WORLD TRADE WT/TPR/M/23
27January 1997
ORGANIZATION(97-0273)
Trade Policy Review Body
25-26 November 1996
TRADE POLICY REVIEW
ELSALVADOR
MINUTES OFMEETING
Chairperson: H.E. MsAnne Anderson (Ireland)
Page
I. INTRODUCTORY REMARKS BYTHE CHAIRPERSON 2
II. OPENING STATEMENT BYTHE REPRESENTATIVE OFELSALVADOR 3
III. STATEMENT BYTHE FIRST DISCUSSANT 7
IV. STATEMENT BYTHE SECOND DISCUSSANT 8
V. STATEMENTS BYMEMBERS 10
VI. REPLIES BYTHE REPRESENTATIVE OFELSALVADOR
AND ADDITIONAL COMMENTS 13
VII. CONCLUDING REMARKS BYTHE CHAIRPERSON 23
APPENDIX 28WT/TPR/M/23
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I. INTRODUCTORY REMARKS BYTHE CHAIRPERSON
1. ThefirstTrade Policy Review ofElSalvador washeldon25and26November 1996. The
Chairperson welcomed thedelegation ofElSalvador, ledbyVice-Minister René Antonio León, and
thediscussants, H.E. Mr.Alejandro delaPeñaofMexico andMs.Elaine Feldman ofCanada. As
usual, bothdiscussants would speak intheirpersonal capacities andnotasrepresentatives oftheir
countries.Inaccordancewiththeestablishedprocedures,thediscussantshadmadeavailable,inadvance,
outlines ofthemain issues theyintended toraise.
2. TheChairperson recalled thepurpose oftheTrade Policy Reviews andthemain elements of
theprocedures forthismeeting. Thereport bytheGovernment ofElSalvador wascontained in
document WT/TPR/G/23 andthatoftheWTO Secretariat indocument WT/TPR/S/23; themainissues
toberaised bythediscussants werecontained indocument WT/TPR/D/8. Copies ofwritten questions
submitted byfourdelegations (European Community, Hong Kong, theUnited States andJapan) had
beentransmitted tothedelegation ofElSalvador. Iffullreplies could notbeprovided during the
meeting, supplementary written replies could beprovided later.
3. Recalling thatintergovernmental organizations could attend meetings oftheGeneral Council
through decisions taken onthebasisofadhocarrangements, theChairperson proposed thattheTrade
Policy Review Body invite theEBRD, EFTA, FAO, IMF, OECD, UNCTAD andtheWorld Bank,
which hadrequested observer status, toitsnextmeeting. Itwassoagreed.WT/TPR/M/23
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II. OPENING STATEMENT BYTHE REPRESENTATIVE OFELSALVADOR
4. Ambassador Alexander A.Kravetz introduced theSalvadorean delegation andthanked the
Chairperson forhersupport andforthewayinwhich shehadconducted thevarious TPRmeetings
through theyear(1996). Heemphasized theimportance thatElSalvador hadgiven tothereview process
andhighlighted howbeneficial ithadbeen. Healsothanked theSecretariat 'steamincharge ofthe
report, Mr.Peter Tulloch, Mr.SamLaird andMs.Eugenia Lizano, andthetwodiscussants
Ambassador delaPeñaandMs.Elaine Feldman.
5. TheRepresentative ofElSalvador, Mr.René Antonio León, onbehalf oftheGovernment
oftheRepublic ofElSalvador andtheirdelegation, thanked theChairperson andthedistinguished
discussants.
6. Thepreparation fortheTrade Policy Review hadenabled hisGovernment toevaluate thedegree
ofcompliance withtheircommitments since theyacceded toGATT inMay1991andalsotoexamine
compliance withthecommitments undertaken intheUruguay Round. TheReview hadmade them
takeacloser lookattheirtrade régime andweaknesses inthelightoftheviews andassessments of
theirmain trading partners. Thiswasanenormously important input, because itpointed tothepath
thattheymustfollow intheiragenda ofreforms, which theyweremaintaining andthinking ofstepping
upinthemonths ahead. TheReview hadalsoenabled them toidentify thefuture action tobetaken
intheprocess ofopening uptheeconomy andthereforms andliberalization thattheyhadembarked
onsince 1989andwhich would surely make ElSalvador amuch freerandcompetitive economy that
would beregarded asoneofthemost openinLatin America.
7. ElSalvador today wasdifferent from what itwasatthetimeofaccession totheGATT in
May1991. Above all,itwasnowanation atpeace. Heconsidered thatpeace wastheresult ofa
completely irreversible process, forthreefundamental reasons. First, thepeace process inElSalvador
wasanachievement thathadbeentheoutcome notofamilitary victory, butanegotiated political
solution. Second, ithadbeenmarked byfullandcomplete reintegration oftheex-combatants and
thewarring sides inthecountry 'spolitical, social andeconomic life,which wasreflected inthe
participationintheLegislativeAssemblyofbothsidesinconflict.Third,andperhapsthemostimportant
factor, peace wasagenuine aspiration oftheSalvadorean people andareturn toviolence would enlist
absolutely nosupport inthecountry, which wasnowfullydemocratized.
8. Hesaidthatthisclimate ofpeace andpolitical stability hadenabled ElSalvador toimplement
important structural adjustment andstabilization programmes, initiated inJune1989, sothathighrates
ofeconomic growth withmacroeconomic stability wereachieved andtheproblem ofextreme poverty
inElSalvador could betackled. Thecountry completely liberalized itstrade régime bysubstantially
cutting import tariffs, which hadpreviously ranged from5percentto290percent. Thetariffceiling
onimports hadnowbeenreduced to30percent,andtariff levels hadbeenstreamlined fromnineor
tentarifflevels tofour. Mostnon-tariff barriers, suchasimport licensing, inputprohibitions andimport
deposits, hadbeeneliminated. Exchange ratecontrols hadbeenremoved. More than230pricecontrols
hadbeeneliminated.
9. Hestated thattheforeign trade monopoly, which hadresulted fromthenationalization inthe
early 1980s andhadparticularly affected themain exports, hadbeen eliminated. Similarly, the
Regulatory Institute ofProvisioning (Instituto Regulador deAbastecimiento (IRA)) ,aStatebodywith
amonopoly ongrain marketing, hadalsobeenabolished. Thecountry hadthenembarked onwide-
ranging, thorough trade liberalization. TheGovernment hadalways beenconvinced that,regardless
oftheexceptionally difficult circumstances, theroute tofollow wasoneoftrade liberalization.WT/TPR/M/23
Page4
10. Aspartofthestructural adjustment programme, athorough overhaul ofthetaxsystem was
started. Thenewtaxstructure involved fewtaxes, lowratesandabroad taxbase. ElSalvador had
triedtoestablish ataxsystem inwhich theproportion oftaxrevenue asapercentage ofGDP rose
gradually. Thereform hadalsoallowed ElSalvador todoaway withsome taxeswithanadverse effect
oninvestment andcapital formation levels. Forexample, thepatrimony taxwaseliminated; the
exemption floorforincome taxhadbeenraised; andastamp taxwasreplaced byavalue-added tax,
initially at10percentandlater13percent, onallgoods andservice transactions inElSalvador.
11. Another basic element ofthestructural reform consisted ofmonetary andfinancial reforms:
interest rateswerecompletely liberalized andfullyunified; andtheexchange ratewasalsoliberalized;
andexchange controls wereeliminated sothatcapital flows inElSalvador werenowcompletely free
andwere notregulated bythemonetary authority. Inaddition, thebanks andfinance institutions,
nationalized intheearly 1980s, hadnowbeenprivatized. Therediscount windows weredoneaway
withandasecond tierbankwascreated, sothattheCentral Reserve Bank could continue itsrôleas
alender oflastresort andconcentrate keeping prices stable. Lastly, thereserve ratios wereunified.
12. Aspartofthestructural adjustment programme, ElSalvador hadstarted thefirststage inthe
privatization ofstateenterprises andassets. Apart fromthebanks, which hehadalready mentioned,
privatizations included ahotel, acoffee roasting plant, thecountry 'slargest freezoneandother State
assets. Thisimproved thesupply ofgoods andservices toconsumers, aswellasallowing theState
toconcentrate onwhatithadtodoandnotengage inbusiness activities atahighcosttosociety.
13. Thestructural adjustment programme hadbeenstrengthened andmade evenmore certain by
ElSalvador 'saccession toGATT in1991, partofastrategy ofmaking thewhole process irreversible.
14. Asaresult oftheprocess ofreform ElSalvador hadattained highratesofgrowth inrecent
years. Attheoutset oftheprogramme, theeconomy hadbeengrowing atarateof1percentinreal
terms, while bytheendof1994, theeconomy wasgrowing at5.8percentinrealterms. Thegrowth
ofpercapita GDP, which hadbeennegative in1989, hadrisen to3.5percentin1994. Therateof
inflation hadfallen from 33percenttoapproximately 10percentin1994. There hadalsobeen
improvements inthefiscal deficit, thetrade deficit andthecurrent account.
15. Since 1994, theeconomy hadbeenundergoing anewphase ofreforms, called second generation
reforms, inwhich theemphasis hadshifted frommacroeconomic tomicroeconomic reforms. Anew
economic development strategy wasbeing promoted, marked byanumber ofbasic features. First,
thestrategy relied notoncomparative advantage butoncompetitive advantage, which, foracountry
likeElSalvador, wastheonlysolution toitsdevelopment problems, sincethecountry hadfewresources
onwhich tobaseacomparative advantage model. Thecountry wassmall, thepopulation highand
there wasalackofstrategic rawmaterials inthesubsoil. Second, thestrategy emphasized asteady
increase inproductivity soastoenhance competitiveness andturnthisintoaprocess, intoa"virtuous
circle", thatwould bring higher economic growth rates, higher remuneration ofproductive factors
andnoinflation. Thethirdcharacteristic ofthedevelopment strategy wasthatElSalvador could not
conceive ofproductivity based onpotentially cheap manpower, forthisrancounter tothesocial goals
ofitsdevelopment. Rather, itsaimwasforproductivity tostemfromhigher levels ofinvestment in
training human resources.
16. Theobjective ofthisnewdevelopment wastocreate aclimate forrealannual growth rates
ofmore than6percentforthenext30years. ElSalvador wanted toabandon thetradition ofsome
developing countries ofirregular economic growth. Thegoalwastoovercome thisspasmodic tendency
andtolaythefoundations forsustainable growth similar tothatofsome ofthemostdynamic economies
intheworld, particularly theeconomies ofSouth-East Asia. Theintention wastoturnthiseconomicWT/TPR/M/23
Page5
growth intosocial development, since some developing countries grow butwithout equity. Another
objective wastobring theSalvadorean economy intotheglobal production chain.
17. TheGovernment 'saimwastoturnElSalvador intoaplace thatattracted investment, taking
maximum advantage ofitsgeographical position through thechanges thatwerebeing promoted. The
ideawastoconvert thecountry intoadistribution, production andmarketing centre forthewhole of
Central America, theCaribbean and,hopefully, eventhewhole ofLatin America. Theintention was
alsotoexpand thecountry 'sexportable base. Asmentioned inthereport, theSalvadorean economy
hadquiteahighdependency upontheflowoffamily remittances fromSalvadoreans living abroad and
oneobjective wastoreduce thisdependency andtolayfirmfoundations forgrowth.
18. TheGovernment ofElSalvador wastaking veryconcrete action toturnthisnewdevelopment
strategy intoreality byincreasing investment inhuman capital, withanemphasis oneducation and
health. Present social expenditure accounted for31percentoftheGeneral Budget, much higher than
the18percentspent during theyears ofthearmed conflict. TheGovernment 'starget wastoincrease
social expenditure to50percentby1999and,above all,tofocus oneducation. Gains inproductivity
would gohandinhandwithamore skilled workforce. Inaddition, ahigher levelofeducation made
forbetter income distribution andmore education meant more income-generating opportunities for
families inElSalvador.
19. TheGovernment intended tocontinue theprocess oftradeliberalization. Non-Central American
capital goods werenowdutiable at1percent, while tariffs onnon-Central American rawmaterials,
which stood at5percent, hadbeenreduced inAugust 1996 andwould befurther reduced tozero
byDecember ifthechanges totheCentral American Tariff Agreement wereratified bythree Central
American countries. Thus, azeroratewould apply to65percentoftarifflines. Inaddition, thetariff
ceiling wastobereduced from thefirsthalfof1997 andreaching 15percentbythesecond halfof
1999, when tariffs would range from 0to15percent.
20. Themodernization ofthepublic sector wastocontinue. Since 1994, thesizeofStateholdings
hadbeenreduced bymore than12percent. There wasparticular emphasis onstrategic services, for
example, withtheprivatization ofthenational telecommunications administration -theStatemonopoly
known asANTEL -planned tobecompleted inthefirsthalfof1997.
21. ElSalvador 'selectric power corporations werealsointheprocess ofbeing privatized, having
already beensplitintofourdifferent companies which werebeing restructured sothattheycould be
soldinthefirsthalfof1997. Theprivatization plans alsoincluded theadministration ofroads, ports
andairports, andwater supplies.
22. ANational Competitiveness Programme, withcomprehensive measures toboost productivity
inElSalvador wasbeing promoted. Inthiscontext, adraftCompetition Lawhadbeensubmitted to
theLegislative Assembly, aTrade Point would beestablished andtwobasic support programmes had
beenadopted forfirms trading inElSalvador. Thefirstwasaprogramme ofcompetitive alliances
or"clusters" sothatfirms would gettogether andcompete intheinternational economy and,atthe
same time, attract investment tokeysectors oftheeconomy. Thesecond wasaNational Productivity
andQuality Programme which would provide technological assistance tofirms sothatmore
technologically advanced production processes would beadopted. TheNational Competitiveness
Programme andthePublic Sector Modernization Programme werethefoundations of"Vision 2021",
aprogramme thatbytheyear2021, would allow ElSalvador toreach levels ofwell-being similar
tothose ofdeveloped countries.WT/TPR/M/23
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23. Therepresentative drewattention totheinternational recognition ofthesuccess ofElSalvador 's
economic reform. Forexample, inAugust 1996, Standard andPoors, therisk-classification company,
gaveElSalvador aBB+ rating forforeign currency debtandBBB+ rating fornational currency debt.
Inaddition, theHeritage Foundation hadrecently described theSalvadorean economy asthesecond
freest inLatin America, afterChile.
24. Inconclusion, hesaidthatastrong multilateral system wasnecessary forElSalvador 's
development strategy tosucceed. Atransparent andcredible multilateral system would complement
andstrengthen ElSalvador 'sprocesses ofreform. ElSalvador sawtheWTO asanorganization that
could promote reform andencourage alltheCentral American countries tofollow asimilar pathof
reform.WT/TPR/M/23
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III. STATEMENT BYTHE FIRST DISCUSSANT
25. Thefirstdiscussant (Ambassador Alejandro delaPeña) noted thattheSalvadorean stabilization
andstructural adjustment programmes, which included theliberalization ofitstrade régime andthe
deregulation ofthedomestic market, hadbeensuccessful andresulted inthereactivation oftheeconomy,
thecontrol ofinflation andthereduction ofthepublic sector deficit. Percapita GDP hadgrown
consistently inthelastsixyears, reaching arateofgrowth of6.1percentin1995.
26. While commenting positively ontheeconomic developments, heasked forthelatest inflation
estimates. Noting thattaxevasion wasstillaproblem, heasked about theevolution ofthecampaign
tofighttaxevasion andabout therelationship between commercial andfiscal policy.
27. Henoted thatdespite ElSalvador 'ssuccess inreducing itsexternal debt,ithadhadapersistent
deficit inthecurrent account since 1989, which hadbeenfinanced byremittances andforeign direct
investment (FDI). However, theinflows ofremittances, through theappreciation ofthecurrency,
could alsohaveanegative effect upon production, exports, investment andemployment. Heasked
theauthorities howtheyweretocounteract these negative effects andwhether there wasamechanism
thatwould helpthem maintain theircompetitiveness intheinternational market.
28. ThediscussantwelcomedthecommitmentoftheSalvadoreanGovernmenttocontinuetheprocess
ofreform toovercome important structural problems, asreflected intheir development strategy,
"ElSalvador 2021". ElSalvador lacked adequate infrastructure, inparticular roads and
telecommunications ingeneral, butthese problems could notbesolved while themajor component
ofdemand wasprivate consumption. Domestic savings would havetobecome thesource offinancing
forinvestment andeconomic growth, but,noting thelowsavings rate,heasked whether theauthorities
hadanyplans topromote domestic savings.
29. Thediscussant highlighted thechange oftradepolicy beginning in1989, away fromitsinward
orientation. Hesaidthatthetrade liberalization policies together withthederegulation ofdomestic
markets hadcontributed totheimprovement ofthemultilateral trade relations. Inthiscontext, he
referred tothereduction intheapplied tariff, thebinding ofalltariffrates, andtheelimination ofmost
non-tariff barriers. Healsomentioned thefuture plans tocontinue reducing theapplied tariff sothat
by1999 tariffs would range from 0to15percent. Asaresult ofthese measures bothimports and
exportshadgrownsubstantially,increasingElSalvador'sshareofworldtrade,aswellasthecontribution
oftrade toGDP.
30. Heconsidered thepresent discussion ofadraftlawoncompetition intheSalvadorean Legislative
Assembly particularly important, andheasked about thetimeforapproval ofthisdraftlaw.
31. Healsoinquired about thefuture evolution ofSalvadorean tradepolicy inthecontext ofregional
andmultilateral commitments. Heasked whether ElSalvador 'sintheCentral American Common
Market hadbeenanadvantage oraconstraint totheirownprocess oftrade liberalization andabout
ElSalvador 'sviews on"global freetrade".
32. Inconclusion, hecommended theefforts byElSalvador inthereform ofitseconomy; this
hadbeenbeneficial notonlyforthecountry butalsoforthemultilateral system asawhole.WT/TPR/M/23
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IV. STATEMENT BYTHE SECOND DISCUSSANT
33. Thesecond discussant (Ms. Elaine Feldman) congratulated ElSalvador fortheprogramme
offar-reaching economic reforms undertaken since 1989, which hadledtosolid economic growth.
Shenoted thatakeycomponent ofthese economic reforms hadbeentrade liberalization measures,
withexports asthedriving force leading toincreased economic growth. However, shenoted that
ElSalvador 'stradewasconcentrated bothingoods andinmarkets, andenquired whattheSalvadorean
Government wasdoing todiversify itsexports withrespect tobothgoods andmarkets. Sheasked
whether Salvadorean exports would becompetitive intheabsence ofpreferences enjoyed under the
U.S. Caribbean Basin Initiative orGSPprogrammes ortheEUGSPscheme, andalsoenquired about
theimpact oftheNorth American FreeTrade Agreement upon Salvadorean exports.
34. Shepointed outthatifanexport-led growth strategy wastosucceed there wasaneedfora
reduction andelimination ofimport barriers, which sometimes wasoverlooked. Inthiscontext, she
welcomed ElSalvador 'selimination ofmostnon-tariff barriers andthereduction oftariffs. However,
sheasked whether anythought hadbeengiven toreduce bound rates. Moreover, shenoted thatsome
important sectors stillbenefited fromhigher ratesthantheaverage, suchastextiles andclothing, leather
goods, food, beverages andtobacco, andwondered ifthere wereanyplans tobring these ratescloser
totheaverage nominal rate. Shealsopointed outthatthere appeared tobesignificant tariff escalation
insome ofthose sectors, andasked whether theGovernment hadplans toreduce tariffs onmore highly
processed products insuchareas astextiles, leather goods, wood andpaper.
35. Shenoted thatimport formalities appeared tobecumbersome, andenquired about thetime
frame envisaged forthecreation ofaone-stop window forimport procedures, similar tothatforexports.
36. Shenoted thatElSalvador 'sexport policy focused onthepromotion ofexports ofnon-traditional
goods tomarkets outside Central America. Under theLawfortheReactivation ofExports, duty
drawback wasgranted toexporters ofnon-traditional goods tomarkets outside Central America, at
afixed rateof6percentofthef.o.b. value ofexports. Itdidnotseem tobenecessary toshow that
duties atleastequal tothisamount were paid, merely thatimport duties were paid. IfElSalvador
continued toreduce itsapplied dutyrate,thepotential existed forthedrawback scheme toprovide
anexport subsidy.
37. Shepointed outthatagriculture remained akeysector forElSalvador. Although itsshare
ofGDP based oncurrent prices haddeclined during thefirstpartofthisdecade, itaccounted for
14percentofGDP in1994, compared to8.6percenttheprevious year. These recent increases
appeared tobeattributable toreforms undertaken since1992, suchastheguaranteeing oflandproperty
rights,theprivatizationofmarketingboardsandtheeliminationofexporttaxes.Theagriculturalreforms
appeared tohaveincreased productivity intheagricultural sector.
38. Agricultural exports accounted for50%oftotalexports in1994. However, shenoted the
negative effect thattherealappreciation ofthecurrency hadonthecompetitiveness ofSalvadorean
agricultural products ininternational markets, andenquired whether theSalvadorean Government had
plans toovercome this. Shenoted thatexports ofcotton, which hadpreviously beenanimportant
agricultural export, seem tohaveceased andsought anexplanation.
39. Shenoted thatthesugar market appeared tobeoneofthefewsectors intheElSalvador economy
where market forces didnotdetermine theprice, asthepriceofdomestic sugar wasabove world market
prices. Inaddition, shereferred totherequirement ofimport permits forsugar originating inCentral
America andtotheimport quotas imposed onsaccharine andsimilar products. Sheasked whether
there were anyplans toremove these protective measures andmove toanopenmarket insugar.WT/TPR/M/23
Page9
40. Shesaidthatthere wasaneedtoimprove thephysical infrastructure inthecountry. Shealso
referred totheGovernment 'splans tocreate thenecessary conditions forconsolidating theruleoflaw,
togivepriority tohuman capital investment andthebuilding ofaforward-looking economic andsocial
infrastructure toensure complete openness toforeign investment andtechnology andtocarry outa
thorough modernization ofthepublic sector, strictly based onamarket-economy model. Shenoted
thattheGovernment hadputintoplace various pieces oflegislation tocarry outitsobjectives andthat
theGovernment wasreviewing itstrade laws andregulations toassess whether there were any
incompatibilities between existing legislation andthecommitments thatElSalvador hadundertaken
asaresult oftheUruguay Round oftrade negotiations. Sheemphasized theimportance ofenforcing
thislegislation inorder toprovide predictability andsecurity forcontinued tradeandinvestment growth.
Sheparticularly noted thatthere hadbeenproblems withtheenforcement ofthelawonintellectual
property rights andasked theauthorities toprovide more details about theirexperience andhowthey
intended toensure adequate enforcement.
41. Sheconsidered theprovisions made byElSalvador tofacilitate exports andimports important,
especially thesetting upoftheCentre forExport Requirements (Centro deTrámites deExportación,
CENTREX )inorder tosimplify formalities forexporters. However, sheasked about thedegree of
automaticity oftheprocessing ofalltherequired documents, forexports, andwhether therewereplans
fortheeventual abolition oftherequirements forexport documents except perhaps foralimited number
ofspecific products, suchassugar andtextiles.
42. Toconclude, shesaidthatElSalvador hadclearly made major strides initsgoalofchanging
fromimport-substitution industrialization toanexport oriented economy andnoted thattheSalvadorean
economy ranked among thefreest inLatin America andthattheprognosis forthefuture looked
promising.WT/TPR/M/23
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V. STATEMENT BYMEMBERS
43. Members commended theefforts made byElSalvador inadopting astabilization programme
andopening oftheeconomy. They considered theachievements ofElSalvador tobeimpressive and
encouraged theGovernment tobuild onthose achievements.
44. TheUnited States representative saidthatElSalvador 'seconomic reforms, initiated in1989,
hadbeeninstrumental inliberalizing theeconomy andrestoring economic growth. Theprogrammes,
implemented from1989to1994, hadspurred tradereform, including tariffreductions fromanearlier
range of5to290percenttoacurrent range of5to20percent, andareduction inthenumber of
tarifflevels from25tofour. Alargenumber oftariffexemptions, non-tariff barriers andpricecontrols
hadbeeneliminated, together withallexport taxes, exchange controls andimport deposits.
45. Hecongratulated ElSalvador onitselimination ofStatemonopolies onforeign tradeandState
enterprises controlling themarketing ofagricultural products, andonthesteps ithadtaken toadjust
toataxstructure offewer taxes, lower ratesandabroadened taxbase.
46. Healsocommended ElSalvador forthemeasures taken overthepastyears toliberalize its
investment régime, particularly thefreeing ofcapital movements andtheopening ofmostsectors of
theeconomy toforeign direct investment. Heencouraged ElSalvador tocontinue thisliberalization
process andwiththefurther elimination ofbureaucratic procedures thatdelayed newinvestment.
47. Therepresentative saidthat,intheaftermath oftariff liberalization, mostgovernments found
thattheycame under increased pressure toresort tonon-tariff barriers, andhehoped thatElSalvador
would resist thetemptation toresort tosuchmeasures. Henoted thatElSalvador 'ssafeguards régime
wasbased onlegislation, submitted totheWTO forreview, appeared tocontain process andlanguage
consistentwithWTOrequirements.HeencouragedElSalvadortosubmitaStatementofImplementation
asrequired under theTBTAgreement. Henoted thathiscountry hashadsome difficulty withrespect
toazerotolerance requirement forseveral common avian diseases, suchassalmonella, effectively
blocking allUSpoultry imports. Healsoconsidered thatthegeneral intransparency inElSalvador 's
customs régime hadbecome asignificant barrier totrade. USexporters alsohadparticular problems
intheareaofpharmaceuticals, where saleshadfallen tozerobecause ofdiscriminatory requirements.
48. Therepresentative saidthatcustoms valuations inElSalvador wasbased onAnnex Bofthe
Central American Agreement onTariff andCustoms Régime, which inturnwasbased ontheBrussels
Definition ofValue (BDV). Several aspects ofthissystem werenotclearandmight notbeinaccordance
withWTO appraisement principles. Therepresentative understood thatElSalvador wasdrafting new
legislation toimplement theWTO Agreement within thefive-year transition allowed fordeveloping
countries. Hesuggested thatassoonasElSalvador prepared itsproposed legislation, itshould complete
thequestionnaire prepared bytheCommittee onCustoms Valuation andsubmit ittotheWorking Party
forreview. TheUnited States didnotconsider thattheexpression ofanintent toalignitself withthe
WTO Agreement demonstrated thelevelofcommitment envisioned inArticle 20,andtherepresentative
strongly urged ElSalvador toeliminate theuseofBDV assoonaspossible andtobegin implementation
oftheWTO Agreement without delay. Thiswould address thecurrent system ofverification ofvalues
forusedcars, aswellasminimum values orreference prices, which were notinkeeping withthe
principles ofappraisement under theWTO Agreement.
49. While acknowledging thereforms thatElSalvador hadundertaken toliberalize itsinvestment
régime, theUnited States wasconcerned thatseveral requirements relating toinvestment werebeing
usedtodiscriminate against foreign investors, forexample therequirement toobtain acommerce and
industry "patent", and"registration" offoreign capital withtheMinistry ofEconomy. TheUnited States
requested more information onthelawsandpractices inthisarea. Thepractice offreeconvertibilityWT/TPR/M/23
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ofcapital should bereflected intheinvestment law. TheUnited States alsoencouraged ElSalvador
tofollow through its1994pledge tosetupaone-stop office forforeign investment. Therepresentative
alsonotedthattherewasstillnoapprovalfromtheLegislativeAssemblyfortheprivatizationprogramme
andhoped suchapproval would beforthcoming inthenearfuture.
50. TheUnited States commended thestepstaken toenforce intellectual property rights legislation,
andlooked forward toseeing ElSalvador 'scontinued success inenforcing itslaw. Government
procurement decisions often lacked transparency anditwashoped thatthiswould beaddressed inthe
procurement lawnowbeing drafted.
51. Concluding onapositive note, therepresentative saidthattheUnited States appreciated not
onlyElSalvador 'sefforts toimplement itsWTO commitments andliberalize itstraderégime inmany
fundamental andimportant areas, butalsotheregional rôlewhich ithadassumed. ElSalvador was
anactive participant intheFreeTrade AreaoftheAmericas process, particularly aschairoftheMarket
Access Working Group. Healsonoted ElSalvador 'sconstructive participation inefforts tomodernize
theinstitutionalframeworkofCentralAmericanintegrationandtoadopttraderegulationsfullyconsistent
withtheWTO.
52. Therepresentative oftheEuropean Community welcomed theimprovements ofthemain
macroeconomic indicators caused bytheeconomic reforms implemented inElSalvador initseffort
toliberalize theeconomy, together withapolicy ofpeace anddemocratization. Theoutward-oriented
trade régime made possible theincrease ofmarket access forSalvadorean products, especially tothe
Community, where ElSalvador benefited from GSPschemes. Thanks tothecountry 'smultilateral
commitments andtothemodernisation oftradelawsandregulations, ElSalvador wasbecoming strongly
integrated intheworld economy. Plans andprogrammes developed bytheSalvadorean authorities
showed aclearpathtoeconomic liberalism, which wasaprerequisite tosocial well-being andpeace.
53. Therepresentative alsosought clarification onseveral issues covered inthewritten questions
submitted inadvance totheSalvadorean delegation.
54. Therepresentative ofJapan congratulated theSalvadorean authorities fortheliberalization of
thetrade régime, including therationalization oftheapplied tariff. Henoted thatElSalvador was
highly dependent upon theexports ofcoffee andsugar. Toconsolidate macroeconomic stability it
wasalsonecessary todevelop theindustrial base. Thiswould needforeign direct investment, hence
theimportance ofanenvironment thatwould attract foreign direct investment, andheasked about any
plans topromote foreign direct investment.
55. Heappreciated ElSalvador 'sactive rôleintheprocess ofrevitalizing theCentral American
Common Market (CACM) andinother regional trade negotiations, suchastheFTAA. However,
hesaidthatitwasveryimportant thatalltheseagreements would beconsistent withWTO regulations.
56. Hesought clarification onseveral issues: first, about theestablishment oftariff quotas on
agricultural goods andtheirWTO notification aswellastheout-of- quota rateforsugar; second, about
thetaxes applied toforeign anddomestic goods; third, about thequantitative restrictions applied to
milkimports; fourth, about theanti-dumping andsafeguards procedures andtherôleoftheCentral
American Secretariat ofEconomic Integration (SIECA) inthisregard; and,fifth,about therestrictions
imposed oninsurance companies.
57. Therepresentative ofVenezuela congratulated thedelegation ofElSalvador fortheresults
oftheeconomic reform programme which hadresulted inrates ofgrowth above theaverage for
LatinAmerica.Heposedtwoquestions:first,whetherElSalvadorwasreadytore-startthenegotiations
oftheinvestment agreement between theCACM andVenezuela andColombia, which hadbeenWT/TPR/M/23
Page12
interruptedin1993;and,second,whatwereElSalvador'sintermediateobjectivesforregionalintegration
before theFreeTrade Area oftheAmericas.
58. Therepresentative ofIndiacommended themacroeconomic reforms andstructural adjustment
programmes undertaken byElSalvador andtheirpositive results.
59. Heencouraged ElSalvador tocontinue pursuing itsliberal trade policies andtoovercome the
infrastructural constraints totheexpansion ofexports.
60. Therepresentative ofCanada considered ElSalvador 'seconomic andtrade policy reforms all
themoreimpressive given thechallenges ofreconstruction. Theopening upoftheeconomy hadresulted
inatripling inthevolume oftrade between Canada andElSalvador inthelastthree years andina
diversification ofCanadian imports toElSalvador. Canada wasnownegotiating abilateral investment
treaty withElSalvador. ElSalvador wasanactive player intheFTAA negotiations, managing one
ofthetechnical working groups.
61. Hesought clarification onthetimeframe forElSalvador 'scurrent revision ofitsexisting trade
legislation tomake itfullycompatible withitsWTO obligations.
62. Henotedthatremainingrestrictionsregardingforeigndirectinvestmentappearedtohavelimited
coverage, butthattheirdefinition lacked precision which could create confusion insome cases. He
wasinterested inlearning about thescope ofseveral agreements topromote investment. Healsosought
clarification regarding theincentives given tocapital registered under theLawtoPromote andGuarantee
Foreign Direct Investment. Heasked whether foreign investment registration wascompulsory and
whattheregistration procedure entailed, andwhatcriteria wasusedforapproval orrejection.
63. Hesaidthatrationalizingthetariffsystemandeliminatingmanynon-tariffbarriershadimproved
transparency andtrade conditions. However, heurged ElSalvador totakesteps toreduce delays in
customs administration andimport clearance, andtoaddress problems incustoms valuation. Henoted
industrial goods remained protected bytariffs ashighas30percent, andthatthelegacy oftheold
import substitution strategy showed inthepattern oftariffescalation, particularly insectors ofinterest
toCanada suchasthepaper industry.
64. Heconsidered therapid growth offreezones impressive, especially since itrepresented new
economic activity rather thanasimple transfer from thetraditional sector.
65. Henotedthesignificantrôleofgovernmentintheservicessectorandtheexistenceofgovernment
monopolies inareas suchasbasic telecommunications andrailtransportation, andcommended the
initiatives ofprivatization. Heasked whether ElSalvador hadplans toprivatize railtransportation.
66. Toconclude, theCanadian representative congratulated theGovernment foritsliberalization
ofthefinancial sector andtheprivatization ofmost financial institutions thathadbeennationalized
in1980. Henoted thatElSalvador hadprudent legislation toprovide against badloans andthishad
avoided theproblems often associated withtheprivatization ofbanks.
67. TherepresentativeofColombiacommendedtheeffortsbyElSalvadortorestructuretheeconomy
andliberalize thetrade system. Shepraised ElSalvador 'ssuccess inattaining peace. Sheasked the
Salvadorean delegation whether ElSalvador wasready toresume negotiations oftheinvestment
agreement between theCentral American countries andColombia andVenezuela.WT/TPR/M/23
Page13
VI. REPLIES BYTHE REPRESENTATIVE OFELSALVADOR AND ADDITIONAL
COMMENTS
68. TheChairperson invited therepresentative ofElSalvador tofocus hisresponses onfourmain
themes: (i)foreign direct investment policies; (ii)macroeconomic andstructural developments;
(iii)trade liberalization anditseffects; and(iv)specific policy andsectoral questions.
(i) Foreign direct investment policies
69. InresponsetherepresentativeofElSalvadorsaidthattheSalvadoreanforeigninvestmentrégime
wasnondiscriminating.However,thespeedwithwhichtheeconomicreformandliberalizationmeasures
hadbeenintroduced outstripped thelegalframework governing investment, andmany provisions no
longer responded tothecountry 'srealeconomic situation. Forexample, suchprovisions asremittance
ofnetprofits ofupto50percentofregistered capital ingoods andservice activities, which werevalid
atthetimewhen existing exchange controls existed, werenowobsolete, since thecapital account had
beenfullyopened upandthere wasfreerepatriation ofprofits.
70. Hestated thatElSalvador hadoneofthemostopenforeign investment régimes, since there
werenoperformance requirements andinvestment wasopeninvirtually allsectors oftheeconomy,
withminimal exceptions thatinpractice didnotentail anyrestriction onforeign capital. Forexample,
therestrictionsonsmall-scaleinvestments,appliedonlywhentheinvestmentswerelessthanUS$23,000.
71. Henoted thatoneofthebasic objectives oftheeconomic andsocial development strategy was
toturnElSalvador intoanattractive place forforeign investment, sothatthisinvestment would help
tomaintain ahighandsustained long-term growth rate,complement domestic savings andinvestment,
andgenerate more andbetter paidjobs,especially insectors which havehighvalue-added, which could
alsoproduce economies ofscale andpromote vertical integration. Therefore, ElSalvador could not
afford toapply policies thatdiscriminated against foreign investment. Accordingly, anewinvestment
lawwhich would bring thelegalframework uptodateandwould apply bothtodomestic andtoforeign
investment wasbeing prepared. Themainfeatures ofthislawincluded: legalcertainty; transparency;
andsimplifiedproceduresforlegalizinginvestment,bydoingawaywithsuchrequirementsastheforeign
investors 'certificate (patente ).
72. Regarding legalcertainty, heexplained thatthenewlawcontained arbitration mechanisms for
dispute settlement. Heexpected thebilltobesubmitted totheLegislative Assembly foradoption in
thefirstquarter of1997. Meanwhile, theprocedures hadalready beensimplified bymeans ofthe
Investment Assistance Office (IAO) andtheNational Investment Office (ONI). Tocomplement the
Government 'sendeavours, aprivate non-profit foundation, theSalvadorean Foundation forEconomic
andSocialDevelopment(FUSADES),throughitsPRIDEXprogramme,wasfacilitatingtheestablishment
ofnewfirms byproviding promotional, advisory andconsultancy services toinvestors throughout the
world.
73. Toconclude,hesaidthattheGovernmentwasconstantlystrivingtoimprovesecurityconditions.
Hepointed outthat,unlike thesituation during theperiod oftheconflict, security problems weretied
inwithactscommitted bycommon criminals, which werenottargeted atspecific firms orinvestors.
Thegoalwastoremove anydoubts about security, soastocutdown therisksofoperating inElSalvador
andattract greater investment.
74. Thefirstdiscussant hadthreecomments. First, henoted thatelements ofthebilateral investment
agreements signed byElSalvador, which offered certain guarantees without demands ofreciprocity,
hadbeen incorporated inthenewinvestment legislation. Heasked whether thismeant thatthe
Government ofElSalvador would viewthepossible study, hereinGeneva, ofthewhole issueoftradeWT/TPR/M/23
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andinvestment favourably. Second, regarding theNational Investment Office (ONI), hewasinterested
tohearthatthisoffice would carry outthedifferent procedures required forallinvestment andthat
atpresent theirservices wereonlyusedbyforeign investors, notbecause ofalegalimpediment, but
because ofthelackofpublicity given totheONI. Third, hetooknoteoftheproblems regarding crime
anddelinquency which could appear after alongperiod ofarmed conflict, asmentioned bythe
representative ofElSalvador. Toconclude, heasked whatelements there werewithin ElSalvador 's
legal framework toguarantee thatinvestors, intheevent ofsome problem arising relating totheir
investment, could resort todomestic recourse inorder toobtain satisfaction.
75. TheseconddiscussantnotedthestrategicimportanceplacedbyElSalvadoronattractingforeign
direct investment, thatElSalvador hadsigned alargenumber ofbilateral investment treaties, andthat
thedraftlegislation thatwasgoing forward would contain many oftheprovisions ofthese treaties.
Thus, sheconsidered ElSalvador particularly wellplaced totakepartinanexamination oftheseissues
attheWTO. Sheadded thatitseemed asifElSalvador would haveagreat dealtocontribute toany
suchdiscussion.
76. Therepresentative oftheUnited States thanked theVice-Minister forhisthorough explanations
regarding theinvestment régime. Hewelcomed thefuture elimination of"patents" andpreliminary
authorizations, which heunderstood would disappear under thenewlaw.Henoted thattheregistration
wasnotlegally required toreceive investment incentives andtherefore wondered whythisprocess
stillexisted andwhether thenewlegislation might affect anyregistration requirement. Inaddition,
hementioned thatheunderstood thatElSalvador stillrequired firms toexport 100percentoftheir
production outside Central America inreturn forcertain benefits; inthisregard, hesought ElSalvador 's
view ontheconformity ofthisprovision withWTO requirements andagain asked whether sucha
requirement would beeliminated inthenewdraftlegislation.
77. Therepresentative ofJapan thanked theVice-Minister forhisexplanations, particularly the
point concerning security. Hereferred tohisquestion raised during thefirstdayofthemeeting
concerningtheincentiveprogrammetoencourageforeigninvestment,andinthisregardheaskedwhether
programmes likePRIDEX andtheNational Investment Office werepartofanincentive programme
toencourage foreign investment which would alsoinclude certain taxincentives.
78. Inresponse tothefirstdiscussant therepresentative ofElSalvador saidthatElSalvador was
ready andwilling tostudy therelationship oftrade andinvestment. Headded, regarding theaspects
thatguaranteed thelegalsecurity forinvestors inElSalvador, thattheConstitution which represented
thesupreme lawofthecountry allowed foreign investors toensure thattheircases were brought to
thenational courts inthecountry, andifthereweredisputes thesecould alsobeputtoarbitration outside
thecountry.
79. Regarding thequestion raised bytheUnited States related tothespecific aspects ofregistration
ofinvestment, therepresentative saidthatthenewinvestment legislation would doaway withthe
registration procedures. Under thenewlegislation when theinvestment formalities tookplace the
investment would automatically beregistered forstatistical purposes. Thelegalization ofinvestment
automatically included theregistration inthecourse offormalities.
80. Concerning theUnited States 'question about conditions affecting these investments, hesaid
thattheLawontheFreeZones andTax-Free Areas, where these requirements werestipulated, were
notpartoftheforeign investment law.Hementioned thatamodification hadbeenrecently introduced
tothefree-trade-zone andtax-free-areas provisions, allowing investors orenterprises which produce
under these régimes tosell15percentoftheirproduction totheSalvadorean customs territory, upon
payment ofcharges thatnormal imports would havepaid. Therefore, therequirement tobenefit from
thefreezonelegislation wastosell85percentofitsproduction outside theCentral American area,WT/TPR/M/23
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withtheexclusion oftextiles andclothing. Enterprises inElSalvador hadthechoice toproduce under
these régimes or,alternatively, when exporting, other thanunder those special régimes, theycould
apply forbenefits under theLawfortheReactivation ofExports where therewasadrawback equivalent
to6percentofthef.o.b. price oftheexport value. Thus, there wasnospecific requirement asto
theexport destination.
81. Regarding Japan'sconcerns, therepresentative saidthattheyfeltthatthebestincentive for
investment would bethrough thenewlawoninvestment which would grant legalsecurity, eliminate
anumber ofprocedures, andallow forarbitration. ElSalvador 'seconomic conditions didnotenable
ittogrant anyeconomic orfiscal incentives asamechanism toattract foreign investment.
(ii) Macroeconomic andstructural developments
82. Therepresentative ofElSalvador saidthatovertheperiod 1992-95, therealrateofgrowth
ofGDP hadaveraged 6.7percent. Thesources ofgrowth hadbeenprivate domestic consumption
andhigher ratesofinvestment inthepublic andprivate sectors. Theeconomy wasexpected togrow
by3.5to4percentfor1996, witha9percentrateofinflation, which waslower thantheonereported
for1995. Because ofeconomic reforms andalower demand forprivate credit itwasexpected that
there would beagradual reduction ininterest rates, andthattherateofeconomic growth for1997
wasexpected toreach 5percent.
83. Tocopesuccessfully withthechallenges ofglobalization andtoachieve asustained paceof
economic growth, theGovernment considered thatmacroeconomic adjustment needed tobetaken even
further. Themain challenge wasforeconomic policy management toensure stability inmaintaining
domestic andinternational investor confidence, andalsotomaintain theequilibrium oftheexternal
sector inacontext ofincreasing family remittances.
84. Inthisregard, hesaidthatdespite thepositive impact thatfamily remittances hadonthestandard
ofliving andonshort-term financing ofthebalance ofpayments, theirveryexistence complicated
macroeconomic management andtheachievement oftheconcrete goals oftheoverall economic policy.
Family remittances hadhelped togenerate inflationary pressures andhadcontributed totherisein
theexchange rate. Theshort-term measures tomitigate thisproblem hadbeensterilization measures
tocontain theexpansion ofthequantity ofmoney andkeepthenominal exchange ratestable. Allthis
hadfurther complicated macroeconomic management because itputpressure ontheinterest rateand
ontheCentral Reserve Bank'sfinances.
85. Because ofthevulnerability oftheexternal sector totheinflow offamily remittances, hedid
notconsider itadvisable atpresent tolower thebound tariff ratestothelevels oftheapplied tariff.
Intheshort term, sterilization wastheonlyviable means tocounteract theriseintheexchange rate.
However, long-term measures tocounteract thiseffect werebeing implemented: (i)improvement of
fiscal effectiveness (i.e., increase taxcollection andreduce public expenditure); (ii)modernization
ofthepublic sector andprivatization ofstateenterprises toenhance efficiency; (iii)expansion ofthe
national savings ratio(i.e., increase public savings, promote theefficiency inthefinancial sector and
reform thepension system); (iv)containment ofinflationary pressures; (i.e., export expansion and
diversification); and(v)increase offoreign direct investment andcontinuation ofthemarket-oriented
economic reforms. Efforts weremade toredirect remittances towards investment, andrecent trends
indicated thataproportion wasnowstarting tobeinvested inrealestate.
86. Privatization wasmentioned asoneofthecomponents ofthepublic sector modernization
programme. Thiswould affect sectors suchastelecommunications, electricity generation, transmission
anddistribution, water supply andsewage systems, ports andairports, roads, andpensions. The
privatization ofthenational telecommunication company (Administración Nacional deWT/TPR/M/23
Page16
Telecomunicaciones, ANTEL )hadstarted with theadoption on17October 1996 ofthe
Telecommunications Act(LeydeTelecomunicación )which haddoneaway withANTEL 'slicensing
powers. TheLawcontained thefollowing components: (a)complete freedom tosetend-consumer
rates, except themonthly charge forexisting consumers atthetimeofprivatization; (b)non-application
ofuniversal service requirements orperformance requirements, except thatlocalservices toexisting
consumers atthetimeofprivatization could notbediscontinued fortwoyears; (c)unrestricted entry
ofnewtelecommunications service suppliers; (d)essential connection facilities which would bemade
available atnegotiated rates; (e)compulsory interconnection withthelocalnetworks onthebasis of
localrates, withthelong-term marginal costasthepoint ofreference; (f)onlytheuseofthespectrum
would require concessions, which would begranted bypublic auction; (g)theGeneral Electricity and
Telecommunications Superintendency (Superintendencia General para laElectricidad ylos
Telecomunicaciones, SIGET )would penalize breaches oftheLaw.
87. Heexplained thatunder theinterim provisions oftheTelecommunications Law, forthefirst
twoyears following itsentry intoforce, nonewlicences would beissued forcellular telephony or
personal communications services (PCS). Theonlylicences during those twoyears would bethose
nowbelonging to"Telemóvil" (Band Alicence forcellular telephones) and"Red ANTEL" (Band B
licences forcellular telephones) and"Blue ANTEL" (Licence forPersonal Communications Services).
RedANTEL andBlueANTEL werethenames ElSalvador usedtoidentify thetwocompanies into
which ANTEL hadbeensplitupforsale,something which would make ElSalvador unique throughout
theworld inthat,from theveryfirstday,competition would existwhen ANTEL wasprivatized.
88. Theprocess ofprivatizing theelectricity companies established bythenational power company
(Comisión Ejecutiva Hidroeléctrica delRíoLempa, CEL)hadstarted withtheadoption oftheElectricity
Lawof25October 1996, which entered intoforce on3November 1996. Atthesame time, a
consultancy firmhadbeenhired torestructure theelectricity sector, sothatcompetitive conditions
would becreated, andtoprepare energy andpower contracts between thecompanies thathadbeen
established onthebasisoftheCEL. These companies hadbecome independent, andacallfortender
wasbeing issued tohireaninternational firmtoprepare theterms ofreference fortheirsale,scheduled
for1997.
89. Legislation hadalsobeenapproved inOctober 1996 toestablish thenewSIGET regulatory
body, under thephilosophy ofmaximum competition andminimum regulation. Itsfunctions were
to:(a)enforce thelaws, regulations andother legalrequirements applicable tothesectors; (b)act
asanintermediaryindisputesconcerninginterconnectionsandaccesstoessentialservices;(c)administer
theelectromagnetic spectrum andpublic auctions forconcessions; (d)keep an"Electricity and
Telecommunications Register", containing registrations bothofcompanies andpersons operating in
those sectors, frequencies andavailability, concessions andcontracts.
90. SIGET didnotdraw uppolicies oninvestor participation inthese sectors; these policies were
covered bytheTelecommunications LawandtheElectricity Lawandapplied bothtodomestic investors
andtoforeign investors.
91. Asforother privatizations, aconsultancy firmhadbeenhired toreview thelegal, regulatory
andinstitutional framework ofthenational water company (Administración Nacional deAcueductos
yAlcantarillados,ANDA)withaviewtooverhaulingthewaterresourcessector,includingtheformulation
ofaregulatory policy forwater supply andsewage systems.
92. Lastly,anotherconsultancyfirmhadbeenhiredtoadvisetheGovernmentonaportsandairports
regulatory policy andwork wasbeing donetoprepare thecallfortender andterms ofreference for
granting theconcession forElSalvador Airport andthePortofCutuco. InthecaseofElSalvador
International Airport, theparking andcleaning services concession hadalready beengranted.WT/TPR/M/23
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93. Withreference toaquestion regarding theprivatization oftherailways inElSalvador, hesaid
thattheGovernment would beinterested buttheinfrastructure hadbadly deteriorated andwassoobsolete
thatithadbeendifficult tofindpotential investors.
94. Inresponse tothequestions regarding investment inhuman capital andinfrastructure, andits
financing hesaidthattheGovernment ofElSalvador considered thatpresent national savings were
stillnotenough tofinance therequired investment todevelop human resources andinfrastructure.
Nevertheless, developing human resources andproviding greater access toeducation were central
components ofElSalvador 'seconomic andsocial development strategy. Consequently, theGovernment
wasmaking budget reallocations tochannel more funds tothesocial sector (forexample, in1996,
31percentofthebudget hadbeenonsocial expenditure) andthetarget wastoallocate 50percent
ofthebudget by1999 tosocial expenditure.
95. Inaddition,resourcesfromtheWorldBankandtheInter-AmericanDevelopmentBankamounting
tomore thanUS$75 million weretobeinvested inthesocial sector. Resources from privatizations
would alsobeallocated tosocial expenditure andinfrastructure development. Thepension schemes
would bereformed soastoturnthem intoamajor source ofsavings andmobilize them toprovide
asupply oflending funds. There wasalsoaprogramme todevelop non-formal education. Bylaw,
firms mustpayanamount equivalent toonepercentoftheirpayroll tothenational vocational institute
(Instituto Salvadoreño deFormación Profesional, INSAFORP )toprovide itwiththerequired funds
fortraining programmes.
96. Thefirstdiscussant asked whether therepresentative ofElSalvador could further elaborate
onthesolutions sought toensure thatremittances were directed towards investment rather than
consumption. Henoted thattherewasalready investment inrealestate andasked iftherewastherefore
some encouragement bytheSalvadorean authorities topromote suchinvestment. Hewondered ifthere
wasanypossibility oftaking advantage ofthereforms ofthepension funds, privatization oranyother
elements oftheglobal programme.
97. Regarding thetelecommunication privatization, heasked whether, inthecaseofadisagreement
between theparties concerned (i.e.operators inthemarket, and"blue" and"red" ANTEL) about
interconnection, theGeneral Superintendence (SIGET) would playarôle,orwhether thenewlawon
competition would come intoplay. Concerning thecommitment tousetheresources ofprivatization
forsocial expenditure, heasked what resources would beinusewhen theprivatization programme
wasconcluded. Hedrew attention toanewideausedinBolivia, inwhich resources resulting from
privatization werebeing injected intothecapital oftheenterprises themselves, while theStatesometimes
retained aminority share; thissystem wassosuccessful thatvalue oftheshares heldbytheStatehad
infactincreased invalue brought inyields higher thanwhatcould hadbeenobtained ifthere hadbeen
asimple straight forward privatization.
98. Theseconddiscussanthadseveralquestionsrelatedtotheprivatizationofthetelecommunications
sector. Shesought clarification astowhether thebody being setupwould ineffect bearegulatory
body andastowhether theGovernment would continue tosetgeneral policy inthisarea. Shealso
askedwhatwerethegeneralpolicyguidelinesthatthegovernmentwouldestablishtoguidetheregulatory
body, orifthiswere nottobethecase, howexactly would policy guidelines betranslated tothe
regulatory body andfrom theregulatory body totheservice providers. Shealsoenquired whether
themembers oftheregulatory body would beappointed bytheGovernment andwhether theywould
receive general directions onappointment.
99. Inresponse totheconcerns regarding theremittances, therepresentative ofElSalvador said
thattheyweretrying tolearn fromtheexperiences ofother countries. Onesolution might betooffer
financial assets directly intheplace ofresidence oftheimmigrants, ortoprovide financial incentivesWT/TPR/M/23
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toencourage savings through verysimple investment mechanisms thatwould giveagood yield. He
alsomentioned thattheGovernment hadalready established closecommunication linkswiththeleaders
ofcommunities receiving remittances, inorder towork injointventures where theGovernment would
supplement theinvestment made bythecommunity ininfrastructure.
100. Inthecaseofaconflict regarding interconnection intelecommunications, therepresentative
saidthatSIGET would arbitrate between theparties. Headded thatthecompetition lawwould become
yetafurther element tosupplement thetypeofactivity undertaken bySIGET incaseofadispute.
ItwastheGovernment 'sintention thatwhen thelawonprivatization ofANTEL wasadopted, thelaw
oncompetition would simultaneously beapplied.
101. Regarding themore permanent approach tofinancing social expenditure, herecognized that
theresources ofprivatization would ofcourse dryupandsaidthattheseshould besubstituted bynational
savings. Hestressed thatthere wasnoother wayinwhich social expenditure could permanently be
financed thanbyincreasing national savings andthatthepromotion ofsavings waspartoftheoverall
development strategy.
102. Heconsidered thatthecaseofBolivia deserved alotofattention onthepartofinternational
investors andtheinternational community. However, heconsidered thatifthestateheldevenone
share there might beaverystrong temptation togobacktostateintervention. Hestressed thatthe
SalvadoreanGovernmentwantedtoavoidanytemptationofthissource,byplacingallbetsonthemarket.
103. Inthiscontext, headded thatElSalvador wanted tohaveatelecommunication system and
services sector werethere wascompetition andwhere there weremarket forces thatwould solve any
disequilibrium thatmayarise.
104. Inresponse tothesecond discussant 'squeries, hesaidthatthenewregulatory body SIGET
willensure compliance withtherules. Regarding thenewpolicy trends thattheGovernment wasto
elaborate, hesaidthatthegeneral philosophy wascompetition, competition andcompetition, andhence
theunderlying philosophy under which SIGET would work wastoapply theminimum amount of
regulations andmaximum amount ofcompetition. TheGovernment should nothavetoprovide SIGET
withanyfurther policy lines. Heexplained thatallofthiswassetoutintheirveryliberal legislation
ontelecommunicationsandthelawonelectricity.Headdedthatmarketforceswouldhavetheregulatory
rôleandnottheGovernment. HealsosaidthatSIGET wasanautonomous government bodyandthat
thedirector ofSIGET would beappointed bythePresident oftheRepublic foraperiod ofseven years,
which didnotnecessarily coincide withtheterms ofoffice ofthePresident. Theappointed director
would thenbecome acivilservant and,aftercompletion ofhisterm, thePresident inturncould nominate
theperson thathebelieved wasmost appropriate.
(iii) Trade liberalization anditseffects
105. Regarding trade liberalization anditseffects, therepresentative ofElSalvador saidthathis
country 'stradepolicy wasmainly based onacoordinated Central American tariff-cutting programme,
intended toreduce domestic production costs, contribute tothedevelopment andthemodernization
oftheindustrial base, andmake thecountry anattractive place forproduction activities. Thistrade
policywasconsideredessentialfordiversifyingthesupplyofexportablesandbroadeningexportmarkets.
106. Along withthetariff cuts,ElSalvador waspromoting anational competitiveness programme
toenhance theoverall competitiveness offirms sothattheycould export totheworld market. The
aimwastogainentry intonewmarkets withnewproducts. ElSalvador 'stariff-cutting programme
covered thewhole tariffuniverse. However, therehadbeenaneedtoproceed withthecutsgradually,
owing tothecomplexity ofthisprocess within theframework ofCentral American integration. TheWT/TPR/M/23
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authorities were looking atthebestwaytoincorporate suchsectors astextiles, clothing, sensitive
agricultural products andleather within theprogramme.
107. Thelowering ofthetariff ceiling wasscheduled tostartinJune1997 and,bymeans ofa
half-yearly 1percentreduction, toreach 15percentbyJuly1999 formost end-products produced
inCentral America. Thedutyoncapital goods was1percentinNovember 1997. Rawmaterials
andinputs notproduced inCentral America, aswellasallcapital goods, wereexpected tobeduty-free
by1December 1996, provided theamendment totheCentral American Agreement eliminating the
1percenttarifffloorhadentered intoforcebythattime. Atthetimeofthereview meeting, ElSalvador
alone haddeposited itsinstrument ofratification, butonlytwomoreCentral American countries needed
todeposit theirs.
108. Astothetariffquotas negotiated intheUruguay Round, ElSalvador stillhadnotopened them
butadraftExecutive Decree establishing amechanism tomake thequotas available tointerested parties
hadbeenprepared. Thislegal instrument wasexpected tobeadopted shortly, inorder toproceed
promptly withtheopening ofquotas. Withregard tosugar, itwould bedifficult toundertake aunilateral
reduction induties untilthesubsidy schemes thatdistort world trade were completely dismantled.
ElSalvador wasthinking ofopening tariff quotas withanon-quota dutyrateof55percent.
109. Inaddition, ElSalvador wasstreamlining itstrading system withregard tothefew,remaining
non-tariff barriers. Theadministrative andregistration procedures thatmight impede tradewerebeing
reviewed, including among others, pharmaceuticals andsaccharin andalltheproducts mentioned in
Decree 647.
110. Following itsownvigorous programme ofunilateral liberalization, ElSalvador welcomed the
process ofglobal trade liberalization, andwasplaying anactive partinnegotiations towards theFree
Trade AreaoftheAmericas (FTAA) andinother bilateral negotiations withregional trading partners
andeconomic blocs. Undoubtedly, regional trade agreements could andshould becompatible with
WTO rules, buttheycould alsogenerate trade andinvestment distortions. InthecaseofNAFTA,
bothofthese phenomena hadnegative effects onElSalvador 'stextile andclothing sector.
111. ElSalvador wasfostering competition bymeans ofitstradeliberalization programme andwas
obtaining satisfactory results. Itwas,nonetheless, drafting aFreeCompetition Lawtoprevent and
penalize anti-competitive practices.
112. Finally, heemphasized thattheGovernment ofElSalvador wascommitted tosecuring full
observance ofalloftheRepublic 'slaws. With theIntellectual Property Law, theGovernment was
engaged incombating anyactthatviolated intellectual property rights. Inthisrespect, hementioned
theestablishment ofaspecial unitintheOffice oftheAttorney-General todealespecially withviolations
ofintellectual property rights. Thisunit,together withtheCentral Registry UnitandtheNational
Civilian Police, wascarrying outanongoing inspection ofalltradeandthishadledtotheconfiscation
ofnearly 48,000 music cassettes and22,000 video tapes, andcasesinwhich violations hadbeendetected
hadbeenbrought before thecourts. Fullimplementation ofTRIPS would beautomatic aftertheyear
2000, asstipulated intheAgreement. Hepointed outthatmedicaments wereincluded intheprotection
afforded bythelawforatermof15years. Inaddition, work wasbeing doneondesigning thelegal
mechanisms needed toapply TRIPS provisions which would havetobeimplemented bytheyear2000;
there included border measures which theGovernment regarded asveryimportant tosecure suitable
andeffective protection ofintellectual property rights. Asfarascivilandcriminal penalties were
concerned, therelevant provisions would bedistributed tointerested delegations.
113. Thesecond discussant considered ittobeveryencouraging thatacountry likeElSalvador,
which waslooking atparticipating intheFreeTrade Area oftheAmericas, wasalsowilling toseeWT/TPR/M/23
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those benefits extended through themultilateral system. Shesaidthatitwasimportant thatthrough
actions notjustwords countries showed thatregionalism andmultilateralism could really be
complementary andconsistent. Shenoted thepoint made about trade deviation andtheeffects ofthe
NAFTA; those were some oftheissues thatneeded tobelooked atintheCommittee onRegional
Trade Agreements, when theylooked atthesystemic issues thatarisethrough regional tradeagreements.
Sheasked howthetenders would beutilized fortheadministration ofthetariffratequotas, andwhether
theauthorities expected thesystem toactually everfunction inpractice andnotjustintheory.
114. Therepresentative oftheUnited States sought information about thestatus ofthejudicial reform
intheareaofintellectual property andspecifically about theefforts tohandle more IPRcases
administratively andtoensure thatseized merchandise wasretained untilthecourts disposed ofthe
case.
115. Inresponse tothequestion regarding theadministration oftariff quotas, therepresentative of
ElSalvador saidthatElSalvador feltthatthemosttransparent andefficient wayofmanaging tariff
quotas wasbymeans ofauctioning them attheSalvadorean commodities exchange. Headded that
thiswould alsopromote thedevelopment ofthisinstitution, which wasparticularly beneficial for
producers whose profitability wastrapped byintermediaries. Heexplained thatproducers would be
excluded fromparticipating intheseauctions andthatthedocument issued bythecommodities exchange
would onlybevalid forayear; iftheperson thatwontheauction didnotuseitinthattimeperiod
thecertificate would loseitsvalidity.
116. Regarding thequestion posed bythedelegate oftheUnited States onintellectual property rights,
therepresentative saidthathisauthorities would provide afullanswer inwriting.
(iv) Specific policy andsectoral questions
117. Inresponse toquestions regarding specific sectoral policies, therepresentative ofElSalvador
saidthatin1995, thecustoms procedures inElSalvador could hadbeendescribed aslong, complicated
andnottransparent. Since then, theGovernment ofElSalvador hadspeeded upthepaceofcustoms
reform, implementing theCentral American Common Tariff Code anditsNational Regulations, which
entered intoforce inJuly1996. TheCode wasfounded ontheprinciples offlexible andstreamlined
customs procedures andcustoms services thatwerecompatible withfluiddevelopment ofinternational
trade. Thisnewlegalframework hadledto:(a)initiation ofautomatic customs procedures atthe
country 'sprincipal customs posts; (b)authorization forself-assessment bytheperson making the
declaration onthecustoms clearance form (involving payment oftheamount dueatanybank, with
spotchecks; (c)establishment ofaspot-check mechanism forphysical inspection ofgoods; and(d)
implementation ofthedomicile service forpayment ofimport duties ("Domicile Customs") forvarious
kinds ofgoods. Therecent implementation ofthesemeasures would besupplemented byasingle centre
forimport formalities andtheeventual privatization ofsome customs services.
118. Hesaidthat,despite thefactthattheAgreement onImplementation ofArticle VIIoftheGeneral
Agreement onTariffs andTrade 1994established afive-year transition period, work would startnext
yearattheCentral American levelonaregional instrument oncustoms valuation compatible withthe
provisions oftheAgreement. Withreference tovaluation ofsecond-hand vehicles, under Salvadorean
legislation theprices usedmustbethose indicated inspecialized publications. Exceptionally, inthe
absence ofinformation inthose publications, thecustoms shalldetermine thevalue chiefly onprice
dataobtained inthecountry oforigin foramodel withidentical orsimilar characteristics totheone
thatwasimported. Hestated thatElSalvador didnotapply anysystem ofpre-shipment inspection,
norhaditanyplans tointroduce suchasystem.WT/TPR/M/23
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119. Regarding theexport régime andtaxincentives hesaidthatElSalvador didnotconsider that
itsexport promotion andsupport schemes constituted export subsidies. In1995, thetotalamount of
theexport promotion andsupport scheme hadbeen60million colones (approximately US$7 million),
anamount towhich itwasdifficult toobject since itwasdeminimis .These incentives applied only
tonon-traditional exports outside Central America.
120. There werecurrently sixfreezones inElSalvador and45firms operated inthezones, more
than80percentofthemconnected withtheclothing sector. Fourfreezones wereunder construction,
buttheywerenotexpected tomark asignificant increase inthefirms connected withtheclothing sector.
TheGovernment 'sintention wastoattract firms producing greater value-added goods, withmodern
technology.
121. Hepointed outthatthecurrent Central American regulations, liketheearlier ones, didnot
allow fortheapplication ofbilateral safeguard measures between Central American countries. Within
theregion therehadbeennocaseleading totheapplication ofsafeguard measures sincetheearly1960s.
Inapplying global safeguard measures, ElSalvador strictly complied withtheWTO Agreement on
Safeguards, especially withregard tonon-discrimination between member countries oftheCentral
American Economic Integration Treaty andnon-member countries. Itshould benoted that,todate,
there hadbeennocaseinElSalvador involving theinitiation ofaninvestigation procedure toapply
safeguard measures.
122. ElSalvador considered thatdumping andsubsidies wereunfair trade practices. TheCentral
American Regulations onUnfair Trade Practices simply established theprocedures forapplication at
thenational level, under standardized Central American legislation, oftheprovisions oftherelevant
WTO Agreements, which were thelawinElSalvador andwere therefore applied automatically.
Anti-dumping andcountervailing measures were actionable under Salvadorean law, uptothe
Administrative Litigation Chamber oftheSupreme Court ofJustice (Sala deloContencioso
Administrativo delaCorte Suprema deJusticia ).TherôleoftheCACM Secretariat (SIECA) inthe
investigations todetermine theexistence ofunfair tradepractices wasclarified, SIECA would intervene
asstated intheCentral American Regulations onUnfair Trade Practices "iftheimporting StateParty
doesnotinitiate theinvestigation" and"when adomestic industry ofaStateParty otherthantheimporter
isaffected, attherequest oftheGovernment concerned". Hepointed outthat,under thisprocedure,
alltheprovisions oftherelevant WTO Agreement wereapplied. SIECA simply conducted therelevant
investigation andmade therecommendation totheCouncil ofMinisters responsible forEconomic
Integration andRegional Development.
123. Inrelation tostandards hesaidthattheNational Science andTechnology Council (CONACYT)
wasresponsible forstandardization, conformity assessment, andmetrology. Informulating technical
standards andregulations, CONACYT collaborated withtherelevant national bodies inelaborating,
adopting oradapting therelevant standards andregulations. ElSalvador would soonbenotifying its
acceptance oftheCode ofGood Practice annexed totheAgreement onTechnical Barriers toTrade.
ElSalvador wasnotapartytothePlurilateral Agreement onGovernment Procurement. Thelegislation
regulating government procurement wasscattered, since virtually every autonomous agency hadits
ownregulations andminimum thresholds. Procurement bytheCentral Government came under the
Supplies Law, which required callsfortender overandabove aparticular amount. Theintention was
toconsolidate allthese regulations inasingle legalinstrument governing procurement forthewhole
public sector, including autonomous agencies, establishing atransparent, streamlined procedure and
guaranteeing equal opportunity fordomestic andforeign bidders.
124. Thefirstdiscussant asked whether SIECA carried outanti-dumping investigations.WT/TPR/M/23
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125. Thesecond discussant asked whether thought hadbeengiven tousing competition lawstodeal
withcases ofunfair pricing intheCentral America Common Market rather thanusing anti-dumping
measures.
126. Therepresentative oftheUnited States saidthatsinceanewlawhadbeendrafted ongovernment
procurement andthere wasaneffort tocentralize policies, ElSalvador could finditself inaposition
toengageindiscussionsintheWTO,eitherthroughtheplurilateralGovernmentProcurementAgreement
orperhaps more broadly withrespect tonegotiations ontransparency thathehoped would beinitiated
aftertheSingapore Ministerial.
127. Therepresentative ofElSalvador clarified therôleofSIECA regarding anti-dumping
investigations. Hesaidthatthetechnical committee ofSIECA communicated totheGovernment that
there wasarequest fromanother member statecalling onthemtoinitiate aninvestigation against "x"
country orenterprise. However, iftheGovernment ofthecountry which received thisnotification
didnotcarry outsuchaninvestigation, thenSIECA wasenabled tocarry outtheinvestigation onits
own. Inthatevent, SIECA would havetopresent theresults oftheinvestigation totheforum ofthe
Ministers inCharge oftheCentral American Integration. Thatbody, notSIECA, decided whether
ornotmeasures should betaken toneutralize anunfair trade practice. However, uptothepresent,
there hadbeennocases where SIECA hadbeencalled upon tocarry aninvestigation.
128. Inresponse tothesecond discussant 'squestion, therepresentative saidthatcompetition policies
could beusedindealing withunfair pricing intheCentral American Common Market (CACM) as
soonasasingle customs union wasconsolidated, andthattheCentral American countries wereworking
towards thiscommon goal.
129. Therepresentative tooknoteofthecomments made bythedelegate oftheUnited States on
government procurement; however, heconsidered thatatpresent themost important thing wasto
work onthenational legislation andafteritscompletion theauthorities would givesome thought as
towhatcourse should befollowed subsequently.
130. Thefirstdiscussant asked whether itwaspossible foramember country oftheCACM tomake
arequest toSIECA thatananti-dumping investigation should notbecarried outinamember country.
131. Inresponse therepresentative ofElSalvador saidthatthiswasnotpossible.
132. Thedelegate ofJapan asked whether different treatment wasgiven tonationals andforeigners
intheinsurance sector andwhether thismarket wasfullyopenorifthere were anyrestrictions.
133. Inresponse therepresentative ofElSalvador saidthattheinsurance sector wasnotbound among
ElSalvador 'sservices commitments intheUruguay Round. ElSalvador waspresently working on
thelegalframework thatwould govern theinsurance sector. Thedrafting ofalawoninsurance was
almost completed, andthisnewlegalframework clarified theregulations inthesector. Headded that
thissector hadbeengrowing inarather disorderly manner because there were nosubstantive rules
which determined therules ofthegame; thenewlegislation would thusfillaveryimportant gapin
theservices sector inElSalvador. Heoffered tosendacopyofthislegislation tothedelegate ofJapan,
assoonasitwasadopted.WT/TPR/M/23
Page23
VII. CONCLUDING REMARKS BYTHE CHAIRPERSON
134. Over thepasttwodays, theTrade Policy Review Body hasconducted thefirstreview of
ElSalvador 'stradepolicies andpractices. These remarks, made onmyownresponsibility, areintended
tosummarize thesalient points ofthediscussion; theydonotsubstitute fortheBody'scollective
evaluation andappreciation, which willbereflected intheminutes ofthemeeting.
135. Thediscussion developed under three main themes: (i)macroeconomic andstructural
developments, including policies relating toforeign investment; (ii)tradeliberalization anditseffects;
and(iii)specific policy andsectoral questions.
136. Apartfromquestionsraisedduringthemeeting,fourparticipantssubmittedanumberofquestions
inwriting. Therepresentative ofElSalvador provided extensive, substantive replies tothequestions
andalsoundertook insome instances toprovide further details inwriting.
(i) Macroeconomic andstructural developments, including policies relating toforeign investment
137. Members commended thestabilization andstructural adjustment programmes adopted by
ElSalvadorsince1989,whichhadresultedinmarkedlyincreasedeconomicgrowthandafallininflation.
They alsowelcomed theauthorities 'plans tocontinue thelonger termrestructuring oftheeconomy
through increasing investment ininfrastructure andhuman capital. Members inquired about the
sustainability ofmacroeconomic performance, noting thatinflation hadincreased slightly in1995.
They suggested that,ifgrowth wastobemaintained, further investment would berequired inthe
productive sector.
138. Inthisconnection,membersnotedthatbothinvestmentandsavingsinElSalvadorwererelatively
lowandenquired about measures toremedy thesituation. Members alsoasked howElSalvador aimed
togenerate theresources required foritsplanned investments ininfrastructure andhuman capital.
139. Membersnotedtheimportanceofremittancesinfinancingthecurrentaccountdeficitandpointed
outtherisksofrelying onexternal resources asasource offinancing. Inaddition, thedifficulty of
managing aneconomy inthese conditions wasemphasized: themonetary inflow resulting from
remittances could increase inflationary pressures andpushuptherealexchange rate,withharmful
effects oncompetitiveness.
140. Members welcomed thetaxreform andprivatization programmes undertaken byElSalvador;
these hadbothhelped toreduce thefiscal deficit andcontributed toeconomic restructuring. Members
noted that,withthesimplification ofthetaxsystem, onlyafewtaxes ofgeneral application remained
inplace; thesechanges hadincreased taxyieldandgonesome waytoreducing evasion. Nevertheless,
members asked howElSalvador would dealwiththeproblem oftaxevasion, given theimportance
oftheinformal sector.
141. Members welcomed theliberalization ofElSalvador 'sinvestment régime. However, some
concern wasexpressed about thepossibility ofdiscrimination remaining inregistration procedures;
forinstance, freeconvertibility ofcapital wasnotreflected intheForeign Investment andPromotion
Law. Questions were alsoraised onplans toestablish aone-stop window forforeign investment,
whethertherewasanydiscriminationagainsttheoperationofforeigninsurancecompaniesinElSalvador,
andwhether there wasaspecific incentive programme topromote foreign investment.
142. Inresponse, therepresentative ofElSalvador saidthataverage realgrowth intheperiod 1992-95
was6.7percent,butonly3.5to4percentin1996. Inflation wasexpected tofallto9percent,lower
thanthelevelin1995; withthedeepening ofthereforms andafallinthecostofcredit, itwashopedWT/TPR/M/23
Page24
thatgrowth would recover to5percentin1997. Thechallenge ofmacroeconomic management was
toensure stability andmaintain theconfidence offoreign anddomestic investors. Foreign remittances,
which hadanumber ofbenefits, alsocomplicated economic management, generating inflationary
pressures andanappreciation oftheexchange rate. Intheshort term, measures hadtobetaken to
sterilize theeffect ofinflows onthemoney supply, buttherepresentative alsogavedetails ofanumber
ofstructural measures aimed atneutralizing negative effects inthelonger termandre-orienting flows
towards investment.
143. TherepresentativeoutlinedElSalvador'sprivatizationprogramme,coveringtelecommunications,
electricity, water, portsandairports, highways andpensions, andgaveconsiderable detail ontheplanned
liberalization ofthetelecommunications sector. HisGovernment wasconscious thatdomestic savings
were insufficient tofinance essential social andeconomic investment inhuman capital andphysical
infrastructure. TheGovernment wasre-directing resources tothesocial sector, withtheaimofreaching
50percentofpublic expenditure by1999, andhadreceived loans fromtheWorld Bank andIDBfor
education andinfrastructure development. Receipts fromprivatization andthereform ofpension funds
would alsobeusedforthese purposes.
144. Therepresentative ofElSalvador emphasized thatthere wasnodiscrimination intheforeign
investment régime, butthespeed ofliberalization sometimes hadbeenmore rapid thantheevolution
ofthelegalframework. Therégime wasoneofthemostopenintheworld; therewerenoperformance
requirements orexchange control restrictions, thusitwas,inpractice, openinallsectors. Theonly
exceptions applied tosmall-scale investments oflessthanUS$23,000. HesaidthatElSalvador 's
economic andsocial development strategy wasintended toattract foreign investment, andthus
complement national savings andinvestment. Anewinvestment law,intended forlegislative approval
inthefirstquarter of1997, would strengthen legal rights, including access todomestic courts and
domestic orforeign arbitration, promote transparency andsimplify registration procedures, including
theelimination ofprior authorization. Inaddition toexisting governmental institutions, aprivate
foundation, FUSADES, provided advisory services fornewinvestors. Hereassured Members regarding
thesecurity situation inthecountry. Heclarified thatadvantages given toinvestment infree-zones,
towhich export performance requirements applied, were notlinked tothegeneral investment law.
Inrespect ofinsurance, which wasnotbound under GATS, anewlegalframework wasbefore the
Legislative Assembly anddetails would beprovided oncethiswasadopted.
(ii) Trade liberalization andeffects
145. Membersrecognizedthattradeliberalization,togetherwiththederegulationofdomesticmarkets,
hadbeenakeyelement inElSalvador 'seconomic growth, although thetrade toGDP ratiohadnot
yetrecovered to1980 levels. Inaddition, members noted theconcentration oftrade bothinterms
ofpartnersandingoods.Membersaskedwhetherexportscurrentlybenefitingfrompreferentialrégimes
would becompetitive without these preferences.
146. Members noted ElSalvador 'sparticipation intheCentral American Common Market (CACM)
andinquired whether regional commitments hadhelped orhindered theprocess oftradeliberalization
atthenational level. Inaddition, members commended theactive rôlethatElSalvador wasplaying
innegotiations ontheFTAA andasked about ElSalvador 'sviews on"global freetrade".
147. Members noted thatElSalvador hadsubstantially reduced tariffs andthatallrateshadbeen
bound, albeit atceiling levels. Questions wereraised regarding thepersistence oftariffescalation and
peaks insome sectors, aswellasthespread between applied andbound rates. Members asked ifthere
were plans tocontinue reducing tariffs forfinalgoods andtoreduce theWTO bound rates.WT/TPR/M/23
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148. MemberscommendedElSalvador'seffortstobringitsnationaltradelegislationintoconsistency
withtheWTO Agreements. However, itwasnoted thatcertain aspects ofsome lawswerestilloutdated
andinneedofreform. Some members alsoasked about theimplementation andenforcement oflaws,
particularly intheareaofintellectual property, while others asked when thedraftCompetition Law
would come intoforce andtheeffects thatitmight haveontrade conditions.
149. Inresponse, therepresentative ofElSalvador saidthattradepolicy wasbased onthecoordinated
CentralAmericantariffreductionprogramme,designedtoreducecostsandcontributetothedevelopment
andmodernization ofproduction. Thiswasessential todiversify exports andmarkets. Tocomplement
thisprogramme,ElSalvadoralsohadaprogrammetoincreasenationalcompetitivenessinworldmarkets.
TheGovernment would implement these reforms inacomprehensive, progressive manner, andwas
studying howbesttoincorporate sectors suchastextiles, clothing, sensitive agricultural products and
leatherintothereformprogramme.Heprovidedinformationonthesix-monthlytariffreductionsplanned
through toJuly1999, when theceiling would bereduced to15percentforimports ofmost goods
produced inCentral America, withduties onmostothergoods eliminated orreduced toverylowlevels.
However, atpresent itwasnotconsidered prudent tolower bound rates, given thevulnerability of
theexternal sector toremittances. Nevertheless, hestressed thatElSalvador wasalsocommitted to
further improvement initstrade policy régime inthefewareas where non-tariff measures remained,
including administrative andregistration procedures forimports ofpharmaceuticals andsaccharin.
150. Therepresentative emphasized thatElSalvador wasinfavour ofworldwide freetrade and
thestrengthening ofthemultilateral system. Itwasparticipating actively intheFTAA aswellasin
other bilateral andregional trade negotiations. They attached importance totheWTO-compatibility
ofthese agreements; however, theyrecognized thatregional agreements could leadtotrade and
investment diversion, ashadhappened inrespect oftextiles andclothing inthecaseofNAFTA.
151. Therepresentative saidthatElSalvador placed anextremely strong emphasis onstrengthening
competition, including through trade liberalization. Anewcompetition lawwasbeing developed to
preventanti-competitivepractices.HisGovernmentwasactivelypursuinganyviolationoftheintellectual
property lawthrough aspecial unitcreated forthispurpose; hegavedetails ofrecent cases. Work
wasunderway toensure thatElSalvador would fullymeetitsTRIPS obligations bytheyear2000,
asrequired, including inrespect ofborder measures; details ofcivilandpenal sanctions applicable
would beprovided toMembers.
(iii) Specific policy andsectoral questions
152. Membersnotedthat,despitetheeffortsmadetoliberalizetheimportrégime,importandcustoms
formalities werestillcumbersome, lacked transparency andremained anobstacle totrade. Members
asked whether there wereplans tosimplify these requirements andtomodernize customs. There was
aquestion onthetime-frame forcreating aone-stop window forimport procedures.
153. Memberscommendedthesimplificationofexportproceduresthroughthecreationoftheone-stop
window forexport formalities. Onemember asked about thescope forfurther simplification. Members
commented ontheprogrammes inplace topromote exports beyond Central America, including the
freezonerégime andthedutydrawback system. Thegrowth ofthefreezones wasnoted anditwas
inquired towhatextent therehadbeenarelocation ofindustry tothefreezones. Some Members thought
thatthedutydrawbacksystemcouldactasanexportsubsidysince,whiletariffswerebeingprogressively
reduced, thedrawback wasfixed at6percentofthef.o.b. value ofexports.
154. Members noted theimportance oftheagricultural sector intheeconomy andthepositive effects
ofthereforms onitsperformance. However, some members referred tothenegative impact ofthe
realappreciation ofthecurrency onagricultural exports. Inaddition, onemember asked whether thereWT/TPR/M/23
Page26
wereplans toliberalize thesugar market. Several members inquired about theadministration oftariff
quotas andtheirnotification totheWTO.
155. Noting thatthepresent system ofcustoms valuation wasbased ontheBrussels Definition of
Value (BDV), members urged thatnewlegislation bemade consistent withtheWTO Agreement.
Members expressed theirconcern about alackoftransparency intheaward ofGovernment contracts
andsought clarification onsuchprocedures.
156. Onemember commended ElSalvador forhaving submitted itssafeguards legislation forreview
bytheSafeguards Committee; thisappeared tobeconsistent withWTO requirements. Another sought
clarification ontheoperation ofanti-dumping duties andcountervailing measures, including which
lawsapplied inthese areas andtherôleoftheCACM Secretariat inthisregard.
157. Some members considered thatstandards, sanitary andphytosanitary regulations could operate
asbarriers totrade. Onemember noted thatElSalvador hadnotsubmitted aStatement of
Implementation asrequired under theTBTAgreement.
158. Inresponse, therepresentative ofElSalvador saidthat,since 1995, theGovernment had
accelerated thereform andsimplification ofcustoms procedures, including through theimplementation
oftheCentral American Uniform Customs Code anditsregulations, which hadentered intoforce in
June 1996. These reforms would becomplemented withasingle window forimports andthe
privatization ofsome customs services. Work hadalready begun attheCentral American level to
bring customs valuation procedures intolinewithArticle VIIofGATT 1994 within therequired
timeframe. Nopre-shipment inspection mechanism applied.
159. Therepresentative saidthatElSalvador 'sexport support andpromotion schemes didnot
constitute export subsidies. Total support, amounting tosome US$7 million in1995, didnotapply
totrade within Central America ortoexport oftraditional products. There were sixfreezones in
ElSalvador, with45firms, ofwhich 80percentwereinvolved inclothing production. Fourmore
zones wereinconstruction; itwashoped theywould attract operations withhigher value added and
modern technology.
160. Therepresentativeindicatedthatadraftlawhadbeenpreparedtomanagetariffquotasnegotiated
intheUruguay Round anditwashoped thiswould soonbeapproved. Itwasdifficult tothink about
unilateral liberalization ofsugar imports while somany subsidy schemes distorted world markets;
however, ElSalvador wasconsidering theopening oftariff quotas, withanout-of-quota rateof
55percent.
161. Central American legislation didnotprovide forsafeguards onintra-regional trade; WTO
ruleswereapplied buttherehadbeennosuchcases since theearly1960s. Dumping andsubsidization
werecovered byCentral American legislation andtheWTO Agreement, which waspartofnational
law. Therepresentative clarified certain operational aspects ofthelaw,including theinvestigative
rôleplayed bytheCACM Secretariat (SIECA).
162. Therepresentative explained thattheNational Science andTechnology Council (CONACYT)
wasresponsibleforstandards,theevaluationofconformity,andmetrology.Theelaborationofstandards
andregulations wascoordinated withother agencies. ElSalvador would shortly notify itsacceptance
oftheWTO Code ofGood Conduct inthisarea.
163. Finally, therepresentative noted thatElSalvador wasnotamember oftheGovernment
Procurement Agreement. Almost allagencies hadautonomy inthisarea,butthecentral Government
wasobliged tocallfortenders when planned purchases exceeded acertain amount. ItwasplannedWT/TPR/M/23
Page27
toconsolidate thevarious regulations inasingle lawwiththeobjective ofincreasing transparency and
guaranteeing equal treatment fornational andforeign bids.
*****
Overall
164. DelegationswelcomedElSalvador'swide-rangingstructuralreformprogrammeofrecentyears,
including thesignificant stepstaken intradeliberalization, fiscal reform andprivatization. They noted
andencouraged ElSalvador 'sintention tocontinue theprocess withfurther reductions inapplied tariffs,
measures tobring about greater competition, modernization ofcustoms procedures andfurther steps
topromote foreign investment.
165. Acautionary notewassounded ontheneedfordiversification ofexports, inrelation toboth
goods andmarkets. Itwasalsorecognized thatrealexchange rateappreciation, fuelled inparticular
bythehighlevel ofemigrants 'remittances, makes thetaskofexport development more difficult.
Overall, itwasemphasized thatmaintenance ofthecurrent export-led growth pattern willrequire a
continued strong commitment totrade liberalization, aswellassustained efforts toensure astable
macroeconomic environment.WT/TPR/M/23
Page28
Appendix
Thedelegation ofElSalvador totheTrade Policy Review Meeting ofElSalvador consisted of:
René Antonio León
Vice-Minister ofEconomy
H.E. Mr.Alexander A.Kravetz
Ambassador Extraordinary andPlenipotentiary
Permanent Representative totheUnited Nations Office atGeneva
H.E. Mrs. Leonora deSolaSaurel
Ambassador Extraordinary andPlenipotentiary forInternational Economic Affairs
Guillermo Celarié Noriega
Advisor (Office oftheMinister)
Ministry ofEconomy
Eduardo Ayala Grimaldi
Director ofTrade Policy
Ministry ofEconomy
Carmen Tobar Sandoval
Minister Counsellor
Permanent Mission ofElSalvador
Carmen Elena Castillo Escobar
Minister Counsellor
Permanent Mission ofElSalvador
René Mauricio Vargas
Counsellor (Commercial)
Embassy ofElSalvador intheUnited States
Carmen AidaChávez
FirstSecretary
Permanent Mission ofElSalvador