2005 El Salvador CBI Report for USTR

id: 44126
date: 10/31/2005 17:06
refid: 05SANSALVADOR2951
origin: Embassy San Salvador
classification: UNCLASSIFIED
destination: 05SECSTATE188288
header:
This record is a partial extract of the original cable. The full text of the original cable is not available.

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UNCLAS SECTION 01 OF 05 SAN SALVADOR 002951
 
SIPDIS
 
STATE PASS USTR FOR RUSSEL SMITH
USDOC FOR 3134/USFCS/OIO/WH/MKESHISHIAN/BARTHUR
USDOC ALSO FOR 4332/ITA/MAC/MSIEGELMAN
 
E.O. 12958: N/A
TAGS: ECON, ETRD, ES
SUBJECT: 2005 El Salvador CBI Report for USTR
 
REF: SECSTATE 188288
 
1.   In response to reftel, please see the following Embassy El Salvador report for USTR on El Salvador's compliance with requirements under the Caribbean Basin Initiative.
 
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Commitment to WTO Obligations
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2.   El Salvador has committed to undertake its obligations under the World Trade Organization (WTO) and plays an important role as a regional leader on trade issues.  The Government of El Salvador (GOES) understands that trade is a key to economic development and aggressively pursues policies that will enhance trade.  El Salvador was the first country to ratify the Central American Free Trade Agreement (CAFTA-DR) in December 2004.  It has also signed free trade agreements with Mexico, Chile, the Dominican Republic, and Panama and is negotiating a free trade agreement with Canada.
 
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Intellectual Property Rights
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3.   El Salvador has continued to make progress in protecting intellectual property rights and has taken steps for further implementation of its obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  The 1993 Intellectual Property Promotion and Protection Law and the Salvadoran penal code protect intellectual property rights.  Criminal enforcement of intellectual property protection laws has greatly improved in recent years, although in practice there continues to be a very high rate of piracy especially for items such as software.  Acting on the basis of complaints, the Attorney General's office conducts raids against distributors and manufacturers of pirated CDs, cassettes, clothes, and computer software.  However, using the criminal and mercantile courts to seek redress of a violation of intellectual property can be a slow and frustrating process. Pharmaceutical companies should be aware that acceptable standards for test data exclusivity are not observed in El Salvador.  When CAFTA-DR is implemented, test data exclusivity will be protected for a period of at least five years.
 
4.   The Law of Trademarks and Other Distinctive Signs, approved in 2002, brings El Salvador closer to compliance with TRIPS.  The law reinforces established regulations for the acquisition, registration, and protection of trademarks, logos, statements, distinctive advertising signs, and geographical indicators.  The law also makes it much more difficult to register a trademark already in use outside El Salvador--particularly well-known marks--by requiring the person attempting to register the mark to show that he is authorized to do so.
 
5.   El Salvador is a signatory of the Bern Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Geneva Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication, the World Intellectual Property Organization (WIPO) Copyright Treaty, the WIPO Performance and Phonograms Treaty, and the RomeConvention for the Protection of Performers, Phonogram Producers, and Broadcasting Organizations.
 
6.   CAFTA-DR provisions will strengthen El Salvador's IPR protection regime to conform with, and in many areas exceed, WTO norms and will criminalize end-user piracy, providing a strong deterrence against piracy and counterfeiting.  CAFTA- DR will require El Salvador to authorize the seizure, forfeiture, and destruction of counterfeit and pirated goods and the equipment used to produce them.  It will also mandate both statutory and actual damages for copyright infringement and trademark piracy.
 
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Workers Rights
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7.   The Constitution provides for the rights of workers and employers to form unions or associations, and workers and employers exercise these rights in practice; however, there have been some problems.  There have been repeated complaints by workers, in some cases supported by the International Labor Organization (ILO) Committee on Freedom of Association (CFA), that the Government impeded workers from exercising their right of association.  Union leaders asserted that the Government and judges used excessive formalities as a justification to deny applications for legal standing to unions and federations.  Among the requirements to obtain legal standing, unions must have a minimum of 35 members in the workplace, hold a convention, and elect officers.  According to the Ministry of Labor (MOL), 30 percent of the country's workforce is unionized.
 
8.   The Constitution and the Labor Code provide for collective bargaining rights for employees in the private sector and for certain categories of workers in autonomous government agencies, such as utilities and the port authority.  The Ministry of Labor (MOL) oversees implementation of collective bargaining agreements and acts as a conciliator in labor disputes in the private sector and in autonomous government institutions.  In practice, ministers and the heads of autonomous government institutions often negotiate directly with labor organizations, relying on the MOL only for such functions as officially certifying unions.  The Ministry has often sought to conciliate labor disputes through informal channels rather than attempt to enforce regulations strictly, which has led to charges that the Ministry was biased against labor.  Labor leaders asserted that the Government had an unfair advantage in arbitration of public sector labor disputes because the Government holds two of three seats on arbitration panels.  (The employer, the workers, and the Labor Ministry each name one representative to a panel.)
 
9.   The law provides for the right to strike, and workers have exercised this right.  Fifty-one percent of all workers in an enterprise must support a strike, including workers not represented by the Union.  Unions may strike only after the expiration of a collective bargaining agreement or to protect professional rights.  Unions first must also seek to resolve differences through direct negotiation, mediation, and arbitration before striking.  Union members must approve a decision to strike through secret ballot.  The Union must name a strike committee to serve as a negotiator and send the list of names to the MOL, which notifies the employer. The Union must wait four days from the time the Ministry notifies the employer before beginning the strike.
 
10.  Public workers who provide vital community services are not allowed to strike legally; however, the Government has generally treated strikes called by public employee associations as legitimate.
 
11.  The Constitution prohibits forced or compulsory labor, including by children, except in the case of natural catastrophe and other instances specified by law, and the Government has generally enforced this provision.
 
12.  The constitution prohibits the employment of children under the age of 14, although children 12 to 14 can be authorized to do light work as long as it does not harm their health and development or interfere with their education.  The law prohibits those under the age of 18 from working in occupations considered hazardous.  The Ministry of Labor is responsible for enforcing child labor laws; in practice, labor inspectors focused almost exclusively on the formal sector, where child labor was rare, and in the past few labor inspectors have dealt with child labor cases.  The MOL received few complaints of violations of child labor laws, because many citizens perceived child labor as an essential component of family income rather than a human rights violation.  The large informal sector often makes it difficult to monitor practices or enforce labor laws. Orphans and children from poor families frequently work in the informal sector for their own or family survival as street vendors and general laborers in small businesses. Children in these circumstances often do not complete schooling.
 
13.  The law sets a maximum normal workweek of 44 hours. It limits the workweek to no more than 6 days for all workers and requires bonus pay for overtime.  By law, a full-time employee is paid for an 8-hour day of rest in addition to the 44-hour normal workweek and receives an average of 1 month's wage a year in required bonuses plus 2 weeks of paid vacation.  Many workers worked more hours than the legal maximum; some were paid overtime but others were not.  The law limits the workday to 6 hours (plus a maximum of 2 hours of overtime) for youths between 14 and 16 years of age and sets a maximum normal workweek for youths at 34 hours. Wages paid depend on the sector, with agricultural workers generally receiving lower wages than those in commercial sectors.  Within the agricultural sector those hired for harvests earn a higher wage than general agricultural workers.
 
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Commitment to Eliminate the Worst Forms of Child Labor
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14.  El Salvador ratified ILO Convention 182, Worst Forms of Child Labor, in 2000.  According to the ILO, from October 2003 to March 2005 47,719 children have received medical, psychological, recreational, vocational, nutritional, and educational attention under ILO/IPEC programs; these activities have helped keep children out of labor activities.  The ILO/IPEC in cooperation with the Ministry of Labor has also provided 4,028 parents with training in occupational skills, literacy, productivity, and medical attention, among other areas.
 
15.  For the period of 1999 through August 2005, the ILO reported that 6,271 children have been withdrawn from child labor.  A total of 3,032 have been withdrawn from sugar cane plantations, 1295 from fishing activity, 1156 from working in coffee plantations, 394 from producing fireworks, 200 from scavenging in garbage dumps, and 194 from urban market areas.  During the same period, the ILO reported that they in cooperation with the Ministry of Labor, have prevented 14,134 at-risk children from entering labor activities, including 9,324 on sugarcane plantations, 2,801 in fishing activities; 1209 on coffee plantations, 525 from garbage- dump scavenging, 175 from fireworks production, 175 in urban market areas, and 15 in domestic work.
 
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Counter Narcotics Cooperation
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16.  El Salvador is not a drug-producing nation and therefore does not require U.S. Government certification. The Government of El Salvador does everything within its power to meet the objectives of the 1988 UN Drug Convention and interdict narcotics entering its territory.  Details of such activities are included in State Department's International Narcotics and Law Enforcement annual International Narcotics Control Strategy Report (INCSR).
 
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Corruption
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17.  El Salvador tied Costa Rica as the Central American region's least-corrupt nation in Transparency International's 2005 Corruptions Perceptions Index (51 of 159 countries surveyed).  Soliciting, offering, or accepting a bribe is a criminal act in El Salvador.  The Attorney General has a special office, the Anticorruption and Complex Crimes Unit, which handles cases involving corruption by public officials and administrators.  The Constitution also established the Court of Accounts that is charged with investigating public officials and entities and, when necessary, passing such cases to the Attorney General for prosecution.  The government, with assistance from the U.S. Agency for International Development (USAID), is developing a government code of ethics and plans to open an ethics office for government employees.  Long-standing legislation to establish this office in the Court of Accounts has failed to gain sufficient support for passage.
 
18.  When it occurs, corruption is usually at lower governmental levels.  However, a recent corruption scandal involved senior officials of the Salvadoran water authority, including its former president.  There have been credible complaints about judicial corruption.  There is also an active, free press that reports on corruption issues.  El Salvador ratified the Inter-American Convention Against Corruption in 1998.
 
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Transparent Governance
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19.  The laws and regulations of El Salvador are relatively transparent and generally foster competition.  Bureaucratic procedures have improved in recent years and are streamlined for foreign investors.  In late 2004, the government passed a Competition Law.  Overall the Government of El Salvador applies transparent, nondiscriminatory practices in government procurement.  Bids for large projects are listed in newspapers or distributed to the international community. However, short tender deadlines prevent meaningful international competition in many cases.  Smaller tenders are listed on individual Ministry websites or are available from ministry procurement offices.
 
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Country Conditions
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20.  After more than a decade of systematic economic reforms, crowned in January 2001 with the introduction of the U.S. dollar as full legal tender, El Salvador has the most open trade and investment environment in Central America; in Latin America only Chile and Mexico are more open.  The country enjoys low inflation, low interest rates, and an investment grade country risk rating.  Nonetheless, growth has been slowing since 1997 and has not been high enough to raise per capita incomes.  The Salvadoran government views the expansion of trade and investment as essential to the recovery of private sector led growth.
 
21.  Since defeating the communist-dominated FMLN at the polls in March 2004, President Saca's ARENA government has continued to chart an economic course fundamentally based on free markets and fiscal responsibility.  However, Saca has broken from previous administrations by proposing government programs to address poverty and income inequality that would in some cases include direct subsidies to the poorest Salvadorans.  Saca has also publicly discussed plans to provide sectoral investment incentives-unthinkable for previous administrations implementing strict laissez-faire economic policy.  The country is looking forward to CAFTA-DR coming into force on January 1, 2006, and hopes it will provide trade and investment that will spur increased growth in the economy.
 
22.  According to El Salvador's 1983 constitution, the government may expropriate private property for reasons of public utility or social interest, and indemnification can take place either before or after the fact.  There are no recent cases of expropriation.  In 1980, the banks were nationalized, but beginning in 1990 they were returned to private ownership.  Business interests in general are protected, and the government is working to privatize rather than nationalize key sectors of the economy such as ports. There are several disputes involving U.S. companies that have reached the court system and are pending resolution.
 
23.  The government of El Salvador is committed to free trade and is party to a number of free trade agreements; the most notable is CAFTA-DR, which is scheduled to enter into force on January 1, 2006.  USAID has committed to provide trade capacity building assistance to the government to facilitate trade through customs reform and modernization and to help address some barriers to trade and investment. El Salvador has lowered or eliminated tariff barriers on many commodities, and CAFTA-DR will make permanent many of the duty free provisions that were set to expire under the Caribbean Basin Initiative (CBI).  United States companies have as much if not more access to markets in El Salvador than other nations due to geographical proximity, and there is no preferential treatment of products of any other developed country to the detriment of U.S. commerce.  CAFTA- DR assures that the United States has equitable and reasonable access to the Salvadoran market for goods and services.
 
24.  El Salvador's Investment Law does not require investors to export specific amounts, transfer technology, incorporate set levels of local content, or fulfill other performance criteria.  Foreign investors and domestic firms are eligible for the same export incentives.  Exports of goods and services pay zero value added tax.  Some government contracting for large civil engineering projects requires local content; however, the funds for many of these projects are provided by multilateral development banks whose procurement practices allow U.S. companies to participate.
 
25.  The Government of El Salvador understands the need for trade to improve the economic conditions of its people.  It recently sent a trade mission to the United States on a "CAFTA-DR Tour" to create business contacts in appropriate industries and to attract business and investment to El Salvador.  PROESA, the National Investment Promotion Agency of El Salvador, has planned a further series of seminars in the United State featuring Vice President Escobar in order to attract additional foreign direct investment. Several trade delegations of business leaders have recently traveled to El Salvador researching business opportunities, including 19 companies that accompanied Secretary of Commerce Gutierrez on his October visit.
 
26.  The open trade policies of El Salvador benefit the revitalization of the CBI region as a whole by providing an open market for imported products.  The earthquakes of 2001 caused a slowdown in growth within El Salvador, but the country continues to be an active partner in trade with the region.  It cooperates with the United States in administration of the Caribbean Basin Economic Recovery Act (CBERA), as well as with other countries in the trade pact.
 
27.  The government of El Salvador signed an agreement with the United States in 1911 allowing for extradition of each other's citizens; this treaty is still in force and in use.
 
28.  Geoffrey Schadrack is the officer responsible for this report, tel: 503-2501-2052, fax: 503-2228-1857, email: [email protected].  However, follow-up questions should be directed to David Krzywda, tel: 503-2501-2053, fax: 503- 2228-1857, email: [email protected].
Barclay

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