WORLD TRADE
ORGANIZATIONG/SCM/Q3/COL/28
6 November 2003
(03-5950)
Committee on Subsidies and
Countervailing MeasuresOriginal:  Spanish
SUBSIDIES
Requests Pursuant to Article 27.4 of the Agreement on
Subsidies and Countervailing Measures
Replies by COLOMBIA to Questions Posed by ECUADOR1 and PERU2
The following communication, dated 5 November 2003, has been received from the
Permanent Mission of Colombia.
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REPLIES TO QUESTIONS POSED BY ECUADOR
On instructions from my Government, I hereby request further information on the
continued extension of the transition period for Colombia's SIEX and Free-Zone (ZF) subsidy
programmes, as follows:
(a) Colombia is requested to specifically regu late, by means of a further Ministry of
Trade Resolution, the application of deferred payment of VAT and thereby
establish that the five-year time-limit for such deferral, of which Colombianimporters may avail themselves, coincides with the final deadline for the SIEX
authorized by the WTO, that is to say, December 2006 at the very latest;
(b) Colombia is requested to notify the contents of Ministry of Trade Resolution
No. 1148 of 2002, which is not included in the WTO compilation (document
G/SCM/Q3/COL/17), to the WTO Secretar iat for the purposes of examination;
(c) Colombia is requested to provide evid ence of why the reform of the Free-Zone
Regime requires a law rather than me rely an executive decree, as initially
established.
                                                     
1 G/SCM/Q3/COL/25.
2 G/SCM/Q3/COL/24.G/SCM/Q3/COL/28
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Reply
(a) Request for a new Resolution providing fo r the elimination of deferred VAT payment
Article 1 of Resolution No. 0011 states th at applications for new programmes or
modifications to existing programmes relating to capital goods and spare parts may only be assessed
up to 30 November 2006.  The programmes in question are those provided for in Article 173(c) of
Decree No. 444 of 1967 and in other supplementary legislation.  The programme, thus defined,
incorporates both tariff exemption and deferred VAT payment.  A new Resolution is therefore not
required.
Furthermore, the paragraph under Article 1 of Resolution No. 0011 specifies that " [t]he
approval of applications for new programmes or modifications of existing programmes relating to
capital goods and spare parts may not provide for imports under those programmes beyond
31 December 2006 ".
However, as regards the possibility that in 2007, or at some other point in the future, VAT
payment will be deferred for goods imported prior to 2006, it should be pointed out that, even if
deferred VAT payment is considered to be a subsidy, this would be possible without contravening the
decision taken in regard to Colombia, given that the potential benefit is derived at the time of import
and not when the deferred VAT is paid.
(b) Notification of Resolution No. 1148 of 2002 to the WTO Secretariat
Resolution No. 1148 of August 2002 lists capital goods and spare parts eligible for benefits
under SIEX and regulates the programme in a manner that does not favourably modify its scope.  Onthe contrary, it limits the benefit to the tariff subheadings listed and as a result removes any benefit for
other capital goods and spare parts.
For the sake of transparency, we included this Resolution under point 4 of Colombia's
notification G/SCM/N/95-99/COL submitted on 30 June  2003.  It should be noted that in accordance
with the rules governing notifications, it is not necessary to provide a copy of the legislation being
notified (G/SCM/6).
At the informal consultations held on 23 October, the Permanent Mission submitted a copy of
the above-mentioned instrument to the delegates from the Missions of Bolivia, Ecuador, Peru and
Venezuela.  A copy of that Resolution is attached for publication and circulation by the Secretariat.
(c) Request for evidence that the Free-Zon e Regime can only be reformed by a law
Article 338 of the Constitution stipulates that only Congress is empowered to establish taxes
at national level, such as income tax, and that " in peacetime, only Congress, departmental assemblies,
and district and municipal councils may impose fiscal or parafiscal charges ".  Only Congress can
therefore establish tax exemptions and abolish them when appropriate.
Exemption from income tax on earnings of industrial users of Free Zones, for developing
their industrial activities in such zones, is pr ovided for in Article 213 of the Tax Code.  The
exemption was included in Decree No. 2233 of 1996 by way of illustration.  Indeed, Article 54 of theDecree states that " [i]n accordance with Article 213 of the Tax Code or the regulations that replace
or amend it, the income earned by industrial users of export processing zones for goods and services
from sales to foreign markets is exempt from income and complementary taxes ".G/SCM/Q3/COL/28
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REPLIES TO QUESTIONS POSED BY PERU
Notification of the Special Import – Export System for Capital Goods and Spare Parts (SIEX)
(2002)
• It should be made clear how it is determ ined which capital goods exempt from customs
duties are used in the production of export g oods.  Capital goods are indivisible and it is
impossible to tell which capital goods im ported under the regime are used for the
production of export goods or for the pr oduction of goods for the domestic market.
• It is important to ascertain which market s receive exports effected by companies
benefiting under SIEX, bearing in mind that the latter have accounted for more than40 per cent of total exports.
Notification of the Free-Zone Regime (ZF) (2002)
• Regarding the Free-Zone Regime, it shou ld be made clear whether it implies
extraterritoriality (zones considered to lie outside national territory for customs
purposes), in which case no duties would be paid and the notified quantities of total
subsidies would therefore be under-estimated because of the failure to consider unpaidduties.
• Regarding the Free-Zone Regime (ZF), it is also important to make clear which factors
have been responsible for the increased value of the incentive (fiscal sacrifice) under thisprogramme since 1998 and at the same time why exports under the notified programme
have been declining.
• It is necessary to ascertain what other types of tax exemptions are granted to companies
operating in the free zones.  The document refers only to the exemption from income tax
and supplementary taxes on that part of their income that is obtained from sales to
foreign markets.  Among other things, no re ference is made to income from domestic
sales (where cleared for domestic consumption), which constitutes a subsidy onproduction and domestic sales, and could constitute a cross-subsidy affecting the
competitiveness of Colombian products.
Legislative Reform of the SIEX – Ministry of Foreign Trade Resolution No. 0011
• It is necessary to make clear what is mean t by the reference in Resolution No. 0011 of
8 January 2003 to the exclusion from the reduction commitment of the special import –export system for the export of services and the programmes for the export of finished
goods covered by Annex I of the WTO Agreement on Agriculture.
These could not be considered to include subsidies on capital goods used in the
production of agricultural goods because they would continue to be covered by the
WTO Agreement on Subsidies and Countervailing Measures, and not by the Agreement
on Agriculture.
If the reference is to subsidies on agricultural products, attention should be drawn to the
fact that, in its last notification to  the Committee on Agriculture, document
G/AG/N/COL/26 (28 May 2001), Colombia noti fied that it did not apply any export
subsidies between 1 January and 31 December 1999, and between 1 January andG/SCM/Q3/COL/28
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31 December 2000.  It has to be asked whether Colombia is perhaps seeking to re-impose
subsidies on agricultural products.
• With regard to Resolution No. 0011 of 8 January 2003 on the SIEX programme,
clarification is required as to what degree of discretion is implicit in the paragraph
under Article 2.
If criteria of national economic interest aimed at strengthening the competitiveness of
the exportable supply were applicable, could the restriction on the annual value of
subsidies for 2000 be disregarded?  If the criterion of proper application of the
corresponding programmes in the light of  the country's commitments to the WTO is
upheld, it is not at all clear whether these are alternative criteria.
Reply
1. Determination of capital goods benefiting under SIEX
Capital goods imported under the programme should be used in the production of export
goods for a period not less than that required for the value of such goods to depreciate by 90 per cent;
at least 70 per cent of the increases in production generated by their use should be exported.  The
paragraph under Article 11 of Decree No. 631 of 1985, states that:
"Goods imported under Article 173(c) of Decree -Law No. 444 of 1967 shall be used for the
purposes laid down in that Article, for a period not less than that required for the value of
such goods to depreciate by 90 per cent, in which case INCOMEX - now the Ministry of
Trade, Industry and Tourism – may take into account the useful life of the goods, in
accordance with the relevant tax rules ".
For the purposes of this paragraph, export commitments shall be at least 70 per cent of the
increases in production generated.
2. Destination of exports by companies benefiting under SIEX
The Government does not have this sort of statistics.
3. Do Free Zones imply extraterritoriality?
Free Zones are zones that lie outside national territory for customs purposes.  The rules
governing the Free-Zone Regime in Colombia do not link tariff exemptions to the fulfilment of
specific export targets.  Exemption from income tax is granted on the basis of income generated byexports.
4. Why is the value of the incentive in Free Zones increasing, when the value of exports is
decreasing?
The reason is that the statistical sources are different.  The value of the incentive has been
provided by the tax authority, whereas the value of exports comes from the users of the Free Zones.G/SCM/Q3/COL/28
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5. Tax treatment of domestic sales of goods produced in Free Zones
When goods produced in Free Zones are introduced into Colombian customs territory, tariffs
and VAT equivalent to the imported component must be paid.  Furthermore, there is no exemption
from income tax on earnings generated by domestic sales.
6. Exclusion of services and agriculture in Ministry of Foreign Trade Resolution No. 0011
There are no WTO disciplines on subsidies on the export of services.  As regards agricultural
goods, we would like to reiterate the comments we made in document G/SCM/Q3/COL/16, in that
"[i]t is our clear understanding that the coverage of the extension under Article 27.4 is obviously the
Agreement on Subsidies and would not change or m odify Colombia's commitments or those of any
Member under the Agreement on Agriculture or any other agreement.  A simple reading of the
Agreements leads us to that conclusion.  As we understand it, the notifications submitted by Colombia
were made in the context of the obligation to s upply the Committee with information pursuant to the
Agreement on Subsidies, and they are never intended to establish a particular sectoral coverage in
respect of applications by Members for the extension of the transition period.
It should be noted that Colombia does not intend to modify the coverage of the programmes
for which it is requesting an extension, and that in accordance with the wording of the draft decisions
and with the rules governing this matter, neither would such a result be possible ".
7. Scope of the paragraph under Article 2 of Resolution No. 0011 of 2003
Given that Article 2 places a ceiling on the annual maximum value of the subsidy granted
during the extension period, the paragraph under this Article establishes the criteria for prioritizing
where necessary.
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