WORLD TRADE  
ORGANIZATION  G/SCM/Q3/PNG/9 
G/SCM/Q4/PNG/8 1 February 2007 
 
(07-0438) 
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 
 
Responses to Questions Posed by the UNITED STATES1 
  
 The following communication, dated 30 January 2 007, is being circulated at the request of the 
Delegation of Papua New Guinea.  
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G/SCM/N/146/PNG  
Export Incentives of the Income Tax Act of Papua New Guinea
 
 
Q.1 Please describe how Papua New Guinea will ensure that this programme will be phased 
out, if an additional extension were granted.    
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 integra tion into the world economy.  However, theses goals 
may be achieved only with the full support and solidarity of the whole WTO membership.   
 
 It is also to be noted that Papua New Guinea considers its export subsidy program to be in 
itself designed to be eliminated and is primarily  used to help facilitate  manufacturing industries 
develop their export markets at their infant stage.  The subsidy is expected to be applied 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 years 100 per cent of net export sales income is exempted).  For the following 
                                                     
 
1 G/SCM/Q3/PNG/8 and G/SCM/Q4/PNG/7.   G/SCM/Q3/PNG/9 
G/SCM/Q4/PNG/8 Page 2 
 
 
  four years, an exemption is provided for that por tion of export sales income that exceeds the average 
over the preceding three years.  Therefore, it is im portant to note that this subsidy program 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.    
Q.2 Please describe changes to this programme  since 2001.  Also, please provide any updated 
or revised implementing legislation, and an y relevant amendments, unde r this programme and 
any accompanying regulations and decrees.   
Reply
 
  The subsidy program in question is provided  under Section 45B under Division 1A – Export 
Incentives of the Income Tax Act of Papua New Gu inea.  It is an incentive provided through the 
income tax system to encourage companies engaged in manufacturing industries to participate in the 
production of export oriented products.     As part of the "transparency" and "standstill"  obligations specified in G/SCM/39, it would 
clearly be impossible to make modifications to the subsidy program that has been notified.  Hence, 
there have been no changes made to the subs idy program since its initial notification.   
 
Q.3 Did Papua New Guinea undertake any commitm ents to provide export subsidies to new 
beneficiaries beyond the year 2009?  If so, please indicate the number of such beneficiaries by 
the year in which those commitments extend. 
 
Reply
 
  As per the initial stipulation in PNG's 2001 notif ication concerning the nature and target of 
the subsidy program, it is to be noted that the s ubsidy program is only available to those companies 
contingent upon exporting qualifying goods as prescribed  in Regulation 10A of the Income Tax Act.  
It allows for a subsidy program to be provided by  the Government for use of the export incentive, 
upon request by a qualifying company.     To date, Ramu Nickel and Cobalt project is the only company that requested and been given 
this incentive.  However, this project still remain s under development and is currently not in full 
production as yet, hence this incentive has not being used by the developer yet.   
 
Q.4 If available, please provide the amount of the subsidy provided under this programme 
(including revenue foregone) for each year from 2001 through 2005.   
 
Reply
 
 
 Section 45B under Division 1A- Export Incentives of the Income Tax Act of Papua New Guinea is an incentive provided thro ugh the income tax system to encourage companies engaged in 
manufacturing industries to participate in the pr oduction 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 subsidy is provided in the form of a ta x exemption on income tax on profits resulting 
from new export sales.  The amount exempted is the total net income from export sales for the first three years after exports have started.  For anot her four years thereafter, increases in net export  G/SCM/Q3/PNG/9 
 G/SCM/Q4/PNG/8 
 Page 3 
 
 
  income, measured over the rolling average of th e previous three years net export income, are 
exempted.  Given the company tax rate of 25 per cen t, the subsidy provided is 25 per cent of net 
profits derived from export sales, for the pe riods and to the extent shown above.   
 
 As mentioned earlier, only the Ramu Nickel and Cobalt project has been given this incentive.  
However, this project still remains under development and is currently not in full production as yet.  
As such, the amount at which the subsidy h as been provided cannot be determined.   
  G/SCM/Q4/PNG/5 and G/SCM/Q4/PNG/6 
 
Q.5 Are there more specific economic, financia l and development statistics to which Papua 
New Guinea can point that demonstrate that th is programme in question has had a positive 
impact and will continue to do so into the future? 
 
Reply
 
  The Ramu Nickel and Cobalt project is the only company that has requested been provided 
the use of the subsidy program in question.  The pr oject still remains under de velopment and is not in 
full production yet.   
 
 Hence, the positive impacts of the subsidy in question to the economic, financial and 
development needs of Papua New Guinea at this  point in time is purely based on qualitative 
presumptions rather than on quantitative data.  Ho wever, the critical importance of this subsidy 
program to encourage and develop export-oriente d industries in the manufacturing sector cannot be 
underestimated.   
  As stated earlier, the subsidy in question is  an indirect subsidy but an incentive provided 
through the income tax system to encourage co mpanies engaged in manufacturing industries to 
participate in the production of export oriented pr oducts.  The major objective of this study is to 
promote exports of goods manufactured in Papua New Guinea through an exemption from income tax 
from new export sales profits.   
  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 economic growth and employment creation;  and 
utilisation of domestic resources, particularly rene wable resources to expand the volume and value of 
exports.     The Government of Papua New Guinea recogni zes the importance of international trade in 
achieving the development objectives of the country, pa rticularly with focus on utilizing international 
trade as an engine economic revival, growth a nd industrial transformation.  As such, the 
Government's Policy Statement on Recovery and Development has embarked on an Export-Driven 
Economic Recovery Strategy, which focuses on agricultu re, fisheries and forestry sectors that will be 
supported by the mining, petroleum, gas and services sectors with an emphasis on value-added production and exports.   
 
 Currently, the respective government departme nts and agencies are endeavouring to put in 
place a National Export Development Strategy  for Papua New Guinea, which will focus on 
developing the non-mining, gas and petroleum sectors a nd this includes agriculture , fisheries, forestry, 
tourism, etc.. G/SCM/Q3/PNG/9 
G/SCM/Q4/PNG/8 Page 4 
 
 
   
 Hence, the Government of Papua New Guinea c onsiders 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 programs, such manufacturers or new exporters can 
utilize this subsidy to introduce and enhance exports, thus cutting down on the Government's 
dependence on exports from the extractive sectors (mining, gas and petroleum).    Q.5 Please describe the timeframe for completing the government review of this programme?   
 
Reply
 
 
 A Business Impediments Committee has been established under the Prime Minister's 
Department.  The Committee is made up of rele vant government departme nts/organizations and 
private sector organizations to identify obstacles and barriers that hinder investment and business 
activities in Papua New Guinea.  Th e committee also provides the appropriate forum to negotiate new 
incentives to attract investment, and makes regular reviews of existing incentives, such as the Export 
Incentives of the Income Tax Act of Papua New Guinea when appropriate.   
 
 The "Export Incentives of the Income Tax Act" is  expected to be reviewed on a periodic basis 
as and when the targeted beneficiaries of the incentiv e program are able to avail of the incentive.   
 
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