Free Zone Incentives in MERCOSUR Countries and WTO Law

Abstract

This article examines the consistency of the incentives offered by free zone regimes in Argentina, Brazil, Paraguay, and Uruguay with World Trade Organization (WTO) law. It suggests that some of the incentives offered to free zone users are inconsistent with the Agreement on Subsidies and Countervailing Measures (ASCM) because they constitute a ‘subsidy’ within the meaning of the ASCM, subject de iure or de facto to export performance, most notably, exemptions of direct taxes, exemptions of custom duties on the import of capital goods, exemptions of payment of social welfare charges, unqualified exemptions on payment of indirect taxes, and the possibility to supply goods or services to free zone users at promotional rates. By contrast, this article suggests that there are no significant inconsistencies between free zone incentives and the General Agreement on Trade in Services (GATS) but warns that the situation could change in the future if, as a result of multilateral negotiations, MERCOSUR countries opt for extending their GATS commitments to new sectors and modes of supply.