El Salvador: Benefits of Free Trade Deal Still Remote

(IPS) – 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 was supposed to enable El Salvador to increase its exports to the U.S. market and attract foreign investment. However, economists consulted by IPS 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 was El Salvador’s "most important trade agreement" because it has promoted increased trade with the United States.

Non-traditional Salvadoran exports to the U.S. of products 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 3.66 billion dollars between January and November 2007, 4.3 percent more than in 2006. The U.S. continues to be the main destination: in 2006, exports to the U.S. alone totalled 2.01 billion dollars.

Salazar told IPS that direct investment by the U.S. in this country grew from 1.049 billion dollars to 1.059 billion between March and December 2006, mainly in agribusiness, computer software and call centres, although he did not know how many of these have closed down since DR-CAFTA came into force.

Statistics from the rightwing administration of President Antonio Saca indicate that an estimated 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 privatised National Telecommunications Administration (ANTEL) which is now in the hands of the Telecom consortium, told IPS he is not aware of any benefits, as "the economy is not improving and there are few jobs to be had."

Alas, a telephone line technician, 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.

DR-CAFTA, which also involves Costa Rica, Guatemala, Honduras and Nicaragua, was negotiated in El Salvador in 2004 in record time, just 12 months, and was ratified in December of that year by the rightwing parliamentary majority, with hardly any debate.

Former legislator Ciro Cruz of the rightwing National Conciliation Party (PCN), who was speaker of the parliament at the time, admitted that "he had no knowledge of the text of the agreement," but that it was too late to debate it, amid protests by the opposition.

The agreement was supposed to enter into force on Jan. 1, 2006, but the date was postponed for two months, until Mar. 1 of that year, because the U.S. insisted on legal reforms to protect foreign investment, and changes to the criminal code to combat pirating of CDs and DVDs, as well as brand-name shoes and clothing.

Paradoxically, street sales of these knock-off products have boomed since then, and even uniformed police officers often buy them.

El Salvador has also signed bilateral trade treaties with Mexico, Chile, the Dominican Republic 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 Programme (UNDP) told IPS that there are 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 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).

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 fertilisers, which rose by up to 30 percent in 2006. And while production costs have gone up, the local prices for produce have been declining.

Prior to DR-CAFTA, FESACORA members, belonging to 189 agricultural cooperatives, farmed 12,500 hectares collectively and individually, whereas now they only farm 6,000 hectares, 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 Mar. 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 grown less.

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

Foreign direct investment amounted to 5.37 billion dollars 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 dollars.

Meanwhile, María Domínguez, a 42-year-old street vendor who sells fruit, continues to wait for the promises to change from fantasy to reality. "Saca’s government has not created jobs, and the ones who suffer are the poor," she complained.