RESTRICTEDWORLD TRADE
ORGANIZATIONS/WPGR/W/25/Add.2
12 December 2000
(00-5397)
Working Party on GATS Rules
SUBSIDIES FOR SERVICES SECTORS
INFORMATION CONTAINED IN WTO TRADE POLICY REVIEWS
Background Note by the Secretariat
Addendum
I. INTRODUCTION
1. The Working Party on GATS Rules, at its meeting of 7 July 2000, called on the Secretariat to
continue monitoring Trade Policy Reviews (TPRs) for information concerning subsidies in services.
More specifically, on 30 November 2000, the Secretariat was requested by the Working Party to
prepare a new overview document concerning such subsidies, based on recent TPRs.  While the
previous document of 9 May 2000 (S/WPGR/W/25/Add.1) was based on 37 TPRs issued betweenJanuary 1998 and April 2000, the present Note covers nine Reviews completed between May and
December 2000.  Relevant information has been included, in italics, in the overview table which was
already contained in the May 2000-document.
2. As has been noted on past occasions, TPR-based information does not necessarily provide a
comprehensive picture of Members' trade policies in any narrowly defined area.  The selection of
countries for review follows a schedule established by the Trade Policy Review Body and, thus, is not
driven by issue-related considerations.  Moreover, to be as relevant as possible within the TPR'soverall mandate, the individual reports seek to focus on a country's main policy challenges and
constraints;  among these, services subsidies do not appear to have figured prominently to date.  While
many reports contain some information on such subsidies, no attempts have been made to assess their
wider economic implications or any (distortive) effects on trade.
3. The subsidy definition generally used for Trade Policy Reviews is based on the definition
contained in the WTO Agreement on Subsidies and Countervailing Measures.  Accordingly, a subsidy is
deemed to involve a financial contribution by a government or public body which confers a benefit.
This covers assistance provided in the form of di rect transfers of funds, including grants, loans and
equity infusions; potential direct transfers of funds or liabilities, e.g. loan guarantees;  government
revenue foregone; supply of goods and services othe r than general infrastructure;  purchase of goods;
payments to funding mechanisms;  or income and pri ce support.  As discussed in the initial Secretariat
Note, it may be difficult in individual cases to identi fy the ultimate beneficiaries of a subsidy, which
may include the direct recipients, downstr eam industries, or individual consumers.
1  Thus, given the
infrastructural importance of many services sectors as providers of generally available inputs, it might
                                                     
  1  For example, the provision of basic health services may be ensured through:  (a) cost-free treatment
in state-owned hospitals;  (b) the extension of public funds to commercially independent hospitals;  or(c) government-sponsored premiums for basic health insurance.  While possibly conferring the same benefits to
the same target group, such measures might be defined, respectively, as the provision of infrastructural services,
subsidies for the health sector, social transfers and/or subsidies for insurers.S/WPGR/W/25/Add.2
Page 2
be necessary to look beyond the subsidized sector, e.g., communication or transport, and take into
consideration the users of the services rendered.
4. As in the two preceding documents, the following types of assistance have not been included:
(i) Exemptions from indirect taxes, in particular VAT, which are frequently intended to encourage
consumption rather than production of a service;  ( ii) generally available support, for example in the
context of regional development or research programmes;  and (iii) company-internal cross-subsidization between monopoly and market-oriented activities in sectors such as
telecommunications.  By contrast, government financial interventions in the form of share purchases
and similar equity transfers have been taken into account.  This has drawn some criticism at the July
meeting of the Working Party as such actions might have been driven by macroeconomic concerns
and no particular service sector might have been targeted (S/WPGR/M/28).  However, the Secretariat
felt that it might be preferable, for the sake of consistency, to continue applying the above subsidy
definition to the information contained in TPRs rath er than introducing additional considerations case-
by-case.
II. POLICY PATTERNS
5. The information contained in recent TPR reports largely confirms the sector pattern identified
in the previous document:  WTO Members tend to concentrate their services-related subsidies onthree sectors, tourism, maritime transport and banking services.  Concerning the measures used, the
update confirms Members' strong reliance on tax incentives as compared to direct grants.  This may
reflect a preference in the political process for less obvious and, in terms of immediate disbursements,
less "costly" forms of support.  However, these observations are rather impressionistic in nature;  for
example, they may overrate developments in sectors that attracted particular policy attention at thetime of reporting.  As a general feature, it appears that areas such as financial services have been
reviewed in more detail than, for instance, ra il or road transport and professional services.S/WPGR/W/25/Add.2
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Table 1: Subsidies for individual services sectors - information from TPR Reports, 1998 – 2000
 /g216   MEASURE   /g216 Direct grants Preferential
credit &
guaranteesEquity
injectionsTax
incentivesDuty-free
inputs &
free zonesOther &
unspecified
measuresNumber
of WTO
Members
/g218    SECTOR     /g218
Tourism Botswana
CanadaIsraelTurkeySwitzerland
LiechtensteinCanada
Nigeria
1
IcelandIndiaJamaicaSouth AfricaTrinidad &     Tobago
TurkeySouth Africa Nigeria
1
Argentina
Egypt
IndiaIsraelJamaicaNicaraguaPhilippines
Solomon Is.
TanzaniaTrinidad &     TobagoTurkeyUruguayArgentina
EgyptIndiaJamaicaKenya
Nicaragua
PeruSolomon Is.TanzaniaTrinidad &     TobagoTurkeyUruguayGuinea
1
Lesotho
Singapore24
Transportation
general or
unspecifiedCanadaSwitzerlandLiechtensteinPoland Philippines
Poland
Korea RP 4
Maritime transport Australia
IndiaSolomon Islands
1IndiaThailandU.S.Egypt
HK, ChinaIndiaJamaicaPeru
Singapore
TurkeyU.S.BrazilJapanEgypt
JamaicaPapua N.G.PeruTurkeyEC
Korea RP
16
(30)2
Air transport Papua N. G. Hungary1 Egypt Hungary
Papua N.G.EC (F, I, P,
G)7*2
Rail transport India
KenyaSwitzerland3
Banking Poland
BrazilIndonesia
ThailandPolandEC (D)HK, China
ThailandNorwaySingapore
TanzaniaU.S.PolandKorea RPSwitzerlandTrinidad &
     Tobago
1
JamaicaSingaporeTanzaniaThailandKorea RP
142
Other financial
servicesIndonesia
ThailandHK, China
ThailandSingapore
U.S.Korea RP
BrazilSingapore
ThailandTrinidad &     Tobago
18
Software, info
technology,
communications,
info processingCanada Jamaica Canada
EgyptIndiaKorea RPIndia
JamaicaTrinidad &    Tobago
1
UruguayKorea RP 7S/WPGR/W/25/Add.2
Page 4
 /g216   MEASURE   /g216 Direct grants Preferential
credit &
guaranteesEquity
injectionsTax
incentivesDuty-free
inputs &
free zonesOther &
unspecified
measuresNumber
of WTO
Members
/g218    SECTOR     /g218
Construction U.S. Argentina
PolandArgentina
BoliviaTrinidad &    Tobago
Turkey
Korea RPPoland7
Recreation, culture
& sportsCanada
Korea RPNorwayJamaica Bolivia Bolivia
Israel 6
Telecom Peru
SingaporeIndia India Trinidad &
    Tobago14
Audiovisual
servicesArgentina
CanadaECCanada
JamaicaTanzaniaKorea RPJamaica
Tanzania
6
(20)2
Wholesale & retail
trade, distributionTurkey Trinidad &
     TobagoKorea RPTanzania
4
Real estate India Canada
JapanTrinidad &
    Tobago4
Other &
unspecified sectorsAustralia Australia
BangladeshTurkeyCanada Singapore
Korea RPHungary
Singapore7
Number of cases 28
(42) 229 8 59 40 8
(35) 2121
(149) 2
1 Subsidy programme envisaged.
2 Counting EC Member States individually.
Source: WTO Secretariat.S/WPGR/W/25/Add.2
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ANNEX
Content of Individual Trade Policy Reviews
Norway - WT/TPR/S/70page 63, para. 142
The Press Subsidies Programme  aims at promoting and maintaining a diversified press.
Newspapers with one or more issues per week with an average circulation between
1,000-6,000 copies can apply for grants.  Grants are also given to newspapers in an unfavourable
market position and with an average circulation up to 80,000.  The size of the grant is calculated onthe basis of the individual newspaper's annual circulation.
page 103, para. 134
Through the Government Bank Investment F und and the Government Bank Insurance Fund,
the State retains a stake in Den norske Bank (DnB) and Christiania Bank og Kreditkasse (CBK), the
major commercial banks .  State participation in the banking sector increased at the beginning of the
1990s as the result of government intervention to rescue troubled banks after heavy losses required
substantial injections of capital through the Government Bank Insurance Fund (GBIF).  The
Government thus became the major shareholder in CBK, DnB and Fokus Bank.  [State participationin the sector has diminished significantly since.]
Poland - WT/TPR/S/71
page 66, para. 116
Activities in many sectors benefit from a range of investment-related tax concessions, as well
as subsidized credit and loan guarantees.  Loan guarantees, for example, are provided on investment
loans extended for the purposes of maintaining ex isting infrastructure; for environmental protection;
to privatized state-owned enterprises; and to introduce new technology resulting from research and
development. … The main sectors to benefit from these arrangements in recent years have been iron
and steel, transport,  food and agriculture, energy, construction,  and pharmaceuticals.
page 67, para. 119
The banking sector  has also received grants, loans, and tax incentives to encourage
cooperative banks to restructure and to establish regional banks.  The scheme is administered jointly
by the Ministry of Finance and the National Bank of Poland.
page 112, para. 210
Privatization of the state-owned railway  company (PKP) is planned.  PKP has suffered large
and increasing losses, estimated at Zl 1 billion in 1998, partly due to declining coal movements.  […]
The restructuring programme provides for expenditure of Zl 1.65 billion annually […]S/WPGR/W/25/Add.2
Page 6
European Union - WT/TPR/S/72
page 122, para. 94
The European Banking  Federation filed a complaint to the Commission in December 1999
about the State guarantees for Germany's Landesbanks, and the Commission began a formal
investigation.2
page 133, para. 123
According to the Commission, European compan ies suffer from relative financial fragility
compared with their main competitors; in recent  years the Commission has operated a "one-time-last-
time" approach to state aid, which has paved the way for the restructuring and privatization of manyof the state flag-carrier airlines . The conditions attached to aid have been strictly monitored and
enforced and the Commission does not intend to permit further aid for restructuring purposes.
3 It is
estimated that from 1990 through 1996, flag carriers received support worth over US$ 9 billion.4
page 136, para. 130
The considerable decline in the number of ships under national flags led the various Member
States to initiate state-aid programmes in maritime transport services .  In 1997, the Commission re-
examined these programmes taking into account their fiscal implications.  State aid may normally be
granted only for ships registered under the national flag and can only be implemented to safeguard
Community jobs, maintain seafaring know-how, and improve skills.  Tax abatements for shippingcompanies are considered to be state aid and should be restricted to maritime transport activities.
page 140, para. 141
The MEDIA II Programme is a central component of the European audio-visual support
programme, allocating ECU 45 million over five years in support of training of audio-visualprofessionals, and ECU 265 million on development of  production projects and distribution of audio-
visual products.  MEDIA II will expire in December 2000. The proposed allocation for the future
MEDIA Plus programme over five years is € 50 million for training and € 350 million for the
development and distribution of projects.
5
Republic of Korea - WT/TPR/S/73
page 88f, para. 132
Non-tax measures allegedly included subsidies through the financial market stabilization
package (purchase of bad loans from banks  by the state-owned Korea Asset Management
Corporation (KAMCO);  […] and R&D in the information and communication industries .
                                                     
2 Bulletin Quotidien Europe , Nos 7652, 7644, 7633, 7621 and 7600.
3 For instance, the assistance of the French Government to Air France, authorized in 1994 and
challenged by the Court of First Instance in response to complaints by European competitors, was confirmed bythe Commission in July 1998 (European Press Release IP/ 98/682).  Proceedings were also reopened in the cases
of Olympic Airways, given that conditions of the 1994 State Aid Agreement were not being complied with.Furthermore, aid to TAP and Alitalia was allowed, despite, in the case of the latter, irregularities in compliancewith the terms of the aid package (European Press Releases IP/98/135 and IP/98/495).
4 The Economist , 27 September 1997.
5 COM(1999) 658 final.S/WPGR/W/25/Add.2
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Table III.9
Main internal tax incentives in force relating to production and trade under the Special Tax Treatment Control Law (January 199 9)
Target and stated
objectiveDesignated activity and/or beneficiary Measure Expiry date
SMEs involved in fishery,
manufacturing, mining, construction,
transportation, wholesale and retail,
value-added (communication) network
(VAN) business, research &development business, engineering,
auto-repair, industrial waste or sewagedisposal .Investment reserves for losses may be
treated as losses in the calculation ofincome (up to 20% of the business
assets).31 December 2003
[…]
Newly set SMEs established in rural
areas or new capital venture
technology-intensive firms established indesignated areas to undertake mining,
manufacturing, VAN business, research
& development business, broadcasting,
data processing & computer business,
engineering, transportation and
warehousing.Reduction of income or corporation tax
by 50% for a six-year period.31 December 2003
[…]Small and
medium-sized
enterprises (SMEs)
To reduce concentration
of economic wealth by
conglomerates andstrengthen economic
fundamentals.
[…]SMEs involved in manufacturing, data
processing and computer-related
business, VAN, research &
development business, broadcasting,data processing & computer business,
engineering, transportation and
warehousing.Reduction in corporate or income tax by
20%.31 December 2003
[…]
Livestock, fishery, mining,
manufacturing, construction, transport
all activities .Income tax deferral for the amount of
investment in business assets of an
individual firm converted into a
corporation.Undefined
50% reduction on the special additional
tax on capital gains from the alienation of
assets of financial institutions.31 December 2000Business restructuring
To facilitate business
restructuring,
re-engineering and
financial structure
improvement.Financial sector activities .
Tax deductions for financial institutions
purchasing and assuming assets and
liabilities of another such institution.Undefined
Balanced (regional)
development[…]
To deal with pollution
and traffic congestion in
urban centres (mainly
Seoul) by encouragingfirms to move out of
metropolitan areas.Hospitals  in areas with inefficient or
non-existent medical facilities.Income or corporation tax reduction by
50% for a six-year period.
Income or corporate tax reduction of the
amount equivalent to 3% of the amount
invested in assets for the new hospital forthe taxable year of the date of
completion.31 December 2000
Value-added tax (VAT)
related sectoral
incentives[…]
National housing construction. VAT exemption. Undefined
Source: Ministry of Finance and Economy (1999), Korean Taxation 1999 , [Online].S/WPGR/W/25/Add.2
Page 8
page 95, para. 138
As from 1999, industry-specific subsidies have also been made available to culture-related
industries .6
page 163, Para. 124
To overcome the financing problems of Korean shipping  companies, the authorities have
announced plans to create a W 500 billion (US$437.8 million) fund during the second half of 2000 to
help cash-strapped shipping companies purchase vessels7;  the programme (sponsored by Korea
Shipowners Association) was being worked out in  June 2000.  The Shipping Industry Promotion Act,
which promoted the development of the national fleet for the purpose of securing stable transport
capacity, was to be eliminated as of July 1999, thus eliminating the legal basis for direct government
support (including subsidies) to national shipping companies.8
Bahrain – WT/TPR/S/74
[No reference to service-related subsidies.]
Brazil – WT/TPR/S/75
page 107, para. 125
There has been a substantial transfer of public control to private entities, assisted by the
Programme of Incentives to the Restructuring and Strengthening of the National Financial System(PROER).
9  Under PROER, the Federal Government committed itself to financing 100% of the costs
of restructuring provided that the state-owned banks  were either privatized, converted into
developmental agencies, or liquidated.  In the event that none of these three alternatives was chosen,
the Federal Government would provide only 50% of the restructuring costs, with the remainder to
come from the States.
page 110, para. 141
In general no incentives are granted to the insurance  sector.  However, the tax on financial
services (IOF) has been reduced to 0% for insurance operations in the agricultural sector, on
mortgages (obligatory insurance), on export credit, and for satellites BRASILSAT I and II (launching
and operations risks).10
page 114, para. 163
Maritime transport:  The revenue from transportation  of merchandise is exempt from the
Social Integration Programme (PIS) and the Contribution for Social Security (COFINS).11  The cost
                                                     
6 Culture-related industries include producers of video programming, Internet bookstore start-ups, and
producers of computer game software, music disks, and TV programming.  A soft loans programme is expected
to cover 500 firms and create 14,000 jobs ( The Korea Herald [Online], 12 May 1999. Available at:
http://www.koreaherald.co.kr/ [30 September 1999]).
7 Ministry of Maritime Affairs and Fisheries information, published in The Korea Herald  [Online],
31 December 1999.  Available at:  http://www.koreaherald.co.kr/ [10 January 2000].
8 OECD (1998c).
9 Resolution No. 2.208, 3 November 1995.
10 Decree No. 2.888, 21 December 1998.
11 Law No. 9.432, 8 January 1997.S/WPGR/W/25/Add.2
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of freight for Brazilian exports and import is not taken into account in the calculation of import duties
and export taxes if goods are transported in vessels registered in the Special Brazilian Registry (REB).
Japan – WT/TPR/S/76
page 65. Para. 112
In order to achieve various policy objectives, including investment in certain equipment to
address environmental concerns and stimulate demand, Japan has a complex system of tax breaks …The FY2000 amendment included special taxation measures, concerning public welfare, the energy
sector, and housing .
page 107; para. 95
Under the regime ["International Ship Regime"], certain Japanese-flag ships are entitled to
preferential tax treatment …12  According to the authorities, th e International Ship Regime has no
distortionary effects on trade in maritime transport services ;  it aims to place Japanese vessels on an
equal footing for with those of other countries that provide preferential tax treatment for their ships
registered.
Switzerland and Liechtenstein – WT/TPR/S/77
page 52, para. 92
The [Swiss] Confederation also grants subsidies in the form of: … and direct grants and
allowances for the development of tourism  (about Sw F 3.6 million per year over 1997-01);  and
direct grants and allowances to monopoly suppliers of infrastructural services such as railways and
other public transport .  Financial assistance by the Swiss Confederation to suppliers of public
transport services amounted to some Sw F 3.3 billion in 1996, Sw F 3.8 billion in 1997, Sw F 5.7
billion in 1998, and Sw F 3.8 billion in 1999.
Page 52, para. 93
The Government [of Liechtenstein] also provid es financial support of some Sw F 500,000 per
year for international tourism  marketing activities, and of Sw F 12 million per year for public
transport .
Page 91, Para. 72
Banking and fund management services  (Switzerland):  Cantonal tax incentives are
available.
Page 104, para. 118
The Swiss Corporation for Hotel Credit has a working capital of SwF 118 million;  it provides
concessional loans (with subsidized interest rates at 2 percentage points below the normal rates) and
credit guarantees to small and medium-sized compan ies investing in tourist areas.  The Confederation
                                                     
12 These include tax breaks in ship-registration tax and local property tax.S/WPGR/W/25/Add.2
Page 10
allocated a credit of Sw F 18 million for the peri od 1997-01 (i.e. Sw F 3.6 million per year on average)
to finance innovation and cooperation between tourism  operators.13
Page 105, para. 120
Tourism :  The Liechtenstein Government provides financial support of some Sw F 500,000
per year (on average) for marketing activities.
Canada – WT/TPR/S/78
Page 50f, paras. 181 and 185
Cultural Policy:
The Secretariat Report for Canada's 1996 Review contained an overview of the main trade-
related instruments of support, often granted in combination, which include direct subsidies, tax
incentives, foreign ownership restrictions (s ee document S/WPGR/W/25) and local-content
requirements.14
The rules governing tax deductibility available to Canadian advertisers were changed to
provide full deductibility in any periodical – as defined in the Foreign Publishers Advertising ServicesAct, regardless of the nationality of ownership – that includes at least 80% original or Canadian
content.  Canadian advertisers will receive half the deduction for ads placed in foreign periodicals
under the de minimis exemption, as well as advertisements placed in magazines created by foreign
investors that include less than 80% original or Cana dian content.  The authorities have stated that the
policy does not discriminate among foreign suppliers.  In December 1999, the Canadian HeritageMinister announced a three-year Ca n$150 million fund to provide direct financial assistance to Canadian
magazines.
15
__________
                                                     
13 Arrêté fédéral finançant l'encouragement de l'innovation et de la coopération dans le domaine du
tourisme de 1997 à 2001, 10 octobre 1997, Article 8.  The annual allowance of Sw F 8 million, formerly grantedby the Confederation to hotels and inns, was abolished in 1998.
14 WTO (1996).
15 For details see Canadian Heritage online information.  Available at:  http://www.pch.gc.ca.