14.233 The Panel notes certain factual elements which indicate the existence of plans to introduce the Escort, a new model of the Optima and the Neon to the Indonesian market. This information, if properly developed and documented, might have been highly probative. However, the evidence is very general, and supporting documentation, with the exception of newspaper reports and letters prepared by GM, Ford and Chrysler for the purpose of this dispute, is non-existent. This makes it very difficult for the panel to assess the degree of commitment of the companies to the plans, much less the reasons why those plans were abandoned. ⁷⁶⁴

14.234 We do not mean to suggest that in WTO dispute settlement there are any rigid evidentiary rules regarding the admissibility of newspaper reports or the need to demonstrate factual assertions through contemporaneous source information. However, we are concerned that the complainants are asking us to resolve core issues relating to adverse trade effects on the basis of little more than general assertions. This situation is particularly disturbing, given that the affected companies certainly had at their disposal copious evidence in support of the claims of the complainants, such as the actual business plans relating to the new models, government documentation indicating approval for such plans (assuming the "approval" referred to by the complainants with respect to the Optima means approval by the Indonesian government), and corporate minutes or internal decision memoranda relating both to the initial approval, and the subsequent abandonment, of the plans in question. ⁷⁶⁵

14.235 We note the United States' stated concern for the confidentiality of company business plans. However, an invitation by the Panel for proposals to ensure adequate protection of such information was not taken up. ⁷⁶⁶ While complainants cannot be required to submit confidential business information to WTO dispute settlement panels, neither may they invoke confidentiality as a basis for their failure to submit the positive evidence required, in the present case, to demonstrate serious prejudice under the SCM Agreement.

14.242 With respect to list prices, data submitted by Indonesia during the Annex V process show that the Timor had the lowest list price of any passenger car in the Indonesian market except the Mazda MR-90 as of November 1996 and March 1997 . As shown in Table 3, the list prices for the Timor (ranging from 33 million rupiahs for the S-515 to 36.9 million rupiahs for the S-515i Metallic) were far lower than that of the Optima (70 million rupiahs) and the lowest-priced model of the 306 (59.5 million rupiahs). ⁷⁶⁷

14.243 With respect to market prices, the data before the Panel relate only to the last quarter of 1996 and were provided by the European Communities during the Annex V process (see Table 4). ⁷⁶⁸ These data do not indicate whether the model under consideration is the S-515 or the S-515i. It would appear from the list price information, however, that in November 1996 the Timor S-515i was not yet available in the Indonesian market, and it thus seems probable that the price identified for the Timor is for the S-515. The data show that the Timor's market price was the same as its list price, while the Optima and 306 both sold at a discount from list price. Even after those discounts, however, the Timor S-515 had a price advantage of 27.25 million rupiahs over the model of the 306 for which we have market price information and of 23.25 million rupiahs over the lowest-price model of the Optima.

14.244 Article 6.5 of the SCM Agreement requires that, when performing an analysis of price undercutting under Article 6.3(c), "[t]he comparison [of prices] shall be made at the same level of trade and at comparable times, due account being taken of any other factor affecting price comparability." In this case, the 306 and Optima are imported in CKD form, and if the prices of these CKD cars were compared to prices of finished Timors, the difference between the assembled and unassembled cars clearly would be a factor affecting price comparability. Further, to the extent that there are transaction prices for the CKD cars, these would presumably be at a different level of trade than the retail prices for the finished Timor. These potential problems of comparability do not arise in the price comparisons proposed by the European Communities, however, as the prices they propose for comparison are retail prices for finished 306s, Optimas and Timors. It would appear that the prices are in fact at the same level of trade and at comparable times, and Indonesia has raised no concern in this regard. Rather, the key issue with respect to this claim would appear to be whether the European Communities have taken due account of other factors affecting price comparability.

14.245 Indonesia argues that Article 6.5, taken in conjunction with the positive evidence standard set forth in Article 27.8, means that the European Communities have the burden of quantifying and making appropriate price adjustments for the physical characteristics and consumer preferences and perceptions that distinguish the Timor from the Optima and the 306. Indonesia submitted a table identifying specific physical differences between the three models. In addition, it submitted a second table listing various physical and non-physical characteristics (power, technology, comfort, safety, workmanship, brand image) and rating the three models with respect to the characteristics on a scale of L (low) through H2 (high). In Indonesia's view, the Timor ranked low in all these regards, while the Optima and the 306 ranked medium or medium-high. ⁷⁶⁹ In Indonesia's view, the European Communities have failed to meet their burden with respect to adjustments for these differences and accordingly have failed to demonstrate the existence of a significant price undercutting through apples-to-apples comparisons. The European Communities argue that there are no relevant physical differences which may affect significantly price comparability and state that there are no physical or other product differences, or any other factor, that could account for the 43-52% price undercutting which they allege to exist.

14.246 In examining the arguments of the parties, we first turn to the issue of identifiable physical differences between the Timor, the Optima and the 306. The record in this dispute includes extensive information about the physical characteristics of the models in question, ⁷⁷⁰ and this information reflects a variety of potentially significant differences in physical characteristics between the models. These include differences between the Timor and one or both of the other models in terms of the size, features and power of the engines; tyre size; safety features (ABS, airbags); and extra features (alarm system, rear folding seats, interior trim). While these differences are not sufficient to render the three models unlike, they must clearly affect price comparability to some extent.

14.247 Given that the existence of these physical differences is clear from the record, and that the burden in this case is on the complainants to demonstrate the existence of serious prejudice by positive evidence, it would have greatly facilitated the work of the Panel had the European Communities made some effort to quantify the impact of these differences on price comparability. We specifically requested the European Communities to identify any differences, including differences in physical characteristics, that could affect price comparability, and to explain how allowance should be made with respect to them. ⁷⁷¹ Their failure to respond in detail to this request has resulted in a thin record with respect to this issue, and in a closer case where the degree of the price differential was not so large might well have been fatal to their claim.

14.248 Nevertheless, the information on the record in this dispute does allow us to take account of some of the salient physical differences between the three models. In this respect, we first note that the seemingly most significant difference between the Timor on the one hand and the Optima and the 306 on the other is engine size. Specifically, the Timor's engine is 263cc smaller than that of the 306 and 298cc smaller than that of the Optima. The European Communities have argued, the record confirms, and Indonesia has not contested, however, that any potential advantage of the Optima and the 306 over the S-515 in terms of power due to their larger engine size was compensated for by the introduction of a sixteen-valve, dual overhead cam injection engine in the S-515i; in fact, the S-515i's engine generates more power than that of either the Optima or the 306. As indicated above, only list price (and not market price) information is available with respect to the Timor S-515i. However, we note that the difference in the list prices of the S-515 and 515i provides an indication of the possible difference in market prices of the two models. In particular, the difference in list price between the S-515 (which is equipped with an engine less powerful than those of the Optima and 306) and the S-515i (which, as previously noted, is equipped with an engine more powerful than those of the Optima and the 306) was 3.9 million rupiahs in March 1997. Thus, by adjusting the market price for the Timor S-515 upward by this difference in list prices between the S-515 and S-515i, we can take account of the differences between the Timor S-515, the Optima and the 306 with respect to engine power.

14.249 Indonesia notes that the Timor does not come equipped with airbags, while one model of the Optima does. With respect to this feature, however, we know from price list information provided by Indonesia that the Optima CDX with airbag costs two million rupiahs more than the same model without an airbag, and that the Optima GLS does not come equipped with an airbag at all; thus, we can also discount for this physical difference by restricting our comparison to the price of the Optima GLS, which does not come equipped with an airbag.

14.250 What of the remaining physical differences? Although the record is conflicting, it would appear that some models of the Optima and the 306 may have ABS (anti-skid braking system), while the Timor S-515i does not. The Optima comes equipped with an alarm system, while the Timor S-515i does not. The fuel tanks of the Optima and 306 are slightly larger than those of the Timor S-515i. The rear seats of the Optima and the 306 fold down, while that of the Timor S-515i does not. The Optima and the 306 have larger tires than the Timor S-515i. The Timor S-515i has cloth seats, while the Optima has velour seats and one model of the 306 has leather seats. Some versions of the Optima and the 306 have light alloy wheels, while that is an option for the Timor S-515i. The Optima has "additional headlamps", while the Timor S-515i does not.

14.251 These foregoing differences, for which the European Communities have not made allowance in their price comparisons, are not insignificant, and it seems clear to us that consumers would be willing to pay a premium for some of them at least. However, we note that the United States has identified and sought to place a value on a number of features of the S-515i (such as tilt steering, mud flaps, colour key bumpers, and colour key/foldable mirrors) which the Optima at least lacks, and which may to some extent offset the value of some of the features of the Optima. More fundamentally, looking specifically at the November 1996 market prices for the Timor S-515, the Optima and the 306, and even after adding 3.9 million rupiahs to the price of the Timor S-515 to account for the differences in engine power between that model and the S-515i, the price of the Timor undercuts the price of the least expensive Optima (without airbag) by 19.35 million rupiahs (33 per cent) ⁷⁷² and undercuts the price of the 306 by 23.35 million rupiahs (37 per cent) ⁷⁷³. While the physical differences between the Timor, the Optima and the 306 for which we have not been able to make due allowance clearly would affect their prices, we agree with the European Communities that the differences identified in the preceding paragraph could not possibly account for these enormous differences in price.

14.252 This is confirmed by the fact that, according to price data submitted by Indonesia, the Timor not only is priced lower than the C Segment Optima and the 306, but in March 1997 had a list price in the Indonesian market ⁷⁷⁴ that was also significantly lower than the list prices of such B Segment cars as the Toyota Starlet (48.1 million rupiahs) and the Suzuki Baleno (44.75 million rupiahs). A comparison of the physical characteristics of the Timor S-515 with those of the Starlet is particularly instructive. The Starlet is a lesser car than the Timor S-515 in almost every respect, including length (3.72 metres for the Starlet, 4.36 metres for the Timor); weight (725 kg for the Starlet, 1,055 kg for the Timor); engine size (1,296 cc for the Starlet, 1,498 cc for the Timor); and engine power (53 kw/6,200 rpm for the Starlet, 58 kw/5,500 for the Timor S-515, 77 kw/5500 rpm for the Timor S-515i). Like the Timor, the Starlet lacks ABS and airbags. Yet the list price of the top-of-the-line Timor S-515i is 11.2 million rupiahs less than that of the Starlet.

14.253 Indonesia also argues the existence of numerous non-physical differences between the Timor, the Optima and the 306. We note, however, that while the record clearly demonstrates the existence of differences in physical characteristics between the models in question, Indonesia has presented little if any evidentiary support for their proposition concerning non-physical differences (such as brand image or after-sales service) between the models. While we agree with Indonesia that the European Communities bear the burden of proof to demonstrate the existence of all elements of their serious prejudice claim, including the existence of price undercutting, the record does not show that there are any significant non-physical differences for which due allowance must be made, much less any differences that could account for the extent of the differences in price between the Timor, the Optima and the 306.

14.254 We note that under Article 6.3(c) serious prejudice may arise only where the price undercutting is "significant." Although the term "significant" is not defined, the inclusion of this qualifier in Article 6.3(c) presumably was intended to ensure that margins of undercutting so small that they could not meaningfully affect suppliers of the imported product whose price was being undercut are not considered to give rise to serious prejudice. This clearly is not an issue here. To the contrary, it is our view that, even taking into account the possible effects of these physical differences on price comparability, the price undercutting by the Timor of the Optima and 306 cannot reasonably be deemed to be other than significant.

14.255 Finally, we note that serious prejudice may arise under Article 6.3(c) only where the price undercutting is "the effect of the subsidy." In this case, we agree with the European Communities that Indonesia, in information that it provided in the Annex V process effectively concedes that the tariff and tax subsidies under the National Car programme are responsible for the significant level of price undercutting. The table cited by the European Communities contains data for 1998 and 1999 regarding the Timor S515i that will be assembled at the Karawang facility. Row 4 of that table (Unit Dealer Price) indicates that the effect of the tariff and tax subsidies of the National Car programme is to lower the price of the Timor S-515i by US$7,243-9,158, i.e., by approximately 33-38 per cent. ⁷⁷⁵

14.256 For the foregoing reasons, we find that the effect of the subsidies to the Timor pursuant to the National Car programme is to cause serious prejudice to the interests of the European Communities in the sense of Article 5(c) of the SCM Agreement through a significant price undercutting as compared with the price of EC-origin like products in the Indonesian market.

To continue with Threat of Serious Prejudice

⁷⁶⁴ Indonesia offered a variety of explanations why in its view Chrysler, Ford and GM did not proceed with their plans to introduce new models into the Indonesian market. These included the small size and dominance of Japanese manufacturers in that market; inadequate return on investment resulting from low profit margins on entry-level cars; and more attractive investment incentives in other Asian countries. In the absence of adequate evidence from the complainants, the Panel lacks a factual basis to accept or reject these alternative explanations.

⁷⁶⁵ For example, if Ford and Chrysler in fact abandoned their plans to introduce the Escort and Neon after determining that the Timor would undercut the prices of those models by US$5000, contemporaneous company documents reflecting this assessment could have been submitted and might have been highly probative.

⁷⁶⁶ See paragraphs 14.5 to 14.8, supra.

⁷⁶⁷ See paragraphs 8.384 to 8.387 of the Descriptive Part.

⁷⁶⁸ See paragraphs 8.289-8.290 of the Descriptive Part.

⁷⁶⁹ See paragraphs 8.221 to 8.225 of the Descriptive Part.

⁷⁷⁰ See Section VIII.B.3 of the Descriptive Part.

⁷⁷¹ At its first meeting with the parties, the Panel asked the parties the following question:

The European Communities responded that:

⁷⁷² Market price of Optima GLS (59 million rupiahs) [minus] market price of Timor S-515 (35.75 million rupiahs) [plus] the difference between list price of Timor S-515 Solit and Timor S-515i Metalic (3.9 million rupiahs) [equals] 19.35 million rupiahs.

⁷⁷³ Market price of the 306 PST (63 million rupiahs) [minus] market price of Timor S-515 (35.75 million rupiahs) [plus] the difference between list price of Timor S-515 Solit and Timor S-515i Metalic (3.9 million rupiahs) [equals] 23.35 million rupiahs.

⁷⁷⁴ 33 million rupiahs for the S-515i Solit, 36.9 million rupiahs for the S-515i Metalic.

⁷⁷⁵ See paragraphs 8.395 and 8.408 of the Descriptive Part.