Panel for Timor car

Indonesia's negotiating team is in for a tougher battle now that the Japanese government has requested the Dispute Settlement Body (DSB) of the Geneva-based World Trade Organization (WTO) to formally commence a dispute settlement mechanism for the Timor car. That means the body will have to set up a panel of three or five judges to assess the dispute.

Indonesia started bilateral negotiations under the WTO last November, separately with Japan, the United States and the European Union. These three parties separately filed complaints to the WTO in October over what they see as Indonesia's discriminatory trade policy against WTO rules regarding the Timor car.

Though Japanese carmakers are obviously the most-affected of the three complainants, it still came as a big surprise to us -- given the extent of economic and political relations between the two countries -- that the first party to ask for an independent panel was Japan. We are afraid that both the U.S. and EU will follow soon with a similar request to the DSB. If that is the case, Indonesia would be facing three separate panels of judges simultaneously.

We should magnanimously admit that we have a weak case. Despite the government's persistent claim that its national car policy does not violate any WTO rules, almost all analysts and industrialists in Indonesia have considered the policy a breach of several WTO rules. The blunt fact is that tax and duty exemption, designed to accelerate the development of domestic car manufacturing, has been granted to only one company which previously had no experience in the automobile industry. Further damaging Indonesia's position was the government's ruling last February that classifies the Timor sedan as the national car even though it is fully assembled in South Korean Kia Motors' plant.

Japan sees the Indonesian national car policy as a blatant violation of WTO rules, otherwise it would not have risked hurting its excellent relations with Indonesia by asking for the panel. Most diplomats and analysts expected both countries to solve the dispute, given the great stake involved in their economic relations. Japan, besides being the single largest provider of development aid, is also the largest foreign investor in Indonesia. Now that the case will go to a panel, the assessment will be made entirely on the basis of WTO rules. The panel's members will not take into account the perspective of Indonesia-Japan economic ties.

It is difficult to judge which is responsible for the deadlock in bilateral negotiations, but we get the impression that Indonesia apparently refused to give concessions in fear that the other two complainants would also ask for the same treatment.

The government, though, should still be commended for its coolheaded reaction to the Japanese move. Secretary/State Minister Moerdiono said after he and several other ministers met with President Soeharto yesterday, Indonesia was disappointed with the Japanese decision. President Soeharto, he added, had ordered the termination of bilateral negotiations with Japan.

WTO rules require the panel to complete its recommendations within six months. Including appeal procedures, the whole process may take as long as 18 months before a final decision on the Timor car can be made. If the panel rules against Indonesia, the consequence may be an order for Indonesia to stop the special treatment given to the Timor car. If Indonesia refuses to implement the panel's decision, Japan will be entitled to compensation. And if Indonesia fails to pay the compensation, Japan will be authorized by the WTO to retaliate by raising tariffs on Indonesian products.

Moerdiono said Indonesia would proceed with its national car program despite the Japanese move, meaning that special treatment for Timor sedans will be implemented according to schedule (for three years starting last August). There is indeed not much choice for the government even though Timor cars have not performed as well as expected and its lower price failed to attract as many buyers, apparently because of the negative image caused by the controversy.

After causing such a great international controversy and costing the government so much money -- in lost revenue from tax and duties forfeited for Timor cars and fees for foreign lawyers and negotiators in Geneva -- and in a damaged image regarding its policy consistency, the government should see to it that the national car program achieves its objective- developing a domestic car manufacturing industry which is competitive internationally.