. /.RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q2/PAN/6/Rev.1*
13 April 1999
(99-1457)
Committee on Subsidies
and Countervailing MeasuresOriginal:  Spanish
SUBSIDIES
Replies to Questions Posed by the European Communities1
Regarding the New and Full Notification of Panama2
Revision
The following communication, dated 23 March 1999, has been received from the Permanent
Mission of Panama.
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Panama submitted on 16 November 1998 its new and full notification of subsidy programme
to the WTO pursuant to Article XVI:1 GATT 1994 and Article 25 of the WTO Subsidies Agreement.
In this respect, the Community requests further clarification on a number of programmes whichappear to be specific and were not included in the notification.
Question 1.  Fiscal incentives for compan ies located in the Colon Free Trade Zone
The benefits consist of complete exemption from taxation on imports and re-exports.
There are no taxes on the export of capital or the payment of dividends.  In addition, there are
reduced income tax rates on earn ings from re-export sales.  Furthermore, firms located in the
CFZ are exempt from import duties as well as from guarantees.
Reply
In accordance with Article XVI of GATT 1994, contracting parties that maintain or grant an
export subsidy should notify it to the WTO.   As the enterprises set up in the Colón Free Trade Zone
(ZLC) are engaged in the marketing of foreign (non-originating) products in the form of
re-exportation, and not in producing or processing goods, the WTO rules on subsidies and
countervailing measures do not apply to re-export activities carried out in the free trade zone.
Question 2.  Benefits for companies located in Export Processing Zones
Pursuant to Law 25 (passed on 30 November 1992) companies located in EPZs are
exempt from taxes, duties and other charges related to the importation of machinery,
equipment, raw materials, semi-processed goods and other materials such as packaging, fuel
and lubricants used in the manufacturing proces s.  In addition, an exemption is granted from
                                                     
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income tax on profits arising from exports, and exemption from export sales taxes, as well as
from taxes on capital and assets of the export industry.
Reply
In accordance with Article 25.2 of the WTO Agreement on Subsidies and Countervailing
Measures, "Members shall notify any subsidy as defined in paragraph 1 of Article 1, which is specific
within the meaning of Article 2, granted or maintain ed within their territories".  Accordingly, Panama
did not notify the above-mentioned programme because it does not consider it to be specific within
the meaning of Article 2.
It takes this view because the enterprises set up in these zones are not under any legal
impediment to selling their products on the domestic market after payment of the corresponding
duties.  Furthermore, the incentives are not aimed at any product in particular or any specific industry.
Indeed, the main purpose of the processing zones is to encourage investment and create employment.
Question 3.  Petroleum Export Zones
The Government of Panama enacted Decree No. 29 (Executive Decree) dated
14 July 1992, allowing the creation of Petroleum Export Zones (PEZ) in specially-designated
areas in Panama.  Decree No. 29 allows any foreign or national company to establish operations
in a PEZ to produce, refine and export petroleum products.  Companies operating out of thesePEZs are exempt of any municipal or federal taxes.
Reply
Panama would like further clarification as to the meaning of the question:  does it refer to
subsidies supposedly granted by Panama to enterprises located within the Petroleum Export Zones, or
to enterprises operating outside such zones, as the last sentence of the question would appear to
suggest.
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