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World Trade Organization

WT/DS54/R
WT/DS55/R
WT/DS59/R
WT/DS64/R


2 July 1998
(98-2505)
Original: English

Indonesia - Certain Measures Affecting the Automovile Industry

Report of the Panel

(Continued)


(d) GATT past practice does not and cannot circumvent Indonesia's sovereign right

4.25 In earlier dispute settlement proceedings under the GATT, delegations were, in virtually every instance, composed solely of government representatives. This practice does not circumvent Indonesia's right to include outside counsel as accredited members of its dispute settlement delegation. The fact that in the past developing countries chose not to include outside counsel in their delegations (or were bullied by complainants such as the United States not to do so) does not block Indonesia from exercising its rights under international law to choose its representatives to the dispute proceeding. This right would be lost only if the WTO Agreement or the DSU limited who could be members of a delegation. As noted by the Appellate Body in the passage from the Bananas case quoted above, there is no such limitation. Further, as also recognized by the Appellate Body, customary international law and the practice of other international dispute settlement tribunals uniformly support a country's right to select the representatives of its choice. As a matter of international law, then, past GATT practice does not prevent Indonesia from accrediting outside counsel as members of its delegation.

4.26 Also, the change in the nature of GATT/WTO dispute settlement undercuts the importance of past GATT practice. Under the GATT, panel decisions (indeed, all stages of a proceeding) could be blocked by either party, including the losing party. Dispute settlement was viewed principally as part of the "diplomatic" process. Due largely to the insistence of the United States, the diplomatic process was replaced by a "judicial" process, in which the losing party cannot block a panel (or Appellate Body) decision.

Having expert counsel in a binding, "judicial" WTO proceeding is infinitely more important than it was in non-binding GATT proceedings. Because of the radical change in the dispute settlement system, prior GATT practice is not relevant. Thus, for practical reasons as well as under principles of international law, Indonesia's sovereign right to include outside counsel on its delegation is not affected by past GATT practice.

(e) Practical and equitable considerations mandate that Indonesia not be denied its right

4.28 As the Appellate Body has recognized, in order to participate on equal terms with Complainants and other countries with large corps of trade lawyers, Indonesia must be allowed to select its counsel for WTO dispute settlement proceedings. USTR, the European Communities and Japan each have a cadre of attorneys with substantial experience in WTO matters. In contrast, Indonesia has only a few attorneys with experience in trade disputes before the WTO. The language barrier adds another burden to Indonesia's effective representation because the WTO proceeding will be conducted in English, both with regard to written submissions and oral presentations.

4.29 The WTO will not be a meaningful and fair forum in which countries can resolve trade disputes unless the interests of all parties to the disputes are represented efficiently and effectively and in 4accordance with their wishes. Without the support of outside counsel, Indonesia's interests will not be adequately represented in this proceeding.

4.30 We refer the Panel and complainants to the writings of the eminent WTO scholars William Davey, John Jackson and Alan Sykes. In regard to what these three experts describe as the "basic problems" of developing countries in WTO dispute settlement proceedings, they conclude that developing countries such as Indonesia "clearly are not as able to use the dispute settlement system as developed countries".

4.31 Principles of international law and practices of all the major international dispute settlement tribunals and international organizations, including the WTO Appellate Body, support Indonesia's position to have counsel of its choice to represent its interests during the WTO proceedings. Complainants' objections to Indonesia's inclusion of outside counsel in its delegation to the WTO are groundless and contravene principles of international law and practices of international organizations and the spirit of equity in the WTO. Moreover, the objections comprise a litigation strategy designed to disadvantage Indonesia in the WTO proceeding. In this regard, complainant United States, in particular, employs the very device it states excluding outside counsel will preclude.

4.32 The Panel should ignore complainants' objections and recognize Indonesia's sovereign right to counsel. Any other decision, including any compromise, will taint the proceeding and, indeed, completely undermine the legitimacy of the WTO as a body for resolving disputes between developed nations with substantial WTO expertise and significant political and economic power and developing countries lacking such expertise and power.

4.33 At the first substantive meeting, Japan made the following arguments before the Panel:

4.34 Regarding the issue of the participation of private lawyers, Japan has some systemic concerns, in particular the following two:

i) First, dispute settlement proceedings under the auspices of GATT/WTO have been supposed to be intergovernmental. The presence of private lawyers would change this intergovernmental character.

ii) Second, since private lawyers may not be subject to disciplinary rules such as those applied to members of governments, Japan has some concerns about the breaches of confidentiality.

4.35 In this regard, Japan prefers the non-participation due to the preceding concerns, but Japan understands that it is the Panel who should decide on this issue. However, Japan believes that it would be essential for the Panel to ensure the observance of the general rules applied to the participants of the Panel, including confidentiality, in case the Panel allows their participation.

B. Preliminary Objection to the United States' Claims Regarding the $US690 Million Loan to TPN

4.36 Indonesia raised a preliminary objection to the United States' claims with respect to the $US690 million loan to TPN, on the basis that this loan was not within the Panel's terms of reference. On 3 December 1997, the Panel heard arguments and made a ruling on this issue.29

1. Objection by Indonesia

4.37 The following are Indonesia's arguments in support of this objection.

4.38 As a preliminary matter, Indonesia asks the Panel to rule that it will not examine the $690 million loan discussed at great length by the United States. In its first submission, the United States argues that an August 1997 loan of $690 million to Timor Putra Nasional is inconsistent with Article III:4 of the General Agreement and Article 2 of the TRIMs Agreement and is a specific subsidy that causes serious prejudice. The August 1997 loan should not be examined by the Panel because it was not raised in the 12 June 1997 request of the United States for the establishment of a panel (WT/DS59/6) or in the Panel's terms of reference.

(a) First, the loan was not raised in the Panel request or the Panel's terms of reference

4.39 Article 6.2 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the DSU) states that "[t]he request for the establishment of panel ... shall identify the specific measures at issue." In European Communities-Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R (9 September 1997) (para. 143 at p. 64), the Appellate Body examined Article 6.2 and stated:

Article 6.2 of the DSU requires that the claims ... must all be specified sufficiently in the request for the establishment of a panel in order to allow the defending party and any third parties to know the legal basis of the complaint.

4.40 The terms of reference in the present dispute are the standard terms of reference in which the definition of the matter is supplied by Complainants' requests for establishment of a panel. Neither the United States, which now belatedly seeks to inject the loan into this proceeding, nor the other Complainants, identify the loan in their panel requests. The panel in United States-Imposition of Anti-Dumping Duties on Imports of Fresh and Chilled Atlantic Salmon from Norway, ADP/87 (27 April 1994) (at para. 336), concluded that:

a matter, including each claim composing that matter, could not be examined by a panel under the [General] Agreement unless that same matter was within the scope of, and had been identified in, the written statement or statements referred to or contained in its terms of reference.

(b) Second, the loan arose after the Panel was established

4.41 The Panel in United States-Restrictions on Imports of Sugar (22 June 1989), BISD 36S/331, concluded that a matter arising after the establishment of a panel is not within the scope of the panel proceeding. The Panel stated:

Since the matter raised by Australia [complainant] had arisen only after the establishment of the Panel by the Council ... , contracting parties had no reason to expect that the reallocation of sugar quotas among Caribbean countries [the matter] would be an issue before the Panel. The Panel therefore decided that this reallocation was not part of its mandate.30

Furthermore, in United States-Measures Affecting Alcoholic and Malt Beverages (19 June 1992), BISD 39S/206 (para. 3.5.), the panel concluded that "its terms of reference [did] not permit it to examine 'any new measure which may come into effect during the Panel's deliberations'." Id. at para. 3.5.

(c) Third, the United States cannot "cure" its omission of the loan from its Panel request by discussing the loan in its first submission

4.42 In European Communities-Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R (9 September 1997), the Appellate Body stated that:

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 submission or statement made later in the panel proceeding.31

As did the United States here, in United States-Denial of Most-Favoured-Nation Treatment as to Non-Rubber Footwear from Brazil (19 June 1992), BISD 39S/128, Brazil made arguments in its first submission concerning issues not raised in consultations or in its request for the establishment of a Panel. The Panel rejected Brazil's arguments and concluded that the terms of reference were "limited to the matters raised by Brazil in its request for the establishment of this Panel".32

4.43 For the foregoing reasons, the Panel should rule that it will not examine any claim by the United States regarding the August 1997 loan.

2. Response of the United States

4.44 Indonesia argues that the Panel should not consider the $690 million government-directed loan because it was not raised in the United States request for a panel. It is true that the loan was not identified in the United States request, because the loan had not yet been made.

4.45 However, there is precedent for panels taking a more flexible and dynamic approach to disputes than the rigid straitjacket advocated by Indonesia. In India - Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/R (issued 5 September 1997) ("Indian Mailbox") the panel rejected an Indian request to bar a United States claim because the claim had not been included in the United States request for a panel. Because the new claim of the United States in that case addressed the same "problem" identified in the United States request for a panel, the panel concluded that the new claim was within the panel's terms of reference.

4.46 Here, the United States clearly indicated in its request for a panel that the "problem" was the National Car Programme, which resulted in, among other things, the discriminatory treatment of imported auto parts and subparts and subsidies that caused serious prejudice to the interests of the United States. The $690 million government-directed loan is merely the most recent component of the National Car Programme, a component that exacerbates the problem previously identified in the United States' request for a panel.

4.47 This Panel demonstrated that it would not be bound by the mainstream of GATT dispute settlement practice when it decided to allow Indonesia's private counsel to participate in the meetings of the Panel. With respect to the admissibility of the $690 million government-directed loan to TPN, the Panel should show similar flexibility by following the lead of the Indian Mailbox panel.

4.48 In the recent report in Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, the panel declined to make a preliminary ruling on a jurisdictional issue similar to the issue raised by Indonesia. Contrary to Indonesia's assertion, this was not because the panel lacked guidance on the issue, but because it is standard panel practice to defer decisions on such issues to the final panel report. These types of issue are not procedural, but instead are substantive. To resolve these issues, a panel is required to make findings of fact.

4.49 In this case, to resolve the issue raised by Indonesia, the Panel will have to make findings as to whether or not the $690 million government-directed loan is merely one aspect of a single measure, the National Car Programme, or whether it is a separate measure in itself. This question implicates many other issues raised in this dispute, because Indonesia's defence concerning several claims of the Complainants is based on the proposition that the National Car Programme can be divided up into individual "programmes", some of which allegedly have expired.

4.50 The United States submits that the Panel should not prejudge the outcome of these issues one way or another by making a ruling on a preliminary objection, especially when standard practice is to defer such rulings to the final panel report.

C. Business Proprietary Information

4.51 Indonesia requested the Panel to require the United States to submit, prior to the first substantive meeting of the Panel with the parties, certain information characterized by the United States in its first submission as "business proprietary". The United States indicated in its first submission that it had further information in its possession that was relevant to its serious prejudice claims but that the information was "business proprietary" and the United States was reluctant to provide it to the Panel in the absence of "adequate procedures" to protect such information. At its first meeting with the parties, the Panel heard arguments and made a ruling with respect to this issue.33

1. Request of Indonesia

4.52 The United States refers obliquely to confidential data in its possession which it claims would demonstrate serious prejudice and threat thereof if only the Panel process could be trusted with the data, which then would allow the United States to present it. (See Section VIII.B.) This presentation is inadequate. The United States has the burden of establishing serious prejudice on the basis of positive evidence and it cannot hide behind the claimed sensitivity of its "data."

4.53 The United States tactic raises issues of fairness, as well. The goal of the United States, apparently, is to allow itself to be "forced" to present the data in its second submission, to which, of course, the Government will have no opportunity to respond in its second submission.

4.54 This gamesmanship undermines the legitimacy of the Panel proceeding. The United States is well aware that the WTO - like the United States International Trade Commission and the United States Department of Commerce - has procedures to protect confidential data. Article 18.2 of the DSU designates all written submissions to the Panel as "confidential." According to Article 18.2:

Members shall treat as confidential information submitted by another Member to the Panel or the Appellate Body which that Member has designated as confidential.

Article 18.2 also provides that, on request, a Member submitting confidential data shall "produce a non-confidential summary of the [confidential] information" contained in its written submission.

4.55 The United States, however, treats this proceeding as no-holds-barred litigation and, to secure an advantage, pretends that Article 18 does not exist, acting as though this is the first time the issue of confidentiality has arisen. The Panel should not countenance this attempt by a developed, experienced, sophisticated WTO Member to gain an unfair advantage over Indonesia. Rather, the Panel should require the United States to submit its confidential data immediately, prior to the 3-4 December 1997 hearing. The data should be available for review and comment by the legal experts hired and accredited by Indonesia and informative non-confidential summaries should be given to the Indonesian delegation. Moreover, Indonesia must be given an opportunity to review and respond fully to the data and to any additional United States argumentation based on it.

2. Response of the United States

4.56 The issue raised by Indonesia is much ado about nothing. Regarding business proprietary information, in its first submission the United States noted that it had additional information in its possession documenting the plans and projections of General Motors, Ford, and Chrysler with respect to the Indonesian motor vehicle market. The United States indicated that it was reluctant to provide such information to the Panel unless the Panel first established adequate procedures to protect such information. Indonesia claims that this legitimate desire to ensure the protection of business proprietary data constitutes an unfair tactic and that the protection of business proprietary data is adequately ensured by Article 18.2 of the DSU.

4.57 Article 18.2 of the DSU merely recognizes that confidential information should be treated as confidential, but in itself does not establish procedures for ensuring the protection of such information. Therefore, the United States was justified in being cautious with the information supplied to it by private companies.

4.58 Be that as it may, while the United States reserves its right to submit additional factual information in this proceeding, at this point, the United States does not intend to submit the business proprietary information we have been discussing. The information in question relates to the plans of United States auto-manufacturers to enter, or expand their presence in, the Indonesian passenger car market, plans that were cancelled in light of the introduction of the National Car Programme. The information included in the first United States submission summarizes that information in a non-confidential manner, and Indonesia has not disputed the accuracy of this data or the existence of the United States manufacturers' plans. Indeed, an attachment to Indonesia's first submission to the Panel corroborates this information and the existence of these plans. Therefore, there is no present need to submit this information, because the points that this information would corroborate are uncontested by Indonesia.

4.59 At no place in Indonesia's first written submission to the Panel does Indonesia contest the existence of the United States manufacturers' plans to enter, or expand their presence in, the Indonesian passenger car market. At the first meeting of the Panel, Indonesia announced, for the first time, that it does, indeed, contest the existence of these plans. If Indonesia plans to revise its defence by submitting rebuttal information of its own, then the United States, of course, reserves its own right to counter that information with information of its own.

4.60 Moreover, the United States notes the following statement of the Appellate Body in its report in the Bananas case: "There is no requirement in the DSU or in GATT practice for arguments on all claims relating to the matter referred to the DSB to be set out in a complaining party's first written submission to the panel." (para. 145).

D. Request from Indonesia for Termination of the Panel with Respect to the National Car Programme

4.61 On 26 February 1998, Indonesia officially submitted to the Panel a copy of a letter from Indonesia to the Chairman of the SCM Committee, which letter Indonesia requested the Chairman of the Committee to consider as a formal modification of its notification of subsidies granted to the National Automobile Industry (G/SCM/N/16/IDN). This notification, to which were attached copies of the referenced decrees and regulations issued on 21 January 1998, states the following:

4.62 On 21 January 1998, the Government of Indonesia took the following actions:

  • Presidential Decree No. 20/199834 revoked Presidential Decree No. 42/1996 (4 June 1996) and declared Presidential Instruction No. 2/1996 (19 February 1996) obsolete, thereby terminating the authority for further import duty and luxury tax exemption subsidies to producers of a national car.
  • Minister of Industry and Trade Decree No. 19/MPP/Kep/1/199835 revoked (effective 2 February 1998) Minister of Industry and Trade Decree No. 31/MPP/SK/2/1996(19 February 1996) and all departmental regulations issued pursuant to it to implement Presidential Instruction No. 2/1996.
  • Minister of Industry and Trade Decree No. 20/MPP/Kep/1/199836 revoked (effective 2 February 1998) Minister of Industry and Trade Decree No. 142/MPP/Kep/6/1996 (5 June 1996), which had authorized production of national cars to be carried out overseas for a one-year period, in implementation of Presidential Decree No. 42/1996. (This decree already had terminated by its own terms.)
  • Government Regulation No. 14/199837 amended Government Regulation No. 50/1994 (28 December 1994), as previously amended by Government Regulation No. 20/1996 (19 February 1996) and by Government Regulation No. 36/1996 (14 June 1996), so as to eliminate (effective 2 February 1998) the exemption of national cars from payment of the luxury sales tax.
  • Minister of Finance Decree No. 19/KMK.01/199838 revoked (effective 2 February 1998) Minister of Finance Decree No. 404/KMK.01/1996 (7 June 1996), which had exempted national cars produced overseas (during the one-year period specified in Minister of Industry and Trade Decree No. 142/MPP/Kep/6/1996) from payment of the customs import duty. (This decree already had terminated by its own terms.)
  • Minister of Finance Decree No. 20/KMK.01/199839 amended Minister of Finance Decree No. 36/KMK.01/1997 (21 January 1997) to delete (effective 2 February 1998) the authority to exempt parts and components for assembly or manufacture of national cars from payment of the customs import duty.

4.63 On 27 February 1998, the Panel sent a communication to all parties concerning this subsidy notification received from Indonesia. The Panel asked Indonesia to inform the Panel what action, if any, Indonesia requested the Panel to take on the basis of the notification, and what Indonesia believed to be the legal implications of the notified revocations for the panel process. The Panel asked the complainants to respond to Indonesia's comments.

To Continue with Request from Indonesia .


29See Findings, section XIV.A.2, for this ruling.

30At para. 5.8 (emphasis added).

31At 64, para. 143 (second emphasis added).

32At para. 6.2.

33See Findings, section XIV.A.3, for this ruling.

34Indonesia Exhibit 51.

35Indonesia Exhibit 52.

36Indonesia Exhibit 53.

37Indonesia Exhibit 54.

38Indonesia Exhibit 55.

39Indonesia Exhibit 56.