WORLD TRADE  
ORGANIZATION  G/SCM/Q4/PNG/5 
2 November 2006 
 
 (06-5270) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
PROCEDURES FOR EXTENSIONS UNDER  
ARTICLE 27.4 OF THE AGREEMENT ON SUBSIDIES  
AND COUNTERVAILING MEASURES 
 
Replies to Questions Posed by CANADA1;  COLOMBIA2;  and JAPAN3 
 
 
 The following communication, dated 26 October 2006, is being circulated at the request of 
the Delegation of Papua New Guinea 
 
_______________ 
 
 
CANADA  
 
Q1. Recalling that the objective of G/SCM/39 was to provide an extension of the transition period for the progressive elimination of export subsidy programmes of a number of Members, as called for in Article 27.4 of the SCM Agreement, we would ask the proponents of G/SCM/W/535 and G/SCM/W/537 to inform the Committee on Subsidies and Countervailing Measures of the individual efforts, if any, they  have undertaken to gradually bring these export 
subsidy programmes into conformity with their WTO obligations.   
Reply
 
  Papua New Guinea shares the view that document G/SCM/39 contains only a fast track procedure to approve extensions under Article 27.4 of the ASCM.  This document neither reduces nor 
does it increase the rights and obligations under the ASCM.  Therefore, neither document G/SCM/39 
nor Article 27.4 of the ASCM provide for a progressi ve elimination of export subsidy programmes.  
  Moreover, Article 27.4 mentions a “progressive” elimination in the first sentence which refers to the phase out of the export subsidies within th e eight-year period mentioned in Article 27.2(b), a 
condition that is completely different to those regarding the subsidies programmes at issue.  
Additionally, it is clear from the language in Article  27.4 that such “progressive elimination” is not 
mandatory.  In consequence, Papua New Guinea do es not see any obligation to take any effort for 
gradually phasing out these export subsidy programmes.   
With regard to its subsidy programme, Papua Ne w Guinea considers it in itself designed to be 
eliminated and is primarily used to help fac ilitate manufacturing industr ies develop their export 
markets at their infant stage.  Th e subsidy is expected to be applie d for a total duration of seven years 
from the date of inception, which is  the date at which export sales commenced (i.e. for the first three 
                                                     
 
1 G/SCM/Q4/PNG/2. 
2 G/SCM/Q4/PNG/1. 
3 G/SCM/Q4/PNG/3. G/SCM/Q4/PNG/5 
Page 2  
 
  years 100 per cent of net export sales income is exempted).  For the following four years, an 
exemption is provided for that portion of expor t sales income that exceed s the average over the 
preceding three years.  Therefore, it is important to note that this subsidy programme is only applied in the initial stages of production and exports; that is the exemption on tax is applied on the initial 
exports revenues for the first seven years with specific requirements entailed in the Act.  The 
exemption is supposedly to be eliminated afte r the seven years for each individual exporting 
company. 
 On the same, preparatory work is currently underw ay for detailed analysis of the usefulness of 
this subsidy programme and its level of utiliza tion by manufacturers and exporters from Papua New 
Guinea.  
   
Q2. Could the proponents of both documents also explain how further extension of this 
phase-out period would ensure that these efforts a re finally successfully undertaken in order to 
avoid a similar situation at the end of any ne w extended phase-out period for certain export 
subsidy programmes?   
Reply
 
  The proposal contained in G/SCM/W/535 refers only to the amendment of paragraph 1(e) of 
G/SCM/39.  The view of the proponents is to cont inue benefiting from the extension throughout 2018, 
based on their special economic, financial and de velopment needs.  Therefore, the rights and 
obligations contained in document G/SCM/39 an d Article 27.4 of the ASCM would remain 
unchanged   Consequently, Papua New Guinea will take  a pertinent decision based on its specific 
financial, economic and developm ent needs and in accordance with  the procedures and timelines 
established in the provisions mentioned above.  As a WTO Member, Papua New Guinea has designed 
its development strategies to address these needs with  a view to utilize trade promotion as a tool for 
poverty reduction and to achieve a fruitful integratio n into the world economy.  However, these goals 
may be achieved only with the full support a nd solidarity of the whole WTO membership. 
 Q3. Recalling that the previous extension of the phase-out period for certain export subsidy 
programmes was for an additional period of 6 years, could the proponents of both documents explain the rationale for a proposed extension of 11 years?   
 
Reply
 
 
 Article 27.4 of ASCM provides that “if a de veloping country Member deems it necessary to 
apply … [export] subsidies beyond the 8-year period [mentioned in article 27.2(b)], it shall not later 
than one year before the expiry of this period en ter into consultation with the Committee, which will 
determine whether an extension of this period is ju stified, after examining all the relevant economic, 
financial and development needs of the developing country Member in question. If the Committee 
determines that the extension is justified, the de veloping country Member c oncerned shall hold annual 
consultations with the Committee to determine th e necessity of maintaining the subsidies.”   
  Members that deemed it was necessary to appl y export subsidies, due to their particular 
characteristics and needs, requested extensions un der this provision as well as according to the 
outcome of the negotiations in Doha contained in document G/SCM/39.  The latest provides for fast 
track procedures for the approval of the extensions .  Members interested in obtaining these benefits 
have had to meet some criteria that justified th e approval from the Committee in order to maintain 
their export subsidies.  In fact, these criteria ar e based on the economic, fi nancial and development 
needs of the beneficiary Members.  G/SCM/Q4/PNG/5 
 Page 3 
 
 
   
The choice of the suggested date of 2018 should be read in the light of the discussions that 
had taken place before the adoption of G/SCM/39. At  that time, the proponents of this document had 
already explained their concerns and the reasons  to eliminate their programmes over a long enough 
timeframe, possibly extending over 20 years.  In th e light of those discussions and taking into account 
the relevant and legitimate fina ncial, economic and de velopment needs of Papua New Guinea, the 
extension proposed in G/SCM/W/535 should be regarded as an appropriate extension.  
 In addition,, the uncertainty regarding the futu re of the negotiations in the Doha Round and 
the significant transformation in the global trading scenario trigger new challenges that will require 
great efforts from domestic producers in smalle r economies such as Papua New Guinea and will 
definitively put additional pressure to these c ountries in terms of trade and overall economic 
prospects.  Therefore, special and differential treatment such as the requ ested extension for the 
subsidies in question is needed to support the effo rts of these small economi es to integrate into the 
global economy. 
Papua New Guinea has applied and notified only one programme, which has been the core of 
its export development strategy.  Hence, the availa bility of this subsidy programme is considered 
essential for the encouragement and fo stering of exports sectors. In li ght of the current initiatives by 
the Government to fully engage in international trad e, much consideration will be given to the growth 
and development of export activities.  Therefore, th e request for the extension of the time period for 
the use of this subsidy progra mme is essential to support th e realisation of these initiatives G/SCM/Q4/PNG/5 
Page 4  
 
  COLOMBIA
 
 
Q1. In the case of each of the programmes, please provide the most up-to-date information 
available regarding the number of beneficiary en terprises classified according to industrial 
sector. 
 
The subsidy program is available to those co mpanies contingent on exporting ‘qualifying’ 
goods as prescribed in Regulation 10A of the Income Tax Act, which are:  
 Activated carbon 
 Artifacts  
 Beverages ready for consumption 
 Biscuits 
 Canned fruit and vegetables 
 Canned, loined and smoked fish 
 Cement and concrete products 
 Ceramics 
 Chopsticks 
 Cigarettes 
 Clothing & manufactured textiles 
 Confectionary 
 Dairy products 
 Dry cell batteries 
 Electrical appliances 
 Essential oils /oleoresins 
 Fabricated steel 
 Fibreglass products 
 Fishing nets 
 Flexible packaging materials 
 Flour 
 Foam products 
 Founded & manufactured metal 
products 
 Glass products 
 Hand tools 
 Industrial and medical gases  
  Instant coffee 
 Instant full cream milk 
 Instant noodles 

 Jewellery 
 Livestock feeds 
 Matches 
 Motor vehicles 
 Non-dairy creamer 
 Paint 
 Paper products 
 Plastic products 
 Powdered cocoa beverages  
 Powdered coconut milk 
 Processed & canned meat products 
 Processed ginger 
 Refined petroleum 
 Rubber products 
 Sawn timber, moldings, plywood & 
laminated products 
 Ship & boat building and repairing 
 Soap 
 Treated & processed Crocodile skins 
 Wood pulp 
 Wooden furniture 
 
 The Government through this subsidy has ta rgeted manufacturers and exporters of these 
products to utilize this subsidy to enhance exports.  To date, not ma ny companies have benefited from 
this subsidy programme.  However, as of today,  only Ramu Nickel and Cobalt project is the only 
company that  has being given th is incentive.  The Government provided this incentive to the 
developer of Ramu Nickel to mine the resources, as well as to assist in the development of that region 
of the country through this tax exemption on export income.  Howeve r, this project still remains under 
development and is currently not in full production as yet, hence this incentive has not being used by 
the developer yet.   
 
 However, the Government of Papua New Guinea sees it vital to maintain this subsidy because 
of the need to encourage the growth and developm ent of export industries in the future.  Currently, 
PAPUA NEW GUINEA has a small but growing manuf acturing industry, such export incentives are 
necessary to nurture and further develop the industry.   G/SCM/Q4/PNG/5 
 Page 5 
 
 
  Q2. Please explain why, under the above programmes, which have been in place for over ten 
years, it is still not possible to dismantle the prohibited subsidies. 
 
Reply  
 
 G/SCM/39 provided guidelines for the extensi on of the transition period for eligible 
programmes under Article 27.4 in recognition of the economic and social contributions that such 
programmes made in the areas of  national development and employ ment strategies within liberal 
national export-oriented strategies of vulnera ble developing countries such as PAPUA NEW 
GUINEA.  
 
 It has not been possible for PAPUA NEW GUINEA to dismantle its subsidy programme because it is an incentive that is necessary for luring foreign investors to develop the rich natural 
resources that is readily available in the country .  Papua New Guinea places high priority on foreign 
direct investment for developing our exports.  Th e purpose of the subsidy programme is to attract 
foreign investment for export oriented manufactur ing through the provision of export incentives.  
Hence, Papua New Guinea places high priority on foreign direct investment for developing our 
exports.  
The need for Papua New Guinea right now is to grow out of producing under-performing 
commodities and move towards the production of value- added goods.  In that context, this subsidy 
programme will be essential in addressing this need.  Furthermore, this subsidy programme has been 
instrumental in contributing towards the achieveme nt of some developmental goals.  Although, it is 
not the sole instrument needed, it has been va luable and has been serving its purpose since its 
inception. 
 
Given its recognition of the importance of inte rnational trade, Papua New Guinea considers it 
necessary to maintain this subsidy to encourage th e growth and development of export industries.  
Currently, PAPUA NEW GUINEA has a small but growing manufacturing industry and so such export incentives are necessary to nurture and fu rther develop the manufacturing and downstream 
processing industry.  It is hoped that through this subsidy programmes, existing manufacturers or new 
exporters can utilize this subsidy to introdu ce and enhance exports, thus cutting down on the 
Government’s dependence on exports from the extr active sectors (mining, gas and petroleum).  
 
Q3. The basis for requesting the extension is th at Papua New Guinea is a small, vulnerable 
economy which suffers from the combined effect of diseconomies of scale caused by the small 
size of its economy and administration and by it s physical isolation.  If the above distorting 
factors are not brought under control before 2018, would there be a request for a new extension 
for the phasing out of the prohibited subsidies?  Please explain why these characteristics of 
Papua New Guinea's economy prevent the country from complying fully and satisfactorily with 
WTO export subsidy disciplines. 
 
Reply
 
 
The proposal contained in G/SCM/W/535 refers onl y to the amendment of paragraph 1(e) of 
G/SCM/39.  The view of the proponents is to contin ue benefiting from the extension throughout 2018.  
Therefore, the rights and obligations contained in  document G/SCM/39 and Article 27.4 of the ASCM 
would remain unchanged. 
 
 Small size of economy undermines trade comp etitiveness, compliance to complex trade rules 
is burdensome for small administ rations, and physical isolation prevents small economies from 
reaping benefits of economies of  scale – all factors making the characteristics of PAPUA NEW 
GUINEA peculiar and worthy of specific responses.  The current request for ex tension has been based G/SCM/Q4/PNG/5 
Page 6  
 
  on identified “relevant economic, financial and soci al needs” as provided for in Article 27.4 of the 
ASCM, with the aim to arrest the increasing marginalisation of small economies in world trade that is 
undermining development prospects.  Assuming that Colombia is referring to “distortion factors” as 
meaning the “relevant economic, financial and soci al needs” provided for in Article 27.4 of ASCM, 
the answer is that PAPUA NEW GUINEA would take  a pertinent decision, based on those needs in 
accordance with the procedures a nd timelines established in the provisions mentioned above. 
 
Furthermore, PAPUA NEW GUINEA is of the vi ew that, being Article 27.4 the provision 
that enshrines special and differential treatment in  the ASCM, the [number] programmes are fully and 
satisfactory in compliance with the relevant WTO disciplines. 
Q4. Please explain why the situation giving ri se to the request for extension requires the 
granting of prohibited subsidies until the year 2018, rather than an earlier date. 
 
Reply
 
 
 Article 27.4 of ASCM provides that “if a de veloping country Member deems it necessary to 
apply … [export] subsidies beyond the 8-year period [mentioned in article 27.2(b)], it shall not later 
than one year before the expiry of this period en ter into consultation with the Committee, which will 
determine whether an extension of this period is ju stified, after examining all the relevant economic, 
financial and development needs of the developing  country Member in question.  If the Committee 
determines that the extension is justified, the de veloping country Member c oncerned shall hold annual 
consultations with the Committee to determine th e necessity of maintaining the subsidies.”   
  Members that deemed it was necessary to appl y export subsidies, due to their particular 
characteristics and needs, requested extensions un der this provision as well as according to the 
outcome of the negotiations in Doha contained in document G/SCM/39.  The latest provides for fast 
track procedures for the approval of the extensions .  Members interested in obtaining these benefits 
have had to meet some criteria that justified th e approval from the Committee in order to maintain 
their export subsidies.  In fact, these criteria ar e based on the economic, fi nancial and development 
needs of the beneficiary Members.   In this regard and according to the above mentioned provisions, the Committee granted to a 
group of Members the authority to maintain export subsidies during a specific period of time subject 
to two well-known conditions: transparency and standstill.   As provided in document G/SCM/39, the author ity granted to the beneficiary Members is 
valid until the end of 2007.  After this date, these  Members have either the possibility to seek a 
continuation of the extension, pursuant to Article 27.4 of the ASCM, or still have the final two years 
referred to in the last sentence of such Article.   PAPUA NEW GUINEA deems it necessary to request a new extension based on its economical, financial and development needs.  In fact, all of them can prove that the conditions that 
existed and justified the extensi on in 2001 subsists at this point  in time, nevertheless the export 
subsidies have proved to have very  positive effects in the attraction of foreign direct investment, 
export base diversification and job creation.  
The choice of the suggested date of 2018 should be read in the light of the discussions that 
had taken place before the adoption of SCM/G/SCM/39.  At that time, the proponents of this  G/SCM/Q4/PNG/5 
 Page 7 
 
 
  document had already expressed their needs and the reasons to eliminate their programmes over a 
long enough timeframe, possibly extending over 20 years.4 
In this regard, PAPUA NEW GUINEA is convin ced that a new extension will foster the 
export sectors and contribute to lift our people out of poverty.  The three programmes that PAPUA NEW GUINEA has notified have had a very positive impact in a small country with a very limited 
export base and a miniscule participation in world trad e.  They have been instrumental to foster and 
diversify the export sector towards the production of manufactured goods, reducing the dependence 
on agricultural commodities and the negative impact s suffered due to the plunge of international 
prices during the last years.  Needless to say, the spillover effects of job creation, transfer of technology and know-how, as well as pove rty reduction have been remarkable. 
 
The availability of this subsidy programme  for an extended period is essential for the 
encouragement and fostering of exports sectors.  In  light of the current initiatives by the Government 
to fully engage in international trade, much consideration will be given to the growth and 
development of export activities.  Therefore, Papua  New Guinea’s request fo r the extension of the 
time period for the use of this subsidy programme is  essential to support the realisation of the benefits 
of these initiatives.  
                                                     
 
4 See G/SCM/38. G/SCM/Q4/PNG/5 
Page 8  
 
  JAPAN
 
 
Q1. Please show the reasons why the lengthy extens ion of 11 years is indispensable uniformly 
for all the export subsidy programmes referred to in the above documents. 
 
Reply  
 
It is noted by PAPUA NEW GUINEA that all export subsidy programmes referred to in the 
documents in question share generally the same objectives, structure or design and the estimated period of adjustment of an additional 11 years is consistent with the time required to consolidate 
benefits across the export subsidy programmes.  
 It is well known that the peculiar economic characteristics of the small economies group 
combine to constrain their potential to benefit from the globalisation of markets under currently 
agreed trade rules.  As a matter of fact, all proponents face the same structural shortcomings, which 
justify the requirement of the extension.  The r ecent developments in the trading environment could 
hinder the fruitful insertion of PAPUA NEW GUINEA and the other proponents in the global economy. 
 Prior to the adoption of the decisions entailed in document G/SCM/39, the serious concerns 
and reasons behind the requirement for a longer time period needed to adjust and eliminate the SVEs 
subsidies programmes was highlighted and discussed.  In the light of those discussions and taking into 
account the relevant and legitimate financial, ec onomic and development needs, Papua New Guinea 
supports the extension period  of 11 years prop osed in G/SCM/W/535 to be regarded as an 
appropriate extension for it s export subsidy programme 
 
Papua New Guinea has sought longer extensi on of time period for this export subsidy 
programme because it is in line with the government ’s overall initiative to encourage and facilitate 
foreign investment in the manufacturing and downstream processing sectors, as well as the different investment activities to achieve sustainable:   
(i) Economic growth and em ployment creation; and 
(ii) Utilisation of domestic resources, particular ly renewable resources to expand the volume and 
value of exports.  Section 45B under Division 1A – Export Incentiv es of the Income Tax Act of Papua New 
Guinea is an indirect subsidy but an incentive pr ovided through the income tax system to encourage 
companies engaged in manufacturing industries to participate in the production of export oriented 
products.  The major objective of this subsidy is to  promote exports of goods manufactured in Papua 
New Guinea through an exemption from income tax from new export sales profits.     
Currently, 81.3 per cent of Papua New Guin ea’s exports are made up of mineral and 
petroleum products in raw form, which are exporte d to overseas markets for further processing.  A 
very small component of exports is made up of ma nufactured products, therefore there is urgent need 
to develop other renewable sectors (particularly manufacturing and downstream processing, as well as 
agriculture and tourism) that will contribute effectiv ely and directly to impact and improve the lives of 
ordinary Papua New Guineans.  Therefore, the subsid y programme in question is at the core of export 
development strategy and has proved to be a tool  to enable manufacturers to engage in export 
activities so as to contribute towards the enhancemen t and diversification of the current minuscule 
export base of the country.  
 It is in that context that this export subsidy programme is essential for the encouragement of 
exports development, thus requir es extended period for utilisation by exporters in Papua New Guinea.   G/SCM/Q4/PNG/5 
 Page 9 
 
 
  The estimated additional period of adjustment of eleven  (11) years is consistent with the time required 
to consolidate benefits across the export subsidy programmes.  
 
Q2.  Please explain, one by one for each of th e export subsidy programmes referred to in the 
above documents, how each of those export subs idy programs are integrated in the development 
strategies of the relevant Me mber, why a further extension beyond 2007 is necessary for its 
economic and financial needs, and why the extens ion period has to be through to the end of 
2018.  
Reply
 
 
The information regarding export subsidy programme notified by PAPUA NEW GUINEA, 
including how the programme is inte grated into the development strate gies of the country is available 
in the documents submitted in 20015 to obtain the current extension.  Furthermore, this information is 
available in each of the annual notifications that PAPUA NEW GUINEA has submitted to the 
Committee on Subsidies and Countervailing Measur es in compliance with the transparency and 
standstill obligations.    
 Section 45B under Division 1A – Export Incentiv es of the Income Tax Act of Papua New 
Guinea is an indirect subsidy but an incentive pr ovided through the income tax system to encourage 
companies engaged in manufacturing industries to participate in the production of export oriented 
products.  The major objective of this subsidy is to  promote exports of goods manufactured in Papua 
New Guinea through an exemption from income tax from new export sales profits.   
 The Government of Papua New Guinea has rec ognized the critical importa nce of international 
trade in achieving the development objectives of the country, particularly with focus on utilizing 
international trade as an engine of economic revival,  growth and industrial transformation.  As such, 
the Government’s Policy Statement on Recovery and Development has put emphasis on an Export-
Driven Economic Recovery Strategy , which focuses on agriculture, fisher ies and forestry sectors that 
will be supported by the mining, petroleum, gas a nd services sectors with an emphasis on value-added 
production and exports    
 
Currently, the respective government departme nts and agencies are embarking on putting in 
place National Export Development Strategy for Papua New Guinea, which will focus on developing 
the non-mining, gas and petroleum sectors and this in cludes agriculture, fisheries, forestry, tourism, 
etc….    
 
Hence, the Government of Papua New Guinea cons iders it necessary to maintain this subsidy 
because of the need to encourage the growth and development of export industries that will be 
established as a result of this strategy.  Curre ntly, PAPUA NEW GUINEA has a small but growing 
manufacturing industry and so such export incentives are necessary to nurture and further develop the 
industry.  It is hoped that through this subsidy programmes, such manufacturers or new exporters can 
utilize this subsidy to introduce and enhance e xports, thus cutting down on the Government’s 
dependence on exports from the extractive sectors (mining, gas and petroleum).  
 
__________ 
 
 
 
                                                     
 
5 Add signature of specific documents.