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The Cyberspace Law Seminar was designed so that students would present a potential "billion dollar bonanza" in a selected Southeast Asian country. After researching the selected countries, each students selected as his or her bonanza the technological advance believed to be most appropriate for that country. Each student then explored some potential legal issues that would arise if the fictional corporation, Global Telecommunications, Media, and Electronics, Inc. (Global Telecom), were to follow the suggestions and pursue the suggested billion dollar bonanzas.
Part I of this paper begins with background information concerning Indonesia and discusses some potential business opportunities there.[1] The paper then proposes that Global Telecom broadcast satellite television programming and the manufacture of satellite dishes in Indonesia, as the best potential "billion dollar bonanza." Part II introduces some of the major regulations and incentives that foreign companies encounter in Indonesia.[2]
Part III then discusses the legal issues that would arise if Indonesia decided to require broadcasters to air a specified amount of locally produced programming (a local programming quota).[3] The paper concludes that there exists a number of legal arguments against a local programming quota. However, Global Telecom would not be able to combat a local programming quota directly. The United States government would have to take action on behalf of Global Telecom and any similarly situated U.S. corporations. Because of the political culture surrounding local programming quotas elsewhere in the world, the paper concludes that the issue is unlikely to be resolved with legal arguments. Instead, the United States will merely continue to pressure its trading partners to abandon any such quota. Even though foreign companies to not have direct redress against a local programming quota, this paper explores a number of options to diversify Global Telecom's involvement in Indonesia. Such diversification would reduce the potential cost of a local programming quota.
With a population of over 200 million,[4] Indonesia is the world's fifth most populous country. This population is scattered over 17,000 islands which comprise roughly 740,000 square miles of territory. In comparison, Alaska contains approximately 603,000 square miles of land. Jakarta, the country's largest city and its capital, has over 8 million residents.
The infrastructure of the country has been rapidly developing over the last several years. Its economy has sustained an average annual growth of 6.8% between 1969 and 1994.[5] This has helped decrease the percentage of the population living below the poverty line from 60% of the population in 1970 to 11% in 1996.[6] In addition, while only 11.7% of Indonesia's population had completed secondary education in 1980, 29.3% of the population had at least a secondary education in 1994.[7]
Nevertheless, Indonesia still must still contend with many of the difficulties that are faced by third world nations. For example, only about 50 percent of Jakarta's population has access to tap water that meets the country's clean water standards.[8] The government, though, has been working with private industry to improve the water supply as well as other aspects of the infrastructure.[9]
Comparing statistical data concerning Indonesia with that of more fully developed countries shows that Indonesia's development lags behind many countries. However, it is more developed than many of its Southeast Asian neighbors. Most noticeably, it is more developed than Vietnam, which has been the subject of recent international investment interest.[10] Indonesia's gross domestic product in 1994 was $619 billion with a per capita GDP of $3,090.[11] In comparison, Japan's per capita GDP is $20,200, South Korea's is $11,270, and Vietnam's is $1,140. In 1993 Indonesia produced 44 billion kilowatt hours of electricity.[12] Japan produced 840 billion kilowatt hours, South Korea produced 137 billion kilowatt hours, and Vietnam produced 9.7 billion kilowatt hours. Finally, Indonesia has an 84% literacy rate and an infant mortality rate of 63 per 1000 live births.[13] Japan and South Korea both have literacy rates over 95% and Vietnam's literacy rate is 94%.
The infrastructure itself is currently the main limitation on the growth of telecommunications within Indonesia. The country is currently experiencing the consequences of adopting technology before the infrastructure is able to support it. For example, the country has 1 phone per 109 persons and 1 television set per 17 persons. Although this marks a significant increase in the number of phones from recent years,[14] the phone system is inadequate to handle the volume of calls. This results in many disconnected calls and unconnected calls. Indonesia is currently focused on improving its landline phone system. Under the current Five Year Development Plan (Repelita) the government intends to work with private industry to install an additional three million phone lines.[15] This would double the number of phone lines currently in Indonesia. This situation also appears to offer an opportunity to investors who would introduce cellular phone technology into a country with rapidly expanding demand for phones, but an insufficiently developed landline system.
The Indonesian peoples' interest in television programming is also rapidly expanding. Television advertising expenditures are expected to increase from U.S. $350 million in 1996 to U.S. $450 million in 1997.[16] Continued growth in this area is likely, considering the recent introduction of cable television. As a result, Indonesia now has a total of three regular broadcast television networks and one cable television network.[17] The growing demand for television provides Global Telecom with its largest potential bonanza in Indonesia; it is a golden opportunity for Global Telecom to establish a satellite television network to service Indonesia.[18] Global Telecom would broadcast television programming to Indonesia from a satellite. The company could either provide its own programming or could license its service to other broadcasters. Satellite television broadcasting is particularly suited for Indonesia because its large population is spread across thousands of islands which span approximately the distance from San Francisco to Washington D.C. Such a network would compete with an underdeveloped local broadcasting system[19] and a cable industry in its infancy. In a worst case scenario, Global Telecom would provide an alternative to the television services already provided in Indonesia. In the best case, Global Telecom would win the race to be the first to offer television programming to some portion of Indonesia's population. The benefits gained by early dominance of the Indonesian market by Global Telecom's satellite programming is easily recognized by the difficulty faced by the satellite broadcasting industry in the United States.[20]
To enter the television broadcasting market with a satellite broadcasting network, Global Telecom would also have to ensure that satellite dishes and receivers are available to the local consumers. These dishes may either be imported or produced within Indonesia. Part II of this paper examines some of the costs and benefits of either importing satellite dishes or directly investing in a satellite production plant in Indonesia.
Although many foreign companies are well established in Southeast Asia, there are still not many with offices in Indonesia.[21] Presumably, many foreign companies believe that an office is unnecessary so long as they can import their products to Indonesia from other Southeast Asian locations.
However, Indonesia implemented a new customs law on April 1, 1997 that could significantly increase the cost of importing Global Telecom's products into Indonesia, which would increase the benefits of establishing an office there.[22] The new customs law will ends system of pre-shipment inspections (PSI).[23] Under the PSI system, exports from Indonesia were inspected prior to shipment rather than at the port. By reducing port congestion and port customs delay caused by Indonesian exporters, foreign importers benefited. The adoption of PSI eleven years ago "resulted in a dramatic reduction in consignment-release time to importers and, consequently, greatly eased port congestion."[24] The development of PSI became so popular that twenty-six other countries subsequently established their own PSI system.
Even Indonesia's PSI system is not without flaws. At times it still took as long as two weeks for goods to be released, and port congestion in Jakarta became so serious in July 1996 that the Asia North America Eastbound Rate Agreement Group threatened to impose a surcharge on imports to recover the financial losses caused by the delays.[25]
The government's decision to eliminate the PSI system has met considerable resistance, particularly by importers. In fact, importers have even offered to pay to maintain the PSI system--estimated to be $250 million USD per year.[26] Importers fear that eliminating the PSI system will cause the return of major delays and congestion.
Even if these fears are misplaced, the Indonesian market for television programming itself provides an incentive to invest directly in Indonesia. The Indonesian government requires that import contracts over RP 500 million be linked to the export of Indonesian goods of equivalent value.[27] In addition, imports face a 10 to 30 percent tariff, with less essential goods subject to tariffs from 50 to 60 percent.[28] Because importing a substantial number of satellite receivers to support the provision of satellite broadcast television would constitute such a large dollar value, these regulations may constitute a major obstacle if Global Telecom does not invest directly.
The telecommunications and mass media sector has only been open to direct foreign investment since 1994.[29] Traditionally, the government has barred direct foreign investment in a number of key industries. But recent efforts to promote Indonesia's industrialization has led the government to remove the bar on direct foreign investment in a number of industries. Under Government Regulation No. 20/1994, foreign investors were allowed direct investment in nine such industries, including telecommunications and mass media.[30]
The Indonesian government requires all foreign direct investors[31] to establish a joint venture between that foreign company and at least one Indonesian party in the form of an Indonesian Limited Liability Company. Indonesia has recently reduced the minimum equity holding for Indonesian partners in a joint venture from more than 20 percent to 5 percent.[32] Regardless of the percentage of equity holding, Indonesian participation on the Board of Directors must at all times be proportionate to the number of shares issued to the Indonesian partners.[33]
Once a company establishes production in Indonesia, it must comply with regulations concerning the advertising and distribution of its products within Indonesia. Foreign investors are not allowed to personally distribute their products in the domestic marketplace. Instead, direct foreign investors have two distribution options within Indonesia. First, they can hire an independent Indonesian distributor to distribute their products.[34] Second, they can establish a trading company to distribute their products.[35] The trading company must be entirely owned by its local partner. The general consensus is that the second option gives the foreign company the most control over the distribution of its goods.[36] Under the second option, the foreign company is able to control the local partners action, and the local partner is more directly interested in distributing the products quickly and efficiently.
Foreign investors also cannot directly sell or distribute their goods within Indonesia. However, foreign investors again have two marketing options. First, they may apply to the Indonesian Department of Trade to establish "trade representative offices." Each foreign investor is limited to only one such office in Indonesia, but that office may market and promote the company's products, as well as represent the company's interests to the Indonesian government.[37] The second and more commonly chosen option is for the foreign investor to use an agent. These agents must be Indonesian, but are allowed to have several offices throughout Indonesia.[38] In addition, the Indonesian agent is allowed to hire an expatriate trade representative, which gives the foreign company greater control over the agent's actions.
The Indonesian government has established a number of incentives to promote direct foreign investment. Investors are allowed duty-free (or reduced-rate) import of start-up capital.[39] Indonesia has also entered into a bilateral treaty with the United States which specifies that U.S. corporations in Indonesia cannot be taxed at a greater rate than Indonesian corporations and that American citizens in Indonesia will not be double-taxed on their income.[40] Less important to the proposed bonanza is that investors also receive indefinite postponement of the value-added tax on inputs imported for items manufactured in Indonesia and then exported to other countries.
Indonesia has also established what is called "bonded zones" in Jakarta, Surabaya, Semarung, Medan/Belawan, Cilacap, and Ujung Pandung as an additional incentive for direct foreign investors.[41] If a foreign company is located within one of these bonded zones, they benefit through "fewer regulations regarding land titles and various building permits, allowances permitting an unlimited number of expatriates to work at enterprises located in the zones, and exemption from the licensing requirements of the regional government authorities."[42] These bonded zones are located in the most populous areas of Indonesia, so Global Telecom should seriously consider establishing itself in one of these locations.
There are certainly some regulatory costs associated with investing directly in Indonesia. However, the incentives that the government provides to direct foreign investors, in addition to the costs and uncertainty associated with relying on the importation of satellite receivers, could easily lead to the conclusion that the regulatory costs are reasonable. Global Telecom's satellite dish and receiver manufacturing plant might operate most profitably within Indonesia.
As previously noted, the Indonesian government has only recently opened its telecommunications and media sectors to direct foreign investment. Consequently, the Indonesian government is probably very interested in the effects this new policy has on its culture and industry. If foreign companies begin to dominate the market for providing television programming--whether by satellite, cable, or traditional broadcasting--it would be possible that the government would react by enacting legislation to protect Indonesian companies competing in this sector. United States corporations have faced similar protective measures in other foreign countries. The leading example is the European Union Directive commonly called "Television Without Frontiers."[43] This Directive establishes a quota that requires member states to broadcast at least 50% European programming on its television stations. This Part of the paper will use the Television Without Frontiers Directive as an example to explain the issues that would emerge if Indonesia chose to require a minimum amount of Indonesian programming or a maximum amount of foreign programming within its borders.[44] Following that discussion, the paper will question the long-term feasibility of such quotas on local television programming and will provide some short-term options Global Telecom could use if it encounters this situation and should consider regardless of whether this situation occurs.
The simple structure of the European-programming quota for the EU is provided in two Articles of the Television Without Frontiers Directive. Article 4(1) states that "Member States shall ensure where practicable and by appropriate means, that broadcasters reserve for European works . . . a majority proportion of their transmission time, excluding the time appointed to news, sports events, games, advertising and teletext services."[45] If a member state's television stations are not capable of providing immediately a majority of European programming, then Article 4(2) provides that the percentage of European programming that those states actually broadcast "must not be lower than the average for 1988 in the Member State concerned."[46]
The EU enacted the Directive in response to the widespread belief among member states that the United States film and television industry causes seriously detrimental affects on European industry and culture. The U.S. has always been the dominant leader in the audiovisual industry and has a steadily increasing position in all foreign markets. In 1992, the U.S. entertainment industry recorded a trade surplus of $4 billion USD,[47] "with the EU purchasing approximately $3.7 billion USD worth of U.S. films, videotapes, and television programs."[48] This occurred despite EU subsidies to its film industry of $1 billion USD per year, in comparison to U.S. subsidies of $5 million USD.[49]
The dominance of the U.S. entertainment industry in Europe is even more remarkable because France is the world's second largest producer of films.[50] Even though France significantly subsidizes its film industry, U.S. films still received 58% of France's theater revenue in 1992.[51] In contrast, European films claim only 1% of the market in the United States.[52] Against this backdrop, France's Minister of Culture, Jacques Toubon stated the general EU belief behind the Television Without Frontiers Directive: "We are really, in this affair, in favor of free trade against monopoly."[53]
The cultural concerns supporting the Directive rely on the EU's "fundamental belief that certain cultural items, such as movies, television programs, books, and records, reflect, reinforce, and help shape a nation's values, traditions, and identity."[54] The Directive seeks to protect European culture from being overrun by the U.S. culture that is depicted in U.S. films and television programming.
In some aspects, the economic and cultural concerns behind the Directive are interrelated. The president of the European Film Academy noted their relationship when he stated:
People increasingly believe in what they see and they buy what they believe in. If we ever give up the European film industry, then all the other European industries will suffer in the future. People use, drive, wear, eat and buy what they see in the movies. We need to regard our films in the same way as we do our literature. Books would never be included in international trade industry deals.[55]
The U.S. government has two legal options to combat a local-programming quota. It could challenge the quota as a violation of GATT provisions; and it could take retaliatory action against the country imposing the quota under Section 301 of the Trade Act of 1974. Although the U.S. government has responded to entertainment industry complaints by threatening these actions against the EU, it has not committed itself to any formal action concerning the EU quota or any other local-programming quota.
Before the U.S. government can allege that a foreign country's local programming quota violates the GATT, it must determine whether that foreign country is a GATT signatory. However, this limitation is little more than a formality because the GATT treaty is the most widely accepted treaty governing international trade, with 89 current signatories. Indonesia is included as a signatory.[57] The GATT provisions establish a framework of free trade among nations that a local-programming quota would arguably violate.
In general, the Most Favored Nation (MFN) provision requires that all signatories receive the same trade treatment. If a signatory agrees to extend preferential trade treatment to another country, that same treatment is automatically extended to all other signatories.[58] The Indonesian government would have to carefully tailor its quota language if it wanted to require a minimum amount of Indonesian programming. If the language were worded to require all broadcasters in Indonesia to air a certain minimum amount of Indonesian programming, it would not violate the MFN provisions. This would make the quota apply equally to all foreign countries; the government would not discriminate against a particular signatory or signatories. However, if the quota were to establish a maximum amount of U.S. programming broadcast in Indonesia, Indonesia would discriminate against the U.S. Thus, the U.S. government could claim that the local programming quota would violate the MFN provisions.
It is unlikely that the Indonesian government would draft a local-programming quota that would lead to possible violation of the GATT's MFN provisions. Thus, U.S. corporations like Global Telecom are provided some security from the knowledge that Indonesia should be unable to single out the United States for unfavorable treatment.
The U.S. government's argument that the Television Without Frontiers Directive violates the GATT's Most Favored Nation provisions is somewhat different. Special GATT provisions allow customs unions such as the EU[59] to establish preferential regimes within those areas without violating the GATT.[60] However, the EU established preferential treatment for all European countries, including those that are not members of the EU. The U.S. argument against the EU's quota is simply based on the overbreadth of the EU's quota provisions. The EU does not extend preferential treatment only to EU member states. It extends preferential treatment to all European countries.
The Indonesian government might also adopt a local-programming quota through a customs union, such as the Association of South East Asian Nations (ASEAN).[61] ASEAN was formed in 1967 with three purposes: (1) to promote the economic, social, and cultural development of the region through cooperative programs, (2) to safeguard the political and economic stability of the region, and (3) to serve as a forum for the resolution of intra-regional differences.[62] ASEAN, however, does not employ the same level of coordination as the EU. Although ASEAN countries agreed to establish a free trade area in 1992,[63] it is unlikely that they will have the political coordination to establish a regional local-programming quota in the foreseeable future.[64]
Article III of the GATT requires all signatories to treat foreign products no less favorably than domestic products once they pass through customs. Article III provides the U.S. with its strongest argument against any local-programming quota. Article III states in relevant part:
The products of the territory of any [signatory] imported into the territory of any other [signatory] shall be accorded treatment no less favourable than that accorded like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application or differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.[65]
The purpose of the National Treatment Provision is to restrict the regulation of foreign imports to the point of entry. Signatories are allowed to levy tariffs or trade restrictions at the border. However, after foreign goods pass through customs, signatories are not allowed to discriminate against the sale of those imports through additional regulations.
Under the hypothetical Indonesian local-programming quota, the U.S. could argue--and do argue in the EU example--that the quota violates the National Treatment provision in three ways. First, the U.S. could argue that a local-programming quota restricts the sale, offering for sale, and purchase of U.S. programs. This is based on the fact that under such a quota, broadcasters in Indonesia would not purchase additional U.S. programming after they had purchased the maximum permissible amount of nonlocal programming.[66] Second, the U.S. could argue that an Indonesian quota would affect the distribution of U.S. programming because it would not be as easily or widely distributed as its local competition.[67] Third, the U.S. could argue that an Indonesian quota would affect the use of U.S. programming because the quota would restrict the broadcasters' right to use as much U.S. programming as they desire.[68]
In the Television Without Frontiers example, the EU responded to these U.S. allegations by claiming that the U.S. had not been adversely affected by the quota with respect to the sale, offering for sale, purchase, distribution, or use of U.S. television programming. The EU argues that U.S. programming accounted for only 28% of the EU market prior to the quota and hasn't declined under a system that requires at least 50% European programming.[69]
Even though the total U.S. market share has not declined in the EU, the U.S. can point to actual injury suffered by U.S. programmers that are a direct result of enforcement of the quota.[70] In addition, previous GATT panel decisions have held that a regulation violates the GATT if it has a potential discriminatory effect[71] or if it is discriminatory on its face, regardless of any adverse effect.[72]
Despite the strong arguments against the legality of local-programming quotas under the GATT, there remains a major question of whether television programs are even covered by the GATT. The GATT has traditionally only applied to goods, so the question has hinged on whether television programs are considered a good or a service. The U.S. has long argued that television programming is a good and therefore covered under the GATT.[73] This argument begins with the implicit recognition that the GATT applies to films, although they are excepted from the National Treatment requirement in Article IV.[74] The U.S. then points to a broad lack of international consensus about whether the film exception applies to television programming as well. Because there is no international agreement that the exception applies to television programming, by default it does not apply and television programming comes under the purview of the GATT.
Other countries, led by France, have argued that television programming is more akin to a service than a good and therefore the GATT should not apply.[75] These countries also argue that television programming is very similar to films so the film exception should apply to television programming as well.
This issue resurfaced during the Uruguay Round negotiations. At stake was whether countries would be allowed to continue regulating their television programming on the basis of national origin. The Uruguay Round led to the establishment of the General Agreement on Trade in Services (GATS),[76] which includes the entire audio-visual sector. However, the signatories could not agree on whether to allow free trade in television programming, so they explicitly agreed to defer resolution of the issue until a later date.[77] The only thing that is clear from the Uruguay Round is that any future negotiations or agreements concerning television programming will occur within the realm of GATS because it now encompasses the entire audio-visual sector.[78]
Section 301 of the Trade Act of 1974 authorizes the U.S. Trade Representative to take retaliatory action against a foreign country if:
(A) the rights of the United States under any trade agreement are being denied; or
(B) an act, policy or practice of a foreign country
(i) violates, or is inconsistent with, the provisions of, or otherwise denies benefits to the United States under, any trade agreement, or
(ii) is unjustifiable and burdens or restricts United States commerce . . . .[79]
Such retaliatory action could include "suspending, withdrawing, or preventing the application of trade agreement concessions and imposing duties, quotas, or other import restrictions. Furthermore, the[se] action[s] may be taken against goods or sectors that have no connection to the acts concerned."[80]
Although the Uruguay Round of the GATT established the World Trade Organization (WTO) as a new dispute resolution mechanism for economic sectors included in the GATT, the U.S. should not be barred from unilaterally taking action under Section 301 against a local-programming quota. As the deputy assistant to the President of Economic Policy stated in a press conference:
Basically what we've done is to remove audiovisual in terms of our negotiations with Europe from the GATT specifically . . . so that we can in those capacities directly use [Section] 301 and not bind . . . ourselves to a specific set of . . . European rules which we don't accept.[81]
Thus, the U.S. very likely could bring a Section 301 action against Indonesia based on violations of 301(A) and 301(B)(ii). Although such an action against Indonesia would be less politically charged than if the U.S. took unilateral action against the EU quota, the obvious implications from such an action could dissuade the U.S. The international community generally viewed the creation of the WTO during the Uruguay Round as signaling a significant reduction in the U.S. use of Section 301.[82] Such use of Section 301 would therefore likely cause some discord in international relations. If the U.S. instead opted to use the WTO to combat an Indonesian quota, the precedential weight of the WTO decision[83] would probably create even greater strain in international relations with the EU.
Despite the fact that the U.S. could take action against a local-programming quota under either the GATT or Section 301, it is unlikely to do so. The EU's Television Without Frontiers Directive has been in place since 1988 and the U.S. still has not taken action against it. The Television Without Frontiers Directive has the greatest effect of any current local programming quota on the U.S. entertainment industry. If the U.S. will not pursue legal action against that quota, it is unlikely to pursue legal action if it were to face a quota by Indonesia. Instead, it seems likely that the U.S. will continue to promote its interests during international trade negotiations until it reaches a favorable resolution of the issue.
The rapidly expanding ability of broadcasters to provide television programming will increasingly pressure foreign countries to abandon any local-programming quotas they might adopt. In the EU--the largest producer of television programming outside the U.S.--programming production levels barely exceeded 2500 hours in 1994, while EU broadcasters needed 16,000 hours of programming.[84] As cable and satellite broadcasters are able to provide more and more channels of programming, the demand for quality programming will greatly increase. This presents a difficulty for any broadcaster that is required to comply with a local programming quota. Once the ability to broadcast programming expands beyond the local ability to produce programming, local broadcasters will join foreign broadcasters in fighting such a quota. In addition, the local programming producers will no longer have an incentive to promote a local programming quota.
The large demand for local programming under such a quota also provides a financial incentive to eliminate the quota. The Television Without Frontiers Directive has created a large demand for European programming. As a result, the prices EU broadcasters pay for European programs is much greater in relation to the prices of U.S. programs.[85] This also provides an incentive for local broadcasters to fight any local programming quotas.
To the extent that television programs provide cultural heritage for individual countries, any local-programming quota that is adopted by a customs union such as the EU or ASEAN will also work against itself. Within the EU there are separate and distinct cultures for each member state, but the EU's quota promotes all European programming. If television programming has the cultural impact claimed by European defenders of the Television Without Frontiers Directive, such a quota leads the EU to develop a single European culture, and risks the disproportionate cultural impact of a single European country's programming. The quota does not preserve the separate cultures of each country. Eventually, it is possible that the EU will see less need to protect itself from foreign cultural influences as its culture develops into more of a homogenous international culture than a congregation of multiple distinct cultures.
In the long-run, protectionism and quotas cannot withstand these pressures. Free trade and increasing interactions among people of foreign nations will eventually decouple entertainment from being a controversial political and legal issue. "Other forms of discourse have successfully been decoupled from politics. We no longer attribute nationality to scientific or mathematical ideas, do not persist with Newtonian rather than Leibnitzian logarithms because one is English and the other German."[86]
Even many leaders in the EU recognize that their quota is not sustainable. The president of France's Studio Canal Plus has stated: "We cannot avoid becoming [profitable] to survive in Europe. Ride on the strength of what [Americans] do best. Build strong product and cooperate with the major [studios], using their strength and knowledge of distribution."[87] The EU's audiovisual commissioner also recognizes that quotas cannot substitute for the demands of the marketplace. EU films must have international and domestic appeal. He urges film producers "to produce films that meet public expectations . . . ."[88]
Regardless of the long-run ineffectiveness of a local-programming quota, it could still constitute a formidable short-run problem for Global Telecom in Indonesia. Therefore, it makes sense to explore options that do not require compliance with a local-programming quota. This paper presents three options that are viable alternatives regardless of whether Indonesia imposes a quota. By diversifying its strategy towards Indonesia, Global Telecom will be better able to respond should Indonesia ever impose such a quota.
When the EU adopted the Television Without Frontiers Directive, many U.S. corporations began to co-produce programming with European production companies. Those corporations gained from the local companies' knowledge of and experience in the local market, and were able to profit by producing programming that complied with the Directive's European programming quota. As discussed in Section II of this paper, Indonesia already requires any foreign company operating within Indonesia to establish a joint venture. It is likely that this requirement applies to Global Telecom whether it produces satellite dishes in Indonesia or merely provides satellite broadcasts to Indonesia. However, Indonesia does not require foreign broadcasters to co-produce television programming with local companies. Global Telecom would be free to broadcast programs from its stock of U.S. programming. Nevertheless, it would benefit Global Telecom if it adopted a comprehensive programming strategy that included producing programs that were specifically tailored to the Indonesian market. What Global Telecom would lose in independence if it sought to co-produce Indonesian programming, it would gain in the improved likelihood of success for the programs developed. Moreover, if Indonesia were to impose a local-programming quota, Global Telecom would already have a stock of local programs. Global Telecom might find that they are already in compliance with the quota or, at the worst, would be able to easily comply.
Another option Global Telecom could take is to simply buy or invest in local Indonesian television program producers. This is essentially how Japanese and other foreign companies were able to penetrate the U.S. entertainment industry. Among the five largest record companies, only Warner is a U.S. owned corporation; Sony Corporation owns Columbia Pictures and CBS Records, Matsushita Electrical Industrial Company owns MCA and Universal City Studios, and Credit Lyonnais bank owns Metro Goldwyn Mayer.[89]
U.S. entertainment corporations are also taking this option in Europe to avoid application of the EU local-programming quota. Disney, for example, has acquired significant holdings in a number of European corporations. In Germany alone, "Disney holds a 50% interest in a German broadcast channel . . . , a 50% interest in a German program production and distribution company, as well as a 37.5% interest in a German cable service."[90]
A third option is for Global Telecom to franchise some of its copyrighted formats for television programs to Indonesian producers who would then tailor the programs to the local market. Other U.S. producers have found that such franchising is particularly successful for "talk shows, game shows, daily/weekly serial dramas, and to a lesser extent sitcoms."[91]
Indonesia presents Global Telecom with the opportunity to enter a television broadcasting market near its inception and establish a dominant position in a market serving over 200 million potential customers. This opportunity is particularly ripe because of Indonesia's current focus on building the infrastructure to provide cable and local broadcasting to its population. Although Global Telecom faces regulatory risks if it provides satellite broadcast television programming to Indonesia, these risks are no greater than those faced in any other foreign market, as evidenced by the EU's local programming quota. In addition, Global Telecom can diversify its strategy toward Indonesia, reducing the cost that a local programming quota could impose. such diversification could include co-producing local programming, investing in Indonesian producers, and franchising Global Telecom's programming formats to Indonesian producers. If direct to home satellite television programming proves to be cost effective for the Indonesian population, Global Telecom should work to establish itself as the primary satellite television provider in Indonesia.
[1] See infra notes 4-20 and accompanying text.
[2] See infra notes 21-42 and accompanying text.
[3] See infra notes 43-91 and accompanying text.
[4] 1997 World Almanac.
[5] Highlights on Indonesia, Indonesianet, (visited July 30, 1997) < http://www.indonesianet.com/hilight/hidevelo.htm >.
[6] Country Brief: Indonesia, The World Bank Group, (visited July 30, 1997) < http://www.worldbank.org/html/extdr/offrep/eap/in.htm >. See also Indonesia's Economic Progress is Truly Electrifying, Nielsen Informer, Apr. 1996, visited Aug. 1, 1997) < http://foodnet.fic.ca/trends/nielsen.html#indo >.
[7] Id.
[8] Jakarta's clean water demand is estimated at 40,000 liters per second, while the clean water supply is only 22,000 liters per second. Clean Water Price in W. Jakarta Skyrocketing, The Indonesia Times, Nov. 8, 1996, (visited June 10, 1997) < http://www.indocom.com/itolnews/past/nov/fri08/c1.htm>.
[9] Indonesia's sixth five-year development plan, named Repelita VI, has established a number of sectors which the government plans to develop during the period 1994-99. This plan includes specific plans to meet the clean water needs of 72% of the population, construct 16,000 kilometers of arterial roads, 50,000 kilometers of collector roads, 201,370 kilometers of local roads, construct 6 new airports, provide telephone service in half of all villages, and provide electricity for 18,619 villages. The entire text of Repelita VI is available at <http://www.indonesianet.com/indotoda/chapter1.htm> (visited July 20, 1997).
[10] See e.g., Jonathan L. Golin, Tiger by the Tail, A.B.A. Journal, 62-65 (Feb. 1995).
[11] The World Almanac indicates that Indonesia has the world's 13th largest Gross Domestic Product, but that it does not rank within the top 40 countries in per capita GDP. See 1997 World Almanac, supra note 4, at 134 (stating that Oman, ranked 40th, has a per capita GDP of $10,020). The United States has the highest per capita GDP at $26,640.
[12] 1997 World Almanac, supra note 4, at 744. The United States produced 3.3 trillion kilowatt hours.
[13] The U.S. literacy rate is also over 95%. South Korea has an infant mortality rate of 8 per 1000 live births. Japan and the U.S. have respective infant mortality rates of 4 and 7 per 1000 live births. The World Almanac, supra note 4, at 787, 790, 832.
[14] Id. at 774. Despite so few phones in Indonesia, one report indicated that between 1989 and 1994, the number of phones in Indonesia grew from 1 million to 3 million. In comparison, South Korea has 1 television per 4.3 persons and 1 telephone per 2.6 persons. Japan has 1 television per 1.2 persons and 1 telephone per 2.1 persons. The U.S. has 1 television per 1.2 persons and 1 telephone per 1.7 persons. And Vietnam has 1 television per 29 persons and 1 telephone per 270 persons.
[15] The government-owned company responsible for accomplishing this goal is Industri Telekomunikasi Indonesia. This company has technological cooperation agreements with Seimens AG (Germany), BTM (Belgium), TRT/Phillips (France), and JRC & NEC (Japan). See Idustri Telekomunikasi Indonesia Home Page, (visited June 15, 1997) < http://202.159.25.204/ >.
[16] Id.
[17] Global Telecom's largest local broadcasting competitor is Rajawali Citra Televisi Indonesia. Its website that is available at <http://ns1.rcti.co.id/CPs/Finance.html> (visited July 21, 1997).
[18] Because Global Telecom is one of the largest multinational multimedia corporations, presumably it has its own collection of television programming. Global Telecom could air these programs at very little cost and develop only such specialized or localized programming as it sees fit.
[19] Even Global Telecom's largest local competitor, Rajawali Citra Televisi Indonesia, did not begin operating until the late 1980's. See supra note 17.
[20] For an article examining the difficulty consumers in the United States have when choosing between satellite and cable television, see Jan Safford, Computers Made Plain, Cable Vs. Satellite TV: Prices are Murky, Investor's Business Daily, July 24, 1997, at A1.
[21] One example is Motorola. Motorola's Asia Pacific Headquarters is in Hong Kong and it has locations throughout Southeast Asia, including Seoul, Tokyo, Beijing, Tianjon, Shanghai, Guargzhou, Taipei, Manila, Bangkok, Penang, Singapore, Bangalore, and Melbourne. However, it does not have a location in Indonesia.
[22] See David Liebhold, Indonesia's new Customs Law raises concern, (visited Feb. 6, 1997) < http://web3.asia1.com.sg/timesnet/data/cna/docs/cna1900.html >.
[23] The new customs law "provides for a system of self-assessment, by both importers and exporters, of customs duties payable. Underpayments are to be discouraged through the use of selective physical inspections and post-auditing of customs declarations." Id.
[24] Id.
[25] Id.
[26] Id.
[27] University of Missouri at St. Louis, International Business Paractices in Indonesia, (visited Feb. 6, 1997) < http:// www.smartbiz.com/sbs/arts/bpr36.htm >.
[28] Id.
[29] See IndonesiaNet, Hilights on Indonesia: INVESTMENT, (visited Feb. 2, 1997) < http://www.indonesianet.com/hilight/invest2.html >.
[30] See id.
[31] The Indonesian term for Foreign Direct Investment is Penanaman Modal Asing (PMA).
[32] See IndonesiaNet, supra note 29.
[33] See Indonesian Law 1949-1989, at 251 (S. Pompe, ed. 1992).
[34] IndonesiaNet, supra note 29.
[35] Id.
[36] Id.
[37] Id.
[38] Id.
[39] Id.
[40] Id.
[41] Id.
[42] Id.
[43] Council Directive No. 89/552, 1989 O.J. (L 298) 23 (Council Directive of October 3, 1989 on the Coordination of Certain Provisions Laid Down by Law, Regulation or Administrative Action in Member States Concerning the Pursuit of Television Broadcasting Activities), (visited Feb. 20, 1997) <http://www2.echo.lu/legal/en/ipr/tvwofr/tvwofr.html>. See also Amy Kazmin, Bill Restricts Foreign Media, Nat'l L.J., July 14, 1997, at A16 (explaining the possible ban of satellite broadcasts by foreign companies in India).
[44] This paper will not discuss some of the more fact specific issues related to the Television Without Frontiers Directive. For example, it will not critique the language of the Directive to examine the arguments concerning whether the directive is legally binding on member states. It will instead focus on those issues that would arise with any quota system and are not unique to a particular quota.
[45] Council Directive No. 89/552, supra note 43, art. 4(1).
[46] Id., art. 4(2).
[47] This trade surplus is second only to the aerospace industry. See Jonas M. Grant, Comment, Jurassic Trade Dispute: The Exclusion of the Audiovisual Sector From The GATT, 70 Ind. L.J. 1333, 1334 (1995).
[48] John David Donaldson, "Television Without Frontiers": The Continuing Tension Between Liberal Free Trade and European Cultural Integrity, 20 Fordham Int'l L.J. 90, 95 (1996) (citing David R. Sands, Clash of Cultures Creates Latest Block to World Trade Pact, Wash. Times, Nov. 24, 1993, at B7).
[49] David H. Horowitz & Peter J. Davey, Financing American Films at Home and Abroad, 20 Colum.-VLA J.L. & Arts 461, 481 (1996). A large percentage of European films are subsidized, as shown in the following chart.
| Nation | 1994 Films | Percent Subsidized |
| Denmark | 10 | 90% |
| Belgium | 8 | 88% |
| Switzerland | 12 | 83% |
| Germany | 60 | 83% |
| Netherlands | 20 | 80% |
| Sweden | 9 | 78% |
| France | 91 | 59% |
| United Kingdom | 55 | 40% |
| Italy | 56 | 39% |
Craig R. Karpe, European Cultural Protectionism and the Socioeconomic Forces That Will Defeat It, 5 Ind. Int'l & Comp. L. Rev. 425, 432 (1995).
[50] Alix Christie, Cinema in Europe: Reeling Under the Onslaught of a Blockbuster, Guardian, Feb. 19, 1994, at 99.
[51] Sharon Waxman, GATT-astrophe Averted: French Filmmakers Say Accord Saves Them, Wash. Post, Dec. 15, 1993, at B2. In 1979, the U.S. claimed only 38% of France's receipts. Id. On average, however, U.S. films received 80% of European film revenues in 1992. Horowitz & Davey, supra note 49, at 478.
[52] See Karpe, supra note 49, at 427.
[53] Grant, supra note 47, at 1351.
[54] Donaldson, supra note 48, at 144.
[55] Grant, supra note 47, at 1347 (citing David Robinson, A Case of Hollywood--or Bust? Times (London), Dec. 16, 1993).
[56] General Agreement on Tariffs and Trade, opened for signature Oct. 30, 1947, 61 Stat. A3, 55 U.N.T.S. 187, [hereinafter GATT] (visited Feb. 20, 1997) < http://pacific.commerce.ubc.ca/trade/GATT.html >.
[57] A listing of all GATT signatories is available at the Consortium of International Earth Science Information Network webpage, (visited Feb. 4, 1997) < http://sedac.ciesin.org/Harvest/brokers/entri/stats.html >(listing Indonesia as adopting the GATT on Dec. 27, 1949). This webcite also includes listings of signatories to numerous other treaties, with a focus on environmental treaties.
[58] Article 1 of the GATT states in relevant part: with respect to all rules and formalities in connection with importation and exportation . . . any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties . . . . GATT, supra note 55, art. I, para. 1.
[59] The GATT did not formally recognize the EU as a customs union until the Uruguay Round. However, it had previously been treated as a customs union anyway. Donaldson, supra note 48, at 112 n.118.
[60] See GATT, supra note 55, art. XXIV. Article XXIV allows customs unions to establish a preferential trade regime within the union, while maintaining greater restrictions against imports from outside the union. Donaldson, supra note 48, at 113.
[61] ASEAN's member states include: Indonesia, Malaysia, Philippine, Singapore, Thailand, Brunei Darussalam, and Vietnam. The text of the 1967 Bankok Declaration that created the ASEAN is available from the ASEAN Webpage (visited July 20, 1997) < http://www.asean.or.id/history/leader67.htm >.
[62] Welcome, Selamat Datang, Mabuhay, . . . to ASEAN Online, (visited July 20, 1997) < http://www.indobiz.com/asean/index.htm >.
[63] This agreement is entitled ASEAN Free Trade Area (AFTA). The text of the AFTA agreement is available at < http://www.asean.or.id/economic/afta/afta.htm >(visited July 21, 1997).
[64] Jonathan Carlson, Cyberspace Law Seminar lecture, Feb. 26, 1997.
[65] GATT, supra note 55, at art. III, para. 4 (emphasis added).
[66] Donaldson, supra note 48, at 115.
[67] Id.
[68] Id.
[69] See Clint N. Smith, International Trade in Television Programming and GATT: An Analysis of Why the European Community's Local Program Requirement Violates the General Agreement on Tariffs and Trade, 10 Int'l Tax & Bus. Law. 97, 128-29.
[70] For example, two French broadcasters canceled multi-million dollar deals with a U.S. company after France adopted a policy of fining broadcasters $10 million USD for each hour of non-European programming in excess of France's quota. See Television Broadcasting and the European Community: Hearing Before the Subcommittee on Telecommunications and Finance of the House Committee on Energy and Commerce, 101st Cong., 1st Sess. 112 (1989).
[71] See Italian Discrimination Against Imported Agricultural Machinery, GATT Doc. L/833 (Oct. 23, 1958) (holding that an Italian regulation requiring banks to make favorable loans to farmers purchasing Italian-manufactured tractors discriminated against foreign-manufactured tractors and was a violation of the National Treatment provision).
[72] See EEC-Measures on Animal Feed Proteins, GATT Doc. L/4599 (Mar. 14, 1979) (holding that an EU regulation that discriminated against animal feed imports from non-Community nations was a violation of the National Treatment provision even though U.S. exports to the EU had not been affected by the regulation).
[73] The U.S. has held this belief since at least as early as 1961, when a GATT working group was formed to address this issue. The working group failed to reach consensus and no final action was taken on the issue. See Jon Filipek, "Culture Quotas": The Trade Controversy Over the European Community's Broadcasting Directive, 29 Stan. J. Int'l L. 323, 340-41; see also Application of GATT to International Trade in Television Programmes: Report of the Working Party, GATT Doc. L/1746 (Nov. 21, 1962).
[74] See Filipek, supra note 73, at 340-41.
[75] See id.
[76] See Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, opened for signature Dec. 15, 1993, Doc. No. MTN/FA II-A1C [hereinafter Uruguay Round]; see also General Agreement on Trade in Services, (visited Mar. 22, 1997) < http://www.ariadne-t.gr/gatt/26.txt >.
[77] Donaldson, supra note 48, at 138.
[78] Id.
[79] 19 U.S.C. º 2411(c)(1)(A) (1994).
[80] Suzanne Michele Schwarz, Television Without Frontiers?, 16 N.C.J. Int'l L. & Com. Reg. 351, 369 (1991).
[81] Bowman Cutter, Exchange with Reporters Following the Malcolm Baldridge National Quality Award Ceremony, 29 Weekly Comp. Pres. Doc. 2587 (Dec. 14, 1993).
[82] See Donaldson, supra note 48, at 171 (citing Andreas Lowenfeld et al., International Economic Transactions 310 (Supp. Spring 1996)).
[83] "[T]he WTO shall be guided by the decisions, procedures and customary practices followed by the [signatories] to GATT 1947 and the bodies established in the framework of GATT 1947." Uruguay Round, supra note 76.
[84] Diana Quintero, American Television and Cinema in France and Europe, 18 Fletcher F. World Aff. 115 (1994).
[85] Karpe, supra note 49, at 444.
[86] Richard Collins, National Culture: A Contradiction in Terms?, (visited Mar. 22, 1997) < http://hoshi.cic.sfu.ca/calj/cjc/BackIssues/16.2/collins.html >.
[87] Kirk Honeycutt, MPEE Pulls No Punches in Fest "Free-for-All", Hollywood Rep. Aug. 31, 1994.
[88] Lowell Forte, Film Industry Left Out of Landmark Trade Pact, Corp. Legal Times, June 1994, at 14.
[89] Grant, supra note 47, at 1354 (citing John Huey & Tricia Welsh, America's Hottest Export: Pop Culture, Fortune, Dec. 31, 1990, at 50.
[90] Donaldson, supra note 48, at 179 n.522 (citing Lisa Bannon, Kirch of Germany Gets Pay-TV Rights to Disney Movies, Wall St. J. Aug. 30, 1996, at A5).
[91] Karpe, supra note 49, at 457.
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