WORLD TRADE
ORGANIZATIONG/SCM/Q3/PAN/11
26 April 2002
(02-2415)
Committee on Subsidies and
Countervailing MeasuresOriginal:  Spanish
SUBSIDIES
Request Pursuant to Article 27.4 of the Agreement on
Subsidies and Countervailing Measures
Replies by PANAMA to Questions Posed by the
UNITED STATES1 and JAPAN2
The following communication, dated 23 April 2002, has been received from the Permanent
Mission of Panama.
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UNITED STATES
1. Under the Tax Credit Certificates (CAT) programme, one of the eligibility requirements
is that the goods exported must have "a minimum share of 20 per cen t in national content and
national value added".  Given this requireme nt, please comment on whether this programme
constitutes a prohibited subsidy under Articl e 3.1(b) of the Agreement on Subsidies and
Countervailing Measures.
Reply
The subsidy generated by the CAT programme is not a prohibited subsidy under
Article 3.1(b) of the SCM Agreement, since the use of domestic goods is neither a sole requirement,
nor one of several conditions for eligibility.
As stated in Article 6 of Executive Decree No. 5 of 8 February 1991, the provisions relating
to the use of domestic raw materials for the calculation of the 20 per cent in national content and
national value added only constitute one of the elemen ts to be taken into account in determining those
values.  Consequently, the share of domestic raw materials in the calculation of the national value
added is neither a requirement, nor a determining and indispensable factor for an enterprise's
eligibility for the programme.  The result of the calculation of the national value added will depend onthe productive structure of the applicant enterprise and the specific weight for that enterprise of each
one of the elements to be factored into the calculation.
Moreover, the use of imported raw materials neither disqualifies nor excludes an export
product from the benefits of the programme.  In fact, for the purposes of calculating the national value
                                                     
1 G/SCM/Q3/PAN/9.
2 G/SCM/Q3/PAN/10.G/SCM/Q3/PAN/11
Page 2
added, any imported product which has undergone processing and has been incorporated in the
product subject to the CAT will be counted at 35 per cent of its value.
Owing to the re lative scarcity of domestic raw materials it is common, for a whole series of
activities covered by the CAT, to use imported raw materials only, since this opens up the supply ofraw materials and avoids operational difficulties.  Examples of such activities are the manufacture of
clothing, aluminium, cleaning products, beer, truck bodies, plastic products etc.
On the other hand, what is truly a prerequisite for eligibility is that the products should be
exported and processed entirely or partly in the national territory, as stipulated in Article 2 of
Executive Decree No. 5 of 8 February 1991, since the basic purpose of the programme is to generate
manpower, increase the level of processing of products deriving from the beneficiary activities and toorient production towards the export market.
2. In light of the fact that the Official Industry Registry programme encourages use of
domestic rather than imported goods, please co mment on whether this programme constitutes a
prohibited subsidy under Article 3.1(b) of the Agreement on Subsidies and CountervailingMeasures.
Reply
The Official Industry Registry (OIR) programme is not a prohibited subsidy under
Article 3.1(b) of the SCM because it does not encourage the use of domestic raw materials rather than
imported goods.  Indeed, it is not possible to benefit from the import tax exemption if domestic goods
are used.  Although the benefit is authorized providing domestic raw materials are not available in
sufficient quantities, at an acceptable standard of quality and at the same or equivalent prices, this
condition does not discourage the use of imported raw materials.  On the contrary, rather than actuallygiving a preference to the domestic product, this provision provides an opportunity to significantly
reduce the costs of importing the product which it would not otherwise be possible to import.
Moreover, this opportunity is independent, and does not affect the granting of the other benefits under
the programme.
3. Is it possible that the special funding programme under the Official Industry Registry
will be implemented in the future?  If not, please explain.
Reply
It is not possible, under the OIR programme,  to implement the special funding at a
preferential interest rate in the future because the only current benefits under that OIR are those whichexisted on 20 June 1995, upon publication of Law 28 on the universalization of tariff incentives.  At
that date, the implementation of the provisions of Article 14 of Law 3 of 1986 promoting the
establishment of these special funding programmes had not yet taken place.  Consequently, it has not
been possible, since that date (June 1995), for an y company to avail itself of the benefit because it
does not exist and cannot be implemented through the instruments created by the OIR programme;  inother words, since that date, it has been an eliminated benefit.
JAPAN
Tax Credit Certificate (CAT)
This regime seems to include a requirement for national content and national value
added.  Could Panama please explain its conformity with Article 3.1(b) of the ASCM?G/SCM/Q3/PAN/11
Page 3
Reply
The subsidy generated by the CAT programme is not a prohibited subsidy under
Article 3.1(b) of the SCM Agreement, since the use of domestic goods is neither a sole requirement,
nor one of several conditions for eligibility.
As stated in Article 6 of Executive Decree No. 5 of 8 February 1991, the provisions relating
to the use of domestic raw materials for the calculation of the 20 per cent in national content and
national value added only constitute one of the elemen ts to be taken into account in determining those
values.  Consequently, the share of domestic raw materials in the calculation of the national value
added is neither a requirement, nor a determining and indispensable factor for an enterprise's
eligibility for the programme.  The result of the calculation of the national value added will depend onthe productive structure of the applicant enterprise and the specific weight for that enterprise of each
one of the elements to be factored into the calculation.
Moreover, the use of imported raw materials neither disqualifies nor excludes an export
product from the benefits of the programme.  In fact, for the purposes of calculating the national valueadded, any imported product which has undergone processing and has been incorporated in the
product subject to the CAT will be counted at 35 per cent of its value.
Owing to the re lative scarcity of domestic raw materials it is common, for a whole series of
activities covered by the CAT, to use imported raw materials only, since this opens up the supply ofraw materials and avoids operational difficulties.  Examples of such activities are the manufacture of
clothing, aluminium, cleaning products, beer, truck bodies, plastic products etc.
On the other hand, what is truly a prerequisite for eligibility is that the products should be
exported and processed entirely or partly in the national territory, as stipulated in Article 2 ofExecutive Decree No. 5 of 8 February 1991, since the basic purpose of the programme is to generate
manpower, increase the level of processing of products deriving from the beneficiary activities and to
orient production towards the export market.
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