WTO panel rules against Indonesia car policy

Sent by INDO-CHAOS's News-Hunter: "T.O" from Japan


A dispute-settlement panel of the World Trade Organization has compiled an interim report upholding complaints by Japan, the United States and the European Union against Indonesia's "national car" policy, informed sources said Wednesday.

The ruling is expected to deal another blow to Indonesia at a time when the country is indire economic straits due to the currency and financial crisis sweeping through East Asia.

The report by the three-member neutral panel was delivered earlier this week to the four parties to the dispute and will be formally adopted at a monthly meeting of the WTO's Dispute-Settlement Body in May if Indonesia does not appeal the ruling, the sources said.

If Indonesia were to appeal, the WTO's Appellate Body would hand down a final ruling within two months of the appeal being lodged, the sources said.

However, the sources said they do not expect Jakarta to appeal the panel's ruling. Even if the case is brought to the Appellate Body, there would be little chance of the panel's ruling against Indonesia being reversed, the sources added.

WTO rules require member governments to implement recommendations by dispute-settlement panels within 15 months in principle of panel rulings being finalized.

In the dispute, Japan, the U.S. and the 15-nation EU claim that Indonesia's national car policy announced in early 1996 violates WTO rules, including provisions of the most-favored-nation status and "national treatment" to foreign countries as well as a ban on local content requirements agreed to in the Uruguay Round of world trade liberalization talks.

The Uruguay Round was completed at the end of 1993. The WTO is the Geneva-based organization that replaced the General Agreement on Tariffs and Trade in January 1995 as a new and more powerful watchdog on international commerce under agreements reached in the Uruguay Round.

Under the national car policy, the Indonesian government granted 100 percent exemptions from import tariffs and luxury taxes for three years to P.T Timor Putra Nasional, an automaker controlled by President Suharto's youngest son, Hutomo Mandala Putra.

The Indonesian automaker was allowed to import duty-free Timor cars manufactured in South Korea in partnership with Kia Motors Corp. for one year -- until last summer -- as a temporary measure until the automaker becomes fully prepared for production in Indonesia.

The Indonesian automaker had originally planned to begin assembling Timor cars at home by the end of last year and to start full manufacturing this year.

To qualify for the luxury-tax exemption, the Indonesian automaker -- and any other local or foreign automaker -- is obliged to achieve a 60 percent local-content requirement.

In response to a request by Japan, the U.S. and the EU, the WTO established a neutral dispute-settlement panel last summer to deal with the dispute.

Although the controversial Indonesian policy initially raised deep concerns among foreign automakers, especially Japanese ones, which have a dominant share in the local auto market, the national car project is now widely believed to be doomed because its sales are far below Jakarta's expectations.

The interim WTO ruling against Jakarta comes as Indonesia struggles to cope with the currency and financial crisis that has swept East Asia since last summer.

Jakarta said in January that it would scrap the controversial auto policy as part of revised economic-reform programs it agreed on with the International Monetary Fund in exchange for an IMF-organized international bailout package. But Jakarta is still exempting more than 10,000 unsold Timor cars from import tariffs and luxury taxes, the sources said.

The currency and financial crisis has so far forced Thailand, Indonesia and South Korea to receive bailout packages from the IMF in exchange for IMF-prescribed economic reform programs.

But earlier this month, the IMF postponed a $3 billion tranche of its revised $43 billion bailout package signed in January with Jakarta amid growing fears that Indonesia was backsliding on earlier commitments to implement tough and sweeping reforms, as required by the international organization.

An IMF team, led by Hubert Neiss, a top IMF official in charge of Asian affairs, is now in Jakarta for talks with senior Indonesian officials on a new agreement to counter the country's serious economic troubles.

The interim WTO ruling against Jakarta in the auto dispute is another blow to the Indonesian government, which is facing mounting pressure from the U.S and other industrialized countries as well as the IMF to end preferential treatment of local companies linked to Suharto's family members and associates.

The sources said the ruling is also meaningful because it will help deter other countries, possibly China, from following Indonesia in the future by launching similar WTO-incompatible policies to foster indigenous auto industries.