RESTRICTED

(95-1858)

Original: Spanish

SUBSIDIES

NOTIFICATIONS PURSUANT TO ARTICLE XVI.1 OF THE GATT 1994

AND ARTICLE 25 OF THE AGREEMENT ON SUBSIDIES AND

COUNTERVAILING MEASURES

VENEZUELA

The following updating notification, dated 20 March 1995, has been received from the Permanent Mission of Venezuela.

In view of the decision taken by the CONTRACTING PARTIES of the GATT 1947 on Avoidance of Procedural and Institutional Duplication (L/7582, dated 13 December 1994) this notification is deemed to be also a notification under Article XV:1 of the GATT 1947.

_______________

I have the honour herewith to submit Venezuela's notification pursuant to Article 25.2 of the Agreement on Subsidies and Countervailing Measures and Article XVI of the General Agreement on Tariffs and Trade 1994 of the World Trade Organization (WTO).

The present notification is also made in accordance with the provisions on Special and Differential Treatment of Developing Country Members contained in Part VIII, Article 27 of the Agreement on Subsidies and Countervailing Measures, and the corresponding provisions of the WTO Agreement on Agriculture.

Notification of the Republic of Venezuela

Article 25.2 of the Agreement on Subsidies and Countervailing Measures and

Article XVI of the General Agreement on Tariffs and Trade 1994

World Trade Organization

I. Income tax exemption for export profits

1. Description of subsidy:

The subsidy consists of exemption, under the Venezuelan Law on Free Zones, from the payment of income tax in respect of the profits that legal entities established in the free zones obtain from the sale of their products outside the country.

2. Period of notification:

The period covered by the notification is three years from 30 June 1995.

3. Purpose of the subsidy:

The purpose of the subsidy is to promote non-traditional exports with a view to diversifying production, and generating sources of work and income for the population.

4. Background and authority:

"The purpose of the Law on Free Zones is to regulate the establishment and operation of free zones in the country, in order to promote national development by means of activities which fundamentally strengthen foreign trade and contribute to the transfer of technology, the generation of employment and regional development" (Article 1).

The subsidy is authorized pursuant to Article 21.1 of the Venezuelan Law on Free Zones, published in Official Gazette No. 34.772 of 8 August 1991. The Ministry of Finance is responsible for the supervision and enforcement of the tax regime.

5. Form of the subsidy:

Tax exemption.

6. Beneficiaries and mechanism:

All legal entities established in the free zones, which sell their products outside the country. The mechanism consists of an exemption from the payment of income tax.

7. Estimated amount of the subsidy:

No amount is budgeted for this measure since it is not a transfer of funds but a tax exemption. In Venezuela, there is one free zone, in the Paraguaná Peninsula in the State of Falcón, which is regulated by Decree 2.166 of 25 May 1988 published in Official Gazette No. 33.974 of 26 May 1988.

It is important to note that 23 enterprises have been established in the above free zone, 10 of which have stopped operating and 13 are functioning, though their production is irregular. This has made it difficult to obtain financial statistics which could be used to determine the amount and/or percentages deducted on account of the above subsidy.

8. Duration of the subsidy:

The measure is to run for 10 years from the entry into force of the Law (1991), but the National Executive may extend or shorten the period or modify the measure as it deems fit. For legal entities established after the entry into force of the Law, the ten-year period will run from the beginning of their operations.

For the moment there is no statistical information available reflecting the effect of this subsidy on trade. Such information will be supplied in due course, in so far as it becomes available.

II. Tax credit for agricultural exports

In Venezuela there is a tax credit for agricultural exports, laid down in Article 8 of Decree 1597 of 16 May 1991 issuing the partial amendment of the Regulations of the Law on Export Incentives. The tax credit amounts to 10 per cent of the net f.o.b. export value. This percentage will be applied to the products classified in each group, on the basis of the corresponding average and independently of the actual percentage of national added value of each export product. The exports concerned will be identified in accordance with the Customs Tariff.

Detailed information on this subsidy will be supplied as part of the notification which Venezuela will provide in accordance with the WTO Agreement on Agriculture. Additional information will be supplied in due course, in so far as it becomes available.