This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 09 SAN SALVADOR 000197 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA 
STATE PASS USTR 
USDOC FOR 4332/ITA/MAC/MSIEGELMAN 
USDOC FOR 3134/ITA/USFCS/OIO/MKESHISHIAN/BARTHUR 
 
E.O. 12958: N/A 
TAGS: EINV ECON ETRD EFIN KTDB ES OPIC USTR
SUBJECT: EL SALVADOR: 2006 INVESTMENT CLIMATE STATEMENT 
 
REF: STATE 250356 
 
¶1.  Per reftel, following is Embassy San Salvador's 2006 
Investment Climate Statement. 
 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
¶2.  The Government of El Salvador views foreign investment 
as crucial for economic growth and development and has taken 
numerous steps in recent years to improve the investment 
climate.  However, the legal system's failure to enforce 
commercial law consistently or promptly is a black mark on 
El Salvador's otherwise positive record for encouraging 
investment.  A free trade agreement among Central American 
countries, the Dominican Republic, and the United States 
(CAFTA-DR) includes an investment chapter and other chapters 
that, when implemented, will strengthen investment dispute 
resolution in El Salvador. 
 
¶3.  In 2005, the Ministry of Economy estimated that 
foreigners invested $602 million in El Salvador in sectors 
such as hotels, apparel assembly, telecommunications, and 
beverages.  The government has announced a medium-term 
objective to become a logistics/shipping hub for Central 
America, and construction of a deep-water port in the Gulf 
of Fonseca is underway.  Salvadoran Central Reserve Bank 
statistics show that foreign investment stock has steadily 
increased, reaching $3.2 billion by June 2005, up from $1.97 
billion in 2000.  Companies from many countries--including 
the United States, France, Spain, Canada, Germany, 
Luxembourg, the United Kingdom, Korea, Taiwan, Chile, 
Guatemala, Venezuela, and Mexico--have invested in El 
Salvador. 
 
¶4.  The principal laws governing foreign investment in El 
Salvador are the Investment Law (para. 5), Export 
Reactivation Law (para. 24), and Free Trade Zones Law (para. 
20).  Other laws complementing the basic legal framework for 
investment include the Monetary Integration Law (para. 12), 
Banking Law (para. 39), Insurance Companies Law (para. 40), 
Securities Market Law (para. 41), intellectual property laws 
(paras. 30-32), and special legislation governing 
privatizations (paras. 7-10).  A 2004 Competition Law 
establishes a Superintendency for Competition to investigate 
and discipline anticompetitive practices (para 36).  In 
December 2005 the government enacted a tourism law providing 
specific incentives for investment in that sector (para. 
25). 
 
¶5.  The 1999 Investment Law grants equal treatment to 
foreign and domestic investors.  With the exception of small 
businesses (10 or fewer employees and sales of less than 
$68,571/year), foreign investors may freely establish 
businesses in El Salvador; investors who begin operations 
with 10 or fewer employees must present plans to increase 
employment.  The Investment Law created the National 
Investment Office (ONI) at the Ministry of Economy that 
serves as a one-stop shop to facilitate the registration of 
new investments in the country, a process that the World 
Bank estimates takes 40 days.  The law establishes 
procedures to resolve disputes between foreign investors and 
the government and eases residence requirements for foreign 
investors who make significant investments.  It also 
provides that underground resources (minerals) belong to the 
state, which may grant concessions for their exploitation. 
 
¶6.  In 2004, the government reorganized its trade and 
investment promotion agencies under the Investment and 
Exports Promotion National Commission (CONADEI), headed by 
the Vice President.  The National Investment Promotion 
Agency (PROESA) organizes investment promotion tours 
overseas and provides information and facilitation services 
in El Salvador.  The National Agency for Export Promotion 
(EXPORTA) focuses on identifying niche markets for 
Salvadoran exports, especially nontraditional goods, and 
providing trade capacity building to new exporters. 
 
¶7.  The government launched its privatization process in 
1990 with the privatization of most of the banking system. 
Privatization has played an important role in attracting 
foreign investment, especially in electricity generation and 
distribution, telecommunications, and pension funds. 
 
¶8.  The Salvadoran electricity sector is divided into 
generation, transmission, and distribution subsectors.  The 
electricity generation market includes CEL, the state-owned 
energy company; two U.S. investors, one of which bought 
three thermal generation plants from CEL in 1999; and La 
Geo, a private-public geothermal power generation company, 
and other minor generators.  The state-owned ETESAL provides 
transmission services.  Investors from the United States, 
Chile, and Venezuela bought controlling shares in four 
electricity distribution companies when the government 
privatized the sector in 1998; two U.S. investors now 
provide distribution services for the country.  The 
Transaction Unit (UT), owned by market participants, 
operates the wholesale energy market. 
 
¶9.  Privatization and foreign investment have modernized 
Salvadoran telecommunications.  The only remaining 
restrictions for foreign investors are on free reception 
television and AM/FM radio broadcasting, where foreign 
ownership cannot exceed 49 percent of equity.  In 1998, 
France Telecom purchased 51 percent of CTE, the state-owned 
fixed-line telephone firm, for $275 million, and Telefonica 
of Spain paid $41 million for 51 percent of the state-owned 
wireless firm.  The government sold additional shares of the 
state telephone companies on the Salvadoran securities 
exchange in 1999.  In 2003, America Movil, the Mexican 
telecommunications giant, bought France Telecom's shares in 
CTE and other shares owned by the Salvadoran Government; 
including a December 2004 purchase of additional shares, it 
now owns 94 percent of CTE.  A U.S. long distance telephone 
service provider has complained that CTE refuses to sign an 
interconnection agreement with it on terms already extended 
to another market entrant, as required by Salvadoran law. 
 
¶10.  The government created five privatized pension funds in 
1998 with the participation of Citibank, Spanish banks Banco 
Bilbao Vizcaya and Argentaria, and two local investors. 
After considerable consolidation in the sector, two funds 
remain, both owned by local investors. 
 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
¶11.  There are no restrictions on transferring funds 
associated with investment out of the country.  Foreign 
businesses can freely remit or reinvest profits, repatriate 
capital, and bring in capital for additional investment. 
The 1999 Investment Law also allows unrestricted remittance 
of royalties and fees from the use of foreign patents, 
trademarks, technical assistance, and other services. 
 
¶12.  The Monetary Integration Law "dollarized" El Salvador 
in 2001, and the U.S. dollar now freely circulates and can 
be used in all transactions; one objective of dollarization 
was to make El Salvador more attractive to foreign 
investors.  El Salvador has long had a freely convertible 
currency and since 1994 the colon traded at 8.75 per dollar. 
The Monetary Integration law fixed the colon at that rate. 
While prices are often listed in both currencies, the colon 
is seldom used.  U.S. dollars account for nearly all 
currency in circulation.  Salvadoran banks, in accordance 
with the law, must keep all accounts in dollars. 
Dollarization is supported by family remittances--almost all 
from the United States--that were $2.8 billion in 2005, up 
from $2.4 billion the year before.  As of the end of 
November 2005, the Central Reserve Bank reported 
international reserves of $1.83 billion. 
 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
¶13.  El Salvador's 1983 constitution allows the government 
to 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, a rural/agricultural land 
reform established that no single natural or legal person 
could own more than 245 hectares (605 acres) of land.  In 
1980, the banks were nationalized, but beginning in 1990 
they were returned to private ownership. 
 
¶14.  A 2003 amendment to the 1996 Electricity Law contains a 
provision that, while not authorizing expropriation, 
requires energy generating companies to obtain government 
approval before removing energy generating assets from the 
country.  According to the government, this provision of the 
law is intended to prevent energy supply disruptions. 
 
DISPUTE SETTLEMENT 
------------------ 
¶15.  While foreign investors can seek redress of commercial 
disputes with Salvadoran companies through El Salvador's 
courts, investors have found that seeking resolution of 
problems through the slow-moving domestic legal system can 
be costly and unproductive.  The course of some cases has 
shown that the legal system is subject to manipulation by 
private interests, and final rulings are sometimes not 
enforced.  Where possible, arbitration clauses, preferably 
with a foreign venue, should be included in commercial 
contracts as a means to resolve business disputes. 
Investors should make sure that all contracts are carefully 
drafted and that the relationships with local firms are 
specifically defined.  Some U.S. firms have been embroiled 
in major legal disputes in recent years, in cases where they 
asserted that a contract with a Salvadoran firm either had 
formally ended or never existed, but Salvadoran courts have 
ruled that the contract remained in force. 
 
¶16.  El Salvador's commercial law is based on the Commercial 
Code and the Code for Mercantile Processes.  There is a 
mercantile court system for resolving commercial disputes, 
although there have been complaints about its slow processes 
and erratic rulings, particularly at the Supreme Court 
level.  The Commercial Code, Code of Mercantile Processes, 
and Banking Law contain sections that deal with bankruptcy; 
there is no separate bankruptcy law or bankruptcy court. 
 
¶17.  Article 15 of the 1999 Investment Law states that 
disputes between foreign investors and the government will 
be submitted for arbitration to the International Center for 
Settlement of Investment Disputes (ICSID), a World Bank 
affiliated organization.  In 2002, the government approved a 
law to allow private sector organizations to establish 
arbitration centers for the resolution of commercial 
disputes, including those involving foreign investors.  The 
first case of commercial arbitration in El Salvador involved 
a U.S.-owned firm and the parastatal water company.  The 
arbitration panel ruled in favor of the U.S-owned firm, but 
a legal challenge by the water company relating to the 
bidding process led the Supreme Court to suspend the 
proceedings in August 2004 pending a review of the case. 
Judicial delays are common in El Salvador, and the Supreme 
Court has yet to review the case. 
 
¶18.  Under CAFTA-DR, investor rights will be protected by an 
effective, impartial procedure for dispute settlement that 
is fully transparent, as described in chapter 20 of the 
agreement.  Submissions to dispute panels and panel hearings 
will be open to the public, and interested parties will have 
the opportunity to submit their views. 
 
PERFORMANCE REQUIREMENTS AND INCENTIVES 
--------------------------------------- 
¶19.  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. 
 
¶20.  The 1998 Free Trade Zones Law is designed to attract 
investment in a wide range of activities, although at 
present more than 90 percent of the businesses in export 
processing zones are "maquila" clothing assembly plants.  A 
Salvadoran partner is not needed to operate in a free zone, 
and some maquila operations are completely foreign-owned. 
 
¶21.  The law established rules for export processing zones 
(free zones) and bonded areas.  The free zones are outside 
the nation's customs jurisdiction, while the bonded areas 
are within its jurisdiction but subject to special 
treatment.  Local and foreign companies can establish 
themselves in a free zone to produce goods or services for 
export or to provide services linked to international trade. 
The regulations for the bonded areas are very similar. 
 
¶22.  Firms located in the free zones and the bonded areas 
enjoy the following benefits: 
-- Exemption from all duties and taxes on imports of raw 
materials and the machinery and equipment needed to produce 
for export. 
-- Exemptions from taxes for fuels and lubricants used for 
producing exports, if these are not domestically produced; 
--Exemption from income tax, municipal taxes on company 
assets and property; and 
--Exemption from taxes on real estate transferences that are 
related to export activity. 
 
¶23.  Companies in the free zones are also allowed to sell 
goods or services in the Salvadoran market if they pay 
applicable taxes for the proportion sold locally. 
Additional rules apply to textile and apparel products. 
 
¶24.  Under the 1990 Export Reactivation Law firms may apply 
for tax rebates of 6 percent of the FOB value of 
manufactured or processed exports shipped outside the 
Central American Common Market area.  These firms need not 
be located in the free zones or be exporting 100 percent of 
their output.  Exports of coffee, sugar, and cotton can 
qualify for this rebate if they have undergone a 
transformation that adds at least 30 percent to their 
original value.  Firms that qualify for these tax rebates 
are also eligible for duty exemptions for imported raw 
materials and intermediate goods used in the assembly of the 
products to be exported.  El Salvador extended the period to 
eliminate this WTO-inconsistent measure until the end of 
¶2009. 
 
¶25.  In December 2005, the government approved a new tourism 
law to spur investment in the sector.  The law establishes 
fiscal incentives for those who invest a minimum of 
$50,000.00 in tourism related projects in El Salvador. 
Incentives include an income tax break of 100 percent for 10 
years and no duties on imports of capital and other goods, 
subject to limitations.  The investor also benefits from a 5- 
year exemption from land acquisition taxes, as well as a 50 
percent cut in municipal taxes over that period.  To take 
advantage of these incentives, the enterprise must 
contribute 5 percent of profits during the exemption period 
to a government-administered Tourism Promotion Fund. 
 
¶26.  Those who plan to live and work in El Salvador for an 
extended period will need to obtain temporary residency, 
which may be renewed periodically.  Under Article 11 of the 
Investment Law, foreign investors with investments equal to 
or more than 4,000 minimum monthly wages ($570,000), have 
the right to receive "Investor's Residence," permitting them 
to work and stay in the country.  Such residency can be 
requested within 30 days after the investment has been 
registered.  The residency permit covers the investor and 
his family and is issued for one year, subject to extension 
on a yearly basis. 
 
¶27.  Most companies employ a local lawyer to manage the 
process of obtaining residency.  The American Chamber of 
Commerce in El Salvador can also help its members with the 
process.  Labor law requires that 90 percent of the labor 
force at plants and in clerical jobs be Salvadoran.  There 
are fewer restrictions on the professional and technical 
jobs that can be held by foreigners. 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
¶28.  There are restrictions on land ownership.  No single 
natural or legal person--Salvadoran or foreign--can own more 
than 245 hectares (605 acres).  Rural lands cannot be 
acquired by foreigners from countries where Salvadorans do 
not enjoy the same right.  Foreign citizens and private 
companies can freely establish businesses in El Salvador. 
The only exception for this is in some cases involving small 
business.  A 2001 fishing law allows foreigners to engage in 
commercial fishing anywhere in Salvadoran waters providing 
they obtain a license from CENDEPESCA, a government entity. 
 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
¶29.  Private property, both movable and real estate, is 
recognized and protected in El Salvador.  Companies that 
plan to buy land or other real estate are advised to conduct 
a thorough search of the property's title prior to purchase. 
 
¶30.  In December 2005, El Salvador revised several laws to 
comply with CAFTA-DR's provisions on intellectual property 
rights (IPR).  The Intellectual Property Promotion and 
Protection Law (1993, revised in 2005), Law of Trademarks 
and Other Distinctive Signs (2002, revised in 2005), and 
Penal Code establish the legal framework to protect IPR. 
Investors must register trademarks, patents, copyrights, and 
other forms of intellectual property at the National 
Registry Center's Intellectual Property Office to protect 
their investments.  Reforms passed in 2005 extended the 
copyright term from 50 to 70 years.  New measures extend 
protection to satellite signals, and for pharmaceuticals and 
agrochemicals, test data exclusivity will be protected for 5 
and 10 years respectively. 
 
¶31.  The Attorney General's office and the National Civilian 
Police enforce these rights by conducting raids against 
distributors and manufactures of pirated CDs, cassettes, 
clothes, and computer software.  The 2005 reforms authorize 
the seizure, forfeiture, and destruction of counterfeit and 
pirated goods and the equipment used to produce them.  They 
also allow authorities to initiate these raids ex-oficio, 
and piracy is now punishable by jail sentences of two to six 
years.  Investors, however, should know that using the 
criminal and mercantile courts to seek redress of a 
violation of intellectual property is often a slow and 
frustrating process. 
 
¶32.  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. 
 
TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------- 
¶33.  The laws and regulations of El Salvador are relatively 
transparent and generally foster competition.  Bureaucratic 
procedures have improved in recent years and are relatively 
streamlined for foreign investors.  However, new foreign 
investors should review the regulatory environment 
carefully. 
 
¶34.  The Superintendency of Electricity and 
Telecommunications (SIGET), a regulatory agency modeled 
after a public utilities commission, regulates electricity 
and telecommunications.  SIGET oversees electricity tariffs, 
telecommunications, and distribution of electromagnetic 
frequencies.  SIGET's processes and procedures have been in 
general transparent. 
 
¶35.  In April 2003, the government amended the 1996 
Electricity Law with the intention of reducing volatility in 
the wholesale market and thereby stabilizing the level of 
retail electricity prices.  The new law expanded SIGET 
authority and gave the government the discretion to change 
the way electricity prices are determined; the government 
appears to be moving away from the market-based system put 
in place at the time of privatization to a cost-based 
dispatch system. 
 
¶36.  The 2004 Competition Law defines a series of 
anticompetitive practices such as collusion to fix prices, 
limit production, or rig bids.  Vertical arrangements, tying 
(conditioning the sale of one product on the sale of 
another), and exclusive dealing are also outlawed.  Certain 
abuses of dominant market position are also illegal, for 
example, creating barriers to entry by other firms, 
predatory pricing to drive out competitors, price 
discrimination and similar actions when intended to limit 
competition will be illegal.  The law creates an autonomous 
Superintendency for Competition that would be responsible 
for enforcing the law, which took effect January 1, 2006. 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
¶37.  The Superintendent of the Financial System supervises 
the banks and other businesses in the financial system. 
Interest rates are determined by market forces and have 
decreased significantly since dollarization was implemented. 
Foreign investors may obtain credit in the local financial 
market under the same conditions as local investors. 
Accounting systems are generally consistent with 
international norms.  December 2004 fiscal reforms require 
that applicants for credit at Salvadoran financial 
institutions show that they are current in their tax 
obligations with Salvadoran Government. 
 
¶38.  El Salvador's banks are among the largest in Central 
America.  The banking system is sound and in general well 
managed and supervised.  The banking system's total assets 
as of October 2005 were $11 billion. 
 
¶39.  Under the 1999 Banking Law and amendments made in 2002, 
foreign banks are afforded national treatment and can offer 
the same services as Salvadoran banks; they can open 
branches and buy or invest in Salvadoran financial 
institutions.  The law raised the local financial sector 
standards to international standards, strengthened 
supervisory authorities, and provided more transparent and 
secure operations for customers and banks.  The law also 
established an FDIC-like autonomous institution to insure 
deposits, increased the minimum capital reserve requirement 
for a bank to 100 million colones ($11.4 million), and 
sharply limited bank lending to shareholders and directors. 
The Non-Bank Financial Intermediaries Law regulates the 
organization, operation, and activities of financial 
institutions such as cooperative savings associations, 
nongovernmental organizations, and other microfinance 
institutions.  The Money Laundering Law requires financial 
institutions to report suspicious transactions to the 
Attorney General and the Superintendency of the Financial 
System. 
 
¶40.  The 1996 Insurance Companies Law regulates the 
operation of local insurance firms and accords national 
treatment to foreign insurance firms.  Foreign firms, 
including U.S., Panamanian and Spanish companies, have 
invested in Salvadoran insurers. 
 
¶41.  The 1994 Securities Market Law established the present 
form for the Salvadoran securities exchange, which opened in 
1992, and has played an important role in the privatization 
of state enterprises and facilitating foreign portfolio 
investment.  Stocks, government and private bonds, and other 
financial instruments are traded on the exchange, which is 
regulated by the Superintendency of Securities.  Foreigners 
can buy stocks, bonds and other instruments sold on the 
exchange and can have their own securities listed, once 
approved by the Superintendent.  Companies interested in 
listing must first register with the National Registry 
Center's Registry of Commerce.  Then they must submit the 
required documentation to the Superintendent, who will 
decide whether the security can be traded.  The exchange has 
averaged daily volumes of about $30 million.  Government 
regulated private pension funds and Salvadoran insurance 
companies are the largest buyers on the Salvadoran 
securities exchange. 
 
POLITICAL VIOLENCE 
------------------ 
¶42.  El Salvador's 12-year civil war ended in 1992 with a 
peace agreement.  The former guerrilla organization, the 
FMLN, became a political party and has participated in 
elections since 1994.  There has been no political violence 
aimed at foreign investors, their businesses, or their 
property.  However, general levels of crime are high and a 
major concern to the business community. 
 
CORRUPTION 
---------- 
¶43.  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.  In 2005, the 
government issued a code of ethics for the executive-branch 
employees, including administrative enforcement mechanisms. 
El Salvador ratified the Inter-American Convention Against 
Corruption in 1998. 
 
¶44.  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. 
Another ongoing corruption scandal involves municipal 
governments and waste disposal contracting. 
 
BILATERAL INVESTMENT AGREEMENTS AND FREE TRADE AGREEMENTS 
--------------------------------------------- ------------ 
¶45.  The United States and El Salvador signed a bilateral 
investment treaty (BIT) in March 1999, which addresses 
issues such as national treatment for foreign investors, 
transfers, expropriation, investment disputes, and tax 
policies.  The United States has ratified the treaty but El 
Salvador has not.  The United States concluded free trade 
agreement negotiations with El Salvador, Guatemala, 
Honduras, and Nicaragua in December 2003 and with Costa Rica 
in January 2004.  In May 2004, the six countries signed the 
United States - Central America Free Trade Agreement. 
During 2004, the United States and the Central American 
countries negotiated with the Dominican Republic to 
integrate that country into the free trade agreement.  On 
August 5, 2004, the seven countries signed the - Central 
America - Dominican Republic - United States Free Trade 
Agreement.  El Salvador (December 2004), Honduras (March 
2005), Guatemala (March 2005), the United States (July 
2005), the Dominican Republic (September 2005), and 
Nicaragua (October 2005) have ratified the agreement.  The 
investment chapter included in the agreement will offer many 
of the same measures to protect investors as included in the 
BIT.  The two countries also have a trade and investment 
council (TIC) framework agreement. 
 
¶46.  El Salvador is also negotiating a free trade agreement 
with Canada, which will contain investment provisions.  The 
five Central American Common Market countries, which include 
El Salvador, have an investment treaty among themselves.  In 
addition, the free trade agreements that El Salvador has 
with Mexico, the Dominican Republic, Chile, and Panama 
contain sections that promote investment. 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
-------------------------------------------- 
¶47.  The Overseas Private Investment Corporation (OPIC) has 
a bilateral agreement with El Salvador.  The agreement 
requires the Government of El Salvador to approve all 
insurance applications.  A new agreement is being negotiated 
that will eliminate this requirement.  OPIC insures against 
currency inconvertibility, expropriation and civil strife, 
and can also provide corporate project financing and special 
financing oriented to small business.  Because of El 
Salvador's use of the U.S. dollar, full inconvertibility 
insurance is not needed, although investors do insure 
against inability to transfer funds.  El Salvador is a 
member of the Multilateral Investment Guarantee Agency 
(MIGA). 
 
LABOR 
----- 
¶48.  El Salvador has a labor force of approximately 2.7 
million.  Salvadoran labor is perceived as hard working and 
receptive to training and advanced study.  The general 
educational level is low, and the skilled labor pool is 
shallow, which may pose problems for investors needing 
skilled, educated labor.  There is a lack of middle 
management-level talent, which sometimes results in 
foreigners being brought in to perform such tasks. 
Employers do not report labor-related difficulties in 
incorporating technology into their workplaces. 
 
¶49.  The Constitution guarantees the right of employees in 
the private sector to organize into associations and unions. 
Employers are free to hire union or non-union labor.  Closed 
shops are illegal.  Labor law is generally in accordance 
with internationally recognized standards, but is not 
enforced consistently by government authorities.  The 
International Labor Organization's Committee on Freedom of 
Association has expressed concern in a number of cases about 
the government's failure to apply the protections of workers 
rights to organize and bargain collectively, as required by 
International Labor Organization conventions. 
 
FOREIGN TRADE ZONES/FREE TRADE ZONES 
------------------------------------ 
¶50.  As of December 2005, there were 13 free zones operating 
in the country.  Maquila textile operations constitute the 
businesses of 12 of the free zones.  These firms, mostly 
owned by Salvadoran, U.S., Taiwanese, and Korean investors, 
employ approximately 70,000 people.  See para. 20 for a 
discussion of benefits available to investors in these 
zones. 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
------------------------------------ 
¶51.  Accumulated Foreign Investment by Country of Origin 
(Millions of Dollars) 
Country              2002        2003        2004 
-------              ----        ----        ---- 
United States       880.1       950.1     1,015.5 
Mexico               72.7        84.7       616.3 
Venezuela           309.5       309.5       309.5 
Spain               159.0       161.4       194.9 
Panama              100.7       102.3       105.1 
Chile                91.5        91.7        92.2 
Germany              78.7        84.8        84.9 
Bahamas              71.4        72.8        74.2 
Costa Rica           69.6        70.3        70.4 
Taiwan               42.1        56.9        57.5 
Canada               45.8        46.6        56.6 
BVI                  23.1        29.2        56.2 
Guatemala            38.7        48.2        52.1 
Netherlands          34.8        39.1        39.1 
Nicaragua            32.9        33.2        33.2 
Singapore            32.1        32.2        32.5 
Italy                26.6        26.6        26.6 
Korea, South         14.9        22.9        23.8 
Israel                8.5        10.4        22.9 
Peru                 22.3        22.3        22.3 
Honduras              9.3        19.4        21.0 
Switzerland          11.7        11.7        15.6 
Aruba                15.0        15.0        15.0 
Japan                14.2        14.2        14.2 
Bermuda              10.6        11.2        12.4 
Ecuador               9.0         9.0         9.0 
England               6.4         6.4         7.4 
France              214.7       214.7         5.8 
Other                14.0        19.9        27.2 
Total:            2,460.0     2,616.5     3,113.1 
Source: Central Reserve Bank of El Salvador 
 
¶52.  Annual Foreign Investment Flows in Selected Sectors 
(Millions of Dollars) 
Sector               2002         2003        2004 
------               ----         ----        ---- 
Communications       48.6         10.1       337.1 
Industry             46.7         30.7        42.4 
Maquila              10.1         70.6        38.3 
Retail               35.7         25.2        39.0 
Agriculture 
  and fishing         8.5          3.0        25.1 
Services             19.4          1.5        11.2 
Finance              12.1         15.6         3.1 
Construction          0.0          0.0         0.0 
Electricity          26.7          0.0         0.0 
Mining                0.0          0.0         0.0 
Total:              207.9        156.6       496.6 
Source: Central Reserve Bank of El Salvador 
 
¶53.  Foreign Direct Investment as a Percentage of GDP 
(Millions of Dollars) 
                       2002        2003        2004 
                       ----        ----        ---- 
GDP                14,311.9    14,940.3    15,823.9 
FDI stock           2,460.0     2,616.5     3,113.1 
FDI flows             207.9       156.5       496.6 
FDI stock as 
  a percentage 
  of GDP               17.2        17.5        19.7 
FDI flows as 
  a percentage 
  of GDP               1.5         1.0          3.1 
Source: Central Reserve Bank of El Salvador 
 
¶54.  Partial List of Major Foreign Investors 
AES Corporation (USA) -- Electricity distribution 
AIG (USA) -- Insurance 
AMNET - Cable television and internet 
Avery Dennison (USA) -- Labels for clothing 
Bayer de El Salvador (German) -- Pharmaceutical processing 
     plant, fertilizer plant 
Decameron International (Colombia) - Tourism/hotels 
Citigroup (USA) -- Banking 
Digicel (USA) -- Cellular telephone service 
Dell Computer (USA) -- Customer service/sales call center 
Duke Energy (USA) -- Thermal electricity generation plants 
Elf (France) -- Propane gas 
El Paso Corporation (USA) -- Owner/operator of the Nejapa 
     power/generating plant 
EMEL S.A. (Chilean/USA) -- Electricity distribution 
Esso Standard Oil (USA) -- Gas stations/small refinery at 
     Acajutla 
America Movil (Mexico) -- Fixed and wireless telephone, 
     retail 
Fruit of the Loom (USA) - Apparel assembly 
Grupo Calvo (Spain) -- Tuna fishing/processing 
Holcim (Swiss) - Cement 
Intelfon (Panama/El Salvador) - Telecommunications 
International Paper (USA) -- Packaging 
Lacoste (France) -- Textiles/apparel 
Liquidos de Centro America (ELCA) -- liquid packaging 
     company 
Kimberly Clark de C.A. (USA) -- Distribution facility 
Maseca (Mexico) -- Corn Milling 
Max (Guatemala) -- Appliance retailing 
Price Smart (USA) -- Member discount store and supermarket 
SABMiller (South Africa) -- Beer, sodas, and other 
     beverages 
Sara Lee Knit Products (USA) -- Apparel assembly 
Shell El Salvador (Netherlands/U.K.) -- Oil 
     refinery (with Esso); Service stations/grocery marts 
     throughout the country. 
Telefonica de Espana (Spain) -- Cellular telephones 
Telemovil  (USA/Luxembourg) -- Cellular telephones 
Texaco Caribbean (USA) -- Fuel storage and lubricant 
     blending plant in Acajutla, and service station/grocery 
     markets. 
Unisola-Unilever (UK) -- Food products 
WalMart (United States) -- Supermarkets