RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q2/CYP/9
18 May 2000
(00-2030)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Replies to Questions from the REPUBLIC OF KOREA1
Regarding the New and Full Notification of CYPRUS2
The following communication, dated 15 May 2000, has been received from the Permanent
Mission of Cyprus.
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Q1. By whom is the Resource Centre for the Clothing Industry (v) established and operated?
And what are the main functions of the Centre?
Reply
The Resource Centre for the Clothing Industry was established by an initiative of the
Association of Clothing Industrialists, which presented a complete study for the operation of theCentre to the Government.  Based on the study, the Government decided to assist the Association with
an amount which would cover the capital expenditure and part of the operating expenses of the Centre
for the first five years of its operation.
The Centre was finally founded in 1996, as a non-profit organization.  It is administered by a
board of nine directors, five of whom represent the Clothing Industrialists Association and the
remaining four represent the Ministry of Commerce, Industry and Tourism, the Cyprus Productivity
Centre, the Institute of Technology and the Industrial Training Authority respectively.
The Centre is expected to assist the industry to regain its competitiveness and more
specifically in the areas of fashion design, technology and marketing, by providing consultancy
services and training to the local industry.  At a later stage it is expected to extend its services so as to
cover the area of quality control.
Today, the Resource Centre employs six qualified people, some of whom work part-time
(designers-pattern markers).  It is equipped wi th a computer aided design system and a library.
Assistance can be offered to anyone without any specific criteria.  Subscribers are able to
obtain information from the Centre at lower rates than non-members.  The Centre is expected after a
duration of time to be self-sufficient and able to cover its own expenditure from membership
subscriptions and fee charges for services rendered.
                                                     
1 G/SCM/Q2/CYP/8
2 G/SCM/N/38/CYPG/SCM/Q2/CYP/9
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Q2. With regard to the encouragement of establishment or expansion of manufacturing
industries in rural areas (vi), what are the criteria for determining the subsidy amount provided
to individual companies?
Reply
The subsidy amount provided as a percentage of the eligible investment is as follows:
• building 15 per cent;
• machinery and equipment 25 per cent;
• investment for infrastructural services 50 per cent.  In general, manufacturing units
establishing themselves in specified rural areas are awarded the grant provided that thefollowing conditions are met:
(i) the proposed investment is considered viable;
(ii) the proposed investment makes use of idle labour force and/or local raw materials.
Q3. Regarding the subsidy, "Establishment of Industrial Estates" (vii), lease of land and
provision of infrastructure at reasonable prices  cannot be considered as a subsidy.  What are
the reasons for classifying them as a subsidy and what are the criteria for determining the
recipients of the subsidy?
Reply
As stated in our original notification, document G/SCM/N/3/CYP-G/SCM/N/16/CYP dated
19 November 1996, all programmes and measures have been notified for transparency purposes and
their legal nature has not, in any way, been prejudged.
Eligible enterprises should be viable manufacturing industries.
Q4. What are the specific contents of the tax ince ntives provided as a part of the subsidy for
Industrial Free Zone (viii)?  What are the criteria for determining the recipient companies?
Reply
There is no specific tax incentive provided to companies operating in Larnaca Free Zone.
The only tax incentive offered relating to the Free Zone is the 50 per cent reduction of income
tax paid by foreign employees working in the Zone.
Q5. In (ix), the assistance to manufacturing industries to establish pollution control systems,
30 per cent of the value of the pollution contro l systems installed is provided under the subsidy.
According to Article 8-2(c) of the SCM Agreem ent, the limit for environmental subsidy amount
is 20 per cent of the total cost of a project.  The Government of Korea would like your
comments on this.
Reply
The Grant Scheme which provides financial assistance to firms of the manufacturing sector to
install pollution control systems is compatible with Article 8.2(c) of the Agreement on Subsidies andCountervailing Measures.G/SCM/Q2/CYP/9
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More specifically, there is full compliance with provisions (i) and (iii) of the Article.
As regards provision (ii) of the Article, it is clarified that the grant provided under the Scheme
is limited to 30 per cent for the initial C£250,000 and could be extended to (subject to the approval of
the competent Ministerial Committee) an additional 15 per cent for the rest of the relevant cost.
With regard to provision (iv) of Article 8.2(c) this Scheme is more strict and is directly related
to a firm's prescribed reduction level of nuisance and pollution.
The Scheme is available to all firms engaged in manufacturing sector activities.
Q6. What are the specific criteria for de termining the recipient companies of the
subsidy (xii), Industrial Restructuring and Technical Upgrading?
Reply
Companies eligible to apply for subsidy under the scheme operated by the Institute of
Technology are those with a manufacturing unit (as specified under title D of the NACE Rev.1) whichhave been operating for at least one year.
Subsidy is then offered to any of the above companies according to the following procedure:
- The company submits a proposal in which the methodology, timescale and costs of the study
are described.  The study must target the technological upgrading of the company in order to
promote the improvement of its competitiveness.
- The subsidy is given once the Institute of Technology has been fully satisfied with the overall
quality of the study, its adherence to the elements of the proposal and the benefits which the
company will gain from it.
Q7. Please describe specific kinds of investme nts eligible for the gr ant for technological
upgrading of the manufacturing sector (xiv).
Reply
The grant for technological upgrading of the manufacturing sector encourages investments in
modern technology so as to improve both productivity and quality of locally produced goods.  The
grant is available for all new machinery and equipment (including computers and software) which are
used in the design, production, packing and product quality control.
Q8. Please describe specific kinds of investments eligible for the subsidization of loan
interest for technological upgrading of the manufacturing industry (xv).
Reply
The same criteria referred to in (7) above apply.
Q9. In relation to drawback on exported goods (xvi), as far as the Government of Korea
understands, drawback on import duty is co nsidered as an export subsidy under the SCM
Agreement only in cases where it exceeds the im port duty amount actually paid (refer to
Annex 1 of the SCM Agreement).  Does the notification of this subsidy mean that the drawback
amount exceeds the import duty actually paid?G/SCM/Q2/CYP/9
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Reply
According to the Customs and Excise Duties La w "… drawback of customs duty or of excise
duty, actually paid, shall become payable at the extent shown in the third column of the Fifth
Schedule when goods of the descriptions specified in the second column of the Fifth Schedule are
used to the satisfaction of the Director of Customs as specified in the fifth column of the FifthSchedule or in the production or manufacture in the Republic of the goods specified in the fourth
column of the said Schedule which are exported or loaded on ships or aircraft as stores or are
delivered to persons, bodies, authorities or organizations entitled under this or any other Law to duty-
free importation of such goods.
Provided that save where contrary provision is made in the Fifth Schedule, drawback of
Customs or excise duty shall not be payable where more than three years have elapsed between the
date of payment of duty and the date of receipt by the proper officer of a claim to drawback".
As it is derived from the above provision, no refund is made in excess of the amount of duty
actually paid.
Q10. Regarding the exemption from taxation of profits derived from the exportation of
locally manufactured/p roduced goods (xvii),
• Tax exemption for profits derived from exportation is an export subsidy provided in
Article 3.1 of the SCM Agreement.  The Government of Korea would like your
comments on this.
• In 1997 the exemption was provided in 24 cases and the amount provided was
insignificant, implying that strict eligibility criteria is applied.  What are the specific
criteria for this subsidy?
Reply
(a) The profit of a person from the exportation of locally manufactured or locally produced
goods, excluding petroleum products, is taxed at 50 per cent of the normal rates.
This is a type of subsidy that is provided in Article 3.1 and it will be abolished during the
process of accession of Cypr us into the European Union.
(b) The following criteria are applied in order to decide whether the claim made by a taxpayer to
tax the profit from the exportation of locally manufactured goods or locally produced goods at50 per cent of the normal rates will be accepted.
- the goods where manufactured or produced by the taxpayer in Cyprus;  and
- the goods where exported;  and
- the value of the exported goods has been recorded in the taxpayer's accounting
records.
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