RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q3/DOM/5
25 April 2002
(02-2384)
Committee on Subsidies
and Countervailing MeasuresOriginal:  Spanish
SUBSIDIES
Requests Pursuant to Article 27.4 of the Agreement
on Subsidies and Countervailing Measures
Replies by the Dominican Republic to Questions Posed by AUSTRALIA1,
the EUROPEAN COMMUNITIES,2 JAPAN3
and the UNITED STATES4
The following communication, dated 23 April 2002, has been received from the Permanent
Mission of the Dominican Republic.
_______________
The Permanent Mission of the Dominican Republic to the United Nations Office and Other
International Organizations at Geneva hereby submits its replies to questions from Members
regarding the notification of the Dominican Re public, circulated in document G/SCM/N/71/DOM
dated 6 March 2002.
Questions posed by the United States
1. Could the Dominican Republic please explain whether this programme provides any
other incentives apart from the full or partial exemption from import duties and internal taxes?
In particular, please describe the benefits and underlying rationale for those benefits listed in
Articles 29 and 40 of Law No. 8-90.
The programme provides no incentives other than those listed in Law No. 8-90, i.e.
exemption from import duties and internal taxes.
Article 29 affords preferential treatment for enterprises setting up operations in areas of the
Dominican Republic bordering on Haiti, as these are usually under-populated areas with limited
economic and social development.
Article 40 refers only to the possibility for free-zone enterprises to apply for loans or
guarantees.  Given the nature of their operations, they do not often receive financial support.  The
Law does not, however, provide for any privileges,  credit or other financial facilities for such
operations.
                                                     
1 G/SCM/Q3/DOM/1.
2 G/SCM/Q3/DOM/2.
3 G/SCM/Q3/DOM/3.
4 G/SCM/Q3/DOM/4.G/SCM/Q3/DOM/5
Page 2
2. Please provide the normal customs duty, consumption tax and income tax rates
companies would pay absent this programme.
(a) The customs duty that companies would pay in the absence of Law No. 8-90 varies widely on
account of the diversity of manufacturing operations in the parks.  To find any tariff items that may beof interest, it is therefore easier to consult the Database of the Americas notified by the Dominican
Republic in preparation for its second Trade Policy Review in the World Trade Organization.
(b) In the Dominican Republic, consumption tax is levied on finished products for human
consumption, so it would be unusual for this tax to apply to the production processes of free-zone
companies, while the tax on transfer of industrialized goods and services amounts to 12 per cent of the
value of the transferred goods or services.
(c) Under the Tax Code of the Dominican Republic, net profits of operations conducted by
commercial companies are subject to a 25 per cent income tax rate.
3. Could the Dominican Republic please explain whether any subsidies under this
programme are contingent upon the use of domestic goods?  In particular, please explain how
the local value-added information that must be provided in an application (Article 14) is taken
into account when granting benefits.  Moreover,  in light of the local component or local raw
material requirements of Article 17(f), please comment on whether this aspect of the
programme constitutes a prohibited subsidy under Article 3.1(b) of the Agreement on Subsidiesand Countervailing Measures.
(a) The Law establishes a variety of options for running free-zone enterprises, but the granting of
operating licences and benefits under the Law are not contingent on the use of domestic goods or
subject to any other domestic raw material requirement.  Specifically, a company that uses nationalvalue-added in its operations is required, for statistical purposes, to fill in a form supplied by the
National Free Zones Council, indicating the domestic goods used in the production process.  Such
information is used solely to draw up statistics on industrial linkages between the local market and the
free zones.
(b) Article 3.1(b) of the SCM Agreement prohibits the granting of subsidies "contingent, whether
solely or as one of several other conditions, upon the use of domestic over imported goods".  LawNo. 8-90 does not lay down any requirement of local content or use of local raw materials as a
condition for the granting of benefits.  These are requirements for exporting products that have
already benefited under the programme to the customs territory of the Dominican Republic.
4. Could the Dominican Republic please explain what industry sectors are represented by
the companies that operate in free zones?
A wide range of industry sectors are generally represented in free zones – in particular
companies manufacturing all kinds of goods (see Table No. 1).
5. Because eligible enterprises are entitled to a free-zone operating licence for up to 20
years, please explain how the Dominican Republic would modify this programme so that
subsidies do not extend beyond any extension period provided.
The Dominican Republic has currently contracted various advisory services and requested
expert technical assistance to examine the various options for modifying or eliminating any form of
subsidy that might be inconsistent with the SCM Agreement, after assessing their possible social
impact on the unemployment rate and other important economic factors.G/SCM/Q3/DOM/5
Page 3
6. Please explain the circumstances under which a company could benefit from the income
tax exemption provisions of Article 26.
Article 26 provides for exemption on internal tax on net profits invested in free zones.  This
provision is not distinct from the general principle of tax exemption under the Law, except that in thiscase the Law provides for partial exemption depending on the source of the investment.
Table No. 1
Free-Zone Enterprises by Activity*
(2000-2001)
2000 2001
Enterprises % Enterprises %
Textiles 275 57.2 262 51.17
Services 59 12.0 88 17.19
Electronics 16 3.0 24 4.69
Tobacco and
tobacco products27 6.0 22 4.30
Footwear 18 4.0 14 2.73
Jewellery 14 3.0 18 3.52
Medical products 13 3.0 13 2.54
Metals 8 2.0 11 2.15
Plastics 7 1.4 7 1.37
Leather products 7 1.4 6 1.17
Paperboard, printed 7 1.4 9 1.76
Electric products 6 1.0 5 0.98
Handicrafts 3 0.6 2 0.39
Agro-industry 3 0.6 5 0.98
Baggage 2 0.4 --- ---
Food 2 0.4 7 1.37
Construction
materials--- --- 3 0.59
Various materials
and instruments--- --- 3 0.59
Furniture 3 0.6 3 0.59
Chemicals 3 0.6 4 0.78
Other 8 1.7 6 1.17
Total 481 100.0 512 100.0G/SCM/Q3/DOM/5
Page 4
Chart No. 1
Free-Zone Enterprise s by Activity (2001)
3%6%4%18%
51%
15%Textiles (51%)
Services (15%)
Electronics (3%)
Tobacco and tobacco pr oducts (6%)
Footwear (4%)
Other (18%)
Questions posed by Japan
1. This programme seems to include a requirement for local value-added.  Could the
Dominican Republic please explain its conf ormity with Article 3.1(b) of the ASCM?
All companies qualifying for establishment in a free zone are eligible for the benefits granted
under the Law, without any local value-added requirements.
2. Does the Dominican Republic understand that it is no longer listed in ANNEX VII(b)
because it did not reserve the right provided for in paragraph 6(b) and (c)?
The Dominican Republic is listed in ANNEX VII(b).
3. While Law No. 8-90 on Free Trade Zones of January 1990, which the Dominican
Republic referred to in G/SCM/N/71/DOM, seems to have already been effective in 1996, the
Dominican Republic notified in G/SCM/N/3/DOM on 8 March 1996 that there were no
measures which require notification under Article 25.  Could the Dominican Republic please
explain this contradiction?
There have been various economic studies and legal discussions of Law No. 8-90 over the
years to determine whether it contains any provisions that might be regarded as prohibited subsidies in
the light of the SCM Agreement.  It was recently decided to notify these measures, given the diversity
of criteria identified.
Questions posed by Australia
1. The Dominican Republic outlines in document G/SCM/N/74/DOM the range of tax and
import duty exemptions for companies established in free-trade zones.  What criteria apply for
enterprises in order to qualify for these exemptions?  Must enterprises produce solely for export
(re Article 2 of Chapter One of Law 8-90) bearing in mind that the sale of a good from a freezone to the Dominican territory is considered an export?  In other words, must enterprises
produce solely for foreign markets?G/SCM/Q3/DOM/5
Page 5
The requirements for establishment in free-trade zones and the granting of operating licences
and benefits under the tax exemption schemes are those listed in Articles 14 ff. of Law No. 8-90.
Free-zone companies produce goods for all areas external to the free zones, including the customs
territory of the Dominican Republic.  All goods produced for areas outside the free zones are therefore
considered exports.
2. Under Chapter Three, Article 6(c), enterp rises with temporary import licences must
export at least 80 per cent of their production.  Is this a requirement to export to foreign
markets or to markets external to the free zone?  Have these targets applied beyond the first
year from the promulgation of Law No. 8-90?
Enterprises operating under licences for the temporary admission or importation of goods for
transformation or repair are not exempted from the payment of regular duties and are not usually
located in free zones.  All their operations are geared to exporting goods undergoing transformation,
which exempts them from customs duties.  No new licences allowing companies of this type to
benefit from the programme under Law No. 8-90 have been issued outside the period stipulated in the
Law.
3. Under Chapter Five, Article 14(f) requires an enterprise to advise the National Free
Zones Council of the local value-added to be prod uced.  Is there a condition that domestic goods
must be used?
Law No. 8-90 does not make the granting of operating licences conditional on the use of
domestic products.  For statistical purposes, however, producers are required to indicate use of local
content on forms supplied by the National Free Zones Council.
4. Under Chapter Five, Article 17(e), what is th e definition of "local market"?  Is this the
market of the Dominican Republic or the Free Zone?
"Local market" is the customs territory of the Dominican Republic, outside the free-zone
areas.
Questions posed by the European Communities
1. Please indicate when the programme came into operation.
The current programme (Law No. 8-90) came into operation on 15 January 1990.
2. Please indicate whether the programme provides for other forms of subsidies than
exemption of import duties and internal taxes (e.g. grants, provision of goods or services).
Law No. 8-90 provides no incentives other than those listed in the Law, i.e. exemption from
import duties and internal taxes.
3. Does the programme provide for a condition to use domestic goods?  If so, please
describe the relevant provision.
The Law does not make the granting of benefits conditional on the use of domestic content.
The only reference to domestic content concerns exports of goods to the Dominican customs territory,on which import duties are payable, minus national value-added.
4. The programme appears to contain a condition  for "local value addition" (Article 14(g),
paragraph I).  Does this constitute a requirement to use domestic over imported goods?  Please
explain.G/SCM/Q3/DOM/5
Page 6
The granting of benefits to free-zone companies is not subject to value-added requirements.
However, such companies are required to supply info rmation about use of local content, for statistical
purposes.
5. Please indicate the rate of import duty or internal tax exemption as of
1 September 2001.
(a) The customs duty that companies would pay in the absence of Law No. 8-90 varies widely on
account of the diversity of manufacturing operations in the parks.  To find any tariff items that may be
of interest, it is therefore easier to consult the Database of the Americas notified by the Dominican
Republic in preparation for its second Trade Policy Review in the World Trade Organization.
(b) In the Dominican Republic, consumption tax is levied on finished products for human
consumption, so it would be unusual for this tax to apply to the production processes of free-zone
companies, while the tax on transfer of industrialized goods and services amounts to 12 per cent of the
value of the transferred goods or services.
(c) Under the Tax Code of the Dominican Republic, net profits of operations conducted by
commercial companies are subject to a 25 per cent income tax rate.
6.  Please describe changes to the programme since 1 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, location etc.
Law No. 8-90 has not been amended since 1 September 2001.
7. Please indicate how many companies have benefited from the programme as of
1 September 2001.
From 1 September 2001 to 12 April 2002, a total of 56 companies were licensed to operate
under the terms of Law No. 8-90.  Seventeen of them have entered into operation.
8. Please elaborate on when and how the Dominican Republic intends to phase out the
programme.
The Dominican Republic has currently contracted various advisory services and requested
expert technical assistance to examine the various options for modifying or eliminating any form of
subsidy that might be inconsistent with the SCM Agreement, after assessing their possible social
impact on the unemployment rate and other important economic factors.
__________