RESTRICTED
WORLD TRADE G/SCM/Q2/ISL/6
19June1997
ORGANIZATION(97-2509)
Original: English Committee onSubsidies
andCountervailing Measures
Replies ofICELAND toQuestions posed bythe
EUROPEAN COMMUNITY, ARGENTINA, theUNITED STATES1
andJAPAN Regarding theNewandFull Notification ofICELAND2
Thefollowing communication, dated 13June1997, hasbeenreceived from thePermanent
Mission ofIceland.
_______________
REPLIES TOTHE EUROPEAN COMMUNITY
I. NOTIFIED SUBSIDY PROGRAMMES
(a) Support forR&D
- Could Iceland explain howprojects areselected andwhat thecriteria foreligibility
are?
Answer
TheTechnology Fund isoperated bytheIcelandic Research Council, which isagovernment
agency reporting totheMinistry ofCulture andEducation. Grants areawarded annually upon
application. TheResearch Council establishes atwo-tier committee structure toprocess applications.
Anexpert committee assesses thescientific/technical content ofapplications andsubmits itsfindings
toanallocations committee. Theallocations committee makes finalrecommendations totheResearch
Council interaliaonthebasisofgeneral policy considerations. Thecriteria forproject support from
theTechnology Fund canbesummarized asfollows:
1. Scientific andtechnological novelty
2. Applicability within Icelandic industries
3. Competence oftheapplicant, i.e.education, experience andprior achievements
4. Plausibility ofproject planandfunding scheme
5. Available facilities andequipment needed fortheproject
1G/SCM/Q2/ISL/2, G/SCM/Q2/ISL/3, G/SCM/Q2/ISL/4 andG/SCM/Q2/ISL/5
2G/SCM/N/3/ISLG/SCM/Q2/ISL/6
Page2
(b) Industrial Research
- Could Iceland provide adefinition of“manufacturing industries ”?
Answer
Thedefinition ofmanufacturing industries isthestandard ISICclassification. Fortwodigits
itisISIC30to39.
- Arethecriteria foreligibility different from thecriteria tobenefit from the
“Industry Development andMarketing ”programme?
Answer
Thecriteria arethesame. These programmes havecome toanend,which willbeclarified
inIceland ´snextnotification onsubsidies totheWTO.
II. ADDITIONAL PROGRAMMES NOT NOTIFIED TOTHE WTO
1. Exemption from Income Tax
Foreign companies using anIcelandic agent ordistributor (which isrecognized bythe
government) benefit from anexemption from income taxonincome earned through Icelandic
sales.
Answer
Nosuchexemption exists. Non-resident corporations aresubject toincome taxontheirincome
fromIcelandic sources. They aretaxed inconformity withtherulesthatapply tocompanies domiciled
inIceland onincome derived frombusiness activities orparticipation inbusiness activities taking place
inIceland onapermanent basis, orfrom specific sources inIceland.
2. FreeTrade Zones
Since 1992, Iceland established anumber offreetrade zones. Companies located inthese
zones areeligible fortaxincentives.
Answer
Nosuchzones havebeenestablished andnoneareatpresent planned.
3. TheIcelandic Investment Corporation
TheIcelandic Investment Corporation isajoint private andgovernment sponsored
programme tofinancially assist businesses andoffer financial aidforinnovative firms.
Answer
TheEuropean Community might bereferring totheIcelandic Investment Bureau. ThisBureau
provides information oninvestment opportunities inIceland, therulesthatapply toenterprises, costG/SCM/Q2/ISL/6
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ofsupplies, theeconomic situation, etc.. Noloans orsubsidies areprovided through theBureau to
companies orother agencies.
REPLIES TOARGENTINA
1. Iceland hasnotified subsidies granted topromote innovation anddevelopment ofsmall- and
medium-sized enterprises (Nos. 11-299-140; 11-299-114; 11-299-150).
1.1. What willbethetotal duration oftheprogrammes oruntil when doesIceland foresee
theneed tomaintain them?
Answer
Theprogrammes inquestion were notsubject toaspecific timelimit. Adecision oneach
wastaken foroneyearatatime. Theprogrammes havenowcome toanend,aswillbeclarified in
Iceland ´snextsubsidies notification totheWTO.
1.2. CanIceland givedetails oftheresearch anddevelopment costs which arecovered bythe
subsidies, aswellasthepercentage ofthetotal costs ofdevelopment programmes thatthey
represent, inaccordance withArticle 8.2.(a) oftheSubsidies Agreement?
Answer
Theprogramme doesnotcover production costs inanyformandonlyupto30%ofthecost
ofR&D andinnovation, suchasadvice byoutside consultants, design, product development, research,
etc..Thecostiswithin thescope of“pre-competitive development activity ”asdefined inArticle 8.2(a)
oftheSubsidies Agreement.
2. Incases ofregional aid,canIceland identify theregions favoured bytheprogramme,
aswellasthecriteria taken intoaccount when suchregions arechosen, inaccordance withArticle
8.2(b) oftheSubsidies Agreement?
Answer
Theareaseligible forregional aidconsist ofthefollowing electoral constituencies: Vesturland,
Vestfirdir, Nordurland vestra, Nordurland eystra, Austurland andSudurland, aswellastheregion
Sudurnes which consists ofthose municipalities belonging totheReykjanes constituency thatareoutside
thecapitalregion.Thecriteriatakenintoaccountwhentheseregionswerechosenincludelowpopulation
density andavariety ofdemographic, economic andtopographic factors suchasunfavourable population
trends intheregions, their vulnerable andundiversified economic basewithhighdependence on
agriculture andfisheries, longdistances within thecountry andharsh climate conditions.
Enterprises located inthecapital region, consisting ofReykjavík andeight adjoining
municipalities, arenoteligible forregional aid.
REPLIES TOTHE UNITED STATES
1. Iceland ´sIndustrial Research programme supports upto30%ofthe“costofnewproducts,
process andsystems forindustrial production ”(inaddition toprimary R&D costsandinnovationG/SCM/Q2/ISL/6
Page4
costs). Does thisprogramme cover thecostofproducing thenewproducts, process andsystems,
orisitlimited tothecostsof“pre-competitive development activity ”asdefined intheAgreement?
Answer
Theprogramme doesnotcover production costs inanyformandonlyupto30%ofthecost
ofR&D andinnovation, suchasadvice byoutside consultants, design, product development, research,
etc..Thecostiswithin thescope of“pre-competitive development activity ”asdefined inArticle 8.2(a)
oftheSubsidies Agreement.
2. Iceland ´sIndustry Development andMarketing programme provides support for“product
andmarketing costs”ofsmall andmedium-sized manufacturers. What kindofcosts doesthis
encompass? Does theprogramme cover production costs orisitlimited tothecosts of
“pre-competitive development activity ”asdefined intheAgreement?
Answer
Theprogramme doesnotcover production costs inanyformandonlyupto30%ofthecost
ofR&D andinnovation, suchasadvice byoutside consultants, design, product development, research,
etc..Thecostiswithin thescope of“pre-competitive development activity ”asdefined inArticle 8.2(a)
oftheSubsidies Agreement.
3. Please provide further clarification regarding theamount ofsubsidies provided (e.g.the
meaningof“figuresreportedrefertomanufacturing”)underthefollowingprogrammes:Industrial
Research, Development andMarketing intheFishing Industry, Small Companies inRural Areas,
andIndustry Development andMarketing.
Answer
Theprogrammes referred tohaveonlybeenavailable tocompanies inmanufacturing. The
figures contained inIceland ´snotification thusrepresent totalamounts. Theprogrammes havecome
toanend,withtheexception oftheonerelating toDevelopment andMarketing intheFishing Industry.
Thiswillbeclarified inIceland ´snextsubsidies notification totheWTO.
REPLIES TOJAPAN
2.1 Technology Fund
Could Iceland explain which industries inthemanufacturing sector havebenefited from
these subsidies?
Answer
Iceland ´snotification (G/SCM/N/3/ISL &G/SCM/N/16/ISL) informs thatallcategories of
applicants,betheypublicresearchinstitutions,university-basedresearchinstitutions,businessenterprises
orindividual scientists without permanent institutional affiliation, areeligible forsupport. The
manufacturingindustriesreceivingsupportin1995wereoperatinginbuildingconstructionandmaterials,
industrial manufacturing equipment, fishprocessing equipment andsoftware development. Besides
supporting projects inmanufacturing industries, theFund alsosupports projects inagriculture,
aquaculture, biotechnology, fisheries, fishprocessing, forestry, andprivate andpublic service. TheG/SCM/Q2/ISL/6
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ratios between support todifferent branches ofindustries hasnotchanged dramatically during thelast
fewyears.
Theaverage grant from theTechnology Fund in1996 amounted toISK1.4million, while
oneman-year inIcelandic research costsapproximately ISK4.1million. In1995Iceland ´stotalexpenses
onR&D wereISK6.9billion. TheTechnology Funddistributed approximately ISK185million, which
amounts to2.66% ofthetotalexpenditure.
2.2 Industrial Research
Could Iceland explain which industries inthemanufacturing sector havebenefited from
these subsidies?
Answer
Allindustries within themanufacturing sector areeligible forapplication. Iceland hasnot
analyzed specifically which industries havebenefited from theprogramme orhowmuch.