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Indonesia - Certain Measures Affecting the Automovile IndustryReport of the Panel (Continued)
(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 between 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 other 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 product 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 clear discrimination embedded in its National Car Programme by arguing for a novel and extraordinarily 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 were 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 "likeness" could also drastically limit the application of those GATT disciplines to all other manufactured products. (2) Japanese companies produce 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 customized 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 general 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. Among 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 often interchangeable with only minor adjustments. Accordingly, when the specifications for the parts 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 are many "like" products within a category of parts and components (such as engines, transmissions, brakes, 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 this general characterization and are 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 parts and components imported from Kia Motors in Korea. 7.122 Thus, Japanese manufacturers may produce and 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, which 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 390, for the proposition that the Article I concept of "like products" is narrower than the Article III concept of "like" or "directly competitive or substitutable products," 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 until 1993. The current tariff 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 policies, such as the 200 per cent tariff rate. If ever the Government of Indonesia should stop imposing prohibitively 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 like 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 discriminatory 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 Indonesia's reasoning, a WTO Member that maintains an import ban would be allowed to maintain it forever, 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 never permitted this kind of justification. GATT Panels have held that a "demonstration that a measure inconsistent with [GATT Articles] has no or insignificant effects would ... not be a sufficient demonstration that the benefits accruing under that provision had not been nullified or impaired"391, which has been reaffirmed by the Appellate Body in the Bananas III case. 392 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 prohibition, the Appellate Body, as well as the Panel, found that "hypothetical imports ... have to be considered." 393 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. 7.130 Finally, it should be also noted that Indonesia's argument is irrelevant with respect to automotive parts and components, as Japanese companies export substantial quantities of those products to Indonesia. 394 (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 clear 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 Panel 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 Decree 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 review 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 importation, admitted by the Government of Indonesia, PT Timor will continue to benefit from the luxury tax 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 has not completed its compliance audit for the Programme, according to its admission at the first Panel meeting. 3957.136 In short, the June 1996 Programme is still operational and has not expired, contrary to the Government of Indonesia�s recent allegation. 7.137 Indonesia alleges that its own previous statement that the "June 1996 Presidential Decree is still in effect ..." is irrelevant because it was made before 30 June 1997. That argument is wrong. Perhaps Indonesia has forgotten that it made this statement on 15 September 1997 - nearly three months after Indonesia now claims that the programme expired. 7.138 Even more striking, Indonesia has made an admission that completely undercuts its own argument. By conceding that over 17,000 Timors imported 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. 396 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 participation 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 cited 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 397 for its contention that Panels may not review the WTO consistency of expired measures. In fact, both Panel decisions flatly contradict the Government of Indonesia's position. 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 the Panels declined to recommend compensation for the expired measures. But compensation is not at issue 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, 398 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 mandatory legislation, while leaving discretionary legislation that may be applied in a GATT-inconsistent 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 reach 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 precedents cited by Indonesia support its position. (4) Indonesia's attempt to circumvent this 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 that 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 Member 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 trade 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: (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 compatibility 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 applicable regulations. Therefore, new authorisations may be granted in respect of other National Cars. 3997.150 Indonesia claims that "no comparable programme 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. 400 Moreover, these assurances appear to be contradicted by the 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 granted in respect of the Timor S-515, a duration of only one year. Therefore, any such authorisation will have expired before a new Panel has time to rule on it. 7.152 The European Communities�s request that the Panel rule on the expired measure is supported by prior Panel decisions. Under GATT 1947, several panels 401 considered measures that were no longer in force in cases where, as in the present case, the measures were still in force at the time the Panel was established 402 and the terms of reference set and/or where there was a threat of recurrence. 7.153 This practice has continued under the WTO Agreement. In US - Standards for Reformulated Gasoline 403, the Panel decided not to rule on a discontinued 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 the parties to terminate the proceedings, we think that it is appropriate to issue our final report regarding the matter set out in the terms of reference of this Panel in order to comply with our mandate [....] notwithstanding the withdrawal of the United States restraint" 404 405 To continue with It's irrelevant that the Indonesian Government didn't mandate to import 390 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. 391 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. 392 Appellate Body Report on Bananas III, paras. 252-253. 393 Panel Report on Canada - Periodicals, para. 5.23. Appellate Body Report on Canada - Periodicals, p.19. 394 Japan Exhibit 76. 395 As indicated in Section X.A, Indonesia has submitted evidence alleged to demonstrate that TPN failed the audit. (Indonesia Exhibit 47). 396 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 measures 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). 397 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. 398 Panel Report on Thailand - Restrictions on Importation of and Internal Taxes on Cigarettes, DS10/R, adopted 7 November 1990, 37S/200. 399 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 for Metal, Machinery and Chemical Industries 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 (Decree 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 noting that according to the translation 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 "private 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. 400 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 National 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 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". 401 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. 402 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). 403 Panel report on United States - Standards for Reformulated Gasoline , WT/DS2/R, adopted on 20 May 1996, para 6.19 404 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 6.2 405 In Argentina - Certain measures affecting Imports 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 Panel but before the Panel was established. The Panel also noted that there was no evidence that the measure would be re-introduced. |
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