RESTRICTED
WORLD TRADE G/SCM/Q2/ZAF/6
18March 1998
ORGANIZATION(98-1081)
Original: English Committee onSubsidies
andCountervailing Measures
SUBSIDIES
Replies toQuestions posed bytheEUROPEAN COMMUNITY1,
JAPAN1andtheUNITED STATES1Regarding theNewand
FullNotification ofSOUTH AFRICA2
Thefollowing communication, dated 13March 1998, hasbeenreceived fromthePermanent
Mission ofSouth Africa.
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REPLIES TOTHE EUROPEAN COMMUNITY
I. NOTIFIED SUBSIDY PROGRAMMES
Question
(a) Lowinterest ratefinance scheme
South Africa states thatthisprogramme isavailable toindustrialists thatwillcreate new
and/or additional capacity generating sales ofwhich 30%ormore isdirected towards exports.
Thisprogramme seems contingent upon export performance. Inthisrespect, could South Africa
givethetimetable ofhowthissubsidy willbephased out?
Answer
(a) South Africa hasreconsidered thisscheme andithasbeendecided tophase itoutbyJune1998.
Question
(b) World Player Scheme
Could South Africa explain what ismeant by"manufacturers unduly affected bytariff
reform"?
1G/SCM/Q2/ZAF/3, G/SCM/Q2/ZAF/4, G/SCM/Q2/ZAF/5
2G/SCM/N/3/ZAF-G/SCM/N/16/ZAF-G/SCM/N/25/ZAF.G/SCM/Q2/ZAF/6
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Answer
(b) "Undulyaffectedbytariffreform"wouldbethosemanufacturerswhosetotalnominaladvalorem
import tariff willdecrease byatleast10percentage points overtheperiod 1995 to1999 orwhose
competitors 'sproducts haveareduction inimport tariffs ofatleast10percentage points andthis
reduction hasamaterial affect onturnover.
II. ADDITIONAL PROGRAMMES NOT NOTIFIED TOTHE WTO
Questions
South Africa hasnotnotified anumber ofprogrammes which appear tobenotifiable under
Article 25.TheCommunity findsthattheschemes described below provide afinancial contribution
which confers 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, South Africa supplies anotification under Article 25,
using thestandard format.
1. Regional Industrial Development Programme
Assistance isgiven intheform ofanestablishment grant forthefirsttwoyears, aprofit-
based incentive forthefollowing three years andarelocation incentive.
2. Simplified Regional Industrial Development Programme
Answer
South Africa doesnotconsider theseprogrammes tobeindustry specific noraretheycontingent
upon export performance andtherefore doesnotconsider ittobenotifiable.
3. General Export Incentive Scheme
Answer
Hasbeen notified inG/SCM/N/2/ZAF asaprohibited subsidy. Itwasnotnotified in
G/SCM/N/3/ZAF of23June1997 since thescheme wasterminated on11July1997.
4. TheExport Marketing Assistance Schemes
Thisprogramme includes theprimary export market research scheme andtheinward
buying trade mission scheme.
Answer
Thisscheme isnotspecific toanyparticular industry andtherefore doesnotfallwithin the
definition ofasubsidy.
5. Tariff rebates orrefunds ofduties ontheimportation ofrawmaterials andcomponents
usedinthemanufacturing processG/SCM/Q2/ZAF/6
Page3
Answer
Tariff rebates andrefunds ofduties ontheimportation ofrawmaterials andcomponents are
regular rebates andrefunds, areinconformity withAnnex IIoftheAgreement andSouth Africa does
notconsider them tobenotifiable.
6. Customs duties dispensation forthemotor industry
Answer
Theobjective oftheMotor Industry Development Programme inrespect oflightmotor vehicles,
i.e.cars(including station wagons), minibuses andlight commercial vehicles istoimprove the
competitiveness oftheindustry through aprocess ofphased reduction inprotective customs duties.
Inorder nottobeprescriptive interms ofthecomponent types thatareproduced domestically all
components destined forincorporation intolocally assembled vehicles carry thesame levelofcustoms
duties. Recognizing thatonlyaportion ofthecomponents required areorcanbeproduced domestically,
rebates ofdutyaregranted inrespect ofapartoftheimported components needed toassemble avehicle.
Inprinciple thequantum oftherebate thatisgranted toanassembler isbased onthetotalvalue of
allthecomponents, locally produced andimported, purchased byavehicle assembler. Inpractice,
duetoproblems related tothedetermination ofthetotalvalue ofcomponents used, therebates are
based onthevalue ofvehicles produced forthelocalmarket andthevalue ofcomponents andvehicles
exported.
Therebates thataregranted arenotinexcess ofthefullrateofduty, andforthatreason the
rebate isnotconsidered tobeasubsidy.
Inthecaseofheavy motor vehicles, customs tariffs wereremoved inrespect ofmost ofthe
componentsneededforassemblyofvehicles.Customsdutiesinrespectofcertainengines,transmissions,
drive axles, cabsandtyres remain, butareallsubject toscaled reductions orfuture elimination.
7. Electricity tariff concessions: electricity intensive industries mayobtain special tariffs
withtherelevant local authorities.
Answer
Thisprogramme isofacommercial nature withdiscounts being given forthepurchasing of
large volumes (bulk discounts).
REPLIES TOJAPAN
Question
General Export Incentive Scheme (GEIS)
Could South Africa explain thereason whythisprogramme notified asaprohibited subsidy
inthenotification (G/SCM/N/2/ZAF) wasnotdescribed inthenotification (G/SCM/N/3/ZAF)?
Answer
Hasbeen notified inG/SCM/N/2/ZAF asaprohibited subsidy. Itwasnotnotified in
G/SCM/N/3/ZAF of23June1997 since thescheme wasterminated on11July1997.G/SCM/Q2/ZAF/6
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Question
LowInterest Rate Finance Scheme (Life Scheme)
Onpage3ofthenotification, South Africa described theeligibility asfollows: "Available
toindustrialists orgroups withtotalassets ofmore thanZAR 1million, forfinancing projects
thatwill: Create newand/or additional capacity generating salesofwhich 30%ormore isdirected
towards exports."
- Does thisprogramme constitute anexport subsidy?
- That being thecase, could South Africa explain when theprogramme would be
phased out?
- That notbeing thecase, could South Africa explain thereason?
Answer
Thisscheme wasreconsidered andithasbeendecided tophase outthe"lowinterest ratefinance
scheme" byJune1998.
Question
Duty Credit Certificate Scheme forTextiles andClothing (DCC 's)
Onpage5ofthenotification, South Africa describes theeligibility asfollows: "Exporters
oftextiles andclothing earndutycredit certificates onthebasis oftheirexports ofproducts falling
under thescheme. Thecertificates allow these exporters credit tothevalue ofthecertificate on
duties payable onimports oncertain textile andclothing products."
- Does thisprogramme constitute anexport subsidy?
- That being thecase, could South Africa explain when theprogramme would be
phased out?
- That notbeing thecase, could South Africa explain thereason?
Answer
Thisscheme wasreconsidered andithasbeendecided tophase itoutasfrom31March 2000.
REPLIES TOTHE UNITED STATES
Q.1. Regarding the“LowInterest Rate Finance Scheme ”andthe“Duty Credit Certificate
Scheme forTextiles andClothing ”,doyouconsider these programmes toprovide subsidies
contingent upon export performance, asprovided inArticle 3.1(a) oftheSCM Agreement? If
so,what areyour plans forthephase outofthese programmes?
A.1. The"Low Interest RateFinance Scheme" andthe"Duty Credit Certificate Scheme" havebeen
reconsidered andithasbeendecided tophase outthe"lowinterest ratefinance scheme" byJune1998.G/SCM/Q2/ZAF/6
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The"duty credit certificate scheme fortextiles andclothing" isintended tobephased outasfrom
31March 2000.
Q.2. Inyournotification ofthe“LowInterest RateFinance Scheme ”,youstated thatthesubsidy
effect wasthedifference between actual andlower interest rates. Please provide information
concerning thebasis onwhich theactual andlowinterest rates aredetermined forthisscheme,
aswellasforthe“World Player Scheme ”.
A.2. Thelevel ofinterest ratesforthe"low interest ratefinance scheme" andthe"world player
scheme" depend onthesizeofanapplicant enterprise:
Small andmedium-sized enterprise (total assets oflessthanR60million):
Industrialists canchoose between afixed rate,currently 13.5percentp.a.oravariable rate,
currently 14.25 percentp.a.forloans oflessthanR25million and13.75 percentp.a.for
loans ofmore thanR25million. Thelow(thefixed andvariable) interest ratesarebased
onthenormal (fixed orvariable) interest ratesless3percentage points. Thenormal (fixed
orvariable) interest ratesarebased ontheactual (prime bankoverdraft) interest rateless2
percentforfixed ratesandless2.5percentforvariable rates.
Large groups (total assets ofmore thanR60million):
Only thevariable ratesatthepercentages mentioned above areavailable tothem.
Q.3. You state thatthe“World Player Scheme ”provides lowinterest ratefinancing to
“manufacturers unduly affected bytariff reform ”.Onwhat basis arethese manufacturers
identified?
A.3. World player scheme: "unduly affected bytariffreform" would bethose manufacturers whose
totalnominal advalorem import tariff willdecrease byatleast10percentage points overtheperiod
1995to1999orwhose competitor 'sproducts haveareduction inimport tariffs ofatleast10percentage
points andthisreduction hasamaterial affect onitsturnover.
Q.4. Concerning the“Contribution totheMaize Industry ”assistance, the“Payment forRelief
from Natural Disasters: Boreholes ”,the“Payment forRelief from Natural Disasters: Interim
Natural Grazing Recovery Scheme ”,andthe“Payment forRelief from Natural Disasters:
Conversion ofMarginal Lands ”,please provide information regarding howtheamount offinancial
contribution foreachprogramme isdetermined.
A.4. Concerning the"Contribution totheMaize Industry" assistance, the"Payment forRelief from
NaturalDisasters:Boreholes",the"PaymentforRelieffromNaturalDisasters:InterimNaturalGrazing
Recovery Scheme", andthe"Payment forRelief from Natural Disasters: Conversion ofMarginal
Lands", theamount offinancial contribution foreachprogramme isdetermined asfollows:
- Contribution totheMaize Industry Assistance
TheGovernmenttookoverMaizeBoarddebtsofR395.1million(MaizeSpecialFund).
Thisamount isattributed toexport losses during themarketing seasons 1980/91 to
1986/87, ofwhich thelastmentioned season made thelargest contribution.G/SCM/Q2/ZAF/6
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Asfarasthe1986/87 season isconcerned, abigdifference existed between thephysical
estimate inMarch 1986 andtheactual sizeofthecrop andexport surpluses.
International prices alsoshowed adramatic decline.
On3August 1990theMinister ofAgriculture andtheMinister ofFinance signed the
"Guarantee bytheGovernment oftheRepublic ofSouth Africa" interms ofwhich
theGovernment guaranteed thattheMaize Board would meettheirfinancial obligations
totheLand andAgricultural Bank ofSouth Africa.
Annual payments forlosses thatoccurred intheperiods mentioned above aremade
directly totheMaize Board. Producers donotreceive anydirect payments.
- Payment forRelief from Natural Disasters: Conversion ofMarginal Lands
Theaimoftheprogramme istoestablish perennial pastures and/or leguminous pastures
onlandnormally usedfordry-land grain production, inorder toadjust thefarming
systems. Insodoing, toreduce theexcessive dependence ongrain production in
marginal areas.
Qualifying farmers, whosucceeded insuccessfully establishing approved pastures,
received anestablishment subsidy totheamount ofR130perhectare aswellasafurther
R60perhectareforwithdrawingtheland(s)fromcashcropproduction.Bysuccessfully
maintainingthepasturesforthenextthreeyears,participantsqualifiedforamaintenance
subsidy ofR60perhectare peryearforthree years.
- Payment forRelief fromNatural Disasters: Interim Natural Grazing Recovery Scheme
Atemporary measure, toassist livestock farmers incertain areas, torecover grazing
damaged byongoing drought, foramaximum period of12months. Conditions of
thescheme arethatstock should bereduced tobelow thelong-term carrying capacity
ofafarm unitupuntil50percentofthenotified long-term capacity. Only those
farmers withnatural grazing thathasbeennegatively affected bythedisaster drought
qualify andfarmers whoobtain 60percentormore oftheir income from meat,
wool/mohair andmilk.
Qualifyingfarmersreceivedanincentiveforstockreductionbelowtheofficiallong-term
carrying capacity oftheirfarms calculated asfollows:
- Small stock: R16.14 permonth perconverted large stock unit(LSU).
- Large stock: R9.67permonth perconverted large stock unit(LSU).
- Payment forRelief from Natural Disasters: Boreholes
Thescheme aimsattheprovision ofemergency drinking water tocattle andhuman
consumption forareas thataredeclared asemergency drought water areas. General
criteria werethattherehastobelessthan15litresofwater perdayperperson available
andlessthan60litres perdayperanimal consumption. Tenpercentofthedistrict
must beinthisstate.
Qualifyingfarmerswereallowedtwodrillingattemptsper1,000hectares,eachofwhich
canbedrilled at70percentdiscount onthetariff ofR35permetre. TwofurtherG/SCM/Q2/ZAF/6
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drilling attempts, withthelimitofonesuccessful borehole, canbeapproved ifthefirst
twoattempts were unsuccessful. Further attempts could onlybeapproved bythe
Managing Engineer. Thesame 70percentdiscount wasgranted oneachfurther
borehole.
Q.5. Finally, please explain whythefollowing subsidy programmes were notincluded inyour
subsidy notification:
- Regional Industrial Development Incentives
- Export Incentive Programme
- General Export Incentive Scheme
- Industrial Development Corporation Export Loans
- Preferential RailRates
- Beneficiation Allowance/Electricity Rebate
A.5. Thefollowing programmes havenotbeenmodified because:
- Regional Industrial Development programme: South Africa doesnotconsider this
programme tobeindustry specific norisitcontingent upon export performance and
therefore doesnotconsider ittobenotifiable asasubsidy.
- Export Incentive Programme: Itisnotclear whatismeant bythis.
- General Export Incentive Scheme (GEIS): Hasbeennotified inG/SCM/N/2/ZAF as
aprohibited subsidy. Itwasnotnotified inG/SCM/N/3/ZAF of23June1997 since
thescheme wasterminated on11July1997.
- IDC"Export Loans": TheIDCadministers various schemes. Thetwothatare
considered notifiable are"lowinterest ratefinance" and"world player scheme". These
havealready beenreplied toabove.
- Preferential RailRates: Although state-owned, therailways arebeing runona
commercial basis. Discounts canbenegotiated bybulkusers ofrailtransport. No
subsidy isinvolved.
- Benefication Allowance/Electricity Rebate: Again, discounts canbenegotiated bybulk
users ofelectricity onacommercial basis. Nosubsidy isinvolved.
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