US embassy cable - 05SANSALVADOR2951

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. 
 
----------------------------- 
Commitment to WTO Obligations 
----------------------------- 
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. 
 
---------------------------- 
Intellectual Property Rights 
---------------------------- 
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 Rome 
Convention 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. 
 
-------------- 
Workers Rights 
-------------- 
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. 
 
--------------------------------------------- --------- 
Commitment to Eliminate the Worst Forms of Child Labor 
--------------------------------------------- --------- 
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. 
 
----------------------------- 
Counter Narcotics Cooperation 
----------------------------- 
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). 
 
---------- 
Corruption 
---------- 
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. 
 
---------------------- 
Transparent Governance 
---------------------- 
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. 
 
------------------ 
Country Conditions 
------------------ 
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: 
schadrackgf@state.gov.  However, follow-up questions should 
be directed to David Krzywda, tel: 503-2501-2053, fax: 503- 
2228-1857, email: krzywdada@state.gov. 
Barclay