Identifier
Created
Classification
Origin
06SANSALVADOR2264
2006-09-14 20:05:00
UNCLASSIFIED
Embassy San Salvador
Cable title:  

EL SALVADOR'S AGGRESSIVE TRADE AGENDA

Tags:  ECON ETRD ES 
pdf how-to read a cable
VZCZCXYZ0000
RR RUEHWEB

DE RUEHSN #2264/01 2572005
ZNR UUUUU ZZH
R 142005Z SEP 06
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC 3746
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS SAN SALVADOR 002264 

SIPDIS

STATE PASS AID/LAC
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN
3134/ITA/USFCS/OIO/WH/PKESHISHIAN/BARTHUR
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD ES
SUBJECT: EL SALVADOR'S AGGRESSIVE TRADE AGENDA

UNCLAS SAN SALVADOR 002264

SIPDIS

STATE PASS AID/LAC
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN
3134/ITA/USFCS/OIO/WH/PKESHISHIAN/BARTHUR
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD ES
SUBJECT: EL SALVADOR'S AGGRESSIVE TRADE AGENDA


1. Summary. Under its export-led growth strategy launched in 1989,
El Salvador has pursued economic integration with its Central
American neighbors and negotiated trade agreements with the
Dominican Republic, Chile, Mexico, Panamsa, and the United States.
Agreements with Taiwan, Colombia, the European Union, and Canada are
under negotiation while agreements with CARICOM and Israel are being
considered. The Salvadoran government has developed a comprehensive
National Export Strategy to help local producers take advantage of
these new markets and to overcome difficulties in diversifying
exports beyond coffee, sugar, and apparel. End summary

El Salvador's Trade Agenda
--------------

2. El Salvador has pursued trade liberalization and export-led
growth since 1989, when the Cristiani government began lowering
tariffs, which peaked at 290 percent, and eliminating most
non-tariff barriers. In addition, since 1994 El Salvador has
aggressively pursued economic integration in Central America,
particularly with ratification and implementation of the Guatemala
Protocol to the General Treaty on Central American Integration in

2002. In March 2002, El Salvador, Costa Rica, Guatemala, Honduras,
and Nicaragua also signed the Central American Treaty on Investment
and Trade in Services


3. The region's next step is the establishment of a customs union,
and on May 12, 2006, Central American countries approved the Uniform
Central American Customs Code (CAUCA). Countries in the region were
to have prepared domestic regulation to implement CAUCA by year-end
2006, but meeting that deadline appears unlikely. Currently, 97
percent of tariff lines are harmonized, and the remaining 3 percent
are sensitive goods such as coffee, sugar, rice, and their
derivatives. There has been some progress on labeling standards,
but the region has yet to address other issues related to creating a
customs union such as customs procedures, sanitary and phytosanitary
standards, labeling, quota management, and intellectual property
rights.


4. Outside the region, El Salvador has aggressively sought new
markets through trade agreements, and in 1995 it joined the Word
Trade Organization. In 1999, El Salvador together with Guatemala,

Honduras, and Nicaragua signed free trade agreements with the
Dominican Republic and Chile; in 2002, the region concluded
agreements with Panama and Mexico. The Central American and
Dominican Republic Free Trade Agreement (CAFTA-DR) entered into
force between El Salvador and the United States on March 1, 2006.

Trade Talks with Taiwan, Colombia, the EU, and Canada
-------------- --------------

5. Guatemala, El Salvador, and Honduras are negotiating a trade
agreement with Colombia that they plan to conclude by year-end 2006.
Under the agreement, products such as coffee, sugar, and
rice--which are produced both by El Salvador and Colombia--will
likely be excluded. Although current exports to Colombia are
insignificant, the largest potential for Salvadoran exports to
Colombia is in textile and apparel and nontraditional agricultural
products, both of which are included in the agreement.


6. El Salvador and Honduras are also negotiating a trade agreement
with Taiwan. Broader than the agreement with Colombia, it would
include a chapter on development cooperation and one on investment.
Minister of Economy Yolanda de Gavidia said that a principal goal of
the treaty is to attract Taiwanese investment. On the trade front,
El Salvador sees potential to increase exports of sugar, coffee,
fruits, herbs, apparel, and scrap metal. El Salvador seeks to
exclude from the agreement sensitive products such as rice, poultry,
steel, iron, and certain textiles, but El Salvador's strong
political and investment ties with Taiwan will likely keep these
sensitivities from becoming deal breakers. Within the region,
Panama and Guatemala already have signed trade agreements with
Taiwan, while Nicaragua is finalizing one.


7. At the European Union - Central American Summit in Vienna on May
13, 2006, participants announced plans to negotiate an Association
Agreement that will include the establishment of a Free Trade Area.
Few details are available at this point, but Ministry of Economy
contacts suggest that trade provisions included in the agreement
will likely be similar to those included in EU agreements with Chile
and Mexico. However, the European Union has made it clear that it
prefers to deal with Central America as a bloc and will not begin
negotiations in earnest until the customs union is complete.
Meanwhile, negotiations between the CA-4 (Guatemala, El Salvador,
Honduras, and Nicaragua) and Canada are suspended, but Minister of
Economy de Gavidia has expressed interest in renewing those talks in
early 2007.

Plans for Talks with CARICOM and Israel
--------------

8. The CA-4 countries plan to negotiate a trade agreement with the
Caribbean Community (CARICOM) in 2007. Vice Minister of Economy
Eduardo Ayala has said the agreement would cover 90 percent of
tariff lines. Israel has also expressed interest in negotiating an
agreement with Central America, viewing the region is a good export
market as well as a location for investment.

A New National Export Strategy
--------------

9. To help exporters take full advantage of the trade agreements
negotiated, the Salvadoran Government launched El Salvador's first
National Export Strategy on August 23, 2006. Led by Vice President
Ana Vilma de Escobar--who is also President of the National
Investment Promotion Agency (PROESA) and the National Export
Promotion Agency (EXPORTA)--the initiative seeks to identify markets
overseas for Salvadoran goods and provide assistance to local
exporters to increase exports to $12 billion by 2016, up from about
$3.4 billion in 2005.


10. With assistance from USAID and the Inter-American Development
Bank (IDB),EXPORTA prepared the strategy in consultation with the
private sector and government officials. During the formal
presentation of the strategy, EXPORTA Director Aldo Vallejo made it
clear that El Salvador does not want to compete on low cost, low
value added products and instead wants to take advantage of its
relatively skilled labor force, and other strengths, to focus on
high quality, high value added goods.


11. The strategy includes a component focused on improving business
competitiveness by establishing export consortiums for certain goods
and establishing a certification program for quality products.
Another component will focus on insurance and financing, including
export credits, risk capital, guarantees, and insurance. Under this
component, the government will provide assistance to small business
in presenting their financial records to banks to improve access to
credit. Other components of the strategy address logistic and
transportation as well as training for Salvadoran diplomats on
commercial issues and export promotion. Finally, the strategy seeks
to create a culture of quality among local business through a
publicity campaign directed at small businesses--projecting that
image overseas through trade missions and other interactions with
foreign buyers would also be important.


12. Comment: El Salvador's trade-led growth plan was designed to
encourage local productivity improvements in response to competition
from abroad and open export markets for these newly-efficient local
producers. The key to the plan was diversification--that is,
exporting not only coffee and apparel but other goods as well.
However, nontraditional exports (diversified, with more value added
than traditional exports such as coffee and sugar) have fallen from
49 percent in 1990 to 39 percent in 2005 as a percentage of total
exports. The new National Export Strategy suggests the government
will make a more proactive effort to support local producers in
their efforts to compete. The plan is promising, but we are
concerned that it provides few details regarding implementation--a
shortcoming that government officials promise to rectify over the
months to come. End comment.

Barclay