This content is from: Local Insights

Elimination of the draw-back benefit for exporters

Juan Ernesto Menjívar

The draw-back benefit that had been beneficial for exporters until this year and which consisted in a refund of the 6% of the free-on-board value, was revoked on February 1 2011 when the Legislative Decree containing new laws on this matter entered full force. The benefit was used by individuals and legal entities, foreign or national, who are owners of companies that export or market goods and services of Salvadorian origin.

The reason behind the elimination of such benefit is that the Government of El Salvador as a member of the World Trade Organisation (WTO) is a signatory of the Agreement of Subventions and Compensatory Measures. According to the agreement, the subventions are conceded to a company or sector of production, or to a group of companies or sectors of productions; some subventions are prohibited and others are appealable.

The prohibited subventions are the ones that are conditioned to the results of exports and/or are conditioned to the use of national products with preference over the imported ones. For that reason the WTO considers that the draw-back benefit is prohibited and must be eliminated. Also, the concession given by the WTO to use the benefit expired in 2001; however El Salvador requested an extension which was conceded by the WTO but expired in 2005. Considering that the expiration date of the benefit is past due, El Salvador has decided to eliminate the benefit starting this year.

As a solution to the elimination of the drawback, the government has created new laws to compensate the eliminated benefit, which are:

Law for the Creation of the Centre to Process Import and Export Procedures: This centre is created to handle all procedures related to import and export.

Law for the Promotion of Production: This law aims at strengthening and supporting productive sectors through thecreation of the Integrated System of Development of Production Management. However, it seems too broad and general which places doubts on its effectiveness. Also, the companies that will benefit from it are not clearly identified. The law states that companies benefited will be the ones that comply with the regulations of the law, but no regulations have been produced yet.

Law of Reimbursement of Duties from Imports: Also known as Pure Draw-back, this law provides benefits similar to the draw-back above, through the reinstatement of the import duties paid on the importation of the supplies that are used or consumed directly in the production process of industrial and agro-industrial goods exported to countries that are not part of the General Treaty on Central American Economic Integration. However, the benefit leaves out companies that import products and goods to Central America. It seems to establish a difficult process with complicated requisites to obtain the reimbursement, which places doubts on its feasibility.

The laws have been approved by the Legislative Assembly, and were published and took effect on January 31 2011.

Juan Ernesto Menjívar

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