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.