 WORLD TRADE  
ORGANIZATION  G/SCM/N/114/SLV 
2 July 2004 
 (04-2856) 
Committee on Subsidies 
and Countervailing Measures  Original:   Spanish 
 
  
SUBSIDIES 
 
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  
 
Updating Notification  
 
EL SALVADOR 
 
  The following communication, dated 29 June 2004, is being circulated at the request of the delegation of El Salvador. 
 
_______________ 
   Attached please find the upd ating notification by El Salv ador concerning the following 
programmes: "Export Processing Zones and Marketing Act, as Amended" and "Export Reactivation 
Law". 
 
 This notification is submitted in fulfilment of  El Salvador's transparency obligations in 
respect of these programmes, as laid down in the Decisions of the Committee on Subsidies and 
Countervailing Measures contained in documents G/SCM/65, G/SCM/65/Add.1 and G/SCM/99, 
entitled "Extension under SCM Article 27.4 of the tr ansition period for the elimination of export 
subsidies pursuant to the procedures in G/SCM/39", "Continuation of extension under SCM Article 27.4 of the transition period for the elimination of export subs idies 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 
procedures laid down in document G/SCM/39, and the SCM Committee Decisions contained in 
documents G/SCM/65 and G/SCM/65/Add.1 concerning the free zone and inward-processing 
warehouse programme, El Salvador is pleased to  submit its third notification relating to this 
programme, in accordance with paragraph 1(d) of  document G/SCM/39 and further to its initial 
communication submitted to the WTO Committee on  Subsidies and Countervailing Measures on 
19 December 2001 and circulated as document G/SCM/N/74/SLV.
1 
                                                      
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 and G/SCM/N/99/SLV. 
 G/SCM/N/114/SLV 
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 El Salvador hereby wishes to confirm th at, 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-t rade zones or inward-processing warehouses. 
2.  Period covered by the notification. 
 2003 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 re sulting from the armed conflict in El Salvador 
during the 1980s and early 1990s severely impacted 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 f acilitated job creation - 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 segm ent of the population, thereby further increasing 
the need for jobs. According to an ECLAC report, 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 affected by the earthquakes. The benefits deriving from the progr amme, by creating opportunities to maintain and 
raise employment levels and, by extension, im prove the welfare of the Salvadoran people, are 
therefore essential for the country's economic and social development. 
 By the end of 2003, the number of people directly employed by enterprises benefiting under 
the Export Processing Zones and Marketing Act exceeded 88,600. As a result, numerous households 
now enjoy a secure source of income, employment opp ortunities, access to social security, education, 
health care, a pension plan, etc. Furthermore, thes e activities led to the creation of 177,200 indirect 
jobs, thus making a total of 265, 800 new jobs overall and accoun ting for 10.3 per cent of the 
Salvadoran labour force. It should be noted that ap proximately 90 percent of the jobs created through 
this programme are held by women, a large percen tage of whom are heads of household. This has 
given them the opportunity to improve the econom ic welfare of their families and afforded them 
greater access to health care, education and social security. 
 
 Exports from the in-bond assembly (maquila) industry amounted to US$1,881 million, 
constituting El Salvador's principal export product to third markets. 
  G/SCM/N/114/SLV 
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 A total of 265 enterprises have benefited under  the Law, of which 49.1 per cent are foreign 
firms, the rest being 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 Bonde d Warehouse Regime (approved pursuant to 
Legislative Decree No. 461 of 15 March 1990, published 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 Journal No. 215, Vol. 341, of 18 November 1998). 
5.  Form of the subsidy (i.e., grant, 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  investors 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 foregone 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 zone s 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, la bels, packing and packaging, samples and 
patterns required for carrying out the acti vities that benefit from incentives.  
Machinery, apparatus, equipment 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 treatment; 
 (c)  exemption from import duties on lubricants, catalysts, reagents, fuels and any other 
substances or materials requir ed for the production activity; 
 (d) total exemption from income tax during  the period in which the firm engages in 
operations in El Salvador, reckoned from th e 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, ex porters, or others;  
through what mechanism; whether a fixed or fluctuating amount per unit; if the latter, 
how determined). G/SCM/N/114/SLV 
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 The benefits or incentives will accrue to individuals or legal entities, whether Salvadoran or 
foreign, that are the owners of firms which they de velop, 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 in ternational trade, such as storage, packing and 
repacking, re-exportation, cargo consolidation, distribution of goods and other related 
or complementary activities. 
 The subsidy is provided through exemption from duties, 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 obligations undertaken by El Salvador, 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 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 
(a) World exports 7,782,600.0 7,510,600.0 7,837,800.0 8,937,700.0 
(b) Salvadoran exports 2,950.5 2,864.0 2,992.0 3,136.10 
(c) (b)/(a) 0.0379% 0.0381% 0.0382% 0.0351% 
    (d) Salvadoran net maquila  
exports 456.00 489.00 475.00 500.3 
(e) (d)/(a) 0.0059% 0.0065% 0.0061% 0.0056% 
Source : International Monetary Fund, Central Reserve Bank, Ministry of the Economy.  G/SCM/N/114/SLV 
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II. EXPORT REACTIVATION PROGRAMME  
 With regard to the Export Reactivation Pr ogramme, this notification is being submitted 
pursuant to paragraph (ii) of document G/SCM/99, the Decision of the SCM Committee on the 
"Extension under SCM Article 27.4 of the Transitio n Period under Article 27.2(b) for the Elimination 
of Export Subsidies". 
 El Salvador hereby wishes to confirm that, pursuant to paragraph (i) of document G/SCM/99, 
the Export Reactivation Programme has not been mo dified since the period covered by the full 
notification which accompanied the requ est 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 Salvadoran goods and services outside 
the Central American region. 
2.  Period covered by the notification. 
 2003 
3.  Policy objective and/or purpose of the subsidy. 
 To stimulate exports of Salvadoran goods and services outside the Central American region, 
with a view to diversifying domestic production for the foreign market and achieving employment-
generating sustainable economic growth, along wi th the transfer of technology and investment. 
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 re sulting from the armed conflict in El Salvador 
during the 1980s and early 1990s severely impacted production sectors, investment and export 
development.  Following the signing of the peace accords, 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 2001 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 catastroph e, El Salvador needs to improve the welfare of its 
people, especially those most severely affected by  the earthquakes. The benefits deriving from the 
drawback scheme, by creating oppo rtunities to maintain 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, published in the Official Journal (No. 88, 
Vol. 307) of 18 April 1990, as amended by Legislative 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 Journal (No. 239, Vol. 337) of 22 December 1997; and G/SCM/N/114/SLV 
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Legislative Decree No. 534 of 13 January 1999, published 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, published 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., grant, 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 fl uctuating amount per unit; if the latter, 
how determined). 
 This incentive benefits Salvadoran or foreig n 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 the 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. 
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  
13.8 13.4 16.6 16.4 
 
Total Exports Eligible/Not  Eligible under the Six Per Cent Drawback Scheme 
(in US$ million) 
EXPORTS  January-
December 2000  January-
December 2001  January-
December 2002  January-
December 2003  
Eligible 231.4 223.2 277.3 273.5 
Not eligible 2,719.1 2,640.8 2,714.7 2,862.6 
Total 2,950.5 2,864.0 2,992.0 3,163.1  G/SCM/N/114/SLV 
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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 international obligations undertaken by El Salvador, 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 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  
(a) World exports 7,782,600.0 7,510,600.0 7,837,800.0 8,937,700.0 
(b) Salvadoran exports 2,950.5 2,864.0 2,992.0 3,136.1 
(c) (b)/(a) 0.0379% 0.0381% 0.0382% 0.0351% 
(d) Salvadoran exports eligible 
for 6% drawback  
231.4  
223.2  
277.3  
273.5 
(e) (d)/(a) 0.0029% 0.0029% 0.0035% 0.0031% 
 
Source :   International Monetary Fund, Central Reserve Bank, Ministry of the Economy. 
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