Negotiations for a Free Trade Agreement Between El Salvador and Peru Advance: Strengthening Economic Ties in Latin America

Current Trade Landscape Between El Salvador and Peru

In 2023, the total trade between El Salvador and Peru reached $73 million. Of this total, Peruvian exports accounted for $51 million, dominated by chemical products ($19 million), agricultural products ($17 million), and metallurgical products ($5 million). On the other hand, El Salvador’s exports to Peru were valued at $22 million, with a significant 71% of these exports consisting of sugar. This imbalance underscores the potential for diversification and growth in trade between the two countries, particularly in light of the proposed free trade agreement between El Salvador and Peru.

Minister Galdo emphasized Peru’s commitment to expanding commercial business opportunities, particularly in Central America. “Peru is committed to continuing to expand commercial opportunities for businesses. This progress with El Salvador to achieve a new FTA shows that our trade negotiation agenda remains active, and we continue to seek to position our products in international markets, particularly in Central America,” she stated.

Opportunities for Diversification

While sugar currently dominates El Salvador’s exports to Peru, the potential for diversification is vast. Minister Galdo highlighted the opportunities for Salvadoran products such as cookies, sweets, chocolates, and other agricultural goods to make significant inroads into the Peruvian market. This diversification could help balance the trade scales and create more resilient trade relationships between the two countries. The free trade agreement between El Salvador and Peru could be a key driver in unlocking these new opportunities for diversification.

The discussions on the FTA come when both countries seek to strengthen their economic ties and explore new avenues for growth. For El Salvador, the free trade agreement between El Salvador and Peru could open up access to a broader range of markets for its products, providing a much-needed boost to its export sector. The agreement represents an opportunity for Peru to expand its footprint in Central America, which has become increasingly important in its trade strategy.

Enhancing Financial Support for Exporters

During her presentation at SUMMIC 2024, Minister Galdo also addressed the importance of financial support for exporters, particularly in foreign trade. She noted that the Peruvian government is actively promoting access to financing for exporting entrepreneurs through initiatives such as the SeCompetitivo Program of Swiss Cooperation in Peru, in coordination with the Development Finance Corporation (COFIDE).

“We are focused on expanding financial instruments for exporters in microfinance institutions. We have been proposing the relaunch of the PymEX credit, aimed at municipal savings and credit banks specializing in foreign trade. Similarly, through Financial Rounds, we are disseminating financing instruments to exporting companies and those with export potential,” explained Minister Galdo.

These efforts to enhance financial support for exporters are crucial for both countries as they seek to maximize the benefits of the free trade agreement between El Salvador and Peru. By providing exporters with the necessary financial tools, the agreement can lead to increased trade volumes and greater economic integration between El Salvador and Peru.

Strategic Importance of the FTA

The free trade agreement between El Salvador and Peru is part of a broader trend in Latin America, where countries are increasingly seeking to forge closer economic ties through trade agreements. For Peru, this FTA is a strategic move that aligns with its broader trade policy, which includes ongoing negotiations for an FTA with China, one of the world’s largest economies.

“On September 7, we will have a round to establish the roadmap and schedule for a free trade agreement between El Salvador and Peru, and that is why it has been important to meet with the Minister of Economy (María Luisa Hayem) because at this time they are also advancing an FTA with China,” commented Minister Galdo.

The simultaneous pursuit of FTAs with El Salvador and China reflects Peru’s dynamic trade strategy, which aims to diversify its trade partners and enhance its global trade presence. For El Salvador, the FTA with Peru could serve as a model for future trade agreements, helping the country integrate more deeply into the global economy.

Broader Implications for Latin American Trade

The potential free trade agreement between El Salvador and Peru could significantly affect trade in Latin America. As countries in the region continue to seek ways to boost economic growth and reduce dependence on traditional markets, FTAs offer a viable path toward achieving these goals. By lowering trade barriers and facilitating the flow of goods and services, FTAs can help create more resilient and diversified economies.

Moreover, the FTA could catalyze increased investment between the two countries. As trade volumes grow, businesses in both nations may see new opportunities for investment in sectors such as agriculture, manufacturing, and services. This could lead to job creation and economic development, benefiting El Salvador and Peru.

Conclusion

The resumption of negotiations for a free trade agreement between El Salvador and Peru marks a significant step in strengthening economic ties between the two countries. Focusing on expanding trade, diversifying exports, and enhancing financial support for exporters, the FTA can unlock new business opportunities in both nations. As Latin America continues to navigate the challenges of the global economy, FTAs like the one being pursued between El Salvador and Peru could play a crucial role in driving economic growth and fostering greater regional integration.