WORLD TRADE  
ORGANIZATION  G/SCM/N/123/SLV 
G/SCM/N/128/SLV 4 July 2005 
 
 
(05-2909) 
Committee on Subsidies and Countervailing Measures Original:   Spanish 
 
 
 
SUBSIDIES 
 
New and Full Notification Pursuant to Article XVI:1 of the GATT 1994 and
 
Article 25 of the Agreement on S ubsidies and Countervailing Measures  
 
Extension under SCM Article 27.4 of the Transition Period  
for the Elimination of Export Subsidies Pursuant  
to the Procedures in Document G/SCM/39  
 
Extension under SCM Article 27.4 of the Transition Period under  
Article 27.2(b) for the Elimination of Export Subsidies  
 
Updating Notification  
 
EL SALVADOR 
 
  The following communication, dated 30 June 2005, has been received from the Permanent 
Mission of El Salvador.  
_______________ 
 
  Attached please find the new and full notification by El Salvador concerning the following programmes:  "Export Processing Zones and Marke ting Act, as Amended" and "Export Reactivation 
Law", pursuant to Article XVI:1 of the Genera l Agreement on Tariffs and Trade (GATT) 1994 and 
Article 25.1 of the Agreement on Su bsidies and Countervailing Measures. 
  This notification is also submitted in fulfilment of El Salvador's transparency obligations with 
respect to these programmes, as laid down in th e Decisions of the Committee on Subsidies and 
Countervailing Measures contained in documents  G/SCM/65, G/SCM/65/Add.1, G/SCM/65/Add.2 
and G/SCM/99, entitled "Extension under SCM Ar ticle 27.4 of the transition period for the 
elimination of export subsidies pursuant to the pr ocedures in G/SCM/39", "Continuation of extension 
under SCM Article 27.4 of the transition period for th e elimination of export subsidies pursuant to the 
procedures in G/SCM/39", "Continuation of exte nsion under SCM Article 27.4 of the transition 
period for the elimination of export subsidies pursuant to the procedures in G/SCM/39" and 
"Extension under SCM Article 27.4 of the transition period under Article 27.2(b) for the elimination 
of export subsidies", respectively.  
I. FREE ZONE AND INWARD-PROCESSING WAREHOUSE PROGRAMME 
 Pursuant to paragraph 10.6 of the Decision on Implementation-Related Issues and Concerns 
set forth in document WT/MIN(01)/17, the request fo r an extension of the transition period under the G/SCM/N/123/SLV 
G/SCM/N/128/SLV Page 2 
 
 
 procedures laid down in document G/SCM/39, a nd the SCM Committee Decisions contained in 
documents G/SCM/65, G/SCM/65/Add.1 and G/SCM/ 65/Add.2 concerning the free zone and inward-
processing warehouse programme, El Salvador is pleased  to submit its fourth notification relating to 
this programme, in accordance with paragraph 1(d)  of document G/SCM/39 a nd further to its initial 
communication submitted to the WTO Committee on Subsidies and Counte rvailing Measures on 
19 December 2001 and circulated as document G/SCM/N/74/SLV.
1 
  El Salvador hereby wishes to confirm that, pursuant to paragraph 4(a) of document G/SCM/39, the Free Zone and Inward-Processing Warehouse Programme satisfies the standstill 
requirements established therein. 
 
1. Title of the subsidy programme, if relevant, or brief description or identification of the 
subsidy. 
 Incentives for firms operating in free-trad e zones or in inward-processing warehouses. 
 
2. Period covered by the notification. 
2004 
 
3. Policy objective and/or purpose of the subsidy. 
 To promote increased job opportunities through investment incentives for firms engaging in 
the exportation of goods and services, with the aim of achieving sustainable economic growth. 
4. Background and authority for the subsidy (including identification of the legislation 
under which it is granted). 
A. 
BACKGROUND  
 The damage to the domestic infrastructure r esulting from the armed conflict in El Salvador 
during the 1980s and early 1990s severely impa cted production sectors, investment and export 
development and prevented the application of 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 crea tion - a prerequisite for alleviating poverty and 
overcoming the constraints that created such serious difficulties for the population during the 1980s.  
 The earthquakes that hit El Salvador in  2001 were responsible for heavy job losses, 
particularly for the economically disadvantaged seg ment of the population, thereby further increasing 
the need for jobs.  According to a report by the Economic Commission for Latin America and the Caribbean (ECLAC), total losses amounted to US$1 ,603 million, i.e., 12 per cent of GDP and 55 per 
cent of exports in 2000.  In the aftermath of this catastrophe, El Salvador needs to improve the welfare 
                                                     
 
1 El Salvador's initial notification pursuant to Article 27.4 of the Agreement on Subsidies and 
Countervailing Measures was circulated as document G/SCM/N/38/SLV/Suppl.1, G/SCM/N/48/SLV/Suppl.1, 
G/SCM/N/60/SLV/Suppl.1, G/SCM/N/71/SLV/Suppl.1. 
 
El Salvador's second notification pursuant to Article 27.4 of the Agreement on Subsidies and 
Countervailing Measures was circulated as document G/SCM/N/95/SLV, G/SCM/N/99/SLV. 
 
 El Salvador's third notification pursuant to Article 27.4 of the Agreement on Subsidies and 
Countervailing Measures was circulated as docu ment G/SCM/N/114/SLV an d G/SCM/N/114/Corr.1. 
  G/SCM/N/123/SLV 
 G/SCM/N/128/SLV 
 Page 3 
 
 
 of its people, especially those most severely affect ed by the earthquakes.  The benefits deriving from 
the programme, by creating opportunities to maintain a nd raise employment levels and, by extension, 
to improve the welfare of the Salvadoran people, are therefore essential for the country's economic and social development. 
 
 By the end of 2004, the number of people directly employed by enterprises benefiting under the Export Processing Zones and Marketing Act exceed ed 85,626.  As a result, numerous households 
now enjoy a secure source of income, employment o pportunities, access to social security, education, 
health, a pension plan, etc.  Furthermore, these ac tivities led to the creation of 171,252 indirect jobs, 
thus making a total of 256,878 new jobs overall, acc ounting for 9.5 per cent of the Salvadoran labour 
force.  It should be noted that approximately 85 percent of the jobs created through this programme are held by women, a large percentage of whom are heads of household.  This has given them the opportunity to improve the economic welfare of th eir families and afforded them greater access to 
healthcare, education and social security. 
 
 Exports from the in-bond assembly ( maquila)  industry amounted to US$1,821 million, 
constituting El Salvador's principal export product to third markets. 
  A total of 294 enterprises have benefited under the Law, of which 51 percent are foreign 
companies and the rest domestic companies. 
 
B. 
LEGISLATION  
 The Export Promotion Law (approved pursua nt to Legislative Decree No. 81 of 
5 September 1974, published in Official Journal No . 180, Vol. 244, of 27 September 1974), repealed 
by the Law on the Free-Trade Zone and Bond ed Warehouse Regime (approved pursuant to 
Legislative Decree No. 461 of 15 March 1990, publishe d in Official Journal No. 88, Vol. 307, of 
18 April 1990), repealed in turn by the Export Processing Zones and Marketing Act (approved pursuant to Legislative Decree No. 405 of 3 Septem ber 1998, published in Official Journal No. 176, 
Vol. 340, of 23 September 1998) and the amendment thereto (Legislative Decree No. 464 of 22 October 1998, published in Official Journa l No. 215, Vol. 341, of 18 November 1998). 
 5. Form of the subsidy (i.e., gran t, loan, tax concession, etc.). 
 It is important to note that El Salvador is a developing country and therefore lacks the 
resources necessary to provide direct assistance to i nvestors wishing to set up domestic operations.  
Given that the purpose of this programme is to promote economic and social development, 
El Salvador is using a mechanism based on foreg one government revenue, which is to be offset by 
increased job creation for Salvadorans. 
  With regard to the form of the incentives, th ese are granted to users establishing operations 
either in free-trade zones or outside such z ones in inward-processing warehouses and entail the 
following benefits:  
 (a) Exemption from import duties on machinery, equipment, tools, spare parts and 
accessories, implements and other items need ed to carry out the activity benefiting 
from incentives; 
 (b) exemption from import duties on raw materials, parts, components or elements, semi-
finished products, intermediate products, c ontainers, labels, packing and packaging, 
samples and patterns required for carryin g out the activities that benefit from 
incentives.  Machinery, apparatus, equipmen t and any other items intended for repairs G/SCM/N/123/SLV 
G/SCM/N/128/SLV Page 4 
 
 
 by the beneficiaries, including exported products that are being reimported on a 
drawback basis, may also be imported under this programme; 
 (c) exemption from import duties on lubricants, catalysts, reagents, fuels and any other 
substances or materials required for the firm's production activities; 
 (d) total exemption from income tax during the period in which the firm engages in 
operations in El Salvador, reckoned from the tax year in which the beneficiary firm 
commences operations; 
 (e) total exemption from municipal taxes on th e firm's assets and equity for the period in 
which it conducts business in El Salvador, as from the first year of operation; 
 (f) total exemption from real estate transfer tax on purchases of real estate for use in the 
activity benefiting from incentives. 
6. To whom and how the subsidy is provided (whether to producers, 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 individu als or legal entities, whether Salvadoran or 
foreign, that are the owners of firms which they develop, administer or establish in or outside free-
trade zones, provided that such firms are engaged in:   (a) The production, assembly ( maquila ), manufacture, processing or marketing of goods 
and services; 
 (b) the provision of services related to intern ational trade, such as storage, packing and 
repacking, re-exportation, cargo consolidati on, distribution of goods and other related 
or complementary activities. 
 The subsidy is provided through exemption from  duty, income tax and municipal taxes, as 
specified in point 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 previous year).  Where provision of per-unit subsidy information (for the year covered by the notification, the previous year, or both) is not possible, a full explanation. 
 Given the nature and scope of the programme , no statistical data reflecting the amount of 
incentives per unit are available. 
 
8. Duration of the subsidy and/or any other time-limits attached to it, including date of 
inception/commencement. 
 This will be in line with the international oblig ations undertaken by El Salvador, in particular 
under the SCM Agreement. 
  G/SCM/N/123/SLV 
 G/SCM/N/128/SLV 
 Page 5 
 
 
 9. Statistical data permitting an assessment of th e trade effects of the subsidy.  The specific 
nature and scope of such data is left to the judgement of the notifying Member.  To the 
extent possible, relevant and/or determinable, however, it is desirable that such information include statistics on the produc tion, consumption, imports and exports of 
the subsidized product(s) or sector(s). 
 
COMPARATIVE TABLE 
(in US$ million) 
 
Source:  International Monetary Fund, Central Reserve Bank, Ministry of the Economy. 
 
II. EXPORT REACTIVATION PROGRAMME 
 With regard to the Export Reactivation Pr ogramme, this notification is being submitted 
pursuant to paragraph (ii) of document G/SC M/99, the Decision of the SCM Committee on the 
"Extension under SCM Article 27.4 of the Transiti on Period under Article 27.2(b) for the Elimination 
of Export Subsidies".   El Salvador hereby wishes to confirm that, pur suant to paragraph (i) of document G/SCM/99, 
the Export Reactivation Programme has not been modified since the period covered by the full 
notification which accompanied the request for an extension (G/SCM/N/71). 
 
1. Title of the subsidy programme, if relevant, or brief description or identification of the 
subsidy. 
 Drawback of six per cent on the f.o.b. value of exports, payable to Salvadoran or foreign 
natural or legal persons that own firms which export or market Salva doran goods and services outside 
the Central American region.  
2. Period covered by the notification. 
2004 
 3. Policy objective and/or purpose of the subsidy. 
 To stimulate exports of Salvadoran goods a nd services outside the Central American region, 
with a view to diversifying domestic production fo r the foreign market and achieving employment-
generating sustainable economic growth, along with  the transfer of technology and investment. 
  2000 2001 2002 2003 2004 
(a) World exports 7,782,600.0 7,510,600.0 7,837,800.0 8,937,700.0 11,068,900 
(b) Salvadoran exports 2,950.5 2,864.0 2,992.0 3,136.10 3,295.3 
(c) (b)/(a) 0.0379% 0.0381% 0.0382% 0.0351% 0.0297% 
     (d) Salvadoran net 
maquila  exports 456.00 489.00 475.00 500.3 412.2 
(e) (d)/(a) 0.0059% 0.0065% 0.0061% 0.0056% 0.0037% G/SCM/N/123/SLV 
G/SCM/N/128/SLV Page 6 
 
 
 4. Background and authority for the subsidy (including identification of the legislation 
under which it is granted). 
A. 
BACKGROUND  
 The damage to the domestic infrastructure r esulting from the armed conflict in El Salvador 
during the 1980s and early 1990s severely impa cted production sectors, investment and export 
development.  Following the signing of the peace a ccords, El Salvador was obliged to launch the 
aforementioned scheme under a policy geared towards promoting investments and exports and offsetting the costs generated by the conflict.  
 The earthquakes that hit El Salvador in 20 01 increased the need for jobs.  According to 
ECLAC, total losses amounted to US$1,603 million, i.e., 12 per cent of GDP and 55 per cent of exports in 2000.  In the aftermath of this catastrophe , El Salvador needs to improve the welfare of its 
people, especially those most sever ely affected by the earthquakes.  The benefits deriving from the 
drawback scheme, by creating opportunities to main tain and raise employment levels, are therefore 
essential for the country's economic and social development. 
 B. 
LEGISLATION  
Export Reactivation Law 
  Legislative Decree No. 460 of 15 March 1990, pu blished in the Official Journal (No. 88, 
Vol. 307) of 18 April 1990, as amended by Legisl ative Decree No. 749 of 19 April 1991, published in 
the Official Journal (No. 95, Vol. 311) of 27 May 1991; Legislative Decree No. 181 of 
18 December 1997, published in the Official Journa l (No. 239, Vol. 337) of 22 December 1997;  and 
Legislative Decree No. 534 of 13 January 1999, publ ished in the Official Journal (No. 21, Vol. 342) 
of 1 February 1999. 
 
Regulations of the Export Reactivation Law   Executive Decree No. 68 of 27 November 1990, pu blished in the Official Journal (No. 269, 
Vol. 309) of 27 November 1990, as amended by Ex ecutive Decree No. 43 of 29 April 1993, published 
in the Official Journal (No. 19, Vol. 319) of 26 May 1993. 
 
5. Form of the subsidy (i.e., gran t, loan, tax concession, etc.). 
 Drawback of six per cent on the f.o.b. value of exports. 
 
6. To whom and how the subsidy is provided (whether to producers, exporters or others;  
through what mechanism; whether a fixed or fluctuating amount per unit;  if the latter, 
how determined). 
 This incentive benefits Salvadoran or foreign natural or legal persons that own firms which 
export or market Salvadoran goods and services outside the Central American region and which 
comply with the requirements laid down in th e Export Reactivation Law and its Regulations. 
 7. Subsidy per unit, or in cases where this is not possible, the total amount or the annual 
amount budgeted for that subsidy (indicating, if possible, the average subsidy per unit for the previous year).  Where provision of per-unit subsidy information (for the year covered by the notification, the previous year, or both) is not possible, a full explanation.  G/SCM/N/123/SLV 
 G/SCM/N/128/SLV 
 Page 7 
 
 
 Total Amounts Refunded Under the Six-Per-Cent Drawback Scheme 
(in US$ million) 
 
January-
December 2000  January-
December 2001  January-
December 2002  January-
December 2003  January-
December 2004  
13.8 13.4 16.6 16.4 16.6 
 
Total Exports Eligible/Not Eligible un der the Six-Per-Cent Drawback Scheme 
(in US$ million) 
 
EXPORTS  January-
December 
2000  January-
December 
2001  January-
December 
2002  January-
December 
2003  January-
December 
2004  
Eligible 231.4 223.2 277.3 273.5 277.8 
Not eligible 2,719.1 2,640.8 2,714.7 2,862.6 3,017.5 
Total 2,950.5 2,864.0 2,992.0 3,163.1 3,295.3 
 
8. Duration of the subsidy and/or any other time-limits attached to it, including date of 
inception/commencement. 
 Indefinite.  This will be in line with the inte rnational obligations unde rtaken by El Salvador, 
in particular under the SCM Agreement.  
9. Statistical data permitting an assessment of th e trade effects of the subsidy.  The specific 
nature and scope of such data is left to the judgement of the notifying Member.  To the 
extent possible, relevant and/or determinable, however, it is desirable that such information include statistics on the produc tion, consumption, imports and exports of 
the subsidized product(s) or sector(s). 
COMPARATIVE TABLE 
(in US$ million) 
 
 2000 2001 2002 2003  2004  
(a)  World exports 7,782,600.0 7,510,600.0 7,837,800.0 8,937,700.0 11,068,900 
(b)  Salvadoran exports 2,950.50 2,864.0 2,992.0 3,136.1 3,295.3 
(c)  (b)/(a) 0.0379% 0.0381% 0.0382% 0.0351% 0.0297% 
(d)  Salvadoran exports 
eligible for 6% 
drawback 231.4 223.2 277.3 273.5 277.8 
(e)  (d)/(a) 0.0029% 0.0029% 0.0035% 0.0031% 0.0025 
Source:  International Monetary Fund, Central Reserve Bank, Ministry of the Economy. 
 
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