WORLD TRADE
ORGANIZATIONG/SCM/N/95/SLV
G/SCM/N/99/SLV
4 August 2003
(03-3859)
Committee on Subsidies and
Countervailing MeasuresOriginal:  Spanish
SUBSIDIES
New and Full Notification Pursuant to Article XVI:1 of the
GATT 1994 and Article 25 of the SCM Agreement
Extension Under SCM Article 27.4 of the Transition Period
for the Elimination of Export Subsidies Pursuant to
the Procedures in Document G/SCM/39
EL SALVADOR
The following communication, dated 27 June 2003, has been received from the Permanent
Mission of El Salvador.
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Attached please find El Salvador's new and full notification concerning the following
programmes:  "Export Processing Zones and Marketing Act, as Amended" and "Export Reactivation
Law", pursuant to Article XVI:1 of the GATT  1994 and Article 25.1 of the SCM Agreement.
This notification is also submitted in fulfilment of El Salvador's transparency obligations with
respect to these programmes as laid down in the Decision of the SCM Committee contained in
documents G/SCM/65 and G/SCM/99 entitled "Extension under SCM Article 27.4 of the transition
period for the elimination of export subsidies pursuant to the procedures in G/SCM/39" and
"Extension under SCM Article 27.4 of the transition period under Article 27.2(b) for the eliminationof export subsidies", respectively.G/SCM/N/95/SLV
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I. FREE ZONE AND INWARD-PROCESSING WAREHOUSE PROGRAMME
Pursuant to the Decision on Implementation-Related Issues and Concerns set forth in
document WT/MIN/01/17, paragraph 10.6, the request for an extension of the transition period under
the procedures laid down in document G/SCM/39 and the SCM Committee Decision contained indocument G/SCM/65 concerning the free zone and inward-processing warehouse programme,
El Salvador is pleased to submit its second notification relating to this programme, in accordance with
Item 1(d) of document G/SCM/39 and further to its initial communication submitted to the WTO
Committee on Subsidies and Countervailing Measures on 19 December 2001 and circulated as
document G/SCM/N/74/SLV.
1
El Salvador hereby wishes to confirm that, pursuant to paragraph 4(a) of
document G/SCM/39, the Free Zone and Inward-Processing Warehouse Programme satisfies the
standstill requirements established therein.
1. Description of the subsidy
Incentives for firms operating in free-trade zones or in inward-processing warehouses.
2. Period covered by the notification
2002.
3. Policy objective and/or purpose of the subsidy
To promote increased greater job opportunities through investment incentives for firms
engaging in exports of goods and services, with the aim of achieving sustainable economic growth.
4. Background and authority for the subsidy (including identification of the legislation
under which it is granted)
A. BACKGROUND
The damage to the domestic infrastructure resu lting from the armed conflict in El Salvador
during the 1980s and early 1990s severely impacted production sectors, investment and export
development. As a result of this situation, it was not possible to use the development programme
described in this notification. Following the signing of the Peace Accords in 1992, however,
El Salvador began to benefit from the programme, which facilitated job creation—a prerequisite for
alleviating poverty and overcoming the constraints that created such serious difficulties for the generalpublic during the 1980s.
The earthquakes that hit El Salvador in 2001 were responsible for heavy job losses,
particularly for the economically disadvantaged segment of the population, thereby increasing the
need for jobs. According to a report from ECLA C, total losses amounted to US$1,603 million, i.e.
12 per cent of GDP and 55 per cent of exports in 2000. In the aftermath of the catastrophe,
El Salvador is faced with the need to improve the welfare of its people, and especially those most
severely affected by the earthquakes.  In creating opportunities to maintain and raise employment
                                                     
1 El Salvador's initial notification pursuant to Article 27.4 of the Agreement on Subsidies and
Countervailing Measures was circulated as document G/SCM/N/38/SLV/Suppl.1, G/SCM/N/48/SLV/Suppl.1,
G/SCM/N/60/SLV/Suppl., G/SCM/N/38/SLV/Suppl.1.G/SCM/N/95/SLV
G/SCM/N/99/SLV
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levels—and by extension, the welfare of the Salvadoran people—the benefits deriving from the
programme are therefore essential for the country's economic and social development.
By the end of 2002, the number of people directly employed by firms benefiting under the
Law on Export Processing Zones and Marketing exceeded 84,000. As a result, numerous households
can now enjoy a secure source of income, employment opportunities, access to social security,
education, health and a pension plan, etc. Furthermore, the activities in question helped create
168,000 jobs as an indirect result of the programme, thus generating a total volume of 252,000 new
jobs, accounting for 9.8 per cent of the labour force in El Salvador. It should be noted that
approximately 90 percent of the jobs created through this programme are held by women, a large
percentage of whom are heads of household, thus giving these women the opportunity to improve the
economic welfare of their families while giving them greater access to health, education and social
security.
Exports from the in-bond assembly industry ( maquila)  amounted to US$1,758 million,
constituting El Salvador's principal export product to third markets.
246 firms benefited under the Law, of which 51 per cent were foreign companies and the rest
were domestic companies.
B. LEGISLATION
The Law on Export Development, approved pursuant to Legislative Decree No. 81 of
5 September 1974, published in the Official Journal (No. 180, Vol. 244) of 27 September 1974;
abolished pursuant to the Law on the Free-Trade Zone and Bonded Warehouse Regime, approved
pursuant to Legislative Decree No. 461 of 15 March 1990, published in the Official Journal (No. 88,
Vol. 307) of 18 April 1990; and abolished pursuant to the Law on Export Processing Zones andMarketing, approved pursuant to Legislative Decree No. 405 of 3 September 1998, published in the
Official Journal (No. 176, Vol. 340) of 23 September 1998 and as amended by Legislative Decree No.
464 of 22 October 1998, published in the Official Journal (No. 215, Vol. 341) of 18 November 1998.
5. Form of the subsidy (i.e. grant, loan, tax concession, etc.)
Because El Salvador is a developing country, it lacks the resources necessary to provide direct
assistance to investors wishing to embark upon domestic operations. As the purpose of thisprogramme was to promote economic and social progress, El Salvador is using a mechanism based on
foregone government revenue, which is to be offset by increased job creation for Salvadorans.
As for the form of the incentives, the latter are provided to:
Users establishing operations in free-trade zones or outside such zones in inward processing
warehouses, entailing the following benefits and incentives:
(a) Exemption from import duties on machinery, equipment, tools, spare parts and
accessories, utensils and other items necessary for carrying out the activity benefitingfrom incentives.
(b) Exemption from import duty on raw materials,  parts, pieces, components or elements,
semifinished products, intermediate products, packaging, labels, packing, samples
and patterns required for carrying out the activities that benefit from incentives.Under the abovementioned treatment, it is also possible to import machinery,G/SCM/N/95/SLV
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apparatus, equipment, and any other items intended for repairs by the beneficiaries,
including those exported products that are being reimported on a drawback basis;
(c) Exemption from import duty on lubricants, catalysts, reagents, fuels, and any other
substances or materials required for the firm's production activities;
(d) Total exemption from income tax for the period during which the firm engages in
operations in El Salvador, reckoned as from the tax year during which the beneficiary
firm commences operations;
(e) Total exemption from municipal taxes on the firm's assets and wealth for the period
during which it conducts business in El Salvador, beginning from the time when the
firm's operations get under way;
(f) Total exemption from real estate transfer tax on purchases of real estate for use in the
activities benefiting from the incentives.
6. To whom and how the subsidy is provided (whether to producers, to exporters, or
others;  through what mechanism;  whether a fixed or fluctuating amount per unit;  if the latter,
how determined).
The benefits or incentives will accrue to those individuals or legal entities, whether domestic
or foreign, that are the owners of firms which they develop, administer, or establish in free-trade
zones or outside thereof, provided such firms are engaged in:
(i) The production, assembly or "maquila",  manufacturing, processing, transformation,
or marketing of goods and services;
(ii) the provision of services related to international trade, such as the collection,
packaging or repackaging, re-export, cargo consolidation, distribution of
merchandise, and other related or supplemental activities.
The subsidy is provided through exemption from duty, income tax and municipal taxes as specified in
Item 5 above.
7. Subsidy per unit, or in cases where this is not possible, the total amount or the annual
amount budgeted for that subsidy (indicating, if possible, the average subsidy per unit for the
preceding year).  Where provision of per unit subs idy information (for the year covered by the
notification, the previous year, or both) is not possible, a full explanation.
Given the nature and scope of the programme, no statistical data are available reflecting the
amount of incentives per unit.
8. Duration of the subsidy and/or any other ti me-limits attached to it, including date of
inception/commencement.
It will be in line with the international obligations undertaken by El Salvador, and in
particular the SCM Agreement.G/SCM/N/95/SLV
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9. Statistical data permitting an assessment of the trade effects of the subsidy.  The specific
nature and scope of such data is left to the j udgement of the notifying Member.  To the extent
possible, relevant and/or determinable, however, it is desirable that such information include
statistics of production, consumption, imports and exports of the subsidized product(s) orsector(s).
COMPARATIVE TABLE
(in Millions of Dollars)
SCHEME 2000 2001 2002
(a) World exports 7,782,600.0 7,510,600.0 7,837,800.0
(b) Salvadoran exports 2,950.5 2,864.0 2,992.0
(c) b / a 0.0379% 0.0381% 0.0382%
(d) Salvadoran net maquila exports 456.00 489.00 475.00
(e) d / a 0.0059% 0.0065% 0.0061%
Source:  International Monetary Fund, Central Reserve Bank, Ministry of Economy.
II. EXPORT REACTIVATION PROGRAMME
1. Description of the subsidy
Drawback of 6 per cent on the f.o.b. value of exports, payable to Salvadoran or foreign
natural or legal persons that own firms exporting or marketing Salvadoran goods and services outside
the Central American region.
2. Period covered by the notification
From 1 July 2001 to 31 December 2002.
3. Policy objective and/or purpose of the subsidy
To stimulate exports of Salvadoran goods and services outside the Central American region,
with a view to diversifying domestic production fo r the foreign market and to achieving employment-
generating sustainable economic growth, along wi th the transfer of technology and investments.
4. Background and authority for the subsidy
Background
The damage to the domestic infrastructure resu lting from the armed conflict in El Salvador
during the 1980s and early 1990s severely impacted production sectors, investment and exportdevelopment.  Following the signing of the Peace Accords, it was necessary for El Salvador to launch
the aforementioned scheme under a policy geared towards promoting investments and exports and
offsetting the costs generated by the conflict.
The earthquakes that hit El Salvador in 2001 ha ve increased the need for jobs.  According to
ECLAC, total losses amounted to US$1,603 million, i.e. 12 per cent of GDP and 55 per cent of
exports in 2000.  In the aftermath of the catastrophe, El Salvador was faced with the need to improve
the welfare of its people, and especially those most severely affected by the quakes.  In creatingG/SCM/N/95/SLV
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opportunities to maintain and raise employment levels, the benefits deriving from the drawback
scheme are therefore essential for the country's economic and social development.
Legislation
Export Reactivation Law
Legislative Decree No. 460 of 15 March 1990, published in the Official Journal (No. 88,
Vol. 307) of 18 April 1990, as amended by Legislative Decree No. 749 of 19 April 1991, published in
the Official Journal (No. 95, Vol. 311) of 27 May 1991;  Legislative Decree No. 181 of
18 December 1997, published in the Official Journal (No. 239, Vol. 337) of 22 December 1997, andLegislative Decree No. 534 of 13 January 1999, published in the Official Journal (No. 21, Vol. 342)
of 1 February 1999.
Regulations of the Export Reactivation Law
Executive Decree No. 68 of 27 November 1990, pub lished in the Official Journal (No. 269,
Vol. 309) of 27 November 1990, as amended by Executive Decree No. 43 of 29 April 1993, published
in the Official Journal (No. 19, Vol. 319) of 26 May 1993.
5. Form of the subsidy (i.e. grant, loan, tax concession, etc.)
Drawback of 6 per cent on the f.o.b. value of exports.
6. To whom and how the subsidy is provided (whether to producers, to exporters, or
others;  through what mechanism;  whether a fixed or fluctuating amount per unit;  ifthe latter, how determined).
This incentive benefits Salvadoran or foreign natural or legal persons that own firms which
export or market Salvadoran goods and services outside the Central American region and which
comply with the requirements laid down in th e Export Reactivation Law and its Regulations.
7. Subsidy per unit, or in cases where this is not possible, the total amount or the annual
amount budgeted for that subsidy (indicating, if possible, the average subsidy per unit).
Where provision of per unit subsidy information (for the year covered by the
notification, the previous year, or both) is not possible, a full explanation.
Total Amounts Refunded Under the 6 Per Cent Drawback Scheme
(In Millions of US Dollars)
January-December
2000January-December
2001January-December
2002
13.8 13.4 16.6G/SCM/N/95/SLV
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Total Exports Eligible/Not Eligible under the 6 Per Cent Drawback Scheme
(In Millions of US Dollars)
EXPORTSJanuary-December
2000January-December
2001January-December
2002
Eligible 231.4 223.2 277.3
Not eligible 2,719.1 2,640.8 2,714.7
Total 2,950.5 2,864.0 2,992.0
8. Duration of the subsidy and/or any other ti me-limits attached to it, including date of
inception/commencement.
Indefinite.  It will be adjusted to the international obligations undertaken by El Salvador, and
in particular to the WTO Subsidies Agreement.
9. Statistical data permitting an assessment of the trade effects of the subsidy.  The specific
nature and scope of such data is left to th e judgement of the notifying Member.  To the
extent possible, relevant and/or determinable, however, it is desirable that such
information include statistics of production, consumption, imports and exports of thesubsidized product(s) or sector(s).
COMPARATIVE TABLE
(In Millions of US Dollars)
SCHEME 2000 2001 2002
(a) World exports 7,782,600.0 7,510,600.0 7,837,800.0
(b) Salvadoran exports 2,950.50 2,864.0 2,992.0
(c) b / a 0.0379% 0.0381% 0.0382%
(d) Salvadoran exports eligible for 6%
drawback231.4 223.2 277.3
(e) d / a 0.0029% 0.0029% 0.0035%
Source:  International Monetary Fund, Central Reserve Bank, Ministry of Economy.
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