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EL SALVADOR
Benefits of free trade deal still remote
Inter Press Service
2/14/2008
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Two-year old trade agreement with United States fails to convince.

The Salvadoran government had proclaimed that from the moment of its entry into force, the free trade agreement with the United States would boost the local economy, creating thousands of jobs, so that even street vendors would be exporting their typical snacks. But nearly two years later, the economic paradise has yet to arrive.

The Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) with the United States — which went into force in El Salvador on March 1, 2006, after its ratification by Congress three months prior — was supposed to enable El Salvador to increase its exports to the US market and attract foreign investment. However, consulted economists said that is “unrealistic” and that ordinary Salvadorans are still waiting for the promised benefits.

René Salazar, head of the Administration of Trade Treaties, said DR-CAFTA — which also includes Guatemala, Honduras, Nicaragua and the Dominican Republic — was El Salvador’s “most important trade agreement” because it has promoted increased trade with the United States.

The exportation of non-traditional Salvadoran products to the United States, such as seafood, agribusiness goods, beverages and ethnic foods, grew by 68 percent in 2006, according to Salazar. Complete figures for 2007 are not yet available, but the trend has remained steady, he said.

El Salvador’s total exports, including traditional products like coffee, sugar and shrimp, amounted to US$3.66 billion between January and November 2007, 4.3 percent more than in 2006. The United States continues to be the main destination: in 2006, exports to the United States alone totaled $2.01 billion.

No jobs in sight
Official statistics estimate that 27,000 jobs were created in 2007, although not all of these were necessarily due to the regional trade treaty with the United States.

Herminio Alas, 50, a former employee of the privatized National Telecommunications Administration (ANTEL), which is now in the hands of the Telecom consortium, says he is not aware of any benefits, as “the economy is not improving and there are few jobs to be had.”

A telephone line technician, he has been unemployed for three months and has not managed to find a stable job since he was laid off by ANTEL 10 years ago.

El Salvador has also signed bilateral trade treaties with Chile, the Dominican Republic, Mexico and Panama, and will shortly do so with Taiwan, according to Salazar.

In spite of the government’s optimism, economist Carlos Acevedo of the United Nations Development Program (UNDP) said that there is no reliable data on how many jobs DR-CAFTA has created.

Acevedo said that 80,000 new jobs a year are needed to absorb the growth of the economically active population.

“The government’s expectations [before signing the agreement] were unrealistic, and obviously have not been met,” said the expert, assistant coordinator of the El Salvador chapter of the UNDP Human Development Report.

The Directorate General for Migration and Alien Status in El Salvador recently announced that 60 percent of the 200 to 500 Salvadorans a day who emigrate have jobs, Acevedo noted. Some 2.5 million Salvadorans are currently living in the United States.

“They decide to leave in search of higher pay, so their jobs become vacant,” said Acevedo, who does not rule out the possibility that those jobs are included in the official figures on new employment opportunities.

According to the government, the unemployment rate is about seven percent of the economically active population, while 35 percent are underemployed (working in the informal economy, with no social benefits).

Increased food dependence
Mateo Rendón, of the Salvadoran Federation of Agrarian Reform Cooperatives (FESACORA), said DR-CAFTA has “increased food dependency” due to the growth in imports from the United States.

The country’s dependence on imported food is increasing while the area devoted to the cultivation of basic products like maize, rice, beans and vegetables, and to raising livestock, is shrinking.

Rendón deplored the lack of “public policies to support the agricultural and livestock sectors,” which have become less profitable because of the high prices of agricultural inputs such as fertilizers, which rose by up to 30 percent in 2006.

Prior to DR-CAFTA, FESACORA members, belonging to 189 agricultural cooperatives, farmed 12,500 hectares (30,888 acres) collectively and individually, whereas now they only farm 6,000 hectares (14,826 acres), and only for family subsistence.

DR-CAFTA established that 50 percent of imported rice, maize, pork, powdered milk and other products were to enter the country tariff-free from the first year of its implementation, and that every year the proportion of tariff-free imports would increase by between two and five percent, depending on the product.

The deadlines for completely eliminating tariff barriers on imports were set at between 10 and 20 years.

Some 65,000 tons of rice, 35,000 tons of white maize, 350,000 tons of yellow maize and 10 tons of milk began to be imported by El Salvador on March 1, 2006.

In late 2007, the Salvadoran Central Reserve Bank (BCR) announced that the economy had grown 4.5 percent that year, one of the lowest rates in Central America, which had an average growth rate of 5.2 percent. Only Nicaragua, with just over three percent, had less growth than El Salvador.

The BCR also reported that between January and November 2007, El Salvador built up a trade deficit of $4.35 billion, larger than the 2006 deficit of $4.11 billion.

Foreign direct investment amounted to $5.37 billion from January to September 2007, according to the BCR. But this figure includes the sale of banks, which merely changed hands to multinational corporations, for $1.13 billion.


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