RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/226 
6 January 2010  
 
(10-0002) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
EL SALV ADOR 
 
  
 
This report, prepared for the third Trade Policy Review of El Salvador, has been 
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has, 
as required by the Agreement establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification from El Salvador on its trade policies and 
practices. 
 
Any technical questions arising from this  report may be addressed to Mr Angelo 
Silvy (Tel. 5249), Mr Karsten Steinf att (Tel. 6759), and Mr Raymundo Valdés 
(Tel. 5346). 
 
Document WT/TPR/G/226 contains the policy statement submitted by 
El Salvador. 
 
 
 
Note: This report is subject to restricted ci rculation and press embargo until the end of the 
first session of the meeting of the Trad e Policy Review Body on El Salvador. El Salvador WT/TPR/S/226 
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CONTENTS 
 
  Page  
SUMMARY OBSERVATIONS vii 
 (1) E CONOMIC ENVIRONMENT  vii 
 (2) T RADE AND INVESTMENT POLICY FRAMEWORK  vii 
 (3) M EASURES AFFECTING IMPORTS  viii 
 (4) O THER MEASURES AFFECTING TRADE  ix 
 (5) S ECTORAL POLICIES  ix 
I. ECONOMIC ENVIRONMENT 1 
 (1) O VERVIEW  1 
 (2) M ACROECONOMIC TRENDS  1 
 (i) Structure and development of the economy 1  (ii) Fiscal policy 4 
 (iii) Monetary and exchange-rate policies 5 
 (iv) Balance of payments 7 
 (3) M
ERCHANDISE TRADE AND INVESTMENT FLOWS  8 
 (i) Composition of trade 9 
 (ii) Geographic distribution of trade 9 
 (iii) Trade in services 9 
 (iv) Foreign direct investment 10 
 (4) O UTLOOK  12 
II. TRADE AND INVESTMENT REGIME 13 
 (1) O VERVIEW  13 
 (2) T RADE AND INVESTMENT POLICY FRAMEWORK  13 
 (i) General legal and institutional framework 13 
 (ii) Trade policy formulation and objectives 14 
 (3) F OREIGN INVESTMENT REGIME  15 
 (4) I NTERNATIONAL RELATIONS  18 
 (i) World Trade Organization 18  (ii) Preferentia l agreements 19 
 (5) A
ID FOR TRADE AND TECHNICAL ASSISTANCE  22 
 WT/TPR/S/226 Trade Policy Review 
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  Page  
III. TRADE POLICIES, BY MEASURE 23 
 (1) M EASURES AFFECTING IMPORTS  23 
 (i) Customs procedures 23  (ii) Customs valuation 25 
 (iii) Rules of origin 26 
 (iv) Tariffs 26  (v) Other charges affecting imports 30 
 (vi) Prohibitions, restrictions and licensing 32 
 (vii) Contingency measures 35  (viii) Technical regulations and standards 36 
 (ix) Sanitary and phytosanitary measures 38 
 (2) M
EASURES AFFECTING EXPORTS  41 
 (i) Customs procedures 41 
 (ii) Taxes and other charges 42 
 (iii) Prohibitions, restrictions  and licensing procedures 42 
 (iv) Tariff and tax concessions 42 
 (v) Promotion, financing, insurance and guarantees 45 
 (3) O THER MEASURES AFFECTING PRODUCTION AND TRADE  46 
 (i) Creation and taxation of businesses 46 
 (ii) Competition policy and price controls 48  (iii) Incentives 51 
 (iv) State-owned enterprises and privatization 53 
 (v) Government procurement 54  (vi) Protection of intellectual property 57 
IV. TRADE POLICIES, BY SECTOR 63 
 (1) A
GRICULTURE  63 
 (i) Overview 63 
 (ii) Support policy and indicators 64 
 (iii) Policy instruments 64 
 (2) M ANUFACTURING  68 
 (i) Sector outside the free-zone regime 68 
 (ii) Free zones 69 
 (3) ENERGY 70 
 (i) Electricity 70 
 (ii) Other energy 72 
 (4) S ERVICES  73 
 (i) Multilateral and preferential commitments 73 
 (ii) Financial services 74 
 (iii) Telecommunications 80 
 (iv) Maritime transport and ports 82  (v) Air transport 84 
 (vi) Professional services 86 
 REFERENCES   89 
 
APPENDIX TABLES  93 
 El Salvador WT/TPR/S/226 
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TABLES 
 
  Page 
 I. ECONOMIC ENVIRONMENT 
 
I.1 Basic economic indicators, 2003-2009 2 I.2 Central government finances, 2003-2009 4 
I.3 Monetary and price indicators, 2003-2009 6 
I.4 Balance of payments, 2003-2009 7 I.5 Trade in services, 2003-2009 10 
I.6 Balance of foreign direct investment by receiving economic sector, 2003-2009 10 
I.7 Balance of foreign direct investment by country of origin, 2003-2009 11  
II. TRADE AND INVESTMENT REGIME 
 II.1 Bilateral reciprocal investment promotion and protection agreements signed by El Salvador, 
 October 2009 17 
 
III. TRADE POLICIES, BY MEASURE 
 III.1 MFN tariff structure, 2009 27 
III.2 Breakdown of the MFN tariff, 2009 28 
III.3 Tax on alcoholic beverages, 2009 30 III.4 Other taxes on specific products, 2009 31 
III.5 Import prohibitions, 2009 32 
III.6 Goods subject to import permits 33 III.7 Financing programmes for technological development, productivity and competitiveness 52 
III.8 Intellectual property treaties in force in El Salvador, 2009 58 
III.9 Summary of protection of IPRs in El Salvador, 2009 59  
IV. TRADE POLICIES, BY SECTOR 
 IV.1 Agricultural sector GDP, 2002-2008 63 
IV.2 Budget implemented in the agricultural sector, 2001-2008 64 
IV.3 Value added in the manufacturing sector (free zones excluded), 2002-2008 68 IV.4 Main free-zone indicators, 2002-2008 69 
 WT/TPR/S/226 Trade Policy Review 
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APPENDIX TABLES 
 
  Page 
 I. ECONOMIC ENVIRONMENT 
 
AI.1 Merchandise exports (f.o.b.) by product, excluding the maquila industry, 2005-2008 95 AI.2 Merchandise exports (f.o.b.) by product, including the maquila industry, 2005-2008 96 
AI.3 Merchandise imports (c.i.f.) by product, excluding the maquila industry, 2005-2008 97 
AI.4 Merchandise imports (c.i.f.) by product, including the maquila industry, 2005-2008 98 AI.5 Merchandise exports (f.o.b.) by trading partner, including the maquila industry, 2005-2008 99 
AI.6 Merchandise imports (c.i.f.) by trading partner, 2005-2008 100 
 II. TRADE AND INVESTMENT REGIME 
 
AII.1 Notifications to the WTO, January 2003 to October 2009 101 AII.2 Description of preferential trade agreements involving El Salvador, October 2009 103 
 
III. TRADE POLICIES, BY MEASURE 
 
AIII.1 General overview of preferential rules of origin, 2009 105 AIII.2 Analysis of El Salvador's preferential tariff, 2009 106 
 
IV. TRADE POLICIES, BY SECTOR  
AIV.1 Summary of El Salvador's commitments under the GATS 107 
 
 El Salvador WT/TPR/S/226 
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SUMMARY OBSERVATIONS 
 
1. Trade and Investment play an 
important role in El Salvador's economy, 
reflecting in part the openness of its trade and 
investment regime.  The trade policy regime of 
El Salvador has been further liberalized since El Salvador's previous Trade Policy Review in 2003.  Progress has been made in modernizing 
customs, eliminating unnecessary licensing 
requirements, enhancing the transparency of technical regulations and SPS measures, and strengthening the institutional framework on competition policy and government procurement.  As part of its liberalization 
efforts, El Salvador has entered as well into 
three new preferential trade agreements (with Chinese Taipei, Panama, and the United States), and continued to assign high priority to deepening Central American 
integration.  El Salvador has also maintained 
its long-standing strategy of granting exporters refunds as well as fiscal privileges through free-trade zones (FTZs), which result in subsidies and tax breaks that distort economic incentives. 
(1) E
CONOMIC ENVIRONMENT  
2. Over the period 2003-2008, 
El Salvador's real GDP rose at an average rate of 3.1 per cent per year, supported mainly by strong domestic demand underpinned to a 
large extent by remittances.  From the second 
half of 2008 onwards, there was a marked slowdown in growth because of the international economic crisis, which resulted 
in a decrease in investment, exports, and 
remittances from Salvadoran workers abroad.  
In 2009, GDP is estimated to have contracted by 2.5 per cent.  El Salvador is a dollarized economy, having introduced the US dollar as legal tender in 2001. 
3. The balance-of-payments current 
account was in deficit between 2003 and 2008, 
reaching 7.6 per cent of GDP in 2008.  This reflects traditional deficits in both the balance of trade in goods and in services, which have more than offset high current transfers, mostly 
in the form of remittances from Salvadorans living abroad (representing 17.1 per cent of 
GDP in 2008).  The current account deficit has been financed by capital inflows, principally in 
the form of foreign direct investment and 
official debt.  El Salvador has also obtained 
the support of international financial organizations. 
4. Trade in goods and services plays an 
important role in El Salvador's economy, 
representing some 73.6 per cent of GDP in 
2008.  For trade in goods (imports and exports including maquila), El Salvador's leading trading partners are the United States and the other Central American Common Market (CACM) countries.  Manufactures are still the 
major export category but their share in total 
trade has contracted due mostly to lower exports of textiles and clothing.  In contrast, exports of agricultural and other primary products have increased considerably.  
Manufactures still account for the largest share 
of imports, although the value of imports of primary products increased substantially reflecting higher fuel prices. 
(2) T
RADE AND INVESTMENT POLICY 
FRAMEWORK  
5. The trade policy objectives of 
El Salvador's new administration are to:  reduce the trade gap by supporting foreign investment in export-generating production;  contribute to export market diversification;  
improve domestic production capacity by 
making it more competitive vis-à-vis  imports, 
in order to lessen El Salvador's vulnerability to changes in the world economy;  and to promote job-creating and 
productivity-improving external trade. 
6. El Salvador has been a Member of the 
WTO since May 1995 and takes an active part in negotiations and in the regular work of the WTO.  It has made a large number of notifications, but at end 2009 some were 
pending, including those concerning 
State-trading enterprises, import licensing and customs valuation.  El Salvador has accepted the Fourth and Fifth Protocols to the GATS. WT/TPR/S/226 Trade Policy Review 
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7. El Salvador does most of its trade with 
trading partners with which it has preferential agreements.  In 2008, such partners accounted for almost 90 per cent of total exports, and 
some two thirds of impor ts.  El Salvador is a 
member of the CACM, and has free trade agreements with Chile, the United States (CAFTA-DR), Mexico, Panama, Chinese Taipei and the Dominican Republic.  Of the 
three agreements that entered into force since 
the last Review of El Salvador, CAFTA-DR is of particular significance given the close economic links between El Salvador and the 
United States.  Together with the other members of the CACM, El Salvador is 
negotiating association agreements with the 
European Union and free trade agreements with Canada and CARICOM. 
8. El Salvador's foreign investment 
legislation guarantees freedom to invest and 
national treatment for foreign investors, except 
in those areas where other laws impose restrictions.  This includes the supply of "small-scale" services, which are the prerogative of Salvadoran citizens by birth or nationals of other Central American countries, 
and the ownership of rural real estate, which 
may not be bought by foreigners from countries that do not give Salvadoran citizens equal rights. 
(3) M
EASURES AFFECTING IMPORTS  
9. Since its last Review, El Salvador has 
continued to adopt measures to modernize customs by implementing risk management techniques, broadening the use of information technology, and creating a single window for 
importers.  As a result, customs clearance 
times have fallen below the OECD average.  El Salvador applied minimum values on imports of certain categories of used goods until the expiration of WTO waivers in 2003 and 2005. 
10. The average applied MFN tariff rate 
has fallen slightly since the last Review of El Salvador, to 6.3 per cent in 2009.  This reflects the reduction to 5.2 per cent of the average applied MFN rate on non-agricultural goods, in turn the result of tariff decreases for 
textiles and clothing.  At the same time, the average applied MFN rate on agricultural goods (WTO definition) has risen by 
approximately one percentage point, to 
12.9 per cent, reflecting higher tariffs on certain chicken products.  In 2007, El Salvador renegotiated the bindings applicable to some of these products in accordance with 
Article XXVIII of GATT 1994.  The tariff 
comprises 11 rates of between 0 and 164 per cent.  All tariffs are bound, at an average rate of 37 per cent, thus affording certainty to MFN traders.  In spite of this, and the stability of the tariff regime in practice, certainty could 
be enhanced by reducing bound rates. 
11. El Salvador imposes prohibitions and 
licensing requirements on certain imports to safeguard national security, public morals, health, and the environment.  In mid-2008, 
El Salvador abolished the only licensing 
requirement (on imports of coarse fibre sacks) explicitly maintained to protect domestic producers.  However, prior authorization from the Economics Ministry is still required to import sugar.  El Salvador has reduced the 
number of goods subject to import visas, 
which are applied on some 1,000 tariff lines;  eliminating this requirement for additional categories of goods whenever possible would further facilitate trade. 
12. El Salvador has not applied any 
contingency measures during the period under review.  CACM members and, under certain conditions, other preferential trading partners are exempt from the application of safeguards. 
13. Since its last Review, El Salvador has 
pursued efforts to ensure  greater transparency 
in the formulation and implementation of technical regulations and sanitary and phytosanitary measures.  With few exceptions, its WTO notifications on both types of 
measures provide for multilaterally 
recommended comment periods. El Salvador WT/TPR/S/226 
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(4) OTHER MEASURES AFFECTING 
TRADE  
14. El Salvador restricts exports of certain 
goods, including liquefied petroleum gas and 
sugar, to ensure domestic availability.  
Remaining export restrictions generally reflect international commitments. 
15. Exporters continue to be entitled to a 
refund amounting to 6 per cent of the f.o.b. 
value of their exports.  The law that authorizes 
this measure was not modified during the period under review.  In addition, El Salvador grants tariff and tax concessions, including an income tax exemption, under its free trade zone (FTZ) scheme.  El Salvador notified both 
the 6 per cent refund and the FTZ schemes as 
providing export subsidies.  During the period under review, El Salvador introduced domestic content requirements for FTZ exports of textiles and clothing to the domestic market.  
El Salvador also introduced tariff and tax 
concessions for firms exporting services and for tourism projects. 
16. Since its last Review, El Salvador has 
established export credit and guarantee programmes through its national development 
bank.  El Salvador has also reorganized the 
institutional structure underpinning its official export promotion activities.  In addition to export promotion incentives, El Salvador has programmes to grant support to micro and 
small enterprises, transfer of technology, and 
programmes to attract investment. 
17. Since the previous Review, 
El Salvador has strengthened the legislative and the institutional framework governing 
competition policy.  This is important because 
the Salvadoran market, like other small markets, tends to be concentrated and competition to be limited.  El Salvador has also made considerable progress in modernizing the legislative and institutional 
frameworks for government procurement.  Its 
legislation does not contain provisions giving preferences for Salvadoran or foreign goods, services or public works, unless bids are for an equal amount. 18. All the aspects covered by the 
TRIPS Agreement are regulated in El Salvador.  During the period under review, El Salvador extended the term of copyright 
protection from 50 to 70 years, as well as the 
term of patent protection for pharmaceuticals, and amended its legislation to bring it into line with its international commitments. 
(5) S
ECTORAL POLICIES  
19. The agricultural sector has performed 
strongly since El Salvador's last review, increasing its share in GDP and exports.  The sector is supported by above-average tariffs 
and marketing and guarantee programmes.  El Salvador applies tariff quotas on imports of 
cheddar cheese, maize, sorghum, rice, and pig 
meat, pursuant to its WTO commitments or marketing arrangements between agricultural producers and processors.  Access to in-quota volumes under these tariff quotas is limited to 
processors who have purchased certain 
domestic inputs.  El Salvador maintains a system of production quotas for sugar, and sugar imports are subject to prior authorization.  Marketing arrangements for rice and productions quotas for sugar have 
been found to limit competition and increase 
domestic prices. 
20. Manufacturing largely takes place in 
FTZs.  Despite the fiscal privileges offered by this scheme, the performance of FTZ firms has 
been below expectations and, compared with 
the principal manufacturing sectors outside FTZs, their linkages to the rest of the domestic economy remain weak.  Moreover, FTZ tax breaks place producers outside these zones at a 
comparative disadvantage.  These 
shortcomings raise doubts about the effectiveness and ove rall benefits of 
El Salvador's export strategy, highlighting the need for the gradual introduction of a more neutral trade regime. 
21. The electricity sector is open to 
private, including foreign, participation.  Private operators are responsible for most generation and all distribution, while a State-owned enterprise is in charge of WT/TPR/S/226 Trade Policy Review 
Page x 
 
 
transmission.  Competition has been hindered 
by the dominant position of some distribution companies.  During the period under review, El Salvador strengthened its legal framework 
governing the electricity sector and introduced 
tax incentives to promote investment in renewable energy.  El Salvador also subsidized the consumption of electricity and liquefied petroleum gas. 
22. The financial services sector in 
El Salvador is relatively open.  For both banks and insurance companies, national treatment is guaranteed by law and there are no barriers to establishment other than prudential ones.  However, foreign insurance companies and 
banks from countries outside Central America 
must be classified as first-line corporations by internationally recognized risk-rating agencies and recognized as such by the Superintendence of the Financial System.  
During the review period legal reforms were 
introduced to modify the rules on bank secrecy and the form and content of insurance policies. 
23. The regulatory framework for 
telecommunications was reformed during the period under review to consolidate the 
liberalization initiated in previous years.  In order to enhance competition, it has been 
recommended that regulations on interconnection be adopted and rates for calls from fixed to mobile networks be controlled.  
The legislation does not lay down any 
requirements regarding the origin of operators' capital, except for free-to-air or subscription broadcasting services, which must be provided by Salvadoran citizens.  A special tax applies 
to telephone calls from abroad. 
24. There are no restrictions to foreign 
investment in Salvadoran airlines, nor on market access through co mmercial presence.  
El Salvador's single international airport and its maritime port are both managed by a 
State entity.  The building of a second 
commercial port was completed in December 2008, but it is not expected to start operating until mid-2010.  El Salvador does not have its own merchant fleet.  The law allows foreign 
vessels to provide national cabotage services. 
25. Membership of an association is not 
compulsory to exercise a profession.  However, it is necessary to be a Salvadoran national in order to act as a lawyer or chartered accountant.