TEACHING
NOTES
During the last
decade
First World
labor complained that WTO machinations and trade agreements such as
NAFTA were resulting in the export of manufacturing jobs to developing
countries. The argument
held that trade agreements encouraged automakers and other
manufacturers to invest in low-wage developing countries and to export
their production to these unprotected markets. Established automakers
in the US, Europe and Japan were concerned that fast growing
manufacturers in countries such as Korea were beginning to compete
with them in global markets while keeping their home markets closed to
imports. Against this backdrop,
Indonesia
’s national car program raised serious concerns. The program in
essence sought to develop a domestic Indonesian car market in the
world’s fourth largest country with the help of a Korean
manufacturer who benefited from preferential treatment.
Case
A
Case A helps students
learn about the long-standing effort of
Indonesia
to develop a national car industry and why Indonesian officials took
the steps they did. Students
will have an opportunity to examine in detail actions the Indonesian
officials took—and the corresponding reactions from auto industry
and trade officials from the
United States
,
Japan
and the EU. Students will
also learn in Case A about the international trade rules embodied in
the WTO Agreements relevant to this case.
The case briefly discusses national laws in the complaining
countries that have a bearing on how they react.
At the end of Case A students will be able to examine the
issues in the case as they appeared at the end of June 1996.
Following a reading
of Case A, instructors may either (a) use the simulations attached to
this note to address some of the questions and issues raised below, or
(b) pose some of the questions directly in a classroom discussion.
Students should seek
to identify the national interests Indonesian officials sought to
address by the National Car Program. What measures were developing
countries prepared to take to provide a national auto industry and
attract investment in the auto sector? What impact did Soeharto’s
special interest in furthering the business careers of his offspring
have? What is the downside
of providing certain firms a protected market in the hopes that they
will strengthen a country’s domestic industry?
How might the interests of Indonesian-owned auto firms differ
from those of the government trade officials?
In particular, students should consider the options available
to Indonesian trade officials.
Students should also
examine the situation from the perspective of trade policy officials
in
Japan
, the
United States
and
Europe
and from the perspectives of their automakers.
How would each country’s preferred policy options differ?
Which path would you chose if you were an official from one of the
three countries or an automaker? And finally: How do trade policy
officials determine what is in the national interests and what is in a
national company’s interest?
Case
B
Case B reviews (a)
the bilateral and WTO consultation between June of 1996 and June of
1997 and (b) the WTO dispute settlement panel proceedings and
Indonesia
’s actions regarding the National Car Program.
Students will consider how trade disputes get resolved, what is
the role of negotiations, and what is the role of trade agreement
dispute settlement proceedings. In
Part I students will review the WTO consultations required before the
dispute settlement panel can be invoked.
Students should consider what options existed for a
settlement and why an agreement was not reached.
In Part II, students
will review the major procedural and substantive issues raised in the
panel proceeding. For
simplicity sake, students will not be asked to delve into all of the
issues raised in the panel proceedings. However, students will be
asked to focus on arguments regarding procedural issues and claims
involving the TRIMs Agreement and GATT Article I (most favored nation
treatment) and GATT Article III (national treatment).
Because of the complexity of the Panel’s analysis concerning
subsidies issues, students are not given the parties arguments, but
rather are only given in the Epilogue the panel’s conclusions and
analysis. The goal is to
give students exposure to how issues are addressed in dispute
settlement proceedings.
In Part III,
Epilogue, students will see how the panels actually ruled on the
various issues, how the proceedings led to a revision of the
Indonesian measures, and how differences regarding
Indonesia
’s compliance timetable were resolved.
Hopefully, students will understand the value of dispute
settlement provisions in trade agreements and the special importance
of the WTO dispute settlement provisions.
Students should consider whether
Indonesia
could still achieve its objectives of developing a domestic auto
industry.
The following
questions could also be asked about this proceeding: To what extent
should domestic economic and political considerations be a factor in
enforcing international trade rules?
To what extent can changes in political leadership facilitate
adherence to these rules? Students
will get a chance to see how the Uruguay Round attempted to address
the question of trade-distorting investment incentives.
Students should be asked if there are trade-offs between
domestic manufacturing jobs and foreign investment earning, and where
the balance should be struck if there are such trade-offs.
Which investment incentives should be permitted and which
should not? What position
should a multinational company take regarding violations of
international trade rules—when the rules hurt it and when the rules
benefit it? What should be
the attitude of LDCs toward programs in other LDCs to develop national
car industries (e.g.
Brazil
and
India
)? How might the dispute
have been resolved if the WTO Dispute Settlement procedures did not
exist? How might you
answer be different if Asian financial crisis had not occurred?
Case
A
Simulations and Questions
Simulation I
Options/Decision
Paper
Assume that the time is late
June 1996 and that you are one of the officials listed below.
Prepare an options/decision paper which addresses the questions
posed to you.
A.
Senior advisor to the Indonesian Minister of Industry
and Trade, Tungky Ariwibowo
The Minister asks you
to prepare an options paper with recommendations that address the
following questions: In light of Indonesia’s actions in the last
four months to introduce the National Car Program (NCP), and the
subsequent reaction of foreign governments to date, what are my
options for proceeding with the NCP?
What actions are our trading partners likely to take and what
are my options for responding to them? What will be the legal basis
for their response? How
much time will I have to accomplish our objectives and what should
those objectives be?
B.
Senior advisor to either (a) the Japanese Minister for
International Trade and Industry (MITI), (b) the EU Commissioner for
External Affairs, Sir Leone Brittan, or (c) the Acting U.S. Trade
Representative Charlene Barshefsky
The senior official
listed above asks you to prepare an options paper with recommendations
that address the following questions: In light of what you know about
Indonesia
’s programs for its auto industry and its actions in recent months,
how are we affected (i.e., how do the actions affect our national
interests)? What options
do we have for protecting our interests? What international trade-law
principles are relevant to this matter? In looking at options, please
distinguish between those that arise from provisions in domestic law
and those that arise from rights and obligations in international
agreements. Please indicate how you answer might be different if you
were advising one of the other officials listed in B.
Simulation II
Bilateral
Consultations
Assume that it is late June of 1996. In an effort to deal with
pressing matters before taking their August vacation, (a) the Japanese
Minister for International Trade and Industry (MITI), (b) the EU
Commissioner for External Affairs, Sir Leone Brittan, and (c) the
Acting U.S. Trade Representative, Charlene Barshefsky ask for
bilateral consultations with Tungky Ariwibowo, the Indonesian Minister
of Industry and Trade. The
consultations are scheduled for mid-July on separate days.
Team A will play the
role of
Indonesia
and Team B will play successively the role of
Japan
, the EU and the
US
. For each consultation,
Team A and B must decide (a) what officials should form its
delegation, (b) who will play those roles, and (c) what issues their
side should raise and what issues the other side will raise.
Each team should then prepare position papers with talking
points regarding each issue. (If the class has prepared the option
papers in Simulation I, then the talking points could be an appendix
to that paper. If the class did not prepare the options paper, then
the position paper will have to cover much of the same material as in
the option paper). The teams should then hold the consultations and
afterwards prepare a report for their government on the results of the
consultations.
Note regarding Team
B: The consultations can be held in one meeting with Team B deciding
whether
Japan
, the EU or the
US
is the primary trading partner holding the consultation. Team B can
then hold mini-consultations in which only issues specific to the
other two trading partners are raised.
Questions for
students who do not engage in the simulations:
Questions for
students in light of the situation in mid-1996:
From the perspective
of the Indonesian government: What would you do in light of the
frustration with the slow development of an Indonesian auto industry
and signs of more rapid development in neighboring markets?
From the perspective
of the Indonesian auto industry: How should you react to the National
Car Program announcement and the opposition from developed countries?
From the perspective
of the
Indonesia
trade officials: How should you respond to the strong opposition from
developed country car manufacturers and their governments?
What is the relevance
of the following to your analysis of this case?
A.
Domestic economic and political situations in
Indonesia
B.
Views of Indonesian government officials and local
business people
C.
Views of developed country car manufacturers
D.
Views of US, EU and Japanese governments
What options were
available to each of the parties at this time?
From the perspective
of developed country’s automakers: Why did auto companies in
Japan
, the EU and US come together on this case when they usually tend to
work alone?
From the perspective
of US, Japanese and EU trade officials: How should you respond to
national car program and opposition from domestic automakers?
Questions regarding
the Subsidies Agreement:
- What
is subsidy?
- What is a specific
subsidy?
- What types of subsidies
are prohibited by the SCM Agreement?
- Why are such subsidies are
prohibited?
- What is an
“actionable” subsidy in the context of the SCM Agreement?
- What criteria determine
whether a subsidy is actionable or not?
What are the three categories of potentially actionable
subsidies?
- What does the term
“nullification and impairment” mean?
- What does the phrase
“serious prejudice” mean?
- Under what circumstances
is “serious prejudice” presumed to exist?
- How are the standards in
the SCM Agreement different for developing countries than for
developed countries, specifically regarding the determination of
serious prejudice?
Case
B
Simulations and Questions
Part
I
Simulation I
Options/Decision
Paper
Assume that it is early June of 1997 and that you are one of the
officials listed below.
Japan
and the EU have already requested the formation of a WTO dispute
settlement panel regarding the National Car Program. Prepare an
options/decision paper which addresses the questions posed to you.
A.
Senior advisor to the Indonesian Minister of Industry
and Trade, Tungky Ariwibowo
-
The Minister asks
you to prepare an options paper with recommendations that address
the following questions:
-
What are my
options for dealing with the National Car Program at this point in
time?
-
Should I try to
negotiate a settlement, and, if so, what are the benefits and
costs of pursuing this course?
Under what constraints will I be operating?
If I engage in negotiations, what should be my negotiating
objectives? What
should be my bottom line?
-
What are the
benefits and costs of engaging in international dispute settlement
litigation? What do
you think are the strengths and weaknesses of my opponents’
case? How long
could dispute settlement take and what bearing should this have on
my decision?
-
Finally, what are
the domestic political considerations I must take into account?
What are the views of the different groups with an economic
interest in the outcome of the negotiations?
B.
Assistant U.S. Trade Representative for
Asia
(other than
Japan
and
China
)
The U.S. Trade
Representative Charlene Barshefsky has asked you to prepare an option
memo regarding the Indonesian National Car Program in light of the
decision of
Japan
and the EU to request the formation of a WTO dispute settlement panel.
What options are
available to the
United States
at this point? What are
the benefits and costs of each option?
Simulation II
Bilateral
Negotiations
Assume that it is early June of 1997. The Indonesian Minister of
Industry and Trade, Tungky Ariwibowo, and the Acting U.S. Trade
Representative, Charlene Barshefsky, have agreed that officials from
the
United States
and
Indonesia
should meet one last time to try to negotiate a resolution of the
dispute over the National Car Program before the
United States
requests the establishment of a WTO dispute settlement panel.
A.
Indonesia’s Chief Trade Negotiator
As
Indonesia
’s Chief Trade Negotiator, you will
lead your government’s team. Prepare
your negotiating instructions for approval by the Minister, assemble a
team, and then conduct the negotiations. The negotiating instructions
should be based on the options paper prepared above. The instructions
should address your negotiating objectives and the scope of your
authority, including when you should seek further instructions from
Jakarta
. Prepare talking points
for the key issues to be addressed in the negotiations.
B.
Assistant U.S. Trade Representative for
Asia
Prepare your negotiating instructions for approval by the relevant
interagency staff committee, assemble a team, and then conduct the
negotiations. The negotiating instructions should be based on the
options paper prepared above. The instructions should address what
should be your negotiating objectives and the scope of your authority,
including when you should seek further instructions from
Washington
. Prepare talking points
for the key issues to be addressed in the negotiations.
Part
II
Simulation
I
Draft Panel Report
Assume that you are on the panel regarding measures affecting
Indonesian autos. Outline the decisions you would make on the various
GATT non-subsidy claims identified in the panel proceeding. How would
you handle the procedural issues raised by the parties?
Questions for
students who do not engage in simulations
In June of 1997 what options do Indonesian trade officials have?
Should
Indonesia
make concessions and, if so, what concessions should it make to settle
the case quickly? Should
Indonesia
stonewall and take its chances with a WTO proceeding?
From the
US
, EU and Japanese perspective: What options does each country have?
Give pros and cons for each. Students
should consider: Should the country push for inclusion of its firms in
the National Car Program while allowing WTO violations to continue?
Should you fight WTO violations, even if it excludes your
companies from the market?
How were the WTO
dispute settlement process and the US Section 301 provisions used to
set up a resolution of the case?
In July of 1998, how
would you answer the following questions: What would have been the
outcome of the case if the WTO dispute settlement panel procedures
didn’t exist? What if
the arbitration procedures for implementation didn’t exist? What
role did the financial crisis and the IMF have in the resolution of
the case? What are the advantages and disadvantages of coordinating
with other countries in a trade dispute?
What impact might the Indonesian auto case have on other
developing countries that want to develop an auto industry? Why
didn’t
Japan
file a complaint against the 1993 National Car Program? Why was
Indonesia
prepared to concede that the incentive and national car programs were
subsidy programs covered by the SCM Agreement?
After the panel proceedings, is
Indonesia
still able to fulfill its objectives to develop a national car
industry?