RESTRICTED
WORLD TRADE G/SCM/Q2/URY/3
4September 1997
ORGANIZATION(97-3558)
Original: Spanish Committee onSubsidies and
Countervailing Measures
SUBSIDIES
Replies toQuestions Posed bytheEuropean Community1
andJapan2Regarding theNewandFulland
Updating Notification ofUruguay3
Thefollowing communication, dated 12August 1997, hasbeenreceived fromthePermanent
Mission ofUruguay.
_______________
Questions from Japan andtheEuropean Community
(1) Notified programmes
Question bytheEuropean Community
Incentives forthemotor industry
- Thisprogramme isclearly contingent upon export performance. Could Uruguay
provide thetimetable ofhowthisprogramme willbephased outinaccordance
withArticle 28oftheWTO Subsidies Agreement.
Question byJapan
Regulations forenterprises exporting vehicles assembled inthecountry
- Does Uruguay consider theprogramme asanexport subsidy within themeaning
ofArticle 3oftheSCM Agreement?
- Thatbeing thecase, could Uruguay explain when theprogramme would bephased
out?
- That notbeing thecase, could Uruguay explain thereason with details ofthe
eligibility?
1G/SCM/Q2/URY/1.
2G/SCM/Q2/URY/2.
3G/SCM/N/3/URY +Suppl.1-G/SCM/N/16/URY +Suppl.1.G/SCM/Q2/URY/3
Page2
Answer
Uruguay willbebringing theprogramme intoconformity withitsinternational obligations under
theWTO Agreement.
Together withtheother countries ofMERCOSUR, Uruguay iscurrently examining common
regulations forthemotor industry asstipulated inDecision No.29/94 oftheCouncil ofMinisters of
MERCOSUR, andthenational programme willcontinue toapply untilthose regulations enter into
effect.
(2) Programmes notnotified totheWTO
Questions bytheEuropean Community
Question
Uruguay hasnotnotified anumber ofprogrammes which appear tobenotifiable under
Article 25.TheCommunity findsthattheschemes described below provide afinancial contribution
which confer benefits tothelocal industry. Inaddition theschemes areclearly specific (as
pertaining toaspecific sector orcontingent upon exports). Inaddition tothespecific questions
asked, theCommunity would likeclarification whythese programmes were notnotified tothe
WTO andrequests that, ifappropriate, Uruguay supplies anotification under Article 25,using
thestandard format.
Answer
Industrial Promotion Law
Freezones
Reinvestment ofincome (reinvestment exemptions)
Uruguay didnotnotify these programmes because itunderstood thattheywere notcovered
bythedefinitions ofArticle 25oftheSCM Agreement inthattheywere notspecific subsidy
programmes.
Forthesakeoftransparency, thefunctioning andlegal framework ofeachoneofthethree
schemesisdescribedbelow,togetherwiththereasonswhyUruguaydoesnotconsiderthemtobecovered
bythedefinitions ofArticle 25oftheSCM Agreement.
The laws regulating these programmes areavailable tointerested delegates atthe
WTO Secretariat.
Question
1. Industrial Promotional Law
Various incentives aregranted under theIndustrial Promotion Law (Law 14.178 of
28March 1974) toprojects formally declared tobeofnational interest. Applications forthese
benefits must befiledwiththeMinistry ofIndustry andEnergy. Theproject should beonethat
aims togenerate greater efficiency inproduction andmarketing, increase ordiversify exports
ofmanufactured goods, orincrease theroleoftourism byexpanding present facilities.G/SCM/Q2/URY/3
Page3
Incentives thatmaybeavailable include:
- Exemption from import duties, consular fees,andunloading charges forimports
ofrawmaterials, spare parts, andfixed assets required fortheproject;
- relief from taxonindustry andcommerce;
- exemption from thetaxonnetworth foragiven number ofyears determined for
eachapplicant.
Answer
TheIndustrial Promotion Lawanditsmodifications specify thetypes ofindustrial promotion
project thatareconsistent withtheobjectives thathavebeenestablished orthataresetforth inthe
Economic andSocial Development Plans, acondition thatmustbemetiftheExecutive istodeclare
them tobeofnational interest.
Thepurpose ofthese regulations istoopenuptheeconomy sothatthegrowth process may
beledbythesectors withcomparative advantages, thereby generating anincrease inthevalue added
ofrawmaterials.
Anyenterprisethatsubmitsinvestmentprojectsconsistentwiththeobjectivecriteriaorconditions
established bytheAdvisory UnitonIndustrial Promotion inconformity withfootnote 2ofArticle 2.1(b)
oftheSCM Agreement iseligible.
These benefits maybegranted tothefollowing activities: industry, services related toan
industrial activity andtourism.
Itisclearfromthisoutline ofthescheme thatitisnotaprogramme ofspecific subsidies within
themeaning ofArticle 2oftheSCM Agreement.
Question
2. Freezones
Nine freezones arecurrently inoperation inthecountry. Within thefreezones, goods
andrawmaterials maybeimported intothefreezones without thepayment ofcustoms duties.
Businesses established inthefreezones arewholly exempt from Uruguayan taxes, except social
security contributions, provided thatnotlessthat75percentofthework force isUruguayan.
Answer
Thefreezones arecurrently regulated byLaw15.921 of17December 1987, which defines
themasareas specified bytheExecutive within theterritory ofUruguay, publicly orprivately owned,
properly fenced inandisolated, andintended forthedevelopment ofalltypes ofindustrial, trade or
service activities.
Users ofthefreezones arewholly exempt from domestic taxes withtheexception ofsocial
security.G/SCM/Q2/URY/3
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Thisfreezoneregime isnotspecific, since thebenefits donottarget aspecific enterprise or
industry orgroup ofenterprises orindustries. According toArticle 2oftheLawonFreeZones, any
typeofindustrial, commercial orservice activity maytakeplace insuchzones. Theenterprises set
upinthefreezones maydirect theirsalestotheUruguayan market ortothemarkets ofother countries.
Forthesereasons,Uruguaydidnotnotifyitsfreetraderegime,assumingthatitwasnotnotifiable
under Article 25oftheSCM Agreement.
Fortherecord, itshould beobserved thattheindustrial activity ofthefreezones hasalimited
impact. Themajority ofenterprises operating under thefreezoneregime areinvolved chiefly in
intermediary orservice activities, andindustrial production activities areverylimited (there arecurrently
onlytwoindustrial enterprises operating under thefreezoneregime).
Question
3. Reinvestment ofincome
Incomereinvestedinmachineryandequipment(includingcomputerhardware)andbuildings
andconstructions usedinthemanufacturing orhotel industry isexempt from income taxsubject
tocertain limits. Theexempt income maynotexceed 40percentofthecapital expenditure on
machinery andequipment or20percentofthecapital expenditure onbuildings andconstructions,
normayitexceed 40percentoftotaltaxable income fortheyearbefore theexemption istaken
intoaccount. Thethird limiting factor istheamount ofbook profits fortheyear, since theexempt
income must betransferred from book profits toanon-distributable reinvestment reserve inthe
taxpayer 'sbooks.
Answer
Taxexemptions inconnection withreinvestment
Taxexemptions inconnection withreinvestment bythetaxpayer isregulated byArticle 447
ofLaw 15.903 of10November 1987. This Law anditsregulatory decrees (Article 100of
Decree 840/88 andArticle 32ofDecree 338/96) were transmitted totheSecretariat andareatthe
disposal ofinterested delegates.
Thisscheme allows exemption fromindustrial andcommercial income taxor,where applicable,
agricultural income tax,ofupto40percentoftheinvestments made during thefiscal year, onincome
reinvested forthefollowing purposes:
(a) Purchase ofindustrial machinery andplant;
(b) purchase ofagricultural machinery;
(c) permanent improvements intheagricultural sector;
(d) purchase ofutility vehicles;
(e) purchase ofrealestate forthepurpose ofequipping and/or re-equipping hotels, motels
andinns;
(f) purchase ofcapital goods forthepurpose ofimproving tourist services;
(g) purchase ofdataprocessing andcommunication equipment.G/SCM/Q2/URY/3
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Anexemption ofupto20percentisgranted forreinvestment in:
(a) Construction ofhotels, motels andinns;
(b) construction orextension ofindustrial buildings.
Itisclearfromtheabove description thattheexemption isavailable toanyenterprise paying
industrial andcommercial income taxoragricultural income taxandinvesting inoneofthementioned
areas. Inpractice, thismeans thatallindustrial, service andagricultural enterprises areeligible for
suchexemptions.
Theabove information shows thatthisisnotaprogramme ofspecific subsidies within the
meaning ofArticle 2oftheSCM Agreement.