WORLD TRADE
ORGANIZATIONG/SCM/N/38/SLV/Suppl.1
G/SCM/N/48/SLV/Suppl.1G/SCM/N/60/SLV/Suppl.1
G/SCM/N/71/SLV/Suppl.1
15 March 2002
(02-1366)
Committee on Subsidies and
Countervailing MeasuresOriginal:  Spanish
SUBSIDIES
New and Full Notification Pursuant to Article XVI:1 of the
GATT 1994 and Article 25 of the SCM Agreement
EL SALVADOR
Addendum
The following communication, dated 27 February 2002, has been received from the
Permanent Mission of El Salvador.
_______________
In connection with our request for an extension of the transition period under the procedure
established in document G/SCM/39 for El Salvador's programme of free-trade zones and inward
processing warehouses, attached please find the notification pertaining to the aforesaid programme,
pursuant to Item 1(b) of the document in question.G/SCM/N/38/SLV/S uppl.1, G/SCM/N/48/SLV/Suppl.1,
G/SCM/N/60/SLV/S uppl.1, G/SCM/N/71/SLV/Suppl.1
Page 2
Pursuant to the Decision on Implementation-Related Issues and Concerns set forth in
document WT/MIN/01/17, paragraph 10.6, and in document G/SCM/39, the Government of the
Republic of El Salvador, in accordance with Item 1(b) of document G/SCM/39, is pleased to provide
you with the initial notification following up our communication submitted to the WTO Committeeon Subsidies and Countervailing Measures on 19 December 2001 and circulated as document
G/SCM/N/74/SLV.
1. Description
Incentives for firms operating in free-trade zones or in inward-processing warehouses.
2. Period covered by the notification
1995-2001.
3. Policy objective and/or purpose of the subsidy
To promote increased greater job opportunities through investment incentives for firms
engaging in exports of goods and services, with the aim of achieving sustainable economic growth.
4. Background and authority for the subsidy (including identification of the legislation
under which it is granted)
A. B
ACKGROUND
The damage to the domestic infrastructure resu lting from the armed conflict in El Salvador
during the 1980s and early 1990s severely impacted production sectors, investment and export
development. As a result of this situation, it was not possible to use the development programme
described in this notification. Following the signing of the Peace Accords in 1992, however, EL
Salvador began to benefit from the programme, which facilitated job creation—a prerequisite for
alleviating poverty and overcoming the constraints that created such serious difficulties for the generalpublic during the 1980s.
The earthquakes that hit El Salvador in 2001 were responsible for heavy job losses,
particularly for the economically disadvantaged segment of the population, thereby increasing the
need for jobs. According to a re port from ECLAC, total losses am ounted to US$1,603 million, i.e. 12
per cent of GDP and 55 per cent of exports in 2000. In  the aftermath of the catastrophe, El Salvador is
faced with the need to improve the welfare of its people, and especially those most severely affectedby the earthquakes.  In creating opportunities to maintain and raise employment levels—and by
extension, the welfare of the Salvadoran people—the benefits deriving from the programme are
therefore essential for the country's economic and social development.
By the end of 2001, the number of people directly employed by firms benefiting under the
Law on Export Processing Zones and Marketing exceeded 81,000. As a result, numerous households
can now enjoy a secure source of income, employment opportunities, access to social security,
education, health and a pension plan, etc. Furthermore, the activities in question helped create 164,000
jobs as an indirect result of the programme, thus generating a total volume of 245,000 new jobs,
accounting for over 10 percent of the labour force in El Salvador. It should be noted thatapproximately 90 percent of the jobs created through this programme are held by women, a large
percentage of whom are heads of household, thus giving these women the opportunity to improve the
economic welfare of their families while giving them greater access to health, education and social
security.G/SCM/N/38/SLV/S uppl.1, G/SCM/N/48/SLV/Suppl.1,
G/SCM/N/60/SLV/S uppl.1, G/SCM/N/71/SLV/Suppl.1
Page 3
Exports from the in-bond assembly industry ( maquila)  amounted to US$1,651 million,
constituting El Salvador's principal export product to third markets.
246 firms benefited under the Law, of which 52 percent were foreign companies and the rest
were domestic companies.
B. LEGISLATION
The Law on Export Development, approved pursuant to Legislative Decree No. 81 of 5
September 1974, published in the Official Journal (No. 180, Vol. 244) of 27 September 1974;
abolished pursuant to the Law on the Free-Trade Zone and Bonded Warehouse Regime, approvedpursuant to Legislative Decree No. 461 of 15 March 1990, published in the Official Journal (No. 88,
Vol. 307) of 18 April 1990; and abolished pursuant to the Law on Export Processing Zones and
Marketing, approved pursuant to Legislative Decree No. 405 of 3 September 1998, published in the
Official Journal (No. 176, Vol. 340) of 23 September 1998 and as amended by Legislative Decree No.
464 of 22 October 1998, published in the Official Journal (No. 215, Vol. 341) of 18 November 1998.
5. Form of the subsidy (i.e. grant, loan, tax concession, etc.)
Because El Salvador is a developing country, it lacks the resources necessary to provide direct
assistance to investors wishing to embark upon domestic operations. As the purpose of this
programme was to promote economic and social prog ress, El Salvador is using a mechanism based on
foregone government revenue, which is to be offset by increased job creation for Salvadorans.
As for the form of the incentives, the latter are provided to:Users establishing operations in free-trade zones or outside such zones in inward processing
warehouses, entailing the following benefits and incentives:
(a) Exemption from import duties on machinery, equipment, tools, spare parts and
accessories, utensils and other items necessary for carrying out the activity benefiting
from incentives.
(b) Exemption from import duty on raw materials,  parts, pieces, components or elements,
semifinished products, intermediate products, packaging, labels, packing, samples
and patterns required for carrying out the activities that benefit from incentives.
Under the abovementioned treatment, it is also possible to import machinery,
apparatus, equipment, and any other items intended for repairs by the beneficiaries,
including those exported products that are being reimported on a drawback basis;
(c) Exemption from import duty on lubricants, catalysts, reagents, fuels, and any other
substances or materials required for the firm's production activities;
(d) Total exemption from income tax for the period during which the firm engages in
operations in El Salvador, reckoned as from the tax year during which the beneficiary
firm commences operations;
(e) Total exemption from municipal taxes on the firm's assets and wealth for the period
during which it conducts business in El Salvador, beginning from the time when thefirm's operations get under way;G/SCM/N/38/SLV/S uppl.1, G/SCM/N/48/SLV/Suppl.1,
G/SCM/N/60/SLV/S uppl.1, G/SCM/N/71/SLV/Suppl.1
Page 4
(f) Total exemption from real estate transfer tax on purchases of real estate for use in the
activities benefiting from the incentives.
6. To whom and how the subsidy is provided (whether to producers, to exporters, or
others;  through what mechanism;  whether a fixed or fluctuating amount per unit;  if the latter,
how determined).
The benefits or incentives will accrue to those individuals or legal entities, whether domestic
or foreign, that are the owners of firms which they develop, administer, or establish in free-trade
zones or outside thereof, provided such firms are engaged in:
(i) The production, assembly or "maquila",  manufacturing, processing, transformation,
or marketing of goods and services;
(ii) the provision of services related to international trade, such as the collection,
packaging or repackaging, re-export, cargo consolidation, distribution of
merchandise, and other related or supplemental activities.
The subsidy is provided through exemption from duty, income tax and municipal taxes as specified in
Item 5 above.
7. Subsidy per unit, or in cases where this is not possible, the total amount or the annual
amount budgeted for that subsidy (indicating, if possible, the average subsidy per unit for the
preceding year).  Where provision of per unit subs idy information (for the year covered by the
notification, the previous year, or both) is not possible, a full explanation.
Given the nature and scope of the programme, no statistical data are available reflecting the
amount of incentives per unit.
8. Duration of the subsidy and/or any other ti me-limits attached to it, including date of
inception/commencement.
It will be in line with the international obligations undertaken by El Salvador, and in
particular the SCM Agreement.
9. Statistical data permitting an assessment of the trade effects of the subsidy.  The specific
nature and scope of such data is left to the j udgement of the notifying Member.  To the extent
possible, relevant and/or determinable, however, it is desirable that such information include
statistics of production, consumption, imports and exports of the subsidized product(s) or
sector(s).G/SCM/N/38/SLV/S uppl.1, G/SCM/N/48/SLV/Suppl.1,
G/SCM/N/60/SLV/S uppl.1, G/SCM/N/71/SLV/Suppl.1
Page 5
COMPARATIVE TABLE
(in millions of dollars)
SCHEME 1998 1999 2000
(a) World exports 5,429,400 5,594,300 Not available
(b) Salvadoran exports 2,446.1 2,497.5 2,950.5
(c) b / a 0.045% 0.044% Not available
(d) Salvadoran net maquila exports 339.1 378.7 456.3
(e) d / a 0.0062% 0.0067% Not available
Source:  International Monetary Fund, Central Reserve Bank, Ministry of Economy.
__________