RESTRICTED
WORLD TRADE G/SCM/Q2/LKA/6
16May1997
ORGANIZATION(97-2044)
Original: English Committee onSubsidies andCountervailing Measures
SUBSIDIES
Replies toQuestions posed byARGENTINA1,
theEUROPEAN COMMUNITY2,JAPAN3andtheUNITED STATES4
Regarding theNewandFullNotification ofSRILANKA5
Thefollowingcommunication,dated5May1997,hasbeenreceivedfromthePermanentMission
ofSriLanka.
_______________
QUESTIONS RAISED BYARGENTINA
Q1. Withregard totheprogramme ofinvestment incentives, Annex I(Export Oriented Projects),
canSriLanka clarify ifthetime-limits setdown inArticle 27.4oftheSubsidies Agreement willbe
respected, oriftheyconsider itnecessary tomaintain theprogrammes beyond theeight-year limit
specified intheAgreement?
Answer
Under Article 27.2(a) being acountry listed under Annex VII,SriLanka isexempted from
prohibition ofsubsidies under Article 3.1(a). There arenosubsidies inSriLanka thatcould be
categorized under Article 3.1(b). Therefore, thereisnoneedtophase outitsincentives andassistance
inaccordance withArticle 27.4oftheWTO Subsidies Agreement.
Q2. Intheprogramme ofassistance toexporters -Export Development Board, SriLanka doesnot
report theduration oftheprogramme. Could theyspecify thedateonwhich itendsand,ifitexists,
thetimetable forprogressive elimination?
Answer
AsArticle 27.4isnotapplicable toSriLanka, there isnoneed togivespecific dates of
elimination oftheprogrammes.
Q3. Intheprogramme offiscal incentives toexporters SriLanka notifies aduration of20years
asfromApril 1995. Does SriLanka consider thatthese financial incentives willbeeliminated prior
tothisdateinaccordance withtheregulation through Article 27.4oftheSubsidies Agreement, ordoes
SriLanka consider itnecessary tomaintain thembeyond theeight-year time-limit?
1G/SCM/Q2/LKA/3,2G/SCM/Q2/LKA/2,3G/SCM/Q2/LKA/5,4G/SCM/Q2/LKA/4,5G/SCM/N/3/LKA &Corr.1
(English only).G/SCM/Q2/LKA/6
Page2
Answer
Yes,depending ontheeconomic development ofSriLanka, incentives willbeeliminated as
perArticle 27.4oftheSubsidies Agreement.
QUESTIONS RAISED BYTHE EUROPEAN COMMUNITY
I. NOTIFIED SUBSIDY PROGRAMMES
(a) Investment Incentives
Q1. Asregardstheexport-orientedprojects,couldSriLankaprovidethetimetableofhowthissubsidy
programme willbephased outinaccordance withArticle 27.4oftheWTO Subsidies Agreement?
Answer
Under Article 27.2(a), being acountry listed under Annex VII,SriLanka isexempted from
prohibited subsidies under Article 3.1(a). There arenosubsidies inSriLanka thatcould becategorized
under Article 3.1(b). Therefore, thereisnoneedtophase outitsincentives andassistance inaccordance
withArticle 27.4oftheWTO Subsidies Agreement.
Q2. Could SriLanka explain howtheminimum export requirement (asapercentage ofturnover)
areimplemented? Istheapplicable programme selected onthebasisofforeseen exports orprioreffective
export performance?
Answer
Minimum export requirements areimplemented onthebasisofanticipated orforeseen exports.
Q3. HowdoesSriLanka define "manufactured goods using advanced technology"?
Answer
"Manufactured goods using advance technology" isdefined asfollows:
(i) Technology which introduces anewdesign, formula orprocess inthemanufacture
ofanarticle orintheprovision ofaservice resulting inoneormore ofthefollowing
willbedeemed asAdvanced Technology.
(a) Higher productivity resulting inlower costofproducts;
(b) Quality improvement ofproduct/service;
(c) Better utilization ofrawmaterials;
(d) Upgrading oftechnical skills;
(e) Minimizes/controls environmental pollution and/or wastage.
(ii) Technology hitherto notapplied inSriLanka formanufacture ofanewproduct or
provision ofanewservice.G/SCM/Q2/LKA/6
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(iii) Technology forthelocalprocessing ofrawmaterials, which arecurrently imported
inprocessed form, excluding simple types ofprocessing.
(iv) Technology hitherto unutilized inSriLanka thatwould make useoflocalresources
toproduce public utilities andinfrastructure services.
(b) Assistance toexporters
Q1. Could SriLanka provide thetimetable (foreachindividual programme) ofhowthissubsidy
programme willbephased outinaccordance withArticle 27.4oftheWTO Subsidies Agreement?
Answer
Under Article 27.2(a), being acountry listed under Annex VII,SriLanka isexempted from
prohibited subsidies under Article 3.1(a). There arenosubsidies inSriLanka thatcould becategorized
under Article 3.1(b). Therefore, thereisnoneedtophase outitsincentives andassistance inaccordance
withArticle 27.4oftheWTO Subsidies Agreement.
Q2. Canthese benefits becombined withbenefits under theInvestment Incentives programme?
Answer
Assistance given bytheEDBtoexporters canbecombined withtheBOIincentives under the
following conditions:
(a) Marketing Assistance: localownership oftheproject should benotlessthan75%.
(b) Other Assistance: localownership oftheproject should notbelessthan51%.
Q3. SriLanka states forsome oftheprogrammes thatthetrade effects arezero. Isthisstatement
notinconsistent withthepurpose ofproviding subsidies e.g.toincrease export performance?
Answer
Thetrade effects oftheprogrammes arezerolevelastheassistance schemes donotprovide
subsidies toexporters toenhance profitability. They aremainly focused tomake theexporters "export
ready" andmost oftheassistance iseither once offorlimited toshort periods prior toexport.
Furthermore, when compared withthetotalcostthecontribution ofassistance isbelow thedeminimis
level.
II. ADDITIONAL PROGRAMMES NOT NOTIFIED TOTHE WTO
Q1. SriLanka hasnotnotified anumber ofprogrammes which appear tobenotifiable under
Article 25.TheCommunity finds thattheschemes described below provide afinancial contribution
which confer benefits tothelocalindustry. Inaddition theschemes areclearly specific (aspertaining
toaspecific sector orcontingent upon exports). Inaddition tothespecific questions asked, the
Community would likeclarification whythese programmes werenotnotified totheWTO andrequests
that,ifappropriate, SriLanka supplies anotification under Article 25,using thestandard format.G/SCM/Q2/LKA/6
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Answer
TheEPZinKatunayake, Biyagama andKoggala arecovered under theBOIinvestment scheme
andthere arenospecial programmes orincentives fortheEPZs.
QUESTIONS RAISED BYJAPAN
"Investment Incentives", EDB Assistance", and"Fiscal Incentives asperAnnex II"
Q1. Does SriLanka consider thattheExport Oriented Projects ofInvestment Incentives aswell
asEDBAssistance andFiscal Incentives constitute export subsidies inthemeaning ofArticle 3ofthe
SCM Agreement?
Answer
Theexport assistance andinvestment incentives doconstitute export subsidies inthemeaning
ofArticle 3.1(a) oftheSCM Agreement.
Q2. Thatbeing thecase,could SriLanka explain ifthereisanyplantophase outtheseprogrammes?
Answer
Paragraph (a)ofArticle 27.2 oftheSCM Agreement hasexempted SriLanka from the
prohibition ofparagraph 1(a)ofArticle 3.
Q3. Thatnotbeing thecase, could SriLanka explain thereasons?
Answer
Thisdoesnotarise.
Q4. AstoInvestment Incentives, could SriLanka explain whatprojects correspond to"large scale
projects" under theExport Oriented projects andNon-Export Oriented projects?
Answer
"Large scaleprojects" mean aminimum investment ofSLRe500million and/or withminimum
employment of100employees. Non-export oriented projects mean "noexport obligation".
QUESTIONS RAISED BYTHE UNITED STATES
Q1. SriLanka hasnotified anumber ofinvestment andfiscal incentive programmes which appear
tofallwithin thescope ofArticle 3.1(a) oftheAgreement onSubsidies andCountervailing Measures.
Notwithstanding theprovisions ofArticle 27.2oftheAgreement, doesSriLanka haveplans tophase
outthese programmes overtime?
Answer
Theassistance toexporters andtheinvestment incentives arestillconsidered asimportant tools
forthedevelopment ofthose sectors bySriLanka. Being acountry listed under Annex VII,SriLanka
hasnoimmediate plans tophase outthose programmes.G/SCM/Q2/LKA/6
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Q2. Where nototherwise indicated, could SriLanka clarify theduration ofeachofthenotified
programmes listed inAnnex IIofitsnotification?
Answer
TheGovernment willendeavour toreduce thelevelofitsassistance toexports andinvestment
incentives progressively. However, itwillnotbepossible togiveadefinite duration ofsuch
programmes.
Q3. Could SriLanka provide information ontheeligibility criteria foreachofthefiscal incentive
programmes listed inAnnex IIofitsnotification?
Answer
Theeligible criteria forincentives listed under Annex IIisasfollows:
"Allenterprises engaged inthemanufacture andexport ofnon-traditional products ortheexport
ofnon-traditional products ortheexport ofspecified services areeligible fortheconcession
referred tounder Annex II".
Q4. Does theExport Development Board Actprovide loans atpreferential, below-market rates to
assist exporters?
Answer
There isnoprovision under theExport Development Board Acttoprovide loans.
Q5. What arethe"non-traditional products" which areeligible toreceive thefiscal incentives listed
inAnnex IIofSriLanka ’snotification?
Answer
"Non-traditional product" means anycommodity other thanblack teainbulk, crepe rubber,
sheetrubber, scrap rubber, coconut oil,desiccated coconut (other thandesiccated coconut manufactured
byusing automated process technology andmarketed withaquality guarantee), copra, fresh coconut,
coconut fibreandsuchother commodities asmaybespecified bytheMinister.