(4) The complainants' allegations regarding the cancellation of their companies' plans for the Indonesian market have not been adequately substantiated

8.352 A similar evidentiary failure plagues the European Communities and United States assertions regarding the plans and/or projections of GM, Ford and Chrysler for the Indonesian market. Complainants have attempted to provide a thin veneer of authenticity to their various claims regarding the companies� plans and/or sales projections by citing to newspaper and trade articles, but this is wholly inadequate. The positive evidence standard of the Subsidies Agreement, along with the many uncertainties of business and the inherently speculative and fluid nature of plans and projections, requires much more than this. The European Communities and US claims should be summarily dismissed because they have not been substantiated with even a single source document. ⁵⁵⁷

8.353 A closer look at the United States' allegations concerning the plans of the Big Three is also in order. First, as a preliminary matter, Indonesia notes that it has contested and does contest the existence of "well-developed" Big Three plans to enter or expand in Indonesia's market for passenger cars. Where are these claimed "business plans"? The United States has failed to introduce any source documentation concerning them. At most, the United States has established that company personnel have informed reporters, or reporters have speculated, that the Big Three had "plans" to invest in Indonesia and such "plans" allegedly were frustrated by the National Car Programme. This is not positive evidence; in fact, it does not even rise from the level of hear-say.

8.354 Second, the so-called "plans" appear not to be "plans" at all, but, at most, plans to develop plans. According to the United States, the "plans" break down as follows for each manufacturer. For both Ford and GM, the United States' rebuttal mentions no "plan" to export US-made autos to Indonesia. Moreover, Chrysler, the only remaining manufacturer, had no firm plan to enter Indonesia's passenger car market. Rather, according to the United States, Chrysler "was studying" a joint venture in Indonesia to assemble Neon passenger cars and other passenger vehicles. ⁵⁵⁸ Studying or considering a joint venture is not the same as having a concrete plan. And, on top of this, the United States again has failed to provide positive evidence, as it must, to support any of these claims.

8.355 The United States claim regarding Chrysler is based not on positive evidence, but on hear-say. This also is true of the European Communities allegations concerning the plans of Ford and GM. For their claims to have any merit at all, the European Communities and the United States would have to prove by positive evidence that:

8.356 However, neither the European Communities nor the United States has satisfactorily addressed these interrelated factors, much less provided even minimal support for these points. Rather, they have claimed, without adducing a single substantiating source document, that the companies had plans to enter Indonesia's market that were foiled by the Timor.

8.357 In this regard, Indonesia notes that Ford and Chrysler did not submit a single application for approval of the development of passenger car production or assembly facilities in Indonesia during the period of 1993 to the present. In sum, Ford and Chrysler have never had any real plans to produce or assemble a like product in Indonesia. Moreover, in 1993, GM submitted to Indonesia a passenger car production and assembly plan, which Indonesia approved. Not only is there no evidence to support the termination of any plans, since 1993, GM has continued to expand its operations. In fact, in November of 1997, GM submitted to Indonesia an application to significantly expand its production and assembly operations in Indonesia. Indonesia approved this application in December 1997. These facts belie the claims of the European Communities and United States regarding serious prejudice. They also demonstrate that, if any abandoned plans existed, the United States and the European Communities could introduce evidence of the plans that the Indonesian government already would have copies of - the request for approval of new or expanded operations in Indonesia. Thus, the Panel should not allow Complainants to hide their lack of evidence behind the cloak of confidentiality.

8.358 Indonesia accordingly submits that the Panel's consideration of this issue should focus on the complete lack of positive evidence to support the United States and European Communities claims, and the fact that, even accepting the United States and European Communities stories, the Big Three do not have and never had any concrete, confirmed plans to sell a car like the Timor in Indonesia.

8.359 We also urge the Panel to note the inconsistencies and the narrowing trend in the United States presentations. First, the United States argued that all of the Big Three sold or would have sold like products in Indonesia; now it argues that none of them sell like products in Indonesia and that only Chrysler was considering doing so. One wonders what tomorrow's admission will be.

8.360 In sum, Indonesia should not be penalized for what the United States claims, but has not properly established, were business plans, projections or decisions by United States-based companies. Indonesia asks the Panel to find the United States arguments baseless and to reject the United States complaint.

(5) Sales of the Timor have not affected sales in Indonesia of US-based passenger car manufacturers for three basic reasons

8.361 Sales of the Timor have not affected sales in Indonesia of US-based passenger car manufacturers for three basic reasons. First, US-based manufacturers compete in a market segment dominated by Japanese-based manufacturers. ⁵⁵⁹ To date, their marketing efforts have stumbled badly.

8.362 Second, US-based manufacturers' claimed "efforts" to sell passenger cars that compete with the Timor are either non-existent, nebulous, or purely speculative. For example, Ford makes much of the fact that it has assigned four foreign service employees to Indonesia and invested US$1 million in Indonesia. ⁵⁶⁰ Ford has 370,000 employees worldwide and its automobile segment alone registers sales of US$118 billion. ⁵⁶¹ Obviously, Ford's commitment to Indonesia (other than to Indonesia's tax-free taxi market) is virtually non-existent. Chrysler's commitment to the Indonesian market is greater than Ford's, but it is directed not at the passenger car segment but to sales of Jeep-type vehicles. Chrysler Cherokees and Wranglers do not compete with Timor sedans. Chrysler's attempt to show serious prejudice in the Timor passenger car segment by introducing its "plans" to assemble Neons in Indonesia is unpersuasive. Chrysler statements that it "... was studying an assembly joint venture ... [p]lanned investment "... and "the precise figures are confidential ..." ⁵⁶² are vague and unsupported. There is not one piece of evidence on the record of this proceeding that supports these statements.

8.363 Indonesia has bared its soul in presenting its case to this Panel and responding to the complainants' questions. Complainants should not be able to succeed before this Panel by relying on wisps of intra-corporate marketing brainstorming while failing to provide substantive real-world data to the Panel for scrutiny by all parties.

8.364 General Motors' presentation, although superficially more compelling than Ford's or Chrysler's, misses the point entirely. GM goes to great lengths to detail its investment in the Opel Optima, Opel Vectra and Opel Blazer, however, GM has never sold more than a few hundred of these vehicles in Indonesia. GM's claim of lost potential sales thus is purely speculative.

8.365 The history of GM's marketing efforts in Indonesia is a much better barometer of the real situation. GM's history of sales efforts in Indonesia is one of sporadic, unfocused marketing efforts that have each failed to penetrate the target market - the Japanese-dominated passenger car segment. GM has no-one to blame but itself for failure to successfully compete with the Japanese in Indonesia for a share of that value-added market. As Indonesia continually has stressed through an analysis of physical characteristics, the Optima, Vectra and Blazer do not compete with the Timor.

8.366 Third, Timor sales do not affect sales by US-based passenger car manufacturers because other issues, rightly or wrongly, have dissuaded the "Big Three" from investing the capital necessary to successfully sell passenger cars in Indonesia. The US finally has acknowledged that the Big Three's decisions to place a "hold" on their "plans" for Indonesia was based on factors other than the National Car Programme. The Indonesian market is dominated by the Japanese. The Japanese are firmly entrenched, and Japanese vehicles hold approximately 90 per cent of the market. ⁵⁶³ This fact alone makes it difficult for the Big Three to justify millions of dollars of capital investments. Furthermore, Indonesia's road transportation infrastructure is in the early stages of development and its personal use market represents a small percentage of a relatively small market. ⁵⁶⁴

8.367 Simply put, the reasons the Big Three "withdrew from" or "failed to enter" the Indonesian market have nothing to do with the National Car Programme. They withdrew because (1) the market for small cars is too small to justify and sustain the necessary capital investments and, in any case, is dominated by Japan; (2) the low annual per capita income in Indonesia results in a minute high-profit market niche that is dominated by Mercedes-Benz and BMW that precludes penetration by the Big Three; (3) low-income, entry-level automobiles such as the Timor do not provide the per-unit profit necessary to generate investment returns that the Big Three enjoy in their important markets - North America and Europe; and (4) the investment incentives provided in countries such as Thailand are better than those provided in Indonesia. ⁵⁶⁵

8.368 In conclusion, US-based manufacturers did not suffer serious prejudice due to Indonesia's National Car Programme. The Timor, because of its low-income, entry-level appeal, does not compete with US-based automobiles. US-based manufacturers' automobiles are positioned to compete in other market segments, against Japanese models in Indonesia and in the rest of the world. The Indonesian market is dominated by the Japanese, per-unit profit margins would become very thin if the US were to compete, and the higher profit per-unit market niche is dominated by BMW and Mercedes-Benz. Thus, for the Big Three to make the investments necessary to compete in Indonesia would be incompatible with the short-horizon, quarterly profit maximization principles that drive US-based manufacturers.

(6) Even if the European Communities and US cars were found to be like the Timor, no serious prejudice exists or will arise because they do not compete with the Timor

8.369 Assuming, arguendo, that the European Communities and US cars were found to be like the Timor, this would not be tantamount to determining that the National Car programme has caused or will cause serious prejudice to European Communities and US interests. The like product determination merely establishes the proper analytical framework in which to consider, in turn, whether the separate components of the programme have caused serious prejudice to complainants� interests. ⁵⁶⁶ In other words, it is not enough for complainants to show that the Timor is subsidized and that, at the same time, their commercial welfare has declined or not improved as expected. Rather, they must demonstrate the existence of a causal link between the two events. As discussed below, the European Communities and the United States have not shown and cannot show this requisite linkage because the Timor is a low-end, no-frills budget car that is not in the same market segment as the more-advanced, state-of-the-art Escort, Neon, Optima, Vectra or Peugeot 306. ⁵⁶⁷

8.370 Available sales data for 1996 and 1997 reveal that the Timor has tapped into a new class of consumers and created a niche segment at the bottom of the market. ⁵⁶⁸ These data also show that sales in the non-Timor segments have increased, despite the introduction of the Timor. Total sales by all manufacturers increased from 38,826 cars in 1995 to 42,346 cars in 1996, for a total increase of 3,520 cars. The Timor was introduced in 1996 and 4,278 units were sold. Total sales by all manufacturers increased from 28,265 units in the first three quarters of 1996 to 53,033 cars during the first three quarters of 1997, for a nearly two-fold increase of 24,768 cars. Timor sales of 11,853 cars in the first three quarters of 1997 accounted for less than one-half of this phenomenal growth.

8.371 The sales data set forth in the following table also demonstrate that the European Communities and the US positions (and Japan�s position) in the marketplace have improved since the Timor was introduced. ⁵⁶⁹

Source: Gaikindo; Government of the Republic of Indonesia

8.372 In sum, the foregoing data run contrary to the European Communities and US assertions that sales of the Timor have displaced or impeded imports of the claimed like products. ⁵⁷¹

8.373 Finally, Indonesia notes that the operative standard for remediation is "serious prejudice." This concept does not lend itself to ready measurement and, accordingly, its meaning has not crystallized despite its relevance to many GATT proceedings. This does not, however, mean that it is without content.

8.374 Article 31.1 of the Vienna Convention on the Law of Treaties provides: "A Treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose." "Serious" is defined as: "Weighty, important, grave; (of quantity or degree) considerable, not trifling".⁵⁷²

8.375 The European Communities and the United States point to specific, concrete sales data for only the Opel Optima and Vectra and the Peugeot 306. GM sold 549 Opels in Indonesia in 1996 and 284 Opels from January through September 1997 (379 units on an annualized basis); 1,086 Peugeot 306�s were sold in 1996 and 762 (1,016 annualized) were sold through September 1997. Thus, even when taken together, the net decline in sales for the three models from 1996 (1,635 cars) to 1997 (1,395 cars) will be only approximately 240 cars. These cars represent only approximately 1.5 per cent of projected total European Communities and US sales in 1997 (15,549 cars). Thus, even if the drop in sales could be attributed to the Timor (and it cannot), such a minuscule decline could hardly be considered anything other than trifling and certainly cannot serve as the basis for a finding of serious prejudice.

(7) The EC has failed to prove serious prejudice

8.376 The European Communities focuses on sales of EC-produced cars in Indonesia with passing reference to the plans of Ford and GM. (Indonesia acknowledges that the EC does not attempt to claim any United States-produced cars as its own.) The European Communities originally had argued that the Opel Vectra also is like the Timor, but now apparently concedes this was an error.

8.377 Thus, apart from the European Communities' allegations concerning Ford and GM plans, the success of the European Communities' complaint hinges on the European Communities demonstrating by positive evidence, first, that the Opel Optima or the Peugeot 306 is like the Timor and, second, that Indonesia's measures have caused serious prejudice by impacting sales of these cars.

8.378 The European Communities has not met either of these burdens. Even putting aside the many important, non-physical characteristics that must be considered in establishing like products here, Indonesia already has demonstrated, and the European Communities' like product matrix ⁵⁷³ confirms, that the Timor is not like the Optima or the 306 when only physical characteristics are considered. Also, the European Communities has presented no positive evidence demonstrating that the Timor has had any impact on European Communities sales. Although Indonesia has not commissioned or performed any econometric or market research on this point, the data we have seen suggest that the Japanese models, many of which are like the Optima and the 306, are continuing to dominate the market segments above the Timor. If the European Communities is losing sales, then it is losing them to the Japanese like products, not to the "unlike" Timor. Therefore, Indonesia asks that the Panel reject the European Communities' arguments and dismiss the European Communities' Complaint.

8.379 Further to the last point, Indonesia notes that, notwithstanding the positive evidence standard, none of the complainants has undertaken econometric or market studies to support their positions. A study would allow the Panel to evaluate the various other criteria the European Communities deems "too subjective" or "too vague". Yet they have not done so. Had Indonesia the burden of proof or persuasion, the Panel and Parties already would have the data in front of them. Complainants have avoided any thorough investigation or analysis of the Indonesian market because they know such analysis would confirm Indonesia's position.

8.380 Rather than engaging these important issues, the European Communities continues to advance its idea that all passenger cars are like products, i.e., Mercedes-Benzes, Bentleys, Yugos and Timors compete for the same customers. It has no choice but to do so because only by avoiding causality can it succeed.

8.381 Later, the European Communities plays fast and loose with market share data, asserting that the European Communities accounts for 24 per cent of Indonesia's market, but failing to mention that the vast majority of this share is from sales of "models in the high segment of the market" (i.e., BMWs, Mercedes-Benzes and Volvos). Moreover, the European Communities ignores the fact that Japan's sales have increased by over 50 per cent.

8.382 The truth, or "truism", as the European Communities says, is that the Timor taps a different market segment. The European Communities states that "[t]he proposition that the Timor has generated entirely its own demand is purely speculative and cannot be demonstrated". But, first, Indonesia's presentation is not speculative; it is based on a reasoned view of the market and TPN's marketing intention for the Timor. Indonesia's view, unlike that of the European Communities, accounts for the phenomenal growth in Japan's sales. Second, Indonesia's view can be demonstrated. More importantly, however, Indonesia does not bear the burden of proof here. The European Communities does. It has failed to prove its allegations, and so the Panel should reject the European Communities' assertions and dismiss the European Communities' complaint.

To continue with Article 6.3(c) of the SCM Agreement�Price Undercutting

⁵⁵⁷ See Argentina-Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items (11 November 1997), WT/DS 56/R, 91, para. 6.40 ("adversary is obligated to provide the international tribunal with relevant documents which are in its sole possession"). Indonesia reserves the right to comment on any such documents or materials which might be supplied by the EC or the US.

⁵⁵⁸ Id. at para. 12, p. 3.

⁵⁵⁹ As Japan has previously acknowledged in this proceeding, Japan does not market a car that competes with the Timor.

⁵⁶⁰ US Exhibit 38, pp. 1-2.

⁵⁶¹ Ford 10-Q (1996) and "Ford Motor Company - The History of Ford Motor Company - An American Legend".

⁵⁶² US Exhibit 39, Page 2.

⁵⁶³ US Exhibit 37, Page 1.

⁵⁶⁴ Id.

⁵⁶⁵ Id.

⁵⁶⁶ This causation requirement is apparent from the text of the Subsidies Agreement. Article 5 provides: "No Member should cause, through the use of any [specific] subsidy ¼ , (c) serious prejudice to the interests of another Member." (footnote omitted) Articles 6.2 and 7.1 speak of subsidies "resulting" in serious prejudice. Articles 6.3(a) and (c) respectively state that serious prejudice may arise where "the effect of the subsidy is to displace or impede the imports of a like product" and "the effect of the subsidy is a significant price undercutting ¼ of a like product." "Effect" is defined as: "Something accomplished, caused, or produced; a result, consequence. Correlative with CAUSE." The Compact Oxford English Dictionary at p.496 (2d ed. 1987).

⁵⁶⁷ The US also claims that the Timor J520i is like the GM Opel Blazer and will pose a threat to US light commercial vehicles. Indonesia need not, however, address this claim because the Timor J520i is not and will not be covered by the National Car Program. Certificate of Registration of Mark/Type/Variant of Motor Vehicle, No. 1039/DJ-IIMK/X/1997, Department of Industry and Trade of the Republic of Indonesia, the Directorate General for Metals, Machinery and Chemical Industry (Indonesia Exhibit 42, Attachment E).

⁵⁶⁸ The Indonesian passenger car market can be properly examined only on a segmented basis. That market (like all other car markets) is characterized by a very high degree of market differentiation and specialization. Thus, a consumer who purchases a Mercedes-Benz or BMW or, for that matter, a Toyota, Opel or Peugeot, is extremely unlikely to purchase a Timor, and vice versa. See generally United States-Measures Affecting Alcoholic and Malt Beverages (19 June 1992), BISD 39S/206, 294, para. 5.73.

Car manufacturers devote very substantial resources to establishing and targeting different market segments and smaller niches in their production, advertising and marketing. For example, GM follows a strategy of selling dozens of different models where competitors sell just a few. This "needs segmentation" approach is designed to aim vehicles more precisely at buyers based on buyers� specific demographics, attitudes and desired car features. See Daniel McGinn, Divide and Conquer: Meet the Researcher Behind GM�s Controversial Marketing Strategy , Newsweek, 1 December 1997, at pp.50 and 52 (Indonesia Exhibit 42, Attachment B).

⁵⁶⁹ Opel Optima and Vectra sales are attributed to the EC.

⁵⁷⁰ Annualized on the basis of January through September 1997 sales.

⁵⁷¹ Of course, this standard is not even applicable if the Panel determines that cars assembled by EC or US manufacturers in Indonesia from imported kits are not like the Timor. Indonesia notes that the EC and the US rely heavily on market share trends and the US refers to Article 6.4 of the Subsidies Agreement for guidance in analyzing market displacement or impedance. First, only Articles 6.3(a) and (c) pertain to this case and they do not refer to market share as an indicia of serious prejudice. Second, historical and current market share data are meaningless, because the Timor�s establishment of a new market segment has fundamentally transformed the Indonesian passenger car market. Thus, in order to have even limited meaning, market share data must be compiled on a segment-specific basis. As for the EC�s suggestion that sales of the Opel Optima and Peugeot 306 should not have declined in 1997 because of a substantial increase in general demand, sales, demand growth and market share are not necessarily correlated. The EC itself has observed: "Since 1992 and until 1996, exports of passenger cars from the Community [to Indonesia] grew at a faster pace than demand, resulting in a significant gain in terms of market share."

⁵⁷² The Compact Oxford English Dictionary at p.1716 (2d ed. 1987).

⁵⁷³ EC Exhibit D-3.