(e) The tariff and tax subsidies under the National Motor Vehicle programme displaced or impeded imports of passenger cars of US motor vehicle manufacturers into the Indonesian market

8.316 Under Article 6.3(a) of the SCM Agreement, serious prejudice exists where "the effect of the subsidy is to displace or impede the imports of a like product of another Member into the market of the subsidizing Member." With respect to imports of GM, Ford, and Chrysler passenger cars, this situation is precisely what occurred in Indonesia as a result of the National Motor Vehicle programme and the introduction of the subsidized Timor Kia Sephia sedan.

8.317 Attachment A/39/6 to AV/3 provides the market share of the Timor Kia Sephia. According to Attachment A/39/6, the Timor Kia Sephia went from a market share of zero in February 1996 (when the National Motor Vehicle programme was announced and Kia Timor was named as the producer of the "national motor vehicle") to a 10.11 per cent share of the market by the end of 1996. By the end of May 1997, the last period covered in Attachment A/39/6, the market share of the Timor Kia Sephia had catapulted to 26.53 per cent.

8.318 This phenomenal market penetration came, in part, at the expense of the passenger cars of GM, Ford, and Chrysler. As set forth in AV/15, in response to Indonesia�s Question 6, each of these companies had plans to increase its penetration of the Indonesian passenger car market, but each company had to abandon or suspend its plans as a result of the National Motor Vehicle programme. ⁵⁴¹ Numerous news reports substantiate the existence of these plans, as well as the deathblow dealt to them by the announcement of the National Motor Vehicle programme and the fact that the three firms would be forced to compete against the massively subsidized Timor Kia Sephia. ⁵⁴²

8.319 Although the precise figures are confidential, in the case of GM, which already was selling its Opel passenger cars in Indonesia when the National Motor Vehicle programme was introduced, GM�s business plan called for sales of Optimas and Vectras in excess of 1,000 cars in 1996 and around 3,000 cars in 1997, with progressive increases in subsequent years. ⁵⁴³ According to Indonesia�s own information, however, GM sold only 549 Opels in 1996, and only 176 in the first half of 1997. ⁵⁴⁴

8.320 In the case of Ford, the company projected sales volumes in Indonesia for the Escort of over 1,000 units in 1996, over 3,000 units in 1997, with steady annual increases thereafter. ⁵⁴⁵

8.321 Regarding Chrysler, according to Chrysler officials the launch date for the Neon project would have been mid-1997, had the project not been cancelled due to the National Car Programme.

8.322 The United States notes, however, that the precise timing of such sales is not critical to a serious prejudice analysis in this case. Chrysler was shut out of the market, and it will continue to be shut out of the market as long as TPN continues to benefit from massive subsidies. In the meantime, the market share of the Timor shot to over 26 per cent of the total Indonesian passenger car market and significantly undercut the prices at which the Neon would have been sold. TPN is well-positioned to increase its market share while new entrants, such as Chrysler remain shut out of the Indonesian market. In the view of the United States, this satisfies the criteria for serious prejudice under Article 6.3 of the SCM Agreement.

8.323 In this regard, the United States would like to memorialize an exchange that took place at the second meeting of the Panel. The United States made the point that Indonesia appeared to be arguing that the US claim of serious prejudice could succeed only if the US manufacturers had first gone forward with their plans, notwithstanding the introduction of the National Car Programme. The United States observed that such a requirement would force companies facing massively subsidized competition to engage in commercially irrational behaviour, and that it could not have been the intent of the drafters of the SCM Agreement to make irrational behaviour by private firms a prerequisite to relief under the SCM Agreement. This is particularly true in light of the fact that one of the purposes of the SCM Agreement was to establish a more effective multilateral remedy against subsidies that cause adverse effects. Certainly, in this case it would have been foolhardy for the US companies to proceed with their plans in light of the artificial 50 per cent price advantage that the Timor Kia Sephia enjoyed due to the subsidies provided by the Government of Indonesia.

8.324 In response, Indonesia stated that it was not arguing that the US companies actually had to have made sales, but that the companies had to have had "credible" plans to enter, or expand their presence in, the Indonesian passenger car market.

8.325 In the view of the United States, the evidence provided by the United States concerning the plans of General Motors, Ford, and Chrysler more than establishes the credibility of those plans. Indonesia has not argued that the evidence presented by the United States is inaccurate, and Indonesia has not offered evidence of its own to rebut the evidence put forward by the United States.

8.326 Finally, the plans of the US companies must be put in context. In terms of population, Indonesia is the fourth largest country in the world. Indonesia is in Asia, a region in which each of the US companies has been seeking to expand its presence. General Motors already was selling passenger cars in Indonesia, and continues to sell sports utility vehicles. Chrysler also continues to sell sports utility vehicles. Ford sells taxis. In light of all of these factors, it seems implausible that the companies would not have gone forward with their plans had the National Car Programme not been introduced.

8.327 In the view of the United States, the Panel's task should be to answer the following question: "Is it more likely than not, based on the evidence, that the US companies would have gone forward with their plans had the National Car Programme not been introduced?" In the view of the United States, the evidence in this case clearly warrants the answer "Yes".

8.328 Overall, prior to the announcement of the National Motor Vehicle programme, the three US companies had plans to spend more than US$750 million to increase their presence in the Indonesian motor vehicle market. ⁵⁴⁶ However, the US companies had to abandon their plans for importing and selling passenger cars in Indonesia. While each of the three companies is a highly competitive automobile manufacturer, their business decisions - unlike TPN�s - are necessarily governed by commercial considerations. With the onset of the National Motor Vehicle programme, the introduction of the Timor Kia Sephia, and the prospect of competing against the Indonesian Treasury, the three US companies were forced to abandon their plans, and could only watch as the Timor Kia Sephia quickly acquired 26 per cent of the Indonesian market.

(1) The evidence on sales trends shows that the subsidies provided under the National Car programme have caused displacement or impedance

8.329 Indonesia claims that the sales numbers show no discernible impact of the Timor Kia Sephia on the sales trends of US-brand passenger cars. ⁵⁴⁷ Because this is one of the few instances in which Indonesia actually discusses facts, these "facts" warrant close scrutiny.

8.330 With respect to General Motors, the data cited by Indonesia shows that sales of GM Opels began to decline in 1996, the year in which the National Car programme was introduced. However, Indonesia does not refer to its own data, which demonstrates that during the first half of 1997, Opel sales declined even further. In addition, Indonesia totally ignores the fact that General Motors had plans to increase its sales of Opels to over 1,000 cars in 1996 and around 3,000 cars in 1997, with progressive increases thereafter. Indonesia also ignores the well-documented fact that General Motors had to cancel its expansion plans following the introduction of the National Car programme.

8.331 In the case of Ford, Indonesia simply provides sales figures for Ford Lasers, a car sold exclusively to the taxi market. Given Indonesia�s insistence elsewhere that a "like product" comparison calls for passenger cars to be virtually identical, the relevance of taxi sales to a serious prejudice case involving passenger cars is puzzling, and Indonesia offers no explanation. Moreover, Indonesia provides no response concerning Ford�s well-publicized plans to introduce the Ford Escort to the Indonesian passenger car market.

8.332 Finally, in the case of Chrysler, Indonesia correctly notes that Chrysler did not market Chrysler-brand passenger cars in Indonesia during 1994-96. However, Indonesia simply ignores the fact that Chrysler was planning to introduce the Neon to the Indonesian passenger car market, but that Chrysler, too, had to cancel its plans following the introduction of the National Car programme.

8.333 In addition to ignoring the evidence, Indonesia ignores the law. Article 6.4 of the SCM Agreement, which provides guidance concerning the analysis of market displacement or impedance, states as follows:

8.334 What happened in the Indonesian passenger car market over the last year fits perfectly within Article 6.4. The subsidized Timor Kia Sephia and the non-subsidized GM Opels, Ford Escort, and Chrysler Neon effectively started with a market share of zero. Each of the companies in question had plans to increase the market share of its cars. However, through subsidies, the Timor Kia Sephia captured 26 per cent of the Indonesian passenger car market, while the other cars remained at zero. This is a classic situation of displacement or impedance. ⁵⁴⁸ Moreover, while Article 6.4, by its terms, applies to third-country market situations, there is no reason why this type of analysis is not suitable with respect to the displacement or impedance of imports from the market of the subsidizing Member. ⁵⁴⁹

(2) The Timor does not occupy a special niche

8.335 In addition to claiming that the Timor is not "like" other cars, Indonesia argues that the Timor does not compete with Opels, Escorts, or Neons because allegedly "the Timor has tapped into a new class of consumers and created a niche at the bottom of the market". Indonesia also claims that "a consumer who purchases ... a Toyota, Opel or Peugeot is extremely unlikely to purchase a Timor, and vice versa". All of this constitutes an effort on the part of Indonesia to talk around the undeniable fact that, in one year, the Timor Kia Sephia acquired over 26 per cent of the total Indonesian passenger car market.

8.336 Significantly, Indonesia provides no evidence to support its assertions regarding a new market niche. The market data discussed on page 21 of Indonesia's second submission, which relates to all passenger cars, simply shows that the overall Indonesian passenger car market has grown slightly. It does not disprove that the Timor has, through subsidization, stolen sales from US manufacturers in the lower-medium passenger car class.

8.337 If the Timor does occupy a special niche, it is the niche of "heavily subsidized lower-medium class car". However, for serious prejudice purposes, the fact that a product is heavily subsidized, and thus can significantly undercut the prices of its competition, cannot be used as a basis for concluding that there is no competition or that the products in question are not "like" each other.

8.338 Moreover, Indonesia is simply incorrect that market share data is not an indicia of serious prejudice. Nothing in Article 6.3(a) precludes a consideration of market share data, and its use is consistent with Article 6.3(b), which also deals with displacement or impeding of imports. In this regard "displace" means "to crowd out: take the place of". Webster's Third New International Dictionary. Market share data provides a measure of the extent to which the Timor has "crowded out" or "taken the place of' like products from US manufacturers, and thereby cause serious prejudice to the interests of the United States.

(3) The prejudice caused to like products of US manufacturers was serious

8.339 Indonesia attempts to argue that whatever harm US interests may have suffered, it is not enough to be considered "serious" within the meaning of the Subsidies Agreement. Again, however, in advancing this argument, Indonesia discusses total sales figures rather than sales of passenger cars that are "like" the Timor.

8.340 Moreover, Indonesia totally ignores the sales that the US manufacturers would have made but for the introduction of the National Car programme. GM's plan called for around 3,000 sales of Opels in 1997, Ford's plan called for roughly 2,000 Escorts in 1997, and Chrysler's plan called for between 1,000 to 2,000 Neons in 1997. Even if the US manufacturers only achieved one-half of the lower end of their projections, this still would have amounted to roughly 3,000 cars, which, in the Indonesian passenger car market, is a considerable amount. The fact that these sales have not occurred is not "trifling," as Indonesia would have this Panel believe.

(4) Indonesia has not provided anv evidence to rebut the fact that US Manufacturers had well-developed plans to enter, or increase their presence in, the Indonesian passenger car market

8.341 Finally, let us discuss the US manufacturers' plans for the Indonesian market. Significantly, Indonesia does not challenge the existence of these plans or offer evidence aimed at disproving the existence of these plans. Indeed, the only evidence offered by Indonesia on this particular issue supports the position of the United States. Submitted as US Exhibit 37 is a document entitled "Indonesia's Automotive Market," which was submitted by Indonesia as Indonesia Exhibit 11 (first submission). Pages 3-4 of US Exhibit 37 discuss the plans of each of the three US manufacturers and describe how these plans were cancelled or suspended as a result of the National Car Programme.

8.342 Rather than attempting to rebut the evidence presented by the United States (which Indonesia knows it cannot do), Indonesia instead relies on the procedural defense that the United States allegedly has not presented enough evidence to trigger Indonesia's obligation to present rebutting evidence. However, as stated by the Appellate Body in the Wool Shirts case, at page 14, the burden on the United States, as the complainant, merely is to adduce "evidence sufficient to raise a presumption that what is claimed is true." In the view of the United States, it has more than satisfied this burden by providing information obtained from the US companies and information contained in newspaper articles and trade journals.

8.343 In addition, to satisfy Indonesia's insistence that the United States provide documents straight from the companies themselves, the United States has submitted documents containing information jointly submitted by Ford and General Motors to the Office of the US Trade Representative (USTR) ⁵⁵⁰,and information submitted by Chrysler to USTR⁵⁵¹. The United States emphasizes that there is little new information contained in these documents, because most of the information contained in these documents was also contained in the US first and second submissions. The United States trusts that the submission of these documents will put an end to Indonesia's accusations that the United States has relied on hearsay evidence.

(5) As a factual matter, it is simply not established that the tariff and tax benefits conferred on TPN under Decree No. 42/96 will ever be reimbursed

8.344 The United States argues, in connection with its arguments regarding whether the June 1996 programme is an expired measure, that it is not established that the tariff and tax benefits conferred on TPN under Decree No. 42/96 will ever be reimbursed. These arguments are set forth in Section X.B.

8.346 The complainants' collective serious prejudice allegations encompass only the National Car programme, which they allege has three components: (i) the June 1996 programme, which provided conditional exemptions from import duties and the luxury tax for imported national cars; (ii) the February 1996 programme, which provides conditional exemptions from the luxury tax and from import duties on parts and components used for the assembly of national cars in Indonesia; and (iii) the August 1997 US$690 million loan to TPN. ⁵⁵²

(2) To establish serious prejudice, complainants must prove that a subsidy exists and that it is causing or threatens to cause serious prejudice

8.347 In order to maintain a claim of serious prejudice, the complainants must establish both:

Thus, in short, the complainants must show that a subsidy exists and that it causes or threatens adverse effects resulting in serious prejudice. The complainants have not made and cannot make this showing.

(3) Complainants� allegations of serious prejudice fail because they have not demonstrated that an existing subsidy measure has resulted in actual serious prejudice

8.348 The complainants allege that their interests have suffered serious prejudice through the displacement or impedance of imports (Article 6.3(a)) and price undercutting (Article 6.3(c)) by the national car during 1996 and the first half of 1997. They rely heavily on contemporaneous sales and price data provided by the Government in the Annex V process, but fail to acknowledge that the sales and price data relating to the national car during 1996 and 1997 (to date) relate exclusively to national cars that benefitted solely from the June 1996 programme. As discussed above, the June 1996 programme terminated in its entirety in June 1997. Thus, even if Complainants' assertions regarding actual serious prejudice in 1996 and 1997 were correct (which they are not), this harm would not be cognizable in this proceeding because the underlying measure complained of has already been withdrawn. Complainants� claims, therefore, are moot. ⁵⁵⁵

8.349 At the same time, the two ⁵⁵⁶ remaining components of the National Car Programme could not have caused actual serious prejudice to either Complainants' interests. TPN did not begin assembling the national car in Indonesia under the February 1996 programme until June 1997. Moreover, the Tambun Plant at which the national car is being assembled will produce vehicles at the rate of only 1,000 units per year.

8.350 The August 1997 loan to TPN will be used to fund the construction of the Cikampek Plant, where the Sportage will be built. As discussed above, however, the Sportage will not be designated as a "national motor vehicle" and will not benefit from the tariff and tax subsidies extended under the February 1996 programme. Additionally, even if the August 1997 loan were deemed to confer a subsidy on the Sportage, actual serious prejudice could not arise because no vehicles have yet been built.

8.351 In sum, the June 1996 programme has been withdrawn and neither the February 1996 programme nor the August 1997 loan has caused actual serious prejudice to the complainants' interests. The practical effect of the foregoing analysis is to leave intact and relevant only the complainants' threat of serious prejudice allegations. As demonstrated below, like the complainants� claims of actual serious prejudice, these allegations lack merit and do not require or warrant any remedial action.

To continue with The complainants' allegations have not been adequately substantiated

⁵⁴¹ Like other automotive manufacturers in Indonesia, the passenger cars exported to Indonesia by Ford, Chrysler, and GM (like the Timor Kia Sephia itself) would have been in the form of kits that would have undergone final assembly in Indonesia. "Because of high duties on imports, the bulk of vehicles sold in Indonesia are locally assembled by joint ventures set up with local companies." "Jakarta Policy Stalls Expansion Plans; Japanese Firms Rethink Strategy After Suharto�s �National Car� Decree," The Nikkei Weekly, 25 March 1996, p.1 (US Exhibit 14, pp. 19-23).

⁵⁴² See, e.g., "Like Father, Like Son; Indonesia�s Proposed �National Car� Has Plenty of International Critics--and a Familiar Face at the Helm," Time, 10 June 1996, p. 40 (US Exhibit 14, pp. 69-71); "GM Halts Plans for Indonesia Car; Firm Requests Clarification on National Car Policy," The Dallas Morning News, 12 June 1996, p. 6B (US Exhibit 14, pp. 75-76); "GM Freezes Indonesian Investment; Policies Create an 'Unlevel Playing Field�," Automotive News, 17 June 1996, p. 38 (US Exhibit 14, pp. 84-85); see also "A Furious Flap Over Favouritism," Business Week, 8 July 1996 (US Exhibit 14, pp. 92-95); "Ford Seeks Inroads in Booming Asian Auto Market," The Reuter European Business Report, 25 April 1996 (US Exhibit 14, pp. 29 30).

⁵⁴³ These figures are slightly higher than the projections concerning the Indonesian production/assembly of Opels set forth in East Asian Automotive Growth Markets, Summer 1994, pp. 370-371, which was included as part of Annex 1 to AV/2.

⁵⁴⁴ AV/3, Attachment A/39/5-B.

⁵⁴⁵ The precise figures constitute business proprietary information that the United States is reluctant to provide to the Panel absence adequate procedures to protect such information.

⁵⁴⁶ Source: US companies.

⁵⁴⁷ The United States must emphasize that this argument was not made in connection with the US claim of serious prejudice. However, it is addressed here in anticipation of Indonesia "rethinking" its defence.

⁵⁴⁸ Moreover, as previously noted, if certain passenger cars are excluded from the market share calculation, the market share of the Timor Kia Sephia is increased.

⁵⁴⁹ Indeed, Indonesia would be hard-pressed to contest the application of Article 6.4, having already argued that the Panel should analyze threat of serious prejudice under Article 6 based upon the countervailing duty standards for threat of injury contained in Article 15.7 of the SCM Agreement.

⁵⁵⁰ US Exhibit 38.

⁵⁵¹ US Exhibit 39.

⁵⁵² As demonstrated, complainants' arguments concerning the loan are irrelevant because the loan and related issues are not within the scope of this Panel proceeding. Also, in any case, the loan was delivered on commercial terms.

⁵⁵³ See Subsidies Agreement, Article 1.1. See also Subsidies Agreement, Articles 3.1.(b), 5, 6 and 7, each of which refers to extant subsidies.

⁵⁵⁴ See Subsidies Agreement, Articles 5(c) and 6. The phrase, "serious prejudice to the interests of another Member," includes the threat of serious prejudice. See Subsidies Agreement, fn. 13.

⁵⁵⁵ Indeed, the Subsidies Agreement, in its entirety, is designed to provide a remedy for existing subsidy measures. This is demonstrated most clearly in Article 7.8, which directs Members maintaining a subsidy measure found to cause serious prejudice either to withdraw the measure or to remedy the adverse effects.

⁵⁵⁶ Actually, only one measure, the February 1996 policy, remains because the August 1997 loan to TPN is outside the scope of this proceeding and, in any case, was delivered on commercial terms. In order to be thorough, however, the loan is discussed as well.