RESTRICTED
WORLD TRADE G/SCM/Q2/HUN/6
18February 1997
ORGANIZATION(97-0623)
Original: English Committee onSubsidies andCountervailing Measures
SUBSIDIES
Replies ofHUNGARY to
Questions posed byARGENTINA1,CANADA2,JAPAN3,
KOREA4,andPOLAND5
Thefollowing communication, dated 12February 1997, hasbeenreceived fromthePermanent
Mission ofHungary.
_______________
QUESTIONS FROM ARGENTINA
Q1. Inthecaseoftheprogramme ofcorporate taxconcessions forcompanies withforeign
participation, could Hungary specify whether theobtention ofthese concessions depends onexports,
within themeaning ofAnnex I,paragraph (f),oftheSubsidies Agreement?
Answer
No,theobtention ofthese concessions doesnotdepend onexports.
Q2. Inthecaseoftheprogrammesoftaxconcessionstopromoteexport-orientedproductdevelopment,
couldHungarystatewhetheritwillcomplywiththetime-limitprovidedforinArticle29.2oftheSubsidies
Agreement forthephasing outoftheprogrammes?
Answer
Yes,Hungarystatesthatitwillfullyrespectthetime-limitprovidedforintheArticlereferredto.
Q3. InthecaseoftheCentral FundforTechnical Development, could Hungary specify theresearch
anddevelopment costscovered bythesubsidies programme, aswellasthepercentage ofthetotalcosts
oftheproject covered bythesubsidy, asprovided forinArticle 8.2(a) oftheSubsidies Agreement?
Answer
Assistance fromtheCentral Fund forTechnical Development, characteristically asaninterest
freeloan(with obligation torefund), canbegranted tocover upto50%oftheresearch andtechnical
development costs uptothestage ofcreating aprototype. Responding totenders published bythe
1G/SCM/Q2/HUN/5,2G/SCM/Q2/HUN/2,3G/SCM/Q2/HUN/3 &Rev.1,4G/SCM/Q2/HUN/1,
5G/SCM/Q2/HUN/4.G/SCM/Q2/HUN/6
Page2
National Committee forTechnological Development (OMFB) applications forthesubsidy canbemade
bycompanies, research institutes, institutes ofhigher education orprivate persons.
Q4. InthecaseoftheTerritorial Development Fund, could Hungary identify theregions benefitting
fromtheprogramme, aswellasthecriteria usedtoselect them, inaccordance withArticle 8.2(b) of
theSubsidies Agreement?
Answer
TheTerritorial Development Fund isintended topromote economic andsocial development
indisadvantaged regions situated mostly inthenorth-eastern partofHungary (e.g.incounties Borsod-
Abaúj-Zemplén, Szabolcs-Szatmár-Bereg, Hajdú-Bihar, etc.). Themain criterion established inlaw
todetermine eligibility ofgeographical areas forsubsidies from theFund isthattheunemployment
rateintheareaexceeds byatleast50%thenational average. (Thenational average isabout 10%
atpresent.)
Agricultural promotion programme
Q5. What willbetheduration oftheprogramme? When willstatistical databeavailable inorder
tobeabletoevaluate thetrade effects andcalculate themargin ofsubsidy?
Answer
Asstated inthenotification thereisnotime-limit setfortheduration oftheprogramme. Until
theParliament hasapproved thereport onthefulfilment ofthestatebudget for1995, nodataare
available.
Price support programme
Q6. When willitbepossible toprovide sufficient datatobeabletocalculate thetrade effects and
subsidy margin perproduct?
Answer
These support programmes were notoperative during 1995.
Agricultural funds
Q7. (a) Stock-Breeding Fund. There isnoinformation onthetime-periods ordata for
calculating theeffects. Itisstated thatitcovers 50percentofthecost, without
specifying.
Answer
Thesubsidy from theStock-Breeding Fund generally covers 50%ofthecosts (60% inthe
caseofprocurement ofbreeding males andbreeding substances representing topgenetics, and80%
regarding theremuneration ofbreeding teamheads).G/SCM/Q2/HUN/6
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(b) Fishery. Thetime-period andtrade effects arenotindicated.
Answer
Given thenature ofthesubsidies from theStock-Breeding Fund andtheFishery Fund itis
notpossible todetermine what, ifany,trade effects mayhaveresulted from these programmes.
Agricultural subsidies
Q8. Asubsidy of10percentage points oftheinterest rateonloans ismentioned: butwhat are
thetrade effects andthemargin ofsubsidy?
Answer
Inconnection withtherelatively highrateofinflation, theinterest ratesofloans provided to
entrepreneursamountedto30-40%in1995.Tomaintainthecredit-worthinessofagriculturalenterprises
andtoensure theirsustainable operation, special green credit-rules hadtobeintroduced. Theinterest
ratesupport could bemade useoftofinance onlytheagricultural coreactivities andaccounted for
approximately halfapercentoftheproduction value. Inlightofthenature oftheprogramme and
itssmall financial impact thetrade effects canbeconsidered virtually non-existent.
QUESTIONS FROM CANADA
Q1. Fortheprogrammes described further toparagraphs 5.2.2, 5.2.3 and5.2.4 ofHungary ’s
notification, canHungary clarify theeligibility criteria forfirmswanting tobenefit fromtheprogramme?
Answer
Fortheprogrammes citedintheCanadian question there isanautomatic procedure ofself-
selection. Inthecorporate taxdeclaration form there isaspecial chapter fortaxconcessions where
allways determined inlaw,including those notified under 5.2.2, 5.2.3 and5.2.4, toclaim corporate
taxbenefit arelisted. Thetaxpayer canmake useoftheconcession bywithholding thetaxoutofthe
calculated tax.Theonlyrightthetaxauthorities haveistoverify thefacts.
Q2. Withrespecttotheprogrammeentitled“TaxBenefitforthePurchaseofMachines”,canHungary
clarify whether thetaxbenefit isacredit against taxowing, orisitadeduction ontaxable income?
Isthebenefit refundable where thefirmisinalossposition, ordofirms havetowaittobeinataxable
position toclaim thebenefit?
Answer
Thetaxbenefit forthepurchase ofmachines isadeduction ontaxable income. Ifthefirm
isinalossposition ithastowaittobeinataxable position toclaim thebenefit.G/SCM/Q2/HUN/6
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Q3. Regarding thesame programme under paragraph 5.3ofthenotification, canHungary also
clarify thenature ofequipment/machines thatmaybeeligible; inparticular, howisthevalue ofthe
purchase isdetermined; i.e.isthere atesttheequipment mustmeet(e.g.technological improvement
test-newequipment)?
Answer
ByvirtueofSection3,paragraph(4)(e)ofActLXXXVIof1991,machinesfallingunderproduct
category No.32-39 and42(e.g.machines usedinthechemical, light, foodprocessing, construction
andlightindustry, inmetallurgy, various machine tools) intheProduct Nomenclature oftheCentral
Statistical Office (ITJ) areeligible fortaxbenefit provided theyarenew. Thevalue ofthepurchase,
asstipulated bytheHungarian Actonaccountancy, inaddition totheprice ofpurchase mayinclude
thecostoftransport andinstallation.
Q6. Concerning the“Central Fund forTechnical Development ”described under paragraph 6of
Hungary ’snotification, canHungary clarify theeligibility criteria oftheprogramme? CanHungary
alsoclarify thesortofresearch anddevelopment covered bytheassistance; e.g.industrial research,
pre-competitive development activity, etc.?
Answer
Assistance fromtheCentral Fund forTechnical Development, characteristically asaninterest
freeloan(with obligation torefund), canbegranted tocover upto50%oftheresearch andtechnical
development costs uptothestage ofcreating aprototype. Responding totenders published bythe
National Committee forTechnological Development (OMFB), applications forthesubsidy canbemade
bycompanies, research institutes, institutes ofhigheducation orprivate persons.
QUESTION FROM JAPAN
5.2.1 Taxconcessions topromote export-oriented product development
Question
Doesthisprogramme constitute anexport subsidy? Ifnot,whatisthebackground ofHungary 's
view? HasHungary already notified thisprogramme under Article 28.1oftheSCM Agreement?
Inaddition, please explain thecriteria for"assessing theinvestment 'seffects onexport".
Answer
Yes,andithasbeennotified pursuant toparagraph 3ofArticle 29(seeG/SCM/N/9/HUN
of22November 1995).
Assessing theinvestment 'seffects onexport means toevaluate thecompany made investment
plan,market analysis andmarketing strategy inthelightoftheexport capacities andpossibilities directly
andindirectly generated bytheinvestment.G/SCM/Q2/HUN/6
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QUESTIONS FROM KOREA
5.1 Corporate taxconcession forcompanies withforeign participation
Question
What arethespecific criteria orexamples for"activities ofparticular importance" prescribed
in(3)(b) oftheeligibility criteria ofthisscheme?
Answer
Theactivities ofparticular importance areenumerated inAnnex 4toActLXXXVI of1991
andinclude, interalia,activities inconnection withelectronics, computer technology, robot-technology,
software-development, automotive industries, production ofmachinery foragriculture, production of
pharmaceuticals, etc.
5.2 Taxconcessions granted toassist structural adaptation
Question
InHungary 'snotification, theHungarian Government justexplained howtoselect the
beneficiaries concerning "TaxConcessions topromote Export-Oriented Product Development" outof
thefourtaxconcessions.
Isthesame process andcriteria applicable totheother three taxconcessions? Ifitisnot,
thencould Hungary explain theprocess andcriteria forselecting beneficiaries fortheother three tax
concessions?
Answer
No.Intheother cases there isanautomatic procedure ofself-selection. Inthecorporate tax
declaration form there isaspecial chapter fortaxconcessions where allways determined inlaw,
including those notified under 5.2.2, 5.2.3 and5.2.4, toclaim corporate taxbenefit arelisted. The
taxpayer canmake useoftheconcession bywithholding thetaxoutofthecalculated tax.Theonly
rightthetaxauthorities haveistoverify thefacts.
7. Territorial Development Fund
Question
Hungary'snotificationstatesthatsubsidiesfromtheTerritorialDevelopmentFundmaybegranted
togeographical areas thatqualify as(a)socially andeconomically underdeveloped regions or
(b)employment districts, whose unemployment ratesubstantially exceeds thenational average.
Could Hungary provide theincome andunemployment rateofthese selected areas as
representative ofacertain percentage ofthenational average?
Answer
TheTerritorial Development Fund isintended topromote economic andsocial development
indisadvantaged regions situated mostly inthenorth-eastern partofHungary (e.g.incounties Borsod-
Abaúj-Zemplén, Szabolcs-Szatmár-Bereg, Hajdú-Bihar, etc.). Themain criterion established inlawG/SCM/Q2/HUN/6
Page6
todetermine eligibility ofgeographical areas forsubsidies from theFund isthattheunemployment
rateintheareaexceeds byatleast50%thenational average. (Thenational average isabout 10%
atpresent.)
QUESTIONS FROM POLAND
Stock-breeding fund
Q1. Arethereanyadditional criteria thatmustbefulfilled byenterprises tobegranted thissubsidy?
Ifyes,please specify.
Answer
There aretechnical preconditions forfarmers tobeallowed toparticipate intheprogramme
(e.g.animals 'registration inherdbook, verification ofbreeding performance, undertaking tosupply
relevant data, etc.)
Q2. Inacasewhen thissubsidy hasaformofrepayable contribution (points 4and5),whatare
theterms ofsuchaloan, wemean hereinterest rate,period ofloanandanyother detailed conditions
providing theyareregulated bylaw. Could Hungary clarify thispoint?
Answer
Suchterms arenotcurrently specified. Norequest forrepayable contribution hasbeenlodged
sofar.
Fishery fund
Q3. Arethereanyadditional criteria thatmustbefulfilled byenterprises tobegranted thissubsidy?
Ifyes,please specify?
Answer
No,there arenoadditional criteria tobefulfilled.
Agricultural andforestry fund
Q4. Please specify whattheterms areofrepayment incaseofcontribution provided forthepurchase
ofequipment andauxiliary appliances (point 3.3.1.1(i)).
Answer
Byvirtue ofparagraph (12)ofDecree 187/1994.(XII.30.)Korm. oftheGovernment, 70%of
theinterest ofloans taken upforthepurchase ofequipment andauxiliary appliances classified under
productcategoryNo.39intheProductNomenclature(ITJ)mayberefundedbythestatebudgetprovided
theloan'sexpiry isoveroneyear. Inaddition, incaseofpermanent leasing asubsidy equivalent to
12%oftheVAT-free leasing feemayberequested.
Theterms ofloans aredetermined inthecontracts concluded between thebanks andthefarmers.G/SCM/Q2/HUN/6
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Government guarantee
Q5. According tothedescription ofthisinstrument, government guarantees weregranted onlyto
producers ofsome goods specified here, doesitmean thatgovernment guarantees donotconcern
enterprises fromother sectors ofagriculture?
Answer
Theguarantees maybeextended totheproducers ofthelisted produce.
Q6. According tothenotification thisscheme wasapplied onlyin1995, doesthisstrictly limited
period oftimestated inpoint 4.1.2(iv) exclude further application ofthisscheme inthecoming years?
Answer
Thestated duration oftheguarantee scheme iswithout prejudice toaneventual decision of
theGovernment tocontinue thisscheme.