El Salvador: New Law on Free Zones Delayed

There is a growing demand for textiles and clothes manufacturing, but a new Law on Free Zones is needed in order to bring fresh investments to this sector.

Friday, August 12, 2011

The World Trade Organization (WTO) has determined, after two extensions, the country should, in 2015, replace the law that has been in force since 1998, which grants tax benefits such as a total and permanent exemption from taxes, among others.

The draft new Law on Free Zones, which has been in progress for a year with the Chamber of Textiles, Clothing and Free Zones (CAMTEX) together with the Ministry of Economy, will provide "incentives for companies that promote corporate social responsibility (CSR), gender equality, use green and environmentally friendly technologies, and provide community support, among other things", said Patricia Figueroa, Executive Director of CAMTEX to Elsalvador.com

"Figueroa said that the WTO is not trying to distort trade in middle income countries, but simply wants to modernize the existing legislation, which entails eliminating incentives for users of the free zone regime.

"But the WTO has not said, at any time, that the free zones should be dismantled, but instead is calling for an amendment to the legislation so as not to provide incentives to export", said Figueroa.

The industry is aware that change in incentives bringing them in line with WTO legislation would mean the country would compete against other countries in the region who are not considered middle income countries, and therefore do not have to change the benefits they give to textile companies, as the case in Nicaragua and Honduras. "

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Textile Industry Hopes for Free Trade Area Reforms

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The Textile, Apparel and Free Zone Chamber will propose a replacement for the current Free Zone regime.

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She explained they are analyzing countries like Costa Rica and Colombia, where similar regimes have worked out successfully.