RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q2/THA/10
21 October 1999
(99-4566)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Replies to Questions posed by the EUROPEAN COMMUNITY1 and the
UNITED STATES2 Regarding the New and Full Notification of THAILAND3
The following communication, dated 21 October 1999, has been received from the Permanent
Mission of Thailand.
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Q1. Industrial Credit Refinancing Scheme (EC)
1.2 Small-scale industry
It is stated that assistance is provided to priority sectors and projects.  Can Thailand please
define more precisely what are these "priority sectors and projects"?
Reply
The programme is administrated by the Bank of Thailand, rather than the BOI.  It has an
objective to promote small and medium scale industries located in provinces, and encouragedistribution of income and wealth to rural area.  Under the programme, promissory notes issued bycredit-worthy manufacturers through commercial banks, the IFCT, the Small Industry FinanceCorporation (SIFC), finance companies or finance and securities companies can be sold to the Bankof Thailand.
Eligible industries include (1) Eligible small-scale industries are manufacturing industries or
handicraft and house hold industries with net fixed assets not exceeding B 50 million, (2) Mediumscale industries with net fixed assets more than B 50 million but not over B 200 million.  However,the Bank of Thailand reserves the right not to provide financial assistance to any enterprises, whichdeem inappropriate.
4. Incentives to Promoted Industries under the Board of Investment's (BOI) Privileges on
Zone 3 Programmes (EC).
It is stated that assistance is provided to priority sectors and projects.  Can Thailand please
define more precisely what are these "priority sectors and projects"?
                                                     
1 G/SCM/Q2/THA/8 + Corr.1
2 G/SCM/Q2/THA/9
3 G/SCM/N/38/THAG/SCM/Q2/THA/10
Page 2
Reply
The priority sector and projects are not specifically defined as such, but the BOI classify its
priority sectors corresponding to the development needs including sectors as:
- Basic transportation and infrastructure
- Environment protection and prevention
- Direct involvement in Technological Development, and
- Basic industries necessary to sustain economic structure
5. Investment Promotion Incentives (EC).
Under what circumstances are export requirements imposed on companies who wish to avail
themselves of these incentives?
Reply
Three zones have been designated under the BOI scheme4.  These zones constitute the
whole country.  The BOI only applies export performance requirement for investment projectslocated in Zone 1 in as follows:
/g216 Projects not located in industrial estates or promoted industrial zones
5 are required to
export at least 80 per cent in order to be entitled to 50 per cent reduction of importduties on machinery. (Project located in industrial estates or promoted industrial zonesare entitled to 50 per cent reduction of import duties on machinery, without beingsubject to any export performance requirement.
/g216 Only projects exporting at least 80 per cent of total sales and located in industrial estates
or promoted industrial zones will be granted 3 years tax holidays.
Non-Notified Programmes (US)
The United States is aware of a number of programmes, which do not appear to be included in
Thailand’s notification.  Please provide information on these programmes according to the agreed
notification format, or explain why the programmes were not notified.
· Exemptions from VAT Under Section 21(4) of the VAT Act : Prior to 1992,
sections 28 and 30 of the Investment Prom otion Act enabled the Board of Investment
to exempt promoted companies from business and local taxes in addition to
exemptions from payment of import duties.  In 1992, this system was replaced by a
VAT system.  Under Section 21(4) of the VAT act, the exemption from business and
local taxes was replaced by a VAT exemption for the designated companies.
                                                     
4 Zone 1 includes Bangkok, Samut Prakan, Samut Sakhon, Pathum Thani, Nonthaburi, and Nakhon
Pathom
Zone 2 includes Samut Songkram, Ratchaburi Kanchanaburi, Suphanburi, Ang Thong, Ayutthaya,
Sara Buri, Nakhon Nayok, Chachoengsao and Chonburi
Zone 3 includes the remaining provinces plus Laem Chabang Industrail Estates
5 Industrial estates are managed by the Industrial Estate Authority of Tha iland whereas industrial
zones are privately runG/SCM/Q2/THA/10
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Reply
This programme is provided to all industry and enterprises that are under the Investment
Promotion Scheme.  The Value Added Tax system calculates the tax from the difference betweenthe VAT paid and the VAT received in each of month.  By virtue, the programme under Section21(4) does not confer subsidies as per Article 1 of the Agreement.
· Import Duty Exemptions for Industrial Estates :  The Industrial Estates Authority
of Thailand Act (IEAT) allows firms located in “industrial estates” designated by this
Act to receive tax and duty exemptions for machinery used for factory constructionand operation, and on raw materials and other inputs.
· 
Reply
Under the Import Duty Exemption programme, the Industrial Estate Authority allows all
firms choose to be located in the industrial estates designed by the Industrial Estates Authority ofThailand Act to receive the benefit.  The exemptions for the programme are 50 per cent exemptionfor firms located in the industrial estates in Zone 1 and 2, and 100 per cent exemption for firmslocated in Zone 3.  Therefore, the IEA considers that the programme is available to all firms andindustries wishing to be located in the industrial estates and, thus, is not specific in the sense ofArticle 2.
· Export Processing Zone Incentives : Many estates under the Industrial Estates
Authority of Thailand Act (IEAT) contain Export Processing Zones (EPZ) that
provide incentives beyond those conferred by IEAT status to companies located in
such zones and which export a minimum percentage of their production.  Such
incentives include an exemption from export duties on products/by-products and anexemption/refund of import taxes on any goods sent into the EPZ, regardless of
whether they are incorporated into the end product.
Reply
As for the Export Processing Zone Incentives, the information on this programme is as
follows:
Type/Zone ZONE 1 ZONE 2 ZONE 3
Corporate Income Tax 100% exemption for
3 years100% exemption for
7 years100% exemption for 8
years plus reduction of
50% for another 5 years
Duties on CapitalGoods (Machineries,parts, accessories,etc.)Free Free Free
Duties on Import Raw
MaterialFree Free Free
VAT, Excise Tax,
Surcharge Import andExport Duty FreeFree Free FreeG/SCM/Q2/THA/10
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· Tax Certificates for Export : Under the Tax and Duty Compensation of Exported
Goods Produced in the Kingdom Act, the Ro yal Thai Government issues to exporters
transferable certificates that rebate indirect taxes and import duties levied on imports
used to produce exports.
Reply
The programme is administrated by the Ministry of Finance.  The tax certificate will only
be issued for import duty of input used in the production process (Annex II) for export products andthus does not confer subsidies by the definition of Article 1 of the Agreement.  However, the dutyand tax refund is calculated based on the proportion of tax and duty burden for input used in theproduction process in accordance to the Input-Output Table of Thailand.  The table was constructedby the Office of the National Economics and Social Development Board, in 1990 and is beingupdated for 1995.
. Trust Receipt Financing for Raw Materials :  The Thai EXIM Bank has provided
$250 million in financing for exporters to buy raw materials under a “Trust Receipt
Financing for Raw Materials”
Reply
The “Trust Receipt Financing for Raw Material” programme utilizes the funding from the
Asian Development Bank (ADB). The EXIM Bank is only an intermediary in the process to makethis money available to the commercial bank who, in turn, make this fund available at the ratewhich the commercial bank desire.  There is no law or regulation governing the rate at which thecommercial bank must make this fund available to the traders.  Therefore, this programme does notconfer subsidies as defined by Article 1 of the Agreement.  As an additional information, the rate atwhich this fund is made available to the commercial bank is at a more disadvantageous rate and thusthe programme has recently been terminated and the remaining of the fund is returned to the ADB.
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