RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q2/CHL/11
26 March 1999
(99-1231)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Replies to Questions from the UNITED STATES1
Regarding the New and Full Notification of CHILE2
The following communication, dated 22 March 1999, has been received from the Permanent
Mission of Chile.
_______________
Q1. In several of your programmes, you state that the period covered for the aid was
June 1998.  Does this imply that the credit was on ly granted in June 1998, or is the programme an
on-going one?  What is th e duration of the programme?
Reply
As mentioned in Chile's reply to Canada in  document G/SCM/Q2/CHL/6, the period covered by
the notification for all the subsidy programmes is up to 30 June of each year, the date of the updating of
notifications as established in paragraph 1 of Article 25 (July 1997 to June 1998 in this case).  This is the
meaning of point 1 of the notification, namely "Per iod covered by the notification", which differs from
point 9 of the notification, namely "Duration of the subsidy and/or an y other time limits attached to it".
However, the fiscal year for Chile begins on 1 January and ends on 31 December of each year,
and therefore the disbursements under the subsidy prog rammes are usually governed by that period and
therefore not linked to the WTO notification tim etable.  In any case, the appropriate period of
disbursements considered is given jointly with th e amount budgeted for each subsidy at point 8 of the
notification.
Q2. Regarding "Tax Credit for Investment in the Provinces of Arica and Parinacota
(Region I)":
(a) The notification states that during the period 1995-1996, investors applied for tax
credit for investments amounting to Ch$11,500 million.  Could you please indicate
what amount of tax credit was applied for in 1996-1997 and 1997-1998?
Reply
During 1996, 14 investors applied for tax credits amounting to Ch$426 million for investments
amounting to Ch$2,803 million.3  During 1997, 20 investors applied for tax credits amounting to
                                                     
1 G/SCM/Q2/CHL/8
2 G/SCM/N/38/CHL
3 Investments attained during 1995 in order to obtain credit in 1996.G/SCM/Q2/CHL/11
Page 2
Ch$832 million for investments amounting to Ch$7,858 million.  During 1998, 27 investors applied for
credits amounting to Ch$1,468 million.4
(b) The notification also states that the period of eligibility for this incentive is
retroactive as of 1 January 1995 and may be extended to 31 December 1999 if soordered by the President of the Republic .  Has the Presiden t ordered that this
benefit continue to 31 December 1999?
Reply
The President of the Republic has ordered that this benefit continue up to 31 December 1999,
by means of Decree No. 1.046, dated 28 July 1998.
Q3. Regarding "Exemption from First-Category Tax Under the Income Tax Law on
Earnings in the Financial Years of Management Companies and Users in the Free Zones in the
Cities of Iquique (Region I) and Punta Arenas (Region XII)", please clarify more fully what
exemptions are allowed (e.g. machinery, technological improvements, etc.).
Reply
The first-category tax under the income tax law corresponds to the income tax for companies,
which amounts to 15 per cent of the annual earnings of the company.  The exemption allowed inaccordance with this programme, is an exemption from this tax, and it has no relation with the
acquisition of machinery or technological improvements, or any other requirement.  Beneficiaries of
this exemption are the management companies and users of the Free Trade Zones in the cities of
Iquique (1
st Region) and Punta Arenas (Region XII).  However, the subsidy does not amount to the
exemption total.
The first-category tax (for companies) and the second-category tax (for individuals) under the
income tax law have been integrated since 1984.  This means that the owners of the company can
discount the amount paid under the first-category tax (15 per cent of the annual earnings of the
company) from the amount to be paid in accordance with the second-category tax (a percentage of the
withdrawn earnings).5
Since their companies benefit from the exempti on from the first-category tax, the owners of
management companies and users of Free Trade Zones have nothing to discount from their second-
category tax and therefore should pay in full.  Therefore the benefit of the exemption amounts
exclusively to the financial cost they do not incur for the period that goes from the moment the first-
category tax was to be paid to the moment (or moments) the earnings are withdrawn.
Q4. Regarding "Support Programme for the Management of Export Firms (PREMEX)":
(a) Please explain more fully your definition of small and medium firms.  In
addition, could you clarify to whom the aid would flow?
Reply
In point 6 of the notification "To whom and how the subsidy is provided", it is explained that
the "subsidy is for all firms (consisting of natural or legal persons) exporting manufactures orsoftware and demonstrating accumulated minimum exports of US$200,000 over the past two years
                                                     
4 The requirement to declare the investments' amount  has been eliminated from the application form.
5 The income level considered for the second-category tax includes other incomes such as salaries, etc.G/SCM/Q2/CHL/11
Page 3
and, in addition, net sales of not more than the equivalent of US$10 million in the past year".  This is
the definition of small and medium firms used.
In reply to your second question, CORFO's Reso lution No. 429 (1996) establishes that the aid
corresponds to payments to be made by the firm to the consultants.
This programme was eliminated by means of CORFO's Resolution No. 853, dated
14 December 1998.  Notifica tion of Programme III w ill be updated accordingly in June 1999.
(b) Please indicate a budget amount for this subsidy for 1998, as well as any amount
already distributed?
Reply
Paragraph 1 of Article 25 of the Agreement on Subsidies and Countervailing Measures
establishes that Members' "notifications of subsidies shall be submitted not later than 30 June of each
year".  In accordance with paragraph 3 of Article 25, the notifications shall contain the "subsidy perunit or, in cases where it is not possible, the total amount or the annual amount budgeted for that
subsidy".
In accordance with both paragraphs, Chile has updated its notification of subsidies, including
the amounts disbursed on each subsidy (point 8 of the notification), in June of each year, since theentry into force of the Agreement.  Amounts are usually given for the period covered by the fiscal
year, which begins on 1 January and ends on 31 December of each year.
In particular, in its notification of June 1998, Chile informed both the amounts budgeted and
disbursed for PREMEX for the year 1997.  The corresponding amounts for the year 1998 will beinformed, as required, in June 1999.
However, as mentioned in reply to (a), this programme was eliminated by means of CORFO's
Resolution No. 853, dated 14 December 1998, and its notification will be updated accordingly in
June 1999.
Q5. Regarding "Motor Vehicle Statute", please provide the amount of the tax credit and
compensatory trade in 1998.
Reply
Please refer to the reply to the previous answer.  In its notification in June 1998, Chile
informed the amounts of the tax credits and customs exemptions for the year 1997.  The
corresponding amounts for the year 1998 will be informed, as required, next June 1999.
Q6. Finally, please explain why the following  subsidy programmes were not included in your
subsidy notification:
ProChile Export Promotion Assistance
ProChile, the Export Promotion Bureau of the Chilean Ministry of Foreign Affairs,
aims to promote and diversify Chile's exports by providing grants to private companies orindustries for export promotional activities.  Each ProChile project is designed and developed
through a joint participation of ProChile and the private sector.  The projects are aimed at the
"Internationalization" of the private sector participant.G/SCM/Q2/CHL/11
Page 4
Reply
ProChile, the Export Promotion Bureau of the Chilean Ministry of Foreign Affairs, has the
responsibility to study, propose and implement activities related to the promotion and diversification
of the country's foreign trade.  In implementing this responsibility, ProChile works to promote theimage of Chile and to assist all its industries in internationalization.  ProChile provides general
information on market opportunities, both abroad and in Chile to foreign investors, it sponsors events
designed to promote Chile's image abroad (for tourism, exports, imports, and investment purposes),
and partners with private sector groups to assist in developing programmes designed to assist their
internationalization.  Many of ProChile's private sector partners do not export and the private sector
partners participation is not necessarily based on a desire to obtain assistance in exporting.  ProChile
provides its services without discrimination.  Given the broad and general nature of ProChile'sactivities, notification is not required.
Chile notes that the US Department of Commerce has several offices that fulfil functions
similar to those provided by ProChile.  For example, according to the Commerce Department's
website, the International Trade Administration is "dedicated to opening markets to US products andproviding assistance and information to exporters … .  Each unit promotes products and offers
services and programmes for the US exporting co mmunity, including export promotion, counselling
and information programmes".  Moreover, the US and Foreign Commercial Service ("US&FCS")
states on the website that its mission "is to support US firms – especially small and medium-sized
companies in their efforts to increase exports.  The US and Foreign Commercial Service maintains aworldwide service delivery network with offices in 90 cities in the United States and 70 countries
overseas.  The global capabilities of US&FCS provide a seamless service to US firms interested in
exporting, from basic market research to arranging meetings with potential foreign buyers".  The US
Commerce Department's publications highlight the sector- and product-specific nature of these
activities (e.g. trade shows limited to medical equipment).  The United States has "Industry SpecificCounselling" for exporters of fish, energy products generally, renewable energy products, fossil
energy products (coal, oil gas), and infrastructure.
Chile notes that ProChile offers services similar to the services offered by the US&FCS.
However, ProChile's activities are less export-oriented since its activities are not limited to assisting
companies to export.  In addition, Chile notes that the United States has notified neither the activities
of the International Trade Administration nor of the US&FCS.
6  If the United States considers that
notification of ProChile is required, then Chile respectfully requests that the United States notify its
export promotion activities.
Law 18,634
Law Number 18,634 of 5 August 1987, established a programme whereby customs
duties may be deferred and subsequently waived  on imported capital goods used in the
production of exports.  Under this programme, both exporters and non-exporters are allowed to
defer paying duties on certain capital goods.  Du ring the deferral period, the amount of duties
owed is treated as a loan on which the producer is required to pay interest.  If the capital goods
are ultimately used for the production of expo rted goods, the outstanding balance and interest
on the loans are waived.  The Law 18,634 deferra l programme is available to exporters as well
as non-exporters.
                                                     
6 See New and Full Notifications Pursuant to Article XV I:1 of the GATT 1994 and Article 25 of the
SCM Agreement: United States, G/SCM/N/3/USA/Suppl.1-G/SCM/N/16/USA/Suppl.1-
G/SCM/N/25/USA/Suppl.1-G/SCM/N/38/USA (19 November 1998).G/SCM/Q2/CHL/11
Page 5
Reply
Chile did notify this programme.  Please refer to Programme V of G/SCM/N/38/CHL.
Law No. 18,634 included three instruments:(i) deferred payment of customs duties on capital goods for all the importers (not only
for the importers who export);
(ii) fiscal credit of 73 per cent of the tariff rate (currently 7.3 per cent) for the first buyer
of a domestically produced capital good (the first buyer does not have to be an
exporter).  This mechanism was established in order to compensate the advantagegiven to imported capital goods;
(iii) exporters could write off the debt (partially or totally).The deferred payment of customs duties and the fiscal credit instruments (i) and (ii) are
credits subject to a market interest rate, which are to be paid in seven years (generally in three
instalments the third, fifth and seventh years).  These instruments are available to all producers (not
only exporters), they are not subsidies, and they are not specific.  Therefore notification of these
instruments is not required.
The only instrument that has been notified is  the third instrument (the partial or total
cancellation of the debt for exporters).  However, in compliance with the Agreement on Subsidies and
Countervailing Measures, Article 6 (a) of Law No. 19,589 of 1998 provided for the elimination of this
third instrument since the entry into force of the Law (14 November 1998).
7  Notification of
Programme V will be updated accordingly in June 1999.
Promotion and Development Fund (Decree 15)
The Promotion and Development Fund for Extreme Regions was established pursuant
to Decree Law No. 3,529, published on 6 December 1980.  Article 38 of this law established the
fund to aid in the development of remote regions of Chile.  These regions are Tarapaca, Aysen
del Presidente Carlos Ibanez del Campo, Magallanes and Antartica Chilena and the provincesof Chiloe and Pelena.  The Fund was established to assist small and medium-sized investors who
make investments or reinvestments in these regi ons.  The programme provides grants in the
amount of 15 per cent of the cost of new investments or reinvestments made between 1 January
and 31 December 1981, and 20 per cent of the cost of investments and reinvestments made
between 1 January 1982 and 31 December 1999.
Reply
This programme will be notified in June 1999.
__________
                                                     
7 A transitory provision maintains this benefit for the companies that applied to the duty deferral or the
fiscal credit before 14 November 1998.  It also establishes a special regime for those that apply to the duty
deferral or the fiscal credit from 14 November 1998 to 31 December 2002 (date of entry into force for Chile of
paragraph 1(a) of Article 3 of the Agreement on Subsidies and Countervailing Measures).