WORLD TRADE  
ORGANIZATION  G/SCM/Q3/BRB/16 
G/SCM/Q4/BRB/8 14 December 2006 
 
(06-5993) 
Committee on Subsidies 
and Countervailing Measures Original:   English 
 
 
 
REQUESTS PURSUANT TO ARTICLE 27.4 OF THE AGREEMENT 
ON SUBSIDIES AND COUNTERVAILING MEASURES 
 
PROCEDURES FOR EXTENSIONS UNDER  
ARTICLE 27.4 OF THE AGREEMENT ON SUBSIDIES  
AND COUNTERVAILING MEASURES 
 
Replies to Follow-Up Questions Posed by the UNITED STATES1 
  
 The following communication, dated 13 December 2006, is being circulated at the request of 
the Delegation of Barbados.  
_______________ 
  
BARBADOS
 
 
Fiscal Incentive Programme  
Export Allowance  
The Research and Development Allowance  
International Business Incentives  
The Societies with Restricted Liability  
 
Q1. Are there more specific economic, financ ial and development statistics to which 
Barbados can point that demonstrate that the programmes in questions have had a positive 
impact and will continue to do so into the future? 
 
Reply  
  Barbados does not have the detailed statistical  data to identify all of the specific positive 
impacts that these programmes have on our econo my.  However statistics from business entities 
across all four programmes revealed signifi cant Economic, Financia l and Developmental 
contributions through direct and indirect taxation measures.   Increased profits from sales accounted for a highe r collection of corporate tax.  For example, 
in Income Year 2003 BDS $4.7 million in corporatio n tax revenue was realized while in 2005 some 
BDS $6.5 million in tax revenue was accounted for.  Increased jobs in the market place as businesses 
expanded accounted for lower unemployment and higher contributions of payroll tax (PAYE), not to 
mention the value of additional bene fits which accrued to the economy.  This is estimated to be some 
BDS $81 million from services such as: Rent al accommodation (Office and Housing) 
BDS $9.4 million, License Fees BDS $.6million, Travel and Entertainment BDS $2.9 million, 
                                                     
 
1 G/SCM/Q3/BRB/15-G/SCM/Q4/BRB/7. G/SCM/Q3/BRB/16 
G/SCM/Q4/BRB/8 Page 2 
 
 
  Management BDS $3.5million, Legal and Professiona l Fees BDS $5.2 million, labour cost including 
NIS BDS $40.6 million Payroll Tax $8.5 million, etc.  The value added is estimated to be well over 
BDS $100 million for income year 2005.  The compon ent attributed to industrial manufacturing under 
these programmes is estimated to be about 1 per cent of the additional benefits identified above. 
 
 Employment costs attributable to 32 compani es across the 4 programmes in income year 2005 
is estimated to 24.7 per cent of sales.   In terms of future benefit it should be noted that Barbados' national strategic plan does infer 
the importance of diversification and there is rec ognition by the Government that in the short term 
these subsidy programmes could enhance this  potential for diversification.   
 
Q2. Please explain further the statement that the programmes in question "have a strategic 
role to play in reducing the vulnerability that a ffects the proponents"?  Specifically, how do the 
programmes in question lessen the economic vulnerability of the proponents? 
 
Reply
 
  Barbados' programmes are geared at enhanc ing economic diversification hence lessening 
Barbados' reliance on a narrow range of produc ts. Economic research (including the 2000 
Commonwealth Secretariat/World Bank Study on Small Economies) does illustrate a link between 
reliance on a narrow product range a nd high vulnerability to external shocks.  This vulnerability has 
clearly manifested itself in other neighbouring CARI COM countries in terms of the fall in commodity 
prices and in our own economic reality, with the fall in  the price of sugar.  In the Barbados context, 
the loss of preferential treatment and markets is  also disastrous for an economy that produces a 
limited number of products traded with a few trad itional trading partners.  Enhanced diversification 
and assistance in developing new products and iden tifying new markets can in the medium to long 
term, help to reduce this reliance a nd hence some of the vulnerability. 
 
Q3. Please explain further the statement that a new extension will "concretize some of the 
preliminary gains"? 
 Reply
 
  The Barbados experience is that the progr ammes do indeed have a positive impact on its 
economic, financial and developmental landscape and ha ve helped Barbados to overcome a number of 
economic challenges including preference erosion, a gr owing trade deficit resulting in part from trade 
liberalization, and cyclical changes in the trade of its major service tourism.  Barbados considers that 
these programmes can further assist in its efforts to reform its economy. 
  If one looks at the extension in light of th e timeframes and opportunities that other countries 
have historically had to utilize incentives such as these to achieve comparative or absolute advantage 
in the production of certain produc ts it is easy to understand why Ba rbados would require a period of 
time to deal with the kind of economic adjustment which it has faced and which has called for a complete reassessment of our economic priorities.  There needs to be the opportunity accorded to 
ensure that the positive impacts of these programmes are sustainable.  We may never have a comparative or absolute advantage in the production of any product but it is economically and 
developmentally wise to seek to ensure some de gree of sustainable productive capacity which is 
essential for economies as small as ours.  These pr ogrammes are not the panacea for these economic 
vulnerabilities but coupled with other economic and po litical policies they can help to concretize and 
enhance gains made thus far.   G/SCM/Q3/BRB/16 
 G/SCM/Q4/BRB/8 
 Page 3 
 
 
  Q4. If the programmes in question were termin ated, would the production of the current 
beneficiaries become unprofitable?  
Reply
 
 
 It is not clear if the companies which benefit would become unprofitable if the programmes were terminated immediately.  However it is clear that they may not have the financial leverage and 
flexibility to be able to conduct some of the in itiatives which they may be able to do utilizing the 
fiscal incentives.  It is likely th at local businesses would be negatively impacted and that international 
businesses would move to other jurisdictions.  
 
Q5. Has there been a formal government review of the continued need for the programmes 
in question or any other formal government review of the programmes in question?  If so, what were the findings? 
 Reply
 
  An Inter-Ministerial Committee has been established to examine the work of these 
programmes and to determine whether they are working in the manner they should and more 
importantly to make a determination on whether thei r retention is necessary.  This national Committee 
had previously examined the programmes which Ba rbados had maintained under the non-fast track 
procedures and with the assistance of the WTO Secret ariat was able to make certain decisions to bring 
them in conformity with the provisions of the ASCM .  At the same time, there was a discussion on the 
programmes currently under discussion today and it was out of the debates surrounding those encounters that Barbados proceeded to co-sponsor W/ 535 almost 9 months ago.  As previously stated 
the Commonwealth Secretariat had conducted a meeting in the Caribbean region to look at the use of 
fiscal incentives which would be compatible with th e ASCM.  This shows the intention of Barbados 
to not only develop incentives which would be in conformity but also illustrates that it is not our intention to have any kind of permanent exemp tion for the use of the programmes currently under 
discussion.  Q6. Why is the Fiscal Incentive Programme limited to "selected products"?  
Reply
 
  The Fiscal Incentive Programme is designed to develop new industries.  It is therefore not 
available to what are regarded as 'established industries'. 
 
Q7. Although Barbados states that there are no  requirements on the use of domestic over 
imported goods, the level of benefits under the Fiscal Incentive Programme appears to be based 
on the level of  "local value added" (G/SCM/N/71/BRB, p. 3).  Please explain.  
Reply
 
  This programme is designed to assist with the development of sectors and thus industrial 
development within Barbados; the va lue added criteria is used to en sure that there is some local 
contribution to the process.  This therefore assists with the creation of employment opportunities, 
facilitates local development of the sector and its  people through the transfer of skills, knowledge and 
technology.  
 G/SCM/Q3/BRB/16 
G/SCM/Q4/BRB/8 Page 4 
 
 
  Q8. What is the reason for the dramatic decline in the level of benefits of the Fiscal Incentive 
Programme and the dramatic increase in the level of benefits of the International Business Incentives and Societies with R estricted Liability programmes? 
 
Reply
 
  The decline in business under the Fiscal Incentiv e Programme was as a result of a contraction 
in the manufacturing sector.  This is due in some  cases to strong competition in the international 
market.  It should be noted that Barbados must compete with more developed countries that have 
lower costs and a bigger internal market  therefore facilitating economies of scale. 
  Barbados is relatively unattractive to investor s because of its high cost of production.  The 
number of companies seeking to establish business in Ba rbados is also on the decline.  The increase in 
business under the International Bu siness Incentives and societies w ith Restricted Liability is the 
exact opposite to the reasons given under the fi scal Incentive Programme, in that companies are 
highly profitable and take full adva ntage of the concessions offered. 
 
Q9. Given that the Fiscal Incentive Programme and the International Business Incentives 
programme both provide general tax benefits , what is the relationship between the two 
programmes and how do their respective roles in  Barbados' development strategy specifically 
differ?  
 
Reply
 
  The International Business Incentive Progra mme is different from the Fiscal Incentive 
Programme.  While the Fiscal Incentive Programme is  geared both to local Investors and International 
Investors to encourage them to set up business in Barbados, the enterprises must satisfy certain 
conditions in order to be approved under the Act.  
  On the other hand, International Business Co mpanies (IBCs) and Societies with Restricted 
Liabilities (Srls) are not subject to many of the strict conditions as those under the Fiscal Incentives 
Act, and therefore, there are no restrictions on these companies to carry on the business undertakings. 
In addition, most of the IBCs' and Srls ' have a ready market for their output. 
  IBCs' and Srls' are preferred by investors because of lower restrictions for establishing a 
business undertaking. 
 
Q10. Barbados states that the IBC Act provides a 15 year guarantee to licensed entities and 
the Societies with Restricted Liability programme has an indefinite duration and a guarantee period of 15 years also.  If an extension was gr anted, what steps will Barbados take to ensure 
that the benefits under these programmes will no t exceed the suggested 2018 extension request? 
 
Reply
 
  Under the IBC Act and the Srl Act, the Minister may by agreement give assurances or guarantees for a period of 15 years.  Although the le gislation is in place for companies applying for 
the guarantee, those who apply are companies that ha ve made substantial capital investments and need 
time to recover their investments.  The companie s with guarantees would be those engaged in mining 
and the exploration of gas and oil.  Those are not involved in manufacturing.  
  Companies wishing to establish new business woul d be advised that the Ministry of Finance 
will no longer be providing guarantees for 15 years as subsidies for these programmes have to be  G/SCM/Q3/BRB/16 
 G/SCM/Q4/BRB/8 
 Page 5 
 
 
  curtailed by 2018.  Barbados will not provide gu arantees where it is known that it would not be WTO 
compliant.   Barbados is constantly reviewing the progra mmes with the aim of determining how best to 
make them WTO compatible.  The difficulty in maki ng such an adjustment is preventing an erosion of 
investor confidence and precipitating a collapse of the export sector.   
Q11. Could Barbados please explain that if any additional extension is granted, would 
Barbados then provide export subsidies to new beneficiaries or would the extension period be 
used to phase out the subsidies for the existing beneficiaries?   
 
Reply
 
  As is now the case, Barbados will seek to  ensure that its Laws, Regulations and 
Administrative Procedures are consistent with its WTO obligations. 
 
__________