A. Arguments of Indonesia
10.1 Indonesia argues, in responding to all of the claims pertaining to the June 1996 programme that this programme has expired, and therefore is not relevant to the work of the Panel. Indonesia further argues that TPN will be required by law to repay all benefits received under the programme, because the counterpurchase requirements of the programme were not met. In support of this argument, Indonesia submitted a letter containing the results of an audit of TPN's compliance with these requirements. Indonesia's arguments in this regard are as follows:
10.2 The exemptions once granted are now being removed. The benefits conferred by the subsidy (duties and luxury taxes) having been removed, the subsidy no longer exists and all arguments relating to the June 1996 measures should be ignored by the Panel.
10.3 Also, with respect to claims under Article I of the General Agreement, complainants argued that the June 1996 measures were still in effect because the luxury tax would not be foregone on the unsold cars until they were sold. This is not correct. The tax is due when the duties are due and then the consumer reimburses the company at the time of sale (TPN, of course, was exempt from this requirement). Secondly, TPN failed the Sucofindo audit and, thus, none of the remaining cars will receive the luxury tax exemption. So, even accepting Complainants' position, the June 1996 measures have terminated. Thus, the Panel should reject Complainants' Article I arguments.
10.4 Indonesia further argued, in response to a question from the panel, as follows:
1. Enforcement Procedures
10.5 The results of the audit performed by Sucofindo have been provided to the Minister of Industry and Trade. He will review the report, then will notify the Minister of Finance of TPN's failure.
10.6 The Minister of Finance will then instruct the Director-General of Customs to take appropriate action. This instruction will be forwarded to the District Office of the port of entry through which the Timor's were imported, and that Office will issue a letter to TPN demanding payment of the customs 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.
10.7 TPN will have 30 days to respond to this demand. Within that period it may either pay the amount due or file a protest with the Director-General of Customs. If it does not respond within 30 days, the District Office will send a second letter demanding payment within 14 days. If TPN does not respond, action will be taken to collect the amount demanded.
10.8 If TPN files a protest with the Director-General, he will render a decision whether to uphold, reject or modify the decision of the District Office within 60 days.
10.9 If the Director-General upholds the District Office, TPN must pay the amount due within 60 days or petition for review by the Tax Dispute Settlement Body. The decision of this independent review authority is binding. TPN would be required to pay the duties and luxury tax amounts determined to be due before it would be eligible to appeal to the Body. The payment is required to be in cash.
10.10 As required by Article 38 of the Customs Law, payment by TPN must, in addition to the principal due, include interest at the statutory rate of 2 per cent per month beginning with the date of the letter from the District Office demanding payment. (This is a severe penalty. As noted by the US at paragraph 91 of its First Submission and in the Ford/GM letter (US Exhibit 38), the historical Indonesian CPI increase is 8 to 10 per cent per year. (This, rather than temporary, aberrational short-term interest rates caused by a short-term currency depreciation, should be the benchmark.)
2. Effect of Non-Fulfilment of Conditions for the First Year of the Programme
10.11 Decree of the Minister of Finance No. 82/KMK.01/1996 provides:
If the obligation to fulfil the local content levels for national automotive industrial companies as determined by the Minister of Industry and Trade at a certain stage is not met, the national automotive industrial enterprise concerned shall pay the import levies owing at the relevant stage before being allowed to continue enjoying the facilities referred to in paragraph (2).
10.12 As provided in this Decree, the benefits of exemption from customs duties and luxury sales tax will be suspended once it is "determined" that TPN has not met the requirements of the National Car Programme for the first year. This will occur 30 days after the District Office demands TPN to pay the customs import duties and luxury sales tax. From that time until such time as TPN pays the duties and luxury sales tax determined to be due, it will not be entitled to release CKD's or parts from customs control unless it pays the duties and taxes normally owing in cash. Once it pays this amount, it will resume entitlement to the exemption.
B. Arguments of the United States
10.13 The United States 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.3) In addition, with respect to the implications, if any of an eventual repayment by TPN of the benefits under the programme, the United States makes the following arguments:
10.14 As a factual matter it simply is not established that the tariff and tax benefits conferred on TPN under Decree No. 42/96 ever will be reimbursed. As the discussion during the question and answer period at the 13 January session made clear, it will take some time before it is established that TPN is even required to reimburse the Government of Indonesia (GOI). First, the relevant GOI authorities must issue a bill to TPN, an action which apparently has yet to be done and for which there apparently is no set deadline. According to Indonesia, this will not happen until the audit report is first reviewed by the Minister of Industry and Trade, who then refers the matter to the Minister of Finance.
10.15 The issuance of a bill then triggers a 30-day period in which TPN can file an administrative appeal with the Director General of Customs. Once this is done, the Director General then has 60 days in which to rule on the appeal. Thereafter, assuming the Director General denies TPN's appeal, TPN has 60 days within which to initiate proceedings before the Indonesian Tax Dispute Settlement Office. Indonesia did not answer the US question regarding the typical duration of this last process, although Indonesia did aver that there are no further appeals permitted from decisions of the Tax Dispute Settlement Office.
10.16 Moreover, a wholly separate question is whether, at the end of what appears to be a lengthy process, the money owed actually will be reimbursed to the GOI. Bear in mind that as of the time this Panel got underway, the amount owed in import duties alone was in excess of US$736 million, and this does not include the amounts owed in unpaid luxury taxes. It also does not include interest, which, according to the Indonesia consists of 2 per cent a month, notwithstanding that Indonesia appears to have entered into a period of hyperinflation. TPN already has taken out a $690 million loan (although only a portion of the loan has been drawn down) that it was able to obtain only due to the direct intervention of GOI officials at the highest level. How is TPN going to repay such sums? If TPN cannot repay these amounts, will the GOI waive repayment? At the second meeting of the Panel, Indonesia confirmed that the GOI, like most governments, has the authority to waive repayment of duties and taxes owed. Moreover, putting aside any statutory or regulatory waiver authority, one must assume that because the subsidies were granted pursuant to Presidential Decree, their repayment also can be waived pursuant to Presidential Decree.
10.17 The fact of the matter is that it may take years before this issue is sorted out, and it would be unfair to the United States to defer the Panel's issuance of its report before the issue is resolved. At this point, the United States believes that the proper approach is to treat the subsidies as if they are not subject to repayment. TPN has had the benefit of the subsidies since Decree No. 42/96 became operational, it still has the subsidies, and it has priced the Timor Kia Sephia and caused serious prejudice to the interests of the United States by means of those subsidies. If TPN ultimately has to repay the subsidies, then Indonesia will be in the convenient position of having complied with what we hope will be the Panel's recommendation that Indonesia withdraw this particular subsidy. If TPN does not repay the subsidies, then that is something that can be dealt with at the implementation stage of this dispute. It would be truly perverse, however, to allow the subsidies bestowed under Decree No. 42/96 to escape scrutiny due to the conveniently timed announcement (the day before the second meeting of the Panel) of the results of an audit, an audit that apparently only triggers, rather than ends, a lengthy domestic internal process.
A. Claims raised by the United States
11.1 The United States claims that the grant of "National Motor Vehicle" benefits only to motor vehicles bearing a unique Indonesian trademark owned by Indonesian nationals discriminates against foreign-owned trademarks and their owners and is inconsistent with Articles 3, 20 and 65 of the TRIPS Agreement. The following are the United States' arguments in support of these claims:
11.2 A distinguishing feature of the National Motor Vehicle programme is the requirement that, in order to receive the benefits of that programme, the "national motor vehicle" must bear a unique Indonesian trademark owned by Indonesian nationals. Presidential Instruction No. 2/1996, in referring to the "national automobile industry," sets forth as one of the criteria for that industry the "us[e] of trade marks created by relevant industrial companies". In establishing the requirements for a "national motor vehicle," Decree No. 31/1996 mandates the "use [of] trade marks created by relevant industrial companies themselves and not yet registered by other parties in Indonesia, and owned by Indonesian companies/citizens ...". This requirement discriminates against foreign-owned trademarks and their owners, and is inconsistent with Articles 3, 20 and 65 of the TRIPS Agreement.
11.3 Article 3 of the TRIPS Agreement requires national treatment in the protection of intellectual property rights, including trademarks.
11.5 In addition, Article 20, which deals specifically with trademarks, prohibits the imposition of special requirements on the use of a trademark. In pertinent part, Article 20 provides the following:
11.6 The grant of significant benefits under the National Motor Vehicle programme to producers of a "national motor vehicle" bearing a unique, Indonesian trademark is inconsistent with both Article 3 and Article 20. First, these benefits result in a significant commercial disadvantage to companies that do business under an established or foreign-owned trademark, and the only way for such companies to "level the playing field" is to cease the use of their own mark and attempt to acquire an Indonesian trademark consistent with the requirements of the National Motor Vehicle programme. As a result, foreign nationals are provided with treatment less favorable than that provided Indonesian nationals, contrary to Article 3 of the TRIPS Agreement.
11.7 Second, the ineligibility for benefits under the National Motor Vehicle programme of firms using an established or foreign-owned trademark constitutes a special requirement on the use of a trademark in the course of trade that is prohibited by Article 20 of the TRIPS Agreement.
11.8 Moreover, these measures are inconsistent with the transitional arrangements of Article 65 of the TRIPS Agreement. Article 65.2 provides as follows:
11.9 Under Article 65.2, Indonesia is currently subject to the requirements of Article 3. Therefore, its violation of Article 3 is not protected by the four-year transition period of Article 65.2.
Because the restrictions of the National Motor Vehicle programme regarding trademarks came into force after 1 January 1995 (the date of entry into force of the WTO Agreement), they are inconsistent with the standstill provisions of Article 65.5. Because they are inconsistent with Article 65.5, Indonesia�s violation of Article 20 is not protected by Article 65.2.
B. Response by Indonesia to the claims raised
11.11 Indonesia argues that the trademark usage provision of the National Car Programme is consistent with Articles 3, 20 and 65 of the TRIPS agreement, in responding to the claims raised under that Agreement. The following are Indonesia's arguments in this regard:
11.12 Presidential Instruction No. 2 of 1996 sets forth requirements for achieving "pioneer" status designation. One of the requirements is that the company receiving the designation use "a brand name of its own". In other words, to receive the subsidies available under the policy, a national car company must sell that car using a "new" brand name; the brand name cannot be one previously or concurrently registered in another country and used to sell cars.
11.13 Complainant United States asserts that the brand name requirement violates Indonesia's obligations under Articles 3, 20 and 65 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement). As demonstrated below, this assertion is incorrect.
1. The brand name requirement is consistent with the national treatment obligation of Article 3 of the TRIPS Agreement
11.14 Article 3 of the TRIPS Agreement establishes a national treatment obligation covering intellectual property. According to Article 3:
Each Member shall accord to the nationals of other Members treatment no less favourable than that it accords to its own nationals with regard to the protection of intellectual property .... (Footnote omitted.)
11.15 Indonesia has complied with this directive. The brand name requirement applies in exactly the same fashion to Indonesian and non-Indonesian companies. Neither may use a pre-existing, pre-registered brand name for a national car. Indonesian and non-Indonesian companies must meet the same requirement�they must establish a new brand name for a national car.
11.16 Thus, the fact that an Indonesian national car cannot be called a "Ford Mustang" or a "Chrysler LeBaron" or a "Chevrolet Camaro" or a "Cadillac Coupe DeVille" is irrelevant. It does not indicate that Article 3 has been violated because the brand-name requirement applies to all parties in precisely the same fashion. No matter what companies make a national car, the cars must be sold under new, Indonesian-registered brand names.
11.18 Thus, Article 20 is not relevant to the brand-name requirement. Requiring a new trademark in order to receive the subsidies under the national car programme does not serve to deceive or confuse people regarding the source of the trademarked product. It does not encumber an existing trademark with specified "special requirements".
11.19 Moreover, even if Article 20 were not limited to unjustified encumbrances on existing trademarks, it still would not apply to the required use of a new trademark. The United States characterizes the brand name requirement as precluding the use of US trademarks, a very substantial infringement were it true. Had the negotiators meant Article 20 to cover an infringement as substantial as that alleged by complainant United States, they would have specified so in the text of the Article. However, they did not. Article 20 deals with the encumbering of trademark usage through ties to other trademarks or requirements that reduce brand-name recognition. But, these important issues are not raised by the brand name requirement at issue here.
11.20 Moreover, as discussed below, under the provisions of Article 65.2, Indonesia currently is exempt from Article 20.
11.22 Thus, under Article 65, Indonesia has until 1 January 2000 before it must comply with the vast majority of the TRIPS Agreement. Because Article 3 is one of the specified exceptions, Indonesia is not exempt from complying with the national treatment obligation. However, the Article 65.2 exemption does apply to Article 20. Therefore, in addition to the reasons demonstrated above, due to the Article 65.2 grace period, Indonesia cannot now be found to have violated Article 20 of the TRIPS Agreement.
Uruguay Round Trade Agreements, Texts of Agreements, Implementing Bill, Statement of Administration Action and Required Supporting Statements, House Document 103-316, Vol.I at 984, 103d Cong., 2d Sess. (27 September 1994) (emphasis added).
