WORLD TRADE  
ORGANIZATION  G/SCM/Q2/ARG/28 
23 October 2008 
 (08-5134) 
Committee on Subsidies and 
Countervailing Measures Original:   Spanish 
 
 
 
SUBSIDIES 
 
Replies to Questions from the UNITED STATES1 Regarding the  
New and Full Notification of ARGENTINA2 
 
  The following communication, dated 22 October 2008, is being circulated at the request of the delegation of Argentina.  
_______________ 
 
 
Investment Promotion Law Scheme for Capital Goods 
 
 We understand that the Investment Promot ion Law scheme for capital goods provides 
benefits from accelerated depreciation and ad vance refund of value-added tax, "except in 
investment projects producing exclusively for the export market". 
 
Question 1 
 
 Please explain why this programme was not notified pursuant to Article 25. 
 
Reply
 
  The benefits granted are not subsidies within the meaning of Article 1 of the SCM Agreement 
or prohibited subsidies within the meani ng of Article 3 of the SCM Agreement. 
 
The benefit involving accelerated depreciation for projects destined for export may be 
cumulated with the advance refund of VAT, because in fact all goods exporters are entitled to apply 
for and obtain refunding of aggregate VAT on th e value of the goods, in order to avoid tax 
exportation. 
 
Depreciation of goods in Argentina is, moreove r, governed by "custom and usage", not by 
any specific legislation or regulation.  The peri od established by the Investment Promotion Law is 
based on the recovery of investment capital over a shorter period of time than that provided by 
"custom and usage" in general. 
 
 Lastly, it should be noted that the method u sed for approving Large-Scale Investment Projects 
is to prioritize the establishment of environmentally  friendly companies in zones of lesser relative 
economic development which ge nerate genuine employment. 
 
                                                     
 
1 G/SCM/Q2/ARG/27. 
2 G/SCM/N/155/ARG. G/SCM/Q2/ARG/28 
Page 2  
 
  Question 2 
 
 Please explain why this programme is no t inconsistent with the provisions under 
Article 3 of the Subsidies Agreement. 
 
Special Regime for Turnkey Exports 
 
 We understand that exports of complete i ndustrial plants or engineering works under 
the special regime receive a certain amount of additional drawback if, inter alia , the domestic 
component is not less than 60 per cent of the contractual f.o.b. value. 
 
Reply
 
 
The regime for turnkey exports provided fo r by Law 23.101 of 1984 and regulated by 
Decree No. 870/03 is not inconsistent with the disci plines contained in the SCM Agreement.  Hence 
the importance of highlighting the points below: 
 
(a) The domestic regime at issue cannot in any way be classified as a "specific subsidy" 
within the meaning of Article 2 of the Ag reement, firstly because eligibility is not 
limited to certain enterprises and secondly because the requirements for entitlement to 
benefits are based on "objective criteria" whic h are clearly specified in the applicable 
legislation, inter alia  that the companies be located in the national territory, 
contracting take the form of "turnkey expor t contracts", and the contracts be awarded 
through international tendering.  Hence, the requirement to "use domestic inputs" is 
not a prerequisite and is therefore not abso lutely mandatory for eligibility to receive 
benefits. 
 
(b) According to Article 2.3 of the Agreem ent, "[a]ny subsidy falling under the 
provisions of Article 3 shall be deemed to be  specific".  To challenge this regime as 
running counter to Article 3 (prohibited subs idies) is therefore contradictory, given 
that it has been shown prima facie that th e regime cannot be classified as a "specific 
subsidy" within the meaning of Article 2. 
 
Question 3 
 
 Please explain why this special regime wa s not notified pursuant to Article 25. 
 
Reply  
 
 The regime for turnkey exports provided for by Law 23.101 of 1984 and regulated by 
Decree No. 870/03 was not notified under Article  25 of the SCM Agreement because it does not 
constitute a "subsidy" within the meaning of  Articles 1, 2 and 3 of the Agreement. 
 Question 4 
 
 Please explain why this programme is no t inconsistent with the provisions under 
Article 3 of the Subsidies Agreement. 
 
Import Regime for Used Production Lines 
 
 We understand that benefits under the Import  Regime for Used Production Lines are 
"conditional on the purchase of domestic pr oducts".  Firms must purchase new goods of  G/SCM/Q2/ARG/28 
 Page 3 
 
 
  domestic origin amounting to 30 per cent of the investment, in order to receive the duty 
exemptions under this programme. 
 
Reply  
 
 This regime provides for the use of domestic inputs as one of the requirements for eligibility 
to receive benefits.  An extensive series of prerequisites are laid down by law, such as the incorporation of firms located in the country, with out any distinction of nationality, the handling of 
leasing contracts, and the nature of the used goods to be imported, which must be essential for the 
production process and still have 50 per cent of useful life remaining. 
 
In view of the above, we do not consider the regime to be in br each of Article 1 or to meet the 
"specificity" criteria under Article 2 of the Agreemen t.  Furthermore, the relevant legal framework 
was developed in strict compliance with the "objective criteria" in Article 2.  
 Hence, there are no sound legal arguments for regarding this regime as running counter to 
Article 3 of the Agreement.  
Question 5 
 
 Please explain why this regime was not noti fied under Article 25 of the SCM Agreement. 
 
Reply
 
  On the basis of the arguments set out earlier, we consider that this regime does not constitute 
a subsidy under Articles 2 and 3 of the SCM Ag reement, and it was therefore not notified. 
 
Question 6 
 
 Please explain how this programme is not inconsistent with the provisions under 
Article 3 of the Subsidies Agreement. 
 
Imports of Goods Forming Part of Large-Scale Investment Projects 
 
 Under the Large-Scale Investment Projects program, tariff reductions are available if a 
firm purchases goods of domestic origin amountin g to at least 30 per cent of the investment 
project. 
 
Reply
 
  See reply to Question 4.  
Question 7 
 
 Please explain why this programme was not notified under Article 25 of the 
SCM Agreement. 
 
Reply
 
 
 The programme is not designed as a substitute fo r imports or the requirement to use domestic 
inputs;  it is merely one of a number of requirement s set by the implementing authority (Secretariat of 
Industry, Trade and Small and Medium-Size Enterprises).  G/SCM/Q2/ARG/28 
Page 4  
 
   The purchase of goods of domestic origin is not a prerequisite and is therefore not absolutely 
mandatory for eligibility to receive benefits. 
  The legislation governing the programme provi des, moreover, for the implementing authority 
to assess applications for benefits and allows it to  approve the granting thereof even where one or 
more of the conditions established by law has not been met. 
  In view of the foregoing, we do not consid er that this incentives programme involves a 
subsidy within the meaning of Article 1, a "sp ecific subsidy" under Article 2, or a "prohibited 
subsidy" under Article 3 of the SCM Agreemen t, and it has therefore not been notified. 
 
Question 8 
 
 Please explain why this programme is no t inconsistent with the provisions under 
Article 3 of the Subsidies Agreement? 
 
Framework Agreements on the Financing of Shipbuilding 
 
 We understand that Argentina established a framework for the financing of the 
shipbuilding industry, under which agreements were signed in 2006 to provide ARG$149 million in subsidies for projects worth ARG$430 million. 
 
Reply
 
  See reply to Question 7.  
 Comment
: 
  Argentina established a programme for the recove ry of the shipbuilding industry in order to 
remedy the shortcomings of the Naval Regime desi gned in the 1990s, thus putting an end to the state 
of emergency in the sector.  A naval leasing programme, with an allocation of ARG$149 million
, has 
been introduced for the purpose and is operated by Nación Leasing . 
 
Question 9 
 
 Please explain why these subsidies were notified under Article 25 of the 
SCM Agreement. 
 
Reply  
  Argentina has notified the Committee on S ubsidies and Countervailing Measures of the 
support programmes falling under the provisions of  the Agreement on Subsidies and Countervailing 
Measures. 
 
Question 10 
 
 Please describe the nature and scope of the assistance being provided under this 
programme. 
  G/SCM/Q2/ARG/28 
 Page 5 
 
 
  Reply  
  The Naval Leasing scheme, as it is known, w as established under the framework agreement 
for the recovery of this industrial sector and prov ides for the construction of  80 vessels, the ensuing 
creation of 2,500 direct jobs, and the upgrad ing of the ageing national merchant marine. 
 
 The leasing transactions are designed to secure  the financing needed for the purchase of 
goods, a scheme under which the financial institutio n acquires the capital good and supplies it to the 
operator under a leasing contract.  The acquisition is  made at the operator's request, for a specified 
period and against payment of a price or fee that en ables the financial institution to amortize the cost, 
plus interest on the equity put up.  When the cont ract expires, the operator has the option of acquiring 
ownership against payment of the price of the residual value of the good.   The scheme operates as follows:  the bank pur chases units from the shipyards and leases them 
to SMEs.  The maximum amount per SME is 80 per cent of the purchase price paid by the financial 
entity to the shipbuilder, not including VAT or ex ceeding the sum of $2,250,000.  The lease runs for 
91 months – the first 48 months at a fixed rate of interest and the remaining 43 months at a variable 
rate.  The applicable rate of interest is that of the Banco Nación  for a 60-day fixed term.  A capital 
grace period of up to six months is included in the lo an repayment term.  The term of placement of the 
allotted quota is 12 months.  Cash Refund for Local Auto Parts 
 
 We understand that Argentina establishe d an incentive regime to improve the 
competitiveness of local auto parts, which provid es benefits in the form of a cash refund on the 
value of purchases of local auto parts, i.e., th ose with a non-local co ntent of not more than 
30 per cent.  
Question 11 
 
 Please explain why these refunds were not notified under Article 25 of the 
SCM Agreement. 
 
Question 12 
 
 Please explain why this programme is no t inconsistent with the provisions under 
Article 3 of the Subsidies Agreement? 
 
Reply
 
 (a) The provisions of Decree No. 774/05 are cons istent with Article III (paragraph 4) of the 
GATT 1994 to the extent that eligibility for the "a dvantage" is not contingent upon an enterprise 
purchasing or using products of domestic origin or from any domestic source, since they are specified 
in terms of particular products, in terms of volume or value of products, or in terms of a proportion of 
volume or value of the enterprise's local productio n.  Nor does the Decree make an enterprise's 
purchases or use of imported products subject to li mitation to an amount related to the volume or 
value of local products exported by the enterpri se (Agreement on Trade-Related Investment Measures 
– Annex). 
 
 The Decree is consistent with Article 3 of the SCM Agreement to the extent that it does not make entitlement to benefits con tingent upon export performance (Artic le 3.1(a)), nor does it require, 
as the sole condition, the use of domestic goods  over imported goods (Article 3.1(b)). 
 G/SCM/Q2/ARG/28 
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  (b) In order to promote the recovery of the aut oparts industry, which suffe red severely during the 
crisis, an Incentives Regime to improve the co mpetitiveness of local autoparts was established.
3  This 
regime provides for the granting, fo r a maximum period of three years, of a benefit consisting in the 
payment of a cash refund on the value of purchases of  local autoparts (i.e. those with a non-local 
content of not more than 30 per cent).  Such pa rts must be intended for production and must be 
purchased by manufacturers of cars, utility vehicles w ith a load capacity of up to 1,500 kg., trucks, 
chassis with or without cabs, buses, engines, gearbox es or axles with differentials.  To obtain the 
benefit, the enterprises concerned must submit a pr oject for the production of new platforms or new 
autoparts, as the case may be, which must be approve d by the implementing authority.  It should be 
noted, however, that the final deadline for su bmitting projects under this programme expired on 
5 July 2008 . 
 
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3 Decree No. 774/2005 of 5 July 2005.