WORLD TRADE  
ORGANIZATION  G/SCM/Q2/ARG/26 
11 October 2007 
 (07-4382) 
Committee on Subsidies 
and Countervailing Measures Original:   Spanish 
 
 
 
SUBSIDIES 
 
Responses to Questions from the UNITED STATES1 Regarding the  
New and Full Notification of ARGENTINA2 
 
  The following communication, dated 2 October 2007, is being circulated at the request of the delegation of Argentina.  
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  It should be pointed out first of all that only the first two questions refer to the above 
notification.  The other programmes mentioned have  not been notified to the Committee on Subsidies 
and Countervailing Measures, because the Governme nt of Argentina does not regard them as 
providing subsidies within the meaning of Ar ticle 2 of the SCM Agreement or as constituting 
prohibited subsidies under Article 3 of the Agreement.  It therefore considers that they do not require 
notification.   The Government of Argentina has responde d to the questions from the United States 
concerning these programmes in order to contribute to the transparency of the multilateral trading 
system.  
FREE ZONES 
Argentina's notification states, "the objective of the free zones shall be to stimulate trade 
and industrial export activity, helping to extend to investment and employment the increase in 
efficiency and reduction in costs associated with the activities developing within such zones".  
Please describe the eligibility criteria for receivi ng the benefits under this program and explain 
whether eligibility is contingent upon export performance, as provided under Article 3.1(a) of the WTO Agreement on Subsidies and Count ervailing Measures (Subsidies Agreement). 
Response
 
 
In order to carry out activities in the free zones,  the requirement is that users be Argentine or 
foreign natural or legal persons en titled to operate against payment of an agreed price.  There are no 
other requirements for eligibility for the treatment provided by Law No. 24.331. 
In addition, Article 30 of Law No. 24.331 specifies that "[n]o incentives shall be provided for 
the removal of goods from the free zone to third co untries other than the incentives consisting of the 
refund of taxes actually paid when  such taxes are refundable to expor ters within the general customs 
                                                      
1 G/SCM/Q2/ARG/25. 
2 G/SCM/N/123/ARG. G/SCM/Q2/ARG/26 
Page 2  
 
  territory.  Incentives established in accordance with international ag reements signed by the Argentine 
Republic shall also be applicable". 
 Hence, the answer to the question is that be nefits under this programme  are not inconsistent 
with Article 3.1(a) relating to the treatment of prohi bited subsidies and comply with the provisions of 
Annex 1 to the SCM Agreement. 
CAPITAL GOODS, INFORMATION TECHNOLOGY AND TELECOMMUNICATIONS 
REGIME 
Please explain in further detail the eligib ility requirements under this program and how 
the value of the benefit is determined.  Specifically, please explain whether the benefits under this program are contingent upon the use of domestic over imported goods, as provided under 
Article 3.1(b) of the Subsidies Agreement. 
Response
 
 
 The requirement for eligibility under the Capital Goods, Inform ation Technology and 
Telecommunications Regime is to be a manufacturer  with an industrial establishment in the country. 
 
Since import duties on such goods were reduced to zero per cent (0%) pursuant to Resolutions 
Nos. 8/2001 and 27/2001, the purpose of the regi me is to maintain competitive conditions for 
domestically produced goods in relation to imports of the same goods. 
 The answer to the question is that eligibility for benefits is not contingent upon the purchase 
of domestic goods.  Hence, the programme is not in consistent with Article 3.1(b) relating to the 
treatment of prohibited subsidies as defined in the SCM Agreement. 
GENERAL QUESTIONS 
Publicly available information indicates that Argentina may maintain additional subsidy 
programs that meet the requirements for notification under Article 25.  Some of these programs appear to be prohibited.  Please explain wh y the subsidy programs below have not been 
notified.  If they do qualify as subsidy program s that should be notified, please provide the 
information required under Article 25.3 of th e Subsidies Agreement and other information 
specifically requested.  If they do not qualify as subsidy programs that should be notified, please 
provide an explanation why.  
Investment Promotion Law – Promotion of investme nts in capital goods and infrastructure works 
According to publicly available informatio n, the government provides incentives in 
order to promote investments in capital goods and infrastructure works, through Argentina's 
Investment Promotion Law.  Benefits include (a) advance refund of VAT on goods or works for infrastructure included in the proposed investment project;  or (b) accelerated depreciation thereof for purposes of Argentina's anticipated profits tax (IG).  It is our understanding that these benefits are mutually exclusive, except in the case of investment projects in which 
production is exclusively for the export market .  Could Argentina explain how this program is 
consistent with the provisions under Article 3.1(a) of the Subsidies Agreement?  
Response
 
 
 The benefits are not subsidies within the m eaning of Article 1 of the SCM Agreement or 
prohibited subsidies within the meaning of Article 3 of the SCM Agreement.  G/SCM/Q2/ARG/26 
 Page 3 
 
 
   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. 
In other words depreciation amounts to ente ring under expenditure the goods purchased and 
in use according to their probable or  estimated useful life.  Expenditure includes both wear and tear 
and obsolescence as a result of comparative loss of return s due to physical degradation.  Other factors 
that are not necessarily physical (technological deve lopments, for instance) may also have an impact. 
The depreciation rate can be computed by various methods:  (i) straight-line depreciation, 
according to the number of years of useful life of the goods;  (ii) accelerated depreciation, allocating expenditure over a shorter period than that of th e useful life of the goods;  and (iii) advanced 
depreciation, in the event of premature deterioration of the goods. 
Neither accounting nor tax rules provide strict guidelines for determining the useful life of 
capital goods ( bienes de uso ) or assessing depreciation in terms of the former.  This has always been 
done according to "custom and usage", which has b ecome customary law over the years, and certain 
parameters for determining the rate of deprecia tion have become generally accepted rules from both 
the accounting and the fiscal standpoints. 
 Accordingly, vehicles (trucks, automobiles, a nd so forth) are regarded as having a useful life 
of five years, resulting in a 20-per cent rate of depr eciation.  Machinery in general is considered to 
have a useful life of ten years, meaning that its value depreciates at a rate of 10 per cent per annum.  
As mentioned earlier, the assignment of these perc entages stems from long-standing practice and over 
the years has become a rule accepte d as a matter of course by enterprises, auditors and tax authorities 
alike.  Article 84 of the Profits Tax Law accordingl y provides that the depreciation coefficient (rate) 
shall be obtained by "dividing the purchase cost or value of the goods by a figure equal to the number 
of years of probable useful life of the goods". 
 Hence, a single general rule has been est ablished, which can be summarized as follows:  
purchase cost or value/useful life = depreciation rate.  However, the tax authorities themselves acknowledge that the rule could be changed if the need arose.  Furthermor e, there is no mandatory 
advance determination of useful life because, for example, two machines manufacturing the same 
product will not necessarily have the same useful life,  since this depends on their respective physical 
and technical characteristics.  Such are the in stances where auditors and tax authorities require 
evidence of the causes for a variation from "custom a nd usage" or, more specifically, a departure from 
accepted practice. 
 These customary rules are reflected in Decree  No. 627/93 regulating certain aspects of leasing 
transactions, which are currently governed by Law No. 25.248.  The Decree takes up what has long 
been accepted as a matter of course and contains a table of estimated useful life for a number of goods, serving as a reference for such transactions , laying down objective legal guidelines and 
confirming "custom and usage".  The table for example specifies a useful life of ten years for furniture 
and equipment, three years for tools, and eight y ears for equipment, appliances and instruments for 
technical and professional use. G/SCM/Q2/ARG/26 
Page 4  
 
   From a tax standpoint, allowing accelerated instead of straight-line depreciation means that 
the taxpayer can deduct more, by subtracting from the charges computed the value of the goods at 
lower rates than those corresponding to their useful  life.  However, once the accelerated computing 
period expires taxable profits increase, precisely b ecause depreciation has not been computed.  This 
means that revenue is recovered by the State.  Accelerated depreciation is a form of short-term 
deferment rather than a subsidy. 
 If the term ‘subsidy' is understood within the meaning of Article 1 of the SCM Agreement, 
the measure described above does not fall within an y of the terms of that Article.  The aim of 
Investment Promotion Law No. 25.925 is to provide  shorter periods in order to increase export 
capacity, but by no means through allocations that the State cannot recover. 
 Nor can the advance refund of VAT be defined as a subsidy under the terms of Article 1 of 
the SCM Agreement.  Refunding value-added tax is a necessary practice so as not to affect the fiscal 
sovereignty of importing countries and to allow tax-free sales in third markets. 
 Lastly, it should be emphasized that since none of the individually reviewed measures 
constitutes a subsidy, neither does their combined implementation because this does not change the 
nature of the measures themselves. 
(A) Imports of goods forming part of large-scale investment projects 
According to publicly available information, Argentina provides duty exemptions on the 
importation of capital goods from outside MERC OSUR destined for large investment projects.  
It is our understanding that in order to qualify for duty exemptions under this program, 
recipients must purchase goods of domestic origin amounting to at least 30 percent of the 
investment project.  Could Argentina explain how this program is consistent with the provisions 
under Article 3.1(b) of the Subsidies Agreement?  
(B) Import Regime for Used Production Lines 
According to publicly available information,  Argentina provides certain tax incentives 
(e.g., exemption from the payment of import duti es and statistical tax) to domestic or foreign 
firms located in the country producing tangible goods, and financial entities or companies that 
deal in leasing contracts.  It is our understanding that in order to receive benefits under this program companies must purchase new goods of domestic origin amounting to 30 per cent of the investment.  Could Argentina explain how this program is consistent with the provisions under Article 3.1(b) of the Subsidies Agreement?  
(C) Duty Drawback for Turnkey Export Contracts 
According to publicly available information, exports of complete industrial plants or 
engineering works are eligible to receive duty draw back treatment.  It is our understanding that 
the benefit is subject to two conditions:  first, the export should be made under a "turnkey export contract";  and secondly, the domestic  component (physical goods and services) may not 
be less than 60 per cent of the contractual f.o.b. value.  Could Argentina explain how this 
program is consistent with the provisions und er Article 3.1(b) of the Subsidies Agreement?  
(D) Incentives Regime for the Auto Parts Industry 
According to publicly available information, in order to promote the recovery of the 
auto parts industry, in 2005 Argentina estab lished an Incentives Regime.  It is our 
understanding that this regime provides benefits in the form of a cash refund on the value of  G/SCM/Q2/ARG/26 
 Page 5 
 
 
  purchases of local auto parts, i.e., those with a non-local content of not more than 30 per cent.  
Could Argentina explain how this program is cons istent with the provisions under Article 3.1(b) 
of the Subsidies Agreement? 
Responses to (A), (B), (C) and (D) 
  Argentina has notified the Committee on S ubsidies and Countervailing Measures of the 
support programmes falling under the pr ovisions of the SCM Agreement. 
 The requirement to use domestic inputs is not a prerequisite and is therefore not absolutely 
mandatory for eligibility to receive benefits. 
 The rules establishing these regimes stipulat e that the implementing authority may assess 
applications for benefits and approve them even in  cases where one or several of the conditions laid 
down in the rules are not fulfilled. 
 In view of the foregoing, we do not consider that implementation of the incentives 
programmes involves any granting of subsidi es within the meaning of Article 2 of the 
SCM Agreement or that the latter constitute prohib ited subsidies under the terms of Article 3 of the 
SCM Agreement.  Consequently, these programmes have not been notified. 
Response to (D
) 
 
The provisions of Decree No. 774/05 are consis tent 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 enterp rise (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)).  In order to 
promote the recovery of the autoparts industry,  which suffered severely during the crisis, an 
Incentives Regime to improve the competitiveness of local autoparts was established (Decree No. 774/2005). 
 This regime provides for the granting, for a maximum period of three years, of a benefit 
consisting in the payment of a cash refund on the valu e of purchases of local autoparts (i.e. those with 
a non-local content of not more than 30 per cent).  Such parts must be intended for production and 
must be purchased by manufacturers of cars, utility ve hicles with a load capacity of up to 1,500 kg, 
trucks, chassis with or without cabs, buses, engines,  gearboxes or axles with differentials.  To obtain 
the benefit, the enterprises concerned must subm it a project for the production of new platforms or 
new autoparts, as the case may be, which must be approved by the implementing authority. 
Financing of VAT on the investment 
According to publicly available information, Ar gentina provides financing for the full amount 
of VAT paid on new capital goods to firms wi th export potential.  Please explain how the 
government provides funding to companies under this program?  For example, does a company 
receive a loan from the government in the amount of VAT to be paid on new capital equipment G/SCM/Q2/ARG/26 
Page 6  
 
  or is funding provided through the administration of the VAT?  If funding is provided in the 
form of a loan, please describe the terms of such loans.  Please also explain how this program is 
consistent with the provisions under Article 3.1(a) of the Subsidies Agreement.  
Response
 
  Pursuant to Decree No. 1343 of 1999, this programme came  to an end on 31 December 2005. 
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