RESTRICTED
WORLD TRADE G/SCM/Q2/HKG/3
6December 1996
ORGANIZATION(96-5113)
Original: English Committee onSubsidies andCountervailing Measures
SUBSIDIES
Replies toQuestions posed bytheEUROPEAN COMMUNITY1andTHAILAND2
Regarding theNewandFullNotification ofHONG KONG3
Thefollowing communication, dated 27November 1996, hasbeenreceived from theHong
Kong Economic andTrade Office.
_______________
TheEuropean Community
TheCommunity examined thedifferent policies oftheHong Kong authorities withrespect to
incentives tothelocalindustry. Inthisrespect, anumber ofprogrammes areavailable inHong Kong
andwerenotnotified totheWTO. TheCommunity requests Hong Kong tonotify theprogrammes
describedbelowandsupplythefollowinginformation:policyobjective,budget,subsidyperunit,criteria
foreligibility, duration ofthesubsidy andstatistical datapermitting anassessment ofthetrade effects
ofthesubsidy (according totheformat adopted bytheWTO Subsidies Committee on21July1995
document G/SCM/6 of9August 1995).
Funding forApplied Research andDevelopment
Afundfinancing applied research anddevelopment hasbeen setupbytheHong Kong
Government several years agoandiscurrently available tothelocal industry. Thetotalamount of
available aidisabout HK$200million. Thefunds arereplenished according totheneeds ofthe
applicant. Inthisrespect, theGovernment appears tohavecertain discretion concerning theeligible
companies andtheamount ofaid.
TheCommunity would likeclarification ofwhythisprogramme wasnotnotified toWTO and
requests that,ifappropriate, Hong Kong supplies anotification under Article 25,using thestandard
format.
Answer
TheApplied Research Council (ARC)
TheARC wasestablished in1993. Itsdutyistoadminister theApplied Research and
Development Scheme andtheCooperative Applied Research andDevelopment Scheme. ItsBoard
1G/SCM/Q2/HKG/1.
2G/SCM/Q2/HKG/2.
3G/SCM/N/3/HKG.G/SCM/Q2/HKG/3
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ofDirectors areappointed bytheHong Kong Government andcomprises industrialists, professionals
andacademics. TheIndustry Department provides secretariat support totheARC.
TheApplied Research andDevelopment (AR&D) Scheme
TheAR&D Scheme wassetupin1993withaGovernment grant ofHK$200 million tofoster
AR&D inHong Kong. Itisusedtofinance AR&D projects oflocalcompanies intheformofinterest-
bearing loanorequity injection, oracombination ofboth. There isnorecurrent funding from the
Government.
There isasetofobjective criteria which govern theeligibility forfunding support. These
criteria aresetoutclearly intheofficial documents oftheARC andareavailable toanyinterested
parties. Such criteria include thetechnological merit oftheproject, itscommercial potential,
management, thetechnical andfinancial capability oftheapplicant company. Thecriteria alsorequires
thatsuchprojects should betrulydevelopmental innature andcontribute totheproductivity growth,
quality improvement orproduct/process innovation. Thecriteria donotpermit discrimination between
industrial sectors. Itisclearfromthecriteria thatfunding support isgenuinely available toallindustrial
sectors. Infact,the17projects which havebeengiven funding support since thecoming intoplace
oftheScheme runacross numerous sectors including environmental technology, telecommunications,
electronics, biotechnology, information technology, precision engineering andmaterial science.
Given thenon-specific nature ofthescheme, weareoftheview thatitdoesnotfallwithin
themeaning ofsubsidies notifiable under Article 25.2oftheSCM Agreement.
Question
TheIndustry andTechnology Development Council (ITDC) Grants
TheITDC administers afundwhich aimstosupport industrial projects which cancontribute
totheoverall industrial ortechnological development ofHong Kong andimprove thecompetitiveness
ofHong Kong'smanufacturing industries. Atotalof152projects wereapproved inthelasttwofinancial
years. Thetotalproject costs amount toHK$177million. Theselected projects canbeclassified
asfollows: biotechnology (15projects), electronics (5),information technology (8),metals (7),plastics
(2)andtextiles (6).Forthecoming financial year, abudget ofHK$106million isforeseen.
Since theITDC hasdiscretion inapproving projects which willbenefit fromsubsidies, the
programme appears tobespecific. Therefore, theCommunity would likeclarification ofwhythis
programme wasnotnotified toWTOandrequests that,ifappropriate, Hong Kong supplies anotification
under Article 25,using thestandard format.
Answer
Industry andTechnology Development Council (ITDC)
TheITDC wasestablished in1992. Itsmajor objective istoadvise theGovernment onthe
overall development ofindustry andtechnology inHong Kong, having regard tothelocalcircumstances,
global market trends andthestateoftechnology world-wide. Tothisend,theITDC willadvise on
thestrategic development ofindustries, devise strategies tofacilitate thedevelopment andapplication
oftechnologies andadvise theIndustry Department ontheadministration oftheIndustry Support Fund.G/SCM/Q2/HKG/3
Page3
TheITDC isanadvisory body. Members areappointed bytheGovernment andaremostly
businessmen, industrialists andacademics. TheIndustry Department oftheHong Kong Government
provides secretariat support totheITDC. Since theITDC isonlyanadvisory body, ithasnofinancial
source orexpenses.
Question
Industrial Support Fund
TheHongKongGovernmentestablishedaspecialprogrammewiththeprimaryaimofdeveloping
ortransferring newtechnologies toHong Kong. TheFund hasanannual budget ofabout HK$250
million.
TheCommunity would likeclarification ofwhythisprogramme wasnotnotified toWTO and
requests that,ifappropriate, Hong Kong supplies anotification under Article 25,using thestandard
format.
Industrial Support Fund (ISF)
TheISFwassetupin1994 andisadministered bytheIndustry Department upon theadvice
oftheITDC. Itaimstoprovide financial assistance (mostly intheform ofgrants) forprogrammes
beneficial totheindustrial ortechnological development inHong Kong. Theamount offunds available
fordisbursement in1996/1997 isHK$250 million.
Themajor recipients oftheISFinclude industry-support bodies (such astheCentre of
Environmental Technology, theClothing Industry Training Authority), tradeandindustry associations
andresearch/higher education institutions. There isasetofobjective criteria andconditions which
govern theeligibility forfunding support. Such criteria andconditions reflect thebroad principles
thattheprojects inquestion mustcontribute totheoverall industrial and/or technological development
ofHong Kong andthatsuchprojects should benon-profit making except forthepurpose oflong-term
self-sufficiency. Other eligibility criteria takeintoaccount other objective factors suchastheplanned
schedule andduration ofaproject, itsbudget, other alternative sources offinance fortheprojects,
andanyduplication ofresources. These criteria andconditions aresetoutclearly intheofficial
documents oftheITDC andareavailable toanyinterested parties. Itcanbeseenfromthese criteria
thattheISFisavailable toallsectors ofthemanufacturing industry. Forexample, in1996/1997, the
54recipients oftheFund came fromafairly broad cross-section ofthelocalindustry including metals,
plastics, electronics, information technology, textiles, biotechnology andgeneral technology (such as
environmental improvement technologies which areapplicable tomore thanoneindustrial sector).
Given itsnon-specific nature, weareoftheviewthattheISFdoesnotfallwithin themeaning
ofsubsidies notifiable under Article 25.2oftheSCM Agreement.
Question
Other Support
TheCommunityobtainedinformationthattheinstitutionswhicharelistedbelowprovidedifferent
types ofaidtothelocal industry. Inthisrespect, theCommunity would likeHong Kong tocomment
ontheactivities, inparticular theactivities ofsubsidization, ofthese institutions andprovide if
appropriate, anotification ofthese programmes according toArticle 25,using thestandard format.G/SCM/Q2/HKG/3
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TheIndustrial Technology Centre, theProductivity Council, theHong Kong Trade Development
Council andtheClothing Technology Centre provide indirect support totheconcerned industries.
Government policy consists ofgranting large budgets tothese institutions. Theinstitutions canona
discretionary basis usethese budgets insupport oflocal industry.
Hong Kong Industrial Technology Centre Corporation (HKITCC)
1. TheHKITCC wasestablished asastatutory corporation in1993under theHong Kong Industrial
TechnologyCentreCorporationOrdinance.ThemissionoftheCorporationistofacilitatethepromotion
oftechnological innovation anddevelopment andtheapplication ofnewtechnologies inindustry in
Hong Kong. TheGovernment provided agrant of$250 million tofundtheconstruction ofthe
Hong Kong Industrial Technology Centre (theCentre) anditsinitial operation. TheHKITCC hasbeen
self-financing eversince.
2. TheCorporation isgoverned byaBoard ofDirectors consisting ofaChairman appointed by
theGovernor andthirteen members appointed bytheFinancial Secretary. Themembers aremostly
businessmen, industrialists, professionals andacademics.
3. TheHKITCC offers awiderange ofservices. They include:
(a) theleasing outofoffice accommodation within theCentre atmarket ratetotechnology-
based companies;
(b) theofferofsupport andassistance ofvarious kinds including office accommodation,
marketing, technology andmanagement support, tonewtechnology-based companies
under aso-called incubation programme. Companies eligible fortheIncubation
Programme must beinvolved inmajor technological development activities in
Hong Kong. Themanagement teamofthecompany mustalsobeabletodemonstrate
ahighleveloftechnical competence intherealization oftheproject(s) together with
aviable marketing planforthesuccessful commercialization oftheproduct(s) or
service(s) being engineered;
(c) thepromotion oftechnology transfer through exhibitions, seminars, publication of
technological journal andother activities.
4. Theservices oftheCorporation areavailable toallsectors oftheindustry. Given itsnon-specific
nature, weareoftheview thattheCorporation anditsservices donotfallwithin themeaning of
subsidies notifiable under Article 25.2oftheSubsidies Agreement.
Hong Kong Productivity Council (HKPC)
1. TheHKPC isastatutory bodyestablished in1967under theHong Kong Productivity Council
Ordinance. Themission oftheHKPC is:
(a) topromote efforts toincrease productivity ofindustry inHong Kong andtoencourage
themore efficient utilization ofresources;
(b) toconsider matters affecting productivity ofindustry inHong Kong;
(c) toadvise theGovernor concerning theproductivity ofindustry inHong Kong and
measures designed toincrease it;G/SCM/Q2/HKG/3
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(d) toconsult with, coordinate andassist theactivities ofpersons ororganizations, either
inHong Kong orelsewhere, engaged inthestudy, development ordissemination of
programmes, methods ortechniques designed toincrease productivity inindustry;
and
(e) totakeonproductivity-related assignments elsewhere thaninHong Kong.
2. Chairman andMembers oftheCouncil areappointed bytheGovernment andmostofthem
come from thebusiness, labour, academic andprofessional sectors.
3. TheHKPCoffersawholespectrumofindustrialsupportservicesincludingconsultancyservices,
training programmes, laboratory services, exhibitions andoverseas study missions. Suchservices are
generally available toallsectors oftheindustry.
4. Since itsestablishment, theHKPC hasbeenfinanced byrevenue earned fromitsservices and
anannual subvention from theGovernment.
5. Given thefactthattheHKPC 'sservices arenotlimited toanyspecific sectors, weareofthe
viewthattheydonotfallwithin themeaning ofsubsidies notifiable under Article 25.2oftheSubsidies
Agreement.
Hong Kong Trade Development Council
Functions
1. TheHong Kong Trade Development Council (HKTDC) wassetupbystatute in1966 with
amandate topromote Hong Kong'strade.
Organization andFinance
2. TheHKTDC isgoverned byitsCouncil, themembership ofwhich isdrawn from awide
spectrum ofHong Kong'sbusinessmen andindustrialists. TheCouncil issupported byan800-strong
staffwhich carry outtheTDC'svarious tradepromotion activities andeffectively serving Hong Kong's
manufacturers andtrades astheirmarketing aim.
3. TheHKTDC receives anannual subvention fromtheGovernment. Infinancial year1995-1996,
Government subvention stood atHK$535 million (orroughly US$70 million), orapproximately 39per
centofthetotalincome oftheCouncil. Itsother financial sources include income generated from
itsoperational activities including tradefairs, tradepublications, tradeenquiries, research reports and
business training programmes andsalesfrom itsDesign Gallery, aswellasreturns from investment
andbankdeposits interests.
4. Activities
Theactivities oftheCouncil focus onpromotion oftrade between Hong Kong andtheworld,
anddiversification ofoverseas markets forHong Kong products. Such activities usually takeplace
intheformoftradefairs, exhibitions, overseas promotional/study missions, publications andhandling
oftradeenquiries. Itsactivities spanoveralmost allsectors ofthemanufacturing, trading andservices
industry inHong Kong anditsservices aregenerally available toallcompanies bothinHong Kong
andoverseas.G/SCM/Q2/HKG/3
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5. Conclusion
Given theCouncil 'sservices andactivities arenottargeted atanyspecific enterprise orindustry,
wedonotthink itfallswithin themeaning ofsubsidies notifiable under Article 25.2oftheSubsidies
Agreement.
Clothing Technology Demonstration Centre Company Limited (CTDC)
1. TheCTDC wasestablished inMarch 1990bytheClothing Industry Training Authority (CITA)
andtheHong Kong Productivity Council (HKPC) asaregistered company inHong Kong. Themission
ofthecompany istofoster quick response anddemonstrate thecost-effectiveness ofusing appropriate
manufacturing techniques. Itsactivities include:
(a) demonstration ofnew technology orproduction methods relating totextiles
manufacturing;
(b) manufacturing ofclothing products upon orders from private companies; and
(c) training programmes.
2. Bothitsmanufacturing andtraining activities arecharged onacommercial basisandnopublic
funding isinvolved. Themanufacturing activities oftheCentre areconsidered important asameans
tokeeptheCentre intouch withtheindustry andtohaveabetter understanding oftheirneeds.
3. Thedemonstration activities oftheCentre arefunded bytheHong Kong Productivity Council.
There isnosubsidy involved.
Thailand
Forreasons oftransparency, please provide details onHong Kong'sexport credit, finance,
insurance andguarantees.
1. TheHong Kong Government 'sinvolvement intheactivities involving export credit, insurance
andguarantees aremainly conducted through theHong Kong Export Credit Insurance Corporation
(ECIC).
TheOrganization ofECIC anditsrelation withtheHong Kong Government
2. TheHong Kong Export Credit Insurance Corporation (ECIC) wascreated bystatute in1966
toprovide insurance protection forHong Kong exporters against non-payment risks arising from
commercial andpolitical events which arenotnormally insured withcommercial insurers. Itscapital
isowned bytheHong Kong Government which alsoguarantees itscontingent liability.
3. Theclasses ofinsurance contracts andthenature andextent ofrisksthatmaybecovered by
theCorporation aresubject totheapproval oftheFinancial Secretary.
4. Apart from theinitial injection ofHK$20 million from theGovernment, theCorporation is
required under itsenabling statute tosecure sufficient revenue tomeetallitsexpenditure. Throughout
its29years inoperation, ECIC hasbeenabletoachieve thistarget without anycosttoHong Kong
taxpayers. Inthefinancial yearof1994/1995, theCorporation hadasurplus ofHK$34.39 million.G/SCM/Q2/HKG/3
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5. Within itsfinancial limits ofthestatue, theCorporation operates asanindependent commercial
entity, making allitsdecisions without prejudice toanyindustry ortrade. TheECIC alsohasthebenefit
oftheadvice ofanadvisory board comprising representatives fromthebanking, insurance, legal, trade
andindustrial sectors andgovernment officials.
ECIC 'sfunctions andfacilities
6. TheCorporation provides insurance protection forexporters against risksofnon-payment by
overseas buyers, duetothebuyer 'sinability orrefusal topayforthegoods exported andservices
rendered, orpolitical andeconomic events including shortage offoreign exchange, import ban,war
andcivildisturbances, ornatural disasters. Itundertakes toindemnify itspolicyholders upto90per
centoftheirlosses.
7. Protection ismainly provided under arange ofshort-term policies covering export ofgoods
andservices oncredit periods upto180days. Forexports ofcapital goods, theCorporation mayprovide
medium tolong-term cover forcredits uptofiveyears orevenlonger, ifrequired. Tofacilitate
exporter 'sfinancing forsuchexports, theCorporation mayprovide asasupplement tothepolicy an
unconditional guarantee tothelending institution upto100percentoftheoutstanding receivables.
8. Apart fromtheprotection against credit risks, theCorporation provides topolicy holders credit
advisory service ontheextent ofcredit itconsiders prudent tooffer tobuyers aswellasarisk
management service oncourses ofaction which maybetaken toprevent alossorfailing thattominimize
theloss. Inproviding these services, theCorporation cancallupon theassistance ofaninternational
network ofstatus information agencies, banks, lawfirms, credit insurers anddebt-collecting agencies.
Consistency withtheWTO SCM Agreement
9. Inconclusion, theCorporation isastatutory bodywithaclearly speltouttaskinitsOrdinance.
Government 'sfinancial contribution totheCorporation hasbeenlimited totheinitial capital injection
ofHK$20 million since itsinception in1966. TheCorporation hasbeenself-financing eversince its
establishment. Itsservices aregenerally available toallcompanies irrespective ofthesectors towhich
theybelong. Inourview, theECIC doesnotfallwithin themeaning ofsubsidies notifiable under
Article 25.2oftheSubsidies Agreement.