WORLD TRADE  
ORGANIZATION  G/SCM/N/146/SLV 
4 July 2006 
 
 (06-3205) 
Committee on Subsidies and 
Countervailing Measures Original:   Spanish 
 
 
 
SUBSIDIES 
 
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 2006,  is being circulated at the request of the 
delegation of El Salvador.  
_______________ 
  
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 
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 this notification relating to the 
programme, in accordance with paragraph 1(d) of document G/SCM/39.
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. 
2005 
                                                     
 
1 El Salvador's notifications pursuant to Article 27 .4 of the Agreement on Subsidies and Countervailing 
Measures were circulated as documents G/SCM/N/38/SLV/Suppl.1, G/SCM/N/48/SLV/Suppl.1, G/SCM/N/60/SLV/Suppl.1 and G/SCM/N/71/SLV/Suppl.1;  G/SCM/N/95/SLV and G/SCM/N/99/SLV;  
G/SCM/N/114/SLV and G/SCM/N/11 4/SLV/Corr.1;  and G/SCM/N/12 3/SLV and G/SCM/N/128/SLV. G/SCM/N/146/SLV 
Page 2  
 
  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 
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 2005, the number of people directly employed by enterprises benefiting under the Export Processing Zones and Marketing Act amounted to 80,693.  As a result, numerous households now enjoy a secure source of income, em ployment opportunities, access to social security, 
education, health, a pension plan, etc.  Furt hermore, these activities led to the creation of 
161,926 indirect jobs, thus making a total of 242,889 new jobs overall, accounting for 9.0 per cent of 
the Salvadoran labour force.  It should be noted th at approximately 80 per cent of the jobs created 
through this programme are held by women, a larg e percentage of whom are heads of household.  
This has given them the opportunity to improve th e economic welfare of their families and afforded 
them greater access to healthcare, education and social security. 
 
 Exports from the in-bond assembly ( maquila)  industry amounted to US$1,817.7 million, 
constituting El Salvador's principal export product to third markets. 
  A total of 304 enterprises have benefited unde r the Law, of which 51 per cent 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).  G/SCM/N/146/SLV 
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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 
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. G/SCM/N/146/SLV 
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   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.  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. 
 
__________ 
 
  2000 2001 2002 2003 2004 2005 
(a) World exports 7,782,600.0 7,510,600.0 7,837,800.0 8,937,700.0 11,196,100.0 12,640,600.0 
(b) Salvadoran exports 2,950.5 2,864.0 2,992.0 3,136.10 3,302.0 3,398.8 
(c) (b)/(a) 0.0379% 0.0381% 0.0382% 0.0351% 0.0295% 0.0268% 
(d) Salvadoran net 
maquila  exports 456.00 489.00 475.00 500.3 463.5 413.8 
(e) (d)/(a) 0.0059% 0.0065% 0.0061% 0.0056% 0.0041% 0.0033%