4.64 Indonesia responded to the Panel as follows:

4.65 The Government of Indonesia believes that, given the actions it took on 21 January 1998 (as set out in our 25 February letter), the dispute settlement proceeding should be terminated, at least as it relates to the measures originally promulgated in 1996 to promote the National Car Programme.⁴⁰ We would hope that the three complaining parties would choose to withdraw their complaints. If they do not, though, the Panel should terminate the proceeding and issue a report limited to declaring that the matter was resolved through the abolition of the measures at issue.

4.66 As set out in Indonesia's letter of 25 February, the decrees and regulations issued by the Indonesian Government on 21 January revoked or amended all of the decrees, instructions and regulations implementing measures to promote the National Car Programme which allegedly were inconsistent with Indonesia's obligations under the General Agreement, the SCM Agreement, the TRIMs Agreement and the TRIPs Agreement. (In the two instances in which decrees were amended rather than revoked, the amendment abolished all measures in the decree that previously had benefited the National Car Programme.) All of the decrees, instructions and regulations cited in each of the complaining parties' request for establishment of a panel (at least, regarding the National Car Programme) were revoked (or amended in relevant part), and all of the measures to promote the National Automobile Industry which were thereby implemented ceased to be in effect.

4.67 Article 19.1 of the DSU provides that:

4.68 Article 3.7 of the DSU confirms that this forward-looking remedy - elimination of an inconsistent measure - is the only WTO-consistent remedy. Therefore, even if the measures to promote the National Automobile Programme had been inconsistent with a provision of the WTO (which Indonesia does not accept), there is nothing further to remedy. Under such circumstances, it would be inappropriate for the Panel to do more than note the termination of the measures and declare that no determination is warranted as to the claimed WTO inconsistency of them.

4.69 Prior Panel decisions support the refusal to rule on an expired measure, as previously set out by Indonesia (See section VII.D(c)). In Thailand-Restrictions on Importation of and Internal Taxes on Cigarettes (7 November 1990), BISD 37S/200, prior to the panel's decision, Thailand issued regulations eliminating the discriminatory elements of two taxes. Even though the underlying authority to reimpose discriminatory taxes remained in effect, the panel concluded that the current regulations were consistent with Thailand's GATT obligations.

4.70 In the 1989 dispute regarding EEC-Restrictions on Imports of Dessert Apples (22 June 1987), BISD 36S/93, the EEC measures lapsed prior to the Panel's decision. Chile urged the panel to rule that the EC should offer compensation since a ruling that the measures should be withdrawn would be meaningless. The panel refused to do so.

4.71 These prior panel decisions support the conclusion that, since the measures promoting the National Car Programme and their underlying legal authority have expired, the Panel should declare that no decision on the merits of the alleged inconsistency with WTO agreements is appropriate.

2. Response of Japan

4.72 Japan responded to the Panel as follows:

4.73 The Government of Indonesia expressed its hope that the complaining parties would withdraw the complaints. In addition, Indonesia argued that, if the complaining parties do not do so, the Panel should nevertheless terminate the proceeding and issue a report limited to declaring that the matter was resolved through the abolition of the measures at issue.

4.74 The Government of Japan finds it difficult to share the view of Indonesia. Japan still does not believe that a mutually satisfactory solution has been achieved. Unless such a mutually satisfactory solution is obtained between the parties, a panel is obliged to submit its findings to the DSB as described in Article 12:7 of the DSU. Article 12 of the DSU requires a panel to follow the procedures and not to unilaterally terminate the proceeding. In this regard, there are three elements Japan would particularly like to point out.

(a) It is still not clear whether the National Car Programme has been fully terminated

4.75 First, some parts of the decrees issued by the Indonesian Government are still unclear in their implications. For example, the decrees did not explicitly revoke the Presidential Decree No. 2/1996, which Japan believes is the most important basis for the National Car Programme, while declaring it "obsolete" instead.

4.76 Second, and more importantly, the Government of Japan has not been convinced that all the exemptions of import duties and luxury taxes have been terminated. As we all can recall, at the second Panel meeting, Indonesia explained that the Indonesian Government would request PT Timor to return the benefits already given to it, since it failed to meet the requirements of the June 1996 programme and the first year requirements of the February 1996 programme. Despite this statement, however, Japan has been informed that favourable treatment under the Programme in question might continue for Timor cars remaining stock, including unsold Korean made National Cars.

4.77 Japan is trying to gather further information from the Indonesian Government regarding these factual matters.

(b) The Government of Indonesia has not provided any assurances that it will not introduce the measures of the same nature as the National Car Programme, i.e. discriminatory measures to benefit specific domestic products

4.78 It should be noted that Indonesia in its letter of 2 March still denies the inconsistency of the National Car Programme with its obligations under the relevant provisions of the WTO Agreements. This, together with unclarity regarding the termination of the Programme makes it difficult for Japan to judge, at this stage, whether the Government of Indonesia has decided against introducing programmes of the same kind in the future.

(c) Even if measures are eliminated, a panel can and should rule on them

4.79 The Government of Japan is of the view that even if measures are eliminated, a panel still can and should rule on them. In fact, Japan has already discussed this issue before this Panel.

4.80 As already described more fully by Japan (See section X.B.3 and 4), Japan believes that it has been the usual practice of GATT/WTO panels to rule at least on measures that were effective at the time the panel's terms of reference were fixed, even if such measures later became ineffective before the panel rendered its ruling. "The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system", as described in Article 3:2 of the DSU. In this respect, if a panel should not rule on this kind of occasion, a WTO Member might easily evade the WTO reviews.

4.81 Japan sincerely hopes that the Panel will continue to review this case.

3. Response of the European Communities

4.82 The European Communities responded to the Panel's request as follows:

4.83 For the reasons set out below, the European Communities disagree with Indonesia's demand and respectfully request the Panel to rule on all the claims within its terms of reference, including those concerning the 1996 National Car Programme.

4.84 The legal consequences of the measures enacted by Indonesia on 21 January 1998 are far from clear. For instance, Presidential Instruction No. 2/1996 has not been revoked but merely declared "obsolete" by Presidential Decree Number 20/1998. The precise implications of a declaration of "obsolescence" by what appears to be a norm of inferior rank are unclear. It is also unclear to the European Communities how, if at all, the measures of 21 January 1998 will apply to those cars imported from Korea which have not been sold yet.

4.85 In the European Communities' view, there is no good reason for the Panel to take any decision as regards these and other similar issues precipitately and on the basis of the limited information which has been made available by Indonesia. We consider that the Panel should complete its report in the normal fashion, and that the issues raised by Indonesia should be clarified and decided within the framework provided by Article 21 of the DSU. If the measures taken on 21 January 1998 already constitute appropriate implementation of the DSB recommendations in this case, Indonesia will find itself in the enviable position of not having to adopt any further implementing measures. On the other hand, if it was established in accordance with Article 21 of the DSU that such is not the case, the complainants would have access to the mechanisms provided in the DSU in case of non-compliance with the recommendations of the DSB.

4.86 Furthermore, it must be noted that the measures taken on 21 January 1998 do not provide for the reimbursement of the benefits already granted under the National Car Programme. As a result, those subsidies will continue to benefit future sales of National Cars. Accordingly, whether or not the measures adopted on 21 January 1998 are considered to have revoked effectively the National Car Programme, the Panel will be required to rule on the compatibility of those subsidies with the SCM Agreement.

4.87 Similarly, as admitted implicitly by Indonesia, the measures adopted on 21 January 1998, do not effect the 1993 Programme. Thus, again, the Panel, will in any event have to issue a report ruling on the claims regarding the 1993 Programme, whether or not the 1996 National Car Programme is deemed to have been effectively revoked.

4.88 Contrary to Indonesia's arguments, past practice supports the European Communities' request that the Panel rule on all the claims within its terms of reference. Under GATT 1947, several panels⁴¹ considered measures that were no longer in force in cases where, as in the present dispute, the measures were still in force at the time the Panel was established.

4.89 This practice has continued under the WTO Agreement. In US - Standards for Reformulated Gasoline⁴², the Panel decided not to rule on a discontinued measure, but only because the measure had been terminated before the terms of reference were established and was unlikely to be renewed. In US -° Measures affecting imports of Woven Wool Shirts and Blouses from India, the Panel decide that:

4.90 For the reasons set out above, the European Communities respectfully request the Panel to reject Indonesia's demand and to rule on all the claims within its terms of reference, including those relating to the 1996 National Car Programme.

4. Response of the United States

4.91 The United States responded to the Panel's request as follows:

4.92 The United States does not concur in Indonesia's request.⁴⁵

4.93 By way of background, by letter dated 25 February 1998, Indonesia informed the Chairman of the SCM Committee that Indonesia purportedly "had terminated all subsidies previously granted to the National Automobile Industry." Notwithstanding the fact that the deadline for submitting information and argument in this dispute closed on 30 January 1998, Indonesia provided copies of this letter, and the attachments thereto, to the Panel, the Chairman of the Dispute Settlement Body, and the complainants in this dispute.

4.94 In a communication dated 27 February 1998, the Panel requested that Indonesia inform the Panel by 2 March as to "what action, if any, it requests the Panel to take on the basis of this notification and why, and what it believes to be the legal implications of these revocations for the panel process." The Panel also requested the complainant parties in this dispute to respond to Indonesia's comments by 6 March.

4.95 At the outset, the United States must express some dismay that the Panel even has considered Indonesia's untimely submission. Having said that, however, the United States appreciates being afforded the opportunity to comment on Indonesia's request. For the reasons set forth below, the United States does not concur in Indonesia's request.

(a) The Measures at Issue Are Within the Panel's Terms of Reference

4.96 Indonesia's request relates only to "the measures to promote the National Automobile Programme."⁴⁶ Indonesia does not dispute that these measures are within the Panel's terms of reference. The only question is whether a Panel is free, notwithstanding its terms of reference, to decline to make a finding on measures within its terms of reference at the request of the responding party. The United States submits that a Panel may not.⁴⁷ The fact that the responding party claims that the measures have been withdrawn does not change this legal conclusion.

(b) Established GATT and WTO Panel Practice Is to Make Findings on Measures that Are Withdrawn Subsequent to the Establishment of a Panel's Terms of Reference

4.97 Even assuming, for purposes of argument, that the measures comprising the National Car Programme have been revoked and have ceased to have any legal or operational effect, Indonesia is not entitled to a termination of this dispute absent agreement by the complaining parties. Prior GATT and WTO practice dictates that a panel should make findings on discontinued measures covered by its terms of reference in situations where, as is the case here, a measure was in force at the time the panel was established.⁴⁸ This practice was most recently reaffirmed in United States - Measures Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/R, Report of the Panel, as modified by the Appellate Body, adopted on 23 May 1997, para. 6.2.

4.98 Indonesia's references to Thailand - Restrictions on Importation of and Internal Taxes on Cigarettes, DS10/R, Report of the Panel adopted on 7 November 1990, BISD 37S/200, and EEC - Restrictions on Imports of Dessert Apples - Complaint by Chile, L/6491, Report of the Panel adopted on 22 June 1989, BISD 36S/93, are inapposite. With respect to Thai Cigarettes, Japan previously has demonstrated how that report does not support Indonesia's position.⁴⁹ Moreover, even if the Panel should not accept Japan's demonstration, Thai Cigarettes is an aberration from the mainstream of GATT and WTO practice.

4.99 As for Dessert Apples, it directly contradicts Indonesia's position. In that case, the panel did make findings of GATT inconsistency with respect to measures that had expired after the panel's establishment. What the panel declined to do, and properly so, is recommend, as requested by Chile, that the EEC provide compensation.

(c) It Is Not Established that the Measures Have, in Fact, Expired

4.100 Assuming, for purposes of argument, that a panel may ignore its terms of reference and decline to make findings with respect to a measure that has expired subsequent to the panel's establishment, Indonesia has failed to establish that the measures that comprise the National Car Programme have expired. At best, the status of these measures remains unclear.

4.101 Looking at the measures from one perspective, and taking Indonesia at its word, the measures still have legal and operational effect with respect to products imported and sold prior to the revocation of those measures. According to Indonesia, the local content requirements of these measures, and TPN's failure to satisfy those requirements, continue to constitute the basis for seeking repayment by TPN of previously forgiven duties and taxes.⁵⁰ These measures will be the governing legal instruments should TPN challenge any Government demand for repayment of duties and taxes.

4.102 Looking at the measures from a different perspective, it is questionable whether the benefits conferred by the various legal instruments (as opposed to the legal instruments themselves) really have been withdrawn. Notwithstanding Indonesia's assurances to the Panel and the complainants, it was reported in February that TPN had requested that the Government of Indonesia provide a tax exemption for those Timor Kia Sephias that remain unsold.⁵¹ The Government apparently was willing to consider TPN's request, because Indonesia's Minister of Industry and Trade was quoted as stating: "I am having discussions with the finance minister over whether these 15,000 cars will be exempted from the taxes like those imported with them."⁵² It now appears that the Government, did, indeed, grant TPN's request, deciding "that the remaining 15,000 cars could maintain their tax exemptions."⁵³

4.103 Moreover, in the statement quoted in the preceding paragraph, the Minister of Industry and Trade describes the issue as "whether these 15,000 [unsold] cars will be exempted from the taxes like those imported with them [i.e., the previously sold cars]." (Emphasis added). This suggests that, notwithstanding its prior assurances to the Panel and the complainants, Indonesia did not require TPN to reimburse the Government for luxury taxes owed on those cars that had been sold prior to the completion of the local content audit. In addition, it is now entirely unclear what has happened with respect to the forgone import duties owed on those cars that were sold and those that remain unsold.

4.104 Finally, it must be emphasized that none of the measures notified by Indonesia to the SCM Committee provides for the reimbursement of the subsidies already conferred under the National Car Programme. As previously demonstrated by the United States, these subsidies constitute "non-recurring" subsidies that will benefit future sales of cars produced by TPN, a point that Indonesia did not seriously dispute.⁵⁴ Thus, whether or not the measures notified by Indonesia to the SCM Committee can be considered as revoking the legal instruments that make up the National Car Programme, the Panel will be required to consider the subsidies conferred by these legal instruments in connection with the US and EC claims under the SCM Agreement.

(d) A Termination of the Dispute Would Diminish US Rights Under the DSU

4.105 It is axiomatic that rulings of panels "cannot add to or diminish the rights and obligations provided in the covered agreements." Article 19.2, DSU. Pursuant to Article 1 and Annex 1 of the DSU, the DSU itself is a "covered agreement." In the context of this case, under Article 21 of the DSU, the United States has the right to ensure that the National Car Programme is withdrawn and stays withdrawn or otherwise is brought into conformity with Indonesia's WTO obligations. Under Article 22 of the DSU, the United States has the right to compensation or retaliation if these conditions are not fulfilled.

4.106 If the Panel were to grant Indonesia's request and terminate the dispute settlement proceeding with respect to the National Car Programme, the Panel effectively would be depriving the United States of its rights under Articles 21 and 22 of the DSU. Because the Panel would not have made any findings that the measures were inconsistent with Indonesia's WTO obligations, Indonesia arguably would be free at that point to reintroduce these measures, and the United States would have to commence an entirely new dispute settlement proceeding.

4.107 The evidence suggests that such a scenario is highly plausible. Newspaper reports indicate that subsidization of the National Car is continuing.⁵⁵

4.108 Finally, the facts developed in this proceeding should make the Panel extremely sceptical of any claims by Indonesia that the discrimination against imports from the complainants and the subsidization of TPN under the National Car Programme have ended. Consider the following:

• The history of the National Car Programme, particularly the manner in which TPN was selected to be the producer of the National Car;⁵⁶
• The obvious contradiction between Indonesia's denial that the joint venture between TPN and Kia Motors was to be the producer of the National Car and all of the evidence to the contrary, including the third-party submission by Korea;⁵⁷
• The obvious contradiction between Indonesia's assertion that the Government of Indonesia played no role in the provision of the $690 million loan to TPN and all of the evidence to the contrary and the fact that the IMF required the Government to revoke special credit privileges for the National Car Programme;⁵⁸
• The obvious contradiction between Indonesia's assurance that TPN would be required to reimburse the Government for foregone customs duties and luxury taxes due in connection with the CBU Sephias imported from Korea and the evidence (described above) that the Government is not requiring reimbursement;
• The fact that Presidential Decree No. 20/1988 declares Presidential Instruction No. 2/1996 "obsolete" rather than "revoked"; and
• The fact that even in its letter of 2 March 1998, Indonesia continues to insist that the National Car Programme was not inconsistent with its WTO obligations. This indicates that Indonesia feels free to resurrect the measures in question when it determines that the time is ripe.

In short, the status of the National Car Programme remains unclear, and it is not (nor should it be) the Panel's task to predict the future based on the incomplete information available at this time. Instead, these are matters that are properly dealt with under Article 21 of the DSU. If it should turn out that the measures in question constitute adequate implementation of the recommendations by the DSB, Indonesia will have fulfilled its WTO obligations. However, should it be established under Article 21 that the measures in question do not constitute adequate implementation, the United States and the other complaining parties would still have their rights under Article 22.

(e) Conclusion

4.109 Both before and after this Panel was established, the United States sought a mutually acceptable solution with Indonesia of this matter. Indonesia refused, preferring to let the dispute settlement process run its course. It is now inappropriate for Indonesia to seek a termination of this dispute after the case has been fully briefed and argued.

4.110 Accordingly, for the foregoing reasons, the United States respectfully requests that the Panel deny Indonesia's request to terminate this dispute with respect to the National Car Programme.

To Continue with Claims Under Article III Of GATT 1994.

⁴⁰See Findings, section XIV.A.4, for the Panel's ruling on this request.

⁴¹See for instance the Panel Report on European Communities - Restrictions on Imports of Dessert Apples, Complaint by Chile, adopted on 22 June 1989, BISD 36S/93; the Panel Report on EEC - Restrictions on Imports of Apples, Complaint by the United States, adopted on 22 June 1989, BISD 36S/135; the Panel on United States - Prohibition of Imports of Tuna and Tuna Products from Canada, adopted on 22 February 1982, BISD 29S/91; the Panel Report on EEC - Restrictions on Imports of Apples from Chile, adopted on 10 November 1980, BISD 27S/98; and the Panel Report on EEC - Measures on Animal Feed Proteins, adopted on 14 March 1978, BISD 25S/49.

The panel reports invoked by Indonesia do not support its position, as already demonstrated by Japan in its second submission to the Panel (see Section X.B.4).

⁴²Panel Report on United States - Standards for Reformulated Gasoline, WT/DS2/R, adopted on 20 May 1996, para. 6.19.

⁴³Panel Report on United States - Measures Affecting Imports of Woven Wool Shirts and Blouses from India, adopted on 23 May 1997, WT/DS33/R, para.6.2.

⁴⁴In Argentina - Certain measures affecting Imports of Footwear, Textiles, Apparel and Other Items (WT/DS56/R, at pp.83-86, on appeal) the Panel decided not to rule on a measure which was revoked after the circulation of the request for the establishment of a Panel but before the DSB agreed to the establishment of the Panel.

⁴⁵ The United States also does not concur in any termination of this proceeding with respect to the 1993 Programme, and notes that the measures notified by Indonesia to the SCM Committee do not affect the 1993 Programme.

⁴⁶ See page 2 of 2 March 1998 letter from Indonesia to the Panel.

⁴⁷ Note that the Appellate Body has also spoken on the failure of a panel to make a finding on a measure within its terms of reference. In Japan - Taxes on Alcoholic Beverages (WT/DS8/AB/R), the Appellate Body stated that:

We note that the Panel's conclusions on "like products" and on "directly competitive or substitutable products" contained in paragraphs 7.1(i) and (ii), respectively, of the Panel Report fail to address the full range of alcoholic beverages included in the Panel's Terms of Reference. ... We consider this failure to incorporate into its conclusions all the products referred to in the Terms of Reference, consistent with the matters referred to the DSB in WT/DS8/5, WT/DS10/5 and WT/DS11/2, to be an error of law by the Panel. (Page 26)

⁴⁸ The parties previously have addressed this issue in connection with Indonesia's argument that the complainants' claims concerning the June 1996 measures are moot. (See section VII.E.3 and X.C).

⁴⁹ See Section X.B.4.

⁵⁰ In a question to Indonesia, the United States described Indonesia's position as follows: "[A]ccording to Indonesia, TPN will have to reimburse the Government of Indonesia for import duties and luxury taxes that were exempted under Decree No. 42/96." Questions from the United States to Indonesia, 15 January 1998, page 1. The United States asked Indonesia to confirm whether this description was accurate. Id. Indonesia confirmed that this description was accurate. Answers of Indonesia to the 15 January 1988 Questions of the United States. Indonesia also stated to the Panel that the relevant Customs District Office "will issue a letter to TPN demanding payment of the customs import duties and luxury sales tax due by virtue of TPN's failure to satisfy the criteria of the National Car Programme for the first year." Importation, Enforcement and Effect of TPN's Non-Fulfillment, submitted by Indonesia on 30 January 1998.

⁵¹ "Timor Car Project Has 'Moral Obligation' to Continue," Asia Pulse (19 Feb. 1998) (US Exhibit 41, p. 1).

⁵² "Minister Asks Indonesian 'National Car' Maker to Evaluate Viability," Agence France Presse (19 Feb. 1998) (US Exhibit 41, p.2).

⁵³"Indonesia Chief Falls Short on Promised Economic Reforms", New York Times (5 March 1998) (US Exhibit 41, pp. 3-5); see also "Indonesia Defends Car Tax Break," AP Online (5 March 1998) (US Exhibit 41, pp. 6-7); "Indonesia Dodging IMF Reform Demands...Again, Say Analysts", Agence France Presse (3 March 1998) (US Exhibit 41, pp. 8-10); and "Several IMF Conditions Go Unheeded in Indonesia", The Boston Globe (3 March 1998) (US Exhibit 41, pp. 11-14).

⁵⁴ See Sections VIII.B.2(b) and VIII.B.4(c).

⁵⁵ "IMF Effort Not Working, Suharto Tells Clinton", The Washington Post (17 Feb. 1998) (US Exhibit 41, pp. 15-18). "Indonesia Chief Falls Short on Promised Economic Reforms", New York Times (5 March 1998) (US Exhibit 41, pp. 3-5). "Indonesian Forest Fund Used for National Car: Camdessus", Agence France Presse (21 Jan. 1998) (US Exhibit 41, p. 19).

⁵⁶First Submission of the United States, 20 October 1997, paras. 34-80.

⁵⁷See, e.g., Second Submission of the United States, 23 December 1997, Attachment A, para. 36, note 7.

⁵⁸See, e.g., section VIII.A.2 (footnote 423); and IMF News Brief No. 98/2 (15 Jan. 1998) (US Exhibit 41, pp. 20-22).