Private sector thrives on exports drive and access to new markets

El Salvador is capitalizing on its proximity and the efficiency of its labor force as a source of imported goods to America

The final round of Central American Free Trade Agreement (CAFTA) talks this month will also mark an important milestone for El Salvador in its quest to fully integrate into the global economy.

A CAFTA agreement also will mark a political and diplomatic triumph for El Salvador, which has been a leading country in the integration process. “This is probably because we are the smallest, because we have a high population and because we are the best prepared,” says Carlos Quintanilla Schmidt, Vice President of
El Salvador, who is also President of Proesa, the country’s investment promotion agency.

“We believe El Salvador cannot survive in this globalized world as a separate economy, we must integrate,” says the Vice President. “El Salvador is ready for that. Our businessmen and industries know that this is a great opportunity for them to sell more products. That is why the private sector in El Salvador is very determined, compared to the private sectors of other Central American countries.”

El Salvador is a member of the World Trade Organization and benefits from membership of the successful Caribbean Basin Initiative. It has also signed free trade agreements with Mexico, Chile, the Dominican Republic and Panama and increased exports to all these countries. In addition, its participation in a recently signed Political Dialogue and Cooperation Agreement with the European Union will lead to a customs union by May 2004.

CARLOS QUINTANILLA SCHMIDT Vice President of El Salvador

The country’s foreign ministry has been at the forefront of these initiatives, also taking a lead in building the political consensus within the country to support free trade. “CAFTA will definitely be seen as an enormous opportunity for job generation, political stability, and for lessening migration flow,” says María Eugenia Brizuela de Avila, Minister of Foreign Affairs. “For us the U.S. is the most important market,” she adds. About 65% of the country’s trade is with the United States. It currently imports $159 million more than it exports to its vast northern neighbor.

However, the balance is beginning to change. El Salvador is pursuing a strategy to increase exports, especially of manufactured and non-traditional products. The negotiation of trade agreements is part of this strategy.

Exports grew 4.5% in 2002, while imports grew just 3.3%. “Where we can compete is in the very selective niche of agro-industrial products that thrive in our climate, for instance, flowers,” says the Minister of Foreign Affairs.
“CAFTA will allow us to extend the restricted market access we currently have in businesses like textiles, meat, sugar, dairy products, and tuna,” says Salvador Urrutia Loucel, Minister of Agriculture and Livestock. The country also sells the U.S. ornamental plants, corn flour, and red beans.

“Investors need to see this as a land of opportunity where they can reduce their costs of production,” says Jose A. Quiros, Minister of Public Works, who promises that by the end of 2004 “El Salvador will have the best infrastructure in the region.”

One of the most ambitious projects is the construction of a dry canal between Puerto La Unión on El Salvador’s Pacific Coast and Puerto Córtez in Honduras on the Caribbean Sea. Designed to meet the needs of container transportation, the canal will create an alternative to the Panama Canal.