Second, we understand that Indonesia argues that should Article III and/or the TRIMs Agreement be considered to apply to this dispute, there are specific conflicts between some of the provisions of the SCM Agreement, on the one hand, and some provisions of Article III on which the complainants base their claims, on the other hand. For Indonesia, any and all conflicts should be resolved in favour of the SCM Agreement which, according to Indonesia, permits the car programmes under examination. We shall first address Indonesia�s argument that the only law applicable to this dispute is the SCM Agreement.

14.28 In considering Indonesia�s defence that there is a general conflict between the provisions of the SCM Agreement and those of Article III of GATT, and consequently that the SCM Agreement is the only applicable law, we recall first that in public international law there is a presumption against conflict. ⁶⁴⁹ This presumption is especially relevant in the WTO context ⁶⁵⁰ since all WTO agreements, including GATT 1994 which was modified by Understandings when judged necessary, were negotiated at the same time, by the same Members and in the same forum. In this context we recall the principle of effective interpretation ⁶⁵¹ pursuant to which all provisions of a treaty (and in the WTO system all agreements) must be given meaning, using the ordinary meaning of words. Second, we note that Article III, which does not require the existence of any trade effect for it to be violated, occupies a particularly important place in the rules governing the multilateral trading system as it serves, inter alia, as a guarantee of the effectiveness of negotiated tariffs. The Appellate Body in its report on Japan -Taxes on Alcoholic Beverages stated:

We also note that Article III and Article XVI have co-existed since the inception of the GATT system of rules. In light of the above, we will approach allegations of conflicts with caution.

14.29 As noted, Indonesia in part bases its argument that the SCM Agreement is the only applicable law in this dispute on an assertion that the SCM Agreement in its entirety conflicts with Article III in its entirety. In considering Indonesia�s arguments, we recall that for a conflict to exist between two agreements or two provisions thereof, they must cover the same substantive matter. Otherwise there is no conflict since the two provisions have different purposes. ⁶⁵³ We recall also that Article III, which prohibits discrimination between imported and domestic products, and Article XVI, which regulates subsidies to producers, have been part of GATT 1947 since its inception. This implies that the drafters of GATT 1947 intended these two sets of provisions to be complementary. Indeed, this is confirmed by an examination of the respective coverage of the two provisions.

14.30 Article III has always been a provision that is concerned with (and prohibits) discrimination between imported and domestic products. By contrast, the provisions of Article XVI of GATT 1947 have dealt generally with the regulation of subsidies to producers. Article XVI of GATT 1947 did not address the issue of discrimination between imported and domestic products that may occur when using such subsidies. When such discrimination arose, it was prohibited by the relevant provisions of Article III. Subsidies which discriminated in favour of domestic products fell within the prohibition of the provisions of Article III by virtue of such discrimination. In this sense we agree with the 1992 Malt Beverages ⁶⁵⁴ panel which discussed the relationship between the GATT rules on Article III and XVI and the related purpose of Article III:8(b):

14.31 Has this situation changed with the expansion of rules regulating subsidies now contained in the SCM Agreement? Indonesia argues that the SCM Agreement now provides for an all encompassing definition and system of remedies for subsidies that would consequently exclude the relevance and application of the national treatment provisions of Article III.

14.32 While it is true that the obligations in Section A of Article XVI of GATT 1947 in respect of subsidies were limited compared to those provided in the new SCM Agreement, Article XVI of GATT 1947 did provide for a comprehensive framework regulating the provision of subsidies and so does the SCM Agreement today. Section A of Article XVI of GATT 1947 applied to "subsidies in general"; whereas Section B provided additional remedies for export subsidies. The mere fact that in the SCM Agreement the remedies against subsidies have been strengthened is not a sufficient reason to conclude that in the WTO Agreement the structural relationship between the rules on national treatment on products and the rules on subsidies to producers have been altered. Moreover, the fact that the SCM Agreement, unlike Article XVI of GATT 1947, contains a definition of subsidies does not suggest a different conclusion. The absence of a definition of "subsidy" in GATT 1947 did not make Article XVI of GATT 1947 inapplicable.

14.33 As was the case under GATT 1947, we think that Article III of GATT 1994 and the WTO rules on subsidies remain focused on different problems. Article III continues to prohibit discrimination between domestic and imported products in respect of internal taxes and other domestic regulations, including local content requirements. It does not "proscribe" nor does it "prohibit" the provision of any subsidy per se. By contrast, the SCM Agreement prohibits subsidies which are conditional on export performance and on meeting local content requirements, provides remedies with respect to certain subsidies where they cause adverse effects to the interests of another Member and exempts certain subsidies from actionability under the SCM Agreement. In short, Article III prohibits discrimination between domestic and imported products while the SCM Agreement regulates the provision of subsidies to enterprises.

14.34 Contrary to what Indonesia claims, the fact that a government gives a subsidy to a firm does not imply that the subsidy itself will necessarily discriminate between imported and domestic products in contravention of Article III of GATT. Article III:8(b) of GATT makes clear that a government may use the proceeds of taxes collected equally on all imported and domestic products in order to provide a subsidy to domestic producers (to the exclusion of producers abroad). ⁶⁵⁵

14.35 Finally, the fact that, as a result of the Uruguay Round, the SCM Agreement to some extent covers subject matters that were already covered by other GATT disciplines is not unique. This situation is similar to the relationship between GATT 1994 and GATS. In Periodicals ⁶⁵⁶ and in Bananas III⁶⁵⁷, the defending parties argued that since a set of rules on services exists now in GATS, the provisions of Article III:4 of GATT on distribution and transportation have ceased to apply. Twice the Appellate Body has ruled that the scope of Article III:4 was not reduced by the fact that rules on trade in services are found in GATS: "The entry into force of the GATS, as Annex 1B of the WTO Agreement, does not diminish the scope of application of the GATT 1994." ⁶⁵⁸

14.36 Accordingly, we consider that Article III and the SCM Agreement have, generally, different coverage and do not impose the same type of obligations. ⁶⁵⁹ Thus there is no general conflict between these two sets of provisions.

14.43 We consider that the purpose of Article III:8(b) is to confirm that subsidies to producers do not violate Article III, so long as they do not have any component that introduces discrimination between imported and domestic products. In our view the wording "payment of subsidies exclusively to domestic producers" exists so as to ensure that only subsidies provided to producers, and not tax or other forms of discrimination on products, be considered subsidies for the purpose of Article III:8(b) of GATT. This is in line with previous GATT panels ⁶⁶⁰ and WTO Appellate Body ⁶⁶¹ reports.

14.44 We recall also that the type of interpretation sought by Indonesia was explicitly excluded by the drafters of Article III:8(b) when they rejected a proposal by Cuba at the Havana Conference to amend the Article so as to read:

14.45 The arguments submitted by Indonesia that its measures are only governed by the SCM Agreement clearly do not find any support in the wording of Article III:8(b) of GATT. On the contrary, Article III:8(b) confirms that the obligations of Article III and those of Article XVI (and the SCM Agreement) are different and complementary: subsidies to producers are subject to the national treatment provisions of Article III when they discriminate between imported and domestic products.

14.46 We find, therefore, that Article III of GATT is generally applicable to the measures at issue in the present dispute.

14.53 In support of this finding, we agree with the principles developed in the Periodicals ⁶⁶³ and Bananas III ⁶⁶⁴ cases concerning the relationship between two WTO agreements at the same level within the structure of WTO agreements. It was made clear that, while the same measure could be scrutinized both under GATT and under GATS, the specific aspects of that measure to be examined under each agreement would be different. In the present case, there are in fact two different, albeit linked, aspects of the car programmes for which the complainants have raised claims. Some claims relate to the existence of local content requirements, alleged to be in violation of the TRIMs Agreement, and the other claims relate to the existence of subsidies, alleged to cause serious prejudice within the meaning of the SCM Agreement.

14.54 To respond to an argument raised by Indonesia in the context of its discussion of the relationship between Article III of GATT and the SCM Agreement, we do not consider that the application of the TRIMs Agreement to this dispute would reduce the SCM Agreement, and Article 27.3 thereof, to "inutility". On the contrary, with Article 27.3 of the SCM Agreement, those subsidy measures of developing countries that are contingent on compliance with TRIMs (in the form of local content requirement) and that are permitted during the transition period provided under Article 5 of the TRIMs Agreement, are not prohibited by Article 3.1(b) of the SCM Agreement, for the transition period specified in Article 27.3 of the SCM Agreement.

14.55 We find that there is no general conflict between the SCM Agreement and the TRIMs Agreement. Therefore, to the extent that the Indonesian car programmes are TRIMs and subsidies, both the TRIMs Agreement and the SCM Agreement are applicable to this dispute.

To continue with Claims of Local Content Requirements

⁶⁴⁷ In these findings, when we refer to general conflict we mean a conflict that is alleged to exist between the entirety of the SCM Agreement and the entirety of Article III, Article I or the TRIMs Agreement, as discussed in Section C of this report. We consider whether there is a specific conflict between any specific provision of the SCM Agreement and Article III:2 of GATT in Section E hereafter.

⁶⁴⁸ The Appellate Body Report on United States - Standards for Reformulated and Conventional Gasoline (hereafter called Gasoline) stated at page 23: "An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility.", WT/DS2/AB/R, adopted on 20 May 1996.

⁶⁴⁹ In international law for a conflict to exist between two treaties, three conditions have to be satisfied. First, the treaties concerned must have the same parties. Second, the treaties must cover the same substantive subject matter. Were it otherwise, there would be no possibility for conflict. Third, the provisions must conflict, in the sense that the provisions must impose mutually exclusive obligations. "... [T]echnically speaking, there is a conflict when two (or more) treaty instruments contain obligations which cannot be complied with simultaneously. ... Not every such divergence constitute a conflict, however. ... Incompatibility of contents is an essential condition of conflict". (7 Encyclopedia of Public International Law (North-Holland 1984), page 468). The lex specialis derogat legi generali principle "which [is] inseparably linked with the question of conflict"(Idem., page 469) between two treaties or between two provisions (one arguably being more specific than the other), does not apply if the two treaties ".. deal with the same subject from different point of view or [is] applicable in different circumstances, or one provision is more far-reaching than but not inconsistent with, those of the other" (Wilfred Jenks, "The Conflict of Law-Making Treaties", The British Yearbook of International Law (BYIL) 1953, at 425 et seq.). For in such a case it is possible for a state which is a signatory of both treaties to comply with both treaties at the same time. The presumption against conflict is especially reinforced in cases where separate agreements are concluded between the same parties, since it can be presumed that they are meant to be consistent with themselves, failing any evidence to the contrary. See also E.W. Vierdag, "The Time of the "Conclusion" of a Multilateral Treaty: Article 30 of the Vienna Convention on the Law of Treaties and Related Provisions ", BYIL, 1988, at 100; Sir Robert Jennings/Sir Arthur Watts (ed.), Oppenheim's International Law, Vol. I., Parts 2 to 4, 1992, at 1280; Sir Gerald Fitzmaurice, "The Law and procedure of the International court of Justice", BYIL , 1957, at 237; Sir Ian Sinclair, The Vienna Convention on the Law of Treaties, 1984, at 97.

⁶⁵⁰ In this context we note that the WTO Agreement contains a specific rule on conflicts which is however limited to conflicts between a specific provision of GATT 1994 and a provision of another agreement of Annex 1A. We do not consider this interpretative note in this section of the report because we are dealing with Indonesia�s argument that there is a general conflict between Article III and the SCM Agreement, while the note is concerned with specific conflicts between a provision of GATT 1994 and a specific provision of another agreement of Annex 1A.

⁶⁵¹ This would correspond to the ruling of the Appellate Body when it stated that a treaty may not be interpreted so as to reduce whole clauses to "inutility". See footnote 12 supra.

⁶⁵² Alcoholic Beverages(1996), Appellate Body Report, p.16.

⁶⁵³ We recall our discussion in footnote 13 above on the conditions for a conflict to exist.

⁶⁵⁴ Panel Report on United States - Measures Affecting Alcoholic Malt Beverages, BISD 39S/206, adopted on 19 June 1992, hereafter called Malt Beverages .

⁶⁵⁵ See in support of this Malt Beverages, op. cit.:"5.10 ... Even if the proceeds from non-discriminatory product taxes may be used for subsequent subsidies, the domestic producer, like his foreign competitors, must pay the product taxes due."

⁶⁵⁶ Panel and Appellate Body Reports on Canada - Certain Measures Concerning Periodicals, WT/DS31, adopted on 30 July 1997, hereafter called Periodicals.

⁶⁵⁷ Panel and Appellate Body Reports on EC - Regime for the Importation, Sale and Distribution of Bananas, WT/DS27, adopted on 25 September 1997, hereafter called Bananas III.

⁶⁵⁸ Periodicals, op.cit., Appellate Body Report, p.19.

⁶⁵⁹ This conclusion is confirmed, amongst other provisions, by the footnote to Article 32.1 of the SCM Agreement which recognizes that actions against subsidies remain possible under GATT 1994. Article 32.1 of the SCM Agreement reads as follows: "No specific action against a subsidy of another Member can be taken except in accordance with the provisions of GATT 1994, as interpreted by this Agreement". The footnote 56 to this Article reads as follows: "This paragraph is not intended to preclude action under other relevant provisions of GATT 1994, where appropriate".

⁶⁶⁰ Panel Report on EEC - Payments and Subsidies Paid to Processors and Producers of Oil Seeds and Related Animal-feed Proteins, BISD 37S/86, adopted on 25 January 1990; Panel Report on Italian Discrimination Against Agriculture Machinery, BISD 7S/6, adopted on 23 October 1958; and Malt Beverages, op.cit..

⁶⁶¹ Periodicals, op.cit..

⁶⁶² E/CONF.2/C.3/6, page 17; E/CONF.2/C.3/A/W.32, page 2.

⁶⁶³ In Periodicals, op. cit., the Appellate Body stated at page 19: "The entry into force of the GATS, as Annex 1B of the WTO Agreement, does not diminish the scope of application of the GATT 1994".

⁶⁶⁴ In Bananas III, the Appellate Body stated in paragraph 221: "The second issue is whether the GATS and the GATT are mutually exclusive agreements. (...) Given the respective scope of application of the two agreements, they may or may not overlap, depending on the nature of the measures at issue. Certain measures could be found to fall exclusively within the scope of the GATT 1994, when they affect trade in goods. certain measures could be found to fall exclusively within the scope of the GATS, when they affect the supply of services as services. There is yet a third category of measures that could be found to fall within the scope of both the GATT 1994 and the GATS. (...) [W]hile the same measure could be scrutinized under both agreements, the specific aspects of that measure examined under each agreement could be different".