RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/M/19
12 February 1999
(99-0574)
Committee on Subsidies
and Countervailing Measures
MINUTES OF THE SPECIAL MEETING
HELD ON 2 NOVEMBER 1998
Chairman: Mr. Carlos Antonio da Rocha Paranhos (Brazil)
1. The Committee on Subsidies and Countervailing Measures ("the Committee") held a Special
Meeting on 2 November 1998.
2. The Committee adopted the following agenda:
A. REVIEW OF 1998 NEW AND FULL SUBSIDY NOTIFICATIONS
(a) Hong Kong, China (G/SCM/N/38/HKG)
(b) Paraguay (G/SCM/N/38/PRY)
3. The Chairman recalled that the Committee had adopted procedures for the review of 1998
new and full subsidy notifications at its April 1998 meeting (G/SCM/18).  Under those procedures,
1998 subsidy notifications were to be reviewed in three special meetings to be held in conjunction
with the regular meetings of the Committee in Fall 1998, and in Spring and Fall 1999.  Only
notifications distributed in all three working languages no less than 19 weeks before a meeting may be
reviewed at that meeting.  At this meeting, therefore, only notifications circulated by 22 June 1998
could be reviewed.  Accordingly, the Committee had before it two notifications, those of Hong Kong,
China and Paraguay.  Pursuant to Committee procedures, the review of subsidy notifications was to be
conducted on the basis of written questions and answers provided before the meeting.  As indicated inWTO/AIR/881, written questions regarding these notifications had been due on 20 July 1998, and
written answers had been due on 21 September 1998.  Under Committee procedures, a Member that
had provided written replies in advance was not expected to provide a full oral answer at the meeting.
Rather, the purpose of the meeting was to (a) allow follow-up in areas where the written replies were
unclear, and (b) permit discussion of issues identified as a result of the written procedure.
4. The questions regarding Hong Kong, China's notification can be found in the following
document:
G/SCM/Q2/HKG/4 (Submitted by the EC)
5. The answers provided by Hong Kong, China can be found in the following document:
G/SCM/Q2/HKG/5 (To questions submitted by the EC)
6. The representative of the EC had found the information supplied by Hong Kong, China to be
very illuminating and useful.  The EC did not necessarily accept that the programmes in question did
not warrant notification, but was satisfied with the replies at present because they included a large
amount of information on the distribution of benefits under the schemes in question.G/SCM/M/19
Page 2
7. The questions regarding Paraguay's notification can be found in the following document:
G/SCM/Q2/PRY/1 (Submitted by the EC)
8. The answers provided by Paraguay can be found in the following document:
G/SCM/Q2/PRY/2 (To questi ons submitted by the EC)
9. The representative of the EC did not find Paraguay's explanations terribly convincing as to
why the programmes in question allegedly did not warrant notification.  Firstly, according to the
information the EC had as regards the Paraguayan laws on investment incentives, particularly Law
No. 60 of 1990, it seemed that a five-year basic income tax holiday was provided, but that this five-
year income tax holiday could be extended in certain circumstances.  One of these situations was
where investment was made in certain preferential development areas of the country.  It was quite
clear from the discussions held previously in the Committee and with regard to any reasonablereading of the Agreement that, if subsidies were granted on a more favourable basis in certain specific
regions of a country, then this constituted specificity.  It was on that basis that regional aid was
considered to be specific and fell under the green light provisions of Article 8.2(b) of the Agreement.
The EC could therefore not accept that an improvement in the level of benefits for subsidies granted
in certain regions was not specific and therefore notifiable.  Secondly, according to the informationthe EC had, it also seemed that the income tax holiday was extended from five years to seven years if
capital goods of national origin were incorporated and, once again, this seemed to fall under the
category of a subsidy under Article 3 of the Agreement because it required the use of domestic over
imported goods and, again, it seemed to be specific and notifiable.
10. The representative of the EC believed that another measure which seemed to be specific was
that under Law No. 523 of 1995, which related to export processing zones.  It seemed that a factory in
one of these duty free zones was exempted from all taxes on the entry of goods into these zones,
including any taxes or duties on capital goods, and from all national, departmental, or municipal taxes
on commercial, industrial, or service activities.  Apparently, a significantly reduced rate of corporate
income tax could also be claimed.  It seemed again to  the EC quite clear that, in order to be in one of
these zones, the enterprise had to undertake to export a certain part of its production and,
consequently, this seemed to qualify as an export subsidy under Article 3.1(a) of the Agreement.
This, again, seemed to be specific and notifiable.  The EC therefore requested Paraguay to reconsider
the criteria that it was employing to conclude that certain subsidies were not notifiable.
11. The representative of Paraguay wished to emphasize that there was a Paraguayan law
regarding the improvement of certain areas of the country which were not developed.  The extension
of the time-period for benefits under Article 5 of Law No. 60 of 1990 for enterprises located in theseareas was aimed at developing these areas and not simply at providing benefits to enterprises located
there.  Furthermore, there was no discrimination whatsoever in this regard in favour of enterprises
investing in or moving to or likely to generate mo re income for these areas identified by the Planning
Secretariat.
12. The Chairman explained that, according to Committee procedures, the next review of 1998
new and full notifications would occur in conjunction with the Committee's Spring 1999 Regular
Meeting in the week of 3 May 1999.  At that meeting, the Committee would review all subsidy
notifications that had been circulated in the three working languages by 21 December 1998.
13. The Chairman was not pleased with the status of 1998 new and full notifications, and found it
highly disturbing that 102 Members had not yet submitted these notifications, which had been due on
30 June 1998.  While the delay in submitting 1995 new and full notifications could perhaps have been
explained in part by teething problems as Members wrestled to put into place systems to handle WTOG/SCM/M/19
Page 3
notifications, nearly four years had now passed since WTO entry into force.  The Chairman feared
that, if Members did not quickly submit their notifications, this critical aspect of surveillance of the
implementation of the SCM Agreement would be at serious risk.  Further, the Committee would face
a perhaps impossible workload in its Fall 1999 meeting, if a sufficient number of notifications were
not received in time to be processed, translated, and circulated in time for consideration at the Springmeeting pursuant to the lengthy lead times that th e Committee had incorporated into its procedures.
Accordingly, the Chairman strongly urged all Members to submit their notifications promptly.
14. The Chairman indicated that Committee procedures were based on the assumption that
Members would present written questions and replies in advance of the meeting and on time.  Written
questions regarding the notifications to be re viewed at the Spring meeting would be due on
18 January 1999 and written replies would be due by 22 March 1999.  The Chairman could not
emphasize strongly enough how important it was that all Members respected this timetable.  Not onlywould this ensure a better level of discussion in the Committee, but it would also dramatically shorten
the meetings.
15. The meeting was adjourned.
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