WORLD TRADE  
ORGANIZATION  G/SCM/Q4/CRI/5/Rev.1 
20 October 2006 
 (06-5071) 
Committee on Subsidies and 
Countervailing Measures Original:   Spanish 
 
 
 
 
PROCEDURES FOR EXTENSIONS UNDER ARTICLE 27.4 
OF THE AGREEMENT ON SUBSIDIES AND 
COUNTERVAILING MEASURES 
 
Replies by Costa Rica to the Questions Posed by COLOMBIA1;  CANADA2; 
JAPAN3;  and PERU4 in Relation to Costa Rica's Request5 for an  
Extension under Article 27.4 of the SCM Agreement  
 
Revision  
   The following communication, dated 12 October 2006, is being circulated at the request of the delegation of Costa Rica.  
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COLOMBIA
 
 
Question 1  
 
 In document G/SCM/W/537/Add.1, Costa Ri ca co-sponsors the proposal by Panama 
contained in document G/SCM/W/537.  The latter document states that "[t]he extension 
procedures under Article 27.4 would hence be applicable to all members and existing 
programmes in line with paragraph 2 of G/SCM/39".  One of the conditions in paragraph 2 is that those Members "whose share of world m erchandise export trade was not greater than 
0.10 per cent" shall benefit from such an extens ion.  Do Costa Rica's exports currently account 
for less than 0.10 per cent of world merchandise export trade? 
 
Reply
 
 
 Yes, the level of Costa Rican exports is curre ntly less than 0.1 per cent of world merchandise 
export trade.  According to the WTO Secretariat' s database, in 2005, Costa Rica's share of world 
merchandise export trade was 0.07 per cent.  
                                                     
 
1 G/SCM/Q4/CRI/1/Rev.1. 
2 G/SCM/Q4/CRI/2. 
3 G/SCM/Q4/CRI/4. 
4 G/SCM/Q4/CRI/5. 
5 G/SCM/W/537 and Add. 1. G/SCM/Q4/CRI/5/Rev.1 
Page 2  
 
  Question 2
 
 
 Costa Rica provides no justification in document G/SCM/W/537/Add.1 for being 
granted an extension of the phase-out period for export subsidies.  Does Costa Rica share the 
justification put forward by the group of small,  vulnerable economies on the grounds that Costa 
Rica suffers from the combined effect of disecono mies of scale caused by the small size of its 
economy and administration and by its physical isolation? 
 
Reply  
 
 During the past two decades, as part of its development strategy, Costa Rica has implemented 
policies to liberalize its economy, diversify expor ts, ensure better conditions of access to external 
markets and attract foreign direct investment, under the Free Zones and Inward Processing Regimes, which include export subsidies.  
 These regimes have successfully met the objective of attracting investment, diversifying the 
economy and increasing Costa Rica's export base, wh ich in turn has helped to improve social 
conditions and assisted the struggle to alleviate pove rty.  Nevertheless, these positive effects remain 
insufficient because of the continuing imbalan ces that do not allow the economy to perform 
satisfactorily and make it necessary to maintain  the programmes which grant such subsidies. 
 
 In 2005, these programmes benefited over 200 enterprises in operation, which employed 
some 40,000 persons, representing 16 per cent of employ ment in Costa Rica's industrial sector.  This 
important contribution has not sufficed to meet the demand for jobs in Costa Rica, which has been particularly high in recent years because of the large inflows of immigrants.  The overall rate of open unemployment is 6.2 per cent, despite this and th e other efforts made to lower it, and the poverty 
index has increased from 18.5 per cent to 21.7 per cent since 2001. 
  Furthermore, for Costa Rica export subsidies are the only competitive subsidies scheme it can 
offer in comparison with the schemes in effect in other countries, which compete directly in attracting 
foreign direct investment.  These programmes have allowed Costa Rica to attract a large flow of 
foreign direct investment and this has led to an increase in exports.  The Free Zone Regime alone has 
had a share of total exports exceeding 50 per cent over the past six years. 
  In 2005, the foreign trade/GDP ratio was 85 per cent, showing that Costa Rica is highly dependent on trade flows, especially those generate d by such programmes.  In addition, even though 
Costa Rica has increased its exports, the current account deficit has doubled in 10 years.  Higher 
international oil prices have had a negative imp act on the economy and fuel requirements absorb 
60 per cent of the foreign cu rrency generated by exports. 
  In addition to the foregoing elements caused by  the current situation, more structural aspects 
have to be taken into account such as the low leve l of domestic savings in Costa Rica's economy (an 
average of less than 8 per cent of GDP over the p ast decade), which means low levels of domestic 
private investment, on the one hand, and difficulties in financing public investment in infrastructure 
and the building of human capacity on the other.  Th e limited financial resources available to finance 
development make it necessary for Costa Rica to seek to maintain and increase foreign direct 
investment, through programmes which apply this t ype of subsidy, in addition to other measures. 
 
 In this context, for Costa Rica the extensi on of the time-limit for granting certain export 
subsidies available under the programmes known as th e Free Zone Regime and the Inward Processing 
Regime is justified taking into account the co untry's aforementioned economic, financial and 
development needs.   G/SCM/Q4/CRI/5/Rev.1 
 Page 3 
 
 
  Question 3  
  Given that Costa Rica did not provide any economic justification for the extension of the phase-out period for export subsidies, please expl ain why it requires an extension up to the year 
2018 to comply with the obligation to eliminate the above subsidies and why it cannot comply 
with this obligation within the period of extension already granted.  
Reply
 
  Regarding the economic justification and why Co sta Rica is unable to meet the obligation to 
end the extension granted in 2001, see the reply to the previous question. 
  With regard to the duration of the extensi on now being requested, as already explained, the 
economic, financial and development needs still exis t and in some cases have become more acute, 
therefore, Costa Rica needs to maintain these progra mmes during the period requested in order to seek 
to maximize and consolidate the objectives and bene fits for which they were created.  Eliminating 
them at this stage would be highly detrimental to the competitiveness of many enterprises competing 
with enterprises that are given support in other countr ies.  This would be prejudicial to Costa Rica's 
economy and the economic and social cont ributions made under these programmes. 
 
Question 4
 
 
 What measures has Costa Rica adopted to fulfil the obligation to phase out the export 
subsidy programmes, in line with the latest extension it was granted? 
 
Reply  
 
 Between 2002 and 2006, the Government undertook fiscal reforms including a more 
competitive income tax rate for the whole produc tion sector and elimination of exemption from the 
payment of income tax.  In addition, the Gove rnment proposed a number of projects to attract 
investment in strategic sectors or less developed geographical areas.  The Executive in the previous 
Government did not, however, obtain sufficient s upport in Congress for approval of these reforms. 
 
 The Government of Costa Rica is now wo rking on developing a new policy to attract 
investment consistent with the WTO rules.  The following are some of the main elements to be 
incorporated into the future scheme:  
• Eliminating the link between the incentives and exports. 
 
• Providing incentives for enterprises setting up in less developed areas. 
 
• Giving tax credits for training. 
 
• Including parameters to strengthen links be tween enterprises in free zones and local 
production (production chains). 
 
 In parallel, in order to help to lay down the bases for these reforms, one of the Government's 
priorities is to improve the country's infrastructure,  a necessary pre-requisite in order to be able to 
maintain and generate greater flows of investment.  In this connection, the Government is working to 
reform the telecommunications and insurance sectors.   It is also hoped to reform the Law on Public 
Works Concessions as part of this process so as to increase private investment in public works 
projects, for example ports and highways. G/SCM/Q4/CRI/5/Rev.1 
Page 4  
 
   
 In addition, the Government has included in the work programme concrete guidelines to 
improve the investment climate.  These include the following:  
• Increasing spending on education as a percentage of the GDP. 
 
• Establishing a development bank to give better access to credit for local investment. 
 
• Making more use of information technology. 
 
• Implementing concrete projects to enhance competitiveness, fina nced through loans 
from international bodies.  During the current legislative term, there are projects on education, science and technology, improvi ng the customs systems, rural roads, 
institutional strengthening, transition to fr ee trade and support for small and medium 
enterprises. 
 
Question 5
 
  In the case of each of the programmes, pl ease provide the most up-to-date information 
available regarding the number of beneficiary en terprises classified according to industrial 
sector. 
 
Reply
 
 
 Data for 2005 on enterprises covered by the Free Zone Regime are given below:6 
 
Industry Number of Enterprises 
Machinery and mechanical appliances  3 
Yarns, textiles and clothing  13 
Machinery and electronic appliances  20 
Medical apparatus  12 
Pharmaceutical products  1 
Plastics and manufactures thereof  4 
Rubber and manufactures thereof  2 
Jewellery  3 
Hides and skins, leather and manufactures 
thereof  4 
Aluminium manufactures  4 
Aircraft parts  1 
Fish and marine products  4 
Foodstuffs and related products  9 
Other industries  45 
Total  125 
 Source :  Foreign Trade Promo tion Agency (PROCOMER). 
 
  
                                                      
6 Currently 202 enterprises are operating under this regime, 125 are engaged in manufacturing and the 
remainder in services sectors or administration of industrial parks.  G/SCM/Q4/CRI/5/Rev.1 
 Page 5 
 
 
   The table below shows the enterprises by industry in 2005 under the Inward Processing 
Regime:  
Industry Number of Enterprises 
Yarns, textiles and clothing  29 
Timber  3 
Chemicals and pharmaceuticals  2 
Agro-industrial  5 
Foodstuffs and related products  21 
Vehicles, buses  4 
Boats  3 
Other industries  57 
Total  124 
 Source :  Foreign Trade Promo tion Agency (PROCOMER). 
 
Question 6  
 
 Please explain why, under the above progra mmes, which have been in place for over 
ten years, it is still not possible to dismantle the prohibited subsidies. 
 
Reply  
  See the replies to questions 2 and 3. 
 G/SCM/Q4/CRI/5/Rev.1 
Page 6  
 
  CANADA
 
 
Question 1  
  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
 
  See the reply to question 4 from Colombia.  Question 2
 
  Could the proponents of both documents al so 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
 
  See the reply to question 4 from Colombia.  Question 3
 
  Recalling that the previous extension of th e 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
 
  See the replies to questions 2 and 3 from Colombia.   G/SCM/Q4/CRI/5/Rev.1 
 Page 7 
 
 
  JAPAN  
 Question 1
 
 
 Please show the reasons why the lengthy exte nsion of 11 years is indispensable uniformly 
for all the export subsidy programmes referred to in the above documents. 
 
Reply  
  See the replies to questions 2 and 3 from Colombia. 
 
Question 2
 
  Please explain, one by one for each of the 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
 
 
 See the replies to questions 2, 3 and 4 from Colombia. 
 G/SCM/Q4/CRI/5/Rev.1 
Page 8  
 
  PERU
 
 Question 1
 
 
 Do the co-sponsors of proposal G/SCM/W/535 intend to extend only the programmes 
which have been notified to date under Ar ticle 27.4 of the Agreement on Subsidies and 
Countervailing Measures and which are included in Annex A of their proposal or do they intend to include any other export subsidy progr amme which fulfils the criteria set forth under 
2 in document G/SCM/39? 
 Reply
 
  As stated in documents G/SCM/W/537/Revs. 1 and 2, the request for an extension would be 
applicable to all Members and existing progra mmes complying with paragraph 2 of document 
G/SCM/39.   
 
Question 2
 
 
 Under what laws and enabling regulations are the programmes listed in Annex A of the 
proposal implemented? 
 Reply
 
  The laws and enabling regulations for the Free Zone and Inward Processing Programmes can be found in the annual notifications regardi ng procedures under G/SCM/39 and new and full 
notifications under Article 25 of the Agreement on Subsidies and Countervailing Measures.  The 
symbols of these documents are: 
 
G/SCM/N/146/CRI G/SCM/N/128/CRI G/SCM/N/114/CRI G/SCM/N/99/CRI 
 
Question 3
 
 
 Which sectors and products benefit from the programmes?  
 Reply
 
  See the reply to question 5 from Colombia.  
Question 4
 
 
 What amount is disbursed by the St ate to the programmes listed in Annex A?  
 
Reply  
  As this is a subsidy in the form of exem ption from various taxes and consular fees, the 
Costa Rican State does not receive any income.  Th ere is no information on the amount of the subsidy 
granted through these programmes.  
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