WORLD TRADE
ORGANIZATIONG/SCM/N/38/CHL
21 August 1998
(98-3287)
Committee on Subsidies and
Countervailing MeasuresOriginal:  Spanish
SUBSIDIES
New and Full Notifications Pursuant to Article XVI:1 of
the GATT 1994 and Article 25 of the SCM Agreement
CHILE
The following communication, dated 29 July 1998, has been received from the Permanent
Mission of Chile.
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The present document contains the new and full notification of the subsidies maintained by
Chile in 1998 in conformity with Article XVI.1 of the GATT 1994 and Article 25 of the Agreement
on Subsidies and Countervailing Measures, in accordance with Secretariat document G/SCM/N/38.
Chile wishes to point out that, in keeping with Article 25.7 of the Agreement on Subsidies
and Countervailing Measures, notification of a programme or measure does not prejudge either its
legal status under the GATT 1994 or the Agreement, the effects under the Agreement or the nature ofthe programme or measure;  indeed, notification of a programme or measure does not prejudge its
actionable or non-actionable nature.G/SCM/N/38/CHL
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TABLE OF CONTENTS
Page
I. Tax credit for investment in the provinces of Arica
and Parinacota (Region I) .......................................................................................... 3
II. Exemption from the first category tax under the income tax law on earnings
in the financial years of management companies and users in the free zones
in the cities of Iquique (Region I)  and Punta Arenas (Region XII) ............................ 4
III. Support programme for the management of export firms (PREMEX)....................... 5IV. Simplified system of re funds for minor exports ........................................................ 6
V. System of deferred payment of customs duties, tax credit and other
tax bene fit .................................................................................................................. 8
VI. Motor vehicle statute ................................................................................................. 9G/SCM/N/38/CHL
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PROGRAMME I
1. Title
Tax Credit for Investment in the Provinces of Arica and Parinacota (Region I).
2. Period
June 1998.
3. Objectives
To reverse the declining economy of the provinces of Arica and Parinacota, making use both
of their advantageous geographical position for trade purposes and their tourist attractions,
strengthening entrepreneurship and consolidating Arica as an inter-ocean corridor.
4. Background and authority
Background:  Arica and Parinacota, as outlying provinces, are at a disadvantage in relation to
the development of the rest of the country.
Authority:  Law No. 19,420, published in the Official Journal of 23 October 1995, and Law
No. 19,478 amending it, published in the Official Journal of 24 October 1996.5. Form of the subsidy
Tax credit in the form of a tax allowance.
6. To whom and how the subsidy is provided
Taxpayers with investment projects amounting to more than UTM 2,000 (equivalent to
US$110,300 at May 1998 rates) for projects in the province of Arica and more than UTM 1,000
(equivalent to US$55,150 at May 1998 rates) for projects in the province of Parinacota.
They are eligible for a tax credit of 20 per cent of the value of certain non-convertible assets,
namely, buildings, machinery and equipment, including immovable property intended exclusively for
commercial exploitation for tourist purposes, directly tied in with the production of goods or the
supply of services of the taxpayer's business or activity, purchased new or finished in the financial
year.
Taxpayers are also eligible for the credit if they invest in the construction of buildings for use
as offices or dwellings, whether or not they include business premises, car parks or shops, consisting
of more than five units, in the places specified in the Law, with a built area of not less than
1,000 square metres, completed or built during the financial year.
The taxes are forgiven by deducting the credit from the first-category tax payable as from the
trading year of the purchase or construction of the property.
7. Amount of the subsidy
During the period 1995-1996, investors applied for tax credit for investments amounting to
Ch$11,500 million (equivalent to around US$28 million at May 1998 rates).G/SCM/N/38/CHL
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8. Duration
This incentive became effective, retroactively, as from 1 January 1995.  The period for
eligibility for this benefit is up to 31 December 1998 and may be extended to 31 December 1999 andsubsequently to 31 December 2000, provided the extension is ordered by the President of the
Republic.
The benefit will apply only in regard to assets  incorporated in the investment project on any
of the above-mentioned dates on which the benefit is still effective, although the credit may be
recovered up to the year 2020.
9. Statistical data
No data available.
PROGRAMME II
1. Title
Exemption from First-Category Tax under the Income Tax Law on Earnings in the Financial
Years of Management Companies and Users in the Fr ee Zones in the Cities of Iquique (Region I) and
Punta Arenas (Region XII).
2. Period
June 1998.
3. Objectives
To stimulate the economic development of Region I and Region XII so as to form an
attractive area for investment, economic activity, settlement, growth and sovereignty.
4. Background and authority
Background:  These areas, because of their location and geographical features, are at a
disadvantage in relation to the development of the rest of the country.
Authority:  Decree Law No. 1055 of 1975 and Decree Law No. 1611 of 1976, which together
with other legislation regulating the free-zone system, were recast in Ministry of Finance Decree
No. 341, published in Official Journal No. 29,775 of 8 June 1977.
5. Form of the subsidy
The subsidy takes the form of a tax exemption.
6. To whom and how the subsidy is provided
This incentive is for management companies and users (all legal persons) in the free zones.
They must meet the requirements established by the Ministry of Finance and by the Ministry of
Economic Affairs, Development and Reconstruction, under contracts containing conditions freely
agreed on with the interested party.G/SCM/N/38/CHL
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These benefits also apply to manufacturing companies which area already established or
which set up in Arica.
Beneficiaries are exempt from the first-category tax under the Income Tax Law on earnings in
their financial years.
7. Amount of the subsidy
There are no official calculations of low tax revenue.
8. Duration
This incentive took effect on 25 June 1975 under Decree Law No. 1055 (Iquique and Punta
Arenas) and on 10 December 1976 under Decree Law No. 1611 (Arica).  Both of them last
indefinitely.
9. Statistical data
No statistical calculation has been made to assess the trade effects of the subsidy.
PROGRAMME III
1. Title
Support Programme for the Management of Export Firms (PREMEX).
2. Period
June 1998.
3. Objectives
To support efforts to promote technical innovation in bland technologies (management) and
enhance production quality in firms exporting manufactures or software.
4. Background and authority
Background:  To offset major weaknesses in small- and medium-sized firms starting to
operate in the export sector, characterized by little specialization, small-scale operations, low foreign
marketing capacity, little development in production management and lagging behind in the stock of
machinery and equipment.  This all means that it is essential to devise a tool to promote production
and increase the overall productivity level of factors and/or quality of production.
Authority:  Production Development Cor poration (CORFO), Resolution 429, dated
9 August 1996, adopting the PREMEX Regulations.
5. Form of the subsidy
Direct transfer by co-financing of assessment and project consultancies.G/SCM/N/38/CHL
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6. To whom and how the subsidy is provided
The subsidy is for all firms (consisting of natural or legal persons) exporting manufactures or
software and demonstrating accumulated minimum exports of US$200,000 over the past two years
and, in addition, net sales of not more than the equivalent of US$10 million in the past year.
The subsidies are to finance the hiring of consultants to assess the firm's degree of
competitiveness and also for projects to incorporate modern production management techniques, so as
to enhance such things as productivity and quality in the production planning and management
processes when shortcomings have been detected in the course of the assessment phase.
The subsidy under this programme is granted to a firm only once.There will be a subsidy for the assessment consultancy stage and another for the project
consultancy stage.
The assessment consultancy will be granted a subsidy equal to 60 per cent of the cost of the
consultancy, with a maximum of UTM 80 (equivalent to US$4,412 at May 1998 rates) and will be
paid on completion, once the requirements set out in the Regulations have been met.
The project consultancy will be granted a subsidy equal to 50 per cent of the cost of the
consultancy, with a maximum of UTM 870 (equiva lent to US$47,980 at May 1998 rates) and will be
paid in two parts.  The first, equal to 40 per cent of  the approved subsidy, will be paid at mid-term of
the period stipulated in the contract, once the requir ements set out in the Regulations have been met;
the second, equal to the remaining 60 per cent, will be paid at the end of the agreed period for the
action, once the requirements set out in the Regulations have been met.
7. Amount of the subsidy
The annual budget for this subsidy is Ch$300 million (equivalent to US$730,500 at May 1998
rates).
The amount actually paid out in 1997 was Ch$36 million (equivalent to US$80,451 at
May 1998 rates).
8. Duration
This incentive was effective as of 9 August 1996 and will be maintained as long as the
allocation is made in the relevant budget of the Production Development Corporation.
9. Statistical data
No data available.
PROGRAMME IV
1. Title
Simplified System of Refunds for Minor Exports.G/SCM/N/38/CHL
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2. Period
June 1998.
3. Objectives
To simplify the refunding of duties on imported inputs incorporated in minor exports, so as to
avoid the administrative complexities that the overall system may involve for an emerging exporter.
4. Background and authority
Background:  On the date of entry into force of the law establishing this programme, the
drawback mechanism, in other words, the mechanism for effective recovery of customs duties paid on
imports incorporated in export products, was difficult to use for small exporters starting out in the
export business.  This meant that they were less competitive on international markets.  To overcome
this problem, a mechanism was established as an alternative to the general drawback system and it
provides for a simplified refund of levies affecting the cost of inputs used in minor exports.
Authority:  Law No. 18,480, published in the Official Journal of 19 December 1985, and
Supreme Decree No. 123 of the Ministry of Ec onomic Affairs, Development and Reconstruction,
published in the Official Journal of 12 May 1997, which contains the current schedule of products
excluded from the scheme.
5. Form of the subsidy
This simplified system does not in itself constitute a subsidy.  The subsidy component would
be in the amounts granted by the tax authorities to exporters in a simplified form, which do not strictlycorrespond to tariffs actually paid by exporters, ow ing to the large and continual reduction of tariffs in
Chile.  Accordingly, a subsidy is created in the form of a direct transfer.
6. To whom and how the subsidy is provided
The beneficiaries are exporters of products under tariff headings involving small amounts
and/or those who export them as inputs in other final products.  This category covers products forwhich exports in the 1983-1984 biennium were not more than US$2.5 million or US$5 million in
1990.
The law establishes a simplified refund of 10 per cent, 5 per cent or 3 per cent on the f.o.b.
exported value or on the net value of the inputs, as appropriate.  The maximum export values for thevarious rates are updated each year.
The effective amounts for 1998 for tariff items defined as minor exports, are as follows:10 per cent - US$10,998,000
5 per cent - US$16,497,000
3 per cent - US$19,796,400
In addition, the law entitles the authorities to disqualify products in certain circumstances, for
instance, when the products have not averaged an export increase over the past three calendar yearsthat is equal to 1.5 times or more the average increase in the Gross Domestic Product.G/SCM/N/38/CHL
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7. Amount of the subsidy
There are no official calculations of the subsidy component of the simplified refund system.
However, the total amount refunded in 1997 was US$190.8 million, but a large part of that figure is
for drawback within the strict meaning of the term.
In 1997, approximately 13.3 per cent of Chilean exports used this mechanism.
8. Duration
The law does not establish a time-limit.  However, as the products reach the ceilings specified
in the law, they exit the system.  This is reflected in the schedule of exclusions issued by the Ministry
of Economic Affairs, Development and Reconstruction by 31 March each year.
9. Statistical data
No data available.
PROGRAMME V
1. Title
System of Deferred Payment of Customs Du ties, Tax Credit and Other Tax Benefits.
2. Period
June 1998.
3. Objectives
The objective is to promote technological innovation by transfer incorporated in production
investment, stimulating the purchase of capital goods, both imported and locally produced, especially
in the case of export-oriented activities.
4. Background and authority
Background:  Need to encourage technological m odernization by investment in capital goods,
strengthening the production infrastructure for goods and services for the foreign market.
Authority:  Law No. 18,634, published in the Official Journal of 5 August 1987, and the
Regulations thereto, Ministry of Finance Suprem e Decree No. 1157, published in the Official Journal
of 19 April 1990, and amendments thereto.
5. Form of the subsidy
Deferred payment of tariffs or tax credits do not in themselves constitute subsidies.  A
subsidy exists only if a debt is partly or wholly  forgiven, when the capital goods have been intended
for the production of export goods or services.G/SCM/N/38/CHL
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6. To whom and how the subsidy is provided
The beneficiaries are producers and exporters (direct and indirect) of goods and services
obtained with capital goods which have been eligible for a deferred payment or for a tax credit.
"Capital goods" (machinery, vehicles, equipment and tools) eligible for the deferred payment
or tax credit scheme is taken to mean those directly or indirectly intended for the production of goods
or services or the marketing thereof, with an economic life of not less than three years, of a minimum
value of US$3,709.47 (adjustable each year).  In the case of vehicles, the minimum value is
US$4,698.67.
The law establishes that the payment of customs duties on imports of capital goods may be
deferred up to a maximum period of seven years, paya ble in three instalments.  The debt is subject to
a (market) interest rate established by the Central Bank of Chile.
Purchasers of Chilean-manufactured capital goods are entitled to a tax credit equivalent to
73 per cent of the current customs duty, on the net invoice value of the goods.  This debt to the taxauthorities is subject to a (market) interest rate established by the Central Bank of Chile and the
beneficiary must repay authorities within a maximum period of seven years.
The subsidy arises where the tax authorities partly or wholly forgive amounts due for deferred
payments of import duties on capital goods or credits granted in the case of Chilean-manufacturedcapital goods.  This occurs when the exporter has used the capital goods to produce exports and the
debt is written off at 2.5 times the export percentage of total sales on expiry of the period of the first
instalment (100 per cent if 40 per cent or more have been exported).  For the two remaining
instalments, it is written off at 1.66 times the export percentage of total sales (100 per cent if 60 per
cent or more have been exported).  The period taken into account for the reduction is the two yearsprior to expiry of each of the instalments.
Land vehicles are not eligible for debt forgiveness, unless they are used for the international
transport of goods.
7. Amount of the subsidy
The debt reduction for deferred payment of tariffs was US$138.5 million in 1997, while the
reduction for tax credits amounted to US$10 million during the same period.
8. Duration
The law does not establish any time-limit.
9. Statistical data
No data available.
PROGRAMME VI
1. Title
Motor Vehicle Statute.G/SCM/N/38/CHL
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2. Period
June 1998.
3. Objectives
To turn the automobile sector into a dynamic export sector, based on efficiency, thereby
doing away with the special support it receives at the present time.
4. Background and authority
Background:  To provide a safer transition to the normal regime in other sectors of the
economy.
Authority:  Law No. 18,483, which entered into force on 28 December 1985.
5. Form of the subsidy
Tax credits and customs exemption, in the form of a tax allowance.
6. To whom and how the subsidy is provided
End processors that assemble motor vehicles and are entered as such in the appropriate
Register and also use minimum percentages of local content established in the law itself.
In the case of tax credits for local content, end processors must also be included in the Export
Development Programme.
The subsidy takes three forms:- A local content tax credit for firms assembling CKD units, with a duly certified
13 per cent minimum content of local parts.  The tax credit is now 10 per cent of the
local content percentage, on the customs value of the finished CBU vehicle, and it
ends on 31 December 1998.
- A tax credit to promote exports, equal to 11 per cent of the f.o.b. value of exports of
local components (less those recorded fo r compensatory purposes, as mentioned
below) with a ceiling of 11 per cent of the SKD and CKD units imported.  This tax
credit ends on 31 December 1998.
- CKD and SKD imports are wholly or partly exempt from an 11 per cent ad valorem
duty when end processors export local components, in accordance with a programme
approved by the Motor Vehicle Commission.  This benefit is granted for imports up
to an amount equivalent to local component exports over a period of 12 months.
In all, assembly firms cannot under these arrangements obtain benefits higher than 35 per cent
of the customs value of the finished vehicle.
7. Amount of the subsidy
The amount of the tax credits and the compensatory trade in 1997 was US$19.3 million.
However, part of the amount of the customs exemption is not in itself a subsidy because it involves
drawback.G/SCM/N/38/CHL
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8. Duration
This incentive came into effect on 28 December 1985 and will last until 31 December 1998 in
the case of tax credits, with no time-limit in the case of the customs exemption.
9. Statistical data
No data available.
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