CAFTA's Positive Impact on El Salvador's Economy

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

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


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;



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



Trade Analysis

Picture - www.alcol.es



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



Graph 2


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



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:



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


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



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


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



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).



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



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.



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

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.



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
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

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.



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.).



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



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.



Table 1: Main Imports to El Salvador from the United States, 2008
Source: Central Reserve Bank, value in millions US$
Tariff
before Tariff by
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.



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



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.



Sectors Analysis

Picture: craft museum of textiles



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.



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.



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



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



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.



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%



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.



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



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



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



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



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



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



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)



Foreign Direct Investment

New Investment of Aeroman - Picture: El Economista



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


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.



Graph 16


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




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


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.



Graph 19


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.



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



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.


CAFTA's Positive Impact on El Salvador's Economy

CAFTA's Positive Impact on El Salvador's Economy

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