RESTRICTED
WORLD TRADE G/SCM/Q2/MEX/11
20June1997
ORGANIZATION(97-2549)
Original: Spanish Committee onSubsidies and
Countervailing Measures
SUBSIDIES
Replies toQuestions Posed byArgentina1,Canada2,Korea3,
theUnited States4,Japan5,Poland6,Turkey7andthe
European Community8Regarding theNewand
FullNotification ofMexico9
Thefollowingcommunication,dated9June1997,hasbeenreceivedfromthePermanentMission
ofMexico.
_______________
EXPLANATIONS AND REPLIES BYMEXICO
I. INTRODUCTION
1. Mexico 'snotification iscontained indocument G/SCM/N/3/MEX of21November 1996.
2. Following Mexico 'snotification questions havebeenreceived fromArgentina, Canada, Korea,
theUnited States, Japan, Poland, Turkey andtheEuropean Community.
3. Thequestions raised bysome ofthese countries relate tocertain measures which were not
included inMexico 'snotification, namely:
1G/SCM/Q2/MEX/4.
2G/SCM/Q2/MEX/8 .
3G/SCM/Q2/MEX/6.
4G/SCM/Q2/MEX/7 .
5G/SCM/Q2/MEX/9 .
6G/SCM/Q2/MEX/3.
7G/SCM/Q2/MEX/5 .
8G/SCM/Q2/MEX/2.
9G/SCM/N/3/MEX.G/SCM/Q2/MEX/11
Page2
- Incentives granted bytheStates;
- alliance foreconomic recovery;
- fiscal promotion certificates (CEPROFIS);
- agricultural subsidies;
- Decree forthepromotion andoperation ofenterprises withahighpercentage ofexports
(ALTEX);
- Banco Nacional deComercio Exterior (BANCOMEXT);
- Nacional Financiera (NAFIN);
- accelerated investment depreciation;
- NAFIN investments; and
- Decree forthedevelopment andoperation ofexport maquila industries.
4. InMexico 'snotification itisstated that"except fortheprogramme [PITEX] ...,nomeasures
havebeentaken thatrequire notification inconformity withArticle XVI.1 oftheGATT 1994andthe
Agreement onSubsidies andCountervailing Measures" (ASCM).
5. Mexico considers thatrather thanenter intoanexhaustive discussion ofthecharacteristics of
allthemeasures itapplies thenotifying Member isrequired buttoexplain thereasons whyitconsiders
thataspecific measure isnotnotifiable under theASCM. These explanations aregiven below, although
itshould firstbepointed outthatsome ofthequestions aresovague thatitisdifficult toreply tothem
asprecisely asMexico would havewished.
6. Forconvenience, theexplanations relating tothemeasures which donothavetobenotified
aregiven inSection II,while thereplies tothequestions onthePITEX programme, thesubject of
Mexico 'snotification totheCommittee, arepresented inSection III.
II. EXPLANATIONS
Incentives atsubfederal level(questions 6and7oftheEUandCanada 'squestion 4)
6. Taxincentives provided bytheState authorities
7. Land purchase facilities
State governments maygrant reductions onthesaleoflandtheyowntoforeign investors.
4. DoMexican States have theability togrant subsidies? Does Mexico intend tosubmit a
notification ofanysuchsubsidy programme maintained attheState level?
Replies
Thisisagood example ofourpoint concerning thevagueness ofthequestions. Innocase
isanyfactual basis provided forpresupposing theexistence ofsubsidies.G/SCM/Q2/MEX/11
Page3
Inthecourse ofgathering theinformation forpreparing Mexico 'snotification, thecompetent
authorities (SECOFI inconsultation withother departments) could findnomeasure atthesubfederal
level, whether interms oftaxincentives orlandpurchase facilities, thatmight benotifiable under the
ASCM.
Alliance foreconomic recovery (question 8oftheEU)
8. Taxincentives under theEconomic Recovery Pactof28October 1995
Reply
ItisnotclearwhytheEUconsiders thatthisprogramme should havebeennotified, since it
onlymentions itstitleanddate.
Nevertheless, itshould bepointed outthattheprogramme inquestion wasineffect onlyup
to31December 1996andthebenefits weregenerally applicable, thatistosay,theywerenotspecific
within themeaning ofArticle 2oftheASCM.
Fiscal Promotion Certificates, CEPROFIS (question 3oftheEU)
3. BANCOMEXT (financing forexporters)
TheBANCOMEXT programme provides preferential financing forexports from Mexico.
Thisprogramme isspecific since itiscontingent upon export, andconfers benefits totheextent
thatloans areprovided atpreferential rates. BANCOMEXT provides other preferential financing,
andotherbenefitsincludeFiscalPromotionCertificates(CEPROFIS)andreductionsorexemptions
from import dutyoncertain products.
Could Mexico provide thetimetable ofhowthisprogramme willbephased out?
Reply
AsreportedattheCommittee'spreviousmeeting,CEPROFISceasedtoexiston1January1994.
Agricultural subsidies (Canada 'squestion 1)
1. WhyhasMexiconotincludedsubsidyprogrammesintheagriculturesectorinitsnotification
pursuant toArticle 25oftheSCM Agreement? Does Mexico intend todososhortly?
Reply
Thesubsidies fortheagricultural sector were notified totheCommittee onAgriculture in
documents G/AG/N/MEX/4 andG/AG/N/MEX/5.
Decree forthedevelopment andoperation ofenterprises withahighexport percentage, ALTEX
(question 1ofKorea)
1. Mexico notified onlyPITEX asanotifiable subsidy. However, ourinformation indicates
thatthefollowing programmes maymeet thenotification requirement under Article XVI:1 and
Article 25.2oftheSCM Agreement.G/SCM/Q2/MEX/11
Page4
Please explain thebasis onwhich Mexico determined thatthefollowing programmes did
notfallwithin thenotification requirement:
(1) ALTEX provides firms exporting over40percentoftheirsalesayearoranamount
overUS$2 million ayearwithfiscal andfinancial support inaddition tothebenefit
from PITEX.
Replies
Thebenefits ofALTEX are:administrative facilities, reimbursement ofVAT, andfinancial
support from BANCOMEXT.
None ofthebenefits ofALTEX mayberegarded asanotifiable subsidy:
(a) Thereason fortheadministrative facilities isthatfirms which export ahighpercentage
oftheirsalesdosoregularly andcontinuously andaretherefore easier tosystematize
administratively. Moreover, theadministrative facilities donotinvolve benefits of
thetypedescribed inArticle 1oftheASCM.
(b) TheIllustrative ListofExport Subsidies permits thereimbursement ofVAT provided
thatitisnot"inexcess ofthatlevied inrespect oftheproduction anddistribution of
likeproducts when soldfordomestic consumption", asisthecasewithALTEX.
(c) Aspointed outbelow, thefinancial support from BANCOMEXT doesnotinvolve
benefits ofthetypedescribed inArticle 1oftheASCM.
Banco Nacional deComercio Exterior, BANCOMEXT (question 2oftheUnited States andquestion 3
oftheEU)
2. Could Mexico please report theterms andconditions (e.g., theinterest rates) under which
theBanco Nacional deComercio Exterior ("BANCOMEXT") extends pre-shipment andpost-
shipment financing, inbothdollars andpesos, toMexican exporters? How dointerest rates on
thisfinancing compare withthose applicable tocomparable financing from commercial sources
inMexico?
3. TheBANCOMEXT programme provides preferential financing forexports from Mexico.
Thisprogramme isspecific since itiscontingent upon export, andconfers benefit totheextent
thatloans areprovided atpreferential rates. BANCOMEXT provides other preferential financing,
andother benefits include Fiscal Promotion Certificates (CEPROFI) andreductions orexemptions
from import dutyoncertain products.
Could Mexico provide thetimetable ofhowthisprogramme willbephased out?
Replies
BANCOMEXT doesnotreceive financing from theGovernment. Consequently, itcannot
beclassified asasubsidy within themeaning ofArticle 1oftheASCM.
BANCOMEXTisadevelopmentbankwhichprovidesfinancingforexportersfromtheresources
itobtains ontheinternational markets. Asreported attheCommittee 'sprevious meeting, thebank
grants credits atinternational ratessuchasLIBOR orPRIME plusapercentage. Itshould alsobe
pointed outthatBANCOMEXT channels itsresources through theprivate banks andinfactitisthe
latter which fixtheinterest ratesthattheusers ofthecredit linesmust pay.G/SCM/Q2/MEX/11
Page5
Nacional Financiera, NAFIN (question 4oftheEU)
4. NAFIN S.A.financing
TheMexican Development Bank, Nacional Financiera (NAFIN S.A.), hasdeveloped a
number offinancing programmes forMexican companies:
- Medium-term financial assistance (85percentfinancing forperiods ofmore than
oneyear);
- short-term lineofcredit;
- letter ofcredit.
Reply
NAFIN doesnotreceive funds from theGovernment. Consequently, itcannot beclassified
asasubsidy within themeaning ofArticle 1oftheASCM.
NAFIN isanational credit institution which obtains about 90percentofitsresources through
issuing bank acceptances andtherestfrom deposits ofvarious kinds. NAFIN grants credit at
international ratessuchasLIBOR orPRIME plusapercentage.
Accelerated investment depreciation (question 2oftheEU)
2. Accelerated investment depreciation
Companies which arenotlocated intheMexico Cityarea, Guadalajara andMonterrey
maytaketheoption ofaone-time depreciation deduction oftheir fixed assets. Thisprogramme
isclearly specific since itislimited toanumber ofregions inMexico.
Reply
Under thisprogramme enterprises deduct inone-year investments infixed assets which would
otherwise bededucted overalonger period.
Theprinciples ofArticle 2oftheASCM onspecificity donotapply tothisprogramme.
According toArticle 2.2oftheASCM "asubsidy which islimited tocertain enterprises located within
adesignated geographical region within thejurisdiction ofthegranting authority shallbespecific",
which hasnorelevance tothecaseofMexico.
TheMexican programme applies totheentire national territory withtheexception ofMexico
City,GuadalajaraandMonterrey.Consequently,thecharacteristicsoftheMexicanprogramme(benefits
fortheentire territory withthree exceptions) aretheexact opposite ofthespecificity provisions of
theASCM (benefits onlyfordesignated geographical regions).
Thepurpose ofArticle 2.2istoprevent certain enterprises located within adesignated
geographical region from benefiting, whereas theMexican programme excludes three cities from
benefiting. Theeffect ontheenterprises iscompletely different. Inthefirstcase,benefits aregranted
tocertain enterprises according totheirlocation, whereas inthesecond enterprises located inaparticular
geographical region areexcluded from benefiting.G/SCM/Q2/MEX/11
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NAFIN investments (question 5oftheEU)
5. Venture capital programmes
TheBanco Nacional deComercio Exterior andNacional Financiera mayparticipate as
stockholders ininvestment projects orforeign companies investing inMexico. Once theproject
ismature, theDevelopment Bank withdraws from participation atalower price thantheinitial
investment.
Reply
Under thisprogramme venture capital iscontributed either through direct participation in
investment projects orindirectly insupport ofnewfinancial instruments involving aportfolio risk.
Theinvestments under thisprogramme arebased strictly onthesame criteria asthose used
bycommercial banks when making investments, forexample: commercial, economic, technical and
financial studies which guarantee theviability oftheproject interms ofprofitability.
Asalready pointed out,NAFIN cannot beclassified asasubsidy within themeaning ofArticle 1
oftheASCM.
Maquiladoras (question 1oftheEUandquestion 2ofKorea)
1. In-bond Maquiladora Programme
Under theDecree fortheDevelopment andOperation ofExport Maquila Industries,
companies mayimport rawmaterials, containers, packing materials, fuels etc.,without paying
duties orvalue-added taxtomanufacture their goods providing these goods areexported.
2. TheBasic Law ontheSupport ofMaquiladora published intheOfficial Journal on
22December 1989 seems toprovide certain kinds oftaxcredit forexporters inthenorthern and
border regions suchasSonora, Santa Cruz andsoon.
Replies
What theEUandKorea sayiscorrect. TheDecree fortheDevelopment andOperation of
Export Maquila Industries doespermit thetemporary importation ofrawmaterials, containers, packing
materials, etc.without payment ofduties orvalue-added tax.TheEUincluded fuelsbutthese donot
form partoftheprogramme.
Thisdoesnotmean tosaythatthereisasubsidy ofthetypedescribed inArticle 1oftheASCM.
Dutiesandvalue-addedtaxarenotpaidbecausetheproductsareimportedtemporarilyfortransformation,
processing orrepair andsubsequent exportation. Since theproducts concerned areexported, duties
andvalue-added taxarenotpayable. Itwillberecalled that,according tothefootnote onpage1of
theASCM, "The exemption ofanexported product from duties ortaxes borne bythelikeproduct
when destined fordomestic consumption, ortheremission ofsuchduties ortaxes inamounts notin
excess ofthose which haveaccrued, shallnotbedeemed tobeasubsidy."
Maquila industries maybelocated anywhere inthenational territory, notjustinthenorthern
andborder regions asmistakenly implied inKorea 'squestion 2.G/SCM/Q2/MEX/11
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III. PITEX REPLIES
Poland 'squestions AandC,Argentina 'squestion 1.4andJapan'squestion 1
A. Wefindthissubsidy aprohibited subsidy inthelight ofArticle 3.1(a) oftheSCM
Agreement. IfMexico isofthesame opinion, hasMexico notified thissubsidy pursuant to
Article 28.1oftheSCM Agreement?
C. IfMexico isofadifferent opinion, please explain whyMexico regards thissubsidy asnot
being aprohibited subsidy.
1.4 From thereading ofArticle 6,lastparagraph, andArticle 22,itwould seem thatthe
programme notified issubject toexport results. Ifthisinterpretation were correct wecould be
faced withasubsidy covered byArticle 3.1(a) oftheSubsidies Agreement. Could Mexico clarify
these articles?
- Does Mexico consider theprogramme asanexport subsidy inthemeaning of
Article 3oftheSCM Agreement?
- Thatbeing thecase,could Mexico explain when these programmes would bephased
out?
- That notbeing thecase, could Mexico explain thereason?
- Isthistheonlyspecific subsidy which Mexico maintains initsterritory? Arethere
anyother subsidies inplace which Mexico isgoing tonotify?
Replies
According toArticle 27.2(b) oftheASCM, "The prohibition ofparagraph 1(a)ofArticle 3
shallnotapply to:...other developing country Members foraperiod ofeight years from thedate
ofentry intoforce oftheWTO Agreement ...".
AsMexico isadeveloping country Member, thePITEX programme cannot andshould not
beinterpreted asaprohibited subsidy, since theprohibition, which applies toMembers oftheWTO
notcovered byArticle 27.2, hasnotentered intoforce forMexico. Thisalsoexplains whyPITEX
hasnotbeen, anddoesnothavetobe,notified under Article 28.1oftheASCM. Article 28.1applies
onlytosubsidies which areinconsistent withtheprovisions oftheASCM. PITEX isnotinconsistent
withMexico 'sobligations under theASCM.
Itshould bepointed outthattheonlybenefits ofPITEX which should infactbenotified are
those contained inParts IVandVofArticle 5oftheprogramme, since Parts ItoIIIarepermitted
under theIllustrative ListofExport Subsidies oftheASCM provided thattheyarenotinexcess of
theimport charges levied onimported inputs consumed intheproduction oftheexported product, as
isthecasewithPITEX. Acorrigendum toMexico 'snotification willshortly beissued toprevent any
misunderstanding.G/SCM/Q2/MEX/11
Page8
Poland 'squestion B,Argentina 'squestion 1.5,andquestions I.(a), 3and2oftheEU,Canada and
Japan respectively
B. Asthesubsidy hasnodefinite duration, doesMexico intend tobring itintoconformity
withtheprovisions oftheAgreement, which means phasing thesubsidy outwithin aneight-year
period (Article 27)?
1.5 CanMexico specify what willbethetotalduration ofthisprogramme andifitwillrespect
theeight-year time-limit setoutinArticle 27.4oftheSubsidies Agreement?
I.(a) Thisprogramme isclearly contingent upon export performance. Mexico states thatthe
duration oftheprogramme is"indefinite". Could Mexico provide thetimetable ofhow
thisprogramme willbephased out?
3. Thelistofcovered products inArticle 5oftheDecree establishing PITEX extends beyond
inputs tobeconsumed intheproduction oftheexported product andwould appear toconstitute
aprohibited export subsidy. Does Mexico plan toeliminate thissubsidy inconformity with
Article 27oftheSCM Agreement?
Replies
Theduration andultimate fateofPITEX willbedetermined byMexico 'sinternational
commitments, including Article 27oftheASCM.
Inother words, Mexico:
- Willmaintain PITEX without increasing theleveloftheexport subsidy;
- isthinking ofeliminating PITEX within amaximum period ofeight years orwithin
ashorter period, depending onitseconomic, financial anddevelopment needs atthe
timewhen thefateoftheprogramme isdecided; and
- reserves therighttohaverecourse toanyother provision oftheASCM intended for
developing countries thatitconsiders pertinent.
Argentina 'squestion 1.3andquestion 1oftheUnited States
1.3 Thetemporary import programme notified doesnotspecify ifthegood imported under
theprogramme must beexported within afixed period. Could Mexico specify whether there
isafixed period within which theproduct must beexported under thissystem?
1. InMexico 'snotification ofthePITEX programme, Mexico indicates thatonly"temporary
imports" (ofmachinery, equipment, moulds, tools andspare parts) qualify forthedrawback
programme. How are"temporary imports" defined? Would Mexico please giveanindication
ofhowlongthese temporary time-periods are?Howdothelengths ofthese temporary time-periods
compare with theaverage useful lifeofthese imports, taking intoaccount anyaccelerated
depreciation allowance thatmight apply? Ifthemachinery, equipment, moulds, etc.arenotre-
exported, doestheproducer/importer paydutyonthedepreciated value ortheoriginal value?G/SCM/Q2/MEX/11
Page9
Replies
A"temporary import" isanimport thatwillstayinthecountry foralimited timeandfora
specific purpose (Article 106oftheCustoms Law).
InthecaseofPITEX, goods imported temporarily must beexported within amaximum of
fiveyears.
Thetemporariness ofthegoods imported under PITEX isnotrelated totheiruseful lifeor
depreciation buttotheimport procedure.
Turkey 'squestion 1andJapan'squestion 4
1. Could Mexico clarify ifthere areanyother subsidies granted withregard totheprovisions
ofArticles 1and2oftheAgreement onSubsidies andCountervailing Measures butnotyetnotified
within themeaning ofArticle 25ofthesame Agreement?
Reply
Asnoted inSection IIabove, PITEX istheonlynotifiable Mexican programme. Theothers
arenotsubsidies under Article 1oftheASCM or,iftheywereconsidered tobesubsidies, theyare
notspecific under Article 2oftheAgreement.
Turkey 'squestions 2and3
2. Could Mexico please explain thedifferences between PITEX andnon-PITEX programmes
andclarify ifthenon-PITEX programmes mentioned onpage 3,Article 7,arealsosubsidy
programmes?
3. Could Mexico provide ageneral sectoral breakdown oftemporary imports andexports
under thePITEX programme onpage 3,Article 9,since Mexico provides nodataontheissue,
alsonoting thattheAgreement hasleftthecontent ofthedatatothejudgement ofthenotifying
Member?
Replies
Theimports under PITEX aretemporary imports forproducing export articles. Non-PITEX
imports areallthose imports which enter thecountry under anoutright orother temporary customs
procedure.
Aspointed outinparagraph 7ofMexico 'snotification, itisnotpossible toobtain unitfigures
ofthetotalorannual amount budgeted forthisprogramme because theministry responsible for
maintaining theregisters keeps general datawithout aspecific breakdown.
Itshould benoted thatattheendofparagraph 7itwasexplained that,inviewoftheabove,
PITEX programme datamaybemixed withdataontemporary imports under non-PITEX programmes.
Thisexplanation should notbeinterpreted, asitappears tohavebeen, asareference toprogrammes
which might constitute subsidies notifiable under ASCM.G/SCM/Q2/MEX/11
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Argentina 'squestion 1.2
1.2 With respect totheform ofthissubsidy, Mexico hasnotified adrawback forexporters
oftariff duties paid ontemporary imports. Inorder toobtain thisdrawback theexporters
concerned must submit anapplication accompanied byaseries ofdocuments. From reading
Article 13oftheDecree, itwould seem thatwhen theproduct manufactured from thegood
imported under thetemporary import system isauthorized tobesoldonthehome market, the
import duties have tobepaidontheimported goods before finalimport permission isgranted.
CanMexico clarify iftheprogramme consists ofanimport dutydrawback orofexemption from
theduty, orifbotharepossible?
Reply
PITEX doesnotoperate onadrawback basis butonthebasis ofthenon-payment ofimport
duties byvirtue ofArticle 104oftheCustoms Law.
Article 13ofPITEX states thatwhen products produced under theprogramme fromimported
goods areauthorized tobesoldonthehome market, those products must paytheimport duties
corresponding tothetariff linesfortheinputs imported andincorporated intotheproducts receiving
theauthorization.
Canada 'squestion 2
2. Isthere averification system provided forinPITEX toensure thatreimbursement of
customs duties doesnotexceed theamount ofduties paid? Canthedetails beprovided?
Reply
Asindicated inthereply toArgentina 'squestion 1.2,PITEX doesnotoperate onadrawback
basisbutonthebasisofthenon-payment ofimport duties. Consequently, cases cannot ariseinwhich
thereimbursement ofduties exceeds theamount ofduties paid, since there isnoreimbursement.
Even though, bydefinition, thesituation envisaged intheCanadian question cannot arise, it
should bepointed outthatPITEX includes various means ofverifying andchecking compliance with
theprogramme. Article 9authorized theMinistry ofFinance andPublic Credit toverify thedeclared
amounts ofwaste; Article 21requires programme beneficiaries toreport eachyearthetransactions
under theprogramme, tomaintain acheck ontheirinventories andtokeeptherelevant documents,
andunder Article 22theMinistry maycancel theprogramme andimpose anyfinesintheevent of
non-compliance.