III Cafta Anniversary Un El Salvador


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III Cafta Anniversary Un El Salvador

  1. 1. III Aniversary Results CAFTA in El Salvador Ministry of Economy, El Salvador March, 2009 During the third anniversary of the entry into force of CAFTA – DR, the Ministry of Economy of El Salvador is pleased to present this document with the results from said Free Trade Agreement in the country until 2008. Ministry of Economy Alameda Juan Pablo II y Calle Guadalupe Centro de Gobierno, San Salvador, El Salvador, Central America
  2. 2. III Anniversary CAFTA in El Salvador March 2009 INDEX Theme Page I. Introduction 3 II. Trade Analysis 5 A. Destiny and Origin of El Salvador’s Trade 6 B. Bilateral trade flows, El Salvador - United States of America 7 C. Trade Balance El Salvador with the United States of America 8 D. Composition of Salvadoran exports to the United States of 9 America E. Main products exported from El Salvador to the United States of 10 America, new exports, and exports with the greatest growth F. Classification of exports according to their technological level 16 G. Imports of El Salvador from the United States of America 17 H. Supports to exports in El Salvador 19 III. Sectors Analysis 22 A. Textile and Apparel 23 B. Dairy Products 25 C. Pickled Vegetables 27 D. Organic Products 31 E. Plastics 34 IV. Foreign Direct Investment 37 A. General Results 38 B. Who invests in El Salvador? 39 C. Trend from foreign reference companies to direct foreign 41 investment during 2000-2008 D. Sectors with the greatest development in the last years 42 E. Strategies for Investment Attraction 43 V. Achievements and Advances in CAFTA – DR issued during the 46 III anniversary of the entry into force of the Treaty A. Launching the initiative ―Pathways to Prosperity in the 47 Americas‖ B. Textile Issues 48 C. Labor Issues 50 D. Environmental Issues 54 E. Institutionalism of CAFTA – DR 57 F. Customs and Trade Facilitation 57 G. Strengthening of private sector and cooperation within the 58 framework of CAFTA – DR H. Spreading the benefits and opportunities of CAFTA - DR 60 I. Enforcement of CAFTA – DR for Costa Rica 63 VI. General Conclusions 64 Ministry of Economy of El Salvador Page 2
  3. 3. III Anniversary CAFTA in El Salvador March 2009 I. Introduction It is a pleasure to present you this document, which attempts to make an evaluation of the impact the United States - Central America - Dominican Republic Free Trade Agreement has had during its third year of enforcement in El Salvador. It is important to start this research saying that we cannot close our eyes to the complex reality of the international economy. Certainly we are living difficult times, although we are convinced that our trade agreements will allow us to continue taking advantage of the opportunities that trade openness offers. Our productive sectors deserve special congratulations for its activities during 2008; our exports towards the United States grew approximately 7.7% while our imports also grew 6.04%, representing a total increase of trade, of approximately 6.7%. It is easy to evidence also the creativity, dynamism and shrewdness of our entrepreneurs, allowing them to effectively insert themselves in the United States market with a wide range of products. Among our exports in 2008, we see all types of products being exported by our entrepreneurs especially in the area of non-traditional products, stressing those commonly called ―nostalgic‖ such as vegetables, chesses, prepared beans, frozen fruits, ethnic drinks, baked products, kitchen aluminum products, plastic products, and ethylic alcohol. But CAFTA-DR has not only potentiated our exports towards the United States, but has also allowed us to increase and strengthen our exports towards Central America and the Dominican Republic. Our exports towards the member countries of the CAFTA-DR region in 2008 experienced an increase of 12.8%, proving that we are taking advantage of the opportunities and integrating our economies through the accumulation of processes and inputs, leaving quite clear that our private sector is taking better advantage of the regimes of origin from the trade agreements. On foreign direct investment in El Salvador, we must also point out the advances reported by the National Investment Promotion Agency (PROESA) which has registered an important increase in terms of investment amounts, confirming that foreign direct investment has had a clear upward trend since 2006, with a growth of 7.02% to September 2008, related to the closing December 2007. This year has also been positive for the working agencies in our Labor and Social Prevision Ministry and the Environment and Natural Resources Ministry. Both Ministries have continued promoting important projects that allow the strengthening of institutionalization and their work agendas; Ministry of Economy of El Salvador Page 3
  4. 4. III Anniversary CAFTA in El Salvador March 2009 we must especially mention the support received from the different cooperating agencies working hand in hand with both ministries, to comply with their obligations within the framework of Chapters 16 (Labor) & 17 (Environment). The environmental cooperation results are important in Cleaner Production, for example. For the tools such as trading agreements to be more productive, we must perform our role responsibly. As a government, we are working towards supporting our citizens to take advantage of trade opportunities, as well as facing future challenges, especially in the rest of the year, vis-à-vis the international financial crisis. Ricardo Esmahan Minister of Economy Ministry of Economy of El Salvador Page 4
  5. 5. III Anniversary CAFTA in El Salvador March 2009 Trade Analysis Picture - www.alcol.es Ministry of Economy of El Salvador Page 5
  6. 6. III Anniversary CAFTA in El Salvador March 2009 II. Trade Analysis A. Destination & Origin of Trade in El Salvador As part of its trade policy and strategy of openness to the world, El Salvador has been constantly targeting, not only the consolidation of its trade relationships with historically traditional partners, but also to diversify the target markets and origin of its exports and imports, respectively. In such a way, throughout the last few years, El Salvador has signed several free trade agreements with its main trade partners in order to strengthen the trade exchange with those countries. When comparing trade flows of El Salvador to the year 2008 with those of 1997, when we did not have an important base of trade agreements, we can see how national exports have constantly grown, at the same time that they have diversified their destination markets (graph 1). On the other hand, imported inputs for production, as well as final goods imported by consumers also reflect a greater diversification compared to previous years (graph 2). The United States keeps a predominant role as trading partner in Central America in general, and El Salvador in particular, as a destination market of our exports, as well as origin of our imports. Graph 1 Source: Own preparation with Central Reserve Bank information Ministry of Economy of El Salvador Page 6
  7. 7. III Anniversary CAFTA in El Salvador March 2009 Graph 2 Source: Own preparation with Central Reserve Bank information Graph 1 shows how during the assessed period exports to other countries members of CAFTA – DR have increased in a sustained manner because, today, the Central American market (36%) together with the United States (48%) represent the destination of 84% of our exports. Meanwhile in 1997 our exports to Central America (24%) and the United States (54%) represented 78% of our exports total. It is evident then not only the importance of these markets for our exporters, but also the dynamism and skills of our exporting sector, which has successfully penetrated these markets. In the case of imports, a similar phenomena can be observed when by 2008, 34% of our total imports come from the United States, and 17% from Central America, while imports from the rest of the countries, reaches 49%. This is a clear example of an important diversification of our country’s suppliers and a greater integration of the productive chains in El Salvador with its trade partners, especially Central America and the United States. B. Bilateral trade flows El Salvador - United States Trade flows (imports and exports) between El Salvador and the United States have been increasing throughout the years, exactly like graph 3 shows, where the evolution of trade flows of El Salvador with the United States can be seen for the period presented. In this graph we can also see Ministry of Economy of El Salvador Page 7
  8. 8. III Anniversary CAFTA in El Salvador March 2009 the weight of bilateral trade with the United States, as a percentage of GDP year after year. During the 1997 to 2005 period, average trade flows between El Salvador and the United States was US$ 4,230 millions; nevertheless, starting 2006 when CAFTA – DR was enforced in our country, from 2006 to 2008 we can see a yearly average trade of US$ 5,219 millions. In graph 3 we can more clearly see the growing trend of trading exchanges reaching a total of US$ 5,520 millions in 2008. Graph 3 Source: Own preparation with Central Reserve Bank’s data, values in dollars at current prices. C. Trade Balance El Salvador-United States When analyzing the trade balance El Salvador-United States in greater detail, we can see a constant trade increase starting the enforcement of CAFTA – DR. In the case of exports, during 2008 they reached a total of US$2,184 million, representing a growth of 7.6% related to 2007 exports, and 10.3% related to 2006. We can underline the following points from the trade balance with the United States: Ministry of Economy of El Salvador Page 8
  9. 9. III Anniversary CAFTA in El Salvador March 2009 Salvadoran exports to the United States grew 7.7% in 2008; imports from said country grew 6.04%. Non-traditional exports to the United States have shown an important growth, when increasing 19.6% related to the previous year. Among these products we find absolute ethyl alcohol, electric condensators, and plastic products, among others. Exports in the area of maquila grew 4% during 2008. Exports of traditional products (coffee, shrimp and sugar) grew 34% related to performance in this item during 2007. Graph 4 Source: Own preparation with Central Reserve Bank information D. Composition of Salvadoran exports to the United States Salvadoran exports to the United States for 2008 increased to $2,184 million and represent 48% of our total exports to the world. Graph 5 shows exports composition towards said country in three classifications: traditional, non-traditional and maquila since 1997 until 2008, according to items detailed by the Salvadoran Central Reserve Bank. By the year 2008, the composition of our exports is structured a bit differently, with an increase in the participation of non-traditional products, thus 17.15% (US$374 million) On the other hand, exports of traditional products (coffee, sugar and shrimp) correspond to 7% (US$153 Ministry of Economy of El Salvador Page 9
  10. 10. III Anniversary CAFTA in El Salvador March 2009 million) of total exports and maquila reached levels close to 75.8% (US$1,655 million) of Salvadoran exports to the United States. Graph 5 Source: Own preparation with Central Reserve Bank information E. Main products exported from El Salvador to the United States, new exports, and exports with greatest growth As it can be seen in the previous section, non-traditional exports to the United States have had a constant growth since the enforcement of CAFTA – DR. Additionally, this item shows an ever more important participation in total exports in the country, as one of the consequences of the diversification of national exports. A good portion of these results are due to the incentive represented by the immediate and gradual elimination of the tariff and non-tariff barriers to enter the United States market, as well as the legal security generated by the agreement in our exporters and investors. Previously, El Salvador enjoyed temporary trade concessions unilaterally granted by the United States through the Caribbean Basin Initiative (CBI) and the Generalized System of Preferences (GSP), thanks to which lesser Ministry of Economy of El Salvador Page 10
  11. 11. III Anniversary CAFTA in El Salvador March 2009 tariffs were paid than in the other countries, to enter the United States. Nevertheless, in order to enjoy these unilateral preferences, the country must comply with a series of conditions. CAFTA – DR transformed the trade relationship between El Salvador and the United States to a reality which offers a secure legal framework, besides the consolidation and widening of benefits to the sectors with exporting potential in the country, complementing it with a set of rules of origin which are adequate with and strengthen the productive reality of our country. 1. Main exports from El Salvador to the United States in 2008 Analyzing the ten main exports from El Salvador to the United States, we can see there is an important diversification in the composition of the same, because in this sample we find apparel, agricultural products, agro- industrial and industrial products. The main export product to the Unites Sates is ―knit cotton women and girls pajamasquot; of which in 2008 US$626 million were exported with a growth of 43.4% related to 2005. The tariff paid in 2005 was eliminated at the time of enforcement of the agreement, making the Salvadoran product more competitive in the United States market. Another article which deserves special attention are the ―women or girl pajamas made of other textile materials different from knit cottonquot; located in the 6th position among the main Salvadoran exports, reaching US$81 million in 2008, representing a growth of 195% related to 2005 (previously these products paid differentiated tariffs of 32%, 16% and 5.6% to enter the United States). In the second position of the main products exported by El Salvador to the United States, we have absolute ethyl alcohol. In 2008, exports of this product reached US$171 million, representing a considerable increase comparing it with US$39 million exported in 2005. This product was benefited with the tariff reduction to 0% since the enforcement of the treaty, when it is completely produced from originating goods (corn, sorghum or molasses). Ministry of Economy of El Salvador Page 11
  12. 12. III Anniversary CAFTA in El Salvador March 2009 Green coffee has the fourth position among the main Salvadoran exports to the United States with US$97 million, representing a growth related to 2005 of 91.3%. The above, together with a better positioning of the Salvadoran product among United States consumers, jointly with an increase in the coffee price at international level, has promoted the increases in Salvadoran exports to the United States. Raw sugar is another Coffee – picture, embassy of El Salvador in Ireland traditionally strong export from El Salvador, placed in the eighth position of exports to the United States, with US$54.7 million and a growth of 86.4% related to year 2005. This product paid a specific tariff at the level of Most Favored Nation (MFN) of 33.87 cents of a dollar per Kilogram. In the Treaty, the United States granted El Salvador a quota with a compound growth which allows the export of said amount free of tariffs. By 2008, this quota was 24,960 MT and will continue growing yearly. Main Exports from El Salvador to the United States, 2008 Source: Central Reserve Bank, value in millions US$ Tariff before Tariff by 2005 2008 Code Product CAFTA 2008* Value Value 61091000 Women or girls sleepwear, cotton, knit 16.5% 0% 436.2 625.7 22071010 Absolute ethyl alcohol 2.5% & 1.9% 0% & quota 39.0 170.9 61102000 Cotton knit sweaters and jackets 16.5% & 5% 0% 195.6 113.4 09011130 Green coffee 0% 0% 50.5 96.6 85322100 Tantalum fixed electric condensators 0% 0% 66.0 85.7 32%, 16% & 61099000 Women or girls sleepwear, knit, other textile materials 5.6% 0% 27.5 81.0 61071100 Men or children cotton underpants 7.4% 0% 39.4 61.9 17011100 Raw cane sugar 33.87cts/kg 0% (quota) 29.4 54.7 61152100 Synthetic fiber hosiery and leotards 14.6% & 2.7% 0% 111.4 53.8 85322900 Fixed or variable electric condensators 0% 0% 40.7 51.9 Total ten main exports from El Salvador to the United States 1035.6 1395.6 Total Exports from El Salvador to USA 2,055 2184 * Tariffs to enter United States market Ministry of Economy of El Salvador Page 12
  13. 13. III Anniversary CAFTA in El Salvador March 2009 The list of main exports is completed by apparel exports such as knit sweaters and jackets (US$114 million), men underpants (US$62 million), and synthetic fiber hosiery and leotards (US$54 million); these products were subject to tariffs from 5% to 16.5% at the level of MFN before CAFTA – DR and after the enforcement of the agreement the tariff preference is guaranteed at 0%. Furthermore, it is important to remark the tantalum fixed electrical condensators and other variable electric condensators which also appear as new exports after CAFTA-DR. 2. New exports from El Salvador to the United States during 2008 After having analyzed a sample of the ten main new exports from El Salvador to the United States, we see a great variety of new exported products, compared to 2004. Special mention deserve the tantalum electric condensators, one of the main exports from El Salvador in 2008, that are also among the main 10 exports from El Salvador to the United States in that same year. Among the other new exports we find ―cables for spark plugs‖ that used to pay 5% tariff to enter the United States, and after the enforcement of the Treaty, this tariff was eliminated. By the year 2008, these exports reached approximately US$17 million. Other new industrial exports are ―electrical condensators with ceramic dielectric‖ (US$10.8 million), ―plastic school items‖ (US$3.1 million), ―raw or powder gold‖ (US$1.7 million). These products used to pay between 4.1% and 5.3%, but after the FTA these were eliminated for originating goods. Ministry of Economy of El Salvador Page 13
  14. 14. III Anniversary CAFTA in El Salvador March 2009 Main new exports from El Salvador to the United States, period 2004 - 2008 Source: Central Reserve Bank, value in millions dollars Tariff before Tariff by Code Product CAFTA* 2008* 2004 2008 85322100 Tantalum electric condensators 0% 0% $0.00 $85.68 Spark plugs cable sets and other sets of cables used in 85443000 transportation mediums 5% 0% $0.00 $16.98 Fixed or variable electric condensators, with ceramic 85322400 dielectric, multilayer 0% 0% $0.00 $10.75 21069099 Aromatic syrups or with colors added 6.4% 0% $0.00 $6.88 Insecticides, rat poisons, herbicides, fungicides, 38085030 germination inhibitors 6.5% & 5% 0% $0.00 $3.61 39261090 Office articles and plastic school items 5.3% 0% $0.00 $3.09 07096010 Capsicum (sweet peppers) 4.4 cents/kg 0% $0.00 $2.73 3.14 to 3.66 17019900 Chemically pure sucrose, solid cts./Kg 0% $0.00 $2.29 71081200 Raw gold, semi-elaborated, or in powder 4.1% 0% $0.00 $1.89 39235090 Plastic lids and stoppers 5.3% 0% $0.00 $1.70 * Tariffs to enter United States market Among the new agricultural exports we have ―aromatic syrups or with added coloring‖, which reached close to US$6.9 million and before the FTA paid a tariff of 6.4%. Other agricultural products such as sweet peppers are consolidated as one of the main new exports from El Salvador to the United States with close to US$2.8 million. They used to pay a specific tariff of 4.4 cents per kilogram. Finally, the list of the ten main new Salvadoran exports to the United States is completed with ―insecticides and herbicides‖, which reached exports around US$3.6 million after the MFN tariff elimination of 6.5% and 5%; and ―chemically pure solid sucrose‖, a product with exports close to US$2.3 million, and a specific tariff that was eliminated of up to 3.66 cents of a dollar per Kilogram with the enforcement of CAFTA – DR. 3. Salvadoran exports to the United States showing a greater growth Another classification of exports that is important to mention, are those which after the enforcement of CAFTA—DR have shown important growth rates, and represent a high exporting potential and an opportunity niche for our entrepreneurs. Ministry of Economy of El Salvador Page 14
  15. 15. III Anniversary CAFTA in El Salvador March 2009 For the year 2008, the following table collects a sample of the 10 Salvadoran products with a greater increase in exports towards the United States: Main Salvadoran products with greater growth in exports towards the United States Source: Central Reserve Bank, value in US$ Tariff before Tariff by Code Product CAFTA* 2008* 2004 2008 74199990 Copper manufacture 3% 0% $15 $637,169 33053000 Hair sprays 0% 0% $1 $15,573 Drawing, tracing, calculation instruments (pantograph, 90178000 protractors, etc.) 5.30% 0% $50 $356,033 39249090 Plastic dinner services 3.40% 0% $3 $8,048 42029200 Chests, luggage, briefcases, and attaché cases 17.6% & 7% 0% $1,619 $4,106,019 85182100 Laudspeakers, even mounted in their boxes 4.90% A $87 $78,079 Synthetic filament threads (except sewing thread) 54023300 without conditioning for retail sale 8.8% & 8% 0% $575 $455,550 85322900 Fixed, variable or adjustable electric condensators 0% 0% $113,745 $51,891,968 Extruding, stretching, texturizing or cutting machines 84440000 for synthetic or artificial textile material 0% 0% $200 $72,439 76169990 Aluminum manufactures 2.50% 0% $527 $152,394 Cotton fabric with a cotton content under 85% in 52103900 weight 12.4% & 10% 0% $346 $84,714 * Tariffs to enter United States market Of these products, copper manufactures are noticeable, which exports in 2004 amounted only for US$15, and by the year 2008 the exports reached US$637,169. These manufactures paid before the FTA a 3% tariff, and today they are not subject to any import taxes when entering the United States. Similar growth is noticed for products such as hair sprays, drawing and tracing instruments, just to mention a few. The performance of products such as chests and luggage is also remarkable, having a significative growth, reaching values of US$4.1 million in 2008. The same in the case of variable or adjustable electric condensators, which show an important growth reaching exports of US$51.8 million, and being positioned among the ten main exports of El Salvador to the United States. The above shows that these products, which are not a part of our traditional exports, are efficiently penetrating the United States market and positioning themselves in the minds of consumers. Ministry of Economy of El Salvador Page 15
  16. 16. III Anniversary CAFTA in El Salvador March 2009 F. Exports classification according to technological level Exports classification in terms of technological content has important implications to determine the level of development in a country. Countries that look for an export specialization in greater technological development products, or with greater value added, obtain as a consequence greater income from their exports, and greater economic growth. In order to analyze Salvadoran exports to the United States, a classification proposed by ECLAC has been used, dividing products in four categories: natural resources intensive products, low technology products, medium technology products, and high technology products. The first category has primary goods, agricultural and agro-industrial products, food and drinks, paper, cardboard and wood products, etc. In the case of El Salvador, here will appear the coffee, sugar, fruits and vegetables exports, paper and cardboard, etc. In the second category, low technology or labor intensive goods, we find textile, apparel, shoes, toys, and similar manufacture. These products use natural resources and incorporate subsequent processes for their manufactures, and are also labor intensive. The third category, goods of medium technology, includes mainly products such as machines for shoe repair, magnetic tapes, electric conductors, semiconductors, cables, etc. In this category we find tantalum conductors, cables to start vehicles, loudspeakers, among others mentioned in previous sections. Finally, the fourth category of high technology goods includes products offering a higher value added. Within this category, El Salvador is exporting: optical, photography, and clockmakers instruments, transportation material (radiators, shock absorbers, etc.) and Metal- mechanics products (piping accessories, cisterns, etc.). Ministry of Economy of El Salvador Page 16
  17. 17. III Anniversary CAFTA in El Salvador March 2009 Graph 6 Source: Own preparation with Central Reserve Bank information, year 2008 By 2008, 22% of our exports to the United States (US$478 million) were natural resources intensive products; 69% of our exports (US$ 1,519 million) were low technology products, 8% of the exports (US$ 174 million) were medium technology products, and 1% (US$ 13.4 million) were high technology products. For the above information, it can be inferred that El Salvador is in an evolution process of technology composition of its exports, and every time a greater proportion of exported products are classified in medium technology and even high technology products. As we saw in the previous sections, non-traditional products that participate every time more in total exports of the country are constantly growing. G. Salvadoran imports from the United States Imports from the United States have also been growing continuously (graph 4) in a similar proportion to that of the total trade growth between El Salvador and the United States. This reflects the close relationship existing among the productive chains of our two countries, especially considering that many of the merchandises imported are inputs to develop productive processes in the country. Regarding the import composition, for 2008, the sectors showing a greater participation in imports coming from the United States, it can be seen a Ministry of Economy of El Salvador Page 17
  18. 18. III Anniversary CAFTA in El Salvador March 2009 small increase in the imports of agricultural products and industrial machinery. Furthermore, it can be seen an increase in the participation of oil imports and its derivatives, possibly due to the high prices seen during 2008. The main imports are in the oil sector and its sub-products (15%), textiles (19%), industrial machinery and automobiles (21%), among others. Graph 7 Source: Own preparation with Central Reserve Bank information, year 2008 Breaking down per product the United States imports, we can see how oil sub-products increased in value between 2005 and 2008. Of the ten main products that El Salvador imported from the United States in 2008, four were oil sub-products (diesel oil, fuel oil No 6, kerosene, and lubricant oils and greases) that have also shown an increase starting 2005. Only these four products showed an increase which reached a total of US$447 million. Of these four products, the one that showed a greater growth during said period was Kerosene, followed by fuel oil. These increases are mainly due to oil prices fluctuation, which reached historic records in its price during the last years. Among the main imports from the United States we can also mention yellow corn, liberalized to enter El Salvador through a compound growth quota and a non-lineal tariff reduction schedule; in 2008 the quota allowing tariff free entrance increased to 402,500 MT. By 2008 imports totaled US$ 110.74 million. Another of the main imports from the United States is hard wheat that already had a 0% MFN when the agreement was signed, and of which US$95.5 million were imported in 2008. Ministry of Economy of El Salvador Page 18
  19. 19. III Anniversary CAFTA in El Salvador March 2009 Table 1: Main Imports to El Salvador from the United States, 2008 Source: Central Reserve Bank, value in millions US$ Tariff before Tariff by Code Product CAFTA* 2008* 2005 2008 27101921 Diesel oil (Gas oil) 1% 0% 46.84 257.44 10059020 Yellow corn 15% Quota 50.16 110.74 60062200 Knit fabrics, colored cottons 20% 0% 172.81 104.82 10011000 Hard wheat 0% 0% 46.17 95.5 Mobile telephones (cellular) and from other wireless 5.51 85171200 networks** 0% 0% 93.68 60062100 Knit fabrics, cottons, raw or bleached 20% 0% 112.33 86.98 23040010 Soy flour 0% 0% 35.08 72.6 27101922 Fuel oil No. 6 (Bunker C) 1% 0% 5.88 70.13 27101911 Avjet turbo fuel 1% 0% 0.64 60.03 27101991 Oils and lubing greases 1% 0% 16.18 59.52 Total ten main imports from the United States 491.60 1011.42 Total imports to El Salvador from the United States 2930 3336 * Tariffs to enter El Salvador’s market ** In the third amendment of the harmonized system, no specific openness existed for mobile phones, and its equivalent had 0% tariff. The remaining products comprising our 10 main imports from the United States are knit colored cotton fabrics, US$ 104 million, bleached cotton fabrics, US$87 million, and mobile cellular phones, US$94 million. H. Support to exports from El Salvador Aware of the relevance international trade has as a direct agent for the economic and social development, the government of El Salvador has created several support programs for the private sector, and the exports, in order to provide them with the necessary tools to potentiate their exports, and allow them to insert adequately in the international market. Among these programs we underline the one offered by the National Exports Agency (EXPORTA) and the Ministry of Economy through its FOEX/FONDEPRO program. Salvadoran exports promotion through EXPORTA EXPORTA facilitates, expeditiously, timely and efficiently, access to service companies and support mechanisms, public and private, which will allow them to successfully and in a sustained manner insert themselves in the international markets, contributing to the increase of exports from the country. Ministry of Economy of El Salvador Page 19
  20. 20. III Anniversary CAFTA in El Salvador March 2009 The objectives of this agency are: i. Systematic identification of trade opportunities in the prioritized markets. ii. Application of the internationalization strategies oriented to the adaptation of supply to demand. iii. Focalized promotion of the export offer oriented to the demand of identified markets. iv. Facilitate the articulation of demand and supply of the necessary services for the insertion of companies in the international markets. v. Develop and permanently use external and internal networks of strategic allies. vi. Potentiate the interactive use of technological platforms of information. Taking in consideration that the United States is the main trade partner of El Salvador, EXPORTA opened this year an office at the Salvadoran Embassy in Washington, D.C. The objective of this office is to tend to the needs of Salvadorans abroad in the best way possible, and help towards the creation of business opportunities, for Salvadorans in the country, for those who wish to send their products to the Unites States, as well as for Salvadorans residing in the United States interested in offering their products. Another important achievement of EXPORTA during 2008 is the launching of the brand ―Authentic Salvadoran Flavor‖ foods to be included in all Salvadoran food products. The objective of the country brand is to identify all Salvadoran manufactured foods and drinks, communicate their benefits, and generate trust among consumers. Through this brand we can merge the communication needs of Salvadoran exporters, preparing a visual unit that transmit the origin and benefits to the products that carry it. As a one first phase, this brand is being promoted in the Eastern coast of the United States (New York, New Jersey, Washington D.C., Virginia) with the campaign phrase ―Feel the flavor of your land.‖ To find out more information, you can visit the official EXPORTA web page: www.exporta.gob.sv Ministry of Economy of El Salvador Page 20
  21. 21. III Anniversary CAFTA in El Salvador March 2009 Exports promotion (FOEX/FONDEPRO) FOEX/FONDEPRO is the result of a Salvadoran Government initiative through the Ministry of Economy, to promote export development, quality, association, productivity, innovation, including the adoption and incorporation of technological improvements and other support lines that might be necessary in the future, as long as they are supported by the competitive strengthening of the Micro, Small and Medium Enterprises (MSME’s) through the non-reimbursable co-financing of up to 70 % of the total cost of a Project or specific initiative. The main objective is to promote MSME’s competitiveness in El Salvador. Its specific objectives include: i. Favor the optimal assignment of resources towards new activities with greater value added, generating positive externalities with the economy and society. ii. Promote technological innovation of products and processes. iii. Incorporate in enterprises, quality systems for products, processes and operational management, according to international standards. iv. Incorporate new technologies in productive processes for enterprises; through the adoption, innovation or technological transfer. v. Promote association through the development of suppliers, productive chains and other mechanisms which imply the support of coordination activities among enterprises and at the same time, are consistent with competitive markets. vi. Develop and maintain international markets which allow a constant growth of the enterprises in the country. If you require more information about this program, you can check the official web page www.foex.gob.sv or call (503)2231-5871. Ministry of Economy of El Salvador Page 21
  22. 22. III Anniversary CAFTA in El Salvador March 2009 Sectors Analysis Picture: craft museum of textiles Ministry of Economy of El Salvador Page 22
  23. 23. III Anniversary CAFTA in El Salvador March 2009 III. Sectors Analysis A. Increase in the market participation of El Salvador in the textile and apparel sector of the United States According to data from the Trade Department of the United States, El Salvador registered a yearly increase in exporting value of its textile offer to the United States of 4.24% and a recovery of its market participation (1.69%) at the closing of 20081; becoming the member country of CAFTA- DR that registered the largest growth in this highly competitive sector. Graph 8 Market Participation – El Salvador In textile and apparel imports – United States Source: Prepared by IC/MINEC with USITC numbers Said increase in market participation is an indicator of competitiveness, because it suggests that El Salvador has achieved an important positioning vis-à-vis other countries in a specific target market; a relevant factor when demand contracts, and as is the current case in the United States, with purchases of textiles abroad that have been reduced in -3.34% in value at 2008 closing, related to 2007. (see date from official sources: http://otexa.ita.doc.gov/msrcty/v2110.htm) Regardless of the present economic crisis and the post quota period2, there are several factors that have contributed to the country generating these results to date: (1) The strategic vision of sector enterprises in the development of a productive integration between the textile and apparel industry; as well as the timely conversion to offer Full Package, receiving incentives partially by the conditions granted by the FTA with the United 1Fuente http://otexa.ita.doc.gov/msrcty/v2110.htm«Source http://otexa.ita.doc.gov/msrcty/v2110.htm 2 In 1994, the Agreement on Textiles and Apparel (ATC) is implemented, looking for the progressive integration of textiles and apparel to GATT standards through: The elimination of textile quotas in 4 stages, according to the list of products of countries, for each of the stages. Ministry of Economy of El Salvador Page 23
  24. 24. III Anniversary CAFTA in El Salvador March 2009 States. (2) The enforcement of the FTA with the United States. On the other hand, there are some apparel industries that are bidding to the focus or specialization strategy, developing products with ever more value added, or reorienting it to market niches that require speed of response to the target markets (supply). Additionally, there are other exogenous factors, such as increase in production costs in China (main supplier country) and the appreciation of its currency vis-à-vis dollar, among others. In the following table, we can see a trend towards decrease in Salvadoran sales or exports at the beginning and end of the year, and the peak months of provisioning are June and July. Graph 9 Importaciones mensuales provenientes de El Salvador hacia EUA Textil y Confección- En miles US$ 180,000 160,000 140,000 En miles de US$ 120,000 100,000 80,000 60,000 40,000 20,000 0 Enero Febrero Marzo Abril Mayo Junio Julio Agosto Septiembre Octubre Noviembre Diciembre 2006 104,187 116,309 67,979 85,886 125,599 148,391 149,252 143,599 152,138 135,750 117,325 124,117 2007 97,306 111,883 131,106 111,945 126,677 137,065 147,625 144,248 138,112 147,606 124,835 127,192 2008 104,567 130,877 124,136 129,945 129,393 162,614 157,953 133,043 147,497 150,803 118,469 123,690 Source: Prepared by IC/MINEC with USITC numbers Before the world economic crisis, Salvadoran industry perspectives are highly challenging. Nevertheless, it is important to observe the global trends and indicators, where there are indications of opportunities for the entrepreneur to be capable of approaching due to his/her capacity of response, flexibility towards change, and innovating vision. For example, the United States companies are looking to balance costs, flexibility, speed and risk in their ―sourcing‖ strategies. They will probably turn to secondary suppliers for the needs not characterized as primary suppliers. For example, the production of certain goods will keep Mexico and the CAFTA region in products considered fashion, supply, under volume and fast turn-around.3 3 Source: Competitivity Analysis of the Apparel Industry in El Salvador, MINEC, 2004. Ministry of Economy of El Salvador Page 24
  25. 25. III Anniversary CAFTA in El Salvador March 2009 The above are strategic subjects that transcend the economic situation and should be approached for the industry’s sustainability. B. Salvadoran exports of dairy products towards the United States have been positively promoted by CAFTA – DR after three years of enforcement Exports of dairy products towards the United States have increased during the last few years, mainly at the beginning of the year of CAFTA’s entry into force, exceeding the total exported in 2005 in 200%, and with a upward trend that was maintained in 2008 according to preliminary numbers of the Central Bank, as we can see in the next graph. Graph 10 Main exported products The main market for dairy products in the United States continues to be specialty cheeses, according to export registries, together with melted Ministry of Economy of El Salvador Page 25
  26. 26. III Anniversary CAFTA in El Salvador March 2009 cheese, reported as a new export product during 2008, according to authorized export registries by CENTREX-BCR. El Salvador: Dairy Products exports towards the United States Accumulated Participatio growth rate n% % Product (2006/2008) 2008 0402-MILK & CREAM, CONCENTRATED OR WITH SUGAR ADDED OR ANY OTHER SWEETENING 1% 0405-BUTTER AND OTHER FATS FROM MILK, DAIRY PASTES TO SPREAD 109% 1% 0406-CHEESES & CURD CHEESES 28% 98% Total values USD 100% Source: IC/MINEC with BCR data Position of El Salvador in the CAFTA-DR ranking of supplying countries The United States imports cheeses from a total of 56 countries, where El Salvador holds the 35th position. From the CAFTA-DR member countries, El Salvador is currently the second cheese exporter to the United States, after Nicaragua, and is closely followed by the Dominican Republic and the other Central American countries. In 2008 according to the International Trade Commission of the United States, there is a decrease of 6.8% in imports coming from El Salvador. CAFTA-DR supplying countries: Cheeses and curd cheeses (HS 0406) to the United States Position vs Position CAFTA- 2005 2006 2007 2008 Variat % in the DR world countries Country In thousand US$ 2007 - 2008 21 1 Nicaragua 3,423 4,854 6,864 8,826 28.60% 35 2 El Salvador 298 597 1,023 953 -6.80% 39 3 Dominican Rep. 259 340 415 622 50.10% 46 4 Honduras 10 218 123 127 3.20% 47 6 Costa Rica 848 402 224 112 -49.90% 68 7 Guatemala: 4 0 0 0 N/A Total in the world 1,048,5 1,071,532 1,152,680 1,209,620 4.90% 50 Source: IC/MINEC with United States International Trade Commission data Treaty Benefits Besides having access to a 300 million people market, the Free Trade Agreement CAFTA-DR gives El Salvador the opportunity to satisfy the Ministry of Economy of El Salvador Page 26
  27. 27. III Anniversary CAFTA in El Salvador March 2009 segment of close to 2 million Salvadorans presently residing in the country. With 0% tariff, Salvadoran and Central American enterprises may export typical cheeses to the United States. As the Hispanic market increases, the opportunity to export products considered ―ethnic‖ increases due to its cultural connotation, without sacrificing quality. It is important to mention that other countries outside of the Treaty, such as Mexico, have an important position in the cheese market of the United States, directly competing with our Salvadoran exporters. During 2008, Mexico held the 16th position within the ranking of cheese supplying countries towards this important market, which can grow and be even more significant in economic terms for Salvadoran enterprises complying with all the quality and hygiene levels, labeling and standards required to compete in the North American market; besides, this turns it into an incentive for SME's who want to participate competitively in the large processed cheeses market. It is important to point out also that, in order to keep exports of this type of products, it has been very important to make an effort in the private sector to comply with the labeling standards necessary to introduce these products in the market. The Ministry of Economy has a guide for food labeling available to the exporter, which has general information on each of the labeling requirements, and eases access to official information generated by the USA government. This practical guide tries to make known, in a concise, fast and comprehensive way, the main requirements imposed by the United States on food labeling, in order to ease its compliance by the small and medium entrepreneurs. This guide is available in www.minec.gob.sv . C. Pickled vegetables, Salvadoran style towards the United States, show an important impulse Pickled food products exports towards the United States show a growth among products such as: Pickled mangos with a growth of 68% moving from 70 thousand 400 dollars exported in 2007, to 118 thousand five hundred dollars in 2008; Yucca flower (Flor de Izote) in acetic acid with 52% growth, baby corn with a growth of 75% in 2008, and Vegetable Salad and pickled vegetables with 16%. Each day these products are achieving a greater acceptance in the North American market, thanks also to the distribution and promotion work in fairs where the local enterprises have carried out jointly with distributors. Ministry of Economy of El Salvador Page 27
  28. 28. III Anniversary CAFTA in El Salvador March 2009 Currently, there is a better positioning for Salvadoran pickled products, as well as the preparation by enterprises, with governmental support, taking advantage of tariff benefits with CAFTA. In the same manner, the visit of fairs, market research and compliance of labeling standards that the enterprises have adopted, surely has been an important factor for this growth. Exportaciones Encurtidos hacia Estados Unidos Valor FOB en US$ Particip. Variac. PRODUCTO 2005 2006 2007 2008 2008 2008/2007 20019090-01005-MANGOS ENCURTIDOS 33,653 15,820 70,464 118,574 30% 68% 20019090-01004-SEMILLA DE PATERNA ENCURTIDA 552 82,389 99,486 81,990 21% -18% 20019090-01006-PACAYA ENCURTIDA 128,139 52,192 150,581 69,354 17% -54% 20019090-00003-FLOR DE IZOTE EN ACIDO ACETICO 35,406 10,918 27,636 42,033 11% 52% 20019090-01003-ENSALADA DE LEGUMBRES Y HORT. ENCURTIDAS 17,987 23,560 22,112 25,687 6% 16% 20089900-01001-SEMILLA DE PATERNA 33,977 7,915 66,934 13,616 3% -80% 20059900-00006-FLOR DE IZOTE EN SALMUERA 11,716 3% 20019090-00009-MOTATE EN SALMUERA 12,425 9,342 2% -25% 20019010-01001-ELOTITOS 3,980 6,984 2% 75% 20019090-00001-REPOLLO ENCURTIDO 9,635 4,999 7,055 4,443 1% -37% 20019090-01008-LOROCO ENCURTIDO 48,790 7,200 5,930 4,188 1% -29% 20055900-01001-FRIJOL MOLIDO ENLATADO 52,490 30,906 20,425 3,169 1% -84% 20089900-00009-MANGO EN SALSA DE CHILE 3,000 1% 20089900-00008-MANGO EN SALMUERA 2,952 1% 20019090-00002-ARRAYAN ENCURTIDO 20,510 4,560 2,354 20059900-00001-LOROCO EN SALMUERA, SIN CONGELAR 2,736 20060000-00002-COYOL EN ALMIBAR 2,982 20089900-00005-SEMILLAS DE PATERNA ENLATADAS 3,666 TOTALES 381,138.9 243,441.5 495,785.4 397,048.4 100% Ministry of Economy of El Salvador Page 28
  29. 29. III Anniversary CAFTA in El Salvador March 2009 Graph 11 Main pickled products exported to the United States Particip.% por producto quot;vegetales encurtidosquot; Exportaciones USD 2008 20019090- ENSALADA DE LEGUMBRES Y 20089900 -SEMILLA HORT. DE PATERNA 4% 20019090-MANGOS ENCURTIDAS ENCURTIDOS 20019090-FLOR DE 7% 34% IZOTE EN ACIDO ACETICO 12% 20019090-PACAYA ENCURTIDA 20019090-SEMILLA 20% DE PATERNA ENCURTIDA 23% Source: Own preparation with CENTREX-BCR data Pickled vegetables (vegetable salad, cabbage, peppers, pacaya, green papaya, among others), are considered ―incipient stars or winners,‖ because these are products in growing demand in the target market (United States) and, Salvadoran exports have also reflected a growth towards this market. The target market of Salvadoran exports of pickled vegetables is the Salvadoran resident community in the United States. It is important to mention that fruits and vegetables are among the products with the greatest trend to be consumed within that group. Consumer habits Consumption habits become progressively more demanding and practical. Demanding on the quality of the product, especially due to health reasons, as well as less time is invested in the preparation of the food eaten. In the case of Salvadorans who have been less than three years abroad, as well as the elderly, they keep many of the original habits and like to prepare their own food. At the general level of the United States, 53.4% of per capita consumption of vegetables corresponds to processed foods. Nevertheless, it is important to mention that in order to enter this market, it is necessary to add value to the processing of food, and packaging of the product. Ministry of Economy of El Salvador Page 29
  30. 30. III Anniversary CAFTA in El Salvador March 2009 A market niche with great opportunities for the industry of pickles is the United States market for natural and organic products. In the United States there are exporting opportunities to the ethnic Salvadoran market, as well as a market for organic products. With DR-CAFTA, fruits and pickled vegetables exported from El Salvador to the United States are granted free tariff access to that market. Challenges and recommendations: Among the main challenges faced by El Salvador for the Salvadoran SME’s to position in the United States market, we find: 1. Strengthening of the primary productive base (vegetables and legumes), to increase the production levels through the increase of new products and development of new technologies.  Increase national production of vegetables, using state of the art technology (controlled agriculture: green houses, technological innovation to eradicate plagues and plant diseases).  Widen and potentiate programs along this line, such as the FRUTALES program promoted by the Ministry of Agriculture and Husbandry since 2000. This program looks at increasing the capacity of the agricultural sector to contribute to diversification, the economic growth of the country, currency generation, the creation of employment sources, and the improvement of the environment. FRUTALES offers specialized technical services for fruit groves in each of the productive chain links, from greenhouses, farms and parcels of fruit producers, small and medium agro- industries, post-harvest management and commercialization, and promotes the association of producers.  Develop the production of organic vegetables. 2. Use the Brand and Seal of Origin for Salvadoran foods and drinks being exported, recently launched by the EXPORTA, Exports Promotion Agency in El Salvador. 3. Strengthen agro-industry through the establishment of alliances with the national and international academic sector, government and private Ministry of Economy of El Salvador Page 30
  31. 31. III Anniversary CAFTA in El Salvador March 2009 sector, to incentivize technological innovation in the processing and conservation of foods. 4. Look for innovation and use of new packages, such as flexible packages, stand-up pouches, bringing innovations such as zippers or special closings that ease packaging, which are also recyclables and environmentally friendly. 5. Implement new financing schemes for the achievement of the vegetable development, as well as the industry of processed products with value added. For more information on labeling of these products, you may visit: http://www.minec.gob.sv/ and download the “Practical Guide for exporting food”, prepared by the Entrepreneurial Competitiveness Office of this Ministry, for entrepreneurs. D. Salvadoran organic products exports show a positive performance The organic production is by definition the ―agricultural production method based on health, nutrition, conservation and soil improvement; the adequate use of power, water, vegetable and animal diversity, and the application of techniques and ingredients which benefit the environment and contribute to sustainable development, dispensing from the use of artificial chemical synthesis inputs. It is also known as ―biological or ecological agriculture.‖ In this definition are included the four Organic Agriculture principles according to the International Federation of Organic Agriculture Movements, IFOAM (www.ifoam.org), HEALTH, ECOLOGY, FAIRNESS and CARE. The concern about health is a subject of worldwide relevance, mainly in developed countries where consumers are ready to pay an over price for those products that offer a better health, or avoid health problems in the future. The same thing happens with the ecology principle, when the deterioration of our environment makes imminent the appearance of ecological movements towards the preservation of natural resources. Organic agriculture contributes to this cause. The appearance of human rights defense promotes the principle of fairness, characterized by respect and justice, another factor that, equally to health and ecology, justifies the increase in demand of organic products throughout the world. Along this same line, the Ministry of Agriculture and Livestock, has developed an Organic Agriculture Policy in El Salvador through which a regulatory framework is establish, allowing organic agriculture to develop all its potentialities in the trade, social, economic, and environmental Ministry of Economy of El Salvador Page 31
  32. 32. III Anniversary CAFTA in El Salvador March 2009 environments; and searches the development of the national organic sub- sector, having as a basis the focus of sustainable agriculture. Organic products Salvadoran exports to the United States Years 2004 – 2008 (US$ values) Tariff Code Product name 2004 2005 2006 2007 2008 08013200 ORGANIC CASHEWS $ 30,297.20 $ 26,750.00 $ 3,900.00 $ - $ - WASHED ORGANIC 09011130 COFFEE $ 683,803.12 $ 795,541.50 $ 1,482,000.00 $ 1,918,141.63 $ 3,452,764.38 ROASTED ORGANIC 09012100 COFFEE $ 906.00 $ 2,140.00 $ 958.00 $ 400.00 $ - ORGANIC SESAME SEEDS 12074010 IN THEIR SHELL $ 36,600.00 $ 290,400.00 $ 156,000.00 $ 405,107.12 $ 350,000.00 SHELLED ORGANIC 12074020 SESAME $ 282,120.00 $ 61,200.00 $ 482.00 $ - $ - TOTAL $ 1,033,726.32 $ 1,176,031.50 $ 1,643,340.00 $ 2,323,648.75 $ 3,802,764.38 Source: CENTREX: Central Reserve Bank of El Salvador (estimated values according to authorized exports) Data compiled by CENTREX shows that the main organic product for export is washed organic coffee (SAC 0901.11.30). This represents 91% of all organic exports from El Salvador to the United States during 2008. Organic coffee participation in exports of this item to the USA has been increasing in the last five years, since it had a participation of 66% in 2004. The Average Yearly Growth Rate (TCMA) of washed organic coffee to the USA is 50%. Graph 1 shows this trend. After the enforcement of the free trade agreement CAFTA-DR, exports growth has increased. During 2008, growth was 80% related to 2007 exports. Graph 12: Organic products exported to the United States Years 2004 – 2008 (million US$ values) Source: Prepared by IC with CENTREX-BCR data 2008 including January – September Ministry of Economy of El Salvador Page 32
  33. 33. III Anniversary CAFTA in El Salvador March 2009 Organic products exports from El Salvador include a limited selection of products such as sesame, cashew nuts, and other nuts. Currently only washed organic coffee and organic sesame in its shell, are exported to the USA. Salvadoran Organic Coffee wins World Wide Recognition The main market for washed organic coffee is the European Union, specifically Germany, Italy, Belgium, France and Sweden. Germany, the United States and Japan have been constant buyers since 2004 of Salvadoran washed organic coffee. In 2008, the United States bought 37% of the washed organic coffee from El Salvador, while Germany bought 18% and Japan 17%. In 2008 two more countries were added to the list of buyers of Salvadoran organic coffee. Sweden with the participation of 22%, a country that did not buy washed organic coffee from El Salvador since 2004; and Egypt with a participation of 1.3%. Germany, the second largest buyer of Salvadoran washed organic coffee, although increased the FOB value imported in over US$100 thousand, their participation fell from 30% to 18% because Sweden imported 22% of the total, equivalent to US$2.1 million. By 2008, only two organic products were being exported to the USA. The second product, with a participation of 9.2%, is Organic Sesame in its shell (SAC 1207.40.10). In Graph 13 we show exports of that product since 2004. The general trend is positive, although it experimented a considerable decrease during 2006. The United States is the main buyer of organic sesame in its shell, with 70% participation in 2008. The United Kingdom bought the remaining 30%. Organic sesame demand in its shell in the European Union and the whole world is increasing, because it is being used for the manufacture of oil. Therefore, at the short term it could represent a larger market for said product, as well as an opportunity to locally manufacture organic sesame oil for export. Graph 13: Organic sesame in its shell exports (SAC 1207.40.10) Years 2004 – -2008 (Thousand US$ values) Source: CENTREX –BCR data 2008 including January - September Ministry of Economy of El Salvador Page 33
  34. 34. III Anniversary CAFTA in El Salvador March 2009 E. El Salvador: Central American country with greatest growth in exports to the United States in the plastic products industry The plastics industry and its manufactures are included in chapter 39 of the Harmonized System. According to official data from the Central Reserve Bank of El Salvador, total exports to the world from that chapter have increased to US$208 million, of which 86% (US$179.3 million) are commercialized in the region part of the free trade agreement CAFTA-DR. The trade exchange generated by CAFTA-DR has resulted in a sustained increase of exports in the plastic industry towards the United States since March 1, 2006. During 2008, 5.5% of total exports of plastics to El Salvador and their manufactures were commercialized towards that country, with an increase related to 2007, where USA had a 3% participation. Since the entry into force of CAFTA-DR three years ago, El Salvador has exported over US$18 million in plastic products. In 2008 El Salvador exported seven times more to the United States than what used to be exported in 2005. In Graph 14 we see the dynamic positive trend of growth of exports of this industry towards the United States. Prior to CAFTA - DR, export growth of the plastic industry in the country, could already be seen. Nevertheless, it has been evidently potentiated by the benefits granted by the free trade agreement. Graph 14: Plastics: El Salvador exports to the United States (years 2004 – 2008) $12.00 $11.4 $10.00 om $8.00 $US DÓLARES Millones $6.00 $5.1 $4.00 $1.6 $1.7 $2.00 $0.4 $- 2004 2005 2006 2007 2008 AÑOS Source: Own preparation with Central Reserve Bank of El Salvador’s data Ministry of Economy of El Salvador Page 34
  35. 35. III Anniversary CAFTA in El Salvador March 2009 Plastic manufactures in general experienced an increase during 2008. The greatest demand for Salvadoran products came from the USA, with value added manufacture such as separators, hooks, bags, and flowerpots, among others. Besides, plastics used as input for production in the USA were also exported, as well as plastic and polystyrene waste used in recycling as inputs for other productive processes. In 2008 seven new products were exported for the first time, adding to over US$820 thousand. Among these new products, the most important are the flowerpots (SAC 3926.90.99). In the same manner, the main export product for 2007, as well as for 2008 was the Plastic Separators (SAC 3926.10.90), an export product that started their sale to USA in 2007. Table 1 details the main exports made in 2008 to USA. Main plastic products and manufactures exported to the United States in 2008 EXPORTS VALUE TARIFF CODE PRODUCT DESCRIPTION 2008 $US 1 39261090 PLASTICS SEPARATORS $ 3,359,670.20 2 39269099 PLASTIC HOOKS/HANGERS $ 1,905,868.54 3 39235090 PLASTIC LIDS $ 1,855,315.58 4 39269099 PLASTIC VASES $ 1,446,060.00 5 39159000 PLASTIC WASTES $ 800,790.75 6 39232190 PLASTIC BAGS $ 444,388.72 7 39269099 FLOWERPOTS $ 441,138.84 8 39234090 PLASTIC CONES $ 322,264.08 9 39269099 SIZER IDENTIFIERS FOR HANGERS $ 300,447.64 10 39100000 PRIMARY SHAPES SILICONES $ 202,172.33 11 39029000 OTHER PROPYLENE POLYMERS $ 190,478.50 12 39119000 RESINS $ 169,470.57 13 39233099 PLASTIC CONTAINERS $ 150,835.74 14 39152000 POLYSTYRENE WASTES $ 65,409.80 15 39199000 SELF-ADHESIVE TAPES $ 26,640.85 16 39232990 PLASTIC BAGS $ 22,448.99 17 39233099 PLASTIC CONTAINERS $ 14,692.14 18 39262000 PLASTIC WHITE COATS $ 13,678.54 19 39269099 PACKAGING MATERIAL $ 13,504.14 20 39249090 HOME USE PLASTIC ITEMS $ 8,048.04 Source: CENTREX: Central Reserve Bank of El Salvador (estimated values according to authorized exports) Highlights products are new export products Ministry of Economy of El Salvador Page 35
  36. 36. III Anniversary CAFTA in El Salvador March 2009 Drive of the Plastic Industry Among the main export plastic products of 2008 we find finished products. Contrary to this, in 2005, before the enforcement of the CAFTA-DR treaty, the main export product in chapter 39 of the SAC to USA was code 3915.90.00 ―Plastic wastes.‖ Besides, in 2004 the main plastic products exported to the USA were: Plastic White Coats (SAC 3926.20.00), Plastic Containers (SAC 3923.30.99), Advertising Material (SAC 39.26.9099), and Plastic Boxes (SAC 3923.31.00). The present combination of products with the highest participation in exports to USA is completely different. The next table shows the ten main exports of 2008, showing the significant growth observed in the last two periods, achieving important growth in exports to USA, as well as to the rest of the world, and growth of the general industry. These ten main products generated 93% of plastic products sales to USA with important percentage increases. In cases when exports decreased, for example Plastic Wastes and Plastic Cones, changes are few. Plastic Wastes (SAC 3915.90.00), that in 2005 represented 27% of exports in this item of the USA market, in 2008 only represented 7% of sales. 10 MAIN PLASTIC EXPORTS AND THEIR MANUFACTURE TO USA YEAR 2007 - 2008 Exports 2007 Participation Exports 2008 Participation Code Description (US$) 2007 (US$) 2008 PLASTICS 39261090 SEPARATORS $ 1,170,661 25% $ 3,359,670 29% PLASTIC 39269099 HOOKS/HANGERS $ 988 0.02% $ 1,905,868 16% 39235090 PLASTIC LIDS $ 699,916 15% $ 1,855,315 16% 39269099 PLASTIC VASES $ 650,104 14% $ 1,446,060 12% 39159000 PLASTIC WASTES $ 862,975 19% $ 800,790 7% 39232190 PLASTIC BAGS $ 227,120 5% $ 444,388 4% 39269099 FLOWERPOTS - 0% $ 441,138 4% 39234090 PLASTIC CONES $ 328,114 7% $ 322,264 3% SIZER IDENTIFIERS 39269099 FOR HANGERS - 0% $ 300,447 3% PRIMARY SHAPES 39100000 SILICONES - 0% $ 202,172 2% OTHERS $ 673,894 15% $ 700,559 6% TOTAL $ 4,613,776 100% $ 11,778,676 100% Source: CENTREX - Central Reserve Bank of El Salvador (estimated values according to authorized exports) Ministry of Economy of El Salvador Page 36
  37. 37. III Anniversary CAFTA in El Salvador March 2009 Foreign Direct Investment New Investment of Aeroman - Picture: El Economista Ministry of Economy of El Salvador Page 37
  38. 38. III Anniversary CAFTA in El Salvador March 2009 IV. Foreign Direct Investment A. General Results Foreign Direct investment has had a clear growing trend since the entry into force of CAFTA-DR, with the opportunity to trade in a stable, safe and favorable manner that has incentivized the establishment of new companies in the country, as well as more favorable conditions and clearer rules of the game coming about with the Treaty. Starting 2006, we can see a clear growth in Foreign Direct Investment (FDI) in El Salvador. Opportunities created by CAFTA-DR have been complemented with a favorable business climate, offering security and stability to investors, as well as brought incentives to the creation of more employment. Thus, foreign direct investment has grown 7.02% to September 2008, related to 2007 closing, according to data reported by the Central Reserve Bank reaching up to this month, 6,325.80 million US$. Graph 15 Source: Own preparation with Central Reserve Bank information Another important result to be mentioned is the diversification of sectors where most foreign investments have been made, and the growth and good performance of several of them. Commercial openness of the country, its strategy to attract investment and amicable policies, has allowed a fast growth in several sectors of the economy. The sector with the greatest growth has been the financial sector. Other sectors such as communications, industry, services and construction have also had a great growth in investment. Ministry of Economy of El Salvador Page 38
  39. 39. III Anniversary CAFTA in El Salvador March 2009 Graph 16 Source: Own preparation with Central Reserve Bank information B. Who invest in El Salvador? Within these results, it is important to point out that investment coming from the United States is still the most important one for El Salvador, becoming thus not only the most important trading partner for the country, but also its main source of investment. By September 2008 the same level of direct investment was registered, as during all 2007, showing a positive performance in this item, waiting for the final numbers in 2008. Graph 17 Source: Own preparation with Central Reserve Bank information Ministry of Economy of El Salvador Page 39
  40. 40. III Anniversary CAFTA in El Salvador March 2009 CAFTA-DR is also a tool that projects us to the world as a country of great opportunities, and which allows us to be more competitive when attracting new investment. Proof to this is that as we have growth in investment coming from the United States, we also have new investments from the other Central American countries and different countries in the rest of the world, that see the opportunity to invest in the country as a strategic decision of the greatest value, allowing access to new markets to offer their products and services, mainly to the United States, Central America and the Dominican Republic. Without a doubt, CAFTA-DR offers great opportunities for El Salvador, and foreign investors established in the country. Direct Foreign Investment coming from all Central America has grown in a stable manner in the last few years, being Guatemala and Costa Rica the main sources. Graph 18 Source: Own preparation with Central Reserve Bank information Similarly, for many years, we can see how foreign direct investment coming from other countries increases. In order to take advantage of the favorable conditions created with the different Free Trade Agreements in force, and mainly with CAFTA-DR, countries such as the European Union, Asia and South America have increased their investment level. In the following graph you see a detail of the FDI composition during 2008, showing a diversification of investments in the country, and showing the main participation of partners with whom there is a current free trade agreement, or one in process. Ministry of Economy of El Salvador Page 40
  41. 41. III Anniversary CAFTA in El Salvador March 2009 Graph 19 Source: Own preparation with Central Reserve Bank information C. Foreign companies trend referred to direct foreign investment of years 2000--2008 According to the Heritage Foundation, an institution dedicated to measure the economic indexes of freedom of the countries, El Salvador is positioned as 33 related to the property rights of the individual and enterprises to be able to consume, produce and invest, in the manner desired. Currently, the global evaluation is 69.8, and is the fourth country positioned among 29 of the Caribbean, South and Central America. The above has great influence in giving a greater receptivity to investors in our country, and becoming more attractive and competitive vis-à-vis other countries in the region. According to PROESA, the national agency for investment promotion, the strategy for investment attraction, favorable conditions offered by tools such as the free trade agreement treaties, and a greater competitiveness of the country, have all contributed to make 2008, the year when 62 projects were possible; among them, 32 new companies, 15 sub-contracts, and 15 expansions. In the following graph we have a comprehensive data of the projects registered by PROESA from 2000 to 2008. Ministry of Economy of El Salvador Page 41
  42. 42. III Anniversary CAFTA in El Salvador March 2009 Graph 20 Proyectos registrados por PROESA* 80 62 47 60 40 30 27 26 30 40 25 19 20 0 2000 2002 2004 2006 2008 Source: Own preparation with PROESA’s data * During data compilation, the date when these projects were carried out are taken into consideration, and not the investment commitment of companies. Said projects have contributed to the generation of 26,993 direct and indirect jobs. At the same time, the total investment amount is US$189.97 million dollars. BCR data on enterprise investment is shown up to September, 2008. According to PROESA’s data, by the year 2008 enterprises started their operation in the following sectors: BPO's and Contact Centers, Electronics and Light Manufacture, Aeronautics, Clearinghouses, Textile and Apparel, Tourism and Agro-Industry: Aquaculture and Ornamental Plants. In the next chart we show data referring to the number of companies in each item in that year: Category No projects Agro-Industry 5 Shoes 0 Call Centers and BPO’s 21 Clearinghouses 2 Medical Devices 3 Electronics and light manufacture 8 Textile and Apparel 20 Tourism 3 TOTAL 62 D. Sectors with the greatest development in the last years The present market trend on direct foreign investment is focused on specific and specialized niches using advance technology. Therefore, one of the sectors benefited, is services. This sector has kept an increase in Ministry of Economy of El Salvador Page 42
  43. 43. III Anniversary CAFTA in El Salvador March 2009 investment since 2006, according to PROESA’s data. For this growth, the Law of International Services bringing incentives to this type of centers has played an important role. The agro-industry sector has diversified thanks to the focus on new crops, which have generated a specialized labor group and an automatic technology transfer. On the other hand, Textile and Apparel in the last few years has focused on the re-conversion of the industry, emphasizing in vertical integration, leaving aside all traditional schemes. Thanks to these strategies, investments in enterprises dedicated to spinning, nylon and polyester; synthetic fabrics factories; dyeing and finishing companies, among other. It is worth mentioning also, that this sector has seen its opportunities multiplied with the consolidation of tariff benefits to access the United States market thanks to CAFTA-DR, as well as the most adequate rules of origin. At the same time it is interesting to underline that an aeronautics sector company has also been attracted; lastly, it is worth mentioning that the distribution and logistics centers have maintained growth, becoming an integral part of the value chain. E. Investment Attraction Strategies To awaken interest for foreign direct investment and foster capital flow between El Salvador and its commercial partners, different strategies have been developed to attract investment. The promotion of the country has been proactive, as an attractive destination, facilitating sustainable investments. These strategies are coordinated among different bodies to attract the investor, from the establishment of the first contact, all the way to offer an attractive social and economic environment. The main strategies developed, have been: Promotion Campaigns The main strategy to attract investment has been direct promotion campaigns addressed to large investors, developed by different government organizations, mainly the official investment promotion agency, PROESA. According to the PROESA in 2008, a total of 20 promotion campaigns have been developed, and there has been participation in 58 fairs, missions and events in different states in the United States and other countries. Among the main destinations for United States promotion, we have: El Paso, Texas; Los Angeles; San Francisco & Fresno, California; North Carolina; Las Vegas, Nevada; Atlanta, Georgia; New York; New Jersey; Orlando; Ft. Lauderdale & Miami, Florida; Virginia; Washington DC; Rhode Island; Chicago, Illinois. Ministry of Economy of El Salvador Page 43