RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q3/LKA/7
5 April 2002
(02-1802)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Requests Pursuant to Article 27.4 of the Agreement
on Subsidies and Countervailing Measures
Responses by SRI LANKA to Questions Posed by
AUSTRALIA1, CANADA2, EUROPEAN COMMUNITIES3,
JAPAN4, SWITZERLAND5 and the UNITED STATES6
The following communication, dated 3 April 2002, has been received from the Permanent
Mission of Sri Lanka.
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A number of questions were received from Australia, Canada, European Communities, Japan,
Switzerland and the United States in respect of the List of Eligible Investment Incentive Programmes
(Annex – I), which Sri Lanka submitted to the WTO with its reservation of right, in pursuant to
paragraph 6 of the procedures set forth in Document G/SCM/39, to request an extension under
Article 27.4 of the SCM  Agreement.  The delegation of Sri Lanka appreciates very much the interests
taken by the members by posing questions on its communication.
Sri Lanka being a Annex VII(b) country expressed its reservation of right, through the
Communication Number G/SCM/ N/74/LKA, to make use of the procedures as referred to in 6 (c) of
document G/SCM/39, in order to avail itself of the special procedure, at a future date, when Sri Lanka
graduates from Annex-VII.  Further, Sri Lanka also provided the documentation referred to in 1 (a) ofthe document G/SCM/39.  It would be appreciate d, if WTO members take note of the fact that
Sri Lanka has only made a reservation and therefore recognise  the situation relating to Sri Lanka’s
status, with respect to the actual use of Special Procedures set forth in document G/SCM/39, when
examining the Notification made by Sri Lanka.
The delegation of Sri Lanka is thankful to the Chairman of the SCM Committee for indicating
very eloquently the situation of Annex – VII countries with respect to the procedures set forth in
document G/SCM/39.
                                                     
1 G/SCM/Q3/LKA/1
2 G/SCM/Q3/LKA/5
3 G/SCM/Q3/LKA/3
4 G/SCM/Q3/LAK/4
5 G/SCM/Q3/LKA/2
6 G/SCM/Q3/LKA/6G/SCM/Q3/LKA/7
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Nevertheless, for transparency requirements, Sri Lanka provides the following information on
voluntary basis for the questions already posed. Sri Lanka would appreciate if members recognize the
status of Annex –VII countries, who have reserved their rights before posing further questions to
them.
Questions posed by Australia, Switzerland, Japan and USA:
Australia Provide Details of the Programmes
Switzerland A first and Full Notification of the existing subsidy programmes
Japan Provide details of each requested programme
USA Provide sufficient details regarding the programmes at issue
All questions that were posed by countries were received after the deadline.  However, we are
thankful to the delegation of European Communities, for also sending us direct the questions posed by
them.
Responses by Sri Lanka:
It is pertinent to mention here, that Sri Lanka through its full Notification G/SCM/N/3/LKA
made in 1997, It had notified all programmes, including that are contained in Annex – I of its initial
communication forwarded to this committee under the special procedure  set forth in G/SCM/39 .
Sri Lanka intends to submit a full notification of the programmes referred to in Annex – I of
its Communication G/SCM/N/74/LKA, to this Committee in two weeks time. This notification shall
follow the agreed format for subsidy notifications under SCM Article 25.
Responses to Specific Questions Posed by Canada and European Communities:
The responses to eight and six questions posed by Canada and EC respectively, are organized
under the following broad themes:
(a) Time Bound Questions:
1. How long have the programmes existed -  Question No.1 posed by EC
Reply
The programmes that are notified in Annex – I were introduced in 1978 under Section 17 of
the Board of Investment Law.
2. How long have the programmes existed -  Question No. 1 of Canada.
Reply
The programmes notified under Annex – I have existed since 1978.
3. Please describe any changes to the programmes since 1 September 2001, if any. In
particular, indicate any changes to the rate of exemption or the coverage of the programmes e.g.
in terms of products, location etc. – Question No.5 of ECG/SCM/Q3/LKA/7
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Reply
There have been no changes to the programmes indicated in Annex – I since
1 September 2001.
4. For how long can a company enjoy the benefits? If there is an expiry can a company re-
apply for exemptions – Question No.3 of Canada.
Reply
The Companies that are eligible according to th e criteria set forth in the Law are entitled to
enjoy the benefits for a stipulated period of time.  This time period depends on each company’s abilityto meet the said qualifying criteria.
Companies are able to re-apply for tax exemptions on the expiry of their respective tax
holidays, provided they meet the qualifying criteria.
(b) Criteria for Qualification:
1. Are there requirements to qualify for tax exemption benefits, e.g., minimum investment,
number of local employees- Question No. 7 of Canada.
Reply
Table – I - The Qualifying Criteria:
1. Type of the
Industry2. Locat
ion of the
Investment3. Minim
um Investment
(RS. MN)4. Minimum
direct/indirect
export requirement
(% of out put)
5. 6. Minim
um New
employment
required
- 50  – 1499 90% 50
- 1500 – 2499 90% 50
- 2500 – 4999 90% 50(a) Thrust Industries
- Above 5000 90% 50
Preferred None 90% for apparel
50% other products150 (b) Enterprise locating
within a designatedindustrial area Most Preferred
None 90% for apparel
50% other products150
- 50- 1499 90% 100
- 1500 – 2499 90% 100
- 2500 – 4999 90% 100(c) New large scale
export-oriented
projects
- Above 5000 90% 100
(d) Textile & ancillary
Industries50% or more None
(e) Other Enterprises 12.5 90% NoneG/SCM/Q3/LKA/7
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2. Who can take advantage of these programmes, e.g., industry sectors, agriculture, certain
regions-  Question No. 6 of Canada.
Reply
The programmes are extended to the following sectors:
• Manufacturing sector
• Agriculture Viz., large scale export-oriented and small scale export oriented and diary and
livestock development
• Trading Sector
3. Do the programmes provide for a condition to use domestic goods.  If yes, please
describe the relevant provision- Question No. 3 of EC
Reply
The programmes operating under the Law do not stipulate utilisation of domestic goods. It
means, utilization of domestically produced goods is not a criterion to be met by the eligible
companies to qualify for incentives under the Law.
4. Whether the programmes provide for other forms of subsidies than exemption of import
duties and internal taxes (e.g. grants, provision of goods and services)- Question No. 2 of EC
Reply
The programmes referred to in Annex – I do not provide for other forms of subsidies.
5. Are there any direct payments to companies, e.g., percentage of payroll taxes refunded-
Question 5 of Canada
Reply
There is no direct pay -outs to companies.
(c) Nature of Benefits-
1. What are the levels of benefits, i.e., is the re a full exemption from taxes or do companies
pay a percentage of regular rates- Question No. 2 of Canada
Reply
Tax concessions come in the form of full tax holidays and concessionary  rates.  Please refer
table – II below for more details.
2. Please indicate the rate of import duty or internal tax exemption as of 1 September
2001- Question No. 4 of EC.G/SCM/Q3/LKA/7
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Table II – Import duty and Tax Exemption
Import Duty
StructureRaw materials            5%
Capital goods             5%
Intermediate goods   10%Full Duty exemptions
Corporate Income tax
in Sri LankaNormal Rate  35% Concessionary rate 15%
(d) Benefits Accrued and Income foregone
1. Please identify total exports that benefi t from the programmes and the percentage of
national exports (annually since UR) under each programme. Question No. 8 of Canada-
Reply
The value of total exports of companies benefited from the programmes stood at RS. 275, 215
MN (US dollar 3,080 MN) in 2001, contributing to around 80 per cent of Sri Lanka’s earnings from
industrial exports.
2. Please indicate for each programme how many companies have benefited from the
respective programme as of 1 September 2001- Question No.6 of EC.
Reply
The number of companies, operating in manufacturing sector, that have benefited from the
programmes as of 1 September 2001 are:
• Thrust Industry 24
• Large scale manufacturing 46
• Textile and Ancillary Industry 78
• Gems and Jewellery 25
• Others 587
3. Are there estimates of government revenue  foregone- Question No. 4 of Canada-
Reply
There are no estimates of government revenue foregone.
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