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TRADE POLICY REVIEW: EL SALVADOR
3 and 5 February 2003

Concluding remarks by the Chairperson

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See also:
Press release: Economy and trade reforms must continue to accelerate growth


This second Trade Policy Review of El Salvador has contributed considerably to achieving a better understanding of its trade and investment policies, as well as of the context within which they have been formulated and implemented. We owe this in considerable measure to the active participation of the Salvadoran delegation, led by Minister Lacayo, Deputy-Minister Ayala and Ambassador Lima.

At the outset, allow me to underline the support of Members for El Salvador's ongoing modernization efforts, and their acknowledgement of the progress made by El Salvador since the end of civil strife a decade ago. Members commended El Salvador for its successful efforts to restructure and stabilize its economy, including autonomous, regional and multilateral initiatives to liberalize trade and investment.

Economic growth has been steady but modest, in part due to the effect of natural disasters, and poverty alleviation remains a major challenge. To achieve higher growth rates, Members suggested that further efforts be made to increase investment. The adoption of the U.S. dollar as domestic currency was seen as a step in this direction. Salvadorans living abroad may further foster investment through their remittances.

El Salvador was encouraged to diversify its export base, both in terms of markets and products, to achieve a closer and more balanced integration in the world economy. Members noted that exports were now dominated by a handful of products, notably clothing, from Export Processing Zones (EPZ). In contrast, traditional agricultural exports had lost ground, and the reversal of this trend was seen as important.

Members praised El Salvador for its generally open trade regime, the steps taken to implement its WTO obligations, and its active participation in the multilateral trading system. Members took note of El Salvador's growing engagement in preferential trade agreements, and expressed their hope that those agreements would complement multilateral liberalization efforts. Concerns were voiced about El Salvador's administrative capacity to participate effectively and simultaneously in several regional initiatives.

El Salvador was commended for its efforts in the areas of trade facilitation and its application of the WTO Agreement on Customs Valuation. Some Members sought clarification on aspects of customs administration and the use of minimum and reference prices. El Salvador was invited to make additional notifications to WTO on import licensing to enhance transparency.

Members praised El Salvador's low tariffs and the full binding commitments it has made. Nevertheless, El Salvador was encouraged to reduce tariff rates and tariff escalation, and increase predictability by closing the gap between applied and bound tariffs in the context of the Doha Development Agenda. Points were raised on the administration of tariff quotas and the consistency of “under supply quotas” with WTO principles.

Some Members expressed concern about the trade effects of certain sanitary measures, and the mandatory use of standards in government procurement. However, Members welcomed El Salvador's new law on government procurement, and requested further details on this regime. One Member suggested that El Salvador accede to the plurilateral Agreement on Government Procurement.

On sectoral policies, the maquila industry attracted particular attention. Members recognized that EPZs have played an important role in fostering El Salvador's integration into the world economy, generating jobs and attracting investment. However, they also pointed to the structural distortions EPZs create, their limited linkages to the domestic economy, and the export subsidies they convey. These features, which may be necessary at this stage, may undermine future growth prospects. Some Members raised the issues of the phasing out the EPZ regime and of bringing this regime into compliance with WTO rules once the transition period granted by Ministers in Doha expires.

Members commended El Salvador's liberalization and opening of its services sector, particularly in the areas of financial services, telecommunications, as was well in electricity. It was noted that, in part as a result, commitments under the GATS did not reflect the actual openness in the sector. Expanding its multilateral commitments during the current services negotiations would enhance the predictability of El Salvador's trade and investment regime.

Members also sought further clarification on a number of specific areas, including:

  • import regime for sugar;

  • regulatory framework in telecommunications;

  • ratification of the Information Technology Agreement; and

  • protection of intellectual property rights.

The delegation of El Salvador provided written and oral answers to the questions posed during the Review. The replies provided have made a major contribution to this Review, and were clearly appreciated by Members.

This brings us to the conclusion of our second Review of El Salvador. It is clear that El Salvador has made great strides towards building an efficient, market-based economy in a relatively short period of time and from a particularly difficult starting-point. I am particularly encouraged by El Salvador's stated conviction that trade liberalization is central to its development strategy. I am convinced that, as a small economy, El Salvador has still much to gain from pursuing this strategy multilaterally. Strengthening the multilateral trading system during the ongoing Doha Development Agenda would provide a more solid basis on which to anchor the further domestic reforms required to achieve the higher growth rates and living standard El Salvador seeks and which I am convinced will be achieved.