RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q2/TUR/12
29 March 1999
(99-1247)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Replies to Questions posed by MEXICO1, POLAND2, and the
UNITED STATES3 Regarding the New and Full
Notification of TURKEY4
The following communication, dated 22 March 1999, has been received from the
Permanent Mission of Turkey.
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QUESTIONS FROM MEXICO
Q1. Subject to what requirements and conditions does Turk Eximbank grant short, medium
and long-term credits?
Answer
The majority of the Short Term Export Credit programmes are designed to provide financial
support to Turkish exporters, or manufacturers supplying exporters, from the early stages of
production.  The facilities aim to increase the competitiveness of Turkish exporters in foreign
markets.  The credits are extended against export commitment which is the f.o.b. value of the stated
amount of exports which are to be made within the credit period.  These credits are allocated toagricultural, mining and industry sectors, irrespective of the country of destination.
Short-term export credits of Turk Eximbank are disbursed through the Turkish commercial
banks or directly to the customers against bank collaterals.  As far as export credits disbursed through
commercial banks are concerned:  since default risk of firms are undertaken by commercial banks,these institutions ask for additional charges and/or guarantees so as to secure themselves.
Commercial banks are keen to participate in Turk  Eximbank's indirect lending programmes not only
because they can add interest spreads to the rates offered by Turk Eximbank, but also because the
programmes serve as useful marketing tools.  Being an approved commercial bank attracts exporters
seeking financing under Turk Eximbank programmes.  If such exporters require additional financingor financial products beyond those offered by Turk Eximbank, they are more likely to seek such
services through the bank that processed its Turk Eximbank application.  Commercial banks selected
                                                     
1 G/SCM/Q2/TUR/10.
2 G/SCM/Q2/TUR/11
3. G/SCM/Q2/TUR/9.
4 G/SCM/N/38/TUR + Suppl.1.G/SCM/Q2/TUR/12
Page 2
must be financially sound and deemed to be active in the foreign trade business according to Turk
Eximbank's standards.
Under the Foreign Trade Companies Credit Lines, Performance Related FX and Turkish Lira
Export Credit Programmes, Short Term Export Credit Discount Programme and Tourism MarketingProgramme, Turk Eximbank offers financing directly to the exporter.
Medium and Long-Term Export Credit
In accordance with practices of Export Credit Ag encies in other countries, Turk Eximbank is
increasing its emphasis on medium and long-term export credit schemes, especially its support of
project finance initiatives.  Most of these programmes involve the extension of credit although certaininsurance and guarantee activities also fall within this category.
Medium and Long-Term Financial support programmes have been mainly developed for the
export of capital goods and turn-key investment projects to be undertaken by Turkish contractors.
The majority of these programmes involve the extension of financing facilities to buyers outside ofTurkey purchasing Turkish goods and/or services.  Turkish exporters are thereby able to tender for
contracts on the basis that Turk Eximbank may be in a position to offer deferred payment terms to the
buyer.  The relevant financing facilities are valuable tools for Turkish exporters and contractors to
establish long term relationships with borrower countries and increase their competitiveness.
Under the  Buyers Credit/Insurance/Guarantee Programme , which commands a significant
share of Turk Eximbank's recent medium and long-term activities, the Bank enables foreign buyers to
purchase Turkish goods and services on deferred payment conditions.  Moreover, the Bank provides a
risk free environment for Turkish contractors.  While implementing this programme, Turk Eximbank
works in close cooperation with other organizations such as the European Bank for Reconstructionand Development (EBRD) and the Asian Developmen t Bank (ADB), as well as with other Export
Credit Agencies such as US Eximbank, COFACE, OND, IFTRIC, EDC and Hermes in order to
facilitate co-financing or co-insurance of new projects.
Within the framework of its Annual Programm es approved by the Supreme Advisory and
Credit Guidance Committee, Turk Eximbank extends credit lines under sovereign guarantee to
correspondent banks and financial institutions in various countries.  Within the framework of this
programme, financing facilities are allocated for both export and project finance and they may be in
the form of direct lending, insurance or guarantee.
Trade finance  refers to credit extended up to two years maturity to facilitate merchandise
exports.  Project finance  is generally a medium or long term facility referring specifically to large
individual projects whose eventual cash flow will repay the debt taken on to finance them and which
are undertaken by Turkish contractors in the role as main or sub-contractor.
For the export finance facility, the repayment period varies depending on the type of goods.
For project finance, in accordance with interna tional guidelines, Turk Eximbank can finance up to
85 per cent of the Turkish portion of the contract value of the project to be executed by Turkish firms.
Repayment periods for project finance schemes are determined based on the nature of the related
project and its expected cash flows.  Turk Eximbank prefers to focus on commercially viable schemes
rather than infrastructure projects.
In general, Turk Eximbank determines the countries to which lines of credit and insurance
will be extended under the sovereign guarantee of these countries within the Buyers Credit
Programme in its annual programmes.  Agreements are signed with these countries at governmentalG/SCM/Q2/TUR/12
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level.  However, the Bank is now prepared to consider project finance schemes on their own merit
without sovereign guarantee.  In these cases other forms of guarantees and collateral are required.
While providing support for Turkish exporters,  Turk Eximbank is careful to act within
internationally accepted market rules and regulations.  The Bank fully complies with OECDConsensus which determines the guidelines for the officially supported export credits for two years or
more.
Q2. How does the Letter of Guarantee Programme for Shipbuilding and Exporting operate?
Answer
Definition and Scope of the Credit
Through the Letter of Guarantee Progamme for Ship-building and Exporting, an export credit
facility is provided to Turkish dockyards in orde r to increase their shares in international markets.
Under this programme, letters of guarantee are pr ovided for the Turkish firms involved in ship-
building and/or the export of ships in order to secure financing from both domestic and foreign
banks/financial institutions or obtain pre-financing either in advance or in instalments from the buyer.
The letter of guarantee for ship-building is designed against commitments of:
- building and exporting of the ship concerned within the letter of guarantee period;
- bringing the relevant foreign currency to the country according to the related legislation and
selling it to a bank.
Definition and Scope of the Guarantee
With the letter of guarantee:
- the principal and interest of the credit extended by the domestic and foreign commercial
banks or financial institutions for the pre-ship ment financing of the ship to be built and
exported;
- When there is no use of credit, the advance payments and the payments made at the
completion of the ship by the buyer;
- in cases where a counter-guarantee is given to the bank of the buyer, the principal and the
interest of the letter of guarantee arranged by the guarantor bank
are guaranteed by Turk Eximbank within the determined limits.
The Amount and the Term of the Letter of Guarantee
The amount and the term of the letter of guarantee is determined by Turk Eximbank for each
ship, based on the contract signed between the buyer and the supplier.G/SCM/Q2/TUR/12
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QUESTIONS FROM POLAND
Agricultural subsidies
Q1. Could Turkey please provide more detail ed information on these subsidy programmes
taking into account the regulations of Arti cle 25.3 of the SCM Agreement.  We would in
particular appreciate some data on the duration of the programmes and their legal basis in
domestic law.
Answer
For detailed information on agricultural subsidies please see the recent notification circulated
in document G/SCM/N/38/TUR/Suppl.1/Rev.1, dated 8 March 1999, which replaced
G/SCM/38/TUR/Suppl.1.
Investment encouraging system
Q2. As we understand, the programme above is in its early stage of implementing.  Despite
that fact, would it be possible to receive some data on the amount of support which was already
effective under this scheme (we would appreciate it  very much the division of these according to
the different forms of support as they are described in point 5 (a-g)).
Answer
First of all, we'd like to mention that the main elements of the investment encouragement
mechanism are tax related ones and the system is based on a "pro-forma" certificate system, where the
investor cannot take the advantage of the elements  of encouragement without actually realising the
investment itself.  Without the actual realisation of the investment it is not possible to extract exact
figures on foregone taxes.
(a) Customs Tax Exemption
Data not available.
(b) Investment Allowance
Data not available.
(c) Value Added Tax (VAT) support towards the purchase machinery and equipment
Specific Data is not available at the moment since the certificates given for projects in
1998 have not yet been realised.
(d) Tax duties and fees exemptions
Data not available.
(e) Energy Support
There has not been an implementation of this encouragement element.G/SCM/Q2/TUR/12
Page 5
(f) Land Allocation
Data not available.
(g) Credit Allocation
Implementation of this encouragement element as it has been foreseen in Decree No.
98/10755, has only been aimed at Small and Medium size Enterprises (SME's), the
amount for SME's during the period of 1998 has been a total of TL 15.5 Trillion.
Credit programmes
Q3. Are export credits programmes listed here prohibited subsidies within the meaning of
Article 3.1(a) of the SCM Agreement listed here?
If yes, were they notified according to Article 28.1(a) of the SCM Agreement?
In connection with the above could Turkey please comment on the duration of these
schemes taking into account Article 27.4 of the SCM Agreement and indefinite time-limits in the
notification?
Answer
As prohibited subsidies are defined in Article 3.1 (a) and (b), subsidies which are contingent
upon export performance including those illustrated in Annex I are prohibited for all WTO Members,
with an exception for developing countries, in the context of duration of those subsidies.
According to Article 3, footnote 5, measures referred to in Annex I as not constituting export
subsidies shall not be prohibited under this or any other provision of this Agreement.
In this regard according to Annex I (Illustrative List of Export Subsidies), paragraphs (j) and
(k), explains in which situations export credit, guarantee and insurance programmes mandated by
governments or special institutions controlled by governments, constitutes prohibited subsidies,
export credit, guarantee and insurance programmes mandated by Turk Eximbank, are fully incompliance with those paragraphs.
After the establishment of the customs union between Turkey and the EU at the beginning of
1996, Turkey made necessary arrangements to harmonize its legislation with that of the EU in related
fields, including officially supported credits.  Wi thin this framework, the OECD Consensus Principles
on officially supported export credits with a repayment term of two or more years have also been
adopted.
On the other hand, Turk Eximbank is a full member of the Bern Union which is an
international association of export credit insurers.  Turkey has also recently become a member of theGroup on Export Credits and Credit Guarantees (E CG), a subsidiary body of the OECD Trade
Committee.G/SCM/Q2/TUR/12
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QUESTIONS POSED BY THE UNITED STATES
Q1. Regarding the "Decree Concerning State Encouragement to Investments & the
Investment Encouragement Fund", what is the period of notification?
Answer
As far as the "Decree Concerning State Encouragements to Investments and the Investment
Encouragement Fund" as it is defined in the notification, the programme is an investment
encouragement mechanism as the name implies.  Th is is the latest ongoing legislative document in
use which was published in the Official Gazette 25 March 1998.
This system is the most updated and simplified version of the past implementations regarding
State Encourgements aimed at investments.  As it has been stated in the notification, the system is
mainly based on tax related instruments which are implemented on a certificate basis.
Until investments are realised, there is no possibility of evaluating the exact amount of
encouragement elements granted within the certific ates issued for investment projects especially
related to foregone taxes embedded within the mechanism.
Q(a). What factors were taken into considera tion to distinguish the different regional
classifications?
Answer
There are three different regions in Turkey in terms of disparities in regional development
levels.  49 provinces out of the present 80 provinces are classified as regions with development
priorities.  Seven provinces classified as developed regions (namely, Istanbul, Kocaeli, Ankara, Izmir,
Bursa, Adana and Antalya) and the remaining are classified as normal regions.
The factors that helped us in making a distinction amongst the regions are several.  First of
all, a model comprising of 58 variables for the determination of socio-economic development level ofprovinces, is used.  This model is a multi-variable statistical technique with principal components
analysis aimed at generating composite index values.  Demography, employment, training, health,
industry, agriculture, construction, infrastructure and finance are the areas from which such variables
are determined.  The study is repeated in certain years such as 1973, 1980, 1985, 1990, 1996 covering
a period of nearly 25 years.
There are other important factors in making the said distinction between provinces such as per
capita GDP figures, employment, industry and training statistics along with other so called welfare
statistics.
In order to identify the level of disparity between regions, such evaluation matrices are taken
into account.
Q(b). What is the estimated amount of the subsidy?
Answer
The mechanism can be defined as a "pro-forma" certificate system, where the investor cannot
take advantage of the elements of encouragement without actually realising the investment itself.G/SCM/Q2/TUR/12
Page 7
This being the case, it is not possible to evaluate the exact amounts of taxes foregone until the
investment is completed.  For example, the encour agement element called "Investment Allowance" is
a kind of income or corporate tax exemption and two main conditions have to be satisfied in order to
benefit; (1) the expenditure foreseen in the certificate shall be made (completed) and (2) the benefiting
certificate holder shall have realised a profit.  Once these conditions are satisfied, all the relatedexpenses are calculated on a per project basis on the tax statements of the company, and all of the tax
related elements which are directly related and implemented in accordance with the General Tax Law.
When taking into consideration the overall time of completion of an investment (which on the average
takes between 2-3 years to complete, sometimes 5-10 years depending on the scale of the investment
project) the difficulty of evaluating or estimating the outcomes can be understood.
Q(c). What is the duration for which the subsidy is to last?
Answer
The duration of the investment encouragement mechanism has not been identified, the
ongoing system can be adapted, changed, and varied, depending on the needs and necessities of theeconomy as well as international obligations.
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