World Trade Organization | WT/DS54/R
WT/DS55/R
WT/DS59/R
WT/DS64/R
2 July 1998
(98-2505)
Original: English |
Indonesia - Certain Measures Affecting the Automovile Industry
Report of the Panel
(Continued)
2. Response of Indonesia
9.8 Indonesia argues that Japan's contention that the provision of "Pioneer Status" to TPN violated Article X:3(a) of GATT 1994 Is Incorrect. The following are Indonesia's arguments in this regard.
(a) Japan's contention that the provision of "Pioneer Status" to TPN violated Article X:3(a) of GATT 1994 is incorrect
9.9 Japan erroneously claims that Indonesia has acted inconsistently with the obligations of Article X:3(a) of the General Agreement to administer laws, regulations, decisions and rulings in a uniform, impartial and reasonable manner. Indonesia has not violated Article X:3(a).
9.10 First, as discussed in the context of GATT Article I (See Section VII.D), the June 1996 programme expired, as scheduled, on June 30 1997, and will not be renewed. Since the programme and the authority under which it was granted have terminated, there is no basis for an affirmative determination by the Panel.
9.11 Second, TPN was designated to build and produce a national car in Decision of the State Minister for the Mobilization of Investment Funds No. 02/SK/1996 (5 March 1996).
615 The decision was based on:
- TPN's request to be selected to build a car (TPN Letter No. 071/PD/TPN/II/96 (28 February 1996)) 616;
- TPN's obtaining domestic investment approval (No. 607/I/PMDN/1995 (9 November 1995)) 617; and
- TPN's fulfillment of all the criteria and requirements to be designated to build a national car as set out in Decree of the State Minister for Mobilization of Investment Funds No. 1/SK/1996 (27 February 1996)) 618,which in turn implements Instruction of the President No. 2/1996 (19 February 1996). 619
9.12 Like Kia, any Japanese company could have sought to participate in the National Car Programme. None have done so. If they had, they would have been judged by the same criteria applied to TPN (those of Instruction of the President No. 2/1996 and the regulations and decrees implementing the Instruction). The programme would have been administered in a uniform, impartial and reasonable manner. Accordingly, no basis exists for Japan's contention that Indonesia acted inconsistently with the obligations of Article X:3(a) of the General Agreement.
(b) Indonesia has complied fully with the letter and the spirit of Article X, which, in any case, does not establish substantive obligations
9.13 Indonesia has administered the laws, decrees, regulations and decisions regarding the National Car Programme in a uniform, impartial manner, in accordance with Article X:3 of GATT 1994. Japan nonetheless insists that its manufacturers still do not understand the subsidies and Indonesia's administration of them. Extraordinary. Japan�s producers understand them well enough to have increased their combined share of all of Indonesia�s passenger car markets, including the market in which the Timor competes, by over 40 per cent. Such growth is unprecedented. Moreover, Japan�s car makers accomplished this by outcompeting the European Communities and United States manufacturers whose market share they acquired, and who, presumably, do understand the subsidies, insofar as neither the United States nor the European Communities has seen fit to pretend ignorance.
9.14 Finally, Japan�s rebuttal is nothing more than a description of the housekeeping related to a terminated measure. The description demonstrates nothing partial, not uniform or unreasonable. The Government cannot understand why Japan insists on continuing to advance an obviously flawed claim under Article X.
(c) The Government of Indonesia did not establish the National Car Programme for the sole benefit of TPN
9.15 Much of Japan�s Article X claim is based on its erroneous and unsupported assertion that the National Car Programme was created solely for the benefit of TPN. As the Government already has demonstrated, this is assertion is false. The programme was created to benefit Indonesia and was made available to any qualifying company. TPN was chosen on the basis of the strength of its proposal. In particular, it was found that TPN's proposal to produce the "Timor" S515 car using technology from Kia Motors of South Korea met the requirements set forth in Decree of the Minister of Industry and Trade No. 31/1996.
(d) The Government of Indonesia is addressing properly the issue of whether TPN has complied with the relevant decrees; in any case, this is a matter of internal enforcement of Indonesian law, not of compliance with Article X of GATT 1994
9.16 Japan also purposefully conflates the terms and relationships among the Decrees with their enforcement, in a vain attempt to further distort Indonesia�s conduct. In this regard, Indonesia noted in its Second Submission that it was examining whether TPN had complied with the decrees, and that if the Government found that TPN had not complied, it would take appropriate action as provided for in the decrees.
620 Indonesia subsequently submitted a letter containing the results of this examination, which indicated that TPN had not fulfilled the requirements of the decrees. Accordingly, the Minister of Finance would instruct the Director-General of Customs to demand payment by TPN of the import duties and luxury sales tax due by virtue of TPN's failure to satisfy the criteria of the National Car programme for the first year.
3. Rebuttal Arguments made by Japan
9.17 The following are Japan's rebuttal arguments to Indonesia's responses to the claims raised under Article X:3(a) of GATT 1994:
9.18 The Government of Indonesia, in granting benefits under the National Car Programme to a company that does not meet its own regulatory requirements, violates GATT Article X:3(a). Japan has specifically stated that Indonesian trade data indicates that the 25 per cent counter-purchase requirement was not satisfied.
9.19 Indonesia did not make any meaningful response to Japan's arguments. Instead, it stated irrelevantly that "[PT Timor] was designated to build and produce a national car in Decision of the State Minister for the Mobilization of Investment Funds No.02/SK/1996" and that "[l]ike Kia, any Japanese company could have sought to participate in the National Car Programme." It is obvious that neither of these points addresses in any way the Article X:3 violations established by the Government of Japan.
9.20 Indonesia only tries to evade the real issue, alleging, for example, that "Japan ... purposefully conflates the ... Decrees with their enforcement". However, the obligation of GATT Article X:3(a) specifically concerns the administration or enforcement of regulations. Japan cannot fathom why Indonesia would believe that the manner in which it enforces the National Car Programme is not an issue for GATT Article X:3(a).
9.21 Moreover, Indonesia has acknowledged that "preliminary data suggests" that Japan is correct in arguing that PT Timor did not meet the National Car Programme's requirements. Indonesia also acknowledged that nonetheless it failed to complete a compliance audit, although the June 1996 Programme allegedly expired more than five months ago. Nor has Indonesia asked PT Timor to return the benefits or presented a schedule on when the audit will be completed. The Government of Japan thus concludes that the delay in auditing is another clear indication of the Government of Indonesia's unreasonable administration of the National Car Programme, and also itself constitutes a violation of GATT Article X:3(a).
621
9.22 Indonesia essentially admitted that it granted benefits to TPN without considering its own regulations. To be eligible for benefits under the June 1996 Programme, Presidential Decree No. 42 requires that National Cars from Korea must be made by Indonesian workers and must fulfil the 25% counter-purchase requirement. However, Indonesia states in its answers to Japan's questions, with regard to the first requirement, that the "Government currently is verifying the data". And more strikingly, with regard to the second requirement, the Indonesian Government informed Japan just one day before the Second Panel Meeting of its own verification on 9 January 1998 which confirmed that TPN has not met that requirement. Therefore, it is clear that Indonesia granted authorization to TPN without reviewing its compliance, or even the plausibility of compliance, with the requirements.
9.23 Finally, the Government of Japan notes that it requires a considerable stretch of the imagination to regard 40,000 automobiles as being produced "by Indonesian workers" when allegedly only 100 Indonesian nationals have been sent to Korea and they were sent as "trainees" at that. Furthermore, the press reported that a member of the Indonesian Parliament, who visited Korea in August 1996, found only three Indonesian workers at Kia. 622
B. Claims under Article X:1 of GATT 1994
1. Claims Raised by Japan
9.24 Japan claims that the extended National Car Programme also violates Article X:1 of GATT 1994, which requires publication of trade regulations. The following are Japan's argument in support of this claim:
9.25 Article X:1 of GATT 1994 establishes that:
Laws, regulations, judicial decisions and administrative rulings of general application, made effective by any contracting party, pertaining ... to rates of duty, taxes or other charges ... shall be published promptly in such a manner as to enable governments and traders to become acquainted with them. ...
9.26 Indonesia has never clearly set out the requirements for the Imported National Cars, and also administered the relevant regulations partially and unreasonably. The lack of clarity is most striking with respect to Decree of the Minister of Industry and Trade No.31/MPP/SK/2/1996, issued in February 1996, including the requirement that National Cars be "domestically produced" and local content requirements
623, and also with respect to the meaning of "by Indonesian personnel" under Presidential Decree No.42/1996. 624 Indonesia not only failed to make the requirements clear in the published regulations, but even failed to clearly explain the requirements during the consultations with Japan.
9.27 In particular, Indonesia has made clear that the conditions stipulated in the Decree of the Minister of Industry and Trade No. 31/1996 also must be also met, in addition to the conditions of Decree 42/1996. 625 However, Imported National Cars obviously can never meet the conditions set out in Decree 31/1996, in particular paragraph a of Article 1, which requires them to be "domestically produced by using facilities owned by national industrial companies or Indonesian statutory bodies with total shares belonging to Indonesian citizens." (Emphasis added.)
9.28 Second, regarding "the local content requirements as stipulated by the Minister of Industry and Trade" in Article 1 of Presidential Decree No.42/1996, the Government of Indonesia has stated 626 that they correspond to those stipulated in Article 3 of the Decree of the Ministry of Industry and Trade No.31/MPP/SK/2/1996 (i.e., "at the end of the first year, they shall reach the local content rate of more than 20 per cent"). However, the Government of Indonesia further stated that "satisfaction of the 25 per cent counter-purchase requirement [as set out in the Decree of the Minister of Trade and Industry No.142/MPP/Kep/6/1996] will be treated as equivalent to achieving 20 per cent local content," and PT Timor "should export and Kia Motors should purchase automotive parts and components amounting to 25 per cent of the C&F value of imported cars in the one-year period." 627 Accordingly, the Government of Indonesia seems to indicate that imported automobiles are treated as satisfying "local content requirements," as long as the 25 per cent counter-purchase requirement is met by its producer, even if the producer does not use any of such parts and components, imported from Indonesia, to assemble the automobiles for export to Indonesia, without regard to Presidential Decree No.42/1996.
9.29 Third, Article 1 of Presidential Decree No.42/1996 requires that the National Cars be produced "by Indonesian personnel," but the Government of Indonesia has not provided any explanation about what extent of participation by Indonesian workers is necessary to meet the requirement. 628 In this connection, the Government of Indonesia has stated only that PT Timor "reported that, through the end of October 1996, 100 workers had been dispatched to Korea. The workers participate in production as trainees." 629
9.30 As explained above, Presidential Decree No.42/1996 and its implementing regulations fall within the scope of Article X:1. Accordingly, it should be concluded that Indonesia has not published all the regulations necessary to make the requirements sufficiently clear, or that it has at least not published its regulations "in such a manner as to enable governments and traders to become acquainted with them," either of which constitutes a violation of Article X:1 of GATT 1994.
9.31 In addition, Indonesia also has ignored its obligation to publish trade regulations "promptly". Most of the regulations related to the National Car Programme, including Presidential Instruction No.2/1996 630 and Presidential Decree No. 42/1996 631,are enforced as of the date of issuance, and there was no prior public notification regarding the new regulations before the date of issuance. However, these regulations deeply affect exporters and investors, and it was necessary for the companies to get the relevant information well in advance in order to adapt to the new regulations, for example, in order to get benefits after meeting stipulated requirements. This reinforces the conclusion that Indonesia violated its obligations under GATT Article X:1.
2. Indonesia's Response to the Claim under Article X:1
9.32 In response to the claim raised under Article X:1, Indonesia argues that Japan's contention that Indonesian regulations were not published promptly as required by Article X:1 of GATT 1994 is erroneous. The following are Indonesia's arguments in this regard:
9.33 Japan erroneously contends that Indoneais did not clearly set out the requirements for the June 1996 programme and that this violates the publication requirement of GATT Article X:1. Contrary to Japan�s assertion, Decree of the Minister of Industry and Trade No. 31/MPP/SK/2/1996, dated 19 February 1996
632,and all other decrees relevant to the June 1996 programme set out fully the requirements and conditions of that programme.
9.34 Even if that were not the case, though, there would be no violation of Article X:1. By its terms, the objectives of this Article are limited to (1) prompt publication, (2) "in such a manner as to enable governments and traders to become acquainted with them." As required by Indonesian law, all regulations and decrees are published in the State Gazette promptly after their promulgation. This official, readily accessible publication fully satisfies the procedural requirement of enabling governments and traders to become acquainted with regulations and decrees. Article X:1 is a transparency requirement, not a substantive obligation to meet one country�s subjective, substantive standard as to whether another country�s regulation is "clear".
9.35 Japan also erroneously claims that Article X:1 requires publication of official documents prior to their effective date. There is no such requirement. Indeed, the words "shall be promptly published" clearly envision publication after entry into force.
9.36 For these reasons there is no basis for Japan's contention that Indonesia did not act in conformity with Article X:1 of the General Agreement.
9.37 Responding to Japan's arguments and questions, Indonesia stated that Decree No. 31 is irrelevant to the June 1996 Programme. 633
3. Rebuttal Arguments made by Japan
9.38 Japan makes the following rebuttals arguments to Indonesia's responses to the claim raised under Article X:1:
9.39 The Government of Indonesia, in not publishing its measures promptly and "in such a manner as to enable governments and traders to become acquainted with them", violates GATT Article X:1. As demonstrated, the Government of Japan, as well as Japanese traders, still cannot know several important requirements under the June 1996 Programme, for example, what the term "produced by Indonesian workers" exactly means.
9.40 Indonesia's First Submission does not make any meaningful argument in response. Rather, it simply argues that:
(i) GATT "Article X:1 is a transparency requirement, not a substantive obligation to meet one country's subjective, substantive standard as to whether another country's regulation is 'clear' "; and
(ii) "all regulations and decrees are published in the State Gazette promptly after their promulgation".
9.41 Indonesia's defences cannot prevail, however, because they are inconsistent with the text of Article X:1. Several important measures by Indonesian government pertaining to require merits on imports were not published "in such a manner as to enable governments and traders to become acquainted with them".
9.42 Japan has identified the specific points that need clarification or further elaboration so as "to enable governments and traders to become acquainted with" the National Car Programme, but Indonesia has not addressed these issues. Thus, critical aspects of the National Car Programme remain unknowable. It must be stressed, however, that belated clarification at this stage would not be "prompt" any more and thus could not cure the insufficiency of the publication at an earlier stage.
9.43 In particular, Indonesia confirmed that it still cannot explain the meaning of the requirement of Presidential Decree No. 42 that National Cars imported from Korea must be "made ... by Indonesian workers". Japan asked whether this means that imported National Cars must be made exclusively by Indonesian workers or, if not, what percentage of participation is required. Even at this very late stage, however, Indonesia could not answer such a basic question.
9.44 Furthermore, the discussion at the first Panel meeting revealed some additional facts which constitute another violation of GATT Article X:1. At the first Panel meeting, the European Communities asked: (i) where is the decision of the Minister of Industry and Trade granting Pioneer status to PT Timor, and (ii) where is the decision granting National Car status to the Timor S-515? The Government of Indonesia: (i) in responding to the first question, circulated Decree of the Director General for Metal, Machinery and Chemical Industries No.002/SK/DJ-ILMK/II/1996 of 27 February 1996, and (ii) as to the second question, responded that there existed a letter (No. 1039/DJ-ILMK/X/1997 of 21 October 1997) and indicated that it would submit an English translation. However, the Government of Japan had never seen these documents in any publication accessible before the meeting in December 1997. In other words, these regulations were not published promptly in such a manner as to enable the Government of Japan to become acquainted with them.
9.45 Therefore, the Government of Japan submits, in addition to its argument that the Government of Indonesia did not comply with GATT Article X:1 with respect to the June 1996 Programme, that it also violated Article X:1 in connection with the February 1996 Programme.
To continue with Arguments whether the June 1996 programme is an expired measure
615 See Indonesia Exhibit 5.
616 See Indonesia Exhibit 14.
617 See Indonesia Exhibit 15.
618 See Indonesia Exhibit 4.
619 See Indonesia Exhibit 1.
620 See Indonesia Exhibit 43 at p. 3.
621 As indicated above and in Section X, Indonesia has submitted to the Panel a letter concerning the results of the audit (Indonesia Exhibit 47).
622 Jakarta Post, "Kia Motors lacks Indonesian staff: House member" (30 January 1997) (Japan Exhibit 73), Jakarta Post, "Timor sends only 100 supervisors to Kia plant: Tunky" (31 January 1997) (Japan Exhibit 74), Far Eastern Economic Review, "The Timor Gap" (27 February 1997) (Japan Exhibit 75).
623 Decree of the Minister of Industry and Trade No.31/MPP/SK/2/1996 (Japan Exhibit 28).
624 Presidential Decree No.42/1996 (Japan Exhibit 9).
625 Japanese Questionnaire regarding the Indonesian National Car Programme (Japan Exhibit 44), Question No.9; Indonesia's Answer to Questions Submitted by Japan (Japan Exhibit 45), Answer No.9. See also Additional Questions from the Government of Japan concerning Indonesian Automobile Programme (Japan Exhibit 46), Questions Nos.IV.3 and IV.4; Answer of the Republic of Indonesia to Additional Questions submitted by the Government of Japan (Japan Exhibit 47) Answers Nos.IV.3. and IV.4.
626 Id., at Question and Answer No.12 between Japan and Indonesia (Japan Exhibits 44 and 45).
627 Id., at Questions and Answers No.13, 22 and 23 between Japan and Indonesia (Japan Exhibits 44 and 45).
628 Question and Answer No.9. between Japan and Indonesia (Japan Exhibits 44 and 45); see also additional question and answer No.IV.5. between Japan and Indonesia (Japan Exhibits 46 and 47).
629 Question and Answer No.4. between Japan and Indonesia (Japan Exhibits 44 and 45); see also additional Question and Answer No.IV.2. between Japan and Indonesia (Japan Exhibits 46 and 47).
630 Presidential Instruction No.2/1996 (Japan Exhibit 8).
631 Presidential Decree No.42/1996 (Japan Exhibit 9).
632 See Indonesia Exhibit 2.
633 See Indonesia Exhibit 43, question 1.
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