RESTRICTED
WORLD TRADE G/SCM/Q2/PER/6
7January 1997
ORGANIZATION(97-0015)
Original: Spanish Committee onSubsidies andCountervailing Measures
SUBSIDIES
Replies toQuestions Posed byKOREA1,JAPAN2,theUNITED STATES3andCANADA4
Regarding theNewandFullNotification ofPERU5
Thefollowing communication, dated 6December 1996, hasbeenreceived fromthePermanent
Mission ofPeru.
_______________
Korea
1. Drawback procedure
Note(1)oftheSCM Agreement stipulates thattheremission ofduties ortaxes inamounts
notinexcess ofthose which have accrued shall notbedeemed tobeasubsidy.
However, Peru'snotification states thatthedrawback onproducts which meet the
requirements isequivalent to5percentofthef.o.b. export value ofthegoods. Iftheexporters
meet justtherequirements, is5percentofthef.o.b. export value ofthegoods paid asthe
drawback regardless oftheamount ofduties ortaxes which haveaccrued? Inthiscase, isthere
apossibility ofremission inexcess ofthose which have accrued?
Replies toquestions concerning drawback
1. Peruhasnotified thatitdoesnotgrant direct export subsidies oranyother typeofsubsidy.
Perudoesnotgrantormaintain subsidies deemed tobespecific orsubsidies ofanyothertype,asdefined
inArticles 1and2oftheAgreement onSubsidies andCountervailing Measures.
2. Drawbackisaprocedureforremittingimporttaxeswhich,inaccordancewithnote1andAnnexI
oftheAgreement onSubsidies andCountervailing Measures, isnotdeemed tobeasubsidy.
Forreasons offiscal simplicity andtofacilitate theadministration ofthesimplified procedure
forsmall producing-exporting enterprises requesting theremission ofcustoms duties, thedrawback
1G/SCM/Q2/PER/1.
2G/SCM/Q2/PER/2 +Rev.1.
3G/SCM/Q2/PER/3.
4G/SCM/Q2/PER/4.
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onproducts which meet therequirements mentioned inthenotification isfixed attheequivalent of
5percentofthef.o.b. export value ofthegoods.
Initially, drawback isgranted without taking intoaccount theamount ofcustoms duties actually
paidbytheenterprise. Inprinciple, theamount remitted maybelessthanthatactually paidormore,
uptothelimitof5percentofthef.o.b. export value. However, thedrawback procedure isinitiated
bymeans ofanapplication tocustoms intheform ofasworn statement, which tobeaccepted must
beaccompanied byinvoices, byevidence ofthesource oftheinputs, andbyacopyofthecorresponding
import declaration.
Thus, thanks tothesworn statement, customs canrelyuponhaving theinformation necessary
toverify, randomly andexpostfacto,thefulfilment oftheapplicant 'sobligations and,moreover, to
identify anyproducts obtaining drawback inexcess. Thisinformation willmake possible thecontinuous
evaluation ofthesimplified procedure.
Itshould bementioned thatsimplified drawback wasintroduced inJune1995butnocustoms
duties were remitted untilNovember ofthatyear. Thus, theprocedure hasbeeninuseforonlya
relatively short time.
Japan
1. Supreme Decree 104-95-E ondrawback
Thelastsentence ofparagraph 5ofthenotification states thattheexporters must lodge
adrawback application intheform ofasworn statement accompanied byasimple copy ofthe
export declarations. Inthisconnection, could Peru explain whether thisprogramme constitutes
asubsidy contingent upon export performance provided forinArticle 3.1(a) ofthe
SCM Agreement?
Paragraph 4states thatthemeasure isbased onDecree No.104-95-E which was
promulgated inJune 1995. Inthisconnection, could Peru explain whether thisprogramme is
consistent withtheprovisions ofArticle 27.4oftheSCM Agreement thatobliges developing country
Members nottoincrease theleveloftheir export subsidies?
1. Insofarasdrawback isnotdeemed tobeasubsidy forthepurposes oftheAgreement, the
simplified procedure cannot bedeemed tobeaprohibited subsidy.
2. Simplified drawback (S.D. 104-95-E) isconsistent withtheprovisions ofArticle 27.4ofthe
Subsidies Agreement, firstly, because itisnotasubsidy under theAgreement and,secondly, because
S.D. 104-95-E, though promulgated inJune1995, regulates anexisting provision ofSection II-
Drawback, Articles 159etseq.oftheSoleTextoftheCustoms Actapproved byS.D.45-94-E. This
textwaspublished on26April 1994 intheform ofaSupreme Decree withtheforce oflaw,in
accordance with theprovisions ofArticle 5ofLegislative Decree No.778, published on
31December 1993.
United States
1. General
Please provide information concerning thefollowing programmes which werenotincluded
within Peru'snotification, yetmaymeet thenotification requirements ofGATT 1994and/or the
SCM Agreement. Ifthese programmes aresomehow encompassed inPeru'snotification, pleaseG/SCM/Q2/PER/6
Page3
explain. Ifnot,please include information relevant totheelements requested inthenotification
format, orexplain thebasis onwhich Peru determined thateachprogramme didnotmeet the
notification requirements referenced above.
A. Subsidies totheNational Inputs Marketing Corporation (Empresa Nacional de
Comercialización deInsumos orENCI)
B. Subsidies totheNational Coca Corporation (Empresa nacional delaCoca orENACO)
C. Subsidies totheMining Products Marketing Corporation (Minero Perú Comercial or
MINPECO)
D. Subsidies tothePeruvian Petroleum Company (Petróleos delPerú orPETROPERU)
E. SubsidiestotheNationalFisheriesEnterprise(EmpresaNacionalPesqueraorPESCAPERU)
F. Subsidies totheIronandSteel Corporation ofPeru (Empresa Siderúrgica delPerú or
SIDERPERU)
G. Subsidies toother State manufacturing inthefollowing areas, including toholdings of
theCorporación Nacional deDesarrollo (CONADE), COFIDE S.A., theBanco delaNación and
other State banks:
Beer
Cement
Textiles
Petrochemicals
Paper
Chemicals
Fertilizers
Rubber
Diesel engines
Dairies
Salt
Handicrafts
Ships
Telecommunications
Railway transport
H. FreeZones (Zonas Francas) -Export promotion scheme topromote industrial andtourist
activities. Enterprises inthese zones areexempt from anynational, regional orlocal taxor
contribution toallSENATI andFONAVI overaperiod of15years. There arecurrently believed
tobesixindustrial freezones: Chimbote, Ilo,Matarani, Paita, Pisco andTrujillo.
I. Special Trade Treatment Zones (Zonas deTratamiento Especial Comercial) -export
promotion scheme todealexclusively withtrade activities inborder andtropical forest areas (zonas
defrontera ydeselva). Some goods enjoy totalorpartial taxexemptions when consumed inthe
zone. Zone users arenotsubject totheIGVandISCindirect taxes. There arecurrently believed
tobetwoSpecial Trade Treatment Zones: Tacna andTumbes.
J. Special Development Zones (Zonas Especiales deDesarrollo) -export promotion scheme
topromote public andprivate activities inthenational interest. Thekindoffiscal benefits whichG/SCM/Q2/PER/6
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aregranted totheusers canbeselected among therange offacilities available totheIndustrial
FreeZones.
K. Export promotion programmes ofMITINCI, theMinistry ofExternal Relations, Oficina
Técnica dePromoción Comercial, theExport Committee (Comité deExportaciones), Asociación
deExportadores (ADEX), theSociedad Nacional deIndustrias (SNI), theCámara deComercio
deLima, andtheSociedad Nacional deExportadores (SNE).
L. Subsidies tosmall traditional enterprises inthefisheries sector.
M. Financial assistance toagriculture inpoor areas through rotating funds.
N. Taxincentives toagro-industry firms thatdevote twothirds oftheir expenditures to
agricultural activities.
O. Assistance tosmall- andmedium-sized farms through theFONDEAGROS.
P. Subsidies tothemining sector through CENTRMIN, MINEROPERU andTINTAYA.
Replies A-F
Inconnection withtheUnited States 'questions A-Fconcerning programmes supposedly of
benefit tostateenterprises which were notincluded inPeru'snotification, theGovernment ofPeru
wishes topoint outthefollowing:
InthenotificationwhichPerusubmittedtotheMembersoftheWorldTradeOrganization(WTO)
in1995, inthecontext ofArticle XVII ofGATT 1994(State Trading Enterprises), itwasstated
thatinPeruanytypeofsoleright, limitation orother monopolistic restriction orpractice in
theproduction ormarketing ofgoods andservices ofanykind, including onthepartofcentral
government agencies, public entities, enterprises andanyother Statebody, hasbeeneliminated
andprohibited.
Infact,thePeruvian Constitution of1993establishes anexpress limitation ontheentrepreneurial
activities oftheStatebystipulating thatonlyifspecifically authorized bylawmayit-theState-
conduct subsidiarily direct orindirect entrepreneurial activities, inthehigher public interest
orformanifestnationaladvantage.Itisalsostipulatedthatpublicandnon-publicentrepreneurial
activities willreceive equal treatment under thelaw.
Atthesame time, Supreme Decree 067-91-EF published on26March 1991 andLegislative
Decree 668nullified anyexclusivity infavour ofStateenterprises bystipulating thatthelatter
mustdevelop theiractivities incompetition withprivate sector enterprises. Thesamelegislation
suspends allthelegalprovisions thatexempt stateenterprises fromtaxesofanykind, national,
regional ormunicipal.
Itshould beadded thatthePeruvian Government iscarrying outanambitious process of
privatization ofstateenterprises, asreported inthenotification submitted byPeruin1995,
inaccordance withArticle XVII, which specifically refers tothesituation oftheenterprises
queried bytheUnited States. Forpurposes oftransparency, thefollowing tableindicates the
current status oftheprivatization process withrespect totheenterprises mentioned:G/SCM/Q2/PER/6
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Enterprise Situation
National Inputs Marketing Corporation
(ENCI)Iscurrently marketing foodstuffs buthasno
reserved ormonopoly rights, andissubject
totheprivate-sector competition regime
(S.D. 067-91-EF)
Mining Products Marketing Corporation
(MINPECO)MINPECO 'sshares were soldbyauction
when itwasprivatized on7September 1992.
Thesuccessful bidder wasBrasileña Ingá,
which belongs totheKIBO Group.
Peruvian Petroleum Company
(PETROPERU)Inprocess ofprivatization. PETROPERU
hasnowsold60percentofitsshares inthe
Pampilla Refinery (11June1996) and
100percentofitsshares inthe
PETROLUBE S.A.Lubricant Plant
(15August 1996), aswellasitsnational
network ofpetrol stations (June-December
1992). Thesaleof60percentoftheshares
intheTalara Refinery, together withLoteX,
isscheduled fortheendofthisyear.
National Fisheries Enterprise (PESCAPERU) Fish-meal andfish-oil producer and
processor. Hasindependently soldits
Chicama, Chimbote Centro, Mollendo, la
Planchada, Atico, Supe Sur,andother
processing plants, aswellas80%ofits
fishing fleet. Itishoped thatthe
privatization ofthisenterprise willhavebeen
completed bytheendof1996.
IronandSteel Corporation ofPeru
(SIDERPERU)Theauctioning oftheState'sshares in
SIDERPERU wascompleted on
14February 1996. Thesuccessful bidder
wasACERCO S.A., asubsidiary oftheUS
company GSIndustry Inc.
Inshort, Perudoesnotgrant specific advantages tostatetrading enterprises. Theenterprises
mentioned bytheUnited States haveeither beensoldorformpartofabroad privatization programme.
Similarly, Perudoesnotmaintain anyprogramme which might bedeemed tobeasubsidy infavour
ofsome enterprise, sector orbranch ofindustry.
National Coca Corporation (ENACO S.A.)
TheNationalCocaCorporation(ENACOS.A.)isastateenterpriseofprivatelawthatundertakes
themarketing, athome andabroad, oflegalcocaleafregistered intheproducers register inthetraditional
growing areas. Coca leafisusedforchewing -athousand-year oldpractice, ininfusions formedical
purposes, andasflavouring.
ENACO S.A.markets andprocesses cocaleafdirectly. Anyprofits itmaymake areasecondary
consideration. Itsrealaimistoensure theestablishment, asrapidly aspossible, ofaStatemonopolyG/SCM/Q2/PER/6
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ontheproduction, marketing anddistribution ofcocaleaf,soastosqueeze outtheillicit activities
ofthedrugtraffickers.
Thus, ENACO S.A.isbyitsverynature anenterprise thatcannot beprivatized. Itisnotan
enterprise whose profitability would beuseful totheState and,aspartofthedrug enforcement
programme, performs amonitoring andcontrol function, likeanyother State agency.
Question G
InPeru, theStatedoesnothaveanyholdings infinancial entities. AlltheState-owned banks
andfinancial institutions havebeenprivatized. Accordingly, theState'sactivities havebeenreduced
tosupervising thefinancial system anddetermining monetary policy within thatsystem.
TheCorporaciónNacionaldeDesarrollo(CONADE)wasabsorbedbytheMinistryofEconomy
andFinance inaccordance withLegislative Decree No.849ofSeptember 1996.
TheCorporación Financiera deDesarrollo (COFIDE) isafinancial entity which actsasa
second-tier bankandgrants loans atinterest ratesequivalent tothose obtainable ontheinternational
capital markets under thesame conditions.
TheBanco delaNación, according toitsStatutes, isanenterprise ofpublic lawintheeconomy
andfinance sector which enjoys economic, financial andadministrative autonomy andwhose purpose
istoadminister, bydelegation, theTreasury 'ssub-accounts andtoprovide theCentral Government
withbanking services fortheadministration ofpublic funds.
TheBanco delaNación actsasafinancial agent oftheStateinmatters relating totheforeign
public debtandforeign trade operations, being expressly forbidden fromcarrying outanyother type
ofbanking orintermediation operation other thanthose specified initsstatutes.
Withregard tobenefits intended forquasi-public enterprises, theThird Transitional Provision
oftheStatutes stipulates thattheBank willcontinue tosupport stateenterprises solely andexclusively
inorder thattheymaycomplete theirprivate investment promotion (privatization) processes, withthe
elimination ofanysupport thattheymight previously havereceived.
Asregards support forspecific sectors, Perudoesnotgrant benefits which might bedeemed
tobesubsidies toanyproductive sector. Moreover, itshould bepointed outthatPeru'seconomic
programme presupposes alevelplaying fieldwithout privileges, based onstrict fiscal management,
under which itisneither possible nordesirable forsectoral benefits tobegranted. TheState does
notanddoesnotintend toparticipate inthemanagement orownership ofthecountry 'sdeveloping
enterprises.
Question H-FreeZones
InitsTrade Policy Review Perudrew attention totheexistence offreezones inthecountry
andtotheconcessions granted inthose zones. Ourcountry, likemany others hasdeveloped afree
zonepolicy inthebelief thatsuchzones would contribute tothedevelopment ofthecountry and
especially itsdepressed areas.
Freezones aredefined, bothinthedomestic legislation andininternational law,asparts of
theterritory ofacountry thatareconsidered tobeoutside thenational customs territory. Since they
benefit froma"presumption ofcustoms extraterritoriality", these zones haveaveryspecial domestic
taxtreatment regime designed topromote thedevelopment ofnormally depressed areas.G/SCM/Q2/PER/6
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Because theyreceive thisspecial treatment, freezones aregoverned byacustoms convention,
theKyoto Convention. There isnotandnever hasbeenanymention ofthetreatment offreezones
inthetextoftheGeneral Agreement onTariffs andTrade 1947norintheUruguay Round Agreements.
Nevertheless, countries havehadtogiveanaccount ofthespecial treatment granted tosuchzones within
theframework oftheGATT.
Peruhasnotdeemed itnecessary tonotify thespecial customs regimes inthebelief thatthe
commitmentswhichithasundertakencannotbeappliedindiscriminatelytotheexistingfreezoneregimes,
since theyareinadifferent situation which isextraterritorial inrespect tothePeruvian legalsystem.
Finally, Peru isintheprocess ofreforming itsfreezones. Legislative Decree No.704#
"Peruvian LawonFreeZones, Special Trade Treatment andSpecial Development Zones" wasrepealed
on30August 1996 andanewasyetunregulated regime, whose notification commitment isbeing
examined, hasbeenadopted.
Question I.Special Trade Treatment Zones (ZOTAC)
TheSpecial Trade Treatment Zones aredefined inLegislative Decree 704asprecisely delimited
areasofthenationalterritorydevotedexclusivelytocommercialactivitiesforwhichgoodsareintroduced
fromthirdcountries through freewarehouses totally exempt fromtax,except foraspecial duty(10per
cent). Goods introduced bytourists orresidents ofthesezones maybenefit fromthisspecial treatment,
provided thattheyareconsumed inthezones themselves.
Theonlyspecial treatment zoneactually implemented andoperating inPeruistheTacna Zone
(ZOTAC). Theenterprises established asusers inZOTAC areliable toallthetaxes inforce inthe
national territory, withtheexception ofthetaxesonthesaleofgoods within theSpecial Trade Treatment
Zone (IGV andISCindirect taxes).
TheWTO Agreement onSubsidies andCountervailing Measures hasnoprovisions thatlimit
exemption fromindirect taxes (IGV, ISC)perse,andmore especially ifsuchexemption isnotaimed
atexporters andisnotspecific within thespecial tradezone. Moreover, theestablishment ofaspecial,
lower andnon-discriminatory dutyforoneregion involves theuseofadomestic policy mechanism
which doesnotaffect ourcommitments totheWTO (bound at30percent).
WiththerepealofLegislativeDecree704thespecialfrontierzoneregimewasabolished,leaving
onlythespecial dutyof10percentinforce.
Question J.Special Development Zones
Thespecial preferential treatment infavour ofSpecial Development Zones wasnever applied.
Nouserbenefited from thistreatment.
Ithasalsobeenabolished.
Question K
TheMinistryofIndustry,Tourism,IntegrationandInternationalTradeNegotiations(MITINCI)
hasnoexport promotion programmes. TheAsociación deExportadores (ADEX), theCámara de
Comercio deLima, theSociedad Nacional deIndustrias andtheSociedad Nacional deExportadores
aretradeassociations forPeruvian private business. Anyspecific programme which theseassociations
might runwould beentirely private.G/SCM/Q2/PER/6
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Question L
Through theNational Fisheries Development Fund (FONDEPEZ) thePeruvian Government
runscertain credit programmes forsubsistence fishing intended tofacilitate access tocredit forsmall
non-industrial fishermen toenable them topurchase orrepair small fishing boats orvehicles for
transporting seafood products ortoengage infishfarming.
FONDEPEZ loans aregranted indollars andrequire complete repayment ofthecapital with
interest atvariable ratesnotlower thanthose obtainable ontheinternational capital markets. Asalready
noted, theaimoftheFund istofacilitate access tocredit forthose non-industrial fishermen andboat
owners whoaretoopoortobeabletoprovide sufficient guarantees toobtain access tocommercial
credit. These loans cannot bedeemed tobesubsidies inasmuch asthespecial benefit theyprovide
islimited tothefacilitation ofaccess. Noraretheyspecific, since theyarenotrestricted toparticular
fishing enterprises orbranches ortospecific areas within thenational territory.
Question M.Rotating Fund Programme
TheRotating Fund Programme, established byDecree Law25816 of28October 1992, was
implemented attheendof1994 bySupreme Resolution No.0780-94-AG. Theprogramme isanin
kindcredit mechanism whose funds arecontributed bytheTreasury andisaimed atthepoorer organized
peasant farmers ofthemountainous andforested areasofthecountry which areeconomically depressed
orinwhich anemergency hasbeendeclared.
Therotating funds areintended tofacilitate access tocredit forthose farmers whobecause
oftheirpoverty, theuncertain climate andlackofsufficient security finditdifficult toobtain access
tocommercial credit. Theloans made fromthese funds areintended toberepaid infullincashand/or
inkindequivalent totherealvalue onthedateofrepayment plusinterest ataratewhich varies from
3to10percentofthevalue oftheloangranted withatermthatcorresponds tothetypeofgoods
requested.
TheRotating Fund Programme cannot bedeemed tobeasubsidy since, inaddition torequiring
thereturn ofthegoods attheirrealvalue, itsetsaninterest ratewhich ensures areturn ontheloan.
NorcantheRotating Fund Programme bedeemed tobespecific, inaccordance withArticle 2ofthe
Agreement, inasmuch asaccess isnotlimited toparticular agricultural enterprises orbranches nor
tospecific geographical areas but,onthecontrary, extends toallthemountainous andforested parts
ofthecountry.
Question N
Thetaxincentive regime foragro-industry firms which granted special taxtreatment isnot
inforce inPeru. Theregime hasbeencompletely superseded indomestic taxlaw.
Question O
TheRegional Fundeagros were finally wound upon31December 1995.
Thepurpose oftheRegional Fundeagros wastoserve asatransition mechanism fordealing
withthesudden change toaprivate agricultural financing system resulting from thewinding upof
thedevelopment bank. Thus, Regional Fundeagros wereestablished bytheregional governments to
grant loans tosmall- andmedium-sized farmunits setupbyorganized peasant farmers.G/SCM/Q2/PER/6
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While itwasineffect, theprogramme could nothavebeendeemed tobeasubsidy, since the
loans granted hadcertain financial conditions which varied according totheregion concerned, with
annual interest ratesindollars ranging from17to20percentperannum, which ismuch higher than
international commercial rates, andaloanrepayment period equivalent tothecropgrowing period.
Question P
There arenosubsidies tothemining sector. Abroad privatization programme hasbeencarried
outandwillcontinue asregards theassets which stillbelong totheState:
- Minero PerúComercial hasbeensold. AChilean andaCanadian enterprise havebeen
granted concessions forthecopper deposits ofQuellaveco andGranja respectively.
Similarly, aBrazilian enterprise wasgranted aconcession fortheSantiago dePoto
deposit. Moreover theRefinería deIlodeMinero Perú(copper) wassoldtoSouthern
Peru, aprivate North American company, on22April 1994.
- Minera Especial Tintaya S.A.wassoldbyauction on6October 1994, thesuccessful
bidder being Magma Copper Company/Global Magma Ltd.,bothUnited States firms.
- Centromín Perúisintheprocess ofbeing privatized. On12July1996theAntamina
miningprojectwasawardedtotheconsortiumInmetMiningCorporationandRíoAlgom
Ltd.Similarly, on19July1996thetransfer option forProspecto Quicay wasawarded
toaCanadian company.
Canada
1. When anenterprise applies forsimplified drawback, must itdemonstrate orcertify that
ithasinfact, imported anyinputs contained intheexported goods orconsumed during their
manufacture? What verification system isinplace toensure thatthere isnotdrawback ofimport
charges inexcess ofthose originally levied ontheimported inputs inquestion?
2. Given thatrefunds under thedrawback procedure were firstmade inNovember 1995,
what have beenthetotalrefunds under thisprogramme todate? Which sectors areeligible for
drawback?
1. Yes,theapplicant mustattach tohisapplication information showing thattheinputs have, in
fact,beenimported, andthattheydonotexceed invalue acertain maximum percentage ofthevalue
oftheexported product.
Asregards theverification system usedtoensure thatthedrawback doesnotexceed theduties
actually paid,thesworn statement provides customs withtheinformation necessary toverify, randomly
andexpostfacto,thefulfilment oftheapplicant 'sobligations andtoidentify anyproducts forwhich
thedrawback isinexcess. Asexplained, thisinformation willmake itpossible tocarry outacontinuous
evaluation ofthesimplified procedure.
However, S.D.104-95-EF hasamechanism forexcluding particular tariff headings withthe
publication ofanegative listbyMinisterial Resolution oftheMinistry ofEconomy andFinance.
Although evaluation ofthesimplified procedure iscontinuous, thetwomechanisms may
complement eachotherwhen significant excesses aredetected, without adversely affecting thesimplicity
andspeed which theprocedure requires.G/SCM/Q2/PER/6
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2. Therefunds granted from1January to16October 1996 amounted toabout US$8.5 million,
afigure which isoflittlesignificance ascompared withthetotalvalue ofPeruvian exports during the
same period, namely $4.2billion.
There arenorestrictions ondrawback interms ofsectors. Theprocedure applies toallexports
except forthose, which bytariff heading, exceed US$10 million.