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Ministry of Economy, El Salvador March, 2009 III Aniversary Results CAFTA in El Salvador 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
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Page 1: III Cafta Anniversary Un El Salvador

Ministry of Economy, El Salvador

March, 2009

III Aniversary Results

CAFTA in El Salvador

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

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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

America

9

E. Main products exported from El Salvador to the United States of

America, new exports, and exports with the greatest growth

10

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

investment during 2000-2008

41

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 III anniversary of the entry into force of the Treaty

46

A. Launching the initiative ―Pathways to Prosperity in the Americas‖

47

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

framework of CAFTA – DR

58

H. Spreading the benefits and opportunities of CAFTA - DR 60

I. Enforcement of CAFTA – DR for Costa Rica 63

VI. General Conclusions 64

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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;

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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

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Trade Analysis

Picture - www.alcol.es

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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

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Graph 2

Source: Own preparation with Central Reserve Bank information

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

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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:

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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

Source: Own preparation with Central Reserve Bank information

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

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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

Source: Own preparation with Central Reserve Bank information

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

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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 pajamas" 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 cotton" 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).

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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 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$

Code Product Tariff before

CAFTA Tariff by

2008* 2005

Value 2008

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

61099000 Women or girls sleepwear, knit, other textile materials 32%, 16% &

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

Coffee – picture, embassy of El Salvador in Ireland

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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.

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Main new exports from El Salvador to the United States, period 2004 - 2008

Source: Central Reserve Bank, value in millions dollars

Code Product Tariff before

CAFTA* Tariff by

2008* 2004 2008

85322100 Tantalum electric condensators 0% 0% $0.00 $85.68

85443000

Spark plugs cable sets and other sets of cables used in

transportation mediums 5% 0% $0.00 $16.98

85322400

Fixed or variable electric condensators, with ceramic

dielectric, multilayer 0% 0% $0.00 $10.75

21069099 Aromatic syrups or with colors added 6.4% 0% $0.00 $6.88

38085030

Insecticides, rat poisons, herbicides, fungicides,

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

17019900 Chemically pure sucrose, solid

3.14 to 3.66

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

* Tariffs to enter United States market

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.

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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$

Code Product Tariff before

CAFTA* Tariff by

2008* 2004 2008

74199990 Copper manufacture 3% 0% $15 $637,169

33053000 Hair sprays 0% 0% $1 $15,573

90178000

Drawing, tracing, calculation instruments (pantograph,

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

54023300

Synthetic filament threads (except sewing thread)

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

84440000

Extruding, stretching, texturizing or cutting machines

for synthetic or artificial textile material 0% 0% $200 $72,439

76169990 Aluminum manufactures 2.50% 0% $527 $152,394

52103900

Cotton fabric with a cotton content under 85% in

weight 12.4% & 10% 0% $346 $84,714

* Tariffs to enter United States market

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.

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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.).

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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

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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.

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Table 1: Main Imports to El Salvador from the United States, 2008

Source: Central Reserve Bank, value in millions US$

Code Product

Tariff

before

CAFTA* Tariff by

2008* 2005 2008

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

85171200

Mobile telephones (cellular) and from other wireless

networks** 0% 0%

5.51

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.

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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

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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.

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Sectors Analysis

Picture: craft museum of textiles

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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.

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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

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

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

En m

iles

de

US$

Importaciones mensuales provenientes de El Salvador hacia EUATextil y Confección- En miles US$

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.

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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

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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

Product

Accumulated

growth rate

(2006/2008)

Participatio

n % %

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

in the

world

Position vs

CAFTA-

DR

countries Country

2005 2006 2007 2008 Variat %

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

50

1,071,532 1,152,680 1,209,620 4.90%

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

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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.

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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.

2005 2006 2007 2008

Particip.

2008

Variac.

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%

Valor FOB en US$

Exportaciones Encurtidos hacia Estados Unidos

PRODUCTO

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Graph 11 Main pickled products exported to the United States

Particip.% por producto "vegetales encurtidos"

Exportaciones USD 2008

20019090-

ENSALADA DE

LEGUMBRES Y

HORT.

ENCURTIDAS

7%

20019090-MANGOS

ENCURTIDOS

34%

20089900 -SEMILLA

DE PATERNA

4%

20019090-SEMILLA

DE PATERNA

ENCURTIDA

23%

20019090-PACAYA

ENCURTIDA

20%

20019090-FLOR DE

IZOTE EN ACIDO

ACETICO

12%

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.

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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.

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

With DR-CAFTA, fruits and pickled vegetables exported from El Salvador to the United States are granted free tariff access to that market.

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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

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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 $ - $ -

09011130 WASHED ORGANIC COFFEE $ 683,803.12 $ 795,541.50 $ 1,482,000.00 $ 1,918,141.63 $ 3,452,764.38

09012100 ROASTED ORGANIC COFFEE $ 906.00 $ 2,140.00 $ 958.00 $ 400.00 $ -

12074010 ORGANIC SESAME SEEDS IN THEIR SHELL $ 36,600.00 $ 290,400.00 $ 156,000.00 $ 405,107.12 $ 350,000.00

12074020 SHELLED ORGANIC 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

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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

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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)

$0.4

$1.6 $1.7

$5.1

$11.4

$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

2004 2005 2006 2007 2008

Millo

nes

AÑOS

$US

LARE

S

Source: Own preparation with Central Reserve Bank of El Salvador’s data

Envases de plástico. Fuente: www.occiplastic.com

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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

TARIFF CODE PRODUCT DESCRIPTION EXPORTS VALUE

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

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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

Code Description

Exports 2007

(US$)

Participation

2007

Exports 2008

(US$)

Participation

2008

39261090

PLASTICS

SEPARATORS $ 1,170,661 25% $ 3,359,670 29%

39269099

PLASTIC

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%

39269099

SIZER IDENTIFIERS

FOR HANGERS - 0% $ 300,447 3%

39100000

PRIMARY SHAPES

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)

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Foreign Direct Investment

New Investment of Aeroman - Picture: El Economista

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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

Source: Own preparation with Central Reserve Bank information

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.

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Graph 16

Source: Own preparation with Central Reserve Bank information

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

Source: Own preparation with Central Reserve Bank information

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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

Source: Own preparation with Central Reserve Bank information

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.

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Graph 19

Source: Own preparation with Central Reserve Bank information

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.

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Graph 20

19

30 27 26 3025

4047

62

0

20

40

60

80

2000 2002 2004 2006 2008

Proyectos registrados por PROESA*

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

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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.

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Local training, learning programs, and work fairs

It is important to mention the trend seen on FDI, attracting specific companies from specific and specialized niches, using advanced technology. These investments generate greater value added jobs, and in

some cases require greater technical capacity, English language proficiency, higher studies, and information technology knowledge, among

others. Therefore, the implementation and support to information technology programs from technical jobs, is a basic investment promotion strategy. Among the different initiatives, we have:

a) Foster a professional development triade among Private,

Governments and Educational Institutions. This has brought about

agreements with educational institutions, such as the Don Bosco University and ITCA, for the development of technical careers to

satisfy the needs of different investors. b) Several job fairs have been organized to create data bases of people

who can participate in the recruitment of investment enterprises.

These fairs are focused in technical profiles and English proficiency.

i. Infrastructure promotion During 2008, special emphasis has been given to the promotion of public

infrastructure investment. With concessions and complementary development plans with the main mega-projects, among which we have:

The Port of Acajutla and Port of La Unión (PLU) concession process.

Power projects such us:

o AES Fonseca, with a 550MW generating plant based on coal and an investment of US$550 million;

o Cutuco Energy of Central America – CECA, with a 500 MW generating plant based on Natural Liquid Gas (NLG), and an

investment of US$500 million.

Other Infrastructure projects through public-private associations

(PPA), such as highways and airports

ii. Aftercare Service

It is necessary to keep in mind that in order to reach an attractive climate

for future investment, such as the present, it is necessary to have a continuous monitoring of the needs and requirements of the enterprises. Therefore, the Established Investor Service is offered. This program,

developed by PROESA, gives full assistance to the investor, from

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processing paper work before the government, to support in the expansion

of operations. Among the main achievements, we have:

a) As a support to sectors and industries benefited by the International

Services Law, a strategic table has been formed for the bilingual human resource, for contact centers

b) Together with the Technical Presidential Secretariat of the Republic

and UNCTAD, follow up has been given to the e-regulations project

(portal for the investors on legal processes for the establishment of a businesses in our country) in its phase of spreading it

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Other Achievements and

Advances in CAFTA - DR

during the III Anniversary of

the Treaty’s Enforcement

Fotografía: CAFTA Intelligence Center

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V. Achievements and Advances in CAFTA - DR during the III

Anniversary of the Treaty’s Enforcement

A. Launching of the initiative “Pathways to Prosperity in the

Americas”

Last September 24, 2008, the Heads of Government and representatives of Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Panama, Peru and the United States

launched in New York the initiative ―Pathways to Prosperity in the Americas,‖ in order to reach development and prosperity for the members of the initiative through a common commitment with the trade

liberalization and investment, the social, development, law and democracy inclusion.

In the follow up of the initiative’s launching, the first ministerial summit was carried out on December 10, 2008 with the Ministers of Economy or

Commerce, and Foreign Relations of the countries, in order to establish the working axis for the following technical meetings, and reach the objective established for the government heads in New York.

For future work, it was established that the countries needed to work in

four great areas, sharing experiences, cooperating among themselves, and establishing concrete action plans to reach the goals of the initiative. These areas are the following:

Increase opportunities for our citizens, especially small

entrepreneurs and farmers, benefiting them with trade, promotion of trade capacity, among other initiatives

Foster and deepen an open structure for regional trade, compatible with the multilateral trade system

Expand the regional cooperation related to economic development and competitiveness

Improve cooperation and exchange on the best practices on aspects of labor and environmental standards and their compliance

Within the initiative, the participation of the private sector and civil society will also be fostered in order to support its promotion. El Salvador will

host the next follow-up meeting, to be carried out on the first semester of 2009.

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B. Textiles and Apparel Issues

2008 was filled with important activities for the textile and apparel sector within the CAFTA-DR framework. The same as in the training section for

the better taking advantage of opportunities offered by the Free Trade Agreement, better detailed further in this document, and several initiatives

and negotiations carried out to implement and increase the benefits offered by the agreement to this sector to all the Part countries. Among the most noticeable activities, we find the following:

a) Enforcement of the accumulation mechanism

On August 16, 2008 a mechanism was enforced allowing the accumulation of textile inputs for the manufacture of apparel with woven fabrics

classified in chapter 62 of the Tariff System (woven fabric apparel). This mechanism allows the use of Mexican textile inputs to manufacture apparel in Central America and export them to the United States under

CAFTA-DR. The same operation is possible to export apparel manufactured in Mexico, using United States inputs.

Appendix 4.1 B of CAFTA-DR establishes

that the United States allows the use of Mexican inputs for the manufacture of apparel under Chapter 62 (woven fabrics

apparel) up to a certain point, subject to sub-limits according to different apparel

categories. Additionally, reciprocally to the concession made by the USA, it was agreed that Mexico would grant a

proportional quota for Central America, in such a manner that could use textiles from the United States, manufacture in

Central American territory, and export these products to Mexico.

Benefits obtained thanks to this mechanism include the fact that materials and processes may be accumulated to manufacture more elaborated

products, and export them to the United States or Mexico.

On the provisions for the enforcement of the mechanism, the United States required to have an agreement of a quota increase agreed at its inferior limit, due to the entrance of the Dominican Republic. This agreement was

achieved in October, 2007, and the initial quota of 100 million of MCE was increased to 125 million MCE.

Materials and

processes may be

accumulated to

manufacture

more elaborated

products, and

export them to

the United States

or Mexico

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With Mexico, it was necessary to carry out amendments to the corresponding treatments this country has with the Northern Triangle, Nicaragua and Costa Rica. Thus, the protocols for each agreement were

prepared in February 2007, and the amendments were ratified in the Central American congresses between August and November that year. In

the case of El Salvador, the FTA between the Northern Triangle and Mexico amendment was ratified by the Legislative Assembly on November, 2007.

Additionally, an operations regulation was prepared for the accumulation mechanism with Mexico, which was adopted on February 28, 2008, complying thus with the legal processes and requirements to enforce this

mechanism, that assumes an enormous opportunity for the textile and apparel sector in Central America and the Dominican Republic.

The quota distribution, per sub-limits and textile category, based on the quotas granted by Mexico and the United States, is done in the following

manner:

Code or Category Product (%) Initial Amount

(MCE) USA Initial Amount

(MCE) Mexico

Category 342, 347, 348,

642, 647 ó 648 Cotton, synthetic or artificial fibers

trousers and skirts 45% 56.25 million 31.5 million

Fraction 6203.42.aa,

6204.62.aa ó

6204.52.aa

Blue cotton denim trousers and skirts 20% 25 million 14 million

Category 433, 435, 442,

443, 444, 447, ó 448,

& included in entry

62.03 ó 62.04

(suit style jackets only: sub-entry

6204.31, or tariff fractions 6204.33.aa,

6204.39.aa, or 6204.39.dd) & other wool

apparel

1% 1.25 million 0.7 million

The remaining chapter 62 pieces 34% 42.5 million 23.8 million

Totals 100% 125 million 70 million

Minimum Quota Level 125 million 70 million

Maximum Quota Level 250 million 200 million

b) Amendments on matters of origin for the textile sector and

apparel within the framework of CAFTA – DR

On October 14, 2008 the technical negotiations for the incorporation of some amendments to the treatment related to rules of origin for some textile and apparel within the framework of CAFTA – DR. These

amendments are in the process of being reviewed and approved by the

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pertaining legislative mechanisms of each

of the Parties of CAFTA – DR, waiting to be enforced during the first semester of 2009.

The enforcement of these amendments assumes an enormous opportunity for the

Salvadoran textile and apparel sector, opening one more door of opportunities which allow us as a country, to continue

potentiating the CAFTA – DR benefits. Among the amendments expected to be

enforced are those referring to the treatment of the rules of origin for women

and girl’s pajamas, and adequate rules of origin, as well as chapter notes to allow the use of materials found in the scarce

supply mechanism provided by the agreement, among others.

C. Labor Issues

In the same manner as with the implementation of the environmental theme, Chapter 16 (Labor) of CAFTA-DR, a lot of activity has been seen during the third year of implementation, in the cooperation project

development, as well as the strengthening of the institutionalization established in the agreement for this theme.

Referring to the latter, it is important to mention that the Labor Affairs Council met on November 21, 2008 in San Salvador for the first meeting of

the Labor Affairs council within the framework of CAFTA-DR. The Labor Ministers of El Salvador, José Roberto Espinal; from Nicaragua, Napoleón Ríos Miranda; from Guatemala, Edgar Rodríguez; and from Costa Rica,

Francisco Morales; as well as the Vice Minister of Labor from Honduras, Darío Roberto Cardona; the Secretary of State for Labor from the

Dominican Republic, Max Puig; and the Under-Secretary of the Labor Department from the United States, Howard Radzely, participated in said meeting.

The Labor Affairs Council met to supervise the implementation and review

the advance of the agreement with the labor chapter of CAFTA-DR, including activities of the Labor Cooperation Mechanisms and Capacity Development, and to follow up the labor objectives of the agreement.

Documents related to the White Paper can

be found at www.mtps.gob.sv and

www.cafta.gob.sv

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On the other hand, this year we must refer to the Implementation

Verification Report of the White Paper Recommendations for the February 2008 – July 2008 period, stressing that the support from different government agencies in the United States and other cooperators, have

represented an important support to comply with the goals contemplated in the White Book.

It is important to acknowledge that the work of the Labor Ministers of the region, together with the Government Agencies of the United States, the

International Labor Organization (ILO) and members of civil society such as NGO’s, entrepreneurs and other interested actors, have allowed the advance towards the compliance of commitments acquired by the

countries within the framework of CAFTA-DR and other instruments contemplated, such as the ―White Paper.‖

Some important results reflected in the most recent Verification Report for the Implementation of the White Paper Recommendations according to the

last report, are: 1. Freedom of association, unions and labor relations:

Development of five public for the communication on the subject

of union discrimination; the process of the 27 complaints due to illegal firings continued, concluding in financial sanctions processed in the Courts; 163 cases were resolved, and 125

advisories were given on union incidents from the Ministry of Labor and Social Prevision; and the work of the Special

Commission of the Ministry of Labor was created and developed, created to analyze the reforms to Arts. 211 and 248 of the Labor Code that met twice during the period to verify results and

evaluate the steps to be followed on these subjects.

2. Strengthening of the Ministry of Labor and Social Prevision

The Ministry of Labor and Social Prevision budget was

strengthened; investments in the remodeling of the infrastructure were made, computers and furniture were bought; the Technical Norms Regulation for Internal Control, Specific for the Ministry of

Labor, was approved; handbooks for the implementation process of the ISO 9001:2000 Quality Management System, were drafted,

as well as a diagnosis on the situation of the labor inspection, that included an analysis of the administrative career for inspectors; besides, 16 training activities with 592 officers were

carried out, and the Delegate Handbook and Good Practices Protocol from the General Labor Directorate were carried out; and

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the number of yearly inspections increased, from 25,505 (June

2006 – May 2007) to 28,046 (June 2007 – May 2008).

3. Labor Courts

8 training events were carried out on the international labor

standards, and free legal assistance systems, benefiting 219 magistrates and judges, and other labor justice operators; a study of labor jurisprudence was carried out, and during the first

quarter of 2008, 6,358 active files were registered in the labor courts, compared to 5,975 files in 2006 and 6,241 in 2007.

4. Gender and Discrimination

The subject of no-labor discrimination was approached in five public forums carried out by the Ministry of Labor; the Special Gender Unit and Prevention of other Discrimination Acts is

actively working in said ministry, and has 16 officers.

5. Worst Child Labor Methods

The National Action Plan for the Eradication of the Worst Child

Labor Methods is current and being implemented in El Salvador in the period 2007—2010; there are three national committees on the matter; public resources were mobilized to open the leveling

rooms of the Ministry of Education, the application of a child labor work in the Homes Survey for Multiple Purposes, and the

execution of several productive projects with the Ministry of Agriculture and Livestock; prevention actions were developed, as well as the withdrawal of minors from child labor in the sugar

sector; and the commitment from governments to eradicate child labor was reiterated when undersigning the San Salvador Declaration of June 19, 2008 within the framework of the X Ibero

American Conference of Ministers and High Officials for Childhood and Adolescence.

6. Promotion of a culture of compliance

The Ministry of Labor carried out 20 information and training actions in the maquila sector with 57 people, as well as several

meetings from the Higher Labor Council and a forum on the compliance of fundamental labor standards, with 109 participants.

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In the same manner, the development of a project that looks to

promote the Business Social Responsibility, promoted within the framework of the White Paper for the organization of "Business for Social Responsibility" (BSR), and whose main objective is to show

that labor rights are important, and that they can help the enterprise to improve productivity and competitiveness. This

project will start in El Salvador with the support of the Labor Ministry and Social Prevision and the Ministry of Economy.

What is expressed in the preceding lines is a brief executive summary of the most recent Verification Report of the Implementation of the White

Paper Recommendations. The dynamic with which the different representatives of the countries

deserve special mention for their work to give compliance not only to the White Paper of CAFTA-DR, but also assure that the Labor provisions are

duly complied with. Under this same spirit, some of the contact points of the different Parties of CAFTA-DR have met at least four times during 2008 to assess the implementation advances of the Chapter, as well as to verify

advances in the cooperation on matters of the white paper. As it has been shown throughout this comprehensive analysis of the

impact that it has had in these 3 years of the free trade agreement implementation, there are several subjects we still have to work on, there

are many efforts to be carried out, and the importance of everyone's work, essential for the trade agreements to give results, but also for the same to be sustainable throughout time.

Because of the above, we must assess what aspects we must continue

working and supporting to achieve compliance of the whole content of the White Paper. Some of the suggestions made by ILO in the verification report are the strengthening of the Higher Labor Council, achieve a greater

coordination with the technical cooperation projects to orient investment towards strategic themes , continue carrying out periodic meetings of the Follow-Up Committee of the White Paper Implementation Plan; support

measures such as judges training to support the sentences based on the ILO Agreements and a greater spreading of the notices issued by the

Ministry of Labor; continue and increase lobbying activities to increase the Ministry of Labor budget, design and execute a training plan in the area of labor security and hygiene address to labor inspectors; continue with the

efforts to train the Judicial Power to guarantee the affectivity in the application of the international and national labor standard and promote the analysis and discussion of the legal proposal on a unified mechanism

of alternate resolution of conflicts presented before the Legislative Assembly, among other recommendations.

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At the end of February, 2009, a new meeting was carried out in Washington D.C. of the CAFTA-DR region ministers of labor, to approach the labor cooperation agenda within the framework of the Agreement.

During said meeting, it was discussed with the cooperators, the project implementation and development of new cooperation activities.

D. Environmental Issues

2008 was without a doubt a year of a lot of work for the implementation of the environmental subject within the CAFTA-DR framework. Among the several meetings to verify and conclude some of the pending themes, and

assure the due implementation of the environmental Chapter, as well as work performed among cooperators and implementing agencies, a

substantial amount of advances in the implementation were achieved. Institutional work on the environment was also given much importance.

The environmental contact points met at least four times in 2008, to evaluate the implementation of the Environment Chapter, as well as to define the action plans to potentiate its implementation.

This year was also characterized by the culmination of a series of

complementary work and tools within the framework of Chapter 17 of the Treaty. The Secretariat on Environmental Affairs (SEA) is one of the newest mechanisms promoting general citizens participation in aspects

related with the compliance of the environmental legislation in the countries of the region. In this sense, this year work on the procedures to

receive communications from the general public were concluded, criteria for the selection of the new General SEA Coordinator were drafted, to be elected in March this year.

Additionally, a series of workshops for civil society, the media and other public institutions were developed in order to support the knowledge of

Chapter 17, as well as CAFTA-DR in general.

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Besides, the Ministry of the Environment and Natural Resources (MARN),

together with his counterparts from the region and with the support of the Central American Commission for the Environment and Development (CCAD), also worked on the negotiations around the environmental

cooperation aspects of the Free Trade Agreement on the following issue components:

I. Environmental management systems in the CAFTA-DR countries II. Strengthening of capacities from all parties, to comply with CAFTA-

DR environmental obligations. III. Compliance with environmental multilateral agreements IV. Use of cleaner production technologies

V. Inter-ministerial coordination, capacity building, and communication

Through the efforts made by the different actors involved in the implementation of the cooperation achieved through Chapter 17

(Environmental), MARN capacities have been strengthened, such as: Ministry of Agriculture and Livestock,

, Corporation of Municipalities of El Salvador, National Civil Police –

Environmental Division, General Attorney’s Office of the Republic, Firefighters Corp, National Council of

the Judicature, and the Zoological Foundation of El Salvador.

Some of the specific results derived from the implementation of CAFTA-

DR and the cooperation received from the United States underline the following:

Support to the Environmental

Inspectorates to spread the use of the environmental reports to the center of attention, the green line

919, for national coverage.

The drafting of the voluntary technical standard for the preparing of

the Cleaner Production Agreement per sector. The establishment of the enterprise acknowledgement mechanism that apply processes of

Cleaner Production. The development of the information platform (environment and web) in order to systematize the results obtained in the application of the agreements on Cleaner Production. Work

The Secretariat on

Environmental Affairs

(SEA) is one of the

newest mechanisms

promoting general

citizens participation

in aspects related

with the compliance

of the environmental

legislation in the

countries of the

region

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was done in the drafting of a Sectorial Diagnosis with their

corresponding formats of Cleaner Production Agreements in sectors such as poultry and dairy.

The ―Fourth Regional Prize to Cleaner Production‖ was launched, looking to offer incentives to the companies that implement and

maintain monitoring systems and continuous improvement of the adequate cleaner production practices, applied to their processes,

products or services.

Strengthening the capacities of MARN, the Supreme Court of

Justice, the National Council of the Judicature, the Environmental Division of the Police, training in the administrative procedures for

sanctions, characterization of crime and preventive measures, besides the equipment to support these procedures.

Police personnel (Environmental Division) trained in the protection and conservation of natural resources with an emphasis on water,

soil and biodiversity. The environmental crimes manual was prepared.

Training and spreading of the First Response Manual on Hazardous Materials (PRIMAT). Also the environmental audit procedure manual

was drafted. Besides the preparation of a software for data base on the strengthened Environmental Complaints Attention system.

Formulation of the technical criteria Manual for the environmental evaluation of activities, work or projects related to the management of substances, residues, and dangerous wastes. The Environmental

Impact Evaluation Manual was prepared. Spreading of the activity, work or projects categorization were carried out. Protocols, manuals

and procedures for the implementation of the registration system of environmental services offers were designed.

15 Municipal Environmental Units were strengthened with information technology equipment and with tools (policies, strategies

and action plans, as well as environmental legislation) that will allow the identification of high social and environmental impact projects.

The National Framework for the implementation of CITES was

prepared (Diagnosis of the application state of CITES and the Wildlife Conservation Law in El Salvador and the juridical-technical analysis of complementarities of CITES with the Wildlife

Conservation Law). Spreading activities on the provisions of CITES

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and the Wildlife Conservation Law were carried out through

brochures, posters, and teaching material.

E. CAFTA-DR Institutionalism

During this period, two meetings have been carried out by the CAFTA-DR

Coordinators, meeting at Washington, D.C., the first during November, 2007, and the second in October, 2008.

During both meetings, a review of the commitments assumed was made in the Treaty, on matters of market access, rules of origin, custom procedures, and dispute settlement; as well as promoting work of

Technical Committees of the Agreement. In the same manner, in June 2008 took place the first meeting of Central American and Dominican

Republic Vice-Ministers to assess the performance of the Commercial Agreement and some recommendations oriented towards taking a greater advantage of the Agreement.

The Environmental Affairs Council, the Labor Affairs Council and the contact points assigned in the agreement had meetings as detailed in the

labor and environmental section of this document.

F. Customs and Trade Facilitation Starting with the enforcement of CAFTA-DR, Ministers of Finances through

the Customs General Directorate have attempted to modernize its operation system in order to ease trade, and thus improve communication

among immediate users of the entrepreneurial sector, customs agents, and administrative authorities, in order to have more expeditious and efficient processes.

Thus, several projects have been developed for the modernization of the customs system, and improve services offered to users. During 2008,

through the United States Agency for International Development (USAID) Project for Customs and Business Climate Promoting Trade and Investment, developed jointly with the El Salvador Customs General Directorate, three initiatives were presented in order to increase efficiency and transparency

of customs. These initiatives include:

Customs Program for Entrepreneurial Compliance (PACE): referring

to a new management of risks focus in Customs Administration, based on trust from customs in importers with high level of compliance of the customs standard. Only those companies with

modern departments and a philosophy of high compliance on customs matters may enter the program.

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Practical Customs Guide: It refers to a concise and easy to use instrument to

describe services rendered by the Salvadoran

Customs to users. The purpose of this guide is to ease the knowledge on

technical subjects, as well as the customs legislation within the framework of

development and trade facilitation.

Anticipated resolutions: As established in Article 5.1 of CAFTA-DR, these instruments have been developed referring to official decisions

of customs issued at the request of a user before performing an import or export operation related to classification, value and origin. These resolutions are binding and obligatory for the Parties.

Another more recent program launched in order to ease exports, is the ―EXPORTA FACIL‖ (EASY EXPORT) program, with the support from the

Ministry for Governance through the Post Office of El Salvador and the Ministry of Finances, through the General Directorate for Customs. This

project, as part of the ―El Salvador Eficiente‖ (Efficient El Salvador) program, is oriented towards artisans and small and medium entrepreneurs who export up to 30 kilograms directly, in a simplified

manner, economically and safely from the Post Office, creating a simplified system of textile, handcrafts and manufacture exports.

During 2008 the term for trade facilitation and customs modernization in El Salvador, has been positive, and most of these achievements are due to

cooperation projects and own activities carried out by the General Customs Directorate, and give compliance to the provisions included in CAFTA-DR.

G. Strengthening of the private sector and cooperation within the

framework of CAFTA - DR

The creation of trade capacities is a key element to take advantage of

opportunities and free trade transition under a commercial agreement of magnitude and economic transcendence of CAFTA-DR. On the third year

of implementation of CAFTA-DR, our productive sectors have been benefited with a wide range of activities derived from the cooperation for the creation of trade capacities under CAFTA-DR.

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As part of the commitment of strengthening and supporting the public,

productive, academic and civil society sectors in general, with timely information on the different commercial disciplines, during these 3 years of enforcement of CAFTA-DR, the Ministry of Economy through the

Directorate of Administration of the Trade Agreements (DATCO), has promoted the carrying out of over 50 training conferences on subjects such

as access to agricultural and industrial markets, Origin of merchandise, Intellectual Property, Dispute Settlement, Labor, Environment, Sanitary and Phytosanitary Measures, Services and Investment, Government

Procurement, among others; obtaining around 4,800 beneficiaries.

During the same period, we must point out the Advisory Program

consolidation for the Textile and Apparel Sector, in order to assure compliance from this Sector, of obligations derived from CAFTA, carrying

so far a total of 325 visits to the companies in the Sector, giving them training and personalized assistance on the requirements to be fulfilled, in order to export to the United States market.

On the creation of trade capacities derived from cooperation, Section B of

Chapter 19 (administration) is called ―Trade Capacity Building Committee.‖

CAFTA-DR is a pioneer agreement on matters of cooperation; in fact, no previous background can be found

before CAFTA-DR, where aid for trade is incorporated as a substantial part of

the trading agreement, a specific standard on matters of trade capacity building. Here is where the

importance of this component falls, within the context of the Agreement.

The Trade Capacity Building Committee met last November 2008 in

the Dominican Republic to evaluate advances on the subject of cooperation. In the case of El

Salvador, we can point out a few diverse projects that have been implemented by the United States

government, having as beneficiaries, the public sector as well as the private sector.

One of the main programs of cooperation working in the country, is the Regional Trade Program CAFTA-DR financed by the United States Agency

This type of

project tries to

support and ease

the interpretation

of complex

procedures,

improve the

infrastructure, and

foster human

capacity for such

an important

agreement.

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for International Development (USAID), that in order to take advantage of

the whole potential of the treaty, promotes the private sector to change its focus and practices, and that together with the governments, duly implements the requirements of the Agreement.

This type of project tries to support and ease the interpretation of complex

procedures, improve the infrastructure, and foster human capacity for such an important agreement. The main objectives are to support the implementation of Chapter 4 (Rules of Origin and Origin Procedures),

Chapter 5 (Customs Administration and Trade Facilitation); besides, it looks to give technical assistance, among others. Some of the specific results

given by this cooperation project are: a seminar on rules of origin for Textiles, a seminar on Textile Accumulations, Analysis of CAFTA provisions compliance related to the shipments of fast delivery, degree of

compliance Analysis for Chapters 4 and 5 of CAFTA-DR, Drafting of the Rules of Origin Fiscalization Manual, Work with Customs to strengthen

the Units of Risk Management, Communications and Electronic Signature Law Bill, Implementation of PAGOES in 3 Governmental institutions, besides the process of finalization of a determination of origin system

through electronic means. Many more events and seminars having as a goal to improve the

performance of the private sector, have been and are being implemented. We hope to continue supporting the private sector and promoting the

institutional strengthening of the State to insert in a better way, in an international economic environment, every time more complex.

H. Spreading of CAFTA-DR benefits and opportunities

One of the commitments from the Ministry of Economy is to provide the private sector and civil society with the necessary tools to take advantage of the CAFTA-DR opportunities, as well as supporting the many different

sectors in their transition to free trade. With this objective in mind, several projects have been developed that make known the provisions contained in the Agreement, and offer the private sector and civil society,

an easy way to know the benefits and opportunities of the Treaty.

a. Update and re-launching of the official web site of CAFTA-DR in El Salvador

In March 2008 and when celebrating the II Anniversary of the enforcement of CAFTA-DR, a novelty institutional informational portal was redesigned and launched for CAFTA-DR, with a colorful and user-friendly access

design. The web site can be visited through the link: www.cafta.gob.sv or

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with a link through the main page of the Ministry of Economy

www.minec.gob.sv . This web site is periodically updated in order for all visitors who want to

look up information relevant to the Free Trade Agreement of Central America, the Dominican Republic and the United States, can find the

newest information and any document of interest to carry out the corresponding research.

www.cafta.gob.sv

At this site you can find information interesting for users, such as official documents of the Agreement, amendments and agreements of the Parties, commercial analysis, among others. Concretely, the sections included in

the web site are the following:

Free Trade Agreement Official Texts

Treaty Amendments and Agreements of the Parties

Explanatory documents on CAFTA-DR that include a general

document of the provisions of the Agreement and a document on agricultural provisions.

Publications of the ―CAFTA Opportunities‖ magazine with the

monthly publications done by this informational bulletin.

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Legislation related to the Free Trade Agreement, with links to

national legislation on environmental topics, labor and customs legislation.

History of citizen participation activities developed during the negotiation process and enforcement of CAFTA-DR.

A section of ―Documents of Interest‖ where documents can be

found with a detailed guide to export food, a model of the certificate of origin for exporting, research on trading opportunities, among others.

A special section for the textile and apparel industry, with specialized documents on matters such as how a scarce supply

list works, among others.

A section with the interesting news related to CAFTA-DR.

An access to evaluation documents coming from CAFTA-DR results in El Salvador; where there is an analysis performed as a result of the enforcement anniversaries of the Free Trade Agreement in El Salvador.

b. Creation of the ―CAFTA Opportunities‖ magazine

Last June, the Ministry of Economy started the publication of the electronic magazine ―CAFTA Opportunities‖, with the objective of turning it

into a monthly informational tool that provides a summary on commercial subjects related to the Free Trade Agreement with Central America, the United States and the Dominican Republic, and the news that will be

developed day after day, associated to this subject.

The magazine includes sections to underline a sectorial focus where the commercial performance under the Free Trade Agreement is stressed about specific sectors, and also a normative focus that will give an

opportunity to review the legal framework under which the Treaty is ruled, and the legal implications that the same has on legislation and national

standards.

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The magazine is published monthly, and to date, nine issues have been published. In all editions, interesting subjects are approached, focusing on some specific CAFTA-DR issues. Thus, issues have been published on

agriculture, textile and apparel, labor subjects, environment, among others. As it is mentioned in the previous section, all editions of this

magazine can be found at the CAFTA-DR web site, in the section "CAFTA Opportunities.‖

If you are interested in receiving this bulletin, we invite you to send us your information to the [email protected] and we will gladly include you in the distribution list.

I. Entry into force of CAFTA-DR for Costa Rica

At the end of 2008, Costa Rica complied with all requirements and processes necessary to enforce CAFTA-DR; therefore, and as had been

agreed through the term extension to enforce the FTA granted to that country, on January 1, 2009, Costa Rica became the most recent country to be Part of the trade agreement that includes the Central American

countries, Dominican Republic, and the United States.

With the entrance of Costa Rica to CAFTA-DR, it is expected that there will be more opportunities opened, considering that there will be a greater degree of integration of the productive chains. Now, raw materials that

other Parties of the Agreement use that come from Costa Rica will also be considered originating and will comply with the rules of origin takeoff the

FTA and enjoy the tariff preferences. The entrance of Costa Rica to CAFTA-DR will allow enhance the economic links and cooperation that join the region, while helping towards

strengthening the competitiveness of enterprises trading with the United States.

On behalf of El Salvador, we congratulate our Costa Rican brothers and sisters for the enforcement of CAFTA-DR and we hope that the FTA will

bring excellent results, such as those already enjoyed by the rest of the Member countries.

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General Conclusions

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VI. Conclusions

The results seen three years after the enforcement of CAFTA-DR are positive, considering the advances achieved in the increase of trade flows,

as well as in the diversification of the exporting matrix and the strengthening of institutions that encompasses all the other subjects

included in the Agreement. Some important points to mention are:

Within the trading area, the increase of Salvadoran exports is

especially noticed in the United States market, that by the year 2008 reached a total of US$ 2,184 million, and among them, are included a wide variety of products towards the United States, thanks to the

conditions generated by the Free Trade Agreement.

Every year, non-traditional exports have a greater weight on products going to the United States, and greatly due to the

liberalization of tariffs and a more favorable origin regime for national producers, as well as major access to high quality raw materials and efficient processes within the Member countries of the

Agreement.

Along the same idea, El Salvador has become ever more efficient in trade facilitation, modernizing its customs system and favoring the

creation of an adequate environment for the promotion of trade flows and the development of businesses by the private sector.

The opportunities offered by CAFTA-DR have turned El Salvador into a more attractive country for foreign investors that see in the

country a favorable business climate to carry out their investments and take advantage of circumstances to enter markets of great interest such as Central America and the United States. Proof of it

is the constant increase of foreign direct investment (FDI) in the last three years.

CAFTA-DR is a comprehensive agreement, covering several

disciplines related to trade in goods and services. In El Salvador, we

see the result of environmental and labor topics, and the institutional strengthening that guarantees the development of trade

respecting these principles and offering the opportunity to grow respecting labor rights, and preserving natural resources.

Although it is true that results are promising, it is important to be aware that the current international circumstances present an enormous

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challenge for El Salvador, and now it is even more important that

everyone, private sector and government, work hand in hand to overcome difficulties and optimize benefits offered by the Free Trade Agreement, to efficiently compete in the international market an promote the country’s

development.

Facing the complex reality of the international economy, we are certainly living difficult times, but tools such as CAFTA-DR and other trade agreements will allow the country to continue taking advantage of the

opportunities of trade openness offered, and help the private sector to have a legal security and consequently tranquility to continue making business.


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