonesia has administered the laws, decr ees, regulations and decisions regarding the
National Car Programme in a uniform, impartial manner, in accordance with Article X:3 of GATT
1994. Japan nonetheless insists that its manufact urers still do not understand the subsidies and
Indonesia's administration of them. Extraordinary. Japan’s producers understand them well enough
to have increased their combined share of all of Indonesia’s passenger car markets, including the
market in which the Timor competes, by over 40 per cent. Such growth is unprecedented. Moreover,
Japan’s car makers accomplished this by outcompeting the European Communities and United States
manufacturers whose market share they acquired, a nd who, presumably, do understand the subsidies,
insofar as neither the United States nor the European Communities has seen fit to pretend ignorance.
9.14 Finally, Japan’s rebuttal is nothing more th an a description of the housekeeping related to a
terminated measure. The description demonstrates nothing partial, not uniform or unreasonable. The
Government cannot understand why Japan insists on continuing to advance an obviously flawed claim
under Article X.

614 See Indonesia Exhibit 5.
615 See Indonesia Exhibit 14.
616 See Indonesia Exhibit 15.
617 See Indonesia Exhibit 4.
618 See Indonesia Exhibit 1.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

(c) The Government of Indonesia did not establish the National Car Programme for the
sole benefit of TPN
9.15 Much of Japan’s Article X claim is base d on its erroneous and uns upported assertion that the
National Car Programme was created solely for the benefit of TPN. As the Government already has
demonstrated, this is assertion is false. The pr ogramme was created to benefit Indonesia and was
made available to any qualifying company. TPN was chosen on the basis of the strength of its
proposal. In particular, it was found that TPN's proposal to produce the "Timor" S515 car using
technology from Kia Motors of South Korea met the requirements set forth in Decree of the Minister
of Industry and Trade No. 31/1996.
(d) The Government of Indonesia is addr essing properly the issue of whether TPN has
complied with the relevant decrees; in any case, this is a matter of internal
enforcement of Indonesian law, not of compliance with Article X of GATT 1994
9.16 Japan also purposefully conflates the term s and relationships among the Decrees with their
enforcement, in a vain attempt to further distort Indonesia’s conduct. In this regard, Indonesia noted
in its Second Submission that it was examining whet her TPN had complied with the decrees, and that
if the Government found that TPN had not complied, it would take appropriate action as provided for
in the decrees.619 Indonesia subsequently submitted a letter c ontaining the results of this examination,
which indicated that TPN had not fulfilled the require ments of the decrees. Accordingly, the Minister
of Finance would instruct the Director-General of Customs to demand payment by TPN of the import
duties and luxury sales tax due by virtue of TPN's fa ilure to satisfy the criteria of the National Car
programme for the first year.
3. Rebuttal Arguments made by Japan

9.17 The following are Japan's rebuttal arguments to Indonesia's responses to the claims raised
under Article X:3(a) of GATT 1994:
9.18 The Government of Indonesia, in granti ng benefits under the National Car Programme to a
company that does not meet its own regulatory requirements, violates GATT Article X:3(a). Japan
has specifically stated that I ndonesian trade data indicates that the 25 per cent counter-purchase
requirement was not satisfied.
9.19 Indonesia did not make any meaningful response to Japan's arguments. Instead, it stated
irrelevantly that "[PT Timor] was designated to build and produce a national car in Decision of the
State Minister for the Mobilization of Investment Funds No.02/SK/1996" and that "[l]ike Kia, any
Japanese company could have sought to participate in the National Car Programme." It is obvious
that neither of these points addresses in any way the Article X:3 violations established by the
Government of Japan.
9.20 Indonesia only tries to evade the real issue, alleging, for example, that "Japan ... purposefully
conflates the ... Decrees with their enforcement". However, the obligation of GATT Article X:3(a)
specifically concerns the administration or enfor cement of regulations. Japan cannot fathom why
Indonesia would believe that the manner in which it enforces the National Car Programme is not an
issue for GATT Article X:3(a).
9.21 Moreover, Indonesia has acknowledged that "preli minary data suggests" that Japan is correct
in arguing that PT Timor did not meet the National Car Programme's requirements. Indonesia also

619 See Indonesia Exhibit 43 at p. 3.
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acknowledged that nonetheless it failed to comple te a compliance audit, although the June 1996
Programme allegedly expired more than five m onths ago. Nor has Indonesia asked PT Timor to
return the benefits or presented a schedule on when the audit will be completed. The Government of
Japan thus concludes that the delay in auditing is another clear indication of the Government of
Indonesia's unreasonable administration of the Nati onal Car Programme, and also itself constitutes a
violation of GATT Article X:3(a).
620
9.22 Indonesia essentially admitted that it granted benefits to TPN without considering its own
regulations. To be eligible fo r benefits under the June 1996 Prog ramme, Presidential Decree No. 42
requires that National Cars from Korea must be made by Indonesian workers and must fulfil the 25%
counter-purchase requirement. However, Indonesia st ates in its answers to Japan's questions, with
regard to the first requirement, that the "Governme nt currently is verifying the data". And more
strikingly, with regard to the second requirement, the Indonesian Government informed Japan just one
day before the Second Panel Meeti ng of its own verification on 9 Ja nuary 1998 which confirmed that
TPN has not met that requirement. Therefore, it is clear that Indonesia granted authorization to TPN
without reviewing its compliance, or even the plausibility of compliance, with the requirements.
9.23 Finally, the Government of Japan notes th at it requires a considerable stretch of the
imagination to regard 40,000 automobiles as being produced "by Indonesian workers" when allegedly
only 100 Indonesian nationals have been sent to Ko rea and they were sent as "trainees" at that.
Furthermore, the press reported that a member of the Indonesian Parliament, who visited Korea in
August 1996, found only three Indonesian workers at Kia.
621
B. Claims under Article X:1 of GATT 1994
1. Claims Raised by Japan
9.24 Japan claims that the extended National Car Programme also violates Article X:1 of GATT
1994, which requires publication of trade regulations. The following are Japan's argument in support
of this claim:
9.25 Article X:1 of GATT 1994 establishes that:
Laws, regulations, judicial decisions and administrative rulings of general
application, made effective by any contrac ting party, pertaining ... to rates of duty,
taxes or other charges ... shall be published promptly in such a manner as to enable
governments and traders to become acquainted with them. ...
9.26 Indonesia has never clearly set out the requi rements for the Imported National Cars, and also
administered the relevant regulations partially and un reasonably. The lack of clarity is most striking
with respect to Decree of the Minister of I ndustry and Trade No.31/MPP/SK/2/1996, issued in
February 1996, including the requirement that Na tional Cars be "domestically produced" and local
content requirements 622, and also with respect to the meaning of "by Indonesian personnel" under
Presidential Decree No.42/1996. 623 Indonesia not only failed to make the requirements clear in the

620 As indicated above and in Section X, Indonesia has submitted to the Panel a letter concerning the
results of the audit (Indonesia Exhibit 47).
621 Jakarta Post , "Kia Motors lacks Indonesian staff: House member" (30 January 1997) (Japan
Exhibit 73), Jakarta Post , "Timor sends only 100 supervisors to Kia plant: Tunky" (31 January 1997) (Japan
Exhibit 74), Far Eastern Economic Review, "The Timor Gap" (27 February 1997) (Japan Exhibit 75).
622 Decree of the Minister of Industry and Trade No.31/MPP/SK/2/1996 (Japan Exhibit 28).
623 Presidential Decree No.42/1996 (Japan Exhibit 9).
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published regulations, but even failed to clearly explain the requirements during the consultations
with Japan.
9.27 In particular, Indonesia has made clear that the conditions stipulated in the Decree of the
Minister of Industry and Trade No. 31/1996 also must be also met, in addition to the conditions of
Decree 42/1996.
624 However, Imported National Cars obviously can never meet the conditions set out
in Decree 31/1996, in particular paragraph a of Ar ticle 1, which requires them to be "domestically
produced by using facilities owned by national indust rial companies or Indonesian statutory bodies
with total shares belonging to Indonesian citizens." (Emphasis added.)
9.28 Second, regarding "the local content requirements as stipulated by the Minister of Industry
and Trade" in Article 1 of Presidential Decree No.42/1996, the Government of Indonesia has stated 625
that they correspond to those stipulated in Article 3 of the Decree of the Ministry of Industry and
Trade No.31/MPP/SK/2/1996 (i.e., "at the end of the fi rst year, they shall reach the local content rate
of more than 20 per cent"). However, the Government of Indonesia further stated that "satisfaction of
the 25 per cent counter-purchase requirement [as set out in the Decree of the Minister of Trade and
Industry No.142/MPP/Kep/6/1996] will be treated as equivalent to achieving 20 per cent local
content," and PT Timor "should export and Kia Motors should purchase automotive parts and
components amounting to 25 per cent of the C&F va lue of imported cars in the one-year period."
626
Accordingly, the Government of Indonesia seems to indicate that imported automobiles are treated as
satisfying "local content requirements," as long as the 25 per cent counter-purchase requirement is
met by its producer, even if the producer does not use any of such parts and components, imported
from Indonesia, to assemble the auto mobiles for export to Indonesia, without regard to Presidential
Decree No.42/1996.
9.29 Third, Article 1 of Presidential Decree No.42/1996 requires that the National Cars be
produced "by Indonesian personnel," but the Government of Indonesia has not provided any
explanation about what extent of participation by Indonesian workers is necessary to meet the
requirement.
627 In this connection, the Government of Indonesia has stated only that PT Timor
"reported that, through the end of October 1996, 100 workers had been dispatched to Korea. The
workers participate in production as trainees."
628
9.30 As explained above, Presidential Decree No .42/1996 and its implemen ting regulations fall
within the scope of Article X:1. Accordingly, it should be concluded that Indonesia has not published
all the regulations necessary to make the requirement s sufficiently clear, or that it has at least not
published its regulations "in such a manner as to enable governments and traders to become
acquainted with them," either of which constitutes a violation of Article X:1 of GATT 1994.
9.31 In addition, Indonesia also has ignored its ob ligation to publish trade regulations "promptly".
Most of the regulations related to the Nationa l Car Programme, including Presidential Instruction

624 Japanese Questionnaire regarding the Indonesi an National Car Programme (Japan Exhibit 44),
Question No.9; Indonesia's Answer to Questions Submitted by Japan (Japan Exhibit 45), Answer No.9. See also
Additional Questions from the Government of Japan concerning Indonesian Automobile Programme (Japan
Exhibit 46), Questions Nos.IV.3 and IV.4; Answer of the Republic of Indonesia to Additional Questions
submitted by the Government of Japan (Japan Exhibit 47) Answers Nos.IV.3. and IV.4.
625 Id., at Question and Answer No.12 between Japan and Indonesia (Japan Exhibits 44 and 45).
626 Id., at Questions and Answers No.13, 22 and 23 between Japan and Indonesia (Japan Exhibits 44
and 45).
627 Question and Answer No.9. between Japan and Indonesia (Japan Exhibits 44 and 45); see also
additional question and answer No.IV.5. between Japan and Indonesia (Japan Exhibits 46 and 47).
628 Question and Answer No.4. between Japan and Indonesia (Japan Exhibits 44 and 45); see also
additional Question and Answer No.IV.2. between Japan and Indonesia (Japan Exhibits 46 and 47).
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No.2/1996
629 and Presidential Decree No. 42/1996 630 ,are enforced as of the date of issuance, and
there was no prior public notification regarding the new regulations before th e date of issuance.
However, these regulations deeply affect exporte rs and investors, and it was necessary for the
companies to get the relevant information well in a dvance in order to adapt to the new regulations, for
example, in order to get benefits after meeting stipulated requirements. This reinforces the conclusion
that Indonesia violated its obligations under GATT Article X:1.
2. Indonesia's Response to the Claim under Article X:1
9.32 In response to the claim raised under Artic le X:1, Indonesia argues that Japan's contention
that Indonesian regulations were not published pr omptly as required by Article X:1 of GATT 1994 is
erroneous. The following are Indonesia's arguments in this regard:
9.33 Japan erroneously contends that Indoneais did not clearly set out the requirements for the
June 1996 programme and that this violates the publication requirement of GATT Article X:1.
Contrary to Japan’s assertion, Decree of the Mini ster of Industry and Trade No. 31/MPP/SK/2/1996,
dated 19 February 1996631 ,and all other decrees relevant to the June 1996 programme set out fully the
requirements and conditions of that programme.
9.34 Even if that were not the case, though, there would be no violation of Article X:1. By its
terms, the objectives of this Article are limited to (1) prompt publication, (2) “in such a manner as to
enable governments and traders to become acquainted with them.” As required by Indonesian law, all
regulations and decrees are published in the State Gazette promptly after their promulgation. This
official, readily accessible publication fully satis fies the procedural requirement of enabling
governments and traders to become acquainted with regulations and decrees. Article X:1 is a
transparency requirement, not a substantive obligatio n to meet one country’s subjective, substantive
standard as to whether another country’s regulation is “clear”.
9.35 Japan also erroneously claims that Article X:1 requires publication of official documents prior
to their effective date. There is no such re quirement. Indeed, the words “shall be promptly
published” clearly envision publication after
 entry into force.
9.36 For these reasons there is no basis for Jap an's contention that Indonesia did not act in
conformity with Article X:1 of the General Agreement.
9.37 Responding to Japan's arguments and ques tions, Indonesia stated that Decree No. 31 is
irrelevant to the June 1996 Programme.632
3. Rebuttal Arguments made by Japan
9.38 Japan makes the following rebuttals arguments to Indonesia's responses to the claim raised
under Article X:1:
9.39 The Government of Indonesi a, in not publishing its measures promptly and "in such a manner
as to enable governments and traders to become acquainted with them", violates GATT Article X:1.
As demonstrated, the Government of Japan, as we ll as Japanese traders, s till cannot know several

629 Presidential Instruction No.2/1996 (Japan Exhibit 8).
630 Presidential Decree No.42/1996 (Japan Exhibit 9).
631 See Indonesia Exhibit 2.
632 See Indonesia Exhibit 43, question 1.
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important requirements under the June 1996 Programme , for example, what the term "produced by
Indonesian workers" exactly means.
9.40 Indonesia's First Submission does not make any meaningful argument in response. Rather, it
simply argues that:
(i) GATT "Article X:1 is a transparency requirement, not a substantive obligation to
meet one country's subjective, substantive standard as to whether another country's
regulation is 'clear' "; and
(ii) "all regulations and decrees are published in the State Gazette promptly after their
promulgation".
9.41 Indonesia's defences cannot prevail, however, because they are inconsistent with the text of
Article X:1. Several important measures by Indonesian government pertaining to require merits on
imports were not published "in such a manner as to enable governments and traders to become
acquainted with them".
9.42 Japan has identified the specific points that n eed clarification or further elaboration so as "to
enable governments and traders to become ac quainted with" the Nati onal Car Programme, but
Indonesia has not addressed these issues. Thus, critical aspects of the National Car Programme
remain unknowable. It must be stressed, however, that belated clarification at this stage would not be
"prompt" any more and thus could not cure the insufficiency of the publication at an earlier stage.
9.43 In particular, Indonesia confirmed that it still cannot explain the meaning of the requirement
of Presidential Decree No. 42 that National Cars imported from Korea must be "made ... by
Indonesian workers". Japan asked whether this me ans that imported National Cars must be made
exclusively by Indonesian workers or, if not, what percentage of participation is required. Even at this
very late stage, however, Indonesia could not answer such a basic question.
9.44 Furthermore, the discussion at the first Pane l meeting revealed some additional facts which
constitute another violation of GATT Article X:1. At the first Panel meeting, the European
Communities asked: (i) where is the decision of th e Minister of Industry and Trade granting Pioneer
status to PT Timor, and (ii) where is the decisi on granting National Car status to the Timor S-515?
The Government of Indonesia: (i) in responding to the first question, circulated Decree of the
Director General for Metal, Machinery and Ch emical Industries No.002/SK/DJ-ILMK/II/1996 of
27 February 1996, and (ii) as to the second ques tion, responded that there existed a letter
(No. 1039/DJ-ILMK/X/1997 of 21 Oc tober 1997) and indicated that it would submit an English
translation. However, the Government of Japan had never seen these documents in any publication
accessible before the meeting in December 1997. In other words, these regulations were not
published promptly in such a manner as to enable the Government of Japan to become acquainted
with them.
9.45 Therefore, the Government of Japan submits, in addition to its argument that the Government
of Indonesia did not comply with GATT Article X:1 with respect to the June 1996 Programme, that it
also violated Article X:1 in connection with the February 1996 Programme.
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X. ADDITIONAL ARGUMENTS REGARDING WHETHER THE JUNE 1996
PROGRAMME IS AN EXPIRED MEASURE, AND THE IMPLICATIONS IF SO
A. Arguments of Indonesia
10.1 Indonesia argues, in responding to all of the claims pertaining to the June 1996 programme
that this programme has expired, and therefore is not relevant to the work of the Panel. Indonesia
further argues that TPN will be required by law to repay all benefits received under the programme,
because the counterpurchase requirements of the progr amme were not met. In support of this
argument, Indonesia submitted a letter containing the results of an audit of TPN's compliance with
these requirements. Indonesia's arguments in this regard are as follows:
10.2 The exemptions once granted are now being rem oved. The benefits conferred by the subsidy
(duties and luxury taxes) having been removed, the subsidy no longer exists and all arguments
relating to the June 1996 measures should be ignored by the Panel.
10.3 Also, with respect to claims under Article I of the General Agreement, complainants argued
that the June 1996 measures were still in effect b ecause the luxury tax would not be foregone on the
unsold cars until they were sold. This is not correct . The tax is due when the duties are due and then
the consumer reimburses the company at the time of sale (TPN, of course, was exempt from this
requirement). Secondly, TPN failed the Sucofindo audit and, thus, none of the remaining cars will
receive the luxury tax exemption. So, even accepting Complainants' position, the June 1996 measures
have terminated. Thus, the Panel should reject Complainants' Article I arguments.
10.4 Indonesia further argued, in response to a question from the panel, as follows:
1. Enforcement Procedures

10.5 The results of the audit performed by Suco findo have been provided to the Minister of
Industry and Trade. He will review the report, th en will notify the Minister of Finance of TPN's
failure.
10.6 The Minister of Finance will then instruct the Director-General of Customs to take
appropriate action. This instruction will be forwar ded to the District Office of the port of entry
through which the Timor's were imported, and that Office will issue a letter to TPN demanding
payment of the customs import duties and luxury sales ta x due by virtue of TPN's failure to satisfy the
criteria of the National Car Programme for the first year.
10.7 TPN will have 30 days to res pond to this demand. Within th at period it may either pay the
amount due or file a protest with the Director-General of Customs. If it does not respond within 30
days, the District Office will send a second lette r demanding payment within 14 days. If TPN does
not respond, action will be taken to collect the amount demanded.
10.8 If TPN files a protest with the Director-Gener al, he will render a decision whether to uphold,
reject or modify the decision of the District Office within 60 days.
10.9 If the Director-General upholds the District Office, TPN must pay the amount due within 60
days or petition for review by the Tax Dispute Se ttlement Body. The decision of this independent
review authority is binding. TPN would be required to pay the duties and luxury tax amounts
determined to be due before it would be eligible to appeal to the Bo dy. The payment is required to be
in cash.
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10.10 As required by Article 38 of the Customs La w, payment by TPN must, in addition to the
principal due, include interest at the statutory rate of 2 per cent per month beginning with the date of
the letter from the District Office demanding payment. (This is a severe penalty. As noted by the US
at paragraph 91 of its First Submission and in the Ford/GM letter (US Exhibit 38), the historical
Indonesian CPI increase is 8 to 10 per cent per year. (This, rather than temporary, aberrational short-
term interest rates caused by a short-term currency depreciation, should be the benchmark.)
2. Effect of Non-Fulfilment of Conditions for the First Year of the Programme

10.11 Decree of the Minister of Finance No. 82/KMK.01/1996 provides:
If the obligation to fulfil the local conten t levels for national automotive industrial
companies as determined by the Minister of Industry and Trade at a certain stage is
not met, the national automotive industrial enterprise concerned shall pay the import
levies owing at the relevant stage before being allowed to continue enjoying the
facilities referred to in paragraph (2).
10.12 As provided in this Decree, the benefits of exemption from customs duties and luxury sales
tax will be suspended once it is "determined" that TPN has not met the requirements of the National
Car Programme for the first year. This will occur 30 days after the District Office demands TPN to
pay the customs import duties and luxury sales tax. From that time until such time as TPN pays the
duties and luxury sales tax determined to be due, it will not be entitled to release CKD's or parts from
customs control unless it pays the duties and taxes normally owing in cash. Once it pays this amount,
it will resume entitlement to the exemption.
B. Arguments of the United States

10.13 The United States presents a rebuttal to the argument that the measure has expired and
therefore is not relevant to the Panel's work in the context of its claims under Article I:1 of GATT
1994. (See Section VII.E.3) In addition, with respect to the implications, if any of an eventual
repayment by TPN of the benefits under the programme, the United States makes the following
arguments:
10.14 As a factual matter it simply is not establishe d that the tariff and tax benefits conferred on
TPN under Decree No. 42/96 ever will be reimburse d. As the discussion during the question and
answer period at the 13 January session made clear, it will take some time before it is established that
TPN is even required to reimburse the Government of Indonesia (GOI). First, the relevant GOI
authorities must issue a bill to TPN, an action which apparently has yet to be done and for which there
apparently is no set deadline. According to Indone sia, this will not happen until the audit report is
first reviewed by the Minister of Industry and Trad e, who then refers the matter to the Minister of
Finance.
10.15 The issuance of a bill then triggers a 30-day period in which TPN can file an administrative
appeal with the Director General of Customs. On ce this is done, the Director General then has 60
days in which to rule on the appeal. Thereafter, assuming the Director General denies TPN's appeal,
TPN has 60 days within which to initiate proceedi ngs before the Indonesian Tax Dispute Settlement
Office. Indonesia did not answer the US question rega rding the typical duration of this last process,
although Indonesia did aver that there are no fu rther appeals permitted from decisions of the Tax
Dispute Settlement Office.
10.16 Moreover, a wholly separate question is whether, at the end of what appears to be a lengthy
process, the money owed actually will be reimbursed to the GOI. Bear in mind that as of the time this
Panel got underway, the amount owed in import duties alone was in excess of US$736 million, and
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

this does not include the amounts owed in unpaid l uxury taxes. It also does not include interest,
which, according to the Indonesia consists of 2 per cent a month, notwithstanding that Indonesia
appears to have entered into a period of hyperi nflation. TPN already has taken out a $690 million
loan (although only a portion of the loan has been dr awn down) that it was able to obtain only due to
the direct intervention of GOI officials at the highest level. How is TPN going to repay such sums? If
TPN cannot repay these amounts, will the GOI waive repayment? At the second meeting of the
Panel, Indonesia confirmed that the GOI, like most governments, has the authority to waive
repayment of duties and taxes owed. Moreover, pu tting aside any statutory or regulatory waiver
authority, one must assume that because the subs idies were granted pursuant to Presidential Decree,
their repayment also can be waived pursuant to Presidential Decree.
10.17 The fact of the matter is that it may take years before this issue is sorted out, and it would be
unfair to the United States to defer the Panel's issuan ce of its report before the issue is resolved. At
this point, the United States believes that the proper approach is to treat the subsidies as if they are not
subject to repayment. TPN has had the benefit of the subsidies since Decree No. 42/96 became
operational, it still has the subsidies, and it h as priced the Timor Kia Sephia and caused serious
prejudice to the interests of the United States by me ans of those subsidies. If TPN ultimately has to
repay the subsidies, then Indonesia will be in th e convenient position of having complied with what
we hope will be the Panel's recommendation that Indonesi a withdraw this particular subsidy. If TPN
does not repay the subsidies, then that is something that can be dealt with at the implementation stage
of this dispute. It would be truly perverse, how ever, to allow the subsidies bestowed under Decree
No. 42/96 to escape scrutiny due to the convenientl y timed announcement (the day before the second
meeting of the Panel) of the results of an audit, an audit that apparently only triggers, rather than ends,
a lengthy domestic internal process.
XI. CLAIMS RAISED UNDER THE TRIPS AGREEMENT
A. Claims raised by the United States

11.1 The United States claims that the grant of “National Motor Vehicle” benefits only to motor
vehicles bearing a unique Indonesian trademark owned by Indonesian nationals discriminates against
foreign-owned trademarks and their owners and is inconsistent with Articles 3, 20 and 65 of the
TRIPS Agreement. The following are the United States' arguments in support of these claims:
11.2 A distinguishing feature of the National Motor Vehicle programme is the requirement that, in
order to receive the benefits of that programme , the “national motor vehicle” must bear a unique
Indonesian trademark owned by Indonesian nationa ls. Presidential Instruction No. 2/1996, in
referring to the “national automobile industry,” sets fo rth as one of the criteria for that industry the
“us[e] of trade marks created by relevant industrial companies". In establishing the requirements for a
“national motor vehicle,” Decree No. 31/1996 mandates the “use [of] trade marks created by relevant
industrial companies themselves and not yet register ed by other parties in Indonesia, and owned by
Indonesian companies/citizens ...”. This requirement discriminates against foreign-owned trademarks
and their owners, and is inconsistent with Articles 3, 20 and 65 of the TRIPS Agreement.
11.3 Article 3 of the TRIPS Agreement requires nati onal treatment in the protection of intellectual
property rights, including trademarks.633 In pertinent part, Article 3.1 provides the following:

633 Article 3 refers to “intellectual property,” which is defined in Article 1.2 of the TRIPS Agreement as
“all categories of intellectual property that are the subject of Sections 1 through 7 of Part II.” Section 2 of the
TRIPS Agreement is entitled “Trademarks.”
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

1. Each Member shall accord to the nationals of other Members treatment no
less favourable than it accords to its own nationals with regard to the
protection of intellectual property ... . (footnote omitted).
11.4 Footnote 3 to Article 3.1 provides as follows:
For the purposes of Articles 3 and 4, “protec tion” 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. (emphasis added).
11.5 In addition, Article 20, which deals specifica lly with trademarks, prohibits the imposition of
special requirements on the use of a trademark. In pertinent part, Article 20 provides the following:
The use of a trademark in the course of trade shall not be unjustifiably encumbered by
special requirements, such as use with another 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...
11.6 The grant of significant benefits under the National Motor Vehicle programme to producers
of a “national motor vehicle” bearing a unique, I ndonesian trademark is inconsistent with both
Article 3 and Article 20. First, these benefits result in a significant commercial disadvantage to
companies that do business under an established or foreign-owned trademark, and the only way for
such companies to “level the pl aying field” is to cease the use of their own mark and attempt to
acquire an Indonesian trademark consistent with the requirements of the National Motor Vehicle
programme. As a result, foreign nationals are pr ovided with treatment less favorable than that
provided Indonesian nationals, contrary to Article 3 of the TRIPS Agreement.
11.7 Second, the ineligibility for benefits under the National Motor Vehicle programme of firms
using an established or foreign- owned trademark constitutes a special requirement on the use of a
trademark in the course of trade that is prohibited by Article 20 of the TRIPS Agreement.
11.8 Moreover, these measures are inconsistent with the transitional arrangements of Article 65 of
the TRIPS Agreement. Article 65.2 provides as follows:
A developing country Member is entitled to delay for a further period of four years
the date of application, as defined in paragr aph 1, of the provisions of this Agreement
other than Articles 3
, 4 and 5. (emphasis added).
11.9 Under Article 65.2, Indonesia is currently subject to the requirements of Article 3. Therefore,
its violation of Article 3 is not protected by the four-year transition period of Article 65.2.
11.10 In addition, Article 65.5 of the TRIPS Agreement provides as follows:
A Member availing itself of a transitional pe riod under paragraphs 1, 2, 3 or 4 shall
ensure that any changes in its laws, regula tions and practices made during that period
do not result in a lesser degree of consistency with the provisions of this Agreement.
Because the restrictions of the National Motor Ve hicle programme regarding trademarks came into
force after 1 January 1995 (the date of entry into force of the WTO Agreement), they are inconsistent
with the standstill provisions of Article 65.5. Because they are inconsistent with Article 65.5,
Indonesia’s violation of Article 20 is not protected by Article 65.2.
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 WT/DS59/R, WT/DS64/R

B. Response by Indonesia to the claims raised

11.11 Indonesia argues that the trademark usage provision of the National Car Programme is
consistent with Articles 3, 20 and 65 of the TRIPS agreement, in responding to the claims raised
under that Agreement. The following are Indonesia's arguments in this regard:
11.12 Presidential Instruction No. 2 of 1996 sets forth requirements for achieving "pioneer" status
designation. One of the requirements is that the company receiving the designation use "a brand
name of its own". In other words, to receive th e subsidies available under the policy, a national car
company must sell that car using a "new" brand name ; the brand name cannot be one previously or
concurrently registered in another country and used to sell cars.
11.13 Complainant United States asserts that th e brand name requirement violates Indonesia's
obligations under Articles 3, 20 and 65 of the Ag reement on Trade-Related Aspects of Intellectual
Property Rights (the TRIPS Agreement). As demonstrated below, this assertion is incorrect.
1. The brand name requirement is consistent w ith the national treatment obligation of Article 3
of the TRIPS Agreement
11.14 Article 3 of the TRIPS Agreement estab lishes a national treatment obligation covering
intellectual property. According to Article 3:
Each Member shall accord to the nationals of other Members treatment no less
favourable than that it accords to its own na tionals with regard to the protection of
intellectual property .... (Footnote omitted.)
11.15 Indonesia has complied with this directive. The brand name requirement applies in exactly
the same fashion to Indonesian and non-Indonesian companies. Neither may use a pre-existing, pre-
registered brand name for a national car. Indon esian and non-Indonesian companies must meet the
same requirement—they must establish a new brand name for a national car.
11.16 Thus, the fact that an Indonesian national car cannot be called a "Ford Mustang" or a
"Chrysler LeBaron" or a "Chevrolet Camaro" or a "Cadillac Coupe DeVille" is irrelevant. It does not
indicate that Article 3 has been violated because th e brand-name requirement applies to all parties in
precisely the same fashion. No matter what comp anies make a national car, the cars must be sold
under new, Indonesian-registered brand names.
2. The brand name requirement is consistent with the obligatio ns of Article 20 of the TRIPS
Agreement
11.17 Article 20 of the TRIPS Agreement sets fort h specific "other requirements" concerning
trademarks. As demonstrated below, however, none of these requirements is germane to the brand-
name requirement. According to Article 20, "[t]he use of a trad emark ... shall not be unjustifiably
encumbered by special requirements" such as "use with another tradem ark, use in a special form or
use in a manner detrimental to its capability to di stinguish the goods or services of one undertaking
from those of other undertakings". In an offici al, legally mandated communication to its Congress,
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the United States Government declared that the purpo se of Article 20 is to safeguard the role of a
trademark as an indication of the source of the trademarked product.
634
11.18 Thus, Article 20 is not releva nt to the brand-name requirement. Requiring a new trademark in
order to receive the subsidies under the national car programme does not serve to deceive or confuse
people regarding the source of the trademarked produc t. It does not encumber an existing trademark
with specified "special requirements".
11.19 Moreover, even if Article 20 were not limited to unjustified encumbrances on existing
trademarks, it still would not apply to the require d use of a new trademark. The United States
characterizes the brand name requirement as precluding the use of US trademarks, a very substantial
infringement were it true. Had the negotiators meant Article 20 to cover an infringement as
substantial as that alleged by complainant United Stat es, they would have specified so in the text of
the Article. However, they did not. Article 20 deals with the encumbering of trademark usage
through ties to other trademarks or requirements that reduce brand-name recognition. But, these
important issues are not raised by the brand name requirement at issue here.
11.20 Moreover, as discussed below, under the provisi ons of Article 65.2, Indonesia currently is
exempt from Article 20.
3. Article 65 exempts Indonesia from certain provisions of the TRIPS Agreement
11.21 Article 65 establishes the schedule for when Member countries must comply with the TRIPS
Agreement. All Members are given a one-year gr ace period (generally calculated from 1 January
1995 (the date of entry into force of the WTO Agr eement)) before they must comply with the TRIPS
Agreement.635 Developing country Members receive an a dditional four-year grace period before they
must comply with the TRIPS Agreement (apart from certain, specified articles).636
11.22 Thus, under Article 65, Indonesia has until 1 January 2000 before it must comply with the
vast majority of the TRIPS Agreement. Becaus e Article 3 is one of the specified exceptions,
Indonesia is not exempt from complying with the na tional treatment obligation. However, the Article
65.2 exemption does apply to Article 20. Therefore, in addition to the reasons demonstrated above,
due to the Article 65.2 grace period, Indonesia cannot now be found to have violated Article 20 of the
TRIPS Agreement.

634 In the "Statement of Administrative Action," which the United States Government was required by
law to submit to its Congress as part of the US process for implementing the WTO agreements, the United
States describes the purpose of Article 20 of the TRIPs Agreement as follows:
Article 20 safeguards the role of a trademark as an indication of the source of the trademarked
product or service by prohibiting imposition of special requirements, such as use with another
trademark, that could impair this role. Memb er countries may, however, require the firm or
person producing the goods or services to include its trademark along with, but not limited to,
the trademark distinguishing the goods or services at issue.
Uruguay Round Trade Agreements, Texts of Agreements, Implementing Bill, Statement of
Administration Action and Required Supporting Statements, House Document 103-316, Vol.I at 984, 103d
Cong., 2d Sess. (27 September 1994) (emphasis added).
635 See TRIPS Agreement, Article 65.1.
636 See TRIPS Agreement, Article 65.2. A review of Article 65.5 demonstrates that the length of this
period is not shortened by Article 65.5 as the United States asserts. Even if it were, as established above, the
brand name requirement does not violate the provisions of the TRIPS Agreement and, thus, Article 65.5 is not
implicated.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

4. A US car company would not have been precluded from being a National Car producer

11.23 As demonstrated before, the United States TRIPS complaint reduces to the argument that a
United States company cannot be a national car producer. Had a United States company made an
acceptable offer to TPN, that company's mark would not have been infringed or derogated because the
US company would have remained free to sell its car s in Indonesia, under the US brand, at the same
time it participated with TPN. The cars would, in any case, not be identical. The US car,
manufactured by a US entity, would occupy a much different (higher) slot in the Indonesian market
than would the National Car built by an Indonesian company. Also, as with the Sephia versus the
Timor, the cars' specifications likely would differ significantly.
C. Rebuttal arguments made by the United States

11.24 The following are the United States' rebuttal arguments to Indonesia's response to the claims
raised on the basis of provisions of the TRIPS Agreement:
11.25 With respect to the TRIPS Agreement, Indonesia claims that there is no violation of Article 3
because the brand name requirement of the National Car Programme applies in the same manner to
Indonesian and foreign companies. This is si mply false, because according to the relevant
implementing measures, only Indonesian companies are eligible for the National Car Programme, and
only Indonesian companies may obtain a “national car ” trademark. This is blatant discrimination
against foreign nationals.
11.26 Moreover, in its discussion of Article 3, Indonesia conveniently omits footnote 3 to that
article, which states that “protection” for purposes of Articles 3 and 4 includes “those matters
affecting the use of intellectual property rights sp ecifically addressed in this Agreement”. (Emphasis
added).
11.27 In the context of that footnote, Indonesia's practices in respect of national car trademarks
discriminate against foreign nationals and the prot ection accorded their rights in several respects.
First, Indonesia discriminates in respect of the acquisition of a national car trademark. Indonesia
admits that any trademark that could apply to a national car must be acquired by an Indonesian
company, be that company a joint venture or a who lly-owned Indonesian comp any. This is a clear
violation of national treatment.
11.28 Second, the requirement to use a "new" Indonesian trademark on a national car discriminates
against owners of existing marks in respect of the maintenance of the mark. It is unlikely that the
owner of the mark normally used (global mark) on the vehicle marketed as a "national car" in
Indonesia will be able to use that mark without creating confusion (i.e., confusion resulting from
using different marks on the same car). Consequen tly, it is more likely that the global mark will be
subject to cancellation for non-use in Indonesia. Finally, Indonesia discriminates in respect of the
protection accorded global marks, because such a mark cannot be used on a national car.
11.29 Because the definition of "p rotection" as applied in TRIPS Article 3 applies the national
treatment obligation in respect of use of intellect ual property rights to matters specifically addressed
in the TRIPs Agreement, use of a trademark is speci fically addressed in the Agreement in Article 20.
Although Article 3 and its footnote do not require th at a practice violate both the national treatment
obligation and the provision specifically addressing the pa rticular use of the right, that is the situation
in this case. Indonesia's practice violates both TRIPS Article 3 and Article 20.
11.30 The United States believes that Indonesia's practices violate Article 20 of the TRIPS
Agreement, because they constitute a special requ irement that unjustifiably encumbers use of the
trademark in trade. One cannot use an existing tr ademark on a national car even though it tells the
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

consumer more about the actual source of the car th an the new mark that must be obtained to qualify
as a national car. Moreover, the benefits accruing fro m being a national car are such that marketing
other cars (which carry a pre-existing trademark) is made difficult. This tactic is unjustifiable in that
it is akin to saying that the Indonesian Government wants to develop a brand name, i.e., a trademark,
and will do so by eliminating other brands of cars from the market.
11.31 Further regarding Article 20, Indonesia again engages in a convenient omission by deleting,
in its quotation of Artic le 20, the phrase “in the course of trad e”. That phrase, however, is very
important. If use of a previously or concurrently registered trademark precludes access to the benefits
of the National Car Programme, that certainly discour ages the use of the mark in the course of trade,
thereby encumbering its use within the meaning of Article 20. At a minimum, there is de facto
discrimination against foreign nationals and th eir trademarks, because Indonesian holders of a
trademark satisfying the national car requirements are treated better than foreign holders of
international marks. Put differently, the encumbra nce imposed by the trademark requirement of the
National Car Programme on previously or concurren tly registered trademarks constitutes a ban - the
ultimate encumbrance - on the use of such trademarks on certain products.
11.32 In addition, a requirement that a trademark owner use a different trademark from that which it
uses in the rest of the world to obtain a special a dvantage in Indonesia could put the regular mark at
risk of cancellation for non-use in Indonesia. Beca use the trademark owner would be choosing to use
the unique Indonesian mark, it would not be able to argue that its non-use arose independently of its
will.
11.33 In short, Indonesia’s limited interpretation of the purpose of Article 20 is not borne out by the
text. Moreover, Indonesia’s citation to the US Statement of Administrative Action (“SAA”) does not
prove anything, because the SAA merely referred to one set of practices that could be dealt with under
Article 20. It was not the purpose of this document to catalogue all the possible ways in which Article
20 could be violated, nor would it have been feasible to do so. In particular, the drafters of that
document could not have foreseen the particular method used by Indonesia to violate Article 20.
11.34 Indonesia asserts that the Indonesian firms s eeking National Car producer status "would have
jumped at the chance to have an arrangement" w ith a US auto manufacturer. In other words,
Chrysler, for example, could have stood in the sho es of Kia Motors, and could have been the supplier
of the "Timor Chrysler Neon", even if it would not have been the recipient of the subsidies under the
National Car Programme.
11.35 However, consider the price that Chrysler would have had to pay to be a supplier of the
"Timor Chrysler Neon." It could have supplied TPN (or some other Indonesian company) with
finished Neons or Neon kits, but, under the Nati onal Car Programme, it could do so only if it agreed
to have the Neons rebadged as "Timors". If it agr eed to such a deal, Chrysler would have had to
forego all of the benefits that go along with selli ng a product, and establishing a product in a market,
under its own trademark. Indonesian purchasers of our hypothetical "Neon National Car" would
become familiar with, and develop a loyalty to, the Timor trademark, not the Chrysler trademark.
11.36 In short, the special trademark requirement of the National Car Programme constitutes an
unjustifiable encumbrance on the use of a trademark in the course of trade. A foreign company with
its own trademark that seeks to participate in the National Car Program me must relinquish its
trademark rights. If it choose not to relinquish its trademark rights, it must face unfair competition in
the market place.
11.37 It may well be true that Kia, given all of its problems, was willing to relinquish the rights
guaranteed it by the TRIPS Agreement. However, the fact that Kia was willing to forego its rights
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

does not mean that it is acceptable, or consiste nt with the TRIPS Agreement, to impose such
encumbrances on the rights of nationals of other Members.
11.38 Nor would a requirement that two tradem arks be used on a pr oduct be legitimate under
Article 20 of the TRIPS Agreement. The TRIPS negotiators intended to stop this type of practice, and,
in particular, discussed a prior practice of India that required such linkages. Specific examples of
linked trademarks that were discussed were "Lahil-Pepsi" and "Modi-Xerox."
11.39 Indeed, the express language of Article 20 c ondemns such a practice, by stating as follows:
"The use of a trademark in the course of trad e shall not be unjustifiably encumbered by special
requirements, such as use with another trademark
 ...". (Emphasis added). Thus, even if the
Indonesian authorities could allow a national car to bear two marks, including a mark owned by a
foreign company (and the language of the relevant measures would seem to preclude this), such a
practice would violate Article 20.
11.40 Article 20 of the TRIPS Agreement prohibits unjustifiable encumbrances, imposed through
special requirements, on the use of a trademark in th e course of trade. An illustrative list of such
encumbrances follows. Prohibited encumbrances clea rly must encompass measures that affect such a
fundamental issue as the right or ability to use the trademark. If an existing trademark cannot be used
on a National Car, even if that mark accurately reflects the source of the car or its arts, use of that
mark clearly has been encu mbered and, in the view of the United States, without justification other
than a desire to limit access to the benefits of the National Car programme.
11.41 The United States believes that the focus under Article 20 should not be on the precise
“special requirement”, but on the effect of the requirement; i.e., does it unjustifiably encumber use of
the trademark. The fact that the text of Artic le 20 includes “use in a manner detrimental to its
capability to distinguish the goods or services of one undertaking from those of other undertakings” as
one example of a special requirement clearly indicates that other special requirements can act as
encumbrances on use of a mark in trade. While eliminating encumbrances that unjustifiably affect the
ability of a trademark to distinguish the goods or services of one undertaking from another is a key
objective of Article 20, it is not the sole objective. The right to register a trademark, even in its
preferred form, without the right or ability to use it in trade in that form is meaningless.
11.42 Thus, the prohibition on use of an establishe d or foreign-owned trademark on a National Car
constitutes an unjustifiable encumbrance on the use of the trademark in the course of trade. The
special requirement used to implement this unjus tified encumbrance is essentially that a new mark,
owned by an Indonesian national, be registered and used on the car. In the view of the United States,
this is the ultimate encumbrance—it is a ba n on use of the trademark on certain products.
11.43 Finally, with respect to the transitional rules in Article 65, Indonesia simply ignores the plain
text of Article 65.5. That provision states that a Member availing itself of a transitional period, such
as Indonesia here, shall ensure that “any changes in its laws, regulations and practices made during a
[transitional period] do not result in a lesser degr ee of consistency with the provisions of this
Agreement.” Because the National Car Programme post-dates the entry into force of the WTO
Agreement and violates Article 20, it is inconsistent with Article 65.5, and Indonesia must return to
the pre-violation status quo ante.
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

XII. THIRD PARTY ARGUMENTS
A. India
12.1 India made the following arguments as a third party to the panel proceedings:
12.2 Relating to the alleged violation of the TR IMs Agreement by Indonesia, it is a matter of
record that Indonesia had notified the measures al ready taken by it to the TRIMs Committee in May
1995. However, in October 1996 Indonesia on reexamination of their measures felt that they could
not be termed as TRIMs and consequently they withdrew their above notification.
12.3 There are two procedural issues relating to this matter which the complainants have raised in
this case on which we would like to comment before coming to the s ubstantive issue. Firstly, it has
been implied that a Member cannot withdraw a notification, once submitted to the WTO. This is an
averment that we cannot accept. We strongly feel that Members have the right to both amend or to
even withdraw any of their notifications, provided th ere are sufficient grounds justifying such action.
Consequently, we feel that Indonesi a was fully within its legal rights to withdraw the notification it
had made to the TRIMs committee.
12.4 The second procedural issue, the mention of which we find in the complainants first
submission, relates to the alleged ineligibility of Indonesia to benefit from certain transitional
provisions simply because its notification was not submitted on time. We note that Indonesia's
measures, as we will elaborate a little later, are not TRIMs. However, we would like to strongly state
our position that delay in notifying a measure, no ma tter under which provision, cannot in any way be
construed as diminishing the benefits that any Memb er may have by virtue of it being in a special
category, such as a developing country. While we agree that delay in notifying measures should
ideally not occur, it must at the same time also be realized that small delegations often have
constraints of resources which at times leads to an unintended delay in the notification of their
measures. It is for this reason that we believe that any such procedural delays should not mitigate the
benefits which any member may otherwise be eligible for, under a covered agreement.
12.5 Coming to the substance of the legal i ssue relating to the TRIMs Agreement, the
complainants have stated that the measures taken by Indonesia are violative of Article 2 of the TRIMs
Agreement. As we are all aware, Article 2.1 of the TRIMs Agreement states that "no member shall
apply any TRIM that is inconsistent w ith the provision of Article III of GATT 1994 ". The emphasis
here is no doubt on the application by Members of a measure which can be said to be a trade-related
investment measure. It is therefor e evident that we need to ab initio be clear whether the said
measures taken by Indonesia come within the ambit of being trade related investment measures or not.
12.6 Going back to the drafting of the TRIMs Agre ement, the Agreement is basically designed to
govern and to provide a level playing field for foreign i nvestment in third countries. It is evident that
any measure taken by a country relating to its in ternal taxes or subsidies, as Indonesia has done,
cannot therefore be construed to be a trade-related investment measure. This is particularly important
when we view the fine print in the TRIMs Agreem ent which in fact does not add any new obligations
to Members, since it merely states that a measure which is a trade-related investment measure should
not be violative of Article III or Xl of GATT 1994. This interpretation has been upheld in the recent
report of the panel on the European Communities regi me for the importation, sa le and distribution of
bananas in which it has been stated that "the TRIM s Agreement essentially interprets and clarifies the
provisions of Article III (and also Article Xl) where trade-related investment measures are concerned.
Thus, the TRIMs Agreement does not add to or subtract from those GATT obligations".
12.7 Indonesia has pointed out in its submission that its measures are in the nature of subsidies
specifically provided to the automobile industry and therefore come within the purview of the
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

Subsidies Agreement and not the TRIMs Agreement. We have carefully gone through the first
submissions made by the complainan ts as well as the Re public of Indonesia. We would like to bring
on record that we agree with what Indonesia has stated that the measures taken by it are entirely in the
form of subsidies and their legality or otherwise therefore needs to be examined in the light of
provisions of the Agreement on Subsidies a nd Countervailing Measures, and not the TRIMs
Agreement. India strongly feels and has stated its position in earlier fora also, that subsidies should be
governed solely by the Subsidies Agreement. Ther e has been consistency in our stand and in the
interpretation in various fora, that just as invest ment measures cannot be presumed to be a form of
subsidization, subsidies too cannot be presumed to be trade related investment measures.
12.8 With regard to the interpretation of certain provisions of the Subsidies Agreement, we would
like to wholeheartedly endorse what has been stated by Indonesia in its written submission. In
particular, we would like to state that we entirel y agree with Indonesia that (a) Article 27.3 of the
Subsidies Agreement does not preclude the introduction or expansion of domestic content subsidies;
(b) the domestic content subsidy is not within the scope of Article 27.4 of the Subsidies Agreement
since it is not an export subsidy and since Indonesi a is a developing country; and (c) the domestic
content subsidy is not within the scope of Article 28.2 because it is not inconsistent with the Subsidies
Agreement.
12.9 Coming to the second issue on which we would lik e to state our position, viz, that relating to
Article I of GATT i.e., the provision for MFN treat ment. It has been argued that, under the measures
taken by Indonesia, the Kia car being produced in Korea has been granted special and differential
treatment, as compared to cars being produced elsewhere, and is therefore violative of the MFN
principle. We have carefully perused the regulati ons and decrees issued by the Republic of Indonesia
in 1996. In none of these decrees do we find menti on of any specific country, including Korea. It is
therefore evident that while the presidential decr ee and other notifications refer to national motor
vehicles, they do not in any way mandate preferential treatment of automobiles or their components or
parts from any country. Purely from a legal view point, it is therefore clear, that the above referred
regulations have not violated the MFN principle si nce they have not conferred any special privileges
to cars or their parts being manufactured in a particular country.
12.10 In this context, we do not agree with the argum ent put forth by some of the complainants that
even if a particular regulation does not mention a country by name, but its effect is to benefit a
particular producer or a country, then it is violative of the MFN principle. We find no legal strength in
this argument, since it is clear that any automobile manufacturer based in any country could have, and
in fact can, avail of the specific benefits and subsidization programme introduced by Indonesia,
provided they fulfil the conditions sp ecified in the said regulation. Th e fact that no other country has
so far approached the Republic of Indonesia in th is regard cannot therefore be construed as an
indication that the said provision has violated the MFN principle.
12.11 Before concluding, we would like to refer some of the arguments put forth by Indonesia
regarding the steps taken by Indonesia to diversify production and to deregulate international trade so
that the country could continue in its commitment towards economic reform. What is significant is
that these steps were taken even though Indonesia's total external debt had reached US$108 billion in
1995 and that the deficit in Indonesia's current account had more than doubled in one year to US$6.8
billion in the same year. Although we agree that th ese statistics have no direct bearing on the issues
for consideration before the Panel, we would like to highlight the fact that developing countries often
need to take stops to bolster their economy and to overcome problems of imbalances in regional
development. We would suggest that the multilateral trading system examines the initiatives taken by
these countries in the overall pursuit of economic development in their context.
12.12 We all stand to gain from the WTO syst em if we develop re asonable and coherent
interpretations detached from short-term economic and commercial interest. This would assist panels
WT/DS54/R, WT/DS55/R,
WT/DS59/R, WT/DS64/R

in their search for the right interpretations, par ticularly in evolving areas such as the TRIMs
Agreement and the Agreement on Subsidies and Countervailing Measures.
B. Korea

12.13 Korea made the following arguments as a third party to the panel proceedings:
1. Preliminary jurisdictional issue
12.14 One of the basic tenets of the DSU is to a llow the complaining party with trade grievances to
state perspicuously the alleged offending measures which it seeks to challenge and has declared
inconsistent with WTO obligations. The obvious intent of this requirement is to provide the member
state with an opportunity to effectively examine a nd respond to charges that the law or practice is a
transgression to the WTO Agreements and, if n ecessary, take corrective measures to remedy the
situation. This was confirmed in the Appellate Body ruling on the European Communities-Regime
for the Importation, Sale and Distribution of Bananas which states that "claims ... must all be specified
sufficiently in the request for th e establishment of a panel in order to allow the defending party and
any third parties to know the legal basis of the comp laint". The Drafters of the DSU, cognizant of the
importance of identifying the measures to be challenged, inserted Article 6.2 which reads:
The request for the establishment of a pane l shall ... identify the specific measures at
issue and provide a brief summary of the le gal basis of the complaint sufficient to
present the problem clearly.
12.15 The United States discusses in detail how the US$690 million loan made to Timor Putra
Nasional contravenes Article III:4 of GATT l994 a nd Article 2 of TRIMs Agreement. The United
States further argues that the loan constitutes a specific subsidy which causes serious prejudice.
12.16 The loan to which the United States alludes, how ever, is not a part of the terms of reference
because it was never specifically identified as a meas ure at issue in the 12 June 1997 request of the
United States for the establishment of a panel. The most recent Appellate Body ruling in the Bananas
case sheds light on the DSU Article 6.2 requirement. The Appellate Body states:
We do not agree with the Panel that "even if there was some uncertainty whether the
panel request had met the requirements of Ar ticle 6.2, the first written submissions of
the Complainants 'cured' that uncertainty because their submissions were sufficiently
detailed to present all the factual and legal issues clearly" ... If a claim is not specified
in the request for the establishment of a panel, then a faulty request cannot be
subsequently 'cured' by a complaining party's argumentation in its first written
submission to the panel or in any other su bmission or statement made later in the
panel proceeding.
12.17 It is also noteworthy that the loan was pr ovided after the creation of the panel. In the
United States - Measures Affecting Alcoholic and Malt Beverages case, Canada endeavoured to
reserve the right to invoke new measures which ma y arise during the panel deliberation. The panel
concluded that its "terms of reference do not perm it it to examine any new measure which may come
into effect during the Panel's deliberations".
12.18 As the terms of reference do not identify the lo an and the defect cannot subsequently be cured
by a first submission, the panel should avoid ru ling on any claims made by the United States in
connection with the August 1997 loan.
WT/DS54/R, WT/DS55/R,
 WT/DS59/R, WT/DS64/R

2. Substantive Issues

12.19 First, as was rightly pointed out in the submissions of the parties to the dispute, nothing in the
legislation by Indonesia establishing either the Fe bruary 1996 or the June 1996 programme explicitly
mandates preferential treatment of products from any specific country. A national car producer has
the freedom to choose the origin of technology and of the component and parts used in the production.
12.20 Kia Motor Corporation has become a benefici ary of such preferential treatment by having
simply been chosen by PT Timor Putra Nasional as a partner for a joint venture. The term 'joint
venture' is used in a general descriptive sense and not as a legal characterization of the arrangement as
provided for in the relevant laws of Indonesia.
12.21 Second, in its first submission, the Government of Indonesia argues that the exemptions and
reductions of import duties and luxury tax for the produ cers of a national car is not inconsistent with
the provisions of Subsidies and Countervailing Measures Agreement ("SCM"), because, under
Article 27.3 of SCM, Indonesia is not subject to the provisions of Article 3.1(b) of SCM as a
developing country for a period of five years.
12.22 If such an argument is accepted by the panel, Korea is of the view that Indonesia's import
duties and luxury tax subsidies should not be regulat ed by Article I or III of GATT 1994, because, in
the event of conflict between SCM and GATT 1994, the provisions of SCM shall prevail to the extent
of the conflict as provided for in General Interpre tative Note to multilateral agreements on trade in
goods. A reference to Articles I and III of GATT 1994 and the SCM Agreement reflects a
preliminary view of the Korean Government without prejudicing the positions on this particular issue
of the parties directly involved.
12.23 Finally, as was accurately stated by Indon esia, the Sportage is not and will not become
eligible for the National Car Programme. Therefor e, complaints pertaining to Kia Sportage are
irrelevant to the present case.