ElSalvador WT/TPR/S/23
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II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
(1) Trade Policy
(i) Trade policy objectives
1. ElSalvador 'strade policy isacoreelement oftheoverall structural adjustment programme,
begun in1989, tomove fromahighly regulated economy toaneconomic system which combines the
principle offreedom onthemarket withthatofsocial balance. Theprogramme hasentailed: (i)the
deregulation oftheeconomy; (ii)theelimination ofdistortions caused byStateintervention; (iii)the
guarantee ofprivate ownership andfreedom ofcontracts; (iv)theapplication ofeconomic policy
measures thatconform totherequirements ofthemarket; (v)thecreation ofaState apparatus that
issupportive ofthemarket system; (vi)theestablishment ofamonetary framework thatsecures the
stability ofthevalue ofmoney; (vii)theelaboration oflabour regulations thatprotect employees;
and(viii) thecreation ofafinancial structure regulating theincome andconsumption oftheState
(e.g., taxlegislation).
2. Since 1989 ElSalvador hasmoved from inward orientation initstrade policy, designed to
protect import-substitution industries within ElSalvador andother Central American countries, toone
ofmuch greater outward orientation, intended toallow thecountry toachieve further integration into
theworld economy. Thus, trade policy hasbeenbased ontheliberalization oftheimport régime;
thereduction oftheanti-export biascaused bythatrégime; theexpansion oftheexport base; the
modernization oftrade lawsandregulations; thestrengthening oftieswithtrade partners; and
negotiating better market access foritsgoods andservices complemented bytheestablishment ofan
appropriate environment forinvestment.
3. Since thereforms began, ElSalvador haseliminated mostnon-tariff barriers andpricecontrols,
aswellasagricultural marketing boards; ithasalsoreduced andrationalized import duties which were
fullybound intheUruguay Round, albeit atratessubstantially higher thanthose currently being applied.
4. According totheauthorities, nospecific sectoral policy istobeimplemented, sincethepurpose
istoachieve amore neutral environment without granting preferences toanysector. However, in
order topromote theproduction ofnon-traditional exports forextra-regional markets, adutydrawback
system hasbeenestablished aswellasaseries oftaxincentives forexporters. Production ofexportables
hasbeenfurther enhanced byrecent improvements tothefree-zone andtax-free arearégimes.
5. Since 1994, ElSalvador hasputspecial emphasis onstrengthening theprocess ofintegration
inCentralAmerica,inparticular,throughtheGeneralTreatyforCentralAmericanEconomicIntegration,
usually known astheCentral American Common Market (CACM). Thishasentailed therevision
oftheregional legislation regarding: rulesoforigin, tradedisputes, safeguards, unfair tradepractices,
phyto- andzoo-sanitary regulations, andtechnical standards.1TheCentral American Common Tariff
(Sistema Arancelario Centroamericano ,SAC) isalsobeing updated toalign itwiththenewversion
oftheHarmonized System. Inaddition, ElSalvador would liketorenegotiate the1970 free-trade
agreement withPanama. However, thisprocess hasnotstarted.
1Protocolo alTratado General deIntegración Económica Centroamericana (Protocolo deGuatemala),
29October 1993.WT/TPR/S/23
Page 20Trade Policy Review
6. Toachievefurtherintegrationintotheworldeconomy,theauthoritieshavebeenactivelyengaged
innegotiations ofregional, bilateral andmultilateral agreements. ElSalvador acceded totheGATT
inMay1991 andtotheWTO inMay1995. Atpresent, ElSalvador, together withGuatemala and
Honduras, isengaged inthenegotiation ofafree-trade agreement withMexico andisactively involved
inthenegotiations toestablish theFreeTrade Area oftheAmericas (FTAA).
(ii) Institutional andlegalframework
7. TheGovernment isdivided intothreeindependent branches: executive, legislative andjudicial.
TheExecutive Branch comprises thePresident, whoisdirectly elected bythepeople every fiveyears.
ThePresident appoints aCabinet, consisting ofMinisters andVice-Ministers ofState. Theexecutive
branch is,interalia,responsible forthebudget, thesecurity forces andforeign relations. TheLegislative
Branch consists ofanAssembly of84members elected every three years bythepeople, inproportion
tothenumber ofinhabitants ofeachofthedepartments intowhich thecountry isdivided. Thelegislative
branch must ratify treaties signed bytheexecutive andapprove thebudget. Tocarry outitswork,
theLegislative Assembly meets inspecialized commissions; thepertinent commission mustapprove
adraftlawbefore itisreadbythefullhouse. Draft lawshavetoundergo atleastonereading for
approval. TheJudicial Branch consists oftheSupreme Court ofJustice, courts ofsecond instance
andother courts ofjustice. Members oftheSupreme Court areelected bytheLegislative Assembly.
There isalsoanOffice oftheAttorney-General consisting oftheAttorney-General andtheGovernment
Procurator oftheRepublic. TheConstitution guarantees theindependence oflocalmunicipalities.2
8. According totheConstitution, thehierarchy ofthenational legislation isasfollows: the
Constitution, international treaties, secondary lawsandregulations. Secondary lawsinclude legislative
decrees(DecretosLegislativos),executivedecrees(DecretosEjecutivos),executiveagreements(Acuerdos
Ejecutivo s),andexecutive resolutions (Resoluciones Ejecutivas ).Laws arereferred toaslegislative
decrees. Executive decrees, agreements andresolutions needonlybeapproved bytheExecutive Branch.
9. Adraftbillcanbesubmitted totheLegislative Assembly forapproval by:itsmembers, the
President through theMinisters, theSupreme Court, and/or themunicipal councils. Thedraftlaw
isfirstdiscussed andapproved byaspecialized commission inCongress andthenpassed tothefull
house. Once thedrafthasbeendiscussed andratified itissubmitted tothePresident forhissanction.
Thelawhastobepublished intheofficial gazette (Diario Oficia l)within 15daysofthePresident 's
sanction anditenters intoforce eight daysafteritspublication intheofficial gazette.
10. International treaties become national lawsoncetheyareratified byLegislative Assembly,
theprocedure followed fortheWTO Agreement. Asecondary lawcannot modify atreaty, and,in
caseofaconflict, thetreaty would prevail. Since allratified treaties arenational laws, anyperson
caninvoke theirprovisions inthenational courts.
(iii) Trade policy formulation
11. TheMinistry ofEconomy, which in1989 absorbed theMinistry ofTrade (Ministerio de
Comercio Exterior ),is,infirstinstance, accountable fortheformulation oftradepolicy, andisincharge
ofitsimplementation. However, theapproval ofpolicies isundertaken bytheEconomic Committee
(Comité Económico ,COE), formed bythePresident, theVice-president, theMinister ofForeign Affairs
(Ministerio deRelaciones Exteriores ),theMinister ofEconomy (Ministerio deEconomía ),theMinister
2Provisional Accession ofElSalvador, GATT document L/6391.ElSalvador WT/TPR/S/23
Page 21
ofAgriculture andLivestock (Ministerio deAgricultura yGanadería ),theMinister ofFinance
(Ministerio deHacienda ),thePresident oftheCentral Reserve Bank (Presidente delBanco Central
deReserva ),andthePresidential Commissioner fortheReform oftheState(Comisionado Presidencial
paralaReforma delEstado ).
12. TheTrade Policy Directorate (Dirección dePolítica Comercial ),created in1994 within the
Ministry ofEconomy, isresponsible forformulating, implementing andreviewing trade policy, as
wellasnegotiating trade agreements attheregional, hemispheric andmultilateral level. However,
several public entities participate intheprocess offormulating trade policy andnegotiations oftrade
agreements. Forexample, theMinistry ofEconomy discusses tradepolicy proposals withtheMinistry
ofForeign Affairs andtheMinistry ofHealth (Ministerio deSalud )prior totheirsubmission tothe
COE forapproval. TheCOE approves theproposal byissuing aMinisterial Agreement. Should a
newlawberequired, thiswould follow thenormal process foradraftlaw,discussed earlier.
13. Aspartofthereform oftheState, therôleoftheMinistry ofForeign Affairs, which in
December of1995 absorbed theMinistry ofCo-ordination ofEconomic andSocial Development
(Ministerio deCoordinación Económica yDesarrollo Social ),haschanged. ThisMinistry nowhas
greater economic responsibilities intheinternational arena, andtheexecution ofthese functions has
tobeco-ordinated withtheMinistry ofEconomy andtheprivate sector. TherôleoftheMinistry of
Health inthedesign oftrade policy istoestablish health standards orregulations. TheMinistry of
Agriculture andLivestock isincharge ofestablishing phyto- andzoo-sanitary standards.
14. There isnoindependent review body toprovide theGovernment withformal, public advice
ongeneral economic policies, including trade policies. However, theprivate sector participates in
thedesign oftrade policy inaninformal way, since theauthorities holdperiodic consultations with
producers andexporters associations suchastheSalvadorian Association ofIndustrialists (Asociación
Salvadoreña deIndustriales ,ASI), theChamber ofCommerce andIndustry ofElSalvador (Cámara
deComercio eIndustria deElSalvador ),theNational Association ofPrivate Enterprises (Asociación
Nacional delaEmpresa Privada ,ANEP), andtheSalvadorian Exporters Corporation (Corporación
deExportadores deElSalvador ,COEXPORT) among other groups. Specialized commissions such
astheCommission fortheDevelopment oftheSugar Sector (Comisión deDesarrollo Azucarero ,CDA),
theCommission onTextiles (Comisión deTextiles )andtheSalvadorian Coffee Council (Consejo
Salvadoreño delCafé,CSC) alsoadvise theGovernment regarding trade policy. Inaddition, the
Salvadorian Foundation forEconomic andSocial Development (Fundación Salvadoreña para el
DesarrolloEconómicoySocial,FUSADES),aprivateresearchthinktank,andotherresearchinstitutions
provides advice totheGovernment oneconomic policy matters.
15. Theapproval oftradepolicy within theCentral American framework isdifferent. TheCouncil
ofMinisters ofEconomic Integration (Consejo deMinistros Responsables delaIntegración Económica )
examines proposals fortheimplementation ofCentral American integration policy andapproves the
instruments ofimplementation; these havethentoberatified bythenational Legislative Assembly
orbytheExecutive Branch, asappropriate.3InElSalvador, theLegislative Assembly hastoapprove:
(i)modifications totheGeneral Treaty ofCentral American Economic Integration; (ii)modifications
totheCentral American Tariff Code (Convenio Arancelario Centroamericano );and(iii)modifications
toanycodethatrequires theapproval ofthree Member countries toenter intoforce, aswellasany
change inthetariff ratesinPartIIIoftheSAC.
3Protocolo alTratado General deIntegración Económica Centroamericana (Protocolo deGuatemala),
29October 1993.WT/TPR/S/23
Page 22Trade Policy Review
(iv) Trade lawsandregulations
16. Table II.1provides anoverview ofElSalvador 'smain legislation intrade-related areas.
However, theSalvadorian trade lawsandregulations arecurrently being reviewed bytherelevant
ministries toassess anyincompatibility between theexisting legislation andtheWTO Agreement4and
theneedtorepeal incompatible legislation orlegislation thatmayhavefallen intodesuetude.
17. Central American legislation hasalsobeenreviewed andnewlegislation isbeing contemplated.
Forinstance, inorder toupdate theregional legislation, newdirectives regarding unfair tradepractices,
safeguards andrules oforigin havebeenapproved.5Inaddition, newregulations regarding trade in
services, investment, sanitary andphytosanitary measures anddispute settlement areunder study.
(v) Trade relations
(a) World Trade Organization
18. ElSalvador acceded totheGATT inMay1991, following ratification bytheLegislative
AssemblyinApril1991.ElSalvadorwasnotpartytoanyoftheTokyoRoundAgreements.ElSalvador
signed theFinal ActoftheUruguay Round andtheMarrakesh Agreement establishing theWorld Trade
Organization inMay1995. Accession totheWTO wasratified inMarch 1995. Under theSingle
Undertaking, allUruguay Round Agreements, except thefourPlurilateral Agreements, became binding
onElSalvador. ElSalvador hasnoplans tosignanyofthePlurilateral Agreements.
19. While autonomous liberalization hasreduced tariffs tobelow bound levels, adhesion tothe
GATT/WTO provides thediscipline andsecurity ofaccess thatlendsupport tothereform process.
Ontheother hand, much ofElSalvador 'strade takes place within preferential agreements orwithin
Central America sothattheimprovements inaccess toother markets asaresult oftheUruguay Round
willnothaveamajor short-term impact onElSalvador 'sexports. Inparticular, theauthorities are
disappointed withtheimplementation oftheWTO Agreement onTextiles andClothing, andare
particularlyconcernedthatsomedevelopedcountryimportershaveresortedtothetransitionalmechanism
without adequate justification.
20. Tables II.2andII.3showthenotifications made byElSalvador under theobligations ofdifferent
WTO Agreements aswellasalistofnotification obligations where there isnorecord ofnotification
byElSalvador ofameasure ortheabsence ofameasure byJune1996.
4However, incaseofaconflict between theWTO Agreement andthenational legislation, theinternational
agreement would prevail.
5Central American Regulation onUnfair Trade Practices (Reglamento Centroamericano sobre Prácticas
Desleales deComercio ),Agreement No.808, Diario Oficial No.237,21December 1995; Central American
Regulation onSafeguards (Reglamento Centroamericano sobre Medidas deSalvaguardia );Agreement No.213,
Diario Oficial No.110,14June 1996; andCentral American Regulation ontheOrigin ofGoods (Reglamento
Centroamericano sobre elOrigen delasMercancías );Agreement No.799, Diario Oficial No.329,
21December 1995.ElSalvador WT/TPR/S/23
Page 23
Table II.1
Trade-related legislation inElSalvador
Area Law
Rules ofOrigin: Central America Regulations ontheOrigin ofGoods (Reglamento deOrigen
Centroamamericano delasMercancías )(1995).
Customs Tariffs Central American Tariff System (Sistema Arancelario Centroamericano ,SAC) (1993)
Customs Valuation: Annex BtotheAgreement ontheCentral American Tariff andCustoms Régime:
Central American Legislation onCustoms Valuation (Anexo BdelConvenio sobre el
Régimen Arancelario yAduanero Centroamericano: Legislación Centroamericana sobre
elValor Aduanero delasMercancías )(1986)
Preferential Agreements: Central American General Treaty ofEconomic Integration (Tratado General de
Integración Económica Centroamericana )(1961)
FreeTrade andPreferential Exchange Treaty withPanama (Tratado deLibre Comercio
ydeIntercambio Preferencial conPanamá )(1970)
Levies andCharges: Taxonjutesacks (1993)
Decree No.495onVAT (1993).
LawontheTaxontheTransfer ofGoods andServices (LeydeImpuesto ala
Trasferencia deBienes Muebles yalaPrestación deServicios )(1992).
LawontheTaxonSweetened andUnsweetened SoftDrinks (LeydeImpuesto sobre las
Bebidas Gaseosas Simples oEndulzadas )(1996).
Instruction No.2093 oftheMinistry ofFinance (1996)
Decree No.385Abolishing dutyandtaxconcessions (1989)
Import Regulations: Annex AtotheCentral America General Treaty ofEconomic Integration (Agreement
No.577,1995).
Decree No.647 (import prohibitions andimport restrictions) (1990)
LawRegulating theProduction andCommercialization ofAlcohol andAlcoholic
Beverages (LeyReguladora delaProducción yComercialización delAlcohol ydelas
Bebidas Alcohólicas )(1996)
Import restriction onjutesacks (1953)
LawtoPromote theSanitary Production ofMilk andDairy Products andtheRegulation
ofRetailing (LeydeFomento deProducción Higiénica delaLeche yProductos
Lácteos ydeRegulación desuExpendio )(1960)
Agreement No.277onimport liberalization (1993)
Export Regulations: Coffee Retention Scheme, Decree No.414(1995)
Barter andCountertrade: LawfortheReactivation ofExports (LeydeReactivación de
lasExportaciones )(1990)
Export Promotion: LawfortheReactivation ofExports (LeydeReactivación delasExportacione s)(1990)
LawontheRégime onFreeZones andTax-free Areas (LeydelRégimen deZonas
Francas yRecintos Fiscales )(1990)
Standards andRegulations: LawontheEnrichment ofSugar withVitamin A(LeydeFortificación delAzúcar con
Vitamina "A")(1994)
LawontheIodinization ofSalt(LeydeYodación deSal)(1993)
Sanitary andPhytosanitary:aDecree No.647Sanitary andPhytosanitary (1990)
LawRegulating theProduction andCommercialization ofAlcohol andAlcoholic
Beverages (LeyReguladora delaProducción yComercialización delAlcohol ydelas
Bebidas Alcohólicas )(1996)
Health Code (1988)
Plant andAnimal Health Law(1988)
Marketing andLabelling: LawforConsumer Protection (LeydeProtección alConsumidor )(1996)
Decree No.647(labelling). (1990)
Government Procurement: General Budget Law(LeyGeneral delPresupuesto )
Procurement Law(LeydeSuministro )(1946)
Instruction 6023 A(Instructivo 6023 A)(1994)
Table II.1(cont'd)WT/TPR/S/23
Page 24Trade Policy Review
Area Law
Anti-dumping andCountervailing and
Safeguard Measures:Central American Regulations onUnfair Trade Practices (Reglamento Centroamericano
sobre Prácticas Desleales deComercio )(1995)
Central American Regulations onSafeguard Measures (Reglamento Centroamericano
sobre Medidas deSalvaguardia )(1996)
Central American Agreement onTariff andCustoms (Convenio sobre elRégimen
Arancelario yAduanero Centroamericano )Art.25and26(1993).
Pricing andMarketing Arrangements: LawforConsumer Protection (LeydeProtección alConsumidor )(1996)
Agreement No.46Wholesale Pricing forpetroleum (1995)
Agreement No.463Retail Pricing forpetroleum (1995)
Competition Law: LawforConsumer Protection (LeydeProtección alConsumidor )(1996)
Art.110oftheConstitution (1983)
Intellectual Property: LawtoPromote andProtect Intellectual Property Rights (LeydeFomento yProtección a
laPropiedad Intelectual )(1993)
Foreign Investment: LawtoPromote andGuarantee Foreign Investment (LeydeFomento yGarantía dela
Inversión Extranjera )(1988)
a Foracomplete listofsanitary andphytosanitary regulations refer toTable III.2.
Source: Compiled bytheWTO Secretariat.
Table II.2
Notifications made byElSalvador under theWTO Agreement, September 1996
Agreement Subject Document symbol Type ofmeasure
GATS Article VII:4 Trade inservices S/C/N17
(18/06/96)Recognition agreements/arrangements;
autonomous recognition measures
(agreements, arrangements or
autonomous measures recognizing
education, experience, licences or
certification granted inaparticular
country).
Agreement onTechnical
Barriers toTrade
(Art.2:10)Technical barriers to
tradeG/TBT/NOTIF.95.324
(09/11/95) and
G/TBT/NOTIF.95.324/Add.1
(6/12/95)Characteristics andspecifications tobe
satisfied forwheat flour.
Agreement on
Implementation ofArticle VI
ofGATT 1994
(Art.18.5)Anti-dumping G/ADP/N/SLV/1
(24/03/95)Laws/regulations (andchanges
thereto, including changes inthe
administration ofsuchlaws).
Agreement on
Implementation ofArticle VI
ofGATT 1994
(Art.16.4)Anti-dumping
actions (taken within
thepreceding 6
months)G/ADP/N/2/Add.1/Rev.1
(28/08/95)
G/ADP/N/4/Add.1/Rev.4
forthcoming
G/ADP/N/9/Add.1/Rev.2
forthcomingNoactions taken, Jul-Dec 94.
Noactions taken, Jan-Jun 95.
Noactions taken, Jul-Dec 95.
Agreement onSubsidies and
Countervailing Measures
(Art.32:6)Countervailing
measures; subsidiesG/SCM/N/1/SLV/1
(27/03/95)Laws/regulations (andchanges
thereto, including changes inthe
administration ofsuchlaws).
Agreement onSubsidies and
Countervailing Measures
(Art. 25:11 -semi-annual)Countervailing duty
actions (taken within
thepreceding
6months)G/SCM/N4/Add.1
(14/07/95)Noactions taken.
Table II.2(cont'd)ElSalvador WT/TPR/S/23
Page 25
Agreement Subject Document symbol Type ofmeasure
Agreement onSafeguards
(Art.12:6)Safeguards G/SG/N/1/SLV/1
(27/03/95)
G/SG/N/1/SLV/2
(02/09/96)Laws/regulations andadministrative
arrangements (andchanges thereto),
orabsence thereof.
Agreement onTextiles and
Clothing
(Art. 2:7)Textiles/clothing G/TMB/N/52
(28/04/95)Integration Programme (first stage)
Articles 2.6&2.7: Listofproducts
forfirstintegration intoGATT, i.e.,
16percentoftotalvolume of1990
imports ofproducts inAnnex.
Agreement onTextiles and
Clothing
(Art.6:1)Textiles andclothing
(safeguard measures)G/TMB/N/8
(01/03/95)Article 6.1: Decision whether ornot
Member wishes toretain therightto
usetheprovisions ofthespecial
safeguard inATC Article 6.
Agreement onImport
Licensing Procedures
(Footnote 5toArt.2.2)Import licences G/LIC/I
(24/04/95)Delay ofapplication ofsub-paragraphs
(a)(ii) and(a)(iii) by2years from date
ofentry toforce oftheWTO
Agreement.
Agreement on
Implementation ofArticle
VIIofGATT 1994
(Annex III)
(Art. 20.2)
(Art.4)
Art.5.2)Customs valuation WT/LET/1/Rev.2
22/05/95
G/VAL/2
(28/04/95)
G/VAL/2/Rev.1
(13/10/95)Article 20.1(delayed application of
theprovisions oftheAgreement),
Article 20.2(delayed application of
thecomputed value method),
paragraph 2ofAnnex III(reservation
concerning minimum values),
paragraph 3ofAnnex III(reservation
concerning reversal ofsequential
order ofArticles 5and6),and
paragraph 4ofAnnex III(reservation
concerning application ofArticle 5.2,
whether ornottheimporter so
requests).
Agreement onRules of
Origin (Article 5and
Paragraph 4ofAnnex II)Rules ofOrigin G/RO/N/10
(10/08/96)ElSalvador doesnothaveorapply
anynon-preferential rules oforigin.
Source: WTO Central Registry ofNotifications.WT/TPR/S/23
Page 26Trade Policy Review
Table II.3
Notification obligations under theWTO Agreement where nonotification ofmeasures
ortheabsence ofmeasures hasbeen received bySeptember 1996
Agreement Subject Note
Agreement onAgriculture:
Article 18:2- Volume ofimports
under tariff andother
quota commitments
- Annual useofthe
special safeguard
provisions
- Domestic support
Agreement onAgriculture: Article 10
and18:2- Export subsidies
- Food aidinthecontext
ofexport subsidies
Agreement onAgriculture:
Article 16:2- Decision onmeasures
concerning thepossible
negative effects ofthe
reform programme on
least-developed andnet
food-importing
developing countries
TRIPS Agreement Article 63.2and
Decisions TRIPS Council of
21November 1995 (IP/C/2)- Relating toArticles 3,4
and5Article 65requires allMembers tocomply with
Articles 3,4and5oftheTRIPS Agreement as
of1January 1996. According toparagraph 2.1
oftheDecision oftheCouncil forTRIPS of
21November 1995 (IP/C/2), relevant
legislation hastobenotified totheCouncil
without delay afterthatdate.
TRIPS Agreement Article 69 1January 1996 (seeIP/C/M/3, paragraph 27)
Agreement onImport Licensing
Procedures Article 7.3
Agreement onImport Licensing
Procedures Article 1.4(a) and/or 8.2(b)
Decision onNotification Procedures
forQuantitative Restrictions (G/L/59)Biennial.
Agreement onPreshipment Inspection
Article 5Firsttime.
Agreement onSubsides and
Countervailing Measures Article 25.1-
GATT 1994 Article XVI:1
Agreement onSubsidies and
Countervailing Measures Article 25.11Semi-annual: period January-June 1995, period
July-December 1995.
GATT 1994 Article XVII:4(a) -
Understanding ontheInterpretation of
Article XVIIFullnotification wasdueon30June1995.
GATS Article III:4and/or IV:2
(optional) (forallMembers)Each Member should notify theestablishment
ofitsenquiry/contact points by31December
1996.
Source: WTO Central Registry ofNotifications.
21. ElSalvador hasnolegislation tosolvetradedisputes withitstrading partners, thusGATT/WTO
provisions would beused, ifrequired. Within theCACM, trade consultations anddispute settlement
among members arecovered inafirstinstance atthemeetings ofDirectors ofIntegration and,asa
lastresort, atthemeetings ofMinisters incharge ofIntegration (Ministros Encargados delaIntegración
Centroamericana ).ElSalvador WT/TPR/S/23
Page 27
22. In1993, within theframework ofthedispute settlement provisions ofGATT 1947, ElSalvador
wasinvolved asacomplainant inadispute under GATT Article XXIII which ledtoapanel. Thedispute
wasinrelation totheUnited States 'introduction oflegislation restraining imports oftobacco, which
according tothecomplainants andthepanel conclusions violated Article III:5andother relevant
provisions oftheGATT.6
(b) Regional Agreements
Central American Common Market (CACM)
23. ElSalvador hasbeenamember oftheCACM since 1961when theGeneral Treaty ofCentral
American Economic Integration (Tratado General deIntegración Económica deCentroamérica )of
1960entered intoforce.7TheSalvadorian authorities consider thatthisintegration scheme isofprimary
importance forthecountry andcould provide asound basefortheintegration ofCentral America into
theworld economy -hence theeffort made bytheSalvadorian Government toenhance theprocess
ofintegration.
24. TheCACM wascreated mainly topromote trade andthedevelopment oftheindustrial sector
inthemember countries; sectors suchasagriculture andservices were given littleimportance. A
strategy ofimport substitution industrialization (ISI)wasadopted, since itwasconsidered thatthe
agricultural sector wasnotsufficiently dynamic togenerate desired rates ofgrowth andprovide
employment foragrowing population. While providing support toindustry geared tosupplying the
national andCentral American markets, theprotectionism implicit inthisstrategy alsoeffectively taxed
theexport sector. Thestrategy ledtoadistorted distribution ofresources andtothedevelopment of
aninefficient industrial sector. Initially, theprogramme wassuccessful inboosting intra-regional trade,
butwasmuch lesssuccessful inpromoting exports towards thirdmarkets. Until recent reforms, only
exports suchascoffee withhighcomparative advantage were abletocompete forscarce resources
withtheprotected sectors.
25. Inrecent years theprocess ofintegration hasbeengiven anewimpetus. In1987, growth in
intra-regional trade again began togrow strongly, andthistrend gained momentum through 1995.
Since 1993, trade levels have consecutively surpassed historic highs. Intra-regional trade grew
22percent in1995 toreach US$1.5billion.8
26. In1990, theCACM members started negotiations torestructure theprogramme ofeconomic
integration. Thenewprocess ofintegration isbased onoutward orientation, andtheproduction of
tradeable goods isafundamental element. Thisnewscheme wastobedesigned within theframework
ofthestructural adjustment programmes thatarebeing implemented byseveral oftheCACM members.
Thus, thenewframework ofintegration ischaracterized bylessinterventionist policies andlower rates
ofprotection inorder toachieve amore efficient allocation ofresources. Theregional market will
beprotected byamoderate common external tariff.
6Formore information seeGATT documents: DS44/1, 7September 1994; DS44/5, 7December 1993;
DS44/5/Corr.1, 15February 1994; DS44/9, 15February; DS44/9/Rev.1, 28February 1994; DS44/R,
12August 1994.
7ThisTreaty wassigned byGuatemala, ElSalvador, Honduras andNicaragua inDecember 1960 andentered
intoforce forthese countries inJune 1961. Costa Rica signed theTreaty inNovember 1962.
8Inter-American Development Bank (1996).WT/TPR/S/23
Page 28Trade Policy Review
27. In1993, there wasashiftfrom thecommon tariff nomenclature, NAUCA II,based onthe
CCCN, totheCentral American Common Tariff (Sistema Arancelario Centroamericano ,SAC), based
ontheHarmonized System. While thenomenclature isthesame forallmembers, theSAC cannot
yetbeconsidered acommon external tariff, since ratesapplied byeachmember arestillintheprocess
ofharmonization.
28. TheSAC isdivided intothree Parts; theaverage tariff rateforParts IandIIis20percent
and30percentforPartIII.Tariff ratesforgoods included inthethreePartsoftheSACcanbechanged
unilaterally. However, anyunilateral changes intariff ratesofParts IandIIcanonlybetemporary
emergency measures, asestablished inArticle XXVI oftheCentral American Tariff andCustoms
Agreement (Convenio Arancelario yAduanero Centroamericano )(Chapter III).Changes inthesetariffs
havetobeapproved bytheMinisters inCharge ofIntegration whohave30daystoexamine eachcase
andmake adecision. Tariff ratesforPartIIIcanbemodified bytheLegislative Assembly ofeach
Central American country, without theapproval oftheMinisterial Meeting. Definitive modification
inthetariff rates ofParts IandIIcanonlybedone attheCouncil ofMinisters Responsible for
Integration (Consejo deMinistros Responsables delaIntegración ).
29. TheSalvadorian authorities areundergoing arevision oftheregional legalinstruments toensure
accordance with theWTO Agreements, some newregulations have already been drafted and
re-negotiated. Forinstance, newlegislation onrules oforigin andsafeguards hasbeenapproved at
theCentral American level.
30. In1995, substantial changes weremade totheCACM legalframework. First, theProtocol
ofTegucigalpa9,which created theCentral American Integration System (Sistema deIntegración
Centroamericana ,SICA), wassigned andratified bythesixcountries oftheIsthmus. Thesystem
establishes aneconomic community inwhich themember countries would harmonize economic policies,
agree oncommon external tariffandallow mobility offactors ofproduction suchascapital andlabour.
Inthelonger run,theaimisthattheMembers specialize intheproduction ofthose products inwhich
eachMember enjoys acomparative advantage. Second, theProtocol ofGuatemala entered intoforce
withitsratification byNicaragua, Honduras andElSalvador. ThisProtocol reformed theGeneral
Treaty ontheEconomic Integration ofCentral America andstrengthened thejuridical framework of
theCentral American Secretariat forEconomic Integration (Secretaría paralaintegración Económica
deCentroamérica ,SIECA). These newinstruments strive atestablishing aneconomic areawhose
economic legislation andregulatory framework isharmonized soastofacilitate private sector activities
andcontribute toamore effective integration ofCentral America intotheinternational market.
31. According totheProtocol ofGuatemala (Article 6),individual members oftheCACM can
progress attheirownpace. Thisisthebasisonwhich, in1992, thePresidents ofElSalvador, Guatemala
andHonduras signed anagreement tostrengthen theprocess ofintegration bycreating theso-called
"Triángulo delNorte".10Theagreement provided forthefreemovement oflabour andcapital among
thethree countries. However, thisagreement hasnever become alawperseatthenational level.
32. OnFebruary 1993, ElSalvador together withtheother Central American countries signed
aTrade andInvestment Agreement withVenezuela andColombia. Theagreement wastoeliminate
9Thefullname oftheProtocol ofTegucigalpa isProtocolo deTegucigalpa alaCarta delaOrganización
deEstados Centroamericanos (ODECA), inLegislative Decree No.222,Diario Oficial No.93,22May 1992.
10Acuerdo deNueva Ocotepeque ,12May 1992.ElSalvador WT/TPR/S/23
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bothtariff andnon-tariff barriers andincrease theinvestment flows amongst themember countries.11
However, negotiations were notsuccessful andwere suspended inthesame year.
33. ElSalvador, together withGuatemala andHonduras, isatpresent negotiating afree-trade
agreement withMexico andisactively engaged inthenegotiations forthecreation oftheFree-Trade
Area oftheAmericas (FTAA).
(c) Preferences
34. ElSalvador isabeneficiary oftheCaribbean Basin Initiative(CBI) andalsobenefits fromthe
Generalized System ofPreferences (GSP) schemes oftheUnited States, Canada, Switzerland andthe
European Union (EU). Inaddition, Mexico, Venezuela andColombia grant preferential treatment
tosome Salvadorian products.
35. Accordingtotheauthorities,theUnitedStates'CBIandGSPprogrammesarethemostimportant
ofthesepreferential schemes. Salvadorian exports under theCBIamounted in1994toUS$26.5 million
andincreased toUS$41 million in1995, while exports under theUnited States 'GSPamounted to
US$37.6 million in1994.12However, thesedatadonotagree withfigures inTable II.4which suggest
thattheEUGSPisthemost important preferential régime.
Table II.4
Exports benefiting from unilateral trade preferences, 1991-95
(US$ million; andpercentage)
Country 1991 1992 1993 1994 1995
Value
Total exports 633.6 795.5 1032.1 1294.3 1661.3
United States 41.3 32.5 26.7 22.8 56.4
Canada 5.6 3.9 4.7 12.4 14.7
EU15 122.7 72 101.4 178.2 308.2
Switzerland 0.3 0.2 0.2 0.0 3.2
USA (CBI) 112.0 119.5 123.0 94.2 92.2
Share ofTotal Exports
United States 6.5 4.1 2.6 1.8 3.4
Canada 0.9 0.5 0.5 1.0 0.9
EU15 19.4 9.1 9.8 14.3 18.6
Switzerland 0.0 0.0 0.0 0.0 0.2
USA (CBI) 17.7 15.0 11.9 7.5 5.5
Source: Government ofElSalvador.
11Norton etal.(1994).
12Information provided bytheauthorities.WT/TPR/S/23
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36. Most oftheproducts benefiting fromtheUnited States 'CBIandGSPschemes aretraditional
agricultural products suchascoffee andsugar; non-traditional products suchasshrimp, melons and
pineapples arealsoexported under theserégimes. These agricultural products arelabour-intensive and
theschemes therefore haveapositive impact upon employment.13
37. Exports under theCanadian GSPhavealsogained inimportance since thenumber ofproducts
allowed toenter under thisrégime hasbeenbroadened, eventhough some important manufactured
products, suchassome textiles andshoes, havebeenexcluded. In1991, 54different products were
exported under therégime, while in1994thenumber ofproducts increased to70;themostimportant
exportsarecoffee,cottonthread(hilazadealgodón),rawsugar,sesameseeds,beansandknittedblouses.
(2) Investment Policy
(i) Investment policy objectives
38. Foreign direct investment (FDI) hasbecome akeyelement inthereconstruction and
modernization ofinfrastructure, aswellasforincreasing productivity through technology transfer and
know-how. Thus, since 1989, thepromotion ofFDIhasbeenanimportant component ofSalvadorian
economic policy. Theauthorities haveaimed ateliminating allrestrictions applied toforeign investors,
atsetting thesame rules fornational andforeign investors andatguaranteeing allinvestments and
respecting private property.
39. Policies insupport ofefforts toattract greater FDIinclude theliberalization oftheforeign
exchange market, thereform ofthetrade régime andtherevision ofthelegalframework. Thus:
- theforeign exchange market wasliberalized in1991eliminating allrestrictions andcontrols.
Thepriceofthecurrency issetbythemarket, andtherearenocontrols onacquiring orselling
foreign exchange;
- therationalization oftariffs andtheelimination ofmostnon-tariff barriers begun in1989aims
atpromoting theefficiency oftheproductive sector andatadding transparency tothetrade
régime byreducing discretionality; and
- animproved legalframework hasgiven national andforeign investors aclear picture ofthe
rulesandregulationsunderwhichtheywouldoperateandhasre-establishedinvestorconfidence.
Tothisend,three lawshavebeenapproved: theLawtoPromote andGuarantee Foreign
Investment (LeydeFomento yGarantía alaInversión Extranjera ),thelawfortheReactivation
ofExports (LeydeReactivación delasExportaciones ),andtheLawontheRégime for
FreeZones andTax-free Areas (LeydelRégimen deZonas Francas yRecintos Fiscales ),
(Chapter III).
40. Additional legalandinstitutional reforms havealsocontributed tothecreation ofanenvironment
more attractive toforeign investment. These include thederegulation andprivatization ofthebanking
sector andthedesign ofaplantoprivatize other institutions; theelimination oftrade monopolies;
thereform oftheState; andtheestablishment ofalegalframework tostrengthen thefunctioning of
themarket.
13Norton etal.(1994).ElSalvador WT/TPR/S/23
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41. Theprocess ofregistration andlegalization offoreign andnational investment hasbeen
centralized through theestablishment ofthesingle-window forinvestment formalities (Ventanilla Única
deTrámites deInversiones )in1994. However, despite thestreamlining offormalities, theprocess
isstillbureaucratic; theauthorities aimtointroduce asingle application form andtoestablish the
National Investment Office (Oficina Nacional deInversiones ,ONI) asaone-step investment window
similar toCentrex. (Chapter III).
42. Inaddition, theSalvadorian business community hasfounded aprivate institution, PRIDEX,
toaidforeign investors. PRIDEX, ElSalvador 'strade andinvestment service centre, ispartofthe
Salvadorian Foundation forEconomic andSocial Development (Fundación Salvadoreña para el
Desarrollo,FUSADES),andspecializesinassistinginternationalcompaniesinsettingupmanufacturing
operations, forexporting tomarkets outside theCentral American region.
43. Inorder topromote andprotect investment ElSalvador hasalsosigned bilateral agreements
withEcuador, France, Switzerland andSpain. Similar agreements withArgentina andPeruareto
beratified, while negotiations withChile havebeenconcluded. Agreements arebeing negotiated with
Korea, theNetherlands, Russia, Chinese Taipei andtheUnited States. ElSalvador hasalsosigned
bilateral investment guarantee agreements withChile, theUnited States andSpain.14
44. ElSalvador isamember oftheMultilateral Investment Guarantee Agency (MIGA) and
oftheOverseas Private Investment Corporation.
(ii) Legal framework
45. ThemainFDIlawinElSalvadoristheLawtoPromoteandGuaranteeForeignDirectInvestment
anditsRegulation.15However, FDIisalsocovered bytheConstitution, theBanking andFinancial
Law(LeydeBancosyFinancieras),theGeneralLawonFishing(LeyGeneraldeActividadesPesqueras)
andtheLawRegulating Commerce (LeyReguladora delEjercicio delComercio );several other laws
alsotouch oninvestment-related issues.
46. TheFDIlawgrants aseries ofincentives toforeign capital dulyregistered attheMinistry of
Economy. Thelawallows: (i)operations under 100percentforeigner ownership; (ii)unrestricted
remittance ofnetprofits ofinvestment inindustrial activities; (iii)remittances ofupto50percent
ofnetprofits peryearofinvestment incommercial andservice oriented activities;16(iv)freerepatriation
offunds obtained from theliquidation offoreign investment; (v)norestrictions onforeign capital
transactions; (vi)access todomestic credit; and(vii)fiscal credit onincome tax.Inaddition, the
incentives provided tonational investors under thefree-zone andthetax-free areas régimes arealso
available toforeign investors (Chapter III).
47. TheFDIlawwaspassed tosafeguard therights offoreign investors, butthebenefits apply
onlytoregistered foreign capital. Nevertheless, theregistration offoreign capital isnotalegal
requirement, and,atpresent, thereisnoincentive toregister thiscapital, sinceforeign exchange controls
14Data supplied bytheGovernment ofElSalvador.
15Decree No960,LeydeFomento yGarantía delaInversión Extranjera, Diario Oficial No.85,9May1988
andDecree No.1,Reglamento delaLeydeFomento yGarantía delaInversión Extranjera, 9January 1990.
16This restriction cannot beenforced since thecapital account hasbeen liberalized.WT/TPR/S/23
Page 32Trade Policy Review
andrestrictions oncapital movement, which existed when thislawwasissued, havebeenabolished.17
Nevertheless, given theexistence ofthelaw,theregistration offoreign capital isrecommended since
itwould protect investors intheevent thatrestrictive policies were re-instituted.
48. Asshown inTable II.5,FDIislimited inveryfewareas. Small-scale commerce, industry
andservices aretheonlyareas which aretotally restricted toforeign investors, andeventhislimitation
isnotbinding. First, thedefinition ofsmall-scale investment renders thisrestriction ineffective.18
Second, theCommerce Code (Código deComercio )allows forexceptions tothese restrictions when
domestic capital isnotavailable.
49. Foreigners benefit from national treatment atthetimeoftheapproval oftheinvestment.
However, theformal registration ("legalización" )offoreign investment hascertain additional
requirements tothose fornationals. Foreigners arealsorequired toobtain acommerce andindustry
"patent" (patente deindustria ycomercio ).Foreign branches require anadditional authorization
(preliminary authorization, autorización previa )thathastobeissued before theyapply fortheother
permits. Once allthese permits aregranted andtheinvestment isapproved thecompany canbe
"legalized".
50. However,theseproceduresaretobesimplifiedunderaproposalthatiscurrentlybeingdiscussed.
Theproposal includes theelimination ofthepreliminary permit andthesubstitution ofasingle permit
forthepatent andthecommercial licence. Itisalsoenvisaged toestablish theNational Investment
Office (Oficina Nacional deInversiones ,ONI) asaone-step window incharge ofallthese procedures.
Moreover, according totheauthorities, theFDIlawwillalsoberevised tosimplify theprocess of
registration andlegalization offoreign investment.
17Foreign exchange controls were relaxed in1991; therefore, itisnotfeasible torestrict capital repatriation,
since technically today allcapital could berepatriated.
18Small-scalecommer ceisdefinedasanoperationholdinglessthanC100,000(US$11,428.57),andsmall-scale
industry andservices aredefined asoperations holding lessthanC50,000 (US$5,714.28). (Decree No.9,
Reglamento alaLeyReguladora delEjercicio delComercio eIndustria, Diario Oficial No.23,4February 1970
(Article 20)).ElSalvador WT/TPR/S/23
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Table II.5
Areas inwhich FDIandnational investment arelimited
Activity Law
A. Sectors inwhich FDIandnational investment arelimited
1.Inorder toexploit thesubsoil theGovernment maygrant aconcession. Constitutiona(Art. 103,3)
2.Concessions tousepiers, trains, channels orother public infrastructure aregranted
foralimited period oftime.Constitution (Art. 120)
3.Properties ofrural areas arelimited to245hectares bothfornationals andfor
foreigners.Constitution (Art. 105,2)
4.Theamount ofshares thatcanbeowned inafinancial institution islimited to
5percentofthetotalcapital bothfornationals andforeigners.TheBanking andFinancial Law (Ley
deBancos yFinancierasb)(Art. 9)
5.Thepossession, production, importation, exportation andcommerce ofweapons,
ammunition, explosives andsimilar goods canonlytakeplace under thedirect
supervision oftheMinistry ofDefence andSecurity (Ministerio deDefensa y
Seguridad ).Constitution (Art. 217)
B. Sectors reserved onlyfortheState
1.Issuance ofmoney. Constitution (Art. 111,inc1)
C. Sectors inwhich foreign direct investment isprohibited, restricted or
limited
(a)FDIprohibited.
1.Small-scale commerce, industry andservices. LawtoPromote andGuarantee Foreign
Investment (LeydeFomento yGarantía
delaInversión Extranjera )(Art. 5)c
Constitution (Article 115)
2.Small-scale fishing orcoastal fishing.dLawtoPromote andGuarantee Foreign
Investment (LeydeFomento yGarantía
delaInversión Extranjera )(Art. 5)
TheGeneral LawonFishing (Ley
General deActividades Pesqueras )
(Art. 25literal a.)e
(b)Sectors oractivities inwhich FDIislimited orrestricted.
1.FDIisrestricted toamaximum of50percentinmechanized coastal fishing of
pelagic anddemersal species anddeep-sea fishing.TheGeneral LawonFishing (Ley
General deActividades Pesqueras )
(Art. 26)
2.FDIinbanks andfinancial institutions islimited to50percentofthetotalcapital. TheBanking andFinancial Law(Ley
deBancos yFinancieras )(Art. 9)
3.There arelimitations ontheamount ofcapital thatisinvested byforeigners in
commerce, industry andservices.f
Investment inaone-man commerce company: liquid assets must amount toat
leastC100,000.
Investment inaone-man industrial company: liquid assets must amount toat
leastC50,000.
Investment inasociety: liquid assets must double theabove-mentioned amounts.TheLawRegulating Commerce (Ley
Reguladora delEjercicio delComercio )
(Art. 3)g
4.Rural landcanbepurchased byforeigners onlyifthere isreciprocity, unless land
isforindustrial use.Constitution (Art. 109)
a Constitution ofElSalvador, 16December 1983.
b LeydeBancos yFinancieras, Diario Oficial No.92,22May1991.
c LeydeFomento yGarantía delaInversión Extranjera, Diario Oficial No.85,9May1988.
d Coastal fishing -12marine miles measured from thelowest tide; deep-sea fishing -theareafrom 12marine miles upto
200marine miles.
e LeyGeneral deActividades Pesqueras ,Decree No.799,Diario Oficial No.169,14September 1981.
f Services areconsidered anindustry forthepurpose ofthese restrictions.
g Leyreguladora delEjercicio delComercio eIndustria ,Decree No.279,27March 1969.
Source: Compiled bytheWTO Secretariat.