RESTRICTED
WORLD TRADE G/SCM/Q2/VEN/6
9December 1996
ORGANIZATION(96-5140)
Original: Spanish Committee onSubsidies andCountervailing Measures
SUBSIDIES
Replies toQuestions posed byCANADA1,COLOMBIA2,
theEUROPEAN COMMUNITIES3,JAPAN4andtheUNITED STATES5
Regarding theNewandFullNotification ofVENEZUELA6
Thefollowing notification, dated 6November 1996, hasbeenreceived from thePermanent
Mission ofVenezuela.
_______________
CANADA
I. Income taxexemption forexport profits
Inpoint 8(Duration ofthesubsidy), Venezuela 'snotification indicates thattheincome
taxexemption programme "...istorun10years from theentry intoforce oftheLaw(1991),
buttheNational Executive mayextend orshorten theperiod ormodify themeasure asitdeems
fit.Forlegal entities established after theentry intoforce oftheLaw, theten-year period will
runfrom thebeginning oftheir operations".
1. IstheIncome TaxExemption forExport Profits offered toalleconomic sectors including
agriculture? Does Venezuela have anyintention ofextending theprogramme tocover new
products?
Reply
Under theprovisions oftheVenezuelan LawonFreeZones andDecree 2.166 enacting the
General Regulations oftheParaguana industrial freezone, thenotified subsidy programme concerning
income taxexemption fortheprofits onexports obtained bylegal entities established infreezones
should extend toallsectors oftheeconomy, including agriculture. Anexception tothegeneral rule
1G/SCM/Q2/VEN/4 .
2G/SCM/Q2/VEN/5 .
3G/SCM/Q2/VEN/2.
4G/SCM/Q2/VEN/1+Rev.1* (*:English only).
5G/SCM/Q2/VEN/3.
6G/SCM/N/3/VEN +Suppl.1.G/SCM/Q2/VEN/6
Page2
isthepetroleum sector, specifically oilandnatural gas,theabove-mentioned Venezuelan LawonFree
Zones expressly prohibiting suchactivities inafreezone.
Infact,anytypeofindustry maybeestablished intheParaguana industrial freezone, provided
thattheobjective conditions laiddown intheabove-mentioned LawandRegulations aremet.Similarly,
enterprises established inthese geographical areas maycarry outaseries ofoperations andactivities
directlyrelatedtoagriculturalproducts,forexample:packing,unpacking,repacking,refining,purifying,
mixing, hydrating andother processes.
Finally,itshouldbeemphasizedthatinthesubsidyprogrammeconcerningincometaxexemption
forprofits onexports from freezones, governed bytheabove-mentioned legislation, there isno
discrimination asregards which products should benefit from theconcession.
Consequently, itfollows thatthesubsidy programme inquestion isavailable toalllegalentities
dulyestablished intheParaguana industrial freezonewhich selltheirproducts outside thecountry.
2. DoesVenezuela haveanyplans tophase outthisprogramme given thatthere isnoscheduled
termination date?
Reply
Asexplained inpoint 8ofthenotification, thesubsidy programme istorunforten(10)years.
Thisperiod maybeextended, shortened ormodified whenever theNational Executive considers it
necessary. Forenterprises established intheParaguana industrial freezonebefore theentry intoforce
oftheVenezuelan LawonFreeZones, thisperiod willrunfrom thedateonwhich theLawentered
intoforce. Forlegalentities established aftertheentry intoforce oftheLaw, theperiod inquestion
willrunfrom thebeginning oftheiroperations.
BoththeVenezuelan LawonFreeZones andtheGeneral Regulations oftheParaguana industrial
freezone,inwhichthesubsidyprogrammenotifiedisdescribed,werepromulgatedbeforetheratification
oftheWTO Agreements.
Nevertheless, under theVenezuelan legalsystem, theWTO Agreements ratified byVenezuela
arenational lawandmustberespected, bothinternally andexternally, bybothprivate individuals and
theadministrative authorities. Consequently, theWTO Agreement onSubsidies andCountervailing
Measures having beenratified, theprinciples andprovisions ofthatAgreement takeprecedence over
anypre-existing legislation withwhich theymight conflict, thatistosay,allthebinding provisions
oftheAgreement aredirectly applicable onapriority basistothesubsidy programme oftheVenezuelan
Government described intheabove-mentioned LawandRegulations.
Finally, asregards industrial products manufactured inthese zones, inaccordance with
Article 27.4oftheAgreement onSubsidies andCountervailing Measures, theVenezuelan Government
hasundertaken: (i)progressively tophase outitsexisting subsidy programmes; (ii)nottoincrease
thelevelofitsexport subsidies; and(iii)ifitdeems itnecessary tocontinue applying suchsubsidies
beyond theperiod established, toenter intoconsultation withtheCommittee.G/SCM/Q2/VEN/6
Page3
COLOMBIA
1. CouldthedelegationofVenezuelaprovidedetailsofthedutydrawbacksystem,inparticular
thedrawback levels andthecoverage ofproducts aswellasofexport destinations?
Reply
Inaccordance withthereply given bytheVenezuelan delegation totheEuropean Communities
during theexamination ofthesubsidies notified byVenezuela totheCommittee onSubsidies and
Countervailing Measures, thedutydrawback system dating fromJune1994wasrepealed byResolution
No.2993of23October 1995, which waspublished intheOfficial Journal oftheRepublic ofVenezuela
No.35.823 of25October 1995.
Thepresent system isbased onthetotalrefund oftheduties paidonimports ofinputs assoon
astheyareexported asanintegral partoftheexported goods. Thus, thesystem doesnotconfer any
benefits anddoesnotconstitute anactionable subsidy requiring notification.
Theprocedure isapplied toimports byallsectors oftheeconomy anditisapplicable irrespective
ofthedestination oftheexports concerned.
EUROPEAN UNION
I. Notified subsidy programmes
1. Income taxexemption forexport taxprofits
(a) Could Venezuela explain theconcept of"non-traditional" goods?
Reply
Throughout itstrading history, Venezuela hasbeenknown asaproducer andexporter ofmainly
petroleum andpetroleum products, aswellasofsteelandaluminium. Exports oftheseproducts, which
customarily formpartofVenezuelan trade, aredefined astraditional exports. Petroleum, petroleum
products, ironandsteelareonthelistofproducts traditionally exported fromVenezuela andtherefore
called traditional goods.
Accordingly, allthose goods andproducts (rawmaterials, parts, inputs, finished products,
etc.)which arenotusually ornormally exported from Venezuelan territory would becalled non-
traditional goods, thatis,exports involving products other thanpetroleum, petroleum products, steel
andaluminium.
(b) Could Venezuela giveanoverview ofthesectors which have benefited from this
Programme?
Reply
Under theprovisions oftheVenezuelan LawonFreeZones andDecree 2.166 enacting the
General Regulations oftheParaguayan industrial freezone, thenotified subsidy programme concerning
income taxexemption fortheprofits onexports obtained bylegalentities established infreezones
should extend toallsectors oftheeconomy. Anexception tothegeneral ruleisthepetroleum sector,
specificallyoilandnaturalgas,theabove-mentionedVenezuelanLawonFreeZonesexpresslyprohibiting
suchactivities inafreezone.G/SCM/Q2/VEN/6
Page4
(c) Venezuela states thattheProgramme willendin2001buttheNational Executive
mayextend theperiod. Inthisrespect, canVenezuela provide atable indicating
howthissubsidy willbephased out?
Reply
Asexplained inpoint 8ofthenotification, thesubsidy programme istorunforten(10)years.
Thisperiod maybeextended, shortened ormodified whenever theNational Executive considers it
necessary. Forenterprises established intheParaguana industrial freezonebefore theentry intoforce
oftheVenezuelan LawonFreeZones, thisperiod willrunfrom thedateonwhich theLawentered
intoforce. Forlegalentities established aftertheentry intoforce oftheLaw, theperiod inquestion
willrunfrom thebeginning oftheiroperations.
BoththeVenezuelan LawonFreeZones andtheGeneral Regulations oftheParaguana industrial
freezoneinwhich thesubsidy programme notified isdescribed, werepromulgated before theratification
oftheWTO Agreements.
Nevertheless, under theVenezuelan legalsystem, theWTO Agreements ratified byVenezuela
arenational lawandmustberespected, bothinternally andexternally, bybothprivate individuals and
theadministrative authorities. Consequently, theWTO Agreement onSubsidies andCountervailing
Measures having beenratified, theprinciples andprovisions ofthatAgreement takeprecedence over
anypre-existing legislation withwhich theymight conflict, thatistosay,allthebinding provisions
oftheAgreement aredirectly applicable onapriority basistothesubsidy programme oftheVenezuelan
Government described intheabove-mentioned LawandRegulations.
Finally, inaccordance withArticle 27.4oftheAgreement onSubsidies andCountervailing
Measures, (i)theVenezuelan Government hasundertaken progressively tophase outitsexisting subsidy
programmes overaperiod ofeight years; (ii)ithasalsoundertaken nottoincrease thelevelofits
export subsidies; andfurthermore (iii)ifitdeems itnecessary tocontinue applying suchsubsidies
beyond theperiod established, itwillenter intoconsultation withtheCommittee inaccordance with
theabove-mentioned Article.
II. Subsidy programmes notnotified totheWTO
1. TheCommunity examined thedifferent policies oftheVenezuelan authorities withrespect
toincentives tothelocal industry. Inthisrespect, thefollowing programmes areavailable in
Venezuela andwere notnotified totheWTO.
- Duty drawback system (June 1994);
- export incentives fortheautomobile industry, inaccordance with abilateral
understandingbetweenColombiaandVenezuelaundertheAndeanPactAutomotive
Policy inorder toensure thebuying ofeachother'sautomobiles.
- theCommunity would likeclarification onwhythese programmes werenotnotified
totheWTO andrequests that, ifappropriate, Venezuela should supply a
notification under Article 25,using thestandard format. Inaddition, the
Community would likeVenezuela tocomment onthecompatibility ofthescheme
withitsobligations under theSubsidies Agreement, andtoindicate whether there
areanyplans tophase outthese subsidies.
- Drawback systemG/SCM/Q2/VEN/6
Page5
Reply
Inconnection withthefirstofthese programmes which, according totherepresentatives of
theEuropean Community, should havebeennotified totheWTO bytheVenezuelan Government under
Article 25oftheAgreement onSubsidies andCountervailing Measures, i.e.thedrawback system of
June1994, itshould bepointed outthattheResolution establishing thesystem inquestion wasrepealed
byResolution No.2923 of23October 1995, published intheOfficial Gazette oftheRepublic of
Venezuela No.35.823 of25October 1995.
However, itisimportant tonotethat: (i)whether adrawback system canbedescribed asan
export subsidy (so-called prohibited "red" subsidies) depends onhowtheprogramme works, thatis
tosaythatthese systems persearenotallnecessarily prohibited subsidies; (ii)paragraphs (e),(g),
(h)and(i)ofAnnex 1totheAgreement concern drawback systems thatcould beclassified asprohibited
subsidies. Theparagraph applicable toaparticular casedepends onthetypeofremission orexemption
(ofdirect taxes, indirect taxes orimport charges); (iii)iftheremission orexemption isnotexcessive,
thedrawback system maybesaidnottoconfer anybenefit andtherefore isnotactionable under the
provisions oftheAgreement onSubsidies andCountervailing Measures, and(iv)contrariwise, ifthe
remission wereexcessive, theamount inexcess would bethebenefit actionable under theprovisions
oftheAgreement.
Inviewoftheabove, inaccordance withtheprovisions oftheResolution mentioned, upto
31December 1995 exports benefited from asystem which could haveinvolved drawback inexcess.
However, under thesystem inforce, governed bytheaforementioned Resolution, remission inexcess
isnolonger granted andtherefore thenewdrawback system cannot beregarded asanactionable subsidy
programme. Consequently, Venezuela isnotrequired tonotify theprogramme inquestion.
- Colombian-Venezuelan bilateral agreement intheautomotive sector
Reply
With respect tothesecond oftheprogrammes which, according totherepresentatives ofthe
European Community, should havebeennotified totheWTO, itshould benoted that,under therules
oftheAndean Pact,Venezuela, Colombia andEcuador haveinfactsigned anagreement inaccordance
withwhich theyundertake toincorporate partsandcomponents produced subregionally. Theexisting
programme corresponds toanindustrial cooperation agreement between Colombia, Ecuador and
Venezuela involving import dutyreductions forautomotive assembly enterprises which undertake to
incorporate parts ofregional origin (Colombian, Ecuadoran orVenezuelan).
Moreover, thisagreement hasalready beennotified bytheVenezuelan Government within
thecontext oftheAgreement onTrade-Related Investment Measures.
JAPAN
WillVenezuela please provide information concerning taxcredit foragricultural exports
Reply
InVenezuela thereisataxcredit foragricultural exports, laiddown inArticle 8ofDecree 1.597
of16May1991 adopting thepartial amendment oftheRegulations oftheLawonExport Incentives.
Although initially theLawapplied toexports ingeneral, asaresult oftheamendment oftheRegulations
andtheadoption ofaResolution oftheMinistries ofFinance andExternal Relations theincentive has
beenrestricted toagricultural exports.G/SCM/Q2/VEN/6
Page6
Venezuelawillshortlysubmit,intheprescribedformat,anotificationsupplementingnotification
G/SCM/N/3/VEN of7July1995, including listsoftheagricultural products subject totheabove-
mentioned taxcredit.
However, itshould bepointed outthatVenezuela hasundertaken toreduce subsidies for
agricultural exports, asmaybeseenfromSection IIofPartIVofitsSchedule concerning agriculture.
UNITED STATES
Section I.Non-notified programmes
Please provide information concerning thefollowing programmes which didnotappear
tobeincluded within Venezuela 'snotification, yetmaymeet thenotification requirements of
GATT 1994 and/or theSCM Agreement. Ifthese programmes areencompassed elsewhere in
Venezuela 'snotification, please explain. Ifnot,please include information relevant totheelements
requested inthenotification format, orexplain thebasis onwhich Venezuela determined that
eachprogramme didnotmeet thenotification requirements referenced above:
(a) Itappears from information intheVenezuelan TaxCode thatmining and
hydrocarbon exploring companies areexempt from paying income taxes. Ifthis
isaccurate, itwould appear thatthiswould beasubsidy asdefined bytheSCM
Agreement andshould benotified. Please comment.
Reply
Inaccordance withtheIncome TaxLawinforce, published inthesupplementary issue ofthe
Official Gazette No.5.023 of18September 1995, mining andoilexploration enterprises arenotexempt
fromthepayment ofincome tax.Infact,these activities aresubject toataxregime higher thanthat
applied totheother sectors oftheVenezuelan economy. Withregard tonewinvestment inthissector,
there isanincome taxreduction, based onArticle 58ofthesame Law. However, considering that
thesereductions areapplied totaxrateswhich arealready higher thanthose fortherestoftheeconomy,
theneteffect isataxlevel higher thanthatapplied toother sectors. Consequently, thereductions
donotconstitute asubsidy thatfavours thissector overtherestofthenational economy.
(b) Thefollowing research organizations appear toprovide assistance toprivate
industry. Please comment onwhether anyoftheservices provided oractivities
conducted bythese organizations would constitute orinvolve subsidies within the
notification requirements referenced above.
(i) AsociaciónVenezolanadeInstitutosdeInvestigacionTecnológicaIndustrial
(AVINTI)
(ii) Instituto Internacional deEstudios Avanzados (IDEA)
(iii) Consejo Nacional deInvestigacions Científicas yTecnológicas (CONICIT)
Reply
Theactivities conducted bytheorganizations mentioned bytheUnited States arebasically
academic andcould include thepreparation ofresearch anddevelopment studies. Some ofthese
activities, ifconducted forthepurpose offavouring onesector orindustry inparticular, might constitute
non-actionable subsidies inaccordance withArticle 8.2oftheAgreement. InthatcasetheywouldG/SCM/Q2/VEN/6
Page7
bedulynotified onthebasis ofArticle 8.3.Venezuela iscurrently evaluating theactivities ofthese
organizations.
(c) Export subsidy totheautomotive sector
Reply
TheVenezuelan legislation doesnotinclude anyexport subsidy intheautomotive sector. The
Venezuelan provisions oftheAndean Community forthedevelopment oftheautomotive sector were
dulynotifiedtotheCommitteeonTrade-RelatedInvestmentMeasures.Venezuelaiscurrentlyexamining
theComplementationAgreementontheAutomotiveSectornotifiedundertheabove-mentionedAgreement
forthepurpose ofdetermining theexistence ofsubsidies which might havetobenotified under the
provisions ofArticle 27oftheAgreement onSubsidies andCountervailing Measures.
(d) Forestry, tourism, telecommunications andelectricity generation sectors ofthe
economy aregiven a10percenttaxcredit onnewinvestments
Reply
TheVenezuelan corporation taxlegislation doesnotprovide forthegranting oftaxcredits
onnewinvestments specifically intended fortheelectricity generation, telecommunications, tourism
andforestry sectors.
(e) Export bond programme
Reply
Venezuela isnotcurrently applying anyexport bondprogramme other thaninconnection with
certain agricultural products, asreported inthesubsidy notification which Venezuela submitted tothe
Committee (document G/SCM/N/3/VEN, L/7611/Add.4 of7July1995). Venezuela willsubmit
additional information forthepurpose ofsupplementing theabove-mentioned notification, inthe
appropriate notification format.
Itshould bepointed outthat,although theLawonExport Incentives remains inforce, the
Regulations ofthatLaw(Decree 1597of16May1991) restrict thegranting ofthesubsidy exclusively
toexports ofagricultural products.
(f) Preferential power rates provided byCVG electrificación delCaroni C.A.
(EDELCA)
Reply
EDELCA doesnotsupply electricity atpreferential ratesforanysector orindustry inparticular.
Thefactthatsome enterprises which arebigconsumers ofelectricity andarelocated intheGuyana
region obtain thisinputatlower prices thantherestofindustry istheresult ofcommercial considerations
(proximityoftheconsumertothepowerstation,withaconsequentreductionintransportanddistribution
costs; theutilization bythese bigusers ofhigh-capacity power transport cables; price rebates for
bigconsumers, etc.). Theprice differentiation inthetariffs iscommon toallprivate enterprises as
farasthemarketing oftheirproducts isconcerned. Thatistosay,itisbased onstrictly commercial
criteria. Consequently, itisnotregarded asasubsidy.G/SCM/Q2/VEN/6
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Section II.Notified programmes
(a) Venezuela hasnotified ataxcredit foragricultural exports. Could Venezuela please
supply information onthisprogramme inconformity withtheagreed format for
subsidynotification(documentG/SCM/6)?Inparticular,pleasesupplyinformation
ontheamount ofthesubsidy andtowhom thesubsidy isprovided (i.e.alistof
theagricultural commodities eligible forthecredit).
Reply
InVenezuela thereisataxcredit foragricultural exports, laiddown inArticle 8ofDecree 1.597
of16May 1991adopting thepartial amendment oftheRegulations oftheLawonExport Incentives.
Although initially theLawapplied toexports ingeneral, asaresult oftheamendment oftheRegulations
andtheadoption ofaResolution oftheMinistries ofFinance andExternal Relations theincentive has
beenrestricted toagricultural exports.
Venezuelawillshortlysubmit,intheprescribedformat,anotificationsupplementingnotification
G/SCM/N/3/VEN of7July1995, including listsoftheagricultural products subject totheabove-
mentioned taxcredit.