RESTRICTED
WORLD TRADE G/SCM/Q2/KOR/10
10April 1997
ORGANIZATION(97-1507)
Original: English Committee onSubsidies andCountervailing Measures
SUBSIDIES
Questions from theEUROPEAN COMMUNITY Regarding theNew
andFullNotification ofKOREA1
Thefollowing communication, dated 26March 1997, hasbeenreceived fromthePermanent
Delegation oftheEuropean Commission.
_______________
TheCommunity refers toKorea 'supdate notification ofsubsidies under Article 25.2ofthe
WTO Subsidies Agreement (document G/SCM/N/16/KOR) of22November 1996.
A. Subsidies contingent upon theuseofdomestic overimported goods
TheCommunity isaware thatKorea stillgrants anumber oftaxincentives tocompanies, and
thatinmany cases alarger deduction isoffered iffirms purchase domestically-produced goods rather
thanimportedgoods(TaxCreditsforInvestmentinFacilities).Suchdiscriminationinfavourofdomestic
overimported goods means thatthese subsidies areprohibited under Article 3.1(b) oftheSubsidies
Agreement.
Korea hasnotified several suchschemes, buttheCommunity isaware thatKorea grants:
Taxincentives forinvestment inR&D facilities
Ifadomestic company invests capital inR&D facilities, itisallowed todeduct 5%oftheamount
invested from corporate income taxifimported goods areused, or10%ifthegoods areproduced
inKorea.
Inaddition, companies areallowed tocount acertain percentage ofthevalue oftheassets
purchased aslosses when calculating theirtaxable income. Iftheassets areproduced inKorea, the
amount which canbededucted is20%higher thanifthegoods inquestion areimported.
Korea isrequested tonotify theabove scheme andtogivedetails ofallothersubsidies contingent
upon theuseofdomestic overimported goods which werenotincluded initsoriginal notification of
subsidies, using thestandard notification format. Since suchsubsidies areprohibited byArticle 3.1(b)
oftheSubsidies Agreement andhavenotbeenunder Article 28.1, Korea isrequested toexplain why
theyarestillinforce andwhatsteps havebeentaken tophase them out.
1G/SCM/N/3/KOR+Rev.1-G/SCM/N/16/KOR.
./.G/SCM/Q2/KOR/10
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Korea isalsorequested tonotify allsubsidies provided toindividual firms withaview to
promoting theuseofdomestic overimported goods. Ifsuchsubsidies areprovided onthebasis of
applications from firms which specify thatthepurpose ofobtaining thesubsidy istofavour theuse
ofdomestic goods inKorean industry, theywould seem tofallunder Article 3.1(b), even ifthe
programmes involved donotexplicitly specify suchacondition foreligibility.
B. Sector specific subsidies
TheCommunity isaware thatcertain taxincentives granted inKorea provide forlarger
deductions tofirms incertain sectors. Suchsubsidies confer abenefit tocertain sectors andaretherefore
specific inaccordance withArticle 2oftheSubsidies Agreement andKorea isrequested tonotify them
under Article 25using thestandard format, inparticular providing adefinition oftheindustry sectors
described below. Examples ofthese incentives are:
1. Reserves fortechnological development
Ifadomestic firmhassetaside reserves forexpenses incurred intechnological
development, 3%ofthesereserves maybecounted aslosses when calculating taxable income.
Thisamount risesto4%inthecaseoftechnology-intensive industries and5%forcertain
qualified capital goods industries.
2. Taxcredit fordevelopment oftechnology andmanpower
Unused taxcredits under thisscheme canbecarried forward forfiveyears; inthe
caseofcertain qualified capital goods industries thisperiod isincreased toseven years.
C. Content ofupdate notification
Korea'supdatenotificationcontainsnoinformationatall.Korea'soriginalnotificationcontained
information onsubsidy amounts uptotheyear1994. Whyhasthenotification notbeenupdated to
include datarelating to1995?
TheCommunity requests Korea toupdate itsnotification inaccordance withthestandard format
andtheprovisions ofArticle 25oftheSubsidies Agreement.