INDONESIA - CERTAIN MEASURES AFFECTING

THE AUTOMOBILE INDUSTRY

Request for Consultations by Japan

The following communication, dated 29 November 1996, from the Permanent Mission of Japan

to the Permanent Mission of Indonesia, is circulated in accordance with Article 4.4 of the DSU.

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Upon instruction from my authorities, I wish to convey the request of the Government of Japan

for consultations with the Government of Indonesia pursuant to Articles 1 and 4 of the Understanding

on Rules and Procedures Governing the Settlement of Disputes ("DSU"), Article XXII:1 of the General

Agreement on Tariffs and Trade 1994 ("GATT 1994") and Articles 7 and 30 of the Agreement on

Subsidies and Countervailing Measures ("SCM Agreement") regarding certain automotive industry

measures ("the Measures") of Indonesia (i.e. so-called National Car Programme), which were introduced

by the Government of Indonesia in February 1996 by means of its Presidential Decree No. 2 and

modified in June 1996 through its Presidential Decree No. 42.

The Government of Japan considers that the exemption from customs duties and luxury tax

granted by the Measures constitutes subsidies, since there is a financial contribution by the Government

of Indonesia where government revenue that is otherwise due is foregone or not collected, as provided

for in Article 1 of the SCM Agreement. These subsidies are "prohibited subsidies" contingent upon

the use of domestic over imported goods, and therefore deemed to be specific in accordance with

paragraph 3 of Article 2 of the Agreement.

The Government of Indonesia has, through the promulgation of Presidential Decrees No. 2

and No. 42 after entry into force of the WTO Agreement, extended the scope of the subsidies inconsistent

with the SCM Agreement which have been introduced before the date on which Indonesia signed the

WTO Agreement, to the import of completed vehicles (i.e. "National Car"). This is, in the view of

the Government of Japan, inconsistent with paragraph 1(b) of Article 3 and paragraph 2 of Article 28

of the SCM Agreement. The obligation of the Government of Indonesia under the said Article is not

exempted by paragraph 3 of Article 27 of the same Agreement.

Furthermore, the Government of Japan considers that these subsidies cause serious prejudice

to the interests of Japan as provided for in Article 6 of the SCM Agreement and, therefore, the

Government of Japan may seek remedies under the provisions of Article 7 of the same Agreement,

irrespective of whether the Government of Indonesia is entitled to maintain such subsidies under the

SCM Agreement. Therefore, the Government of Japan hereby requests the Government of Indonesia

to take appropriate steps to remove the adverse effects or withdraw these subsidies under the Measures.