8.411 Moreover, as stated by numerous commentators, the only factor responsible for the significant price undercutting by the Timor Kia Sephia is subsidies, and the 50-60 per cent price advantage that these subsidies confer. ⁵⁸¹

8.412 The United States is unaware of any other factor that would account for the massive price undercutting of like products by the Timor Kia Sephia. As numerous analysts have recognized, this price undercutting is attributable to the huge subsidies provided by Indonesia. ⁵⁸²

8.413 In the view of the United States, the party that would benefit from having an "other factor" being taken into account under Article 6.5 should bear the burden of proving the existence of such a factor and its effect on price comparability. Otherwise, as the United States has already noted, the opposing party would bear the burden of proving the negative, an unreasonable burden which is typically impossible to satisfy and which the drafters of the SCM Agreement could not have intended, given that one of the purposes of the SCM Agreement was to create an operational multilateral remedy against subsidies.

8.414 In that regard, the relevant provisions of the Anti-dumping Agreement, which deals extensively with issues or price comparability, provide useful guidance on this point. Indeed, Indonesia has previously acknowledged that concepts developed in the anti-dumping context can be relevant to an analysis of serious prejudice.

8.415 Article 2.4 of the Anti-dumping Agreement deals with the topic of making a fair comparison between normal value and export price, and provides that due allowance shall be made for a variety of factors, including "any other differences which are also demonstrated to affect price comparability". In other words, the party seeking an allowance must demonstrate the effect of a factor on price comparability. The last sentence of Article 2.4 states: "The authorities shall indicate to the parties in question what information is necessary to ensure a fair comparison and shall not impose an unreasonable burden of proof on those parties." Thus Article 2.4 appears to impose the burden of proof on the party seeking an allowance or an adjustment to normal value or export price, although the burden imposed cannot be an unreasonable one.

8.416 The United States cannot speak for the practice of all Members, but certainly the practice of the US authorities responsible for administering the US anti-dumping law is to impose the burden of proof on the party seeking an adjustment, whether the party be an exporter seeking an adjustment that will lower a dumping margin or a domestic party seeking an adjustment that will increase a dumping margin.

8.417 By the same token, an evenhanded application of Article 6.5 would be to impose the burden of proof on the party claiming the existence of any "other factor affecting price comparability". This avoids the imposition of the unreasonable burden of proving the negative.

8.418 The United States would also note that Article 6.5 refers to "due account being taken of "other factors". The ordinary meaning of "due" is "fitting or appropriate". As the United States has previously stated, it is unaware of any factors other than the subsidies provided by Indonesia that would account for the massive price undercutting reflected in sales of the Timor Kia Sephia. Also, as previously stated, even Indonesia's own data show that subsidies cause the price of the Timor Kia Sephia to be between US$7,200-9,100 lower than would otherwise be the case. AV/14, Attachment A-28, note 4.

8.419 It is submitted that even if it is assumed for purposes of argument that the United States bears the burden of taking "due" account of other factors, the United States has met its burden of establishing that no account for such factors is "due" in this case.

8.420 Indonesia�s first argument is based on the wrong premise that there are two different "programmes", each providing different subsidies. In reality, however, there is but a single National Car Programme based on Presidential Instruction 2/96. Presidential Decree 42/1996 does not introduce a new "programme". The sole purpose of Presidential Decree 42/1996 was, by its own words, to extend on a temporary basis to National Cars imported from Korea the "same treatment" ⁵⁸³ already granted in February 1996 to National Cars assembled in Indonesia.

8.421 Moreover, Indonesia�s first argument makes the fundamental error of confusing the measure granting a subsidy with the subsidy itself. A subsidy continues to exist - and, therefore, may be "withdrawn" or its adverse effects "removed" in the sense of Article 7.8 of the SCM Agreement - for as long as it continues to benefit the sale of goods by the recipient firm, even if the measure granting that subsidy has already expired.

8.422 In the present case, the permit given to PT TPN for importing 45.000 units of the Timor S-515 duty and tax free from Korea expired as of 30 June 1997. Yet, the subsidies received by PT TPN pursuant to that authorization have not been "withdrawn". Sales of passenger cars by PT TPN after 30 June 1997 have continued to benefit from those subsidies and, as a result, to cause serious prejudice to the interests of the European Communities.

8.423 In this regard, the European Communities notes and agrees with the argument made by the United States to the effect that the subsidies granted under the one-year authorization to import cars from Korea duty and tax free are non-recurring subsidies and therefore should be allocated to future time periods.

8.424 Furthermore, even if the total amount of the subsidies had to be attributed to the passenger cars imported from Korea before 30 June 1997, it remains that more than 70 per cent of those cars had not been sold yet as of that date. In fact, it can be estimated that if sales of the Timor S-515 continue at the same pace as until now, the last Timor S-515 imported from Korea under Presidential Decree 42/1996 will not be sold until March 1999. This cannot be explained away simply as an "inventory overhang".

8.425 Indonesia does not address directly the evidence of serious prejudice submitted by the European Communities. Allegedly, because it need not do so given that the Timor S-515 is unlike any other passenger car and that, in addition, the so-called "June 1996 Programme" has already expired. In reality, because Indonesia cannot provide any evidence to rebut the EC claim, which is based on evidence supplied by Indonesia itself as part of its Annex V response.

(b) Indonesia's suggestion that the fact that the import duty and luxury tax benefits with respect to CBUs imported from Korea under the June 1996 programme will be reimbursed or not provided precludes a finding of serious prejudice is incorrect

8.426 According to Indonesia, all the benefits granted under the so-called June 1996 programme were already "provided" before 30 June 1996. The relevant question, therefore, is whether those benefits continue to have effects. As long as those benefits are not effectively and definitively reimbursed by PT TPN (increased with an appropriate amount of interest), it cannot be considered that the subsidies have ceased to produce effects.

8.427 The letter that Indonesia has submitted indicating that the Timors imported as CBUs from Korea do not meet legal requirements to receive National Car benefits is a letter from SUCOFINDO to the Indonesian Government, which contains the results of an audit conducted by SUCOFINDO. The European Communities understands that the Indonesian Government has not yet taken any formal decision ordering the reimbursement based on SUCOFINDO's audit. Moreover, assuming that such decision was taken, it is likely to be appealed by PT TPN. Even if that appeal was unsuccessful, it would still be possible for the Indonesian Government to "forgive" PT TPN's debt.

8.428 In sum, PT TPN has not yet reimbursed any of the unpaid taxes and duties and it is still uncertain whether it will be required to do so in the future. Thus, there is no reason to assume that the subsidies have ceased or will cease to cause serious prejudice. In those circumstances, the Panel is required to rule on this claim, like on all other claims included in its terms of reference.

(c) The subsidies granted under the National Car Programme for the assembly of passenger cars will continue to cause serious prejudice to the Community industry

8.429 The permit issued to PT TPN for importing Timor S-515 cars duty free and tax free from Korea expired on 30 June 1997. Nonetheless, the sales of those cars, together with the sales of subsidized cars assembled by PT TPN in Indonesia, will continue to cause serious prejudice to the Community interests in the foreseeable future.

8.430 As of 30 June 1997, the number of Timors S-515 imported duty free and tax free from Korea and not yet sold was 28,391. In comparison, the total demand for passenger cars during 1996 was 42,345 units. Thus, the number of Timors S-515 imported from Korea and not yet sold as of 30 June 1997 would have been sufficient to cover almost 70 per cent of the total Indonesian demand for passenger cars during the whole of 1996. As already noted, those cars will not be subject to the Sales Tax on Luxury Goods when they are sold.

8.431 From June 1997 and until May 1998, PT TPN will assemble the Timor S-515 at the Tambun Plant. According to Indonesia, this Plant has a production capacity of 3,000 cars per year and is currently producing at the rate of 1,000 cars per year.

8.432 As from May 1998, PT TPN will start producing the Timor S-515 at its own plant in Karawang. According to the investment permit approved by the BKPM, the Karawang Plant is designed to produce 120,000 cars per year, of which 80,000 sedans. In comparison, the forecast demand for passenger cars during 1998 and 1999 is 64,000 and 72,000, respectively. ⁵⁸⁴ Thus, Karawang Plant will have more than sufficient production capacity to supply 100 per cent of the Indonesian demand during the next two years.

8.433 According to the more conservative estimates now produced by the Indonesian authorities for the purposes of this dispute, the production capacity of Karawang Plant will be 63,000 units. ⁵⁸⁵ Though less than originally planned, this capacity will still be sufficient to cover almost 100 per cent of the expected demand for 1998. ⁵⁸⁶

8.434 According to the same estimates, the actual output of Timors S-515 will be 6,000 units in 1998 and 35,000 units in 1999, of which 25,000 for sale on the Indonesian market. ⁵⁸⁷ This means that the Indonesian Government expects that, despite an unexplained very low rate of capacity utilization, in 1999 Karawang Plant will supply over 35 per cent of the forecast total sales in the Indonesian passenger car market. In other words, the Indonesian authorities are counting on a further 10 per cent increase in PT TPN�s market share between now and 1999.

8.435 As shown above, the estimated subsidization rate (on sales value) of the cars assembled by PT TPN in Indonesia is lower than the corresponding rate for cars imported from Korea but still very substantial. This will enable PT TPN to continue to undercut significantly the prices of the Community cars. In fact, according to PT TPN�s own estimates, the retail price for the cars assembled at Karawang Plant, will be virtually the same as the 1997 prices for the cars imported from Korea. ⁵⁸⁸

8.436 The European Communities has established not only that the National Car Programme has caused serious prejudice but in addition that it will continue to do so in the foreseeable future. This claim is not to be confused with a claim of threat of serious prejudice. Since the National Car Programme has already caused serious prejudice, there is no need for the EC to show that it threatens to cause serious prejudice. The EC has submitted also a claim of threat of serious prejudice, but only in the alternative, i.e. in the eventuality that the Panel was to find that the National Car Programme has not caused actual serious prejudice. (See Section VIII.B.7.)

8.437 The European Communities has shown that:

8.438 Indonesia has not advanced any evidence whatsoever to rebut the above allegations. It could hardly do so, since they are all based on data provided by Indonesia itself in its Annex V Response.

8.439 The European Communities presents a rebuttal to the argument that the measure has expired and therefore is not relevant to the Panel's work in the context of its claims under Article I:1 of GATT 1994. (See Section VII.E.2) In addition, with respect to the implications, if any, of an eventual repayment by TPN of the benefits under the programme, the European Communities makes the following arguments:

8.440 According to Indonesia, all the benefits granted under the so-called June 1996 programme were already "provided" before 30 June 1996. The relevant questions, therefore, is whether those benefits continue to have effects. As long as those benefits are not effectively and definitively reimbursed by PT TPN (increased with an appropriate amount of interest), it cannot be considered that the subsidies have ceased to produce effects.

8.441 The letter submitted by Indonesia is a letter from SUCOFINDO to the Indonesian Government which contains the results of an audit conducted by SUCOFINDO. The European Communities understands that the Indonesian Government has not taken yet any formal decision ordering the reimbursement based on SUCOFINDO's audit. Moreover, assuming that such decision was taken, it is likely to be appealed by PT TPN. Even if that appeal was unsuccessful, it would still be possible for the Indonesian Government to "forgive" PT TPN's debt.

8.442 In sum, PT TPN has not reimbursed yet any of the unpaid taxes and duties and it is still uncertain whether it will be required to do so in the future. Thus, there is no reason to assume that the subsidies have ceased or will cease to cause serious prejudice. In those circumstances, the Panel is required to rule on the serious prejudice claim, like on all other claims included in its terms of reference.

To continue with Additional United States arguments

⁵⁸¹ See, e.g., "Jakarta�s Car Wars," Business Times (Singapore), 28 May 1996 (US Exhibit 14, pp. 46, 48); "Indonesia Draws More Criticism Over Car Plan," The Nikkei Weekly, 17 June 1996 (US Exhibit 14, pp. 80-81); "Bumpy Road Ahead for Motoring Plan," South China Morning Post, 8 June 1997 (US Exhibit 14, pp. 132-133); and "Indonesia Company: Suharto Clan�s Business Activities," EIU Viewswire, 28 July 1997 (US Exhibit 14, pp. 154, 156).

⁵⁸² See, e.g., "Jakarta�s Car Wars", Business Times (Singapore), 28 May 1996 (US Exhibit 14, pp. 46, 48); "Indonesia Draws More Criticism Over Car Plan, The Nikkei Weekly, 17 June 1996 (US Exhibit 14, pp. 80-81); "Bumpy Road Ahead for Motoring Plan", South China Morning Post, 8 June 1997 (US Exhibit 14, pp. 132-133); and "Indonesia Company: Suharto Clan�s Business Activities", EIU Viewswire, 28 July 1997 (US Exhibit 14, pp. 154, 156).

⁵⁸³ See Article 1 of Presidential Decree 42/1996 in EC Exhibit A-13. The translation provided by Indonesia (Attachment 6) states that imported National Cars "will be treated equally ...".

⁵⁸⁴ Data from DRI�s report on "East Asian Automotive Growth Markets" included in AV/2, Annex 2.

⁵⁸⁵ AV/3, Attachment A-28.

⁵⁸⁶ Data from DRI�s report on "East Asian Automotive Growth Markets" included inAV/2, Annex 2.

⁵⁸⁷ AV/3, Attachment A-28.

⁵⁸⁸ In AV/3, Attachment A-28, Indonesia has indicated that the estimated unit dealer price "with subsidy" for the Timors S-515 assembled at Karawang Plant during 1998 and 1999 will be US$14,927. This price is almost identical to PT TPN current prices. Thus, according to AV/3, Attachment A - 40/1, in March 1997 PT TPN�s listed retail prices for the Timor S-515 ranged from US$13,535 to US$14,861.