Timor to Geneva

Timor to Geneva

The launching last week of the Timor car on the domestic
market was seen by Japan, the United States and the European
Union as the opportunity to accuse the Indonesian government of
violating basic rules of the World Trade Organization (WTO). Now
that they have formally filed complaints to the WTO, the
government has to negotiate simultaneously with the three
complaining parties in Geneva.

The three parties had tried to talk the Indonesian government
into canceling what they consider a discriminatory trade policy
since it was introduced last February. But the informal bilateral
consultations failed to settle the issue because the Indonesian
government declined to budge.

It is nonetheless encouraging that the three trade powers did
not resort to unilateral action but instead decided to follow WTO
rules at the risk of a long delay. Most impressive is that the
U.S. refrained from using the "Super 301" clause of its Trade Act
to impose unilateral retaliatory measures against Indonesia.

Based on the WTO rules and procedures on the settlement of
dispute, Indonesia is required to respond to the complaints
within 10 days and to begin consultations within 30 days of
receiving the complaints. The disputing parties are given 60 days
for bilateral consultations, and if the consultations fail, the
complaining parties may request the establishment of a panel.

The whole process, including the panel's examination, the
submission of its conclusion to the WTO Dispute Settlement Body,
the appeal and the establishment of an appellate body, may take
between 12 to 16 months. In the meantime, the show will go on for
the Timor, and by the time the whole process of the dispute
settlement is completed, PT Timor may have been able to achieve
its target of selling more than 45,000 units -- all imported and
ready to go -- in the first year of its operations.

Industry and Trade Minister Tunky Ariwibowo reaffirmed after a
meeting with President Soeharto on Friday that the government
would not change the "national car" policy, saying "we have our
own arguments to defend the policy." Tunky said a negotiating
team which included foreign lawyers had been set up to negotiate
with the three complaining parties.

The main official argument so far has been the accusation that
the existing car companies and their foreign franchisors have
failed to develop cars with more than 60 percent local content.
Indonesia cannot let itself depend on foreign franchisors in such
an important industry, the government maintains.

There is a clause in the WTO rules which requires the
disputing parties to enter consultations in good faith. That
means Indonesia will have to convince the three countries, the
panel as well as the Dispute Settlement Body of the economic
rationale of the policy and its compliance with the WTO trading
rules. It will not be enough for Indonesia to simply insist that
it needs a "national car".

Indonesia's negotiating team will have to provide logical
answers to several questions. If the policy was really designed
to develop a national car, why were the duty and tax breaks
granted to PT Timor Putra Nasional, which has no previous
experience at all in the industry, and not to one or several of
the existing car assemblers in a process of competitive bidding?
Why did the government decide to grant the facility to only PT
Timor for the next three years, irrespective of whether other
assemblers meet the requirements? And why has the Timor been
classified as a "national" car even though it is entirely
manufactured in South Korea?

It will be an uphill struggle for the Indonesian team to
prepare all the submissions required to defend a policy which in
Indonesia itself has been attacked by the private sector as
totally discriminatory. It will also be a very expensive
exercise. Whatever the result, the case will at least give the
government a good lesson on how to negotiate with developed
countries at the WTO. This might be useful if Indonesia keeps
resorting to controversial policies in the "national interest".
As the country becomes an increasingly big player in the
international market and blossoms into a large market itself, it
will come under increasingly tough scrutiny from its competitors.