Panel for Timor car
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.