RESTRICTED
WORLD TRADE G/SCM/Q2/SVN/5
13May1997
ORGANIZATION(97-2005)
Original: English Committee onSubsidies andCountervailing Measures
SUBSIDIES
Replies ofSLOVENIA toQuestions Posed by
theUNITED STATES1andPOLAND2
Thefollowing communication, dated 29April 1997, hasbeenreceived from thePermanent
Mission ofSlovenia.
_______________
UNITED STATES
TheDevelopment Fund (SKLAD) oftheRepublic ofSlovenia
Question 1
Please describe howtheFund isadministered -inparticular, theroleoftheGovernment of
Slovenia andhowtheFund interacts withthecompanies "under itsmanagement".
Answer
TheFund isastock company ofwhich thesoleowner istheRepublic ofSlovenia. Thefounding
capital isSIT1billion (US$6.7 million incurrent dollars). Itwasestablished byaspecial lawwhich
specifies itsrole,manner ofoperation, responsibilities. Thedirector oftheFund isproposed bythe
Government andapproved bytheParliament (State Council). TheFund reports totheStateCouncil.
Initsday-to-day operations theFund actsautonomously.
TheFund manages securities, other financial instruments andmeans which wereorarepaid
intheprocess ofprivatization andrestructuring ofcompanies andbanks. Proceeds maycome from
receiverships andbankruptcy andliquidation proceedings fromremaining company assets. TheFund
operates initsownname andonitsownaccount and,bylaw,itmustcover itsowncostsofoperation.
TheFund mayalsoundertake tomanage andrestructure acompany inthename andontheaccount
ofanother party.
TheFund, therefore, operates within themeans atitsdisposal. Within thesemeans itsfunctions
aretosupervise andassist companies undergoing restructuring andprivatization (iftheyhavenotyet
beenprivatized). Specifically itsfunctions are:
1G/SCM/Q2/SVN/4
2G/SCM/Q2/SVN/3G/SCM/Q2/SVN/5
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- toestablish amanagement structure inacompany withtheassignment tomake thecompany
turnaprofit ortocomplete theprivatization process;
- bylegalmeans, suchasreceivership topreserve "healthy" programmes ofeconomic activity
inacompany andultimately keepthecompany inbusiness;
- tonegotiate withmajor creditors ofacompany aconversion ofoutstanding debts intoequity,
areprogramming ofdebts, andother means ofdebtdisposal;
- tosupplyactivecompanieswithnewcapitalwhichallowsneweconomicallyjustifiableactivities;
- todispose ofsuperfluous assets ofcompanies (intheprocess ofstreamlining itsactivities) and
tosellprivatized andrestructured companies tonewowners, whether domestic orforeign.
TheFund initially supervised 113companies in1992. Since then, 56companies were sold
tonewowners, employing approximately 16,000 people. Presently itmanages 57companies employing
about 15,500 people. TheFund willcease toexistwhen theprocess ofprivatization inSlovenia will
beterminated. Then theFund itselfwillbeprivatized. Itisexpected thatitwillbemainly purchased
bythebanks.
Question 2
Please provide alistoftheindustrial sectors thatinclude thecompanies serviced bytheFund.
Answer
Theindustrial sectors which theFund services are:
- thesteelindustry
- non-ferrous metals industry
- machinery manufacturing
- transportation equipment andvehicles production
- electric machinery andequipment production
- basic chemicals industry
- industry related toconstruction
- wood-processing industry
- paper production
- textile industry
- leather processing
- foodprocessing.
Question 3
What wastheamount provided bytheFundtothecompanies in1995either incapital infusions,
grants, loans, debtrelief, ortaxreductions/exemptions? Please provide further information onthe
types ofassistance provided tocompanies through theFund (including, forexample, anindication of
thetime-frame forwhich loans andtax-reductions/exemptions areprovided).G/SCM/Q2/SVN/5
Page3
Answer
TheFund doesnotprovide anytaxreductions orexemptions sinceithasnoauthority. In1995
theFund provided:
- DM125million inshort-term credits
- DM115million inlong-term credits
- DM33.8million incredit guarantees
- US$28.75 million ofoutstanding debtwaswritten off
- capital infusions amounted toUS$8.75 million.
(calculated atSIT160perUS$1.00)
Question 4
4. Would itbepossible toprovide anystatistical information thatwould allow anestimation of
thepotential trade effects ofthisFund?
Answer
Specific statistical information which would allow anyreliable estimation ofthepotential trade
effects oftheFund arenotavailable. However, there isoneclearindicator oftheresults ofFund's
management. Thatisthereduction ofthelevelofaccumulated losses, generated bythecompanies
under theFund'smanagement. In1992 theaggregated losses amounted toDM675million, in1993
theyamountedtoDM433million,in1994theywerereducedtoDM195million,in1995theyamounted
toDM202million. Thereduction oflosses isattributable tobetter management ofthecompanies,
tothestreamlining ofactivities, toprocessing andtechnological improvements, tobetter quality of
products. Elimination ofalllosses ofthemanaged companies there willbenonecessity tomaintain
theFund initspresent function.
Question 5
Restructuring oftheSteelIndustry
Please clarify whatismeant by"higher grade products more suited tomarket demand" and
provide alistofsteelproducts produced bythecompanies associated withtheSlovene SteelCorporation.
Answer
Thequoted phraseology refers totechnical specifications ofproducts which justify avalue added
treatment ofthese products inthemarket, based onspecial processing andquality demands. The
corresponding steelproducts are:
- cementation steel
- hardening andtempering steels
- spring steels
- semi-processed electrical steels
- stainless steels
- alloyed coldworking toolsteels
- highspeed steels
- weldingconsumables,coatedelectrodesforarcwelding,wiresforautomaticsubmergedwelding.G/SCM/Q2/SVN/5
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Question 6
AidtothePaper Industry
Please explain inmore detail thepolicy implemented bythisprogramme. What ismeant by
"special papers"?
Answer
Theaidtotheparticular producer ofpaper wasasingle incidence ofassistance aiming toinfuse
additional capital intotheplant (inexchange forequity). There wasnofurther aidin1996. Inthe
course of1997 theindustry willbeprivatized.
"Special papers" arepaper products which areusedintheprinting ofcurrency, intheprinting
ofstock andother certificates andintheprinting ofspecial documents andforother special purposes.
Question 7
Please explain inmoredetail yourresponse ontheduration ofthesubsidy. Howdoesthemarket
position ofthecompany affect theamount ofassistance received? Isthemarket position thesame as
market share?
Answer
Asreplied above, therewasnofurther aidtothepaper plantin1996. Additional capitalization
ofthecompany significantly reduced itslosses andhelped ittoregain itsprevious "market position",
which includes itsmarket share, andespecially toreestablish relations withbuyers ofitsproducts.
Question 8
Restructuring ofMines
Isthere more thanoneprogramme under thisheading? Ifso,please explain andprovide all
information requested under Article 25foreachprogramme.
Answer
Itisinfactoneprogramme, under theauspices oftheMinistry forEconomic Affairs, with
thesame objectives, butpertaining todifferent mining operations andlegislated separately. Themain
objective istheclosure ofsub-bituminous coalmines, lignite-producing mines, themercury mine, the
zincandleadmines, theuranium mine.
Inthecaseofthemercury mine(closure operations began in1987) andthezincandleadmines
(closure operations began in1988), which in1995 hadnoproduction funds wereprovided forwork
required fordismantling oftheequipment, filling ofshafts, removal ofslagandother environmental
restoration work.
Inthecaseofsub-bituminous coalandlignite mining, theenergy policies oftheGovernment
changed in1995 andsubsidization ofthese mines wasnecessary tokeepthemoperating untiltheend
oftheyear forreasons ofmaintaining employment. In1996 subsidies were limited tothe
decommissioning ofthemines andreemployment. Allsubsidies forlignite mining ended in1995.
Inthecaseoftheuranium mine allexpenditures were usedfordecommissioning purposes.G/SCM/Q2/SVN/5
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Question 9
Restructuring oftheManufacturing Sector andTechnological Development ofIndustry
Please indicate theindustrial sectors thatreceived assistance fromthisprogramme in1995.
Answer
There were three types ofassistance: subsidization ofinterest ratesoncommercial credits,
credit guarantees through theMinistry ofEconomic Affairs andtechnological development assistance
through theMinistry ofScience andTechnology. Inallcases public invitations toapply forassistance
were published, withdefined criteria andeligibility requirements.
Thesectors receiving assistance were:
- foodprocessing andtobacco industry
- textiles industry
- leather andleather processing industry
- wood processing industry
- paper industry, printing andpublishing
- chemical industry
- mineral products industry
- metals processing industry
- machinery andproduction ofindustrial equipment
- production ofelectrical andoptical equipment
- production ofvehicles andvessels
- processing onthebasis ofrecycling
- rubber andplastics industry (credit guarantees only).
Question 10
Please describe theapplication andselection process forcompanies receiving assistance under
thisprogramme.
Answer
Theapplication andselection process ofeligible companies requesting assistance isstandardized
byregulations. Competent ministries publish apublic invitation tosubmit applications intheOfficial
Gazette. Aspecial commission toreceive andexamine applications isformed, including independent
experts. Inthepublic notice thepolicy objectives oftheassistance areindicated (such asassistance
tosupport employment) andother conditions suchasjustification forassistance andtherequired
documentation andproof ofeligibility.
Generally, companies hadtodemonstrate thattheyhavearestructuring programme andthey
need assistance ortemporary relief toimplement itandthatinthiscontext theyarestarting new
production andproduct lines, thattheyareintroducing cleaner technology andprocessing methods,
thattheyareabletomeetenvironmental andemployment criteria.
Insubstantiationoftheabove,sufficientdocumentationisrequested,includingfeasibilitystudies,
financial reports, proof ofcredit arrangements withcommercial banks, independent expert assessments
ofenvironmental, technical andtechnological andother conditions. Applications which were not
sufficiently documented were nottaken intoconsideration.G/SCM/Q2/SVN/5
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Regarding applications processed bytheMinistry ofScience andTechnology projects were
assessedandreviewedaccordingtotheirspecificcharacteristics:intheareaofappliedindustrialresearch
technological andeconomic merits oftheprojects wereexamined; intheareaofinnovation schemes
intellectual property aspects were taken intoaccount, suchaspatentability; forresearch scientists,
thecondition wastheirfirstemployment.
Similar procedures, asdescribed above, were followed incases ofapplications forcredit
guarantees. Apublic invitation waspublished toattract applications fromcompanies. Onlycompanies
withagoodcredit rating weretaken intoconsideration. Companies hadtoshow thattheyarepursuing
specific development programmes andtargets andthattheyhavesufficiently qualified management
toimplement theprogrammes. In1995 only25%oftheapplications received were approved.
Question 11
Explain howresearch grants areprovided. What isthepercentage ofthecosts oftheproject
thattheGovernment underwrites? What isthetypeofresearch conducted? What types ofcostsdoes
theGovernment underwrite? Whoaretherecipients ofresearch grants?
Answer
Researchgrantsareprovidedforappliedindustrialresearchforaspecifieddurationoftheproject.
Grants arepaidininstalments. TheGovernment covered upto10%ofthetotalcostofaresearch
project andupto50%ofthecostoftheinitial research anddevelopment phase. Therecipients of
grants were individual companies, applicants.
Question 12
AidtoSmall- andMedium-Business andPostPrivatization Assistance
Please describe theapplication andselection process forcompanies receiving assistance under
thisprogramme.
Answer
In1995theMinistry ofEconomic Affairs issued itslastpublic invitation toapply forassistance
under thisheading andthatwaslimited tosubsidization ofinterest rates. Theprocedure followed for
theselection ofcompanies wasaprocedure thatisstandard forgovernment assistance, i.e.through
apublic invitation tofileapplications withrequired documentation. Acommission, which includes
outside experts, selects eligible companies onthebasis oftransparent, publicly notified criteria.
Question 13
Please explain howresearch grants areprovided. What isthepercentage ofthecosts ofthe
project thattheGovernment underwrites? What isthetypeofresearch conducted? What typesofcosts
doestheGovernment underwrite? Whoaretherecipients ofresearch grants?
Answer
Seethereply toquestion 11.There isnospecific treatment ofsmall andmedium business
infunding ofresearch.G/SCM/Q2/SVN/5
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Question 14
Please elaborate onhowtheless-developed regions andthedemographically-depressed areas
wereselected. Describe criteria usedinthisprocess.
Answer
Thebasic legislation inthisareawasadopted in1990 andthisistheLawonthePromotion
oftheDevelopmentofDemographicallyEndangeredAreasintheRepublicofSlovenia(RS48-2306/90),
which came intoforce on1January 1990. Thelawwasfurther elaborated byrulesanddecisions for
specified forms ofassistance (mainly infrastructure). Fortheperiod 1994to1996theDecree onAreas
Designated asDemographically Endangered came intoforce on25May1994. ThisDecree included
criteria forthespecial treatment ofcertain local communities. Thecriteria were acombination of
generally recognized demographic indicators andeconomic indicators which define development, such
ascommunications development, geographic remoteness, employment possibilities, economic viability
ofthecommunity asawhole andmigration patterns, localincome levels, etc.
Question 15
Slovene Export Corporation (SID)
15. Please explain howSIDoperates andhowtheassistance isprovided. Indicate whether revenues
aresufficient tocover theoperating costsofthisactivity inthelongrun,specifying theperiod inwhich
thiswould bemeasured. Iftherevenues arenotsufficient, please indicate whatother sources ofincome
maybeusedtofinance thisprogramme.
Question 16
16. Please describe theprocess thatcompanies must follow toreceive assistance under this
programme.
Answer
Theattached supplementary information paper explains inadetailed manner theoperations
oftheSlovene Export Corporation andcontains replies totheabove questions (seeattachment).
Question 17
Transport Service Subsidies
Please indicate theindustrial sectors which benefit fromthistypeofassistance in1995.
Answer
Theassistance intheareaoftransport isdesigned tostimulate multi-modal transport rather
thanbenefit anyparticular industrial sector orsectors. Thepolicy objective istosupport more efficient
transport. Theassistance wasgenerally available tocompanies making useofcontainerized shipping.G/SCM/Q2/SVN/5
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POLAND
Question
AidtoSmall andMedium Business andPostPrivatization Assistance
Could Slovenia please define small andmedium enterprises, provided thatsuchdefinitions exist
inSlovenia 'slegal system?
Answer
TheLawontheDevelopment ofSmall Business (Official Gazette No.18/1991) defines small
business as:
1. Companies employing upto125persons inthefollowing economic sectors:
- transport andcommunications
- wholesale trade
- catering andtourism
- small manufacturing andsimilar activities
- limited trades andservices provided bysingle proprietors orpartnerships
- civilengineering, architectural, financial, technical andbusiness services.
2. Companies which employ upto50persons inindustry, mining andconstruction.
3. Trades cooperatives.
4. Self-employed persons intheareaoflicensed commercial activities.G/SCM/Q2/SVN/5
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Replies toQuestions Nos. 15and16-Slovene Export Corporation (SEC)
Ad15
(a) TheSlovene Export Corporation, Inc.wasestablished inautumn 1992. Itisajoint-stock
company, themajor shareholder being theRepublic ofSlovenia. Theremaining shareholders arethe
banks, insurance companies, broker firms andother companies. Thepaid-in founding capital ofSEC
attheendof1996 amounted toUS$60 million andtheSEC'sguarantee capital asofthesame day
amounted toUS$67 million.
Theprincipal activities oftheSECare:
- export credit andinvestment insurance against commercial andnon-commercial risks,
- refinancing ofshort-term andlong-term export credits (supplier 's/buyer 'scredits)
- issuing ofbonds (service guarantees), especially forcapital goods suppliers.
Theabove-mentioned activities arecarried outbySEConitsownaccount, except theinsurance
against medium-term commercial risks andnon-commercial risks, where theSECactsonthestate
account. Foritscontractual obligations theSECguarantees withitsguarantee capital.
Forthesettlementofitsliabilitiestowardsinsureesandforcoveringlossesarisingfrominsurance
against medium-term commercial risks andnon-commercial risks, which SECperforms onitsown
account, onecanusealsoSEC'ssecurity reserves. Thelatter areformed outofinsurance premiums
andtheshare ofprofit, which thecorporation generates frominsurance business against medium-term
commercial andnon-commercial risks.
Thesecurity reserves oftheSECamounted on31December 1996 toUS$2.7 million. The
initial funds forthesecurity reserves were provided bythestate. Thesecurity reserves areoffthe
SEC'sbalance sheetandareintheformoflong-term SEC'sliabilities towards theRepublic ofSlovenia
andareincreased ordecreased according totheSEC'sbusiness results inthisparticular fieldofits
operations. Should thecorporation failtorefund generated losses from thesecurity reserves, the
necessary funds forthecompensation payments, resulting from theinsurance against medium-term
commercial andnon-commercial risks, arebeing provided bytheRepublic ofSlovenia, namely its
budget.
Theinsurance against short-term commercial risks, which SECperforms onitsownaccount,
isbased onthepositive results achieved inthepastyears. Positive arealsotheoperational results
oftheSECinthefieldofinsurance against non-commercial risks, which SECperforms, likein1995
introduced insurance against medium-term commercial risks, onthestateaccount (thepremium income
from insurance against medium-term commercial risks lastyearamounted toUS$170,000). Since
1993, when SECintroduced theinsurance against non-commercial risks, theyearly premium income
hasincreased (in1993-US$31,000, in1994-US$81,000, in1995-US$359,000 andlastyearitreached
alevelofUS$552,000). During alltheseyears SECpaidonlyoneclaim intheamount ofUS$500,000,
which itsucceeded togetrecovered from thedebtor theverysame year. TheSEC'spremiums are
fixedforeachindividualcountry,onthebasisofSEC'scountry-riskassessmentandcountryclassification
infiveriskcategories andaredependent, interalia,ontheinsurance period andreflect theriskof
eachindividual export business (commercial premium ratesarebased onthelength ofinsurance period
andvarybetween 0.1% and3.4%; theymaybealsoincreased forconcrete dealsinaspecific individual
country). Similarly, SECinitsoperation takes intoaccount theestablished country limits andalsoG/SCM/Q2/SVN/5
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takesintoconsideration theagreements reached within theframework oftheBernUnion andtheOECD
Consensus.
Irrespective ofthefact,thattheSEChashadonlyfouryears ofexperience since itstarted
withtheinsurance against non-commercial risks(andthisisarelatively short period forananalysis
ofperspectives andlong-term business results ofSECinthesaidfield), webelieve, thattheSEC's
pricing allows, bearing inmind thepremium differentiation withrespect totheriskleveloftheexport
business deals, considering theSEC'sbusiness policy anditsinsurance conditions, established country
limits aswellasinthestatebudget stipulated upper limitforSEC'sexposure (lastyearthisexposure
wasfixed intheamount ofUS$350 million), considering alsothevolume ofthesecurity reserves and
budgetary means available forcovering ofpossible losses arising frominsurance deals, thepremium
income fromtheabove insurance, willbemostprobably sufficient tocover theSEC'sfuture operational
costs andthesettlement ofliabilities towards insurees inthisdomain oftheSEC'sactivities.
(b) SECisrefinancing export credits (supplier 's/buyer 'scredits) particularly inthecaseofthe
export ofcapital goods orquasi-capital goods, construction works abroad aswellastheexport of
consumer durables. Theturnover ofrefinancing in1996 amounted toUS$179 million (in1995
US$106 million). SECisrefinancing export credits withregard tothetypeoftheexported goods and
services intheamount of50-85% ofthecredit, whereby theaverage levelofrefinancing inmostcredits
approved, being 50%in1996. SECperforms thisactivity onitsownaccount. TheSEC'sinterest
ratesfortolarcredits werewithregard tothetenor ofcrediting fromBIR+5.5-6.25% (BIR: basic
interest rate,i.e.average ofprevious fourmonth inflation). Thesource forrefinancing ofexport credits
istheSEC'spaid-in capital which atthepresent rateofrefinancing hasbeensufficient fortheapproval
of699outof717submitted requests in1996.
LastyearSECdisbursed forrefinancing ofsupplier 'sexport credits asagovernment agent
SIT400.2 million fromthestatebudget. Thelevelofsubsidies ofthetolarrealinterest ratehavebeen
withregard tothetenor ofcredits andthetypeofexported goods, between 14-30% (respectively in
thesecond halfoftheyear21-45%), whereby most ofthecredits were subject to14% subsidies
(respectively 21%inthesecond halfoftheyear). ThefinalSEC'ssubsidized interest rate,forwhich
theborrowers -exporters, asfinal beneficiaries ofthesubsidization, were entitled reached
BIR+4.95-7.11%.
Thesubsidized tolarinterest ratesarecomparable andanyhow lower thantheminimum interest
ratesstipulated intheOECD Consensus. With theenvisaged SEC'sborrowings onforeign financial
markets, SECwillbeinaposition toensure thefunding sources forexport financing inforeign currency,
which willdiminish therequirement forsubsidizing thetolarinterest rates.
Ad16
Fortheinsuranceand/orrefinancing,theexporterorthebanksubmitsSECarequestapplication.
Inlinewith thebusiness policy andafter review oftherequest applications andtherequired
documentation, ontheproposal oftheexecutive directors, responsible fortheindividual sector, the
SECBoard approves theconclusion oftheinsurance orrefinancing contracts. Refinancing business
operationswhichexceed5%oftheSEC'sguaranteecapital,aswellasinsuranceandguaranteeoperations
which exceed 10%oftheCorporation 'sguarantee capital, mustbeapproved bytheInter-Ministerial
Committee. Thesubsidies arecalculated bySEConaquarterly basis forthepastperiod andonthe
basis ofthecalculation ofcommercial banks which hadinvoiced interest rates payments tofinal
beneficiaries. Thesubsidies arecredited tothefinalbeneficiaries directly forthewhole partofthe
credit (also fornon-refinanced portion ofcredit which thebank approved tothefinalbeneficiary-
exporter).