RESTRICTED
WORLD TRADE G/SCM/Q2/CHL/6
13June1997
ORGANIZATION(97-2434)
Original: Spanish Committee onSubsidies andCountervailing Measures
SUBSIDIES
Replies toQuestions from Korea1,United States2,Canada3
andJapan4regarding theNewandFullUpdating
Notification ofChile5
Thefollowingcommunication,dated30May1997hasbeenreceivedfromthePermanentMission
ofChile.
_______________
Please findenclosed theofficial written replies relating tothereview ofChile'ssubsidy
programmes which tookplace atthelastordinary meeting oftheCommittee on1May1997 onthe
basis ofdocument G/SCM/N/3/CHL -G/SCM/N/16/CHL andCorr.1.
Thestructure ofthereplies given toKorea, theUnited States, Canada andJapan follows the
order oftheprogrammes notified byChile intheabove-mentioned documents.
_______________
General question
CANADA: CanChile clarify the"reporting period" forthenotified subsidies, given that
asingle date(e.g.June1996orAugust 1996) isusedinanumber ofentries. What isthenormal
fiscal yearthatgoverns disbursements under thenotified programmes?
Reply
Thenotification period forallthesubsidy programmes istoJune1996, thedateoftheupdating
under review. However, Programme III(Premex) entered intoforce inAugust 1996, andtherefore
should beincluded intheupdating forthenextperiod (June 1997). Nevertheless, intheinterest of
transparency itwasincluded inthisnotification. Lastly, thefiscal yearforChile begins on1January
1G/SCM/Q2/CHL/1.
2G/SCM/Q2/CHL/2.
3G/SCM/Q2/CHL/3.
4G/SCM/Q2/CHL/4.
5G/SCM/N/3/CHL-G/SCM/N/16/CHL &Corr.1.G/SCM/Q2/CHL/6
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andendson31December ofeachyear, andtherefore thedisbursements under thesubsidy programmes
aregoverned bythatperiod andarenotlinked totheWTO notification timetable.
Specific questions onthenotified programmes
PROGRAMME I:TAX CREDIT FOR INVESTMENT INTHE PROVINCES OFARICA AND
PARINACOTA
UNITED STATES, Question 1:What arethestandards bywhich itisdetermined that
particular areas aredisadvantaged andthereby eligible fortheTaxCredit Programme? In
particular, howaretheprovinces ofArica andParinacota determined tobedisadvantaged?
Reply
Theinvestment taxcredit inArica andParinacota andthefirst-category income taxexemption
forIquique andPunta Arenas (Programmes IandII)werebothestablished onthebasisofsimilar criteria.
These criteria relate tothefactthatthese arethemost outlying regions, withtheensuring
consequences interms ofpopulation, growth, geopolitical factors, security andterritorial sovereignty.
Thecriteria considered were: (a)disadvantaged areas; (b)criteria setoutinArticle 8(2)(b)
oftheAgreement onSubsidies andCountervailing Measures.
(a) Disadvantaged areas: boththeFirstRegion andtheTwelfth Region haveclearandobjective
disadvantages compared totherestofthenational territory.
- Geographical isolation: theyaresituated ateachendofthenational territory, which
is4,270 km.longwithanaverage width of174km. Thisisolation raises thecost
ofliving inthese regions. Thus, thevalue ofthebasic foodbasket, withabaseof
100forthecityofTalca (cheapest), is133forArica, 124forIquique, 123forPunta
Arenas and102forSantiago.
- difficulties ofcommunication andintegration withtherestofthenational territory and
lack ofinfrastructure, inparticular inthesouthern region thathasnoland
communication route.
- unfavourable climate conditions: themostariddesert intheworld, ontheonehand,
andglaciers ontheother, make itverydifficult togenerate market conditions forthe
development ofinvestment andemployment.
- verylowpopulation density, compounded bythehighrateofemigration from the
frontier regions.
- relative riseinpoverty: intheperiod 1985-1992, thenational growth ratewas60.2per
cent, asagainst 32.3 percentintheFirst Region and15.8 percentinthe
Twelfth Region.
Thepurpose ofthese incentive programmes istotakeadvantage ofconditions ineachofthese
areas inorder tomake fulluseoftheirpotential andensure eventerritorial development. InArica
theaimistoachieve integration withbordering countries; inthesouthern region, thegoalistodevelop
investment opportunities foremerging sectors, primarily tourism, aquaculture andportservices.G/SCM/Q2/CHL/6
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Additional information concerning theFirstRegion
Thepresidential message initiating thedraftlawestablishing incentives fortheprovinces of
Arica andParinacota, of3January 1995, provides thefollowing additional information:
"Asfrom 1974 ...there began aslowandsustained process ofdeterioration directly linked
withtheeconomic liberalization policy implemented asfrom thatyear...thefree-zone and
extended free-zone systems werethenestablished, soastobeabletomaintain some levelof
activity."
"...Thissystem ofincentives ...didnotsucceed inreversing thedownward trend ...sothat
there wasasignificant lossofjobswiththeensuing migration toother cities orregions ...."
"This situation maybeexplained bytwofactors ...(firstly) thelossofeffectiveness ofthe
customs andtaxpreference system ...resulting from thetariff-cutting trend inworld trade
andtheemergence ofsimilar competing systems inneighbouring countries ...ithasbeenfound
thatincreasing these incentives ...primarily favours theestablished economic agents without
effectively influencing investment decisions ofnewagents."
"The second factor isrelated tothescant economic integration withneighbouring countries
(Peru, Bolivia, Paraguay, southern Brazil andnorthern Argentina)." Presidential message for
thedraftlawestablishing incentives fortheprovinces ofArica andParinacota, pages 2and3.
(b) Criteria ofArticle 8(2)(b) oftheSubsidies Agreement
- Levelofunemployment:TheunemploymentstatisticsfortheFirstandTwelfthRegions
arenotmeaningful astheydonottakeintoaccount thehighlevels ofemigration. Being
attheextremes ofthecountry, withharsh climate conditions, theemigration ratesto
other areas ofthecountry arethehighest inChile, along withtheEleventh Region.
People wholosetheirjobstendtoleave theregion, which reduces thebaseoftheactive
population, andemigrate tothecentral regions ofthecountry. Theinternal emigration
ratefortheTwelfth Region was3.1percentintheperiod 1987-1992, and2.2per
centforthesame period fortheFirstRegion. Thenational internal emigration rate
is1.2percent. Thisproblem, together withrelative poverty andtheneedtopopulate
theterritory forreasons ofnational sovereignty, gave risetotheprogrammes in
question.
- Percapita GDP: These areas havegrown significantly poorer. GDPgrowth hasbeen
much below theaverage. Onthebasis of100fortheyear1985, thenational average
for1992 amounts to160.2, while theaverage fortheFirstRegion is132.3 andthat
oftheTwelfth Region isonly15.8. During thisperiod, theFirst Region wasin
recession in1990, while theTwelfth Region hadnegative growth ratesin1990, 1991
and1992.G/SCM/Q2/CHL/6
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PROGRAMME II:EXEMPTION FROM FIRST CATEGORY (INCOME) TAX ONPROFITS
EARNEDINTHEFINANCIALYEARFORMANAGEMENTCOMPANIESANDUSERSWHO
ESTABLISHTHEMSELVESINTHEFREEZONESOFTHECITIESOFIQUIQUEANDPUNTA
ARENAS
UNITED STATES, Question 2:Under whatstandards wereRegions IandXIIdetermined
tobedisadvantaged andthereby eligible fortheIncome TaxExemption Programme?
Reply
Seeabove, reply toquestion 1fromtheUnited States (onProgramme IofChile), which also
applies tothisquestion.
JAPAN, Question 1:Does thisProgramme constitute anyprohibited subsidies within the
meaning ofArticle 3oftheSCM Agreement? That being thecase, could Chile explain when
theProgramme would bephased out? That notbeing thecase, could Chile explain thereason
andprovide details oftheeligibility?
Reply
ThisProgramme isnotaprohibited subsidy asthesupport doesnotdepend inanywayon
export performance.
PROGRAMMEIII:SUPPORTPROGRAMMEFORTHEMANAGEMENTOFEXPORTFIRMS
(PREMEX)
KOREA: Does Programme IIIconstitute prohibited subsidies according toArticle 3.1(a)
or(b)oftheSCM Agreement?
JAPAN,Question2:DoesChileconsiderthattheProgrammeconstitutesanexportsubsidy?
That being thecase, could Chile explain when theProgramme would bephased out? That not
being thecase, could Chile explain thereason?
Joint reply tobothquestion
Programme IIIisnotaprohibited subsidy asthesupport granted doesnotdepend onexport
performance. Thisisalltheclearer inthelightoffootnote 4toArticle 3oftheSCM Agreement,
which states: "The mere factthatasubsidy isgranted toenterprises which export shallnotforthat
reason alone beconsidered tobeanexport subsidy within themeaning ofthisprovision".
PROGRAMME IV:SIMPLIFIED SYSTEM OFREFUNDS FOR MINOR EXPORTS
UNITED STATES, Question 3:How often hastheprogramme provision which denies
simplified dutyrefunds forproducts which have notmetspecific export goals been invoked?
Reply
Itshould bepointed outthattherefund system does notrequire "export goals" forits
beneficiaries. Products notentitled totherefund because theyhavenotbeenclassified asminor exports
(biennium 1983-1984 ortheyear1990) arecontained inanexclusion list,towhich areadded every
year(adecree onexclusions being issued before 31March ofeachyear) theproducts, bytariff item,
which exceeded intheprevious calendar yeartheannual thresholds established bythelawforthe10perG/SCM/Q2/CHL/6
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cent, 5percentor3percentrefund rates. These thresholds areadjusted annually (base year1990)
andareasfollows: US$10 million; US$15 million; US$18 million, respectively. Thethresholds
currently inforce areasfollows: US$11.6 million; US$17.4 million andUS$20.9 million forthe
ratesof10percent, 5percentand3percent, respectively.
When applying fortherefund, exporters signasworn declaration stating thattheproduct is
notincluded inthelistofexcluded products anddoesnotfallunder anyoftheheadings specifically
laiddown inthelawasprecluding entitlement.
Itpractically never happens thatanexporter requests therefund foranexcluded product. If
thisshould happen, itisimmediately detected bytheTreasury Service (simply bychecking thecurrent
exclusion list).
Generally speaking, thereareveryfewcases inwhich theTreasury Service objects topayment
oftherefund, andwhen thisoccurs itisbasically duetodoubts astowhether theexported product
isofnational origin. Other cases arerejected because theapplication wassubmitted toolate.
IftheTreasury Service doesnotagree toarefund application, theapplicant mayapply for
review totheTreasurer General oftheRepublic, whowilltakeafinaldecision afterreceiving areport
from aTechnical Commission chaired bytheMinister oftheEconomy andcomprising theNational
Customs Service andtheCentral Bank ofChile aswell.
UNITED STATES, Question 4:Does Chile have averification system orprocedure in
place under itsSimplified System ofRefunds forMinor Exports Programme?
Reply
Article 7ofLaw18,480 provides that"when theNational Customs Service hasdetermined
through administrative channels thattherefund waspaidunduly, itshallinstitute proceedings forthe
recovery oftherefund unduly paid...".
Verification forthisLawhasbeendecentralized totheRegional Directorate orAdministration
ofCustoms inwhose jurisdiction theexporter isbased. TheCustoms Office concerned hastodraw
upplans forsubsequent verification, apart from thesituations inwhich itisdecided tocarry outan
investigation inconnection withverification relating totheexport line.
TheVerification Department oftheNational Customs Directorate draws upgeneral orspecific
programmes fortheverification oftherefund payments forinvestigation bythecorresponding customs.
Theresults oftheverifications carried outbycustoms must becommunicated totheVerification
Department. ThatDepartment, when notifying thedecentralization ofsuchverification, alsosentthe
Customs Offices "inspection guidelines" forthesystem through Circular No. 00928 of
16November 1995.
JAPAN, Question 3:Arethese programmes thesame asthose Chile notified pursuant
toArticle 28.1(a) oftheSCM Agreement? That notbeing thecase, could Chile explain whether
these programmes areprohibited subsidies ornot?Could Chile explain thedetails oftheeligibility?
Could Chile explain when these programmes would bephased out?
Reply
ThisProgramme wasnotified byChile under Article 28.1oftheSubsidies Agreement (see
document G/SCM/N/2/CHL andSuppl.1). Innotifying theprogramme, Chile availed itself oftheG/SCM/Q2/CHL/6
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eight-year period tobring thislegislation intolinewiththeSubsidies Agreement. Eligibility under
theProgramme isbased onobjective criteria, asdescribed inthenotification indocument
G/SCM/N/3/CHL andthereply given above toquestion 3oftheUnited States.
PROGRAMMEV:SYSTEM OFDEFERREDPAYMENTOFCUSTOMSDUTIES,TAXCREDIT
AND OTHER TAX BENEFITS
CANADA, Question 1:What istheadvantage/benefit oftheSystem ofDeferred Payments
ofCustoms Duties foraproducer thatdoesnotexport?
Thebenefit foraproducer whodoesnotexport consists inanadditional possibility offinancing
atmarket rates, thecapital good becoming thesecurity.
CANADA, Question 2:Istheinterest rateestablished bytheCentral Bank ofChile the
same astheproducer would normally obtain infinancing from commercial banks? Ifnot,how
doesitdiffer?
Reply
Theinterest ratesetbytheCentral BankofChile corresponds totheaverage ofinterbank rates.
Thismeans thatitisaligned withmarket rates.
CANADA, Question 3:Isthattaxcredit forthepurchase ofChilean manufactured goods
established inrelation totheamount ofcustoms duties thatarepaidonlikeimported goods?
Reply
Yes. Thetaxcredit under LawNo.18,634 corresponds to73percentofthecurrent customs
duties (73percentof11percent=8.03percent). Thegoalofthistaxcredit hasbeenthatitshould
beamatter ofindifference totheproducer whether toimport acapital good orbuyaChilean
manufactured one.
CANADA, Question 4:Since thedegree ofsubsidization -intheform ofdebtforgiveness -
increases withproportion ofexports, thesubsidy iscontingent onexports. CanChile confirm
thatitintends tophase outthesubsidy inconformity withArticle 27oftheSCM Agreement?
Reply
Inaccordance withArticle 27oftheSCM Agreement, asadeveloping country Chile hasa
period ofeight years from theentry intoforce oftheWTO Agreements todismantle theprohibited
subsidies itmaintains. Itshould bepointed outthatparagraph 4ofthisArticle establishes thatthey
should beeliminated preferably inaprogressive manner, butdoesnotestablish anyfurther obligations
inthisrespect.
JAPAN, Question 3:Isthisprogramme thesame asthatChile notified pursuant to
Article 28.1(a) oftheSCM Agreement? That notbeing thecase, could Chile explain whether
these programmes areprohibited subsidies ornot?Could Chile explain thedetails oftheeligibility?
Could Chile explain when these programmes would bephased out?G/SCM/Q2/CHL/6
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Reply
Thisprogramme wasnotified byChile pursuant toArticle 28.1oftheSCM Agreement (see
document G/SCM/N/2/CHL andSuppl.1). Innotifying it,Chile availed itselfoftheeight-year period
tobring itslegislation intolinewiththeSCM Agreement. Eligibility under thisprogramme isbased
onobjective criteria, asdescribed inthenotification contained indocument G/SCM/N/3/CHL.
PROGRAMME VI:MOTOR VEHICLES STATUTE
JAPAN, Question 3:Isthisprogramme thesame asthatChile notified pursuant to
Article 28.1(a) oftheSCM Agreement? That notbeing thecase, could Chile explain whether
thisprogramme isaprohibited subsidy ornot? Could Chile explain thedetails oftheeligibility?
Could Chile explain when thisprogramme would bephased out?
KOREA: DoesProgramme VIconstitute aprohibited subsidy according toArticle 3.1(a)
or(b)oftheSCM Agreement?
Joint reply tobothquestions
Thisprogramme wasnotified byChile pursuant toArticle 28.1oftheSCM Agreement (see
document G/SCM/N/2/CHL andSuppl.1) innotifying it,Chile availed itselfoftheeight-year period
tobring theincompatible aspects ofitslegislation intolinewiththeSCM Agreement.
Thetaxcredit programmes arescheduled under thelawconcerned (No.18,483) toexpire
in1998.
Eligibility under thisprogramme isbased onobjective criteria, asdescribed inthenotification
contained indocument G/SCM/N/3/CHL.