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IV. TRADE POLICIES AND PRACTICES BYSECTOR
(1) Overview
1. Under theeconomic reform begun in1989, sectorial policy hashadtwomainobjectives. The
firstistorebuild aneconomy inwhich asubstantial partoftheproduction sector, especially agriculture,
wasdestroyed during tenyears ofconflict. Thesecond istoreverse theearlier import substitution
industrialization (ISI)strategy, andtoreduce theanti-export biasofsuchpolicies byadopting asystem
which ismore neutral between sectors. Theoverall objective hasbeentoget"prices right", sothat
producers andconsumers areabletoprofit fromcorrect market signals. These policies include: (i)the
liberalization oftheexchange raterégime andcredit policy (Chapter I);(ii)theelimination ofprice
controls, most non-tariff barriers, andtheexisting export taxes; (iii)therationalization oftariffs;
and(iv)theprivatization ofkeyinstitutions suchastheagricultural marketing boards andthebanks.
Asaresult ofthePeace Accords of1992, measures werealsoadopted regarding thelandtenure system
withtheaimofmending thedamage caused bytheagrarian reform of1980andguaranteeing property
rights.1These changes havecreated anincentive toliftproductivity inthereformed agricultural sector.
2. Theresults ofthisprogramme seem tobesuccessful since economic growth increased from
1percentin1989 to6.5percentin1995. Exports ofagricultural andmanufacturing goods grew
strongly growth during the1990-1994, compared to1985-1990 when agricultural trade aswellas
manufactured exports declined, andmanufactured imports onlyshowed slight growth.2Thegrowth
ofnon-traditional exports toextra-regional markets canbepartly attributed tospecial incentive
programmes, asdiscussed later.
3. Despite theadoption ofmore neutral policies, hightariffs arestillinforce forsome key
industries. Forinstance, theclothing industry operates behind tariffs ofupto24percent,while the
average fortheindustrial sector asawhole is10percent(Chart IV.1). Tariff escalation isstillevident
insomeindustries where thepattern ofprotection inherited fromtheimport substitution industrialization
strategy stillprevails. However, asaresult ofplanned reforms, these tariff peaks andescalation will
begreatly reduced, except forhighratesresulting from thetariffication foragricultural goods.
4. Interms ofitscontribution toGDP, theservices sector istoday themostimportant productive
sector, despite theextensive damage tothetransport infrastructure, inparticular, during thewar. The
modernization ofthissector isessential toattain higher levels ofproductivity, andforthecountry to
deepen itsintegration intotheworld economy. Aspartoftheoverall reform programme, keyinstitutions
inthissector havebeenprivatized. Forinstance, inthefinancial sector thefivemostimportant banks
wereprivatized, onlytheBanco Hipotecario remains tobeprivatized; thetelecommunication monopoly
andtheelectricity sector areintheprocess ofbeing privatized; andthere areplans toprivatize some
oftheports andairports services.
5. Oneofthemain objectives ofthereform programme istoenhance productivity. However,
forproductivity toincrease, investment inhuman capital andinfrastructure, which wasnegligible during
thewar,willneedtoincrease, andtheGovernment ismaking aneffort toredirect spending towards
investment inthese areas.
1Thelandreform introduced in1980 seems tohave hadanegative effect upon theproduction ofsome
agricultural goods suchascotton, formerly animportant export crop, whose production hasbasically disappeared.
2UNSTAT Comtrade database.WT/TPR/S/23
Page 64Trade Policy ReviewElSalvador WT/TPR/S/23
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(2) Agriculture, Forestry andFishing
(i) Main features
6. Agricultural production accounts forsome 22.3percentoftotalGDP, showing littlechange
from thesituation in1989 when itstood at23percent.3Themost important agricultural products
arecoffee, basic grains andsugar. Theproduction ofcoffee hasdecreased slightly since 1990, while
theproduction ofbasic grains andsugar haveincreased. Livestock isalsoanimportant activity,
contributing 25percentofagricultural GDP in1995 (Chart IV.2).
7. Theagricultural sector isamajor employer inthecountry. In1995, 27percentoftotal
employment wasinagricultural activities, and65percentoftherurallabour forceconsider theagrarian
sector tobetheirprincipal source ofincome.4Asshown inChart IV.3, ahighproportion ofland
isdevoted totheproduction ofbasic grains, especially maize, andtotheproduction ofcoffee. Land
isascarce resource inElSalvador, andlandthatisonlymarginally suitable foragriculture isbeing
3World Bank (1995).
4Government data.WT/TPR/S/23
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farmed, doing away withanimportant areaofforest andreducing rainfall andwater catchment areas.5
Thus, themismanagement ofthelandhasnotonlyhadanegative impact upon agriculture butalso
upon theenvironment aswhole.
8. Traditionally, ElSalvador hasbeenanexporter ofagricultural goods; coffee and,toalesser
extent, sugar, cotton andshrimp havelongdominated ElSalvador 'sexports. In1994, agricultural
exports accounted formore than50percentoftotalexports; coffee alone accounted for32percent
ofthetotal(Chart I.8). After coffee, sugar isnowthemainagricultural export (Chart IV.4). Exports
ofagricultural goods havedecreased since 1985 when theyaccounted foralmost 70percentoftotal
exports. According totheauthorities, agricultural exports havedecreased because ElSalvador isnot
abletocompete withsubsidized products originating indeveloped countries.
9. Imports ofagricultural goods account forsome 18percentoftotalimports (Chart I.8).
Table IV.1shows themostimportant agricultural imports, including those goods imported under the
United States 'PL-480 programme, which wasextensively usedinthe1980s. However, theduty-free
importation ofcommodities under thisaidscheme tends todepress thedomestic price ofthese goods
and/or those oftheirdirect orclose substitutes, causing adistortion intheallocation ofresources.6
5Norton etal.(1994).
6Núñez andLoehr (1991).ElSalvador WT/TPR/S/23
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Table IV.1
Major agricultural imports andexports
Exports Imports
Traditonal Major imports
Coffee Bovine liveanimals
Sugar Meat andoffal
Shrimp Powdered milk
Cotton Vegetables
Fruits
Wheat
Yellow maize
Rice
Flour, cereals andstarches
Non-traditional Imports under PL-480 (none since 1992)
Sesame seeds Wheat
Honey Wheat flour
Vegetables Lard
Fruits Vegetable oil
Natural balsam Sorghum (1992 only)
Yellow maize (1992 only)
Soybean flour
Source: Government ofElSalvador.
10. In1989, theagricultural sector underwent aprocess ofderegulation andliberalization, aswas
thecasefortheother sectors. Thisprocess included areduction oftariffs, theelimination ofexport
andimport permits, theelimination ofprice controls, thedismantling ofmarketing boards andthe
simplification ofmarketing procedures.
11. Tariffs foragricultural commodities havebeenlowered andnowrange from1to20percent.
(Table AIV.1) Before 1989, tariffs generally ranged from5-80percent, butmany commodities fell
intothe40-60 percentbracket7,andsome hadtariffs higher than80percent. Inaddition, agricultural
commodities were subject toimport andexport licensing and/or prohibitions, whereas today onlya
fewcommodities aresubject tolicences orexport permits (Chapter III).
12. Atpresent, therearenosupport prices orpricecontrols foragricultural goods. Theelimination
ofsupport prices wasannounced on20July1990 bytheMinistry ofAgriculture andLivestock
(Ministerio deAgricultura yGanadería ,MAG) andtheMinistry ofEconomy aspartoftheNewPolicy
onBasic Grains (Nueva Política deGranos Básicos ).Price controls forbasic grains were initially
replaced byasystem ofprice bands8,which weresubsequently abandoned in1994 toallow prices to
besetbythemarket.
13. From 1980to1989, themarketing ofthemostimportant agricultural products wascontrolled
bytheState. TheStateexercised complete control overtrade through marketing boards suchas:the
National Coffee Institute (Instituto Nacional delCafé,INCAFE), theNational Sugar Institute (Instituto
7Núñez andLoehr (1991).
8LaPrensa Gráfica ,21July1990, p.31.ElSalvador WT/TPR/S/23
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Nacional delAzúcar ,INAZUCAR), andtheRegulatory Institute ofProvisioning (Instituto Regulador
deAbastecimiento,IRA),inchargeofcommercializingbasicgrainsandpowderedmilk.TheSalvadorian
Cotton Co-operative (Co-operativa Algodonera Salvadoreña, Ltda,COPAL), aprivate association,
wasgranted monopoly power tomarket cotton bytheGovernment inthe1980s.
14. Since 1989 these institutions have been either dismantled (IRA) orreformed (INCAFE,
INAZUCAR andCOPAL). Theprivate sector nowparticipates inthemarketing ofproducts previously
monopolized bytheStatemarketing boards. INCAFE andINAZUCAR werereplaced byregulatory
institutions suchastheSalvadorian Coffee Council (Consejo Salvadoreño delCafé,CSC) andthe
Salvadorian Commission fortheDevelopment oftheSugar Sector (Comisión Salvadoreña parael
Desarrollo delSector Azucarero ,CDA). COPAL nolonger holds monopoly power forthemarketing
ofcotton.
15. In1994, acommodity market (Bolsa deProductos Agropecuarios deElSalvador ,BOLPROES)
wascreated. Thiswasaprivate initiative tomake themarketing ofagricultural products moreefficient.
ThegoalisforBOLPROES tofacilitate notonlydomestic tradebutalsointra-regional andinternational
trade. BOLPROES initiated operations inmid-1995 bymarketing white maize.
16. Atpresent, there arenodirect support programmes available toproducers. However, the
Ministry ofAgriculture andLivestock (Ministerio deAgricultura yGanadería ,MAG) provides some
services: theprovision ofwater forirrigation; sanitary inspections andcertification bytheGeneral
Directorate forPlant andAnimal Health (Dirección General deSanidad Vegetal yAnimal ,DGSVA);
andtheanalysisofsoilbytheNationalCentreforAgriculturalandForestryTechnology(CentroNacional
deTecnología Agropecuaria yForestal ,CENTA). Theprices ofthese services arebased ontheir
cost.
17. CENTA isanautonomous institution created in19939,whose goalistoincrease theproductivity
oftheagrarian andforestry sectors, through theprovision oftechnical support andeducational
programmes, which arefree-of-charge tofarmers.
18. According totheauthorities, theeffects ofthemeasures undertaken asaresult ofimplementation
oftheUruguay Round Agreement onAgriculture willonlybecome evident inthelonger run. Until
now,implementation oftheAgreement hasnothadamajor effect ontheSalvadorian agricultural sector
since mostoftheliberalization process undertaken inthissector, including thereduction oftariffs and
non-tariff barriers, wasundertaken before theendoftheUruguay Round.
19. Thesixmain government objectives fortheagricultural sector are:first, tostrengthen the
agricultural sector tofurther rural development; second, toincrease production ofbasic grains and
anyother essential products; third, toincrease anddiversify theproduction ofagricultural products,
especially ofnon-traditional crops; fourth, tointroduce theproduction ofnewcrops; fifth,topromote
exports ofagricultural goods; andsixth, tostimulate thedevelopment ofagro-industrial production.
20. Thehopeisthattheprivate sector willtakeamajor partinaccomplishing these objectives.
TheGovernment willalsoassist through thepromotion ofresearch anddevelopment andtechnology
transfer fortheproduction ofnon-traditional crops, technical assistance, agricultural education,
informationaboutmarkets,andadviceoninternationalmarketing.Inaddition,theGovernment,through
itsLocal Development Programme, willprovide basic services (electricity, telephones, androads).
9Decree No.462, 11February 1993.WT/TPR/S/23
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21. Inthepast, thelackofresources, along withtheabsence oftheright price signals andthe
existence ofothereconomic distortions, appear toexplain thelowproductivity intheagricultural sector.
Thus, inorder toattain theobjectives outlined above, several constraints willneedtobeovercome.
Forexample, ElSalvador hasinsufficient landforsignificant cropexpansion, sothatthemainsource
ofgrowth inagricultural output hastobegains inproductivity and,hence, competitiveness. The
liberalization process undertaken in1989 willaidinthisrespect; however, theprolonged existence
ofhightariffs andnon-tariff barriers created inefficient andrigid production structures which have
yettoprove responsive toprice signals. Accordingly, fortheliberalization programme toovercome
theinertia created bypastpolicies, theauthorities recognize thatother factors, suchastechnology,
irrigation, seeds, infrastructure andeducation, areessential.
22. Theconflict inthe1980s hadserious detrimental effects intheruralareas, andhence onthe
agricultural sector. There wassubstantial disinvestment intheruralareas aswellasmigration tothe
urban areas. Thedestruction ofalready scarce infrastructure during thearmed conflict exacerbated
theproblems ofthesector. According totheauthorities, thelandreforms of1980alsofailed toachieve
thedesired goals, contributing tothedeteriorating situation inthesector. Thedivision oflandwas
suchthatcertain crops could nolonger beproduced inanefficient manner. Asaresult, theproduction
ofcotton today isnegligible, while inthe1970s itwasthesecond mostimportant cashcrop, generating
atleast9percentofagricultural GDP and9.5percentofexport revenues. Theproduction ofbasic
grains andother cashcrops hasalsodecreased.10Theagrarian reform of1980alsocreated uncertainty
about property rights because ofthepossibility offuture expropriation ofprivate property, and
contributed tofurther disinvestment inthesector.
23. In1992, however, asaresult ofthePeace Accords, property rights havebeenensured inthe
reformed sector. Thepossibility offuture expropriations waslimited byaconstitutional provision
stipulating themaximum sizeofapieceoflandthatanindividual isallowed toown. ThePeace Accords
alsointroduced amarket mechanism todistribute land. Forexample, since 1992 theco-operatives
formed asaresult ofthelandreform of1980 havebeenallowed tosellorinherit theland. These
reforms appear tohavehelped toinitiate there-activation oftheagricultural sector, butitwillinevitably
taketimeforthese andother reforms toundo thedamage ofthe1980s.
24. The40percentlevelofilliteracy intheruralareahasalsobeenafactor inthelowlevelof
productivity inthesector, andneeds tobetackled byaneducation programme targeted atruralareas.
Thereform programme should alsohelptoreduce migration tourban areas where theindustrial sector
isunable toabsorb thislabour andwhere migration isplacing astrain onthesupply ofbasic public
services, suchashealth, sanitation andeducation.
25. Theproportion ofirrigated landtothetotalareaoflandunder production islow. According
totheMAG, thegains inproductivity fromincreased irrigation could therefore behigh. Forinstance,
ifsorghum could beirrigated, itwould bepossible tohavetwoorthree harvests peryear.11
26. Theovervaluation oftheColon hashindered there-activation oftherural sector because of
thelossofcompetitiveness ofSalvadorian agricultural products ininternational markets (Chapter I).
While producers benefit fromanovervalued exchange ratethrough reduced domestic prices forimported
10Goitia (1990).
11Ramos etal.(1995).ElSalvador WT/TPR/S/23
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inputs, estimated tobearound 40percentofthevalue ofoutput, thisapparent benefit isnotsufficient
tocompensate forthelossincompetitiveness ofexports.12
27. Ithasbeenarguedthatthereformprogrammeneedstobesupportedbyanincreaseincompetition
infactor andproduct markets, especially foragro-industrial production where ownership appears to
behighly concentrated.13Thislackofcompetition cantranslate intocollusive price-setting practices
which undermine thegoaloftheeconomic reform programme toset"prices right". Fortherightprice
signals toreach bothconsumers andproducers themarket structure should besuchthatprices arenot
fixed bywholesalers; consumers would alsobenefit from awider choice.
28. TheSalvadorian agrarian sector isalsoconcerned about thepotentially negative effects ofthe
NAFTA ontheirnon-traditional agricultural exports totheUnited States market where ElSalvador
competes withMexico inthesaleoffruitandvegetables. However, itispossible thatthephased
reduction oftariffs within NAFTA willallow sufficient timeforrestructuring inthese activities so
thattheyretain theircompetitiveness.14
(ii) Crop production andlivestock
(a) Coffee
29. Coffee hastraditionally beenthemostimportant agricultural cropandexport inElSalvador.
In1994, coffee contributed 24percenttoagricultural GDP and3.3percenttototalGDP.15Since
1985, withtheexception of1988and1992, production ofcoffee hasbeenaround the3million quintals
(QQ).16Coffee production isnotresponsive toshort-term price changes (i.e., there isalowprice
elasticity ofsupply); Chart IV.5shows that,despite theprice fluctuations, production hasnotvaried
greatly since 1985, except for1988 when production fellsharply, apparently because ofthesecurity
situation intherural areas, theexport taxoncoffee andtheappreciation oftherealexchange rate.
Thelowelasticity ofsupply canbeattributed tothenature ofthecrop: oncetheproducer hasinvested
inaplantation itiscostly toswitch toanother crop. Price fluctuations can,however, result inchanges
inproductivity, since farmers invest lessinmaintaining plantations attimes ofpersistent lowprices.
30. Exports ofcoffee havebeensomewhat more erratic thanproduction, being affected byworld
market conditions andpolicies. In1989, exports, which hadbeen subject toquotas under the
International Coffee Organization (ICO), weremade subject tomarket conditions untiltheretention
scheme wasestablished in1993bytheAssociation ofCoffee Producing Countries (Asociación dePaíses
Productores deCafé,APPC). Despite these changes directly affecting coffee, aswellasother policies
toincrease theexport orientation oftheSalvadorian economy, coffee remains themostimportant export
inElSalvador, accounting for28.3percentoftotalexports (including maquila) in1995.17
12Ramos etal.(1995).
13Ramos etal.(1995).
14Revilla (1994).
15WTO Secretariat calculations based onCentral Reserve Bank data.
16Onequintal (QQ) isequal to45kg..
17Salvadorian Coffee Council (Consejo Salvadoreño delCafé,CSC) based onCentral Reserve Bank'sdata.WT/TPR/S/23
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31. Interms oflabour andincome distribution, coffee isalsoanimportant cropsince itisoften
produced bysmaller farmers, making intensive useoftheland.18Land devoted tocoffee wasless
affected bytheagrarian reform thanlandunder extensive cultivation, suchascotton andsugar.19In
1986, around 20,000 hectares ofreformed landweredevoted tocoffee. However, thecultivation of
thiscropinthereformed sector hasbeendeclining; in1993/94 only15,700 hectares were planted
withcoffee.20Mostofthereformed landisorganized inco-operatives which mainly produce organically
grown coffee. In1994, 25percentofthelabour employed intheagricultural sector wasengaged
inactivities related tocoffee.21
32. Since 1989, commercial, fiscal, andexchange ratepolicies directly affecting thecoffee sector
haveundergone substantial reforms (Table IV.2). These measures arepartoftheoverall package to
restructure theSalvadorian economy withtheaimofimproving theefficiency ofallsectors.
18Norton etal.(1994).
19Only 7percentofthelandcultivated withcoffee wastransferred (World Bank, 1989).
20Salvadorian Coffee Council.
21Salvadorian Coffee Council.ElSalvador WT/TPR/S/23
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Table IV.2
Major policies adopted inthecoffee market, 1989-95
Policies Measures adopted Date
Domestic commercial policy INCAFE declared unconstitutional 1989
Creation oftheCSC 1989
International commercial policy TheAssociation ofCoffee Producing Countries wasestablished andcoffee
retention scheme wasdesigned1993
Transitory lawfortheretention ofcoffee 1993
Transitory lawfortheretention ofcoffee 1995
Fiscal policy Export taxoncoffee modified: reducing therate(exempt from taxes upto
US$45 and30percentontherest)1989
Export taxoncoffee modified: reducing therate(exempt from taxes upto
US$55 and25percentontherest)1991
Export taxoncoffee modified: reducing therate(exempt from taxes upto
US$65 and25percentontherest)1992
Export taxoncoffee eliminated 1993
Exports ofcoffee subject toincome tax 1993
Exchange ratepolicy Market exchange rateisusedforcoffee transactions. 1989
Coffee exporters authorized tosellproceeds from exports intheforeign
exchange market1993
Source: Government data.
33. INCAFE, theofficial marketing board, wascreated in1979 toprotect small producers and
ensure thatcoffee earnings wererepatriated. INCAFE 'srôlewastomarket coffee bothatthenational
andinternational level andtocollect theexport taxfrom producers. Although theprocess of
nationalization wasintended toprotect coffee producers, there wasalackoftransparency regarding
theprices andquantities ofcoffee purchased. Inaddition, INCAFE incurred substantial operating
losses anddelayed payments toproducers.22INCAFE wasdismantled in1989, when theprivate sector
wasagain allowed tocontrol themarketing ofcoffee, andtheStatetookonaregulatory rôle.23The
liberalization ofmarketing ofcoffee hasbeenespecially beneficial forproducers sincethewedge between
theproducer price andtheexport price hasdecreased.24
34. In1989theSalvadorian Coffee Council (Consejo Salvadoreño delCafé,CSC) wasestablished.25
TheCSCconsists offourministers andrepresentatives oftheproducers, exporters, private co-operatives
andco-operatives ofthereformed sector. Itsrôleistoregulate themarketing ofcoffee without direct
intervention, granting equal conditions toallexporters. TheCSCisalsoincharge oftheallocation
ofcoffee export quotas (when inplace) among producers, andofthesurveillance oftheimplementation
ofandcompliance withtheInternational Coffee Agreement. TheCouncil alsorepresents theinterests
oftheSalvadorian producers ininternational organizations, especially intheICO.
22World Bank (1989).
23Legislative Decree No.352, 30October 1989.
24Norton etal.(1994)
25Decree No.353, 30October 1989.WT/TPR/S/23
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35. ElSalvador hasbeenamember oftheICOsince itscreation in1962. TheICOstillexists;
however, asnoted earlier, in1989itsexport quota system wasabolished. Subsequently, in1993, the
producer countries, created theAPPC, which re-established thequota system asameans ofcontrolling
theinternational price ofcoffee through supply management. TheAPPC wasabletoestablish coffee
retention schemes forthe1993, 1994 and1995 harvests.26
36. ElSalvador hasbeenamember oftheAPPC since itsinception. Thequota tobeexported
isannounced inatemporary decree issued every year. Forthe1993-95 harvests 20percentoftotal
production wastoberetained. Forthe1996/97 harvest, ElSalvador hasbeenallocated anexport quota
ofQQ3million (1QQ =45kg.), which represents most orallofnormal production. TheCSC
distributes theexport quota among theexporters according totheamount ofcoffee thattheyreceive
andtheiravailable stock. Thecoffee leftfordomestic consumption iseither thegreen coffee orcoffee
ofinferior qualities thatdoesnotqualify forexport.
37. Aspartofthereform programme inthesector, theexport taxlevied oncoffee exports was
amended in1989, andfinally abolished in1993 (Table IV.2). Thefiscal importance ofthistaxhad
beendecreasing since1987asshown inTable IV.3, duepartially tothedecrease inthetaxrate,caused
byamendments tothetaxsystem. When theexport taxwaseliminated, anincome taxontheexport
proceeds ofcoffee wasestablished.27Thistaxisvariable, based upon theinternal price ofthecoffee
"oro-uva "onthedaythepurchase contract isset(Table IV.4).
Table IV.3
Share ofcoffee export taxintotal taxcollection, 1985-93
(Thousands ofColons)
Year Total taxes Share derived from taxes oncoffee
1985 2,391,010 14.9
1986 3,508,159 27.2
1987 3,232,628 13.4
1988 3,175,573 11.6
1989 3,330,237 3.7
1990 4,792,742 5.3
1991 5,783,031 3.8
1992 6,956,644 0.4
1993 8,128,844 0.1
Source: Government ofElSalvador.
26Forathorough presentation oftheoperational stages oftheAPPC Retention Schemes seetheWTO (1995a)
andWTO (1995b).
27Decree No.171, Diario Oficial No.200,28October 1994.ElSalvador WT/TPR/S/23
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Table IV.4
Income taxoncoffee
(Colons perquintal, percent)
Internal price (C/quintal) Taxrate
Upto800.00 1.5
From 800.01 to1,100.00 5.0
From 1,100.01 to1,300.00 9.0
From 1,300.01 to1,500.00 11.0
From 1,500.01 to1,800.00 13.0
From 1,800.01 15.0
Note: 1quintal =45kg.
Source: Decree No.171.
38. Theanti-export biasinthissector hasbeensubstantially reduced byeliminating theexport
taxandallowing exporters access totheforeign exchange market. Until 1993, coffee exporters had
tosurrender theirforeign exchange earnings totheCentral Reserve Bank, eventhough thisrequirement
didnotapply toother exporters.
39. According totheCSC, thecoffee sector hasbeenfaced withtwoadditional problems: low
productivity andthelackoflabour inruralareas. Thelowproductivity ismainly related tothelack
ofinvestment inthecoffee plantations; forinstance, treesarenotbeing replaced when necessary,
plantations arenotbeing replanted, andtherehasbeenalowrateofdisease control. Coffee producers
alsoregard thelackofrural labour asaserious problem. Forinstance, duetoclimatic conditions
the1995/96 coffee harvest ripened faster thannormal, C100,000 ofcoffee fellandwasleftonthe
ground28,mainly because there wasinsufficient labour toharvest thecrop. Thisshortage oflabour
intheruralareas seemed tobelinked tothereceipts ofremittances fromtheUnited States, which in
certain instances havebecome themajor source ofincome forrural dwellers who, thusdonotneed
toengage inother remunerative activities.
(b) Sugar
40. Thesugarsector,despiteitssmallcontributiontoGDP(0.6percent),isconsideredanimportant
cropfortheSalvadorian economy. Itisthesecond most important traditional agricultural export,
amounting to3.3percentoftotalexports andto8.6percentoftraditional exports. Production of
sugar hasincreased since1989duemainly totheliberalization measures thatdirectly affected thesector
andother macroeconomic policies adopted bytheauthorities (seebelow). Recent dataprovided by
theauthorities show thatsugar yields increased to193.5 lbs./short tonby1995.29Thekeyissue in
thesugar industry hasbeen toshifttosugar canevarieties withhighsugar content, rather than
concentrating onsugar canevolume ortrying toextend thelandareaunder cultivation.
28FUSADES (1996).
29Previously, yields were around 166lbs/short ton,while theyshould have been over200lbs./S.T. (Núñez
andLoehr (1991)).WT/TPR/S/23
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41. ElSalvador hasbeenallocated anexport quota totheUnited States preferential sugar market;
italsoexports totheworld market (Chart IV.6). However, exporters onlysellsurpluses ontheworld
market asalastresort afterfulfilling boththeU.S.quota anddomestic demand; forinstance, in1989
there werenoexports totheworld market. However, given theincrease intheproduction ofsugar
cane, thedecrease intheU.S.quota, andtheslowincrease inthedomestic demand ofsugar (since
itisalready high), exports totheworld market haveincreased.
42. Sugar production alsogenerates substantial employment. Sugar caneisproduced byboth
independent producers andproducers ofthereformed sector. Thelatter areorganized in
141co-operatives thatownapproximately 44percentoftotallandunder sugar canecultivation and
producesome42percentoftotalproduction.Independentproducers(around2,500)produce48percent
ofthetotalproduction. In1994, theamount oflandplanted withsugar canedecreased by5,900 mz.;
totallandunder sugar cultivation amounted to68,200 mz.forthe94/95 harvest.30Forthe1995/96
harvest, 60percentofthesugar wasproduced bytheco-operatives ofthereformed sector and
40percentbyindependent producers.
43. Most sugar caneisprocessed forsugar production; onlyasmall proportion isdevoted to
small-scale production ofhoney (mieles ydulces ).Thesugar industry comprises tenmills, eight private
andtwoState-owned. Forthe1995/96 harvest, 86percentofthesugar wasprivately processed, while
therestwasprocessed bytheState-owned mills.
30MAG (1995). 1mz. =1.75 acres (Central American landmeasure).ElSalvador WT/TPR/S/23
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44. INAZUCAR wasestablished in1980asaStatemonopoly incharge ofmarketing sugar, setting
theprice ofsugar andallocating sugar quotas amongst themills.31In1989, themarketing ofsugar
wasliberalized andtherôleofINAZUCAR wasmodified; since thentheprivate sector hasalsobeen
allowed tobuysugar caneandsellsugar, andtoday theformer marketing board competes withprivate
sector traders. TheState-owned mills arenowintheprocess ofbeing privatized.32
45. In1990, theSalvadorian Commission forSugar Development (Comisión Salvadoreña para
elDesarrollo delSector Azucarero, CDA) wascreated.33TheCDA hasreplaced INAZUCAR inits
rôleofdistributing sugar quotas among theprivate andState-owned sugar mills, andadvises theMinistry
ofEconomy ontheapproval ofexport licences. Alltold,twoquotas areallocated: first,fortheU.S.
preferential market; and,second, forthedomestic market. Thebalance maybesoldontheworld
market. Thequotas areallocated based onthehistoric levels ofproduction ofeachmill.
46. Theincrease intheproduction ofsugar maypartly beattributed tomacroeconomic policies
(Chapter I),theelimination oftheStatemonopoly overthemarketing ofsugar, theremoval ofprice
controls, theincrease intheavailability ofinputs (duetothereduction oftariffs) andtheincrease in
industrial yields.
47. Asshown inChart IV.7, domestic prices forsugar havehistorically beenfixed atlevels above
theworldmarketprice.Accordingtotheauthorities,thispolicywasfollowedtobenefitsugarproducers.
After theliberalization in1989 theState-owned mills increased producer prices sothatsugar cane
production would giveahigher return togrowers.34However, sincethe1991/92 harvest theauthorities
havenotfixed theprice ofsugar. Since the1992/93 harvest, themills havesetthepurchasing price
forsugar cane, which includes apremium forsugar caneofhigher yields (i.e,higher sugar content).
According toWorld Bank estimates, itisnotclearwhether, ifthedomestic market priceofsugar were
allowed tofalltoworld levels, domestic production could continue.35
48. Despite thethorough process ofliberalization thathastaken place inElSalvador, thesugar
sector continues being protected. Theimport permit forsugar originating inCentral America hasnot
been eliminated, since Salvadorian producers areconcerned about possible sugar imports from
Guatemala.36Changes being considered totheimport régime arediscussed inChapter III(2).37
31Decree No.237, 20May 1980.
32Decree No.92,LeydePrivatización deIngenios yPlantas deAlcohol, Diario Oficial No.159,
30August 1995.
33Legislative Decree No.31,29May 1990.
34Norton etal.(1994).
35World Bank (1989).
36Ramos etal.(1995).
37Theapplied tariff atpresent is20percent.WT/TPR/S/23
Page 78Trade Policy Review
49. Onthewhole, thenew,more market-oriented policies havebenefited producers andprocessors
ofsugar. However, producers ofconfectionary goods andrelated products areatacleardisadvantage,
since theyhavetopurchase expensive national sugar, which increases theircosts ofproduction and
rendersthemuncompetitive.Accordingtotheauthorities,thisgroupofproducershascomplainedseveral
times about thehighcostofsugar andthedifficulties ofimporting thisproduct. Thefinalconsumers
ofsugar andconfectionary products arealsoaffected bythese policies.
(c) Basic grains andother crops
50. Thecontribution ofbasic grains, including beans, toagricultural GDP amounted tosome
23percentin1995.38Production isconcentrated inmaize, sorghum, beans, andrice. Asshown,
inChart IV.8thevolume ofproduction ofmaize andsorghum, although more erratic, hassince 1985
beenhigher thanthatofriceandbeans. However, ElSalvador hashistorically beenanimporter of
grains.
51. White maize isthemostimportant basic grain. Itisthestaple foodinElSalvador, especially
atlower income levels. Asshown inChart IV.3more than40percentofthelandunder cultivation
wasdevoted totheproduction ofthiscrop. Some 300,000 producers areengaged intheproduction
ofwhite maize, mostofthemownsmall (1-5hectares) andmedium-size (5-20 hectares) farms, many
38Beans areincluded withbasic grains inSalvadorian agricultural data.ElSalvador WT/TPR/S/23
Page 79
ofwhich donotgenerate asurplus tobemarketed. Ithasbeenestimated thatonly24percentofall
farmers produce enough maize togenerate asurplus forsaletointermediaries.39
52. Thecurrent, temporary tariffrateonwhite maize is1percent.40Imports ofsubstitutes, such
aswheat andwheat flour (i.e., bread asasubstitute forcorn tortillas), made available under
United States PL-480, aredutyfree; thisadversely affects theproduction ofwhite maize, but,asnoted
earlier, there havebeennosuchimports inrecent years.
53. After white maize, sorghum isthesecond mostimportant grain interms ofproduction. The
amount oflandunder sorghum, almost 20percentofthetotallandunder cultivation, hasnotvaried
since 1985. Approximately, onethird oftheproduction ofsorghum isusedonthefarms where it
isgrown; therestissoldforthepreparation ofcommercial animal feed. Yellow maize, asubstitute
forsorghum intheproduction ofanimal feed, isimported asnoneisproduced inElSalvador.
54. Thetariff ratesforsorghum andyellow maize are20percentand10percent,respectively,
although bothareimported dutyfreeunder United States PL-480. Consideration isbeing given to
theintroduction ofaseasonal tariffforyellow maize (Chapter III(2)(iii)): theapplied tariffforyellow
maize would beraised to10percentduring thesorghum harvest andlowered to1percentatother
times. However, according totheMAG, production ofsorghum inElSalvador isverycompetitive,
39Norton etal.(1994),
40Thenormal rateof5percenthasbeenreduced because ofashortage ofwhite maize (Biministerial Decision
No.116, Diario Oficial No.63,29March 1996).WT/TPR/S/23
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sothatevenifthetariffwerelowered tozeropercent,domestic producers would beabletocompete.41
Ifthisisindeed thecase, further protection forthisactivity would serve onlytoincrease profitability
andfoodgrain prices, withflow-on effects forthecosts ofbeefandother meatproducts.
55. Riceandbeans arelessimportant grains; theirvolume ofproduction hasbeenfairly stable
since 1985, ashasbeentheareaoflandunder cultivation forthetwocrops. Theareaoflanddevoted
tobeans isnotevident inChart IV.3, either because itisnegligible orbecause beans areplanted as
asecondary croptogether withmaize andthelandisrecorded under theuseoftheprimary crop.42
Thetariffforbeans, at15percent,isabove theaverage levelof12.6percentforagricultural products
(Table AIV.1). However, when imports ofthisgrain arerequired, thetraditional sources ofsupply
areother Central American countries, forwhich therateofdutyiszero.
56. ElSalvador hasnotachieved self-sufficiency intheproduction ofrice,despite therelatively
highyields.43Theapplied tariffs varywidely: riceforseed(item 1006.10.10) attracts arateof
5percent, unhusked rice(1006.10.90) isdutiable at20percent, andother riceitems aredutiable
at20to35percent, wellabove theaverage tariff foragricultural products.
57. Themarketing ofbasic grains, asforother major agricultural products, wasmanaged bythe
State until1989. During 1953-1989, theState controlled themarketing andpricing ofbasic grains
through theRegulatory Institute ofProvisioning (Instituto Regulador deAbastecimientos ,IRA). The
IRAdidnothaveafullmonopoly overthemarketing ofbasic grains, since itdidnothavethecapacity
tocontrol thewhole market, although ithadbeencreated withtheintention ofbeing thesolebuyer
andseller ofbasic grains (including beans) andpowdered milk. Infact,theIRAwasonlyableto
market some 20percentofthesupply ofbasic grains. Although alsoincharge ofsetting minimum
andmaximum prices, theinstitution was,inpractice, unable tocontrol prices, since 80percentof
thegrains were marketed directly byproducers inaparallel market.
58. In1989itwasdecided todismantle theIRA, completely freeing themarketing ofbasic grains
andpowdered milk. TheIRA'sinfrastructure isstillintheprocess ofbeing sold. Price controls for
basic grains werealsoabolished in1989, although asystem ofprice bands wasestablished formaize,
riceandsorghum in199044;these wereabolished in1994 since when prices havebeensetbymarket
forces.
59. According totheMAG, thebasic grain sector isverysensitive from asocial point ofview.
Tohelpthesector meetthechallenges imposed bytheliberalization programme, theauthorities will
concentrate onfourmain tasks: (i)toincrease theproductivity ofsmall andmedium-size producers,
whocomprise themajority ofproducers ofthese crops; (ii)todevelop more environmentally friendly
methods tocontrol diseases, inorder toreduce theuseofpesticides which havebecome anenvironmental
andpublic health hazard; (iii)topromote thedevelopment ofagro-industries toprocess grains into
41Ramos etal.(1995).
42InElSalvador beans areplanted: (i)asadistinct crop; (ii)between themaize; or(iii)alternating with
maize.
43Ramos etal.(1995).
44Announced bytheMAG andtheMinistry ofEconomy inLaPrensa ,21July, 1990.ElSalvador WT/TPR/S/23
Page 81
animal feed; and(iv)tostrengthen BOLPROES, theSalvadorian commodity market, sothatthe
marketing ofgrains becomes more efficient, andscarcity duetoinefficiencies inmarketing becomes
lesscommon.
60. Cotton washistorically oneofthemost important agricultural crops inElSalvador. Inthe
1970s, cotton generated 9percentofagricultural GDP, 9.5percentofforeign exchange earnings
andmore than150,000 jobs. However, thecultivation ofcotton hasvirtually disappeared. Thearea
under cotton decreased by10percentfrom1980to1990, andexports declined fromUS$45.7 million
in1982 toUS$1 million in1990. ElSalvador hasnowbecome animporter ofcotton.45However,
according theauthorities, theneedtoimport cotton hasnotharmed thetextile industry.
61. Theproduction ofcotton wasseverely harmed bythewar,when many cotton plantations were
burnt. Inaddition, thecosts ofcontrolling diseases became sohigh thattheactivity became
uncompetitive. Thissituation wasalsoexacerbated bytheappreciation oftheexchange rate. Finally,
theagrarian reform alsohadanegative impact upon cotton production, since thefarms weredivided
intosmall plots which arelesssuitable fortheproduction ofcotton.
62. TheSalvadorian Cotton Co-operative (Cooperativa Algodonera Salvadoreña Ltd.,COPAL),
created in1942, wasaprivate institution which hadmonopolistic andmonopsonistic rights inthecotton
market.46Astheproduction ofcotton diminished andtrade wasliberalized, themarketing board for
cotton, COPAL, lostthepowers granted bytheGovernment totrade incotton.
(d) Livestock anddairy products
63. In1995, livestock represented 25percentofagricultural GDP, making itthemostimportant
agricultural sector inElSalvador (Chart IV.2). Cattle ranching haslostimportance since 1990, while
theproduction ofpoultry hasgained. Cattle ranching amounted to17percentofagricultural GDP
in1990 declining to14percentin1995, while poultry production increased from 8percentto
11percentoverthesame period.47
64. According totheMAG, since 1990 thesizeoftheSalvadorian herd hasbeen stable
(1.26millionhead),althoughtheproductionofmeathasfluctuated.48ElSalvadorisneitherasubstantial
exporter norimporter ofmeat. Since 1991therehavebeennomeatexports, andimports ofmeathave
beenontheaverage around 0.4percentoftotalimports.49
65. Theprotection afforded bytheapplied tariff of20percentisabove theaverage forthe
agricultural andlivestock sector asawhole andliesattheupper limitofthetariffs applied toproducts
ofthesector (Table AIV.1). Thesector willeventually beaffected bythereductions oftariffs that
arescheduled tocontinue until1999, asstipulated intheeconomic reform programme. Theauthorities
45MAG (1991).
46Executive Decree No.50,15May 1942.
47Banco Central delaReserva (1995).
48In1991,theproductionofmeat wasaround51.1millionlbs,decreasingin1992to42millionlbs.Production
recovered to59million lbs.in1994 (MAG, 1995).
49UNSTAT, Comtrade database.WT/TPR/S/23
Page 82Trade Policy Review
expect thatthesector willneedtoundergo athorough reform andachieve considerable productivity
increases inorder tosurvive without thepresent levels ofprotection. Thesector would alsoneedto
attract more investment. However, there seems tobesome reluctance toinvest incattle ranching,
stemming from thetimeofthearmed conflict.
66. Incontrast, thechicken industry hasbeengrowing since thebeginning ofthe1980s. From
1980 to1986 production ofpoultry meatdoubled, and,since 1986, ithasbeengrowing atanannual
rateof2.3percent.50In1994, production reached 45,000 metric tonnes, enough tomeetthenational
demand. There areonlyafewproducers but,according totheMAG, thereisnoevidence ofcollusive
price behaviour.51
67. A20percenttariff applied toimports ofpoultry, isscheduled tobereduced to15percent
by1999. Producers areconcerned about potential imports ofcertain chicken parts from the
United States; Salvadorian whole chicken iscompetitive intheinternational market, butonceitis
partitioned itisnotpossible tocompete withthelowprices ofAmerican chicken wings, thighs and
legs. These canbeattributed tothelowAmerican demand fortheseparts, while chicken breasts, which
areinhighdemand, aremore expensive.
68. Trade inpoultry meatbetween ElSalvador andtheUnited States hasbeendisrupted forsanitary
reasons. ElSalvador claims thattheavian influenza (influenza aviar)hasnotbeeneradicated inthe
UnitedStates;exportsofchickenfromElSalvadorarealsorestrictedforsanitaryreasons.ElSalvador's
concern about imported chicken hasgrown asithasmade aserious effort toeradicate many poultry
diseases.
69. Theproduction ofmilkfellconsistently throughout the1991-1994 period, from 335million
litres in1991 to225million, while in1994 there were plans tostartreducing theapplied tariff of
15percenttoreach thetarget of6percentby1999. However, asthissector isverysensitive,
consideration isbeing given toretaining theexisting levelofprotection.52
70. Producers offresh milk have notbeen abletocompete withthenational industries that
reconstitute imported powdered milk, despite theimport dutyof15percentonpowdered milk. The
poorcompetitiveness ofdomestic production islinked tolowproductivity, caused bythelackofrainfall,
suitable feedandinfrastructure. Oneproposal hasbeentoincrease thetariff forimported powdered
milkto20percentandtomaintain itatthatleveluntiltheyear2000, when itwould bereduced again
to15percent.53While thispolicy would provide timeforthesector toadjust, itwould inevitably
increase consumer prices.
71. Protection forthesector hasbeenbolstered byaquantitative restriction onimports ofdairy
products (Chapter III(2)) andacountervailing duty onmilk imports originating inCosta Rica
(Chapter III(2)).
50MAG (1991).
51Ramos etal.(1995).
52MAG (1995).
53Ramos etal.(1995).ElSalvador WT/TPR/S/23
Page 83
(iii) Fishing
72. While thefishing sector makes onlyaminor contribution toagricultural GDP (2.2percent
in1990and3.4percentin1995), fishandfisheries products arethethirdmostimportant agricultural
export, aftercoffee andsugar. In1994, exports offishgenerated US$27.4 million, ofwhich 91percent
wereexports ofshrimp.54These exports havebeenincreasing steadily since 1989. In1995(January
toOctober), shrimp exports accounted for1.4percentoftotalexports. According todatafromnational
sources, exports havebeenconsistently higher thanproduction since 1985 (Chart IV.9). According
totheauthorities, thiscanbeattributed totheincrease intheweight related tothefreezing ofprocessed
andpackaged shrimp (i.e.,shrimp ready forexport). Imports offish,which aredutiable at13percent
onaverage, arenegligible.55
73. Fishing ismainly asmall-scale activity. Intotalthere arearound 25,000 fishermen, and
3,000 people areengaged intheprocessing oftheproducts. Thedeepseafleetcatches mainly shrimp
andprawns, which aresoldtodomestic processors whoexport thefinished product. In1996,
7,790 fishermen were licensed tocatch shrimp, andthere were 86processing companies. Inorder
toprotect thespecies, alicence tofishshrimp isrequired. According totheMAG, nomore licences
arebeing granted atpresent since shrimp isbeing over-exploited. Small-scale fishing ismainly for
other species forown-consumption and/or forsaleonthedomestic market.
54Banco Central delaRepública (1995).
55UNSTAT, Comtrade database.WT/TPR/S/23
Page 84Trade Policy Review
74. TheSalvadorian territorial waters represent anareagreater thanthenational territory andhave
notyetbeenfullyexploited. Most oftheresources havebeenconcentrated inshrimp fishing which
ishighly profitable. Other available species, suchastuna, shark, sardines andsquid, havenotyet
beenexploited. However, littleinvestment hasbeenmade inthetechnologies required tofishthese
species byElSalvador andexploitation mayrequire foreign direct investment withitsattendant
"know-how".
75. Themain challenge inthissector istodiversify production andattain asustainable level of
exploitation ofresources. However, mostofthepublic sector 'sresources havebeendevoted tothe
sanitary inspection oftheshrimp processing plants, instead ofbeing allocated toresearch and
development. Theplants areinspected every threemonths inorder toensure thequality ofthecrustacea
being processed forexport. According totheauthorities, such quality control isoftheutmost
importance, otherwise, thereisahighriskofloosing theSalvadorian niche intheinternational market,
particularly theUnited States, themain market. In1995, ElSalvador started exporting tothe
European Community andJapan, buttransportation costs tothese markets arehigh.
76. Fishing incoastal waters isreserved forSalvadorians. Coastal waters aredefined asthe
12marine miles measured fromthelowest tide.Inaddition, theCentre fortheDevelopment ofFishing
(Centro deDesarrollo Pesquero ,CENDEPESCA) hasprohibited fishing incoastal waters toreduce
over-exploitation. Both nationals andforeigners require alicence tofishandmust comply with
requirements stipulated byCENDEPESCA.
(3) Manufacturing
77. ElSalvador 'smanufacturing sector accounted forsome23percentofGDPin1995(Chart I.2).
In1995, manufacturing employment amounted to19percentofthetotalworkforce (380,700 workers).
Theindustrial sector isdominated byproduction offood, beverages andtobacco; otherimportant sectors
include chemicals, clothing andwearing apparel, andpaper products (Chart IV.10). Apart fromclothing
andwearing apparel produced inthefreezones, mainly forexport totheUnited States, manufactured
goods areconsumed mainly inthenational andCentral American market. ElSalvador isanimportant
supplier ofmanufactured goods totherestofCentral America. However, some industries havebeen
abletocompete notonlyattheregional level, butalsoinother markets.56
78. In1994exports ofmanufactured goods accounted forsome 44.7percentoftotalexports while
imports ofmanufactured goods accounted forsome71percentoftotalimports (Table AI.1andAI.2).57
Bothexports andimports experienced substantial growth during 1990-1994, withexports growing at
anaverage rateof23.9percentandimports atanaverage rateof29.6percent. Thisgrowth was
spread across anumber ofsectors, andisrepresentative oftheoverall improvement oftheSalvadorian
economy since thebeginning ofthe1990s.
56CEPAL estimated thatin1995 themostcompetitive industries inElSalvador were the:(i)sugar refineries
andfoodprocessing industries, (ii)textile industry, except formanufacturing ofwearing apparel (prendas de
vestir ),(iii)shoe industry, except forplastic shoes, and(iv)paper products (Salazar, 1995).
57UNSTAT, Comtrade database.ElSalvador WT/TPR/S/23
Page 85
79. Theindustrial sector inElSalvador consists ofindustries established inthenational customs
territory aswellasthose established inthefreezones. Themostimportant national industries -food,
beverages andtobacco -experienced thehighest ratesofgrowth intheperiod 1990-95 (Chart IV.10),
while other industries appear tohavecontracted. However, thisapparent contraction mayberelated
tothemovement ofsome industries tothefreezones totakeadvantage ofthetraderégime inthezones.
Alternatively, some parts ofindustry maywellhavefoundered under thechallenges imposed bythe
process ofliberalization. Today, theSalvadorian industrial sector iscontinuing toadjust tothemore
openeconomic environment.
80. Freezones havegained importance since1990; atthattimetheycontributed only1.7percent
toGDP, whereas in1995theyaccounted for8.1percent(Chart IV.10). Mostoftheenterprises located
inthefreezones, produce clothing andwearing apparel forexport totheUnited States.58In1995
58Theseproductsareexportedunderheading9802.00.80oftheHarmonizedTariffScheduleoftheUnitedStates
(formerly TSUS 807), apreferential régime which relates tooff-shore assembly programmes. ElSalvador has
negotiated tworestraints withtheUnited States. First, aspecific limit quota formen'sandboys'cotton and
man-made fibreshirts notknit(category 340/360), notified under Article 2.1oftheWTO Agreement onTextile
andClothing (ATC) (G/TMB/N/63). Second, aGuaranteed Access Level (GALS) forthesame category of
textiles goods made withU.S. cutandformed fabric, sewn inCBERA countries. Thismeasure wasnotified
under Article 3.1oftheATC (G/TMB/N/66). These measures were originally negotiated under theMultifibre
Arrangement (MFA) andwere carried over intotheATC upon itsentry intoforce onJanuary 1995. Three
additionalrestraintsmeasureshavebeennegotiatedwiththeUnitedStatesoncottonandman-madefibresleepwear
(category 351/651), cotton andman-made fibre underwear (category 352/652) andcotton andman-made fibre
(continued...)WT/TPR/S/23
Page 86Trade Policy Review
(January-October) exports fromthefreezones accounted for38.8percentoftotalexports, while export
ofallother manufactured goods amounted to34.2percent.59
81. Prior totheintroduction oftheoutward-oriented reforms, Salvadorian industry haddeveloped
under animport substitution industrialization strategy within theframework oftheCACM. Initially,
thisstrategy wasquite successful andthere wasaconsiderable expansion oftheindustrial sector.
However, bythe1970s theeasystage ofsubstitution hadcome toanend. Inthenextstage, import
substitution hadtobebased onmore intensive useofintermediate andcapital goods andrequired higher
levels oftechnology thatwerenotavailable inthecountry. Under theISIstrategy, ElSalvador produced
manufacturedgoodsmainlyfordomesticconsumptionandexporttotheotherCACMcountries,apattern
thatisstilldominant despite thereforms.
82. Themain policy instrument usedtopromote theISIstrategy wastheexternal tariff, which
provided highlevels ofprotection fortheindustrial sector andwasaimed atpromoting theproduction
offinalgoods attheexpense ofintermediate andcapital goods. Material inputs hadmuch lower rates
ofprotection thanfinalindustrial goods, sothat,inconsequence, theeffective rateofprotection for
finalindustrial goods wasmuch higher thanthatimplied bynominal tariff rates. Tariff protection
wassupplemented withadditional instruments topromote industrial growth, suchastaxexemptions,
preferential interest ratesanddifferential exchange rateswhich favoured theindustrial sector. These
policies created three biases: first,abiasagainst theagricultural sector; second, ananti-export bias;
andthird, abiasinfavour oftheproduction offinalgoods.60
83. TheCACM 'sexternal tariff (NAUCA), inplace since 1964, wasreplaced in1986 byanew
tariff, NAUCA II.61However, bothtariffs provided similar, higheffective rates ofprotection for
manufacturing: effective protection toimport substitution industries doubled thenominal protection,
while theexport sector hadanegative effective rateofprotection, exacerbating theanti-export bias.62
TheWorld Bank estimated thatwhile nominal protection ratesvaried between -25and89percent,
effective protection ratesranged between -28and302percent.63
84. Inpractice, theavailable level ofprotection wasnotfullyusedsince theCentral American
manufacturers soldtheirproducts atprices considerably lower thanthec.i.fprice plusthetariff (i.e.
there waswater inthetariff). Thus, thetariff could havebeenreduced without affecting national
production, imports andconsumption.64Nevertheless, thestructure ofprotection appears tohave
58(...continued)
skirts (category 342/642). Inthefirsthalfofthequota yeartheutilization rateranged from 37to10percent
forthefirsttwocategories (OTEXA (1996).
59Banco Central delaRepública (1995).
60Abrego (1991).
61TheCentralAmericanUniformTariffNomenclature(NomenclaturaArancelariaUniformeCentroamericana,
NAUCA).
62Salazar (1995).
63World Bank (1989).
64Willmore (1989).ElSalvador WT/TPR/S/23
Page 87
discouraged theproduction ofintermediate goods andcreated anincentive forlow-value-added assembly
operations, relying mainly onimported inputs (seeTable IV.5).65
85. Theassembly ormaquila sector started developing inElSalvador attheendofthe1970s as
aresponse tothelackofsuccess oftheISIstrategy indeveloping theindustrial base. Thecountry
hadacertain comparative advantage suchassufficient labour force, competitive wages, some installed
infrastructure andreasonable geographic proximity totheUnited States.66However, throughout the
years,ElSalvador'swagecompetitivenesshasbeensomewhatoffsetbylowermanufacturingproductivity,
attributable toadeterioration ininfrastructure andthelackofaskilled labour force. Thelatter has
beenexacerbated byemigration.67
86. In1989, theliberalization oftheindustrial sector began aspartofthewider economic reform
programme. Tariffs oninputs andcapital goods haveprogressively beenreduced, ashasthegapbetween
thetariffs oninputs andfinalgoods. Asnoted inChapter III,thegoalistoreduce protection onfinal
goods to15percent, sothattariffs forallgoods would range from 0-15percentby1999. Tariffs
levied oncapital goods havealready beenreduced to1percent.
87. Asshown inTable IV.6, the1995 applied tariff provides anaverage level ofprotection of
10.1percentfortheindustrial sector aswhole, withtariffs ranging from 1-30percent. However,
someofthemostimportantindustries-wearingapparel,tobacco,beverages,textiles,andfoodproducts-
benefit from above average levels ofprotection (Table AIV.1).68
65World Bank (1989).
66Attheendofthe1970s when theviolence started themaquiladoras migrated toother countries. (Salazar,
1995).
67World Bank (1989).
68Wearing apparel (ISIC 322) 23.8 percent, tobacco (ISIC 3140) 20percent, beverages (ISIC 313)
20.7 percent, textiles (ISIC 321) 17.9 percent, andfood products (ISIC 311) 15.2 percent.WT/TPR/S/23
Page 88Trade Policy Review
Table IV.5
Economic classification ofimports, 1991-95
(Thousands ofColons andpercent)
Category 1991 1992 1993 1994 Jan-Oct./1995
Value
Final goods 2,893.6 4,093.8 4,567.5 5,292.9 5,655.1
Non-durables 2,486.2 3,497.0 3,857.0 4,410.9 4,671.6
Durables 407.4 596.8 710.5 882.0 983.5
Intermediate goods 5,789.6 6,515.2 7,330.8 8,570.6 8,982.8
Manufacturing 4,475.2 5,075.6 5622.8 6,590.5 6,733.1
Petroleum 1,016.1 1,072.2 1,076.3 976.5 878.5
Agriculture 543.0 592.6 614.3 734.1 742.9
Fertilizers 242.2 252.8 294.9 318.5 286.1
Construction 688.9 758.3 971.3 1,100.8 1,302.9
Other 82.5 88.7 122.4 145.2 203.9
Capital goods 2,592.1 3,607.5 4,942.9 5,837.1 6,092.9
Manufacturing 715.4 1,016.1 1,491.9 1,361.5 1,642.4
Transport 1,193.4 1,720.0 2,252.3 2,893.6 3,105.4
Agriculture 89.0 98.8 525.9 107.6 86.6
Construction 92.2 128.1 95.4 316.8 350.9
Other 502.1 644.5 577.4 1,157.6 907.6
Maquila 858.1 1,305.7 1,924.9 2,823.6 3,577.9
Total 12,133.4 15,522.2 18,766.1 22,524.2 24,308.6
Share
Final goods 23.8 26.4 24.3 23.5 23.3
Non-durables 20.5 22.5 20.6 19.6 19.2
Durables 3.4 3.8 3.8 3.9 4.0
Intermediate goods 47.7 42.0 39.1 38.1 37.0
Manufacturing 36.9 32.7 30.0 29.3 27.7
Petroleum 8.4 6.9 5.7 4.3 3.6
Agriculture 4.5 3.8 3.3 3.3 3.1
Fertilizers 2.0 1.6 1.6 1.4 1.2
Construction 5.7 4.9 5.2 4.9 5.4
Other 0.7 0.6 0.7 0.6 0.8
Capital goods 21.4 23.2 26.3 25.9 25.1
Manufacturing 5.9 6.5 7.9 6.0 6.8
Transport 9.8 11.1 12.0 12.8 12.8
Agriculture 0.7 0.6 2.8 0.5 0.4
Construction 0.8 0.8 0.5 1.4 1.4
Other 4.1 4.2 3.1 5.1 3.7
Maquila 7.1 8.4 10.3 12.5 14.7
Total 100.0 100.0 100.0 100.0 100.0
Source: Banco Central delaRepública (1995), Revista Trimestral: octubre-noviembre-diciembre 1995, SanSalvador, ElSalvador.ElSalvador WT/TPR/S/23
Page 89
Table IV.6
Main features oftheSalvadorian tariff schedule, 1995
Simple average Tariff dispersion
Tariff
(advalorem
percent)Tariff range
(advalorem
percent)Standard
deviationaCoefficient of
variationa
Alltariff lines 10.1 1-30 7.6 75.4
Bysectorb:
Agriculture andfisheries 12 1-20 6.1 50.6
Mining 6.8 5-20 3.6 52.3
Industry 10.1 1-30 7.8 77.1
Bydegree ofprocessing:
Primary products 10.3 1-25 5.9 57.0
Semi-processed products 8.8 1-30 5.8 65.8
Finished goods 10.9 1-30 8.8 80.6
a Thestandard deviation measures theabsolute dispersion ofadistribution; thecoefficient ofvariation isameasure ofrelative
dispersion, defined asthestandard deviation divided bytheaverage.
b Based onISICclassification.
Source: Government ofElSalvador; andWTO Secretariat.
88. Tariff escalation isalsoevident insome ofthese industries. Thetextile industry forinstance
hasanaverage nominal tariff forinputs of6.2percent, while thatoffully processed textiles is
21.1percent(Table AIII.1). Thissame pattern oftariff protection isalsopresent intheproduction
ofpaper (ISIC 341)andleather products (ISIC 323)forwhich inputs havetobeimported. However,
onaverage, the1995 tariff tends toprotect primary products andfinished goods more than
semi-processed goods (Table IV.6). Thefoodindustry (ISIC 312), inparticular, conforms tothispattern
ofprotection. Thus, thepattern ofhigher protection forprocessing activities, except inagriculture,
thatexisted under theISIstrategy continues, albeit atreduced levels, butwilldiminish asthe
liberalization process continues.
89. In1989mostnon-tariff barriers wereeliminated, theremaining measures affecting onlyafew
products. Diesel forpublic transportation andliquid gasfordomestic consumption aresubsidized,
andexports ofsubsidized diesel andliquid gasareprohibited (Chapter III).TheMinistry ofEconomy
setstheretail price ofthese twoproducts weekly. Noother export orprice controls affect industrial
goods.
90. Import prohibitions affect some manufactured goods suchassubversive andpornographic
material,gamblingmachinesandmachinestofabricatecoins,etc.(ChapterIII(2)).Weaponsandmilitary
material, official stamps andcoins, andeau-de-vie made withsugar canecanonlybeimported bythe
State. Import licences arestillrequired forimports ofjuteandclothsacks, andfortheduty-free entry
ofsomegoods originating inotherCentral American countries (Chapter III(2)).69Inaddition, saccharine
andsimilar products aresubject toanimport quota unless theyareimported formedical use;forsuch
69According totheSalvadorian authorities thelicence requirement forethyl alcohol hasbeeneliminated for
details, seeChapter III(1)(viii).WT/TPR/S/23
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imports permission maybeobtained fromMinistry ofPublic Health andSocial Assistance ontheadvice
oftheSuperior Council forPublic Health (Consejo Superior deSalud Pública ),andtheSalvadorian
Commission fortheDevelopment oftheSugar Sector (CDA).
91. Theprocess ofliberalization hasbeencomplemented bytherevision andpassage oflawssuch
astheLawforFreeZones andFiscal Areas andtheLawfortheReactivation ofExports. These laws
promote themaquila sector andgrant special incentives toproducers ofnon-traditional exports
(Chapter III).Inaddition, theLawfortheGuarantee andtheDevelopment ofForeign Direct Investment
(LeydeGarantía yFomento alaInversión Extranjera )isintended tofoster foreign direct investment
andguarantees therights andregulates theobligations offoreign investors (Chapter II).
92. Aspecific project isintended topromote industrial development inareas particularly affected
bythearmed conflict. Thisprovides forthecreation ofindustrial parks, including essential services,
andtheprovision oftechnical assistance. There arenootherprojects toaidspecific industries, including
thosethatarebeing restructured; thereareonlygeneral programmes oftechnical assistance andfinancial
support administered bytheSalvadorian Association ofIndustrialists (Asociación Salvadoreña de
Industriales ,ASI), theMulti-sectorial Investment Bank (Banco Multisectorial deInversiones ,BMI)
andother private associations. Assistance tosmall-scale industries isprovided bytheprivate sector
Association ofMedium andSmall Salvadorian Entrepreneurs (Asociación deMedianos yPequeños
Empresarios Salvadoreños ,AMPES), andbytheFinance andGuarantee Fund forSmall Enterprises
(Fondo deFinanciamiento yGarantía paralaPequeña Empresa ,FIGAPE). Inaddition according
toCentral American legislation, micro-enterprises maybegranted dutyexemptions fortheirinputs.70
(4) Services
93. Theservices sector isthemostimportant sector intheSalvadorian economy, contributing some
62percentofGDP (Chart I.2). Themost important sub-sector iscommerce, which accounts for
34.5percentofservices GDP, followed bytransportation andtelecommunications (12.7 percent),
andgovernment (9.8percent)andcommunity services (9.6percent)(Chart IV.11). Theworkforce
ofjustover1million corresponds tosome 54percentoftotalemployment.71
94. Theservices sector wasseverely affected during thearmed conflict inthe1980s, when
infrastructure became astrategic target, anditwasnotpossible tocarry outrepairs orprovide basic
maintenance. Stateintervention waspre-eminent bothinpricing andinthedelivery ofservices, while
regulation waspoor. According toasurvey undertaken in1995 bytheWorld Bank, thedeficiencies
inthequality andquantity ofinfrastructure wasamajor concern formostproducers.72Theauthorities
haverecognized theneedtoimprove theavailable infrastructure sinceithasproven inadequate tosupport
theexport-led development model adopted atthebeginning ofthe1990s.
70Agreemen tontheCentralAmericanTariffandCustomsRégime(ConvenioCentroamericanosobreelRégimen
Arancelario Centroamericano ),27December 1994, Chapter V,Article 21.
71Government ofElSalvador.
72World Bank (1995).ElSalvador WT/TPR/S/23
Page 91
95. TherôleoftheStateintheservices sector, despite recent privatizations andcut-backs, remains
important, withseveral public monopolies stillinplace: (i)basictelecommunications; (ii)somesupport
services (loading andunloading) atairports andports; (iii)railtransportation; (iv)electricity generation
anddistribution; and(v)extraction anddistribution ofdrinking water. However, thelucrative
telecommunicationspublicmonopolyisintheprocessofbeingprivatized,andtheExecutiveAutonomous
PortsCommission(ComisiónEjecutivaPortuariaAutónoma,CEPA)isplanningtoprivatizetheservices
ofloading andunloading atairports andports(seebelow). Inairtransport, aprivate Salvadorian airline
ofmixed national andforeign capital (TACA) hasadominant position inthetransportation ofpassengers
andmerchandise intheCentral American market (which isalsoopen tointernational airlines). In
addition, theauthorities haveadvised thatelectricity generation andtheextraction ofdrinking water
arealsointheprocess ofbeing privatized.
96. InitsSchedule ofSpecific Commitments onServices under theGATS, ElSalvador hasmade
bothhorizontal andspecific commitments onmarket access andnational treatment forforeigners to
operate intheSalvadorian services sector. Thespecific commitments cover sixareas: business services,
communication services, environmental services, financial services, tourism services andtransport
services. Thehorizontal commitments regarding market access relate toregistration requirements
forforeign firms, limitations onprofit repatriation ofregistered investment, activities reserved to
Salvadorian nationals, andemployment ofnationals andtheirconditions ofemployment. Regarding
national treatment, there isonlyonerestriction thatapplies tothefourmodes ofsupply: adeduction
of20percentonallincome, other thandividends, paidtolegalpersons notdomiciled inElSalvador.73
73WTO document, GATS/SC/29.WT/TPR/S/23
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97. Inpractice, these horizontal limitations arenotveryrestrictive. According totheauthorities,
therequirement toregister investment andtherestriction onprofit repatriation cannot beenforced.
Since theliberalization ofthecapital account, investors havenoincentive toregister theirinvestment
and,hence, there isnopossibility ofenforcing thelimitation oncapital repatriation (Chapter II(ii)).
98. Thelimitation imposed bythereservation ofcertain activities forSalvadorian nationals in
small-scale commerce andsmall-scale industry isalsoofminor importance; small-scale commerce
isdefined asanoperation holding "liquid capital" (assets minus liabilities) oflessthanC100,000
(US$11,428.57) andsmall-scale industry isdefined asanoperation whose liquid capital islessthan
C50,000 (US$5,714.28). Itisalsopossible forforeigners tobeexempted from these reservations
(Chapter II).74
99. According totheauthorities, ElSalvador 'sSchedule ofSpecific Commitments onServices
include onlythose sectors whose market structure andregulatory framework wereknown atthetime
thattheoffer wasmade. Therefore, thelistshould notbetaken asexhaustive, andtheomission of
anysector should notbeconsidered asintended forprotective purposes. Forinstance, construction
services werenotincluded intheschedule; however, there arenorestrictions onforeigners investing
inSalvadorian construction companies oronforeign companies operating inthecountry. Foreign
companies areonlyrequired to"legalize" theirstatus, although thisprocedure doeshavesomewhat
different requirements forforeign andnational companies, asstated inthehorizontal commitments.
Asindicated inChapter II,foreign nationals faceformalities additional tothose faced bynationals to
legalize aninvestment.
100. Apart fromtheWTO Services Agreement, ElSalvador hasnobilateral orregional agreements
onservices ingeneral. However, there isaCentral American agreement tofacilitate theopening of
banking agencies andbranches (Acuerdo paralaFacilitación deApertura deAgencia ySucursales
Bancarias enCentroamérica ),andamore comprehensive agreement fortrade inservices isbeing
negotiated intheregion. Inaddition, ElSalvador hassigned several agreements ontherecognition
ofprofessional qualifications withdifferent countries.75
101. ElSalvador didnotparticipate inthefinancial services negotiations andhasnotparticipated
inthenegotiations ontelecommunications andmaritime transportation because ofbudgetary constraints
rather thanalackofinterest. According totheauthorities, ElSalvador isalsoready tonegotiate an
agreement tofacilitate themovement ofnatural persons toandfrom itsnational territory.
(i) Financial services
102. TherôleoftheStateinthefinancial sector hasdiminished substantially inrecent years. For
example, theSalvadorian commercial banks, nationalized in1980, were again privatized during
1991-1994;76fiveStatebanks andthreeother financial institutions ("financieras ")weresoldtoprivate
shareholders. Inaddition, in1992, theinterest ratesoffered andcharged bythesebanking institutions
were liberalized, aswastheallocation ofcredit.
74Decree No.9,Reglamento delaLeyReguladora delEjercicio delComercio eIndustria, Diario Oficial
No.23,4February 1970.
75WTO document S/C/N/17, 18June 1996.
76Danby (1995).ElSalvador WT/TPR/S/23
Page 93
103. Three public development banks remain inoperation: theAgricultural Development Bank
(Banco deFomento Agropecuario, BFA),theSaving Banks Federation (Federación deCajas deCrédito ,
FEDECREDITO),andtheFinanceandGuaranteeFundforSmallEnterprises(FondodeFinanciamiento
yGarantía paralaPequeña Empresa ,FIGAPE). However, theGovernment isplanning toprivatize
FEDECREDITO, andanother bank, Banco Hipotecario isintheprocess ofbeing privatized.
104. Atthetimeofprivatization, preferential treatment isgiven tobankworkers whowished to
acquire share holdings inthenewinstitutions. Forinstance, 17percentoftheshares oftheBanco
Hipotecario aretobesoldtotheworkers, another portion istobesoldtosmall share-holders ata
preferential rate,andtheremaining shares willbeauctioned. Inaddition, aceiling onshareholding
byanatural orlegalperson issetat5percentofthecapital oftheinstitution being privatized. This
limitation onmarket access applies bothtonationals andforeigners.
105. TheentityinchargeofregulatingthefinancialinstitutionsinElSalvadoristheSuperintendency
oftheFinancial Sector (Superintendencia delSistema Financiero, SSF), which wasseparated from
theCentral Reserve Bank ofElSalvador (Banco Central deReserva deElSalvador, BCR) in1990.77
Effective prudential regulation isparticularly important sincebanks haverecently become independent
andareexpanding rapidly. Thus, theOrganic LawoftheSuperintendency oftheFinancial Sector
(LeyOrgánica delaSuperintendencia delSistema Financiero )tightens formal requirements on
commercial banks, requiring provisioning against badloans andalarger capital base. While itisunclear
howeffective theregulatory authorities areinenforcing provisioning against badloans78,ElSalvador
hasnotsuffered banking crisis following privatization, ashashappened insome other economies.
106. In1991 theBCR wasgranted greater independence anditsrôlewasredefined astheentity
incharge ofpromoting andmaintaining monetary stability.79Previously, theBCR hadlittle
independence; forexample, ithadtofollow government guidelines ontheallocation ofcredit among
sectors andprojects, andontheconditions oftheloans. Thus, thecommercial banks losttheir
independence andeffectively became branches oftheBCR. Thearbitrary allocation ofcredit isthe
principal reason why, attheendofthe1980s, theratioofbadloans wasmore than40percentand
most banks were ontheverge ofbankruptcy.80During the1980s financial resources were directed
towards financing thewar,agricultural exports andthebeneficiaries oftheagrarian reform.81
107. Despite theimprovement intheoperation ofthefinancial system, there arestillmany sectors
oftheeconomy -small andmicro enterprises, especially inrural areas -thatdonothaveaccess to
credit.82Instead, theinformal financial sector hasbeenfulfilling thisrôleinareasthatlegally recognized
institutions donotreach.83Thus, thereseems toberoom forfurther development ofsmall-scale financial
77LeyOrgánica delaSuperintendencia delSistema Financiero, Diario Oficial No.278, 10December 1990.
78Danby (1995).
79LeyOrgánica delBanco Central deReserva deElSalvador, Diario Oficial No.80,3May 1991.
80BCR (1992).
81Danby (1995).
82World Bank (1995).
83Danby (1995).WT/TPR/S/23
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institutions thatwould encourage financial savings intheruralarea. Inaddition, theinflux ofremittances
provides aunique opportunity toreceive deposits andincrease savings, sothatremittances could become
amore direct source ofnational savings, butthisisonlypossible iffinancial savings instruments are
available torecipients. According totheauthorities, theprivate financial institutions docapture an
important percentage oftheremittances; nevertheless, mostofthem areusedontheconsumption of
non-tradeable goods.
108. TheBanking andFinancial Lawstipulates thatforeign ownership inbanks andfinancial
institutions constituted inElSalvador isallowed uptoamaximum of50percent,provided thatthere
isreciprocal treatment inthecountry where foreign investors arebased.84However, foreign banks
areallowed tooperate inthecountry withnorestrictions iftheycanprove thattheyarelegally
established inaccordance withthelawofthecountry inwhich theyarebased; maintain apermanent
representativeinElSalvadorwithpowertoperformallactivities;andaccepttobesubjecttoSalvadorian
law.
109. Insurances services arenotmentioned inElSalvador 'sSchedule ofCommitments, but,
according totheauthorities, national treatment isgiven toforeign insurance companies operating in
ElSalvador, withtheexception oftherestrictions specified inFDILawandtheLawRegulating the
Exercise ofCommerce andIndustry anditsRegulation.85There arenoprovisions stipulating that
exporters orimporters must usenational insurance companies.
(ii) Transportation86
(a) Roads
110. Land transportation isofparticular importance toSalvadorian trade with theother
Central American countries andforaccess toports onthePacific Coast. However, during the1980s,
roads werenotmaintained; theyprogressively deteriorated andcontinue topresent aproblem fortrade.
Theauthorities indicated thatseveral programmes toimprove theroads, financed withinternational
funds, (e.g., from Japan) havebeenconcluded.
111. Aregional agreement hasbeensigned bythefiveCentral American countries regarding land
transportation, toallow trucks tocirculate without anyrestrictions. Thisprivilege isnotextended to
Panama orMexico because oftheabsence ofreciprocal rights. However, ElSalvador, Guatemala
andHonduras arecurrently negotiating anon-reciprocal transportation agreement withMexico.
(b) Ports
112. ElSalvador hastwomainpublic portsAjacutla andCutuco. TheExecutive Autonomous Ports
Commission (Comisión Ejecutiva Portuaria Autónoma, CEPA), founded in1965, administers both
84LeydeBancos yFinancieras, Diario Oficial No.92,22May 1991 (Article 9).
85These restrictions arethesame asthose specified inthehorizontal commitments.
86This section isbased onINCAE (1996).ElSalvador WT/TPR/S/23
Page 95
ports, aswellastheInternational Airport ofElSalvador andtheNational Railroad ofElSalvador
(Ferrocarriles Nacionales deElSalvador ,FENADESAL). TheCutuco seaport is,inturnowned
byFENADESAL.87
113. Ajacutlaisthemostimportantport:in1993,42.3percentofElSalvador'stradepassedthrough
thisport,while only1percentofthemerchandise wastransported through Cutuco (thebalance being
handled byroadandair).88Theinfrequent departure ofships, however, renders maritime transport
inefficient forexporting, andexporters tendtorelyonmore expensive airtransport, especially to
destinations outside Central America.
114. TheportofAjacutla iscapable ofhandling 3million metric tonnes (MT) ofmerchandise a
year, whereas in1995theamount shipped wasaround 2.1million MT,autilization rateof69percent.
Theunder-utilization oftheportismainly caused bylowlevels ofefficiency which canbeattributed
tothelackofequipment tohandle containers. Manual procedures arestillused, rendering Ajacutla
lesscompetitive thanports intheCentral American Region. However, modernization isenvisaged,
buthasbeendelayed while theairport hasbeengiven priority.
115. Some operations atAjacutla havebeenfranchized totheprivate sector, andasaresult, have
become more efficient. However, aproject tohireprivate companies tocarry outtheloading and
unloading (estiba/destiba) hasnotbeensuccessful sinceitisinthisactivity thattheunions arestrongest.
116. ThevolumeofmerchandisehandledthroughCutucohasdiminishedsubstantially,mainlybecause
ofthewarandtheoverall poorstateofrepairs oftheport.Thus, in1979theporthandled 205,687MT,
while in1993ithandled only40,964, and,by1995, only12percentoftheport'scapacity wasbeing
utilized. CEPA would prefer toaward themanagement ofthisporttotheprivate sector.
117. Nocommitments weremade inthenegotiations onmaritime transportation; however, according
totheauthorities there arenorestrictions onforeign companies operating inElSalvador. Itseems
thatmaritime transport issolely operated byforeign companies since nodomestically owned shipping
services havebeendeveloped.
(c) Airports
118. There aretwopublic airports inElSalvador, theInternational Airport ElSalvador andIlopango
Airport. Themost important airport interms ofmerchandise andpassengers transportation isthe
International Airport. Ilopango houses amilitary basewhere theairforce isheadquarted, butitisalso
acivilian airport servicing private planes anddomestic flights. Intheperiod 1988-95, themerchandise
handled attheInternational Airport grew by240percent. Most ofthismerchandise originates inor
isshipped totheUnited States, while only3percentofthemerchandise handled byairfreight goes
totheCentral American region.
87CEPA (1994).
88INCAE (1996).WT/TPR/S/23
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119. CEPA relies onprivate companies toprovide most airport services, excluding maintenance
oftheairport infrastructure, while itremains incharge ofhandling andstoring merchandise, andairport
security. CEPA isconsidering awarding thehandling andstoring ofmerchandise toprivate companies
bypublic tender.89
120. Traders consider thatthemajor drawbacks ofusing airtransportation are:thelackofsufficient
storage space; thelengthy process ofdispatching themerchandise; theinfrequency offlights tomajor
airports; andthehighratescharged forairtransportation.
121. CEPA attributes thetimelagbetween thearrival andthedispatch tothetimetaken bycustoms
toclearthemerchandise, which inturncreates theproblem ofinsufficient storage space; merchandise
mayneedtobestored forupto15daysbefore being cleared bycustoms.90
122. OnlyTACA (Transportes Aéreos deCentroamérica )hasdailycargo flights tomajor airports
intheUnited States, while other(international) airlines haveonlyweekly orbi-weekly flights. However,
TACA 'sratesarehigher thanthose ofother airlines.91Thehighcostsandinfrequency offlights have
become aproblem fortheassembly (maquila )industries, although perishables aregiven priority when
there isashortage ofspace.
123. Theonlycommitment inElSalvador 'sschedule inrespect ofairtransport services relates to
maintenance andrepair services, forwhich aforeign company must apply toCEPA foralicence;
theapplicant must alsobedomiciled inElSalvador.
(d) Railways
124. TheNationalRailroadofElSalvador(FerrocarrilesNacionalesdeElSalvador,FENEDESAL)
wascreated in1975afterthetwoprivate companies incharge oftherailways wentbankrupt andwere
nationalized asasingle State-owned enterprise. FENEDESAL isadministered byCEPA. TheState
railways system hassome 602km.oftrack, linking SanSalvador withCutuco andAjacutla, aswell
aswiththemostimportant cities. Trains aremainly usedforcargo transportation fromAjacutla and
Cutuco.92
125. Since 1975, onlyemergency maintenance hasbeencarried outonrailways. Asaresult, the
condition oftheinfrastructure atpresent restricts thespeed ofthetrains andtheservice hasbecome
uncompetitive. Theprospects forimprovement arelimited since roadtransportation ismuch more
efficient andreaches more users.93
89CEPA (1994).
90INCAE (1996).
91INCAE (1996).
92CEPA (1994).
93INCAE (1996).ElSalvador WT/TPR/S/23
Page 97
(iii) Telecommunications
126. Basic telecommunications services arestillaState monopoly, operated bytheNational
Telecommunications Administration (ANTEL). Theoperations areintheprocess ofbeing privatized,
bysaletotwocompeting providers; infuture, other companies willbeallowed toenter themarket.94
Once ANTEL isprivatized, aregulatory body willbecreated. Theauthorities hope thatthis
transformation ofthetelecommunications market willbecompleted bytheendof1996. Foreign
companies,suchasAT&T,provideinternationalvoicetelephoneservices.AT&Tonlyprovidesservices
asaninternational carrier, and,assuchitdoesnotrequire alicence; however, itdoeshaveabilateral
agreement forinterconnection withANTEL.
127. Foreign investment isallowed invalue-added services, provided ANTEL grants theoperator
alicence oraconcession; onceANTEL isprivatized, thenewregulatory body willgrant licences
andconcessions. While thislimitation onmarket access hasbeenspecified inElSalvador 'sSchedule
ofCommitments, most oftheservices included asvalue-added areconsidered basic services under
theWTO negotiations ontelecommunications.
94TheConstitution of1960 (Legislative Decree No.2996) wasreformed in1983 (Decree No.38)toallow
private companies toparticipate inthemarket. However, while ANTEL retained itsmonopoly, noforeign
investment eventuated.WT/TPR/S/23
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