WORLD TRADE
ORGANIZATIONG/SCM/Q3/DOM/7
11 June 2002
(02-3221)
Committee on Subsidies
and Countervailing MeasuresOriginal:  Spanish
SUBSIDIES
Requests Pursuant to Article 27.4 of the Agreement
on Subsidies and Countervailing Measures
Replies to the Follow-Up Questions Posed by the UNITED STATES1
The following communication, dated 7 June 2002, has been received from the Permanent
Mission of the Dominican Republic.
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The Permanent Mission of the Dominican Republic to the United Nations Office and other
International Organizations at Geneva hereby submits its replies to the follow-up questions fromMembers regarding the notification of the Dominican Republic circulated in document
G/SCM/N/71/DOM dated 6 March 2002.
Questions by the United States
Question 1
Article 17(f) of the Law No. 8-90 appears to explicitly mandate that exported products
contain at least 25 per cent of local components or raw materials.  This provision appears to be
a requirement that must be met to receive benefits under this programme.  Therefore, please
comment on whether this aspect of the prog ramme constitutes a prohibited subsidy under
Article 3.1(b) of the SCM Agreement.
Reply
Law No. 8-90 of 15 January 1990
“Article 17:  Enterprises licensed to operate in the free zones may :”
Two major points emerge from a reading of this legal text which must be taken into
consideration if what is provided for in Article 17(a) to (h) is to be understood, namely:
1. First:  All of the provisions in this Article are established for the benefit of all enterprises
which have obtained a licence or authorization from the National Free-Zone Council to operate underthe Free-Zone Regime.
                                                     
1 G/SCM/Q3/DOM/6.G/SCM/Q3/DOM/7
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That is to say, the provisions of Article 17 do not constitute conditions for obtaining a licence
to operate a free-zone enterprise.  This is clear from both the meaning of the other paragraphs of the
Article and the specific provision in Article 17 which refers exclusively to “ Enterprises licensed to
operate in the free zones ...”, i.e., which already hold free-zone operating licences.
On the other hand, enterprises which are not in possession of a licence to operate under the
Free-Zone Regime do not enjoy such prerogatives.
2. Second .  All of the rights established in Article 17 are options, not conditions.  Under
Dominican Law, a condition is a fact upon the fulfil ment of which the existence or lapse of a right
depends, whilst an adjective right (an option) is generally a prerogative granted by the legislature for
the benefit of legal persons.
In the case of Law No. 8-90, this is illustrated by the use of the word “ may” (Article 17),
which specifically indicates that these are rights which may be exercised, as stated above, by
enterprises “...licensed to operate in the free zones...” and which already have the vested right to
benefit from the incentives provided for under this Law.
3. Third.   The incentives in Law No. 8-90 are generally designed for enterprises engaged in
exporting goods or services, as established in Article 2, which provides that “... enterprises will be
licensed to devote their production of goods or services to foreign markets through the granting of
incentives to stimulate their development ...” (not those with products containing local components).
The Law also defines free-zone enterprises as:“...physical or legal persons in favour of whom licences have been issued hereunder and who
are engaged in the production of goods and services for export.”   (Art. 5, paragraph b).
The fact that Article 17(f) grants these enterprises (which are already licensed and eligible for
the incentives provided for in the Law) the right to export up to 20 per cent of their production into
Dominican customs territory, subject to payment of 100 per cent of the taxes applicable thereto (tariff,
Tax on the Transfer of Industrialized Goods (ITBIS), Selective Consumption Tax and foreign
exchange commission), is not a condition, but an  option. There is, however, an exception to this
option or right to import up to 20 per cent, whereby an enterprise may export more than 20 per cent of
its production into Dominican customs territory.
With regard to exports in excess of the quota gr anted to enterprises licensed to operate in the
free zones, Law No. 8-90 permits in exceptional cases the export into Dominican customs territory of
up to 100 per cent of production, subject to payment of 100 per cent of the taxes applicable thereto
(tariff, ITBIS, Selective Consumption Tax and foreign exchange commission), provided that:
(a) The product to be exported is not manufactured in the Dominican Republic except in
a free zone, or (another arrangement or option),
(b) The product to be exported contains local components or local raw materials to the
extent of at least 25 per cent of its total value.
Free-zone enterprises which export 20 per cent or more of their production into Dominican
customs territory have therefore already been granted incentives under the Law by the simple fact of
being enterprises licensed to operate in a free zone, as provided for in Article 24 of Law No. 8-90:
“Free-zone operators and enterprises established therein shall be protected by the tax and
customs regime set forth in Article 2 above, and consequently shall be entitled to 100 per centexemptions from: ...”G/SCM/Q3/DOM/7
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This legal provision is not subject to the fulfilment of any conditions other than those laid
down in the Law with regard to the granting of operating licences and their attendant benefits.
Incentives under this programme are not therefore contingent upon the use of domestic over imported
products; they have already been applied to products for export into Dominican customs territory.
Question 2
Under Article 29 of Law No. 8-90, special bene fits are accorded to  enterprises in the
form of “subsidized rents,” “preferential export quotas” and “preferential interest rates on
loans”.  Similarly, Article 40 establishes that free-zone operators may obtain “loans or
guarantees in local or foreign currency”.  Pl ease comment on whether these aspects of Law
No. 8-90 meet the eligibility requirements established in S/SCM/39.
Article 29 of Law No. 8-90  contains  a number of provisions geared towards attracting
investment to the poorest communities in the Dominican Republic, specifically, the border area with
Haiti. In this respect:
1. The Industrial Development Corporation (CFI), the country's largest State free-zone park
operator, has the authority to establish lower lease prices for its own industrial premises than for the
parks that it runs in other areas and regions of the country.  This, however, is an option, not an
obligation, as established in Article 29(a).
2. The National Free-Zone Council may also allocate to these enterprises part of the preferential
export quotas assigned by countries which have signed bilateral agreements with the Dominican
Republic to restrict Dominican exports of several products to their markets.
3. Enterprises established in the border area are also entitled to preferential interest rates on
loans granted by the Central Bank to all kinds of eligible enterprises, not merely free-zone enterprises.
4. Free-zone operators and free-zone enterprises may request loans or guarantees in local or
foreign currency from the country's private financia l system, subject to the established regulations.
This is provided for in Law No. 8-90 on account of the nature of the national banking system.
The Dominican Republic has requested an extension for Law No. 8-90 for the reasons set
forth in its formal request and considers that this Law fully meets the eligibility requirements
established at the IV Ministerial Conference in Doha, in particular since this  programme provides for
full or partial exemptions from import duties and internal taxes.
All of the above-mentioned provisions are options subject to the consideration of each of the
above-mentioned authorities and which, given their specific characteristics, do not constitute forms of
subsidies within the meaning of the SCM Agreement.
It should, however, be emphasised that the Dominican Republic, in its capacity as a Member
of the World Trade Organization and, as such, a signatory party to the SCM Agreement, is bound to
enforce compliance with the latter.
The programme set out in Law No. 8-90, together with its conditions, rights and exceptions,
therefore qualifies under the eligibility requirements established in document S/SCM/39, since the tax
exemptions (customs duties and internal taxes) are granted pursuant to approval of the operation as a
free-zone enterprise, no mention being made in these requirements of additional benefits for which
such enterprises may apply.
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