WORLD TRADE  
ORGANIZATION   
G/SCM/Q2/SAU/3 
24 October 2012 
 (12-5797) 
Committee on Subsidies and 
Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Replies to Questions Posed by the UNITED STATES1 Regarding the 
New and Full Notification of SAUDI ARABIA2 
   The following communication, dated 22 October 2012, is being circulated at the request of the Delegation of Saudi Arabia.  
_______________ 
 
 
Question 1 
 
Investment Incentives under the National Industries Protection and Encouragement 
Regulations  
 According to the OECD, Saudi Arabia pr ovides certain investment incentives for 
industrial projects under the National Industri es Protection and Encouragement Regulations.
3  
A number of the incentives described by the OECD appear to constitute subsidies under 
Article 1.1 of the SCM Agreement, including: 
 
 Income tax holiday. 
 Exemption from customs duties. 
 Government-provided land at reduced rates. 
 Low electricity and water rates. 
  The OECD also states that these incentives are often tied to dedicated industrial parks, 
which suggests they may be limited to enterprises  located in a designated geographical regions 
and thus specific under Article 2.2 of the SCM Agreement.  Could Saudi Arabia please provide 
a full notification of these investment incentives or explain why it believes the incentives are not subject to the notification requirements of the SCM Agreement?   
 
Reply 
  The OECD report
4 that served as a basis for the first question predates the accession of Saudi 
Arabia to the WTO and is based on outdated an d incorrect information.  Also, the Kingdom's 
                                                      
1 G/SCM/Q2/SAU/2.   
2 G/SCM/N/155/SAU-G/SCM/N/186/SAU-G/SCM/N/220/SAU.   
3 See "Mena – OECD Investment Programme;  Incentives and Free Zones in the Mena Region:  A 
Stocktaking", available at http://www.oecd.org/dataoecd/56/22/36086747.pdf . 
4 Mena – OECD Investment Programme;  Incentives and Free Zones in the Mena Region:  A 
Stocktaking, available at http://www. oecd.org/dataoecd/56/22/36086747.pdf. G/SCM/Q2/SAU/3 
Page 2  
 
  Working Party Report establishes that the law whic h authorized the aforementioned tax holiday was 
repealed over ten years ago.
5   
  The Kingdom notes that the Report prepared by the WTO Secretariat in the context of Saudi Arabia's recent Trade Policy Review addressed th e Kingdom's investment incentives and made clear 
that none confer a benefit or are specific.
6 
 
Question 2 
 Saudi Industrial Development Fund 
 
 The Saudi Industrial Development Fund (SIDF) provides interest free loans to support 
"the development of the private industrial sector , by extending medium to long term loans  for 
the establishment of new factories and the expans ion, upgrading and modernization of existing 
ones in addition to the provision of guidance and advice in administration, finance, marketing 
and technology to industrial firms in Saudi Arabia".
7  Information from the SIDF's website 
indicates that its subsidized loans may be limit ed in law or in fact to certain industries or 
designative geographic regions in Saudi Arabia.8  Could Saudi Arabia please provide a full 
notification of SIDF loans programs or explain wh y it believes SIDF lending is not subject to the 
notification requirements of the SCM Agreement?  
 Reply 
 
 The interest-free, Shari'ah compliant loans offered by SIDF are not cost-free.  The fees 
charged by SIDF for the loans it offers are commerc ially-based and comparable to the interest charged 
on similar loans from private lending institu tions.  Thus, no bene fit is conferred. 
 
 SIDF loans are also not specific.  SIDF funds projects in all industrial sectors and regions. Loans are granted on the basis of objective criteria relating to the creditworthiness of the applicant, 
the technical qualities of the project and commercial considerations.  These criteria are applied in a 
neutral manner by SIDF when granting loans.  The United States Department of Commerce has 
determined that "[b]ecause SIDF loans are not limite d to a specific enterprise or industry, or a group 
of enterprises or industries", they are not countervailable.
9 
 
Question 3 
 
Saudi Industrial Property Authority  
 
 The Government of Saudi Arabia, through the Saudi Industrial Property Authority, 
provides incentives to factories in designated i ndustrial cities, such as subsidized industrial 
electricity and water rates and low cost land.10  This information suggests that these incentives 
are limited to enterprise located in designat ed geographical regions and thus specific under 
                                                      
5 WT/ACC/SAU/61, Annex B. 
6 See WT/TPR/S/256, Summary para. 16, Chapte r III(1)(iii)(d) and Chapter III(3)(i). 
7 See http://www.sidf.gov.sa/En/AboutSI DF/Pages/HistoricalReview.aspx . 
8 See e.g.,  http://www.sidf.gov.sa/En/Achievements/Pag es/Lendingthemajorindusrialsectors.aspx , 
showing that the chemical and engineer ing industries have received 40% and 20% of SIDF loans, respectively;  
and http://www.sidf.gov.sa/En/GuidetoIndustr ialLoans/Pages/Important-Notices.aspx , financing rules for 
projects located in lower growth regions and cities.   
9 See http://ia.ita.doc.gov/esel/eselframes.html. 
10 See: 
http://www.modon.gov.sa/English/InformationCenter/ BecomingAClient/Pages/InvestmentAdvantages.aspx .  G/SCM/Q2/SAU/3 
 Page 3 
 
 
  Article 2.2 of the SCM Agreement.  Could Saudi Arabia please provide a full notification of 
these investment incentives or explain why it believes the incentives are not subject to the 
notification requirements of the SCM Agreement?   
 
Reply 
  The Saudi Industrial Property Authority is not responsible for the supply of electricity and water in the industrial cities that it administers.   The incentives listed are not subject to the SC M Agreement's notification requirements for the 
following reasons: 
 
 Electricity .  The sale of electricity in Saudi Arabia  does not constitute a subsidy because it 
does not confer a benefit.  As established in  Saudi Arabia's recent Trade Policy Review, 
electricity prices are applied on a commercial basis.
11  The tariffs are set in a way that is in 
line with the common practice of price setting for utilities in many countries around the 
world.  The sale of electricity in the Kingdom also is not specific because all domestic 
consumers of electricity in a particular consumer category ( e.g., residential, commercial, 
industrial, Government or agricultural) are subj ect to the same tariff schedule, regardless of 
location. 
 
 Water.  The price of industrial water is not regulated in Saudi Arabia and its supply does not 
constitute a subsidy.  As established in Saudi  Arabia's recent Trade Policy Review, water 
prices are set on commercial terms.12  Prices for industrial water are set by individual water 
producers to allow for the full recovery of cost plus a reasonable profit. 
 
 Land.   As stated by the Secretariat in its Trad e Policy Review report for Saudi Arabia, there 
are certain "general incentives for all investors", including "land at competitive rates".13  
Rental rates are identical for all the enterprises located in any of the numerous industrial cities 
throughout the Kingdom of Saudi Arabia.  More over, the annual land rents include fees for 
operation and maintenance, as well as one-time allocation fees. 
   
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11 See, e.g., WT/TPR/S/256, Chapter IV(2)(v). 
12 See, e.g., WT/TPR/S/256, Chapter IV(2)(vi). 
13 WT/TPR/S/256, Chapter III(3)(i), para. 82.