C. Rebuttal arguments made by the United States
11.24 The following are the United States' rebuttal arguments to Indonesia's response to the claims raised on the basis of provisions of the TRIPS Agreement:
11.25 With respect to the TRIPS Agreement, Indonesia claims that there is no violation of Article 3 because the brand name requirement of the National Car Programme applies in the same manner to Indonesian and foreign companies. This is simply false, because according to the relevant implementing measures, only Indonesian companies are eligible for the National Car Programme, and only Indonesian companies may obtain a "national car" trademark. This is blatant discrimination against foreign nationals.
11.26 Moreover, in its discussion of Article 3, Indonesia conveniently omits footnote 3 to that article, which states that "protection" for purposes of Articles 3 and 4 includes "those matters affecting the use of intellectual property rights specifically addressed in this Agreement". (Emphasis added).
11.27 In the context of that footnote, Indonesia's practices in respect of national car trademarks discriminate against foreign nationals and the protection accorded their rights in several respects. First, Indonesia discriminates in respect of the acquisition of a national car trademark. Indonesia admits that any trademark that could apply to a national car must be acquired by an Indonesian company, be that company a joint venture or a wholly-owned Indonesian company. This is a clear violation of national treatment.
11.28 Second, the requirement to use a "new" Indonesian trademark on a national car discriminates against owners of existing marks in respect of the maintenance of the mark. It is unlikely that the owner of the mark normally used (global mark) on the vehicle marketed as a "national car" in Indonesia will be able to use that mark without creating confusion (i.e., confusion resulting from using different marks on the same car). Consequently, it is more likely that the global mark will be subject to cancellation for non-use in Indonesia. Finally, Indonesia discriminates in respect of the protection accorded global marks, because such a mark cannot be used on a national car.
11.29 Because the definition of "protection" as applied in TRIPS Article 3 applies the national treatment obligation in respect of use of intellectual property rights to matters specifically addressed in the TRIPs Agreement, use of a trademark is specifically addressed in the Agreement in Article 20. Although Article 3 and its footnote do not require that a practice violate both the national treatment obligation and the provision specifically addressing the particular use of the right, that is the situation in this case. Indonesia's practice violates both TRIPS Article 3 and Article 20.
11.30 The United States believes that Indonesia's practices violate Article 20 of the TRIPS Agreement, because they constitute a special requirement that unjustifiably encumbers use of the trademark in trade. One cannot use an existing trademark on a national car even though it tells the consumer more about the actual source of the car than the new mark that must be obtained to qualify as a national car. Moreover, the benefits accruing from being a national car are such that marketing other cars (which carry a pre-existing trademark) is made difficult. This tactic is unjustifiable in that it is akin to saying that the Indonesian Government wants to develop a brand name, i.e., a trademark, and will do so by eliminating other brands of cars from the market.
11.31 Further regarding Article 20, Indonesia again engages in a convenient omission by deleting, in its quotation of Article 20, the phrase "in the course of trade". That phrase, however, is very important. If use of a previously or concurrently registered trademark precludes access to the benefits of the National Car Programme, that certainly discourages the use of the mark in the course of trade, thereby encumbering its use within the meaning of Article 20. At a minimum, there is de facto discrimination against foreign nationals and their trademarks, because Indonesian holders of a trademark satisfying the national car requirements are treated better than foreign holders of international marks. Put differently, the encumbrance imposed by the trademark requirement of the National Car Programme on previously or concurrently registered trademarks constitutes a ban - the ultimate encumbrance - on the use of such trademarks on certain products.
11.32 In addition, a requirement that a trademark owner use a different trademark from that which it uses in the rest of the world to obtain a special advantage in Indonesia could put the regular mark at risk of cancellation for non-use in Indonesia. Because the trademark owner would be choosing to use the unique Indonesian mark, it would not be able to argue that its non-use arose independently of its will.
11.33 In short, Indonesia�s limited interpretation of the purpose of Article 20 is not borne out by the text. Moreover, Indonesia�s citation to the US Statement of Administrative Action ("SAA") does not prove anything, because the SAA merely referred to one set of practices that could be dealt with under Article 20. It was not the purpose of this document to catalogue all the possible ways in which Article 20 could be violated, nor would it have been feasible to do so. In particular, the drafters of that document could not have foreseen the particular method used by Indonesia to violate Article 20.
11.34 Indonesia asserts that the Indonesian firms seeking National Car producer status "would have jumped at the chance to have an arrangement" with a US auto manufacturer. In other words, Chrysler, for example, could have stood in the shoes of Kia Motors, and could have been the supplier of the "Timor Chrysler Neon", even if it would not have been the recipient of the subsidies under the National Car Programme.
11.35 However, consider the price that Chrysler would have had to pay to be a supplier of the "Timor Chrysler Neon." It could have supplied TPN (or some other Indonesian company) with finished Neons or Neon kits, but, under the National Car Programme, it could do so only if it agreed to have the Neons rebadged as "Timors". If it agreed to such a deal, Chrysler would have had to forego all of the benefits that go along with selling a product, and establishing a product in a market, under its own trademark. Indonesian purchasers of our hypothetical "Neon National Car" would become familiar with, and develop a loyalty to, the Timor trademark, not the Chrysler trademark.
11.36 In short, the special trademark requirement of the National Car Programme constitutes an unjustifiable encumbrance on the use of a trademark in the course of trade. A foreign company with its own trademark that seeks to participate in the National Car Programme must relinquish its trademark rights. If it choose not to relinquish its trademark rights, it must face unfair competition in the market place.
11.37 It may well be true that Kia, given all of its problems, was willing to relinquish the rights guaranteed it by the TRIPS Agreement. However, the fact that Kia was willing to forego its rights does not mean that it is acceptable, or consistent with the TRIPS Agreement, to impose such encumbrances on the rights of nationals of other Members.
11.38 Nor would a requirement that two trademarks be used on a product be legitimate under Article 20 of the TRIPS Agreement. The TRIPS negotiators intended to stop this type of practice, and, in particular, discussed a prior practice of India that required such linkages. Specific examples of linked trademarks that were discussed were "Lahil-Pepsi" and "Modi-Xerox."
11.39 Indeed, the express language of Article 20 condemns such a practice, by stating as follows: "The use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements, such as use with another trademark ...". (Emphasis added). Thus, even if the Indonesian authorities could allow a national car to bear two marks, including a mark owned by a foreign company (and the language of the relevant measures would seem to preclude this), such a practice would violate Article 20.
11.40 Article 20 of the TRIPS Agreement prohibits unjustifiable encumbrances, imposed through special requirements, on the use of a trademark in the course of trade. An illustrative list of such encumbrances follows. Prohibited encumbrances clearly must encompass measures that affect such a fundamental issue as the right or ability to use the trademark. If an existing trademark cannot be used on a National Car, even if that mark accurately reflects the source of the car or its arts, use of that mark clearly has been encumbered and, in the view of the United States, without justification other than a desire to limit access to the benefits of the National Car programme.
11.41 The United States believes that the focus under Article 20 should not be on the precise "special requirement", but on the effect of the requirement; i.e., does it unjustifiably encumber use of the trademark. The fact that the text of Article 20 includes "use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings" as one example of a special requirement clearly indicates that other special requirements can act as encumbrances on use of a mark in trade. While eliminating encumbrances that unjustifiably affect the ability of a trademark to distinguish the goods or services of one undertaking from another is a key objective of Article 20, it is not the sole objective. The right to register a trademark, even in its preferred form, without the right or ability to use it in trade in that form is meaningless.
11.42 Thus, the prohibition on use of an established or foreign-owned trademark on a National Car constitutes an unjustifiable encumbrance on the use of the trademark in the course of trade. The special requirement used to implement this unjustified encumbrance is essentially that a new mark, owned by an Indonesian national, be registered and used on the car. In the view of the United States, this is the ultimate encumbrance�it is a ban on use of the trademark on certain products.
11.43 Finally, with respect to the transitional rules in Article 65, Indonesia simply ignores the plain text of Article 65.5. That provision states that a Member availing itself of a transitional period, such as Indonesia here, shall ensure that "any changes in its laws, regulations and practices made during a [transitional period] do not result in a lesser degree of consistency with the provisions of this Agreement." Because the National Car Programme post-dates the entry into force of the WTO Agreement and violates Article 20, it is inconsistent with Article 65.5, and Indonesia must return to the pre-violation status quo ante.
A. India
12.1 India made the following arguments as a third party to the panel proceedings:
12.2 Relating to the alleged violation of the TRIMs Agreement by Indonesia, it is a matter of record that Indonesia had notified the measures already taken by it to the TRIMs Committee in May 1995. However, in October 1996 Indonesia on reexamination of their measures felt that they could not be termed as TRIMs and consequently they withdrew their above notification.
12.3 There are two procedural issues relating to this matter which the complainants have raised in this case on which we would like to comment before coming to the substantive issue. Firstly, it has been implied that a Member cannot withdraw a notification, once submitted to the WTO. This is an averment that we cannot accept. We strongly feel that Members have the right to both amend or to even withdraw any of their notifications, provided there are sufficient grounds justifying such action. Consequently, we feel that Indonesia was fully within its legal rights to withdraw the notification it had made to the TRIMs committee.
12.4 The second procedural issue, the mention of which we find in the complainants first submission, relates to the alleged ineligibility of Indonesia to benefit from certain transitional provisions simply because its notification was not submitted on time. We note that Indonesia's measures, as we will elaborate a little later, are not TRIMs. However, we would like to strongly state our position that delay in notifying a measure, no matter under which provision, cannot in any way be construed as diminishing the benefits that any Member may have by virtue of it being in a special category, such as a developing country. While we agree that delay in notifying measures should ideally not occur, it must at the same time also be realized that small delegations often have constraints of resources which at times leads to an unintended delay in the notification of their measures. It is for this reason that we believe that any such procedural delays should not mitigate the benefits which any member may otherwise be eligible for, under a covered agreement.
12.5 Coming to the substance of the legal issue relating to the TRIMs Agreement, the complainants have stated that the measures taken by Indonesia are violative of Article 2 of the TRIMs Agreement. As we are all aware, Article 2.1 of the TRIMs Agreement states that "no member shall apply any TRIM that is inconsistent with the provision of Article III of GATT 1994". The emphasis here is no doubt on the application by Members of a measure which can be said to be a trade-related investment measure. It is therefore evident that we need to ab initio be clear whether the said measures taken by Indonesia come within the ambit of being trade related investment measures or not.
12.6 Going back to the drafting of the TRIMs Agreement, the Agreement is basically designed to govern and to provide a level playing field for foreign investment in third countries. It is evident that any measure taken by a country relating to its internal taxes or subsidies, as Indonesia has done, cannot therefore be construed to be a trade-related investment measure. This is particularly important when we view the fine print in the TRIMs Agreement which in fact does not add any new obligations to Members, since it merely states that a measure which is a trade-related investment measure should not be violative of Article III or Xl of GATT 1994. This interpretation has been upheld in the recent report of the panel on the European Communities regime for the importation, sale and distribution of bananas in which it has been stated that "the TRIMs Agreement essentially interprets and clarifies the provisions of Article III (and also Article Xl) where trade-related investment measures are concerned. Thus, the TRIMs Agreement does not add to or subtract from those GATT obligations".
12.7 Indonesia has pointed out in its submission that its measures are in the nature of subsidies specifically provided to the automobile industry and therefore come within the purview of the Subsidies Agreement and not the TRIMs Agreement. We have carefully gone through the first submissions made by the complainants as well as the Republic of Indonesia. We would like to bring on record that we agree with what Indonesia has stated that the measures taken by it are entirely in the form of subsidies and their legality or otherwise therefore needs to be examined in the light of provisions of the Agreement on Subsidies and Countervailing Measures, and not the TRIMs Agreement. India strongly feels and has stated its position in earlier fora also, that subsidies should be governed solely by the Subsidies Agreement. There has been consistency in our stand and in the interpretation in various fora, that just as investment measures cannot be presumed to be a form of subsidization, subsidies too cannot be presumed to be trade related investment measures.
12.8 With regard to the interpretation of certain provisions of the Subsidies Agreement, we would like to wholeheartedly endorse what has been stated by Indonesia in its written submission. In particular, we would like to state that we entirely agree with Indonesia that (a) Article 27.3 of the Subsidies Agreement does not preclude the introduction or expansion of domestic content subsidies; (b) the domestic content subsidy is not within the scope of Article 27.4 of the Subsidies Agreement since it is not an export subsidy and since Indonesia is a developing country; and (c) the domestic content subsidy is not within the scope of Article 28.2 because it is not inconsistent with the Subsidies Agreement.
12.9 Coming to the second issue on which we would like to state our position, viz, that relating to Article I of GATT i.e., the provision for MFN treatment. It has been argued that, under the measures taken by Indonesia, the Kia car being produced in Korea has been granted special and differential treatment, as compared to cars being produced elsewhere, and is therefore violative of the MFN principle. We have carefully perused the regulations and decrees issued by the Republic of Indonesia in 1996. In none of these decrees do we find mention of any specific country, including Korea. It is therefore evident that while the presidential decree and other notifications refer to national motor vehicles, they do not in any way mandate preferential treatment of automobiles or their components or parts from any country. Purely from a legal view point, it is therefore clear, that the above referred regulations have not violated the MFN principle since they have not conferred any special privileges to cars or their parts being manufactured in a particular country.
12.10 In this context, we do not agree with the argument put forth by some of the complainants that even if a particular regulation does not mention a country by name, but its effect is to benefit a particular producer or a country, then it is violative of the MFN principle. We find no legal strength in this argument, since it is clear that any automobile manufacturer based in any country could have, and in fact can, avail of the specific benefits and subsidization programme introduced by Indonesia, provided they fulfil the conditions specified in the said regulation. The fact that no other country has so far approached the Republic of Indonesia in this regard cannot therefore be construed as an indication that the said provision has violated the MFN principle.
12.11 Before concluding, we would like to refer some of the arguments put forth by Indonesia regarding the steps taken by Indonesia to diversify production and to deregulate international trade so that the country could continue in its commitment towards economic reform. What is significant is that these steps were taken even though Indonesia's total external debt had reached US$108 billion in 1995 and that the deficit in Indonesia's current account had more than doubled in one year to US$6.8 billion in the same year. Although we agree that these statistics have no direct bearing on the issues for consideration before the Panel, we would like to highlight the fact that developing countries often need to take stops to bolster their economy and to overcome problems of imbalances in regional development. We would suggest that the multilateral trading system examines the initiatives taken by these countries in the overall pursuit of economic development in their context.
12.12 We all stand to gain from the WTO system if we develop reasonable and coherent interpretations detached from short-term economic and commercial interest. This would assist panels in their search for the right interpretations, particularly in evolving areas such as the TRIMs Agreement and the Agreement on Subsidies and Countervailing Measures.
1. Preliminary jurisdictional issue
12.14 One of the basic tenets of the DSU is to allow the complaining party with trade grievances to state perspicuously the alleged offending measures which it seeks to challenge and has declared inconsistent with WTO obligations. The obvious intent of this requirement is to provide the member state with an opportunity to effectively examine and respond to charges that the law or practice is a transgression to the WTO Agreements and, if necessary, take corrective measures to remedy the situation. This was confirmed in the Appellate Body ruling on the European Communities-Regime for the Importation, Sale and Distribution of Bananas which states that "claims ... must all be specified sufficiently in the request for the establishment of a panel in order to allow the defending party and any third parties to know the legal basis of the complaint". The Drafters of the DSU, cognizant of the importance of identifying the measures to be challenged, inserted Article 6.2 which reads:
The request for the establishment of a panel shall ... identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.
12.15 The United States discusses in detail how the US$690 million loan made to Timor Putra Nasional contravenes Article III:4 of GATT l994 and Article 2 of TRIMs Agreement. The United States further argues that the loan constitutes a specific subsidy which causes serious prejudice.
12.16 The loan to which the United States alludes, however, is not a part of the terms of reference because it was never specifically identified as a measure at issue in the 12 June 1997 request of the United States for the establishment of a panel. The most recent Appellate Body ruling in the Bananas case sheds light on the DSU Article 6.2 requirement. The Appellate Body states:
We do not agree with the Panel that "even if there was some uncertainty whether the panel request had met the requirements of Article 6.2, the first written submissions of the Complainants 'cured' that uncertainty because their submissions were sufficiently detailed to present all the factual and legal issues clearly" ... If a claim is not specified in the request for the establishment of a panel, then a faulty request cannot be subsequently 'cured' by a complaining party's argumentation in its first written submission to the panel or in any other submission or statement made later in the panel proceeding.
12.17 It is also noteworthy that the loan was provided after the creation of the panel. In the United States - Measures Affecting Alcoholic and Malt Beverages case, Canada endeavoured to reserve the right to invoke new measures which may arise during the panel deliberation. The panel concluded that its "terms of reference do not permit it to examine any new measure which may come into effect during the Panel's deliberations".
12.18 As the terms of reference do not identify the loan and the defect cannot subsequently be cured by a first submission, the panel should avoid ruling on any claims made by the United States in connection with the August 1997 loan.
