. /.RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q2/HKG/5
18 September 1998
(98-3593)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Replies to Questions from the EUROPEAN COMMUNITY1
Regarding the New and Full Notification of HONG KONG, CHINA2
The following communication, dated 14 September 1998, has been received from the
Hong Kong Economic and Trade Office.
_______________
Q. In Document G/SCM/N/38/HKG, Hong Kong, Ch ina indicates that it grants no subsidies
which require notification under Article 25.2 of the WTO Subsidies Agreement.
The Community has noticed that Hong Kon g, China currently provides the following
incentives to its industry :
1. Industrial Support Fund  (HK$274 million)
2. Applied Research and Development Scheme (HK$500 million)
The Community understands that both these schemes provide a financial contribution
to Hong Kong, China companies and confer a bene fit to such companies by relieving them of
costs which they would otherwise have had to bear themselves.
Hong Kong, China is requested to inform the Community if intends to notify these
programmes under Article 25.2.  If no such notification will be forthcoming, could Hong Kong,
China explain the reasons for the lack of notification?
Reply
Industrial Support Fund (ISF)
The ISF was set up in 1994 with the aim to provid e financial assistance (mostly in the form of
grants) for programmes beneficial to the industrial or technological development in Hong Kong, China.
The amount of funds available for di sbursement in 1998/1999 is HK$274 million.
The Fund is administered by the Industry De partment upon the advice of the Industry and
Technology Development Council (ITDC), whose major objective is to advise the Government of the
Hong Kong Special Administrati ve Region (HKSARG) on the overall development of industry and
technology in Hong Kong, China, having regard to  local circumstances, global market trends and the
state of technol ogy world-wide.
                                                     
1 G/SCM/Q2/HKG/4
2 G/SCM/N/38/HKGG/SCM/Q2/HKG/5
Page 2
The major recipients of the ISF include i ndustry-support bodies (such as the Centre of
Environmental Technology, the Clothing Industry Tr aining Authority), trade and industry associations
and research/higher education institutions.  There is a set of objective criteria and conditions which
govern the eligibility for funding s upport.  Such criteria and conditions reflect the broad principles that
the projects in question must contribute to the ov erall industrial and/or t echnological development of
Hong Kong, China, and that such projects should be non-profit making except for the purpose of long-
term self-sufficiency.  Other eligibility criteria take  into account other objective factors such as the
planned schedule and duration of a project, its budget, other alternative sources of finance for the
projects, and any duplication of resour ces.  These criteria and conditions are set out clearly in the official
documents of the ITDC and are available to any interest ed parties.  It can be seen from these criteria that
the ISF is available to all sectors of the manuf acturing industry.  Indeed, in 1997/98, the 84 funded
projects came from a broad cross-section of the loca l industry including metals, plastics, electronics,
information technology, textiles, biotechnology and general technology (such as environmental
improvement technologies which are applicable to more than one industrial sector).
Given its non-specific nature, we are of the view that the ISF does not fall within the meaning of
subsidies notifiable under Article 25.2 of the SCM Agreement.
Applied Research and Development (AR&D) Scheme
The AR&D Scheme was set up in 1993 to foster AR&D in Hong Kong, China.  In March 1998,
it was merged with the Cooperative AR&D Scheme to become the App lied Research Fund (ARF).  The
total amount of seed money injected by the HKSARG to the ARF reaches HK$750 million.
Same as its predecessors, the ARF is used to finance AR&D projects of local companies in the
form of interest-bearing loan or equity injection, or  a combination of both.  Th ere is no recurrent funding
from the HKSARG.
A set of objective criteria govern the eligibility for funding support.  These criteria are set out
clearly in the official documents of the Applied Rese arch Council (the administrator of the ARF) and are
available to any interested parties.  Such criteria include the technological merit of the project, its
commercial potential, management, the technical and financial capability of the applicant company.
The criteria also require that such projects should be truly developmental in nature and contribute toproductivity growth, quality improvement or product/process innovation.  The criteria do not permit
discrimination between industrial sectors.  It is clear  from the criteria that funding support is available to
all industrial sectors.  The total number of proj ects supported under the Scheme (including those under
its predecessors) is 24.  These projects run across numerous sectors including environmental technology,
telecommunications, electronics, bi otechnology, information technol ogy, precision engineering and
material science.
Given the non-specific nature of the ARF Scheme, we are of the view that it does not fall within
the meaning of subsidies notifiable under Article 25.2 of the SCM Agreement.
__________