8.386 Table 35 ranks all the passenger cars of up to 1,800 cc offered in the Indonesian market according to their listed sale price. They show that the Timor S-515 was the least expensive model on sale in Indonesia in November 1996 and again in March 1997, with the only exception of the Mazda MR-90, a relatively old model which was sold in very small quantities. ⁵⁷⁴

Source: AV/3, Attachment A-40/1.March 1997

8.387 More particularly, the data evidence that the Timor S-515 undercut significantly the prices of the closest Community models in terms of specifications. In November 1996, the price of the Timor S-515�s most expensive version was 43 per cent lower than the price of the least expensive version of the Peugeot 306 and 52 per cent lower than the price of the Opel Optima. As of March 1997, the margins of price undercutting were almost identical.

8.390 Put simply, the Timor Kia Sephia is the cheapest car on Indonesian roads. ⁵⁷⁵ Because of the huge tariff and tax breaks it enjoys, the Timor Kia Sephia can be sold for 50 percent of the price of its rivals. ⁵⁷⁶

8.391 The newspaper accounts are consistent with the hard data. As set forth in Table 31, above, the Timor Kia Sephia S515 sold for Rp. 33.5 million, while the Opel Optima GLS (the least expensive Opel) sold for Rp. 69.5 million. In other words, the Timor Kia Sephia sold for less than one-half the price of the Opel Optima. In March, 1997, this price gap increased slightly, as the Timor Kia Sephia sedan continued to sell for Rp. 33.5 million, while the price of the Opel Optima GLS increased slightly to Rp. 70 million. Even the fuel-injected version of the Timor Kia Sephia, the S515i, sold for only Rp. 36.9 million in March 1997.

8.392 With respect to the Ford Escort, Ford, of course, abandoned its plans to sell the Escort in Indonesia due to the National Motor Vehicle programme. However, based on company figures, the Timor Kia Sephia S515 would have undercut the price of the least expensive version of the Escort by more than US$5,000. ⁵⁷⁷

8.393 Moreover, the Timor Kia Sephia did not significantly undercut the prices of only US passenger cars. It significantly undercut the prices of every passenger car in its class sold in Indonesia, as demonstrated in Tables 32 and 33, above.

8.394 The reasons why the Timor Kia Sephia could so significantly undercut the prices of its competition are obvious. First, the Timor Kia Sephia was not subject to import duties, whether imported from Korea in CBU form during 1996-1997 or as kits from July 1997 onward. Second, the Timor Kia Sephia is not subject to the 35 per cent luxury tax.

8.395 Information provided by Indonesia (Attachment A-28 to AV/3) effectively concedes that the tariff and tax subsidies under the National Motor Vehicle programme are responsible for the significant level of price undercutting. This table contains data for 1998 and 1999 regarding the Timor Kia Sephia S515i that will be assembled at the Karawang facility. Row 4 of the table (Unit Dealer Price) indicates that the effect of the tariff and tax subsidies of the National Motor Vehicle programme is to lower the price of the Timor Kia Sephia sedan by US$7,243-9,158.

8.396 The United States does not necessarily accept the accuracy of the data in this table. For one thing, it does not deal with the 1996-97 period during which the tariff subsidy was even greater due to the exemption of imports of CBU Kia Sephias from the 200 per cent tariff. Therefore, it does not reflect the price impact of this particular subsidy. In addition, during the Annex V process, Indonesia refused to explain the basis on which "unit cost" was estimated in the table, the figure from which "unit dealer cost" apparently was derived. ⁵⁷⁸ Nevertheless, the table constitutes an admission as to the tremendous impact of the tariff and tax subsidies on the price of the Timor Kia Sephia.

8.399 Article 6.5 of the Subsidies Agreement requires that price comparisons must take "due account ¼ of any other factor affecting price comparability". This requirement, in conjunction with the positive evidence standard, means that Complainants have the burden of quantifying and making appropriate price adjustments for the physical characteristics and consumer preferences and perceptions that distinguish the Timor from their manufacturers� products. This task may be difficult, but it is absolutely indispensable. In the same vein, Article 6.3(c) requires that there be "significant price undercutting". As reflected in Article 6.5, the existence of any price undercutting and a determination as to its significance necessitates an apples-to-apples comparison. ⁵⁷⁹

(2) Factors affecting price comparability

8.400 Numerous physical and non-physical factors and consumer perceptions affect the price comparability of passenger cars. These include, but are not limited to: brand loyalty; quality; after-sales service, 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; engine size and technology; transmission type; and suspension type. As demonstrated in Tables 26 and 27 above, there are numerous physical differences between the proposed comparison models that must be taken into account when comparing their prices. The above-identified non-physical attributes and consumer perceptions also require such an accounting.

8.401 One possible approach to quantifying the price effects of certain physical differences would be to consider the surcharges commonly assessed by dealers for enhanced features, such as a larger engine and advanced engine technology; special safety features (e.g., anti-lock brakes and air bags); trim packages; interior appointments (e.g., power windows and locks and sound system); and an automatic transmission. Of course, the usefulness of such surcharges as bases for adjustments would be constrained by their limited cross-model transferability.

8.402 Quantifying the price effects of other physical and non-physical factors and perceptions is much more difficult because specific surcharges do not exist. One way to gauge the price premium consumers willingly pay for the unique packages of features offered by the Peugeot 306 and Opel Optima would be to design and conduct targeted consumer surveys. Such surveys are commonplace in the automotive industry. ⁵⁸⁰

To continue with Adjustments for factors affecting price comparability

⁵⁷⁴ 102 units in 1996 and 16 during the first half of 1997. See AV/3, Attachment A-39/1- B.

⁵⁷⁵ "Indon Domestic Car Sales Race up by 41 per cent in May," Business Times (Singapore), June 17, 1997 (US Exhibit 14, pp. 138-139).

⁵⁷⁶ "Bumpy Road Ahead for Motoring Plans," South China Morning Post, 8 June 1997 (US Exhibit 14, pp. 132-135).

⁵⁷⁷ The United States has precise figures regarding the planned prices for Ford Escorts in Indonesia. However, these figures constitute business proprietary information that the United States is reluctant to provide to the Panel absence adequate procedures to protect such information.

⁵⁷⁸ In AV/15, in Question 12/28(a), the United States renewed its earlier request for an explanation of the estimated unit cost for cars to be produced at the Karawang facility. (Karawang is the district in which Cikampek is located). In AV/16, p. 3, instead of answering the question, Indonesia referred the United States to Table A-30/2 of Attachment U-12. However, Table A-30/2 merely provides a list of costs in relative terms, and, as such, cannot be used as a basis for estimating unit costs in absolute terms. In other words, under Table A-30/2, if one starts with a cost of X, the final price will be 616.9X. However, Table A-30/2 does not allow one to determine what X is.

⁵⁷⁹ Although not directly applicable, it is instructive to note that local authorities which administer WTO-consistent antidumping and countervailing duty regimes routinely split a like product category into numerous specific products when making price comparisons among products for injury assessment purposes. For example, in the 1992 antidumping duty investigation of Minivans from Japan, the US International Trade Commission and the parties acknowledged and wrestled with the difficult task of determining the comparability of various minivan models. The Commission, with the parties� input, eventually subdivided the unitary minivan like product category into fifteen specific products for price-comparison purposes. See Minivans from Japan, USITC Pub. 2529 (July 1992) at pp.5 and A-100 (Indonesia Exhibit 45).

⁵⁸⁰ See generally Daniel McGinn, Divide and Conquer: Meet the Researcher Behind GM's Controversial Marketing Strategy, Newsweek, 1 December 1997 at pp. 50-52 (Indonesia Exhibit 42, Attachment B).