## Facts

- Indonesia implemented a 1993 automotive programme granting sales tax and tariff advantages for motor vehicles and parts that met specified local-content targets set out in ministerial decrees.
- In 1996, Indonesia introduced a “National Car Programme” that provided “national car” designation and granted exemptions or reductions in luxury sales tax and import duties for certain vehicles, including CBU and CKD units.
- The 1996 programme provided especially favourable treatment to PT Timor Putra Nasional (TPN), including low or zero tariffs and sales tax for certain imported vehicles, subject to meeting local-content plans over time.
- The European Communities, Japan, and the United States challenged these measures, alleging that benefits were conditioned on using domestic parts, disadvantaged imported vehicles and parts through higher internal taxes and customs duties, and conferred advantages not extended to all WTO Members.
- A single WTO Panel heard the consolidated disputes and used the SCM Agreement’s Annex V procedure to gather information relevant to subsidy and serious-prejudice claims.

## Issues

1. Whether Indonesia’s local-content conditions for tax and tariff advantages were prohibited TRIMs under TRIMs Agreement Article 2 (read with the Illustrative List and GATT obligations).
2. Whether luxury sales tax and related conditions discriminated against imported automobiles and parts in violation of GATT 1994 Articles III:2 and III:4.
3. Whether advantages under the National Car Programme were extended selectively by origin, violating GATT 1994 Article I:1 (MFN).
4. Whether tax and duty exemptions constituted subsidies contingent on the use of domestic over imported goods, prohibited by SCM Agreement Article 3.1(b), and whether they caused serious prejudice under SCM Agreement Article 5(c).
5. Whether additional transparency and administration claims under GATT 1994 Article X were established.

## Decision

- The Panel found that local-content requirements linked to sales tax and customs duty benefits under the 1993 programme were inconsistent with TRIMs Agreement Article 2.
- The Panel found that local-content conditions under the 1996 National Car Programme were also inconsistent with TRIMs Agreement Article 2.
- The Panel held that discriminatory luxury sales tax treatment under the 1993 programme violated GATT 1994 Article III:2.
- The Panel held that the National Car Programme’s internal tax and certain regulatory features accorded less favourable treatment to like imported products, violating GATT 1994 Articles III:2 and III:4.
- The Panel held that advantages for certain imported vehicles under the National Car Programme were not extended immediately and unconditionally to like products from all Members, violating GATT 1994 Article I:1.
- The Panel found that the National Car Programme’s tax and duty exemptions constituted subsidies and that some were contingent on the use of domestic over imported goods, violating SCM Agreement Article 3.1(b).
- The Panel found serious prejudice to the European Communities’ interests within the meaning of SCM Agreement Article 5(c).
- The Panel recommended that Indonesia bring the measures into conformity with WTO obligations.

## Legal Principles

- Conditioning internal tax relief or customs advantages on meeting domestic-content thresholds constitutes a prohibited local-content TRIM inconsistent with TRIMs Agreement Article 2 when it results in less favourable treatment for imported goods under GATT Article III (and may implicate Article XI).
- Under GATT 1994 Article III:2, a Member breaches national treatment where like imported products are taxed “in excess of” like domestic products through differential internal tax rates tied to origin-neutral criteria that in practice hinge on domestic content.
- Under GATT 1994 Article III:4, limiting eligibility for regulatory benefits or programme participation to products meeting local-content or “national” criteria can modify conditions of competition to the detriment of imported like products.
- Under GATT 1994 Article I:1, any advantage affecting customs duties or internal charges must be extended immediately and unconditionally to like products originating in all Members.
- Exemptions from internal taxes and import duties can be “financial contributions” conferring a “benefit” and thus subsidies under the SCM Agreement; when contingent on the use of domestic over imported goods, they are prohibited under SCM Agreement Article 3.1(b).
- Serious prejudice under SCM Agreement Article 5(c) may be shown through evidence of displacement/impedance of exports in the subsidizing Member’s market and adverse price effects attributable to the subsidy.

## Conclusion

The Panel concluded that Indonesia’s automotive incentive schemes unlawfully tied tax and duty advantages to local content, resulting in MFN and national-treatment breaches under GATT 1994, prohibited TRIMs under TRIMs Article 2, and prohibited and actionable subsidies under SCM Articles 3.1(b) and 5(c), and it recommended conformity with WTO rules.


Indonesia—Certain Measures Affecting the Automobile Industry, WT/DS54/R (WTO Panel 1998)