WORLD TRADE  
ORGANIZATION  G/SCM/Q2/TUR/25 
28 September 2010 
 (10-4936) 
Committee on Subsidies and  
Countervailing Measures Original:   English 
 
 
 
SUBSIDIES 
 
Replies to the Questions Posed by the UNITED STATES1  
Regarding the New and Full Notification of TURKEY2 
 
  The following communication, dated 27 Septembe r 2010, is being circulated at the request of 
the Delegation of Turkey.  
_______________ 
  
I. INVESTMENT ENCOURAGEMENT PROGRAM IN TURKEY 
1. Turkey has revised its Investment En couragement Program (IEP) since the last 
notification in 2007.  In order to receive an Investment Encouragement Certificate, investors 
must obtain approval "on the basis of ma cro-economic programs, supply vs. demand 
conditions, and sectoral, financial and technical terms," among other very general criteria.  
Could Turkey please provide further detail as to the eligibility criteria for companies to benefit 
from this program in its current iteration?  In particular, please describe any new or changed 
eligibility criteria that companies must satisfy in order to receive benefits. 
 
Reply
 
  In its new and full notification for 2009 (G/SCM/N/186/TUR) Turkey has submitted comprehensive information concerning the purpo se, scope, encouragement measures, regional 
classification, eligibility criteria and other basic ru les of implementation rega rding "The Investment 
Encouragement Program (IEP)" which was revised  in 2009 by the Decree No. 2009/15199, dated 
14 July 2009.  Additionally, in the same document it has also been referered to the 
"www.treasury.gov.tr" website in case, more detaile d information concerning the IEP currently in 
force, i.e. the Decrees, Communiqués and statistical data regarding implementation, is needed.  This 
option is still available in the specified web page. 
 
 In the following explanations regarding the detailed information whic h was already submitted 
in the notification document, only references shall be  made whenever necessary instead of repeating. 
  In order to benefit from the encouragement measures provided under the program investors, 
who have prepared their investment feasibility stud ies and proposals, apply to the Undersecretariat of 
Treasury with the related documents for the issuan ce of incentive certificate.  For the application 
procedure and requested documents please see "I.6  Application Procedure" in the notification 
document.  Upon application an evaluation is made  by the Undersecretariat on the basis of eligibility 
                                                     
 
1 G/SCM/Q2/TUR/24. 
2 G/SCM/N/186/TUR. G/SCM/Q2/TUR/25 
Page 2  
 
  criteria which are all determined objectively and clearly  in the Decree and they are applicable to all 
investors in equal terms.   The eligibility criteria to benefit from th e encouragement measures provided under the 
program are defined completely in the Decree and its  annexes and they were all established by taking 
into consideration the output of studies made during the drafting stage of the Decree regarding the 
Program.  For example the eligibility criteria concerning the subjects of investments and minimum investment amounts to be supported within the scope of regional and sectoral implementation 
(see annex 2), the subjects of large investments and minimum investment amounts to be supported 
within the scope large investments (see annex 3) and the subjects of investments not supported or 
supported conditionally by the gene ral implementation (see annex 4) were all determined in the 
Decree in consequence of evaluations made " on the basis of macro-economic programs, 
supply vs. demand conditions and sectoral, financial and technical terms, " during the preparation 
studies of the program carried out by the Undersec retariat of Treasury in coordination with other 
relevant stakeholders. 
 
 As a result of the evaluation made by the U ndersecretariat on the basis of the eligibility 
criteria specified clearly and thoroughly in the Decree, eligible investment projects in conformity with 
the Decree and Communiqué are granted an Investme nt Encouragement Certificate which enables to 
benefit from the encouragement measures enlisted on it.  
 In the Decree, encouragement of the invest ments concerning the production of goods and 
services is mainly differentiated into three categor ies with respect to encouragement measures to be 
provided.  Eligibility criteria concerning each category is summarised below:   1. Regional and sectoral implementation: 
 
• Only subjects of investments with sp ecified minimum fixed investment costs 
and/or minimum capacity requirements can benefit from the measures provided under this category.  For a de tailed list of sectors and the minimum 
investment amounts required to be sup ported in specified regions please see 
Annex II. 
 
 2. Large investments:  
• Only subjects of investments with sp ecified minimum fixed investment costs 
can benefit from the measures provided under this category.  For a detailed 
list of sectors and the minimum investment amounts required to be supported 
in specified regions please see Annex III. 
  3. General investment encouragement mechanism:  
• In order to issue an investment enc ouragement certificate for an investment 
project under the general investment encouragement mechanism, minimum 
amounts of fixed investment costs are identified in the Decree.  For these amounts please see "I.5 Minimum Fixed Investment Costs" in the notification document. 
 
• Subject of investment should satisfy the sectoral restrictions or limitations 
conditions.  For a detailed list of Subj ects of Investments Not Supported or 
Supported Conditionally by the General Investment Encouragement System 
please see Annex IV. 
  G/SCM/Q2/TUR/25 
 Page 3 
 
 
  2. Turkey notes various Encouragement Meas ures, from which investors who hold IE 
Certificates may benefit, including Exempt ion from Customs Duties, Value Added Tax 
Exemption, Tax Reduction, Social Security Premium Support, Interest Support, and Land 
Allocation.  Could Turkey please explain whet her the eligibility criteria differ based on the 
particular "Encouragement Measure" at issue?  If so, please describe in further detail the 
applicable criteria for each measure.  
Reply
 
  In the current investment encouragement pr ogram investments can benefit from the measures 
customs duty exemption, value added tax exemption,  tax reduction, interest support, social security 
premium support and land allocation where availab ility and rates differ according to the region, 
amount, sector and commencement date of investment as given in the following tables.  
Table I.  Summary of encouragement measures pr ovided to investments started after 31 December 2010  
 
TAX REDUCTION INTEREST SUPPORT  
CUSTOMS 
DUTY 
EXEMP. VAT 
EXEMP.ANNUAL 
TAX RED. 
RATE CONT. 
RATE 
(%) BASIS 
POINTSCOMP. 
AMOUNT 
(TL) SOCIAL SEC. 
PREMIUM 
SUPPORT 
(DURATION/
YEARS) LAND 
ALL. 
REGION I 25 10   - 
REGION II 40 15 - - - 
REGION III 60 20 3 500.000 3 REGIONAL & 
SECTORAL 
INVESTMENTS 
REGION IV YES YES 
80 25 5 500.000 5 YES 
REGION I 25 25 - - - 
REGION II 40 30 - - - 
REGION III 60 40 - - 3 LARGE 
INVESTMENTS 
REGION IV YES YES 
80 45 - - 5 YES 
GENERAL INVESTMENT 
ENC. MECHANISM YES YES - - - - - - 
 
 
Table II.  Summary of encouragement measures provi ded to investments started before 31 December 2010  
 
TAX REDUCTION INTEREST SUPPORT  
CUSTOMS 
DUTY 
EXEMP. VAT 
EXEMP.ANNUAL 
TAX RED. 
RATE CONT. 
RATE 
(%) BASIS 
POINTSCOMP. 
AMOUNT 
(TL) SOCIAL SEC. 
PREMIUM 
SUPPORT 
(DURATION/
YEARS) LAND 
ALL. 
REGION I 50 20 - - 2 
REGION II 60 30 - - 3 
REGION III 80 40 3 500.000 5 REGIONAL & 
SECTORAL 
INVESTMENTS 
REGION IV YES YES 
90 60 5 500.000 7 YES 
REGION I 50 30 - - 2 
REGION II 60 40 - - 3 
REGION III 80 50 - - 5 LARGE 
INVESTMENTS 
REGION IV YES YES 
90 70 - - 7 YES 
GENERAL INVESTMENT 
ENC. MECHANISM YES YES - - - - - - 
 
 The program consists of three main pillars3 with respect to encouragement measures provided 
for investments concerning the production of goods  and services, with each pillar having its own set 
of eligibility criteria.  
                                                     
 
3 Each investment can benefit from the measures only under one pillar. G/SCM/Q2/TUR/25 
Page 4  
 
   1. General investment encouragement mechanism 
 
To be eligible for the general investment  encouragement mechanism an investment 
should have an investment cost above the minimum fixed investment amounts specified in part "I.5 Minimum Fixed Inv estment Costs" of the notification document 
and should not be listed among the sectors not to be supported as given in the 
Annex IV of the notification document. 
  2. Regional and sectoral implementation  
In order to be eligible to benefit from this  pillar of the program, an investment should 
be in one of the sectors listed in Annex II of the notification document and should meet the minimum investment amount or capacity requirement given in the same 
Annex. 
 
 3. Large investments 
 
In order to be eligible to benefit from the measures provided to large investments, an investment should be made in one of the sectors indicated in Annex III of the notification document and should have an  investment cost over 50 Million Turkish 
Liras or over the higher amount if determined in the same Annex. 
 
 The eligibility criteria for each encour agement measure are explained below: 
 
Customs Duty Exemption:  
 This measure is provided for investme nts meeting the eligibility criteria for 
a) general investment encouragement mechanism or b) regional and sectoral implementation or c) large investments 
 Value Added Tax Exemption: 
 
 This measure is provided for investme nts meeting the eligibility criteria for 
a) general investment encouragement mechanism or b) regional and sectoral implementation or c) large investments 
 
Tax Reduction:   This measure is provided for investme nts meeting the eligibility criteria for 
a) regional and sectoral implementation or b) large investments 
 
Social Security Premium Support:   This measure is provided for investme nts meeting the eligibility criteria for 
a) regional and sectoral implementation or 
b) large investments 
  G/SCM/Q2/TUR/25 
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  Interest Support: 
 
In order to benefit from this measure, an investment besides meeting the eligibility 
criteria mentioned for regional and sectoral im plementation, it should be made either 
in Region III or Region IV. 
 
Land Allocation:   This measure is provided for investme nts meeting the eligibility criteria for 
a) regional and sectoral implementation or 
b) large investments 
 
II. FREE ZONES 
1. According to the Secretariat report for Turkey's most recent Trade Policy Review 
(TPR), Turkey provides various incentives to comp anies operating in twenty free zones.  These 
include, inter alia , exemptions from income, corporate a nd value-added taxes, and exemptions 
from customs duties and fees, as well as attrac tive terms for the rental of facilities.  The 
legislation authorizing the free zones is designed to, inter alia , promote joint-ventures in export-
oriented enterprises, provide easy access to im ports of raw materials on favourable terms, and 
promote foreign direct investment. 
 
 According to Turkey's replies to Member' s questions, free zone benefits "are available 
to all companies, regardless of regional specificati on or industrial designation".  However, we 
note that it appears that incentives under th ese programs are provided to export-oriented 
enterprises, which raises issues  under Article 3 of the Subsidies Agreement.  Could Turkey 
please explain further the application process and the eligibility criteria for its free zone 
program?  
Reply
 
  Free zones, by definition, are instruments used to  promote and develop foreign trade.  In this 
context, the Turkish free zone legislation also in tends to enhance foreign direct investment, to 
facilitate access to new technology and know-how as well as to develop international trade by taking 
into consideration its national legisl ation and international obligations. 
  According to Article 4 of the Free Zones Law No. 3218 of Turkey;  any kind of industrial, commercial and service activities approved by th e Supreme Coordination Council of Economic 
Affairs can be carried out within free zones.  On th e other hand, according to the Article 5 of the same 
law, domestic or foreign real persons or legal en tities may operate in free zones, provided that the 
Undersecretariat for Foreign Trade (UFT) grants them an operating license.   The operating license application process is exercised in the light of the foregoing criteria on a non-discriminatory basis.  In this framework, first, the type of activity to be carried out in the free 
zone (such as production, purchasing- selling or renting etc.) is taken into consideration.  Also, the 
estimated amount of investment and the envisaged le vel of employment to be created are evaluated 
as well.   Furthermore, the past economic and financial performances of the applicant are also taken 
into account, as the balance sheets and the statements of profit and loss belonging to the past 
three years are examined.  Another criterion whic h is used in the evaluation of operating license 
applications is whether or not the activity to be ca rried out in the free zone may harm the environment G/SCM/Q2/TUR/25 
Page 6  
 
  or public health.  In sum, there is no  kind of link between obtaining an operating license in free zones 
and being an exporter.   In order to apply for an operating license, an  operating license application form (can also be 
obtained online) has to be filled out and the rela ted documents mentioned in the form should be 
attached, including a copy of the deposited app lication fee (5,000 US dollars) and a petition that 
describes the details of the planned activity.  If the ap plication is rejected, the fee would be refunded.  
If the application is approved, then the applicant shou ld sign a lease contract with the operator or zone 
founder and operator company, as the case may be, w ithin 30 days following the approval.  After the 
ratification of the lease contract by the relevant free zone directorate, the UFT grants the operating 
license and the applicant becomes a free zone user. 
  In parallel to the applicati on process and eligibility criteria, no discrimination exists among 
applicants with regard to the incen tives provided in free zones.  Howeve r, since Turkey is in a process 
to align its free zone legislation with that of th e EU acquis, the incentive system was amended to a 
large extent by the Law No. 5084, which came into  effect on the 6 February 2004.  As a result, the 
corporate and income tax exemptions provided to applicants that engage in activities other than 
manufacturing was abolished and all fr ee zone users became tax payers. 
 
2. According to the TPR Report, Turkey's Technology Development Zones Law (No. 4691) 
provides incentives to promote the use of high/advanced technologies.  Given the limited 
availability of this program, could Turkey plea se discuss why this program was not included in 
its notification? 
 
Reply
 
 
 Turkey provides income and corporation tax exemptions to the companies operating in the 
Technology Development Zones in accordance with the Technology Development Zones 
Law No. 4691.  The exemptions will be granted until 2013.   However, it should be underlined that;  
• Technology development zones and organized  industrial zones have been established 
in all geographical regions of Turkey.  Th ere is no exclusion of any geographical 
region. 
 • There is no discrimination between firm s or sectors operating in the Technology 
Development Zones.  All companies, regard less of regional specification or industrial 
designation, may receive benefits unde r the Laws regulating the programs. 
 • There are no direct or indirect export performance requirements for these programs 
nor any kind of requirements for domestic inputs. 
 
 Hence, pursuant to the provisions of Artic le 25 of the Agreement on Subsidies and 
Countervailing Measures and Article XVI: 1 of the GATT 1994, the incentives provided by these 
programs are not specific subsidies and in this sen se there is no obligation for Turkey to make a 
notification regarding these incentives.  III. EXPORT SUBSIDY PROGRAMME FOR AGRICULTURAL PRODUCTS 
1. According to the notification, the Export  Subsidy Programme for Agricultural Products 
aims to develop Turkey's export potential in  processed agricultural products.  Please describe  G/SCM/Q2/TUR/25 
 Page 7 
 
 
  how this program is consistent with Turkey 's obligations under Article 3 of the Subsidies 
Agreement. 
 
Reply  
 
 As mentioned in our notification, the Export Subsidy Programme for Agricultural Products 
aims to develop Turkey's export potential in pro cessed agricultural products.  This, however, is the 
general purpose of this programme.   Turkey is of the view that this programme does not constitute an e xport subsidy within the 
meaning of Article 3.1 of the Agreement on Subsidies and Countervailing Measures (SCM). 
  Article 3.1 of the SCM Agreement states th at "Except as provided in the Agreement on 
Agriculture, the following subsidies, within the meaning of Article 1, shall be prohibited:" 
 
 It is clear from this provision that export s ubsidies which are legitimately granted within the 
scope of Agreement on Agriculture are not prohibit ed subsidies within the meaning of Article 3 
of SCM.   Turkey has the right to legitimately grant expor t subsidies to 44 agricultural products as it has 
been stated in Turkey's schedule of commitm ents annexed to the Agreement on Agriculture. 
 
 In this regard, agricultural export subsidies gr anted by Turkey which are in line with Turkey's 
rights and obligations under the Agreement on Agri culture are not measures to be scrutinized under 
Article 3 of the SCM Agreement.  
 Furthermore, these subsidies are not contingent upon export performance of the recipients.  In 
this regard, we would like to also note that f ootnote 4 to Article 3.1(a) of the SCM Agreement 
provides that "the mere fact that a subsidy is gr anted to enterprises which export shall not for that 
reason alone be considered to be an export subsidy within the meaning of this provision". 
 
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