I. Claims under Article 28 of the SCM Agreement
14.258 Finally, we turn to the United States' claim under Article 28 of the SCM Agreement. The United States argues that, via Decree No. 223/1995, Decree No. 82/1996, and Regulation No. 36/1996, Indonesia has extended the scope of its local content-based tariff and tax subsidies for certain motor vehicles in violation of Article 28.2. Indonesia responds that Article 28.2 applies only to subsidies that are "inconsistent" with the SCM Agreement, and since Article 27.3 of the SCM Agreement exempts Indonesia's local content subsidies from the prohibition that would otherwise apply under Article 3.1(b), these subsidies are not "inconsistent" with the Agreement and thus not subject to Article 28.
14.259 Article 28 of the Agreement provides as follows:
Existing Programmes
28.1 Subsidy programmes which have been established within the territory of any Member before the date on which such a Member signed the WTO Agreement and which are inconsistent with the provisions of this Agreement shall be:
(a) notified to the Committee not later than 90 days after the date of entry into force of the WTO Agreement for such Member; and
(b) brought into conformity with the provisions of this Agreement within three years of the date of entry into force of the WTO Agreement for such Member and until then shall not be subject to Part II.
28.2 No Member shall extend the scope of any such programme, nor shall such a programme be renewed upon its expiry. (emphasis added).
14.260 Article 28.1 of the SCM Agreement specifies that subsidy programmes which are "inconsistent with the provisions of this Agreement" must be notified to the Committee within 90 days after the date of entry into force of the WTO Agreement for the Member and brought into conformity with the provisions of the SCM Agreement within three years of that date. Article 28.2 specifies that no Member shall extend the scope of "any such programme." In our view, this reference to "any such programme" can only refer back to the types of programmes identified in Article 28.1. Accordingly, the question we must address is whether Indonesia has extended the scope of a subsidy programme which is "inconsistent" with the provisions of the SCM Agreement.
14.261 We consider that the ordinary meaning of the term "inconsistent with the provisions of this Agreement", when read in its context, cannot reasonably be considered to extend to the Indonesian subsidy programmes under review in this dispute. The United States concedes that, under Article 27.3 of the SCM Agreement, the prohibition of paragraph 3.1(b) of the SCM Agreement does not apply to the Indonesian programmes for a period of five years from the date of entry into force of the WTO Agreement, i.e., until the year 2000. The United States contends that the term "inconsistent" is not synonymous with "prohibited", and implies that a subsidy programme may be inconsistent with the provisions of the SCM Agreement if it satisfies the substantive conditions of Article 3, whether or not the Article 3 prohibitions are applicable. In the SCM Agreement, however, the drafters have chosen to express the concept of subsidies meeting the substantive conditions of Article 3 by referring to subsidies "falling under the provisions of Article 3" (See Article 2.3). If they had intended to express the same concept in Article 28, they could have used comparable language.
14.262 Because we consider that the Indonesian subsidy programmes under review in this dispute are not "inconsistent" with the provisions of the SCM Agreement within the meaning of Article 28, we reject the claims of the United States that Indonesia has extended the scope of certain subsidy measures in violation of Article 28.2 of the SCM Agreement.
1. Article 3
14.264 Article 3 of the TRIPS Agreement, entitled "National Treatment", reads as follows:
"1. 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 protection3 of intellectual property, subject to the exceptions already provided in, respectively, the Paris Convention (1967), the Berne Convention (1971), the Rome Convention or the Treaty on Intellectual Property in Respect of Integrated Circuits. In respect of performers, producers of phonogram and broadcasting organizations, this obligation only applies in respect of the rights provided under this Agreement. Any Member availing itself of the possibilities provided in Article 6 of the Berne Convention (1971) or paragraph 1(b) of Article 16 of the Rome Convention shall make a notification as foreseen in those provisions to the Council for TRIPS.
2. Members may avail themselves of the exceptions permitted under paragraph 1 in relation to judicial and administrative procedures, including the designation of an address for service or the appointment of an agent within the jurisdiction of a Member, only where such exceptions are necessary to secure compliance with laws and regulations which are not inconsistent with the provisions of this Agreement and where such practices are not applied in a manner which would constitute a disguised restriction on trade.
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3For the purposes of Articles 3 and 4, "protection" shall include matters affecting the availability, acquisition, scope, maintenance and enforcement of intellectual property rights as well as those matters affecting the use of intellectual property rights specifically addressed in this Agreement."
14.265 As mentioned earlier, in regard to matters covered by the expression "protection of intellectual property" in respect of which WTO Members are required to grant national treatment, the United States has made claims in regard to three of the items specified in the footnote, namely "acquisition", "maintenance", and "those matters affecting the use of intellectual property rights specifically addressed in this Agreement", in this case in Article 20.
14.266 As a preliminary point, we note that Indonesia has been under an obligation to apply the provisions of Article 3 since 1 January 1996, Article 3 not benefiting from the additional four years of transition generally provided by Article 65.2 to developing country Members.
(a) Acquisition of trademarks
14.267 According to the United States, Indonesia discriminates against foreign nationals in respect of the acquisition of trademarks, because any trademark that could apply to a "national motor vehicle" must be acquired by an Indonesian company, be that company a joint venture or a wholly-owned Indonesian company.
14.268 The TRIPS Agreement requires WTO Members to provide certain treatment to the nationals of other WTO Members in respect of the protection of their intellectual property. The issue to be examined therefore in regard to the United States' claim relating to the "acquisition" of trademarks is whether, under the Indonesian law and practice which is before us, the treatment accorded to foreign nationals in respect of the acquisition of trademark rights, through the applicable procedures, is less favourable than that accorded to the Indonesian company in the National Car Programme. We do not consider that any evidence has been produced in this case to support such a claim. The facts brought before us do not point to any difference in the applicable law for acquiring trademark rights between that applying to companies of other WTO Members and that applying to the company operating under the National Car Programme. It is true that the cars marketed under the National Car Programme have to bear a trademark belonging to an Indonesian-owned company which has created that trademark, and, therefore, that trademarks owned by United States' and other foreign companies may not be employed for this purpose. While this may give rise to questions regarding the scope for the use of trademarks owned by United States' companies on cars under the National Car Programme, it does not, in our view, pose a problem regarding the acquisition of trademark rights. The fact that only certain signs can be used as trademarks for meeting the relevant qualifications under the National Car Programme, and many others not, does not mean that trademark rights, as stipulated in Indonesian trademark law, cannot be acquired for these other signs in a non-discriminatory manner.
14.269 We therefore find that the United States has not demonstrated that Indonesia is in breach of its obligations under Article 3 of the TRIPS Agreement in respect of the acquisition of trademark rights.
(b) Maintenance of trademarks
14.270 The United States has advanced two arguments as to why, in its view, the Indonesian system discriminates against United States nationals in respect of the maintenance of trademark rights. The first argument is that the Indonesian system puts United States companies in a position that, if they were successful in becoming a partner in the National Car Programme, they would be unlikely to use in Indonesia the mark normally used ("global" mark) on the vehicle marketed as a "national motor vehicle" in Indonesia, for fear of creating confusion (i.e., confusion resulting from using different marks on the same car), and consequently it was more likely that the "global" mark would be subject to cancellation for non-use in Indonesia.
14.271 We do not accept this argument for the following reasons. First, no evidence has been put forward to refute the Indonesian statement that the system, in requiring a new, albeit Indonesian-owned, trademark to be created, applies equally to pre-existing trademarks owned by Indonesian nationals and foreign nationals. Second, if a foreign company enters into an arrangement with a Pioneer company, it would do so voluntarily, with knowledge of any consequent implications for its ability to maintain pre-existing trademark rights, as indeed the United States itself has acknowledged in its submissions to the Panel (see paragraph 11.32 above).
14.272 The second argument advanced by the United States relating to discrimination in respect of the maintenance of trademark rights is that foreign holders of trademarks in Indonesia are at a de facto disadvantage in meeting use requirements in relation to the Indonesian holder of a trademark satisfying the National Car Programme requirements, because the tariff, internal tax and other benefits to which the Indonesian company is entitled give it a competitive advantage in the marketing of cars bearing trademarks over foreign companies.
14.273 In considering this argument, we note that any customs tariff, subsidy or other governmental measure of support could have a "de facto" effect of giving such an advantage to the beneficiaries of this support. We consider that considerable caution needs to be used in respect of "de facto" based arguments of this sort, because of the danger of reading into a provision obligations which go far beyond the letter of that provision and the objectives of the Agreement. It would not be reasonable to construe the national treatment obligation of the TRIPS Agreement in relation to the maintenance of trademark rights as preventing the grant of tariff, subsidy or other measures of support to national companies on the grounds that this would render the maintenance of trademark rights by foreign companies wishing to export to that market relatively more difficult.
14.274 For the above reasons, we find that the United States has not demonstrated that Indonesia is in breach of its obligations under Article 3 of the TRIPS Agreement in respect of the maintenance of trademark rights.
(c) Use of trademarks as specifically addressed in Article 20
14.275 As is made clear by the footnote to Article 3 of the TRIPS Agreement, the national treatment rule set out in that Article does not apply to use of intellectual property rights generally but only to "those matters affecting the use of intellectual property rights specifically addressed in this Agreement". In putting forward its claim on this point, the United States has developed arguments relating to the use of trademarks specifically addressed by Article 20 of the TRIPS Agreement. It is the first sentence of this Article, which is entitled "Other Requirements", to which the United States has made reference. This sentence reads 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, use in a special form or use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings."
14.276 The main issues before us in examining this claim of the United States are therefore: first, is the use of a trademark to which the Indonesian law and practices at issue relates "specifically addressed" by Article 20; and, second, if so, does this aspect of the system discriminate in favour of Indonesian nationals and against those of other WTO Members.
14.277 In taking up the first of these questions, the issue to be considered initially is whether the Indonesian law and practices in question constitute a special requirement that might encumber the use of the trademarks of nationals of other WTO Members in terms of Article 20 of the TRIPS Agreement. The United States has put forward two basic arguments on this question, which are similar to the arguments it has put forward also in regard to the maintenance of trademarks (see paragraphs 14.270 and 14.270 above). The first argument is that a foreign company that enters into an arrangement with a Pioneer company would be encumbered in using the trademark that it used elsewhere for the model that was adopted by the National Car Programme. We do not accept that this argument establishes an inconsistency with the provisions of Article 20, for the reason, as indicated in paragraph 14.271 above, that, if a foreign company enters into an arrangement with a Pioneer company it does so voluntarily and in the knowledge of any consequent implications for its ability to use any pre-existing trademark. In these circumstances, we do not consider the provisions of the National Car Programme as they relate to trademarks can be construed as "requirements", in the sense of Article 20.
14.278 The second United States argument is that non-Indonesian car companies are encumbered in using their trademarks in Indonesia by being put at a competitive disadvantage because the cars produced under the National Car Programme bearing the Indonesian trademark benefit from tariff, subsidy and other benefits flowing from that programme. In regard to this argument, we also feel that the points developed in our earlier discussion of the United States claims regarding the maintenance of trademarks are relevant, in particular in paragraph 14.273 above. Moreover, the United States has not explained to our satisfaction how the ineligibility for benefits accruing under the National Car Programme could constitute "requirements" imposed on foreign trademark holders, in the sense of Article 20 of the TRIPS Agreement.
14.279 For the reasons outlined above, we find that the United States has not demonstrated that Indonesia is in breach of its obligations under Article 3 of the TRIPS Agreement in respect of the use of trademarks specifically addressed in Article 20.
2. Article 65.5 in Conjunction with Article 20
14.280 Article 65.5 of the TRIPS Agreement reads as follows:
"5. A Member availing itself of a transitional period under paragraphs 1, 2, 3 or 4 shall ensure that any changes in its laws, regulations and practice made during that period do not result in a lesser degree of consistency with the provisions of this Agreement."
14.281 The question, therefore, to be examined in considering this claim of the United States is whether during the transitional period to which Indonesia is entitled in respect of the application of the provisions of Article 20 Indonesia has made any changes in its laws, regulations and practice that have resulted in a lesser degree of consistency with the provisions of that Article.
14.282 The arguments put forward by the United States in support of its claim are essentially the same as those that have been considered in paragraphs 14.277 and 14.278 above. For the reasons set out in those paragraphs above, we find that the United States has not demonstrated that measures have been taken that reduce the degree of consistency with the provisions of Article 20 and which would therefore be in violation of Indonesia's obligations under Article 65.5 of the TRIPS Agreement.
XV. Conclusions and recommendations
15.1 In the light of the findings above,
(a) We conclude that the local content requirements of the 1993 and of the 1996 February car programmes to which are linked (i) sales tax benefits on finished motor vehicles incorporating a certain percentage value of domestic products or on National Cars and (ii) customs duty benefits for imported parts and components used in finished motor vehicles incorporating a certain percentage value of domestic products or used in National Cars violate the provisions of Article 2 of the TRIMs Agreement.
(b) We conclude that the sales tax discrimination aspects of the 1993 and the February and June 1996 car programmes in favour of domestic motor vehicles incorporating a certain percentage value of domestic products and National Cars violate the provisions of Article III:2 of GATT.
(c) We conclude that the customs duty and sales tax benefits of the June 1996 car programme in favour of imported National Cars and the customs duty benefits of the February 1996 car programme in favour of imported parts and components to be used in National Cars assembled in Indonesia violate Article I of GATT.
(d) We conclude that the European Communities have demonstrated by positive evidence that Indonesia has caused, through the use of specific subsidies provided pursuant to the National Car programme, serious prejudice to the interests of the European Communities within the meaning of Article 5(c) of the SCM Agreement.
(e) We conclude that the United States has not demonstrated by positive evidence that Indonesia has caused, through the use of specific subsidies provided pursuant to the National Car programme, serious prejudice to the interests of the United States within the meaning of Article 5(c) of the SCM Agreement.
(f) We conclude that Indonesia has not violated Article 28.2 of the SCM Agreement.
(g) We conclude that the United States has not demonstrated that Indonesia is in breach of its obligations under Article 3 of the TRIPS Agreement in respect of the acquisition of trademark rights or the maintenance of trademark rights or in respect of the use of trademarks specifically addressed in Article 20 of the TRIPS Agreement nor has it demonstrated that measures have been taken that reduce the degree of consistency with the provisions of Article 20 and which would therefore be in violation of Indonesia's obligations under Article 65.5 of the TRIPS Agreement.
15.2 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment of benefits under that agreement. Accordingly, we conclude that to the extent that Indonesia has acted inconsistently with the provisions of covered agreements, as described in the preceding paragraph, it has nullified or impaired the benefits accruing to the complainants under those agreements.
15.3 With respect to the conclusion of serious prejudice to the interests of the European Communities, Article 7.8 of the SCM Agreement provides that, "[w]here a panel report or an Appellate Body report is adopted in which it is determined that any subsidy has resulted in adverse effects to the interests of another Member within the meaning of Article 5, the Member granting or maintaining the subsidy shall take appropriate steps to remove the adverse effects or shall withdraw the subsidy."
15.4 The Panel recommends that the Dispute Settlement Body request Indonesia to bring its measures into conformity with its obligations under the WTO Agreement.
