2.1 This dispute concerns a series of measures maintained by Indonesia with respect to motor vehicles and parts and components thereof. The following is a summary of the factual information presented to the Panel, with respect to the tax and tariff treatment of imported motor vehicles and parts and components thereof, and with respect to the measures at issue.

A. Tax and Tariff Treatment in Indonesia of Imported Completely Built-Up Motor Vehicles

2.2 Completely Built-Up motor vehicles ("CBUs") imported into Indonesia are subject to luxury tax as set forth in Table 10 below, as well as to import duties. Indonesia's current import duty rates on CBUs are as follows:

B. Measures at Issue

2.3 The measures at issue are the measures comprising: (1) "the 1993 Incentive System", which was amended in 1995 and 1996 (referred to herein as the "1993 programme"), (2) "the National Car Programme", which encompasses the so-called "February 1996 programme" and "the June 1996 programme", and (3) a $US690 million loan² to PT Timor Putra Nasional ("PT TPN" or "TPN"). All complainants raise claims with respect to the National Car Programme, and the European Communities and the United States also raise claims with respect to the 1993 programme. In addition, the United States raises claims with respect to the $US690 million loan. These measures can be summarized as follows:

1. "1993 Programme"

2.4 In 1993, Indonesia adopted the so-called 1993 Incentive System. The 1993 Incentive System consists of:

(a) Decree No. 114/1993

2.5 The first decree in the 1993 programme was Minister of Industry Decree No. 114/M/SK/6/1993 (June 9, 1993) ("The Determination of Local Content Levels of Domestically Made Motor Vehicles or Components").³ Decree No. 114/1993 defines "local components" or "local sub components" as "parts or sub parts of Motor Vehicles which are domestically made and have Local Contents at a level of more than 40 per cent for [light commercial vehicles and passenger cars] ... ".⁴ The decree sets forth import duties dependent on specified local content rates for passenger cars, commercial vehicles, and automotive parts and components.

2.6 The local content rates and corresponding import duty rates applicable under this decree to parts for passenger cars are set forth below:

Thus, if the local content of a passenger car was less than 20 per cent, the importer paid an import duty of 100 per cent on imported parts, etc.

2.7 The local content rates and corresponding import duty rates applicable under this decree to parts for light commercial vehicles are set forth below:

2.8 The local content rates and corresponding import duty rates applicable under this decree to parts for subparts for passenger cars and light commercial vehicles are set forth below:

(b) Decree No. 645/1993

2.9 The purpose of the second decree forming part of the 1993 Programme, Minister of Finance Decree No. 645/KMK.01/1993 (June 10, 1993) ("The Relief of Import Duty on the Import of Certain Parts and Accessories of Motor Vehicles for the Purpose of Automotive Assembling and/or Manufacture"), is to authorize the incentives identified above under Decree No. 114/1993.⁵

(c) Decree No. 647/1993

2.10 A third decree forming part of the 1993 Programme, Minister of Finance Decree No. 647/KMK.04/1993 (June 10, 1993) ("The Kinds and Types of Motor Vehicles Subject to Sales Tax on Luxury Goods") provides reduced Indonesian sales tax on luxury goods for motor vehicles with specified local content rates.⁶ Specifically, passenger cars with cylinder capacities of 1600cc or less and jeeps are subject to a luxury tax of 20 per cent provided that their local content exceeds 60 per cent.⁷ (An exception is made for motor vehicles used for public purposes, such as police vans, ambulances, fire-engines, etc.). If the local content is not in excess of 60 per cent, the applicable luxury tax rate is 35 per cent.

2.11 The local content rates and corresponding luxury tax rates applicable under this decree to passenger cars with cylinder capacities of 1600 cc or less and jeeps are set forth below:

(d) Decree No. 223/1995

2.12 In 1995, through Minister of Finance Decree No. 223/KMK.01/1995 (May 23, 1995) ("The Improvement of Decree of the Minister of Finance Number 645/KMK.01/1993 on the Relief of Import Duty on Parts and Accessories of Motor Vehicles for the Purpose of Automotive Assembly and/or Manufacture"), Indonesia modified the schedule of import duty rates corresponding to specified local content rates.⁸ The local content rates and corresponding import duty rates for imported parts used in the manufacture or assembly of passenger cars and commercial vehicles were modified as set forth below:

2.13 The local content rates and corresponding import duty rates for imported subparts used in the manufacture or assembly of parts and accessories for passenger and commercial vehicles were modified as set forth below:

(e) Decree No. 36/1997

2.14 Minister of Finance Decree No. 36/KMK.01/1997 (January 21, 1997) ("The Granting of Import Duty Relief to Certain Parts and Accessories of Motor Vehicles for the Assembly and or Manufacturing of Motor Vehicles")⁹ reissues the schedule of import duty relief set forth in Decree No. 223/1995 in light of changes in the underlying customs statutes.

2. "The National Car Programme"

2.15 Two sets of measures have been identified by all parties under the 1996 National Car programme:

2.16 The first set of measures - the February 1996 Programme - provides for the grant of "pioneer" or National Car company status to Indonesian car companies that meet specified criteria as to ownership of facilities, use of trademarks, and technology. Maintenance of pioneer status is dependent on the National Cars' meeting increasing local content requirements over a three year period. The benefits provided are exemption from luxury tax on sales of National Cars, and exemption from import duties on parts and components.

2.17 The second set of measures - the June 1996 Programme - provides that National Cars manufactured in a foreign country by Indonesian nationals and which fulfil the local content requirements prescribed by the Minister of Industry and Trade, shall be treated the same as National Cars manufactured in Indonesia, i.e. exempt from import duties and luxury tax. In accordance with Decree 142/96, imported National Cars are deemed to comply with the 20 per cent local content requirement for the end of the first production year if the overseas producer manufacturing the National Cars "counter-purchases" Indonesian parts and components that account for at least 25 per cent of the C&F value of the imported cars.

2.18 The United States alleges a third element of the National Car Programme - a series of loans, totalling US$690 million with a maturity of 10 years, made on 11 August 1997, to TPN (the only pioneer company) for TPN to carry out the national car project. The loans allegedly were made by a consortium of state-owned and private banks at the direction of the Government of Indonesia, with the state-owned banks providing at least 50 per cent of the financing.

To Continue with "The February 1996 Programme" .

¹ The commercial vehicle categories are defined as follows:

² These designations are used in this report for convenience. The United States has argued that the National Car Programme is all a single programme, comprised of the February 1996 measures, the June 1996 measures and the $US690 million loan to TPN. Japan's view is that most of Government Regulation No. 20/1996 and Government Regulation No. 36/1996 are not related to "national motor vehicles" and are outside the scope of the "National Car Programme".

³ Indonesia Exhibit 8.

⁴ As used herein, the term "light commercial vehicles" refers to commercial motor vehicles with a gross vehicle weight up to 5 tons with single axle drives and commercial motor vehicles with a gross vehicle weight up to 5 tons with double axle drives, including such vehicles as jeeps, vans, minivans, sports utility vehicles, etc. The term "passenger car" as used herein refers to sedans and station wagons.

⁵ Indonesia Exhibit 36.

⁶ Indonesia Exhibit 33.

⁷Article 3 of Decree No. 647/1993 defines "jeeps" as "multi-purpose four wheeled motor vehicles, with double differential gears, chassis, total g.v.w. of 5 (five) tons or less and capacity of transporting less than 10 (ten) people.

⁸Indonesia Exhibit 27.

⁹Indonesia Exhibit 9.