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. Criteria for an Article I of GATT violation
14.137 Article I of GATT requires that any privileges granted to imports of any country be accorded immediately and unconditionally to the like products originating in or destined for the territories of all other Members.
"1. With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties."
14.138 The Appellate Body, in Bananas III, confirmed that to establish a violation of Article I, there must be an advantage, of the type covered by Article I and which is not accorded unconditionally to all "like products" of all WTO Members. Following this analysis, we shall first examine whether the tax and customs duty benefits are advantages of the types covered by Article I. Second, we shall decide whether the advantages are offered (i) to all like products and (ii) unconditionally.
(a) Are the tax and customs duty benefits of the February and June 1996 car programmes advantages of the types covered by Article I?
14.139 The customs duty benefits of the various Indonesian car programmes are explicitly covered by the wording of Article I. As to the tax benefits of these programmes, we note that Article I:1 refers explicitly to "all matters referred to in paragraphs 2 and 4 of Article III". We have already decided that the tax discrimination aspects of the National Car programme were matters covered by Article III:2 of GATT. Therefore, the customs duty and tax advantages of the February and June 1996 car programmes are of the type covered by Article I of GATT.
(b) Are these advantages offered "unconditionally" to all "like products"?
(i) "like products"
14.140 The European Communities, following the same logic it used for the like product definition in its Article III claims, submit that National Cars and their parts and components imported from Korea are to be considered "like" any motor vehicle and parts and components imported from other Members. The European Communities argue that imported parts and components and motor vehicles are all like the relevant domestic products since the definition of "National Cars" and their parts and components is not based on any factor which may affect per se the physical characteristics of those cars and parts and components, or their end uses. The United States argues that cars imported in Indonesia are like the Kia Sephia from Korea. Japan argues that parts and components and cars imported from Japan, or any other country, and those imported from Korea constitute "like products".
14.141 We have found in our discussion of like products under Article III:2 that certain imported motor vehicles are like the National Car 714. The same considerations justify a finding that such imported vehicles can be considered like National Cars imported from Korea for the purpose of Article I. We also consider that parts and components imported from the complainants are like imports from Korea. Indonesia concedes that some parts and components are exactly the same for all cars. As to the parts and components which arguably are specific to the National Car, Indonesia does not contest that they can be produced by the complainants� companies. This fact confirms that the parts and components imported for use in the National Car are not unique. As before, we note in addition that the criteria for benefitting from reduced customs duties and taxes are not based on any factor which may affect per se the physical characteristics of those cars and parts and components, or their end uses. In this regard, we note that past panels interpreting Article I have found that a legislation itself may violate that provision if it could lead in principle to less favourable treatment of the same products. 715
14.142 We find, therefore, that for the purpose of the MFN obligation of Article I of GATT, National Cars and the parts and components thereof imported into Indonesia from Korea are to be considered "like" other similar motor vehicles and parts and components imported from other Members.
(ii) "unconditional advantages"
14.143 We now examine whether the advantages accorded to National Cars and parts and components thereof from Korea are unconditionally accorded to the products of other Members, as required by Article I. The GATT case law is clear to the effect that any such advantage (here tax and customs duty benefits) cannot be made conditional on any criteria that is not related to the imported product itself.
14.144 For instance, in the Panel Report on Belgian Family Allowances 716, the panel condemned a measure which discriminated against imports depending on the type of family allowances that was in place:
"3. According to the provisions of paragraph 1 of Article I of the General Agreement, any advantage, favour, privilege or immunity granted by Belgium to any product originating in the territory of any country with respect to all matters referred to in paragraph 2 of Article III shall be granted immediately and unconditionally to the like product originating in the territories of all contracting parties. Belgium has granted exemption from the levy under consideration to products purchased by public bodies when they originate in Luxembourg and the Netherlands, as well as in France, Italy, Sweden and the United Kingdom. If the General Agreement were definitively in force in accordance with Article XXVI, it is clear that that exemption would have to be granted unconditionally to all other contracting parties (including Denmark and Norway). The consistency or otherwise of the system of family allowances in force in the territory of a given contracting party with the requirements of the Belgian law would be irrelevant in this respect, and the Belgian legislation would have to be amended insofar as it introduced a discrimination between countries having a given system of family allowances and those which had a different system or no system at all, and made the granting of the exemption dependent on certain conditions." (emphasis added)
14.145 Indeed, it appears that the design and structure of the June 1996 car programme is such as to allow situations where another Member�s like product to a National Car imported by PT PTN from Korea will be subject to much higher duties and sales taxes than those imposed on such National Cars. For example, customs duties as high as 200% can be imposed on finished motor vehicles while an imported National Car benefits from a 0% customs duty. No taxes are imposed on a National Car while an imported like motor vehicle from another Member would be subject to a 35% sales tax. The distinction as to whether one product is subject to 0 % duty and the other one is subject to 200% duty or whether one product is subject to 0% sales tax and the other one is subject to a 35% sales tax, depends on whether or not PT TPN had made a "deal" with that exporting company to produce that National Car, and is covered by the authorization of June 1996 with specifications that correspond to those of the Kia car produced only in Korea. In the GATT/WTO, the right of Members cannot be made dependent upon, conditional on or even affected by, any private contractual obligations in place. 717 The existence of these conditions is inconsistent with the provisions of Article I:1 which provides that tax and customs duty benefits accorded to products of one Member (here on Korean products) be accorded to imported like products from other Members "immediately and unconditionally". 718
14.146 We note also that under the February 1996 car programme the granting of customs duty benefits to parts and components is conditional to their being used in the assembly in Indonesia of a National Car. The granting of tax benefits is conditional and limited to the only Pioneer company producing National Cars. And there is also a third condition for these benefits: the meeting of certain local content targets. Indeed under all these car programmes, customs duty and tax benefits are conditional on achieving a certain local content value for the finished car. The existence of these conditions is inconsistent with the provisions of Article I:1 which provides that tax and customs duty advantages accorded to products of one Member (here on Korean products) be accorded to imported like products from other Members "immediately and unconditionally".
14.147 For the reasons discussed above, we consider that the June 1996 car programme which introduced discrimination between imports in the allocation of tax and customs duty benefits based on various conditions and other criteria not related to the imports themselves and the February 1996 car programme which also introduce discrimination between imports in the allocation of customs duty benefits based on various conditions and other criteria not related to the imports themselves, are inconsistent with the provisions of Article I of GATT.
14.148 Since the European Communities did not properly claim that the tax benefits of the February 1996 car programme violated Article I719, we cannot address the related alleged claim that under the same 1996 February car programme imported parts and components from Korea are subject to an indirect tax advantage (covered by Article I).
G. Claims of Inadequate Publication and Partial Administration
14.149 Only Japan has raised claims under Article X of GATT. Japan claims that the National Car programme violates Article X:1 because Indonesia has failed to publish trade regulations "promptly" and "in such a manner as to enable governments and traders to become acquainted with them". Japan further alleges that Indonesia has not set out the requirements for the National Car programme and has also failed to explain the requirements of its National Car programme during the consultations.
14.150 Japan also claims that the June 1996 National Car program was administered in violation of Article X:3(a) which requires uniform, impartial and reasonable administration of regulations, including those pertaining to rates of duty, taxes or other charges. Japan argues that in June 1996 Indonesia authorized PT Timor to import automobiles duty free, although the counter-purchase requirement mentioned in the Decree, was not met. For Japan, these facts constitute violations of Article X:3(a) since Indonesia administered its regulations in a partial and unreasonable manner.
14.151 Indonesia simply responds that Article X does not establish substantive obligations, but rather procedural and administrative obligations. In any case, Indonesia submits that it has published its regulations and decrees in the statute books and State Gazettes promptly after their adoption, and this is in conformity with Article X.
14.152 We have already found that the measures adopted pursuant to the National Car programme violate the provisions of Articles I and/or III of GATT. Therefore, we consider that it is not necessary to examine Japan�s claims under Article X of GATT.
H. Claims of Serious Prejudice under Part III of the SCM Agreement
14.153 We next turn to the complainants' serious prejudice claims. The European Communities and the United States contend that the tariff and luxury sales tax exemptions provided by Indonesia through the National Car programme
720 are specific subsidies which have caused serious prejudice to their interests within the meaning of Article 5(c) of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement"). 721 Specifically, the complainants allege that the effect of alleged subsidies for the national car is (a) to displace or impede imports of like products of the European Communities and the United States into the Indonesian market and (b) a significant price undercutting by the subsidized national car as compared with like EC and US products in the Indonesian market. The European Communities further contend, in the alternative, that the alleged subsidies provided by Indonesia through the National Car programme threaten to cause serious prejudice to EC interests. 722 Indonesia argues that the tariff and tax benefits provided through the National Car programme do not cause or threaten to cause serious prejudice to the interests of the European Communities or the United States.
14.154 In addressing the EC and US claims, we will first consider whether the measures in question are specific subsidies within the meaning of the SCM Agreement. Next we will consider whether Indonesia, as a developing country Member, may be subject to claims that subsidies provided by it have caused serious prejudice to the interests of other Members. Finally, we must examine whether the European Communities and the United States have demonstrated by positive evidence that the measures in question have caused serious prejudice or, in the case of the European Communities, have threatened to cause serious prejudice, to their interests within the meaning of Part III of the SCM Agreement, either through displacement and impedance, price undercutting, or both. A threshold question with respect to this final phase of the analysis is to determine which EC and US products, if any, are like products to the National Car (the Timor) within the meaning of the SCM Agreement.
1. Are the measures specific subsidies?
14.155 As with any analysis under the SCM Agreement, the first issue to be resolved is whether the measures in question are subsidies within the meaning of Article 1 that are specific to an enterprise or industry or group of enterprises or industries within the meaning of Article 2. It is to be recalled that the measures in question are: import duty and luxury sales tax exemptions on CBU Timors imported by PT TPN from Korea, import duty exemptions on parts and components used or to be used in the assembly of the Timor in Indonesia, and luxury sales tax exemptions on Timors assembled in Indonesia. In this case, the European Communities, the United States and Indonesia agree that these measures are specific subsidies within the meaning of those articles. Specifically, they concur that the tariff and sales tax exemptions in question represent government revenue forgone within the meaning of Article 1.1(a)(1)(ii) and that the measures confer a benefit on PT TPN within the meaning of Article 1.1(b) of the Agreement. All three parties reiterated this view in response to a written question from the Panel. Further, the European Communities, the United States and Indonesia agree that these subsidies are contingent upon the use of domestic over imported goods within the meaning of Article 3.1(b), and that they are therefore deemed to be specific pursuant to Article 2.3 of the Agreement.
723 In light of the views of the parties, and given that nothing in the record would compel a different conclusion, we find that the measures in question are specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement.
2. May the complainants bring a serious prejudice claim against Indonesia?
14.156 Article 27 of the SCM Agreement provides significant special and differential treatment for developing country Members of the WTO, including with respect to claims of serious prejudice arising from subsidies provided by developing country Members. Thus, Article 27.9 provides that
Regarding actionable subsidies granted or maintained by a developing country Member other than those referred to in paragraph 1 of Article 6, action may not be authorized or taken pursuant to Article 7 unless nullification or impairment of tariff concessions or other obligations under GATT 1994 is found to exist as a result of such subsidy, in such a way as to displace or impede imports of a like product into the market of the subsidizing developing country Member or unless injury to a domestic industry in the market of an importing Member occurs.
In other words, Article 27.9 provides that, in the usual case, developing country Members may not be subject to a claim that their actionable subsidies have caused serious prejudice to the interests of another Member. Rather, a Member may only bring a claim that benefits under GATT have been nullified or impaired by a developing country Member's subsidies or that subsidized imports into the complaining Member have caused injury to a domestic industry.
14.157 The complainants do not contest that Indonesia is a developing country Member entitled to the special and differential treatment provided by Article 27.9. Rather, they contend that Article 27.9 is not applicable in this case because the subsidies in question fall under the provisions of Article 6.1(a), i.e., that the ad valorem subsidization of the Timor exceeds 5 per cent. The European Communities further contend, in the alternative, that the subsidies fall under the provisions of Article 6.1(a) because, pursuant to Annex IV:4 to the Agreement, PT TPN is in a start-up situation and the overall rate of subsidization exceeds 15 per cent of the total funds invested. Accordingly, the complainants consider that they are authorized under Article 27.8 to bring a serious prejudice claim.
14.158 We agree that Article 27.8 allows a WTO Member to bring a serious prejudice claim with respect to subsidies provided by a developing country Member which fall within the scope of Article 6.1. Article 27.8 provides that:
There shall be no presumption in terms of paragraph 1 of Article 6 that a subsidy granted by a developing country Member results in serious prejudice, as defined in this Agreement. Such serious prejudice, where applicable under the terms of paragraph 9, shall be demonstrated by positive evidence, in accordance with the provisions of paragraphs 3 through 8 of Article 6.
In other words, while a subsidy falling within the terms of Article 6.1 generally is presumed to cause serious prejudice to the interests of another Member, that presumption is not applicable where the subsidizing country is a developing country Member. Instead, while such a subsidy by a developing country Member may be subject to a serious prejudice challenge, a complainant does not benefit from a presumption of serious prejudice; rather, a complainant must demonstrate the existence of serious prejudice by positive evidence.
14.159 The question remains whether the subsidization challenged in this dispute satisfies the requirements of Article 6.1(a). That provision states that "[s]erious prejudice shall be deemed to exist in the case of . . . the total ad valorem subsidization14 of a product exceeding five per cent . . . ." Footnote 14 states that "[t]he total ad valorem subsidization shall be calculated in accordance with the provisions of Annex IV." That Annex, in turn, sets forth a number of principles to be applied in calculating the total ad valorem subsidization for purposes of Article 6.1(a). Among the provisions of Annex IV is a special rule that, "[w]here the recipient firm is in a start-up situation, serious prejudice shall be deemed to exist if the overall rate of subsidization exceeds 15 per cent of the funds invested."
14.160 In their first submissions, both the European Communities and the United States submitted a number of calculations intended to demonstrate that the terms of Article 6.1(a) were satisfied in this case. Thus, the European Communities provided calculations indicating that the ad valorem subsidization of Timors assembled in Indonesia ranged from 40 to 61 per cent, while the ad valorem subsidization of Timors imported from Korea ranged from 156 to 460 per cent. In the alternative, the European Communities calculate that, if PT TPN is in a start-up period, Article 6.1(a) applies because the overall rate of subsidization (219-225 per cent) exceeds 15 per cent of the total funds invested. The US calculations, excluding the alleged $690 million loan found to be outside our terms of reference, indicate a rate of subsidization for Timors imported from Korea of between 54 and 166 per cent (depending on whether the import duty exemption on the Timors imported from Korea was expended in the year of receipt or allocated over a number of years), while the rate of subsidization for Timors assembled in Indonesia would be 49.37 per cent in 1998 and 44.65 per cent in 1999. The United States considered that the start-up provisions of Annex IV were not applicable in this case.
14.161 The calculations provided by the European Communities and the United States present a variety of issues under Article 6.1(a) and Annex IV. However, we do not need in this case to calculate the precise level of ad valorem subsidization. Rather, we need only determine whether the ad valorem rate of subsidization exceeds 5 per cent. This question is not in dispute here, since Indonesia calculates that the ad valorem subsidization conferred by the exemption from the luxury sales tax alone is 29.54 per cent for Timors imported from Korea, 26.20 per cent for Timors assembled at the Tambun plant, and 18.68 per cent for Timors to be assembled at the Karawang plant. Thus, the parties concur that the ad valorem subsidization exceeds 5 per cent. We do not see any basis to disagree with the parties that the ad valorem subsidization is in excess of 5 per cent. To the contrary, given that the luxury sales tax from which Timors are exempted is itself 35 per cent of the cost of the cars sold, it would appear inevitable that the ad valorem subsidization resulting from such an exemption would exceed 5 per cent by any reasonable calculation.
14.162 For the foregoing reasons, we find that the complainants are not precluded by Article 27 from seeking to demonstrate, by positive evidence, that Indonesia has caused, through the effects of the subsidies at issue in this case, serious prejudice to their interests.
724
To continue with Like product analysis
714 We refer to our discussions in paragraphs 14.110 and 14.111 where we found that given that the Timor, Escort, 306, Optima and Corolla models are in the same market segments, there would not appear to be any relevant differences in respect of consumers' tastes and habits sufficient to render these products unlike. In our view, this evidence is also sufficient to establish a presumption of likeness between the Timor, Corolla, Escort, 306 and Optima for purposes of Article I of GATT. Since Indonesia has submitted no evidence or argument to rebut the presumption of likeness for purposes of Article I of GATT, we find that at least these imported motor vehicles are like the National Car for purposes of Article I of GATT.
715 See for instance the Panel Report on United States - Denial of Most-favoured-nation Treatment as to Non-rubber Footwear from Brazil, adopted on 19 June 1992, BISD 39S/128, para. 6.12.
716 BISD 1S/59, adopted on 7 November 1952.
717 For instance in the FIRA case, the Panel rejected Canada�s argument that the situation under examination was the consequence of a private contract with an investor: "5.6 The Panel carefully examined the Canadian view that the purchase undertakings should be considered as private contractual obligations of particular foreign investors vis-à-vis the Canadian government. The Panel recognized that investors might have an economic advantage in assuming purchase undertakings, taking into account the other conditions under which the investment was permitted. The Panel felt, however, that even if this were so, private contractual obligations entered into by investors should not adversely affect the rights which contracting parties, including contracting parties not involved in the dispute, possess under Article III:4 of the General Agreement and which they can exercise on behalf of their exporters." See FIRA, op. cit, para. 5.6.
718 See Working Party Report on the Accession of Hungary, BISD 20S/34 adopted on 30 July 1973.
719 As mentioned before in their request for establishment of panel the European Communities did not claim that the tax benefits under the February 1996 (what the European Communities had labelled the measure (d)) violated Article I. See paragraph (iii) of the EC�s request for establishment of panel.
720 Neither the European Communities nor the United States has made a claim of serious prejudice arising from measures adopted pursuant to the 1993 car programme.
721 Japan's request for establishment of a panel noted Japan's view that the measures pursuant to the National Car programme cause serious prejudice to Japan's interests, but did not ask this Panel to make a finding on this issue. Rather, Japan reserved the right to request the establishment of a separate panel under Article 7.4 of the SCM Agreement with respect to this issue.
722 In its first submission, the United States claimed that the National Car programme also threatened to cause serious prejudice with respect to US exports of light trucks to Indonesia. The US threat claim was, however, related to an allegedly government-directed $690 million loan. The United States has informed us that, in light of our preliminary ruling that the loan is not within our terms of reference, the United States is no longer pursuing this claim.
723 See Section VIII:A of the Descriptive Part. The European Communities and the United States also consider the subsidies to be specific on the grounds that they are in fact made available to a single enterprise within a single sector.
724 Indonesia has also expressed the view that developing country Member subsidies are subject to a serious prejudice claim by virtue of the fact that they fall within the terms of Article 3.1(b) of the SCM Agreement. In light of the foregoing finding, we do not need to address that issue.
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