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 consequences, 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 saying in such a crucial issue as the choice of KIA. Furthermore, the facts of this case which have been 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 harmoniously concerted as to be almost indistinguishable. PT TPN requested approval for developing a National Car before such a programme existed. ⁴¹¹ When the National Car Programme was eventually approved, it provided benefits which corresponded precisely to those requested by PT TPN several months before. Even more extraordinary, PT TPN was granted Pioneer Status by the Ministry of Industry and Trade ⁴¹² just a few days after the adoption of the Programme ⁴¹³ and before PT TPN had time to file its formal request. ⁴¹⁴ A similar sequence of facts took place in May/June 1996. On 28 May 1996 PT TPN asked authorisation to "produce" National Cars in Korea. ⁴¹⁵ On 6 June 1996, the Government approved Presidential Decree 42/96 creating that possibility. The next day, the Ministry of Trade and Industry granted PT TPN�s request of 28 May 1996. ⁴¹⁶

7.156 In any event, whether or not PT TPN�s choice was free or was influenced by the Indonesian Government is ultimately irrelevant. The measure attacked by the European Communities is not PT TPN�s choice but the legal consequences knowingly 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 imports from a Member would have benefited from the tariff and tax preferences. ⁴¹⁷

7.161 As demonstrated (See Section VII.C) Indonesia 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. ⁴¹⁸ In its first submission, Indonesia offered three arguments in response, none of which has merit.

7.163 As a factual matter, this argument is incorrect. Although it may be true that TPN is not authorized to import additional tax- and duty-free Sephias 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, Indonesia stated that these Sephias would be exempt from the luxury tax when they are sold. ⁴¹⁹

7.164 Likewise, the tariff incentives are still in effect. 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 cent local content requirement of the National Car Programme. ⁴²⁰ 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. ⁴²¹

7.165 A statement in Indonesia's initial Annex V response refers to the bank guarantee, and states that "the subsidy will be granted after the auditing of local content [is] achieved." ⁴²² In addition, at the first meeting of the Panel, the Indonesian representatives 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 remained 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 grant 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 tax 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. ⁴²³ In this case, the measures in question continue to be effective well after the date on which this Panel and its terms of reference were established.

This objective could be accomplished only by the 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 Chrysler 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.". ⁴²⁵ 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. Nevertheless, 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 countries. Accepting Indonesia's arguments would open up a tremendous loophole in Article I, because one always could argue that those advantaged by non-MFN behaviour are importers rather than suppliers.

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 Chrysler 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 differentiated 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. ⁴²⁶

8.13 Finally, the government-directed loan conferred 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). ⁴²⁷

To continue with The measures at issue are specific

⁴⁰⁶ 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).

⁴⁰⁷ Indonesia Exhibit 15.

⁴⁰⁸ Indonesia Exhibit 24

⁴⁰⁹ Indonesia Exhibit 18.

⁴¹⁰ Indonesia Exhibit 13

⁴¹¹ Indonesia Exhibit 24

⁴¹² Indonesia Exhibit 41. This decision was disclosed by Indonesia only during the First Meeting with the Panel. According to Indonesia, it was "overlooked including it in the list of translated 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.

⁴¹³ 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.

⁴¹⁴ Indonesia Exhibit 14

⁴¹⁵ Indonesia Exhibit 18

⁴¹⁶ Indonesia Exhibit 13

⁴¹⁷ 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-mandated 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 order to apply a measure that had the necessary result of benefiting only imports from a certain source.

⁴¹⁸ 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.

⁴¹⁹ AV/15, United States follow-up question #12/27, and Indonesia�s response thereto in AV/16.

⁴²⁰ US Exhibit 23.

⁴²¹ Indonesia Exhibits 21 and 9.

⁴²² AV/14, Attachment U-16/1.

⁴²³ 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.

⁴²⁴ See section VII.D.3(b).

⁴²⁵ 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.

⁴²⁶ 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."

⁴²⁷ 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 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 winners 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.