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Contact the Central American Group to invest in El Salvador by locating a manufacturing facility in one of the CAG free zones.
El Salvador seeks to negotiate a Free Trade Agreement with China. It intends to increase the value and number of products it sells to the Asian nation. Since the beginning of bilateral relations between the two countries in 2018, exports to China have decreased. The El Salvador and China trade relationship has significant potential for growth.
With the promise that El Salvador will sell more products to China, the Central American country is on the verge of signing a Free Trade Agreement with the Asian country.
El Salvador and China began free trade talks in late 2022
The announcement that El Salvador and China would pursue a free trade agreement was made in November of 2022 when both parties surprisingly said they were advancing in talks to reach a commercial deal as soon as possible.
“China is the second largest economy in the world, and for a long time, El Salvador had been isolated from that potential for our trade, for our products, for economic exchange,” commented President Nayib Bukele during the event that was attended by the ambassador of the Asian country, Ou Jianhong.
El Salvador broke its diplomatic link with Taiwan in August 2018 and established a new one with China. Since then, the Asian giant has increased its presence in the Central American nation. China built a library in El Salvador, has worked to modernize a commercial port, and has promised to build a stadium as it has done in other countries in the region.
It is still being determined what the terms of an eventual treaty between the two countries would be and how it would affect the El Salvador and China trade relationship. If it materializes, how likely will trade increase and be equitable for the smaller party to the agreement, El Salvador?
El Salvador and China Trade Relationship Background
The trade balance has been uneven in the last ten years, considering the combined total exports and imports between the two countries.
Between January and September 2022, El Salvador imported 2 billion dollars of products from China. While the Central American country barely exported 4 million dollars in trade to the Asian country.
Not even sugar, the most popular product in sales to China according to the figures, has increased in volume of exports to the Asian nation.
The sale of Salvadoran sugar to China fell from 74 million dollars exported in 2020 to 67 million sold in 2021. Trading Economics said El Salvador’s sugar and sugar confectionary product sales reached only 41 million dollars in 2022.
These foreign trade data contrast with the statements of the Chinese ambassador in El Salvador, Ou Jianhong, who, in a press conference on November 10, 2022, stated that “in recent years, bilateral El Salvador and China trade has greatly increased.”
The reality is that the year in which El Salvador exported the most products to China was 2018, when it decided to establish diplomatic relations with that country after interrupting its link with Taiwan.
Rise and decline
Until 2000, the average of Salvadoran exports to China was around 4 million dollars worth of products. But in 2018, foreign trade, with the establishment of a diplomatic relationship, trade volume with the Asian nation grew like never before. According to official figures, El Salvador exported 84 million dollars to its Chinese trading partner that year.
This volume of trade, however, was short-lived: the growth rate in the commercial exchange between the two nations dropped in 2019, 2020, and 2021, the final year closing with 49 million dollars in products exported to China.
Consulted representatives of the business sector in El Salvador consider that the possibility of a free trade agreement will represent both challenges and opportunities. However, they warn that any deal should be framed within the World Trade Organization (WTO) guidelines and consider the differences between the two economies to establish an equitable El Salvador and China trade relationship.
“It is not that we can say that overnight we are going to sign the treaty and we are going to be exporting more,” said Silvia Cuéllar, executive director of the Exporters Corporation of El Salvador. At the same time, she acknowledged that it is both “an opportunity and a challenge.”
Trade Treaties of El Salvador with other countries
El Salvador’s largest trading partner is the United States. In 2022, the Central American country exported 2.8 billion dollars worth of products to its northern neighbor. Guatemala and Honduras are the second and third most significant purchasers of Salvadoran exports.
According to the Ministry of Economy of El Salvador, almost all of the goods and services included in a Free Trade Agreement that El Salvador maintains with the United States are free of tariffs.
Among the products with the greatest demand are agri-food, plastics, textiles, clothing, and chemical products.
Likewise, the Central American country has free trade agreements (FTAs) in force with the Dominican Republic (2001), Chile (2002), Panama (2003), the United States (2006), Colombia (2010), Mexico (2012), and South Korea (2020); and Partial Scope Agreements (PSAs) with Cuba (2012), and Ecuador (2017).
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