WORLD TRADE
ORGANIZATIONG/SCM/Q3/BRB/8
11 June 2002
(02-3217)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Requests Pursuant to Article 27.4 of the Agreement
on Subsidies and Countervailing Measures
Replies to Questions Posed by AUSTRALIA1, the EUROPEAN COMMUNITIES2, JAPAN3,
SWITZERLAND4 and the UNITED STATES5 Regarding the Notification of BARBADOS6
The following communication, dated 6 June 2002, has been received from the Permanent
Mission of Barbados.
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Please note that data is not currently available to answer questions 16 and 17 as posed by the
United States.  These questions relate to the value of exports for the International Business Companies
and the Societies with Restricted Liabilities. However, the data should be available before the formal
meeting of the SCM of 17 June 2002 and the Mission should have the details in order to make an oral
submission at that time.
QUESTIONS POSED BY AUSTRALIA
Q1. Could Barbados explain which of the prog rammes listed in document G/SCM/N/74/BRB
provide benefits contingent upon on export, for example, the Barbados Investment Fund, the
Industrial Credit Fund, the Fiscal Incentive programme? Do these programmes provide forimport duty or tax exemptions?
Reply
The programmes that provide benefits specific to exporting businesses are detailed in
document GSM/N/71/BRB. For ease of refe rence, the list is repeated below:
(i) Fiscal Incentives Programme
(ii) Research and Development Allowance
(iii) Export Allowance
                                                     
1 G/SCM/Q3/BRB/2
2 G/SCM/Q3/BRB/3
3 G/SCM/Q3/BRB/4
4 G/SCM/Q3/BRB/1
5 G/SCM/Q3/BRB/5 & G/SCM/Q3/BRB/7
6 G/SCM/N/74/BRB and G/SCM/N/71/BRBG/SCM/Q3/BRB/8
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(iv) Societies With Restricted Liability
(v) International Business Incentives
(vi) Export Grant and Incentive Scheme
(vii) Export Rediscount
(viii) Export Credit Insurance Scheme
(ix) Export Finance Guarantee Scheme
Of the listed programmes, the Fiscal Incentives Programme, the Research and Development
Allowance, the Export Allowance, the International Business Incentives and the Societies With
Restricted Liability, provide benefits in the form of import duty and/or internal duty exemptions or
reductions.
Q2. Is the Research and Development Allowa nce solely for exporters? How does the
Allowance operate?
Reply
The Research and Development Allowance is provided to those businesses engaged in
exporting to a country outside of the CARICOM Common Market which make an expenditure on
market research and development for the purpose of promoting the export sales of the business. These
businesses are entitled to deduct from taxable income an amount equal to 150 per cent of the actual
expenditure incurred. The activities, which are eligib le for the benefits provided by this allowance,
include fares, accommodation and subsistence by the taxpayer or an employee of the taxpayer on
overseas promotional tours.
QUESTIONS POSED BY THE  EUROPEAN COMMUNITIES
I. Questions concerning the programmes mentioned in G/SCM/N/74/BRB dated
4 January 2002 and G/SCM/N/71/BRB dated 1 March 2002 (request based on procedure
in G/SCM/39).
Q1. Please indicate when the pr ogrammes came into operation.
Reply
Incentives to international business companies date back to 1965 when the legislation
pertaining to such incentives was enacted. However, the current act, the International Business
Companies Act, came into force in 1991. The Fiscal Incentives Programme was established in 1974while the Societies with Restricted Liability Act was enacted in 1995. The Export Allowance was
established in 1974 while the Research and Development Allowance was put in place in 1986.
Q2. Please indicate whether the programmes pr ovided for other forms of subsidies than
exemption of import duties and export taxes (e.g. grants, provision of goods or services).
Reply
The benefits provided under these programmes specifically relate to customs duty and
internal tax relief.
Q3. Please indicate whether the programmes provide for a condition to use domestic goods.
If yes, please describe the relevant provision.G/SCM/Q3/BRB/8
Page 3
Reply
The programmes do not have a condition to use domestic goods. There is however, a ‘local
value added’ requirement under the Fiscal Incentives Programme. In this regard, please see the reply
to the following question.
Q4. The programme described under “programme 1 in G/SCM/N/71/BRB refers to a
condition for “local value addition”. Does this constitute a requirement to use domestic over
imported goods? Please explain.
Reply
Enclave and highly capital intensive industries are entitled to the maximum amount of
benefits under the Fiscal Incentives Programme without being required to use locally produced goods
or services. The ‘ local value added’  requirement for other enterprises to obtain benefits under the
Fiscal Incentives Programme, measures the contribution of the enterprise to the national and regional
economy. This value added is calculated by subtra cting the following from the ex-factory sales of an
enterprise:
• Value of raw materials, fuels, components and the raw material content of locally produced
components imported from out side of CARICOM countries
• Wages and salaries paid to workers who are non-nationals of a CARICOM country
• Profits remitted to individuals or companies outside the CARICOM countries
• Any amounts paid to foreign companies of individual resident outside of CARICOM countries, as
interest on loans, for technical services, management charges, royalties etc.
• Depreciation allowable with respect to importe d plant equipment machinery and spare parts
It can therefore be seen that not only is the proportion of the finished good that is
domestically sourced is taken into consideration when computing the local value added, but also
components such as wages, salaries and profit remittances. In addition, there is a local labour
weighing device which makes it possible for an approved enterprise to increase its tax benefits
without increasing any of the other determining factors.
As highlighted in the Fiscal Incentives Act, the emphasis in this programme is placed on the
benefit the manufacture of the product would have on the island, with both economic and non-
economic considerations being taken into account as well as the effect on employment in numbers and
gross wages.
Q5. Please indicate the rate of import duty or internal duty exemption as of
1 September 2001.
Reply
Benefiting companies are entitled to exemption from import duty and internal taxes to a
maximum of 100 per cent. The taxes and duties that would be paid in the absence of theseprogrammes is as follows:G/SCM/Q3/BRB/8
Page 4
Import Duty
Environmental Levy
Value Added Tax (VAT)
Income TaxMFN Rate as listed in the Customs Act
1%
15%
40%
Q6. Please describe changes to the programmes since September 2001, if any. In particular,
indicate any changes to the rate of exemption or the coverage of the programmes e.g. in terms of
products, locations etc.
Reply
There have been no changes to the programmes since September 2001.
Q7. Please elaborate on how and when Barbados intends to phase out these programmes.
Reply
The current legislation governing the operation of these programmes does not refer to any
particular end date for programmes. Relevant legislation would therefore be amended as necessary to
reflect Barbados’ international obligations.
II. Questions concerning the programmes mentioned in G/SCM/N/74/BRB dated
4 January 2002 and G/SCM/N/71/BRB dated 1 March 2002 (request based on Art 27.4
ASCM).
Q8. Can Barbados please confirm that the programmes listed under section 1, items (iv) –
(viii) in G/SCM/N/74/BRB are not covered by this request?
Reply
The programmes listed under section 1, items (iv) – (vii) in G/SCM/N/74/BRB are not
covered by this request.
Q9. Please elaborate on how and until what date Barbados intends to phase out these
programmes.
Reply
The programmes listed in Section 1, items (iv) – (vii) in G/SCM/N/74/BRB are allowable,
non-specific forms of governmental assistance under WTO rules. There is therefore no current
intention to phase out these programmes.
QUESTION POSED BY JAPAN
Fiscal Incentives Programme
Q. This act seems to include requirement for domestic use. Could Barbados please explain
its conformity with Article 3.1(b) of the ASCM?G/SCM/Q3/BRB/8
Page 5
Reply
Enclave and highly capital intensive industries are entitled to the maximum amount of
benefits under the Fiscal Incentives Programme without being required to use locally produced goods
or services. The ‘ local value added’  requirement for other enterprises to obtain benefits under the
Fiscal Incentives Programme, measures the contribution of the enterprise to the national and regional
economy. This value added is calculated by subtra cting the following from the ex-factory sales of an
enterprise:
• Value of raw materials, fuels, components and the raw material content of locally produced
components imported from out side of CARICOM countries
• Wages and salaries paid to workers who are non-nationals of a CARICOM country
• Profits remitted to individuals or companies outside the CARICOM countries
• Any amounts paid to foreign companies of individual resident outside of CARICOM countries, as
interest on loans, for technical services, management charges, royalties etc.
• Depreciation allowable with respect to importe d plant equipment machinery and spare parts
It can therefore be seen that not only is the proportion of the finished good that is
domestically sourced is taken into consideration when computing the local value added, but also
components such as wages, salaries and profit remittances. In addition, there is a local labour
weighing device which makes it possible for an approved enterprise to increase its tax benefits
without increasing any of the other factors.
As highlighted in the Fiscal Incentives Act, the emphasis in this programme is placed on the
benefit the manufacture of the product would have on the island, with both economic and non-
economic considerations being taken into account as well as the effect on employment in numbers and
gross wages.
QUESTION POSED BY SWITZERLAND
Q. Regarding the Research and Development Allowance Programme Switzerland would
like to request Barbados to supplement the inform ation provided in its notification e.g. What is
understood by the definition of “expenditure on market research and development for the
purpose of promoting the export sales of the business”?
Reply
“Expenditure on market research and development for the purpose of promoting the export
sales of the business ” is defined in the Income Tax Cap. 73. The activities eligible for benefits under
the Research and Development Allowance include fares, accommodation and subsistence by the
taxpayer or an employee of the taxpayer on overseas tours promotional tours and advertising expenses
incurred in soliciting sales in overseas markets.G/SCM/Q3/BRB/8
Page 6
QUESTIONS POSED BY THE UNITED STATES
(G/SCM/Q3/BRB/5)Export Allowance
Q7. Please explain why eligibility is contingent upon exportation to non-CARICOM
countries.
Reply
The Export Allowance is given to exporters to encourage them to pursue markets outside of
CARICOM in order to become more internationally competitive and improve their operational
efficiency.
Q8. Please explain why the amount of export allowance granted under this programme has
increased significantly while the number of companies has declined.
Reply
The increase in the export allowance awarded in the face of a decreased number of companies
reflected an increase in the level of profitability of the particular companies availing themselves of thefacility.
Q9. Please explain what industry sectors are represented by the companies that benefit from
this programme.
Reply
The companies that benefit from this programme include those engaged in the manufacture of
food and beverage, craftwork, packaging materials, paper, pharmaceutical products and paint.
Q10. Please provide data on the value of total exports of the companies that benefit from this
programme.
Reply
Data on the value of exports is not available.
International Business Incentives
Q18. Please provide data on the value of total exports of the companies that benefit from this
programme.
Reply
Data on the value of exports is not available.G/SCM/Q3/BRB/8
Page 7
(G/SCM/Q3/BRB/7)
Fiscal Incentives Programme
Q2. Under this programme, local value added is defined as the amount realized from the sale
of the product after subtracting, among other things, the cost of imported raw materials,
components, parts of components and, fuels an d services. We seek clarification, therefore,
whether the use of domestically sourced raw mate rials, components and parts determines in any
way, the duration of the incentives provided under this programme.
Reply
Enclave and highly capital intensive industries are entitled to the maximum amount of
benefits under the Fiscal Incentives Programme without being required to use locally produced goods
or services. The ‘ local value added’  requirement for other enterprises to obtain benefits under the
Fiscal Incentives Programme, measures the contribution of the enterprise to the national and regional
economy. This value added is calculated by subtra cting the following from the ex-factory sales of an
enterprise:
• Value of raw materials, fuels, components and the raw material content of locally produced
components imported from out side of CARICOM countries
• Wages and salaries paid to workers who are non-nationals of a CARICOM country
• Profits remitted to individuals or companies outside the CARICOM countries
• Any amounts paid to foreign companies of individual resident outside of CARICOM countries, as
interest on loans, for technical services, management charges, royalties etc.
• Depreciation allowable with respect to importe d plant equipment machinery and spare parts
It can be seen that not only is the proportion of the finished good that is domestically sourced
is taken into consideration when computing the local value added, but also components such as
wages, salaries and profit remittances. In addition, there is a local labour weighing device which
makes it possible for an approved enterprise to increase its tax benefits without increasing any of the
other determining factors.
All the foregoing is taken into account when computing the local value added which entitles a
company to the following years of tax exemption:
Local Value Added Years
Group I 50% and over 15
Group II 25% and under 50% 13
Group III 10% and under 25% 11
Enclave and Highly Capital
Intensive Industries15
As highlighted in the Fiscal Incentives Act, the emphasis in this programme is placed on the
benefit the manufacture of the product would have on the island, with both economic and non-economic considerations being taken into account as well as the effect on employment in numbers and
gross wages.G/SCM/Q3/BRB/8
Page 8
(G/SCM/Q3/BRB/5)
Q4. Some incentives under the Fiscal Incentives Programme appear to be contingent upon
the use of domestic goods. Please comment on wh ether this aspect of the programme constitutes
a prohibited subsidy under Article 3.1 (b) of the Agreement on Subsidies and CountervailingMeasures.
Reply
Please see reply to the previous question.
(G/SCM/Q3/BRB/7)
Q3. Please explain the statement that “the extent of benefits under the Fiscal Incentives Act
to be enjoyed by an approved enterprise is dete rmined by the contribution of the enterprise to
the national and regional economy measured in terms of local value added”. Does the ”extent”
refer only to the duration of benefits under this programme?
Reply
The benefits provided to approved companies under the Fiscal Incentives Act only relate to
duty reductions and exemptions for the stated periods of time. The ‘extent’ of benefits therefore solelyrelate to the time period allowed for such exemptions.
Societies with Restricted Liability
Q4. In G/SCM/Q3/BRB/6, you stated that under this programme companies also benefit
from exchange controls. Please explain in de tail the nature of this additional benefit.
Reply
Section 11 (2) of the Exchange Control Act does not apply an International Business
Company or a Society with Restricted Liability. This means that these international business
companies do not need to seek exchange control pe rmission from the Central Bank of Barbados in
respect of their international trade and commerce and international manufacturing.
Q5. Please explain whether the exemption from exchange controls under these programmes
meets the eligibility criteria established under G/SCM/39.
Reply
Barbados has made a macro-economic policy decision to maintain exchange controls.
International Business Companies and Societies with Restricted Liability have been exempted from
seeking the permission of the Central Bank of Barbados in order to facilitate the timely conduct oftheir international transactions.
Export Rediscount Facility
Q6. If this programme is dormant, why is Barbados requesting an extension for this
programme?G/SCM/Q3/BRB/8
Page 9
Reply
Barbados wishes to retain the use of this facility, as recourse to this mechanism may be
required in the future by exporters. For example, if the demand for export finance in large mounts for
short periods especially when liquidity in the banking system is low.
Q7. Please explain what the amount of the benefit is under this programme i.e. to what
extents exporters could receive lower financing rates for export receivables.
Reply
Under this programme, the exporters do not receive an interest rate advantage. The rate of
interest given is never below the average cost of funds to the on-lending financial institution and the
final rate will depend on the margin of commercial risk attached to the borrower.
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