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 flaws in its "like product" analysis. This action and inaction reflects an altogether unacceptable disregard for the appropriate and recognized requirement that a complainant has the burden of establishing acceptable "like products" for analytical purposes. ⁴⁸²

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 serious prejudice arguments because they have a correlative obligation to prove serious prejudice to their like products by positive evidence. ⁴⁸³ No amount of creative argumentation or irrelevant data can satisfy the applicable positive evidence standard where, as here, a complainant fails to carry 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, developed 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:

8.207 The somewhat amorphous and skeletal phrase, "characteristics closely resembling," may be fleshed out through reference to prior GATT and WTO cases, but it is well established that the "like product" concept is fluid and its meaning depends on the context in which it is used. ⁴⁸⁴ As the WTO Appellate Body has stated: ⁴⁸⁵

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 habits, which change from country to country; and the product's properties, nature and quality. ⁴⁸⁶ The tariff treatment of products is another factor that has been considered. ⁴⁸⁷ Thus, although interpretations of the 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. ⁴⁸⁸ 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). ⁴⁸⁹ The 1959 Report of the Group of Experts on "Anti-dumping and Countervailing Duties" stated that, in the dumping context, the "term should be interpreted 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)." ⁴⁹⁰ 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. ⁴⁹¹ This history amply demonstrates that the "like product" concept is to be very narrowly construed and restrictively applied in anti-dumping and subsidy proceedings. ⁴⁹² This is because the imposition of discriminatory anti-dumping and countervailing duties are exceptions to the general most-favoured-nation obligation of Article I of the GATT. ⁴⁹³

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 product" would operate to deprive a developing country Member of this generally available right, "like product" must be narrowly construed. ⁴⁹⁴ A derogation of Indonesia's right in this case therefore places an exceedingly high burden of proof on Complainants⁴⁹⁵, 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 any car models in Indonesia that are like the Timor. For the purposes of this proceeding, like product determinations must be made with reference to numerous physical and non-physical characteristics 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 asserts, 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 the 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 Communities 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 focus 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 price 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 serious 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. ⁴⁹⁶

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 physical 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 for extending its analysis beyond the definition of "like product" found in footnote 46 to the Subsidies Agreement, but this is unjustified 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 whether a particular product is �like� another. ¼ 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 habits, which change from country to country, and the product�s properties, nature and quality." ⁴⁹⁷ The United States also has noted its agreement with Indonesia that "consumers consider numerous physical 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 annual report to the US Securities and Exchange Commission:

8.217 The wide range of acknowledged factors that must be considered in identifying which products are like the Timor further points up the failure 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 United States separately argue, in essence, that Indonesia�s like product analysis is too restrictive 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 differentiation must be carefully circumscribed, taking due account of the types of products at issue. For example, while relatively minor and inconsequential differences exist among many consumer products - such as blenders, can openers and toaster ovens - passenger cars are very highly differentiated products. Two cars might even closely resemble one another in terms of their most basic physical characteristics, but yet still be highly differentiated on the basis of numerous other physical and non-physical characteristics, including design, quality, durability, driveability, safety, reliability, brand loyalty, brand image/reputation, status, after-sales service, fuel consumption and resale value. ⁴⁹⁹ 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 appropriate 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 specific approach to the like product issue in this case would make it impossible to bring a serious prejudice case against a subsidized consumer product. ⁵⁰⁰

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 Timor S515 and the European Communities and United States group of purportedly like cars makes them non-substitutable. This is important because, as the panel in Japan-Taxes on Alcoholic Beverages recognized, all like products are "directly competitive or substitutable products." ⁵⁰¹ Thus, because the Timor and none of the proposed comparison models are substitutable or "directly competitive," they cannot be considered like products. ⁵⁰²

(h) Market segment

8.221 Numerous physical and non-physical attributes 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 image/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; engine 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 the 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 perceptions of each model.) There are four basic physical attributes or specification groupings that differentiate passenger cars and contribute to segmenting the market: power plant; steering and suspenion; safety features; and passenger compartment.

8.224 The power plant grouping includes: engine configuration 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 significant physical differences that make the Timor "unlike" the proposed comparison models:

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:

To continue with The Neon is not "like" the Timor

⁴⁸² 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.

⁴⁸³ 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 subsidies. 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.

⁴⁸⁴ 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).

⁴⁸⁵ Japan-Taxes on Alcoholic Beverages, WT/DS8/AB/R (1 November 1996), Report of the Appellate Body, at p. 21.

⁴⁸⁶ 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.

⁴⁸⁷ 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.

⁴⁸⁸ 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).

⁴⁸⁹ E/CONF.2/C.3/SR.30, p. 5.

⁴⁹⁰ L/978, adopted on 13 May 1959, BISD 8S/145 (para. 12 at p. 149).

⁴⁹¹ See BISD 15S/24, 25; BISD 26S/171, 172; BISD 26S/56, 65 fn. 1.

⁴⁹² 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).

⁴⁹³ See United States-Countervailing Duties on Fresh, Chilled and Frozen Pork from Canada (11 July 1991), BISD 38S/30 (para. 4.4. at p. 44).

⁴⁹⁴ 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).

⁴⁹⁵ 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).

⁴⁹⁶ 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 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.

⁴⁹⁷ United States citing Japan-Taxes on Alcoholic Beverages (1 November 1996), WT/DS8/R, Report of the Appellate Body, 22.

⁴⁹⁸ Ford Motor Company 1996 Annual Report to US Securities and Exchange Commission in Form 10-K at 5 (Indonesia Exhibit 44).

⁴⁹⁹ 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.

⁵⁰⁰ Those assertions also are belied by the many successful countervailing 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 from 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).

⁵⁰¹ 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.

⁵⁰² 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 price undercutting, significant price suppression, price depression, lost sales, or lost market share.

⁵⁰³ 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.

⁵⁰⁴ In comparison to the Timor, the Escort, Vectra and Optima have power steering and the Peugeot, Neon, Vectra and Optima have larger tires.

⁵⁰⁵ 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.

⁵⁰⁶ 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.