Salvadoran Free Trade Agreements
One of the main benefits of investing in manufacturing in El Salvador is the large number of countries that it has negotiated Salvadoran free trade agreements with. These accords give producers preferential access to major global markets for their goods.
The Central American Group: Welcome to another edition of the Central American Group’s series of podcasts. In these discussions that we have with expert individuals, we talk about trade in Central America and other issues that are important to foreign investors that are looking to do business in the region. Today, we are speaking with Johanna Hill. She is a partner at CATRADE, which is located in San Salvador, El Salvador. The focus of this podcast will be on Salvadoran free trade agreements.
How are you today, Johanna?
Johanna Hill: I’m doing well. Thanks.
The Central American Group: Could you tell us a little bit about your background and the company that you represent?
Johanna Hill: I work for CATRADE Consulting. It is a boutique specialized firm with offices in San Salvador and Costa Rica. Our clients are local and foreign that want to take advantages of the different Salvadoran free trade agreements that we have in the region.
Before starting with the firm, I was in government for about 15 years. My work was related to trade issues. My last post was as the Vice Minister of Economy of El Salvador. In this area, we conducted El Salvador’s trade policies and formulation and implementation of Salvadoran Free Trade Agreements.
The Central American Group: Thank you very much for that introduction. How many Salvadoran free trade agreements are there?
Johanna Hill: El Salvador has different types of agreement depending on the partner that it is working with. We have Salvadoran free trade agreements with Panama, the Dominican Republic, and the United States (which is called the CAFTA-DR). We have a free trade agreement with Mexico, Colombia, and Taiwan.
We also have other types of agreements. We have agreements which are of a narrower scope with Cuba and Ecuador. Also, beyond Salvadoran free trade agreements, we also have integration agreements that go beyond free trade in Central America. So, we are in the process of forming a customs union with Honduras and El Salvador. It is a little bit similar to what Europe has.
Central American Group: That’s very interesting. Given the scope and breadth of the Salvadoran free trade agreements, as well as the limited scope agreements, how can foreign investors benefit from these arrangements?
Johanna Hill: I think that there are two main advantages to investing and exporting from Central America. The first is El Salvador’s proximity to big markets. We are very close to Mexico and the United States and to the northern part of South America. As I mentioned before, we have Salvadoran free trade agreements with countries in the area. This means that we have good market access conditions. Products enter many countries with zero duties. In addition to market proximity, we have very favorable rules of origin. Since we are on the smaller side in terms of economy, our partners have usually granted us rules of origin that are favorable to our reality. So, for some industries and some products, we can bring in raw materials or intermediate products so that they can be finally processed and receive the benefits of Salvadoran free trade agreements. They then can be sold abroad.
The Central American Group: What have been the results of the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA)? Has it stimulated trade between the US and El Salvador?
Johanna Hill: On one hand, we had very favorable access to the US market because of the Caribbean Basin Initiative. What the DR-CAFTA did was to consolidate trade preferences, and also open the region to US products. It is not as though we have seen a huge increase in trade because of the DR-CAFTA. We already had that market access through other Salvadoran free trade agreements. Again, what it did was to consolidate a number of trade accords and it gave clarity on what the “rules of the game” are in order to export to the United States. I do, however, think that we could take better advantage of the DR-CAFTA agreement in other sectors that have not seen a lot of investment yet. For example, in the production of footwear, and in textiles and apparel there are still a lot of products that can be produced here. In these areas, we have a distinct competitive advantage in terms of duty-free access that other markets don’t have.
The Central American Group: What are El Salvador’s principal exports?
Johanna Hill: Well, obviously textiles and apparel is our main export. This is followed by agro-industrial products such as coffee and sugar, tuna fish, and cheese and honey. For those types of products, our main export markets are the US, Guatemala, Honduras, Spain, Canada, and Germany. After that, I would say food and beverages, pastries, cookies, snacks, and sweets. Additionally, we export fruit juices, carbonated beverages, and beer. Then there is the production of light industrial manufactured products such as plastics, paper and carton products, and paint and certain chemicals.
The Central American Group: According to research that I have done, there are to be future Salvadoran free trade agreements with other countries. What are those? What should companies that are looking to do business in El Salvador do to take advantage of them?
Johanna Hill: I think that one of the recent Salvadoran free trade agreements that is very interesting is one with the European Union. We will have access to all of the EU countries. Once we ship our products from Salvadoran free trade zones, they will have free circulation in Europe.
We have ratified, but it hasn’t come into force, the Central American – South Korea Free Trade Agreement. That is our second free trade accord with countries in Asia. Everyone wants to have access to that market. Also, one of our biggest export destinations is Central America. We have recently joined the Northern Triangle (El Salvador, Guatemala, and Honduras) customs union, which goes a step further than what the rest of Central America is doing right now. We will have the free circulation of goods within the Northern Triangle. I think that this will really benefit investors that are seeking to have their goods and raw materials circulate freely. This will give them advantages in timing over their competitors.
The Central American Group: What advice would you give to companies that want to get involved in trade with Central America?
Johanna Hill: I think that it is important to get to know the region, and to learn about how Salvadoran free trade agreements will affect investors’ industry or specific product. It is also important to look at the rules of origin to see if any quotas are applicable or if you have favorable market access that other competitors do not have. Let’s say you have Asian competitors and you want to reach the US market we have very favorable conditions. This is so not only because of Salvadoran free trade agreements but also because of market proximity. Sometimes, however, the devil is in the details. I would recommend doing a little research on how a specific product looks in the different trade agreements. Then, I would say that in general in Central America, and particularly in El Salvador, our governments are very interested in developing a close relationship with the different investors. We want to have a close understanding of what their needs are so that we can help to make their investment work.
The Central American Group: I’m sure that after listening to this conversation there are going to be individuals that have more questions. How can people get in touch with you to ask them?
Johanna Hill: They can reach us through our webpage. The address is www.catradeconsulting.com. There they can find our email and other contact information if they need us.
The Central American Group: Unless you have more knowledge to impart at this time, I want to thank you for having a discussion with us. It was very interesting.
Johanna Hill: Anytime.
Central American Group: Have a great day.
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