WTO Trade Policy Review of El Salvador

WTO-TPRU.S. Statement by Mr. David Shark,
Chargé d’Affaires, a.i.

Geneva
February 10, 2010

Thank you, Chair. The United States warmly welcomes the delegation of El Salvador, led by Vice Minister of Economy Doctor Mario Roger Hernández and including Ambassador Francisco Lima Mena, to the third Trade Policy Review of El Salvador. We would first like to recognize the excellent work of the Secretariat and the Government of El Salvador in compiling the reports before us. They thoroughly detail El Salvador’s key trade policy objectives and developments since its last review in 2003, and they give us a more complete picture of El Salvador’s policies affecting trade. Much has happened since El Salvador’s last review in 2003, not least of which is the government’s continuing path towards trade liberalization. We look forward to learning more about El Salvador’s trade policies during the course of this TPR. We would also like to thank our discussant, Mr. LIN Yi-fu, for providing a helpful and insightful context for this review.

The United States and El Salvador enjoy a strong trade and economic relationship. Our bilateral trade relationship takes place within the broader context of excellent cooperation between our countries on a variety of matters of mutual interest, including ongoing security and counter-narcotics efforts. Trade between the United States and El Salvador is a key element of our bilateral relations and generates important benefits for both countries. Our bilateral trade in goods was approximately $3.8 billion in 2009.

For many years, our trade relationship with El Salvador was driven by the unilateral trade preferences that the United States provides through the Caribbean Basin Initiative trade preferences program. This program has contributed to economic growth and development in El Salvador. Our bilateral relationship changed recently from one based on unilateral trade preferences to one based on reciprocal free trade through the Dominican Republic – Central America – United States Free Trade Agreement (DR-CAFTA), a regional free trade agreement between Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States.

Both the Secretariat’s and the government’s reports indicate that El Salvador is pursuing a strategy of trade liberalization at the multilateral, regional, and bilateral levels. The United States commends El Salvador on the direction of its trade liberalization strategy. On the multilateral front, El Salvador continues to be an active participant in the Doha Round and in the regular work of the WTO. In the Doha Round, El Salvador has submitted proposals in several areas of the negotiations, especially in conjunction with other Members, including market access for agricultural and non-agricultural goods, services, and fisheries subsidies.

At the regional and bilateral level, El Salvador is seeking to further liberalize trade through preferential agreements with various countries. Significantly, El Salvador and other members of the Central American Common Market continue to take steps to deepen Central American economic integration, including actions to strengthen institutions, harmonize regulations, and facilitate trade. During the review period a free trade agreement between El Salvador and Panama and between El Salvador and Colombia entered into force. Since, according to the Secretariat, El Salvador trades primarily with partners with which it has preferential agreements, we hope to hear more about how El Salvador seeks to ensure that these efforts complement and reinforce the multilateral trading system.

The DR-CAFTA represents a key liberalization step that El Salvador took during the period of review. The DR-CAFTA was signed in August 2004 and entered into force for El Salvador on March 1, 2006. El Salvador and the United States were the first two countries to put this important regional free trade agreement into force. Under the agreement, the Parties remove barriers to trade and investment, which is helping to strengthen regional economic integration. The DR-CAFTA also includes robust disciplines relating to: customs administration and trade facilitation, technical barriers to trade, government procurement, investment, cross-border trade in services, financial services, telecommunications, electronic commerce, intellectual property rights, transparency, and labor and environmental protections.

As noted in the Secretariat’s and the government’s reports, the period of review for this TPR was a particularly active time for El Salvador. During this period, the government implemented a number of significant modifications to its domestic trade regime. Many of these changes were necessitated by commitments El Salvador undertook in the DR-CAFTA, and the benefits have redounded to the multilateral trading system.

In customs administration, for example, the Secretariat’s report notes that El Salvador has taken significant steps to modernize its customs procedures, while at the same time making its customs operations more secure. In particular, El Salvador has introduced a single window for importers, which has substantially reduced the time required to complete licensing formalities. Through its actions, El Salvador has considerably shortened customs clearance times.

Regarding intellectual property rights, El Salvador has made significant changes in its patent, trademark, and copyright laws, some of which exceed the protections required in its TRIPS Agreement obligations. In particular, El Salvador extended the term of copyright protection from 50 to 70 years, as well as the term of patent protection for pharmaceuticals. El Salvador also acceded to four international treaties and conventions on intellectual property rights. El Salvador took steps to improve the enforcement of intellectual property rights, although more remains to be done in that area.

Other notable developments in El Salvador’s trade policy regime during the period of review include:

• Modernizing and strengthening the regulatory and institutional framework for government procurement.

• Putting into effect a new competition law and regulatory regime.

• Simplifying the procedures required to establish a new business.

• Increasing transparency in trade policy formulation by establishing a public participation program under which members of the public can obtain information and provide input on international trade matters.

• Constructing a new port, which is expected to begin operations in 2010.

While the United States applauds these positive efforts, there are, nonetheless, specific areas of El Salvador’s trade policy regime where action could lead to improved trade and investment opportunities and flows. We have referred to them in our questions, but would like to touch on certain of those areas today.

As the Secretariat’s report notes, despite the tariff and tax concessions that El Salvador provides under its free trade zone (FTZ) regime, the performance of FTZ firms has been below expectations, and their linkages with the rest of the economy are weak. We concur with the Secretariat in urging El Salvador, in light of these shortcomings in the FTZ program, to adopt a more neutral trade regime. We note that the DR-CAFTA obliges El Salvador to eliminate all tariff exemptions subject to performance requirements. Again, fulfillment of this obligation will redound to all WTO Members.

The Secretariat’s report states that the Export Recovery Law has not been amended since the previous Trade Policy Review of El Salvador in 2003. The United States finds this troubling since the WTO SCM Agreement extension relates only to the Law on Industrial and Marketing Free Zones. We signaled our concern in this regard in our questions. We will, therefore, examine El Salvador’s response with great interest.

The United States has concerns with the recently amended law regulating the production and sale of alcohol and alcoholic beverages. The law appears to apply a lower rate per percentage of alcohol on alcoholic beverages that are typically produced locally than on alcoholic beverages that are typically imported. We urge El Salvador to apply the same tax rate per percentage of alcohol.

In the telecommunications area, we are also concerned that El Salvador imposes a specific tax on international telephone calls, while exempting telephone calls originating in other Central American countries from the tax. We will study with interest El Salvador’s response to our written question on this issue.

Regarding tariff-rate quotas on agricultural products, the Secretariat notes that in certain cases it lacks information on the methodology that El Salvador used to allocate the quotas and in other cases it appears that El Salvador limited access to the quotas to processors that purchased domestic inputs. We urge El Salvador to provide greater transparency in the procedures used to allocate tariff-rate quotas and to eliminate restrictions on participation in those quotas.

In closing, I would like to reiterate our appreciation for El Salvador’s active participation in the Doha Round negotiations. I would also like to emphasize that we continue to value our close work with El Salvador’s government and our WTO partners to strengthen and build on the WTO’s rules-based and cooperative foundation. As a dynamic economy that sees the benefits that trade liberalization has brought, El Salvador stands to gain from new market access opportunities that a balanced and ambitious conclusion to the Doha Round will generate, particularly in advanced developing countries. We look forward to continuing our work with El Salvador and other Members to ensure these gains are realized.

The United States appreciates this opportunity to comment on El Salvador’s trade policy, and we thank El Salvador for the responses to our questions, which we will be examining closely. And we wish you a successful TPR.

Thank you.