72580 v1 World Trade Indicators 2009/10 El Salvador Trade Brief Trade Policy rest of the world simple average applied tariff (including preferences) on El Salvador’s exports has El Salvador’s trade regime is relatively open as decreased slightly in the past year to 9.8 percent, after reflected in the latest MFN Tariff Trade increasing gradually from its value of 2.9 percent in Restrictiveness Index (TTRI),1 on which it scores 5.8 2004. When taking into account the level of exports, percent and is ranked 67th out of 125 countries. The the tariff is much lower at 2.0 percent, with El country is more open than an average Latin America Salvador’s agricultural exports facing 5.8 percent and and Caribbean (LAC) or lower-middle-income country its manufactured exports 0.9 percent tariffs. with TTRIs of 7.8 and 8.6 percent, respectively. Agricultural products (16.0 percent) are much more El Salvador’s most important trade arrangement is the protected than non-agricultural goods (3.8 percent). DR-CAFTA with the United States that became The 2008 simple average MFN tariff is low at 5.9 effective in 2006. DR-CAFTA consolidates and percent. When taking into account the preferences, it expands the current access that Central American is 5.7 percent. El Salvador increased its maximum countries currently have to the U.S. market, while tariff (excluding alcohol and tobacco) from 73 to 164 extending broadly reciprocal access for U.S. goods to percent in 2008. The trade policy space, measured by their own markets. The decision to make the the wedge between bound and applied tariffs (the provisions of the agreement applicable multilaterally is overhang), rose slightly to 30.6 percent. Regarding the deepening regional integration efforts and facilitating extent of its commitment to trade liberalization in the creation of a Central American Customs Union.4 services, El Salvador ranked 101st out of 148 countries Additionally, a free trade agreement (FTA) between according to the GATS Commitment Index. Taiwan (China) and El Salvador that was signed in 2007 entered into force in El Salvador at the beginning In response to the food crisis, in February 2008, El of 2008.5 Finally, negotiations for an Association Salvador and three of its fellow Central American Agreement between the EU and six Central American Common Market countries canceled import taxes on countries, including El Salvador, which began in 2007 wheat flour until the end of 2008 or up to a maximum and include a FTA, have been postponed as of July of 10,000 imported tons.2 2009, due to the political instability in Honduras.6 Since 2001, El Salvador has used the U.S. dollar as its official currency. External Environment According to the Market Access TTRI3 (including Behind the Border Constraints preferences), on which it is ranked 38th (out of 125 countries), El Salvador’s exports enjoy low tariff El Salvador ranked 84th in the Ease of Doing Business barriers, with a MA-TTRI of 1.6 percent, compared to index in 2009, which compares the business the LAC and lower-middle-income country group environment of 183 countries. Additionally, the averages of 2.0 and 2.3 percent, respectively. The 2008 Logistics Performance Index, a measure of the ease of trade facilitation, rates El Salvador at 2.66 on a scale from 1 to 5 with 5 being the highest performance. Unless otherwise indicated, all data are as of August 2009 This is compared with 2.57 for the LAC region and and are drawn from the World Trade Indicators 2009/10 2.47 for countries in the lower-middle-income group. Database. The database, Country Trade Briefs and It ranked 66th in the world and 7th in the LAC region Trade-at-a-Glance Tables, are available at (with Chile leading the regional group). The area in http://www.worldbank .org/wti. which it performed the best was timeliness of shipments in reaching their destinations and the If using information from this brief, please provide the country needs most improvement in increasing the following source citation: World Bank. 2010. “El efficiency and effectiveness of customs procedures, Salvador Trade Brief.� World Trade Indicators 2009/10: notwithstanding the fact that El Salvador has a well Country Trade Briefs. Washington, DC: World Bank. Available at http://www.worldbank.org/wti. World Trade Indicators 2009/10 El Salvador Trade Brief established structure for customs and trade facilitation Notes with standardized electronic customs forms.7 1. TTRI calculates the equivalent uniform tariff that would keep domestic welfare constant. It is weighted by Trade Outcomes import shares and import demand elasticity. 2. FAO, 2009. El Salvador’s real (in constant 2000 U.S. dollars) 3. MA-TTRI calculates the equivalent uniform tariff of growth in total trade of goods and services reached 6.4 trading partners that would keep their level of imports percent in 2007, decelerating to 5.9 percent in 2008. E constant. It is weighted by import values and import Exports grew by a low 3.9 percent in 2007 in real demand elasticities of trading partners. terms, and then accelerated to 6.9 percent in 2008. 4. SICE, 2009. Imports of goods and services grew by a relatively high 8.1 percent in 2007 in real terms, decelerating to 5. SICE, 2009. 4.4 percent in 2008. Both exports and imports are 6. Bilaterals.org, 2009, and European Commission, 2009. expected to decline in 2009, by 3.9 and 4.6 percent, 7. Storz, et al., 2009. respectively. 8. All quarterly data from IMF, 2009. 9. EIU, 2008. The nominal growth of total trade (in U.S. dollars) accelerated from 9.9 percent in 2007 to an estimated 10.9 percent in 2008. Nominal export growth was an References estimated 8.2 percent in 2008. Exports remained Bilaterals.org. April 2009. “EU-Central America.� strong in the fourth quarter when they grew by 6.8 . percent over the same quarter 2008 in nominal U.S. Economist Intelligence Unit (EIU). 2008. Country Profile dollar terms, while many of its regional neighbors 2008: El Salvador. EIU. suffered declines.8 However, the global economic European Commission. July 1, 2009. “EU-Central slowdown led to a dramatic deterioration in export America: Association Agreement’s Talks Postponed performance in 2009. Exports receipts declined over Following the Situation in Honduras.� . largest component of all exports for a number of Food and Agriculture Association of the United Nations years, until 2007, when non-traditional exports (FAO). 2009. “Policy Measures Taken by overtook them on the back of such subsectors as ethyl Governments to Reduce the Impact of Soaring alcohol, medicines, and laminated iron and steel products. Maquila exports now account for just over Prices (As of 15 December 2008).� FAO, New 40 percent of the total, while non-traditional exports York, NY. account for less than 50 percent.9 The growth of trade Foreign Trade Information Service (SICE). 2009. excluding maquiladoras (twin plants) accelerated in the “El Salvador-Honduras-Taiwan.� . 11.4 and 0.1 percent, respectively, on a year-on-year ———. 2009. “Central America-Dominican Republic- basis. However, exports are expected to shrink by 4.1 United States.� . recent years, although the bulk of all exports are still International Monetary Fund (IMF). August 2009. sent to the United States (over 50 percent) and International Financial Statistics (Country Tables). regional neighbors. Nominal import growth in 2008 IMF. July 2009. . was an estimated 12.5 percent and is expected to fall Storz, Christina, Timothy Taylor, and Gary Fairchild. further in 2009. Remittances are important to the 2009. A Primer on Exporting to El Salvador. Gainesville, economy, accounting for 17.2 percent of GDP in FL: The Institute of Food and Agricultural Sciences 2008. This decrease from 18.2 percent of GDP in (IFAS). 2007 was largely due to the financial crisis, and remittances are expected to further decline to 15.4 percent of GDP in 2009. FDI inflows accounted for 7.5 percent of GDP in 2007.