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China and El Salvador, an unequal trade relationship

China and El Salvador, an unequal trade relationship

SAN SALVADOR – With the promise that El Salvador will sell more products to China, the Central American country is on the verge of signing a Free Trade Agreement with the Asian country.

The announcement came days ago, when both parties surprisingly said they were advancing in talks to reach a commercial deal as soon as possible.

“China is the second largest economy in the world and for a long time El Salvador had been isolated from that potential for our trade, for our products, for economic exchange,” said President Nayib Bukele during the event attended by the ambassador of the Asian country, Ou Jianhong.

El Salvador broke its diplomatic link with Taiwan in August 2018 and established it with China. Since then, the Asian giant has increased its presence in the Central American nation. China built a library in El Salvador, modernizes a port and has promised to build a stadium.

It is not yet clear what the terms of an eventual treaty between the two countries would be. If it materializes, how likely is it that trade will increase and be equitable for El Salvador?

Background

In the last ten years, the trade balance, which translates into exports and imports between the two countries, has been uneven.

Between January and September 2022, El Salvador imported 2 billion dollars worth of products from China. While the Central American country barely exported 4 million dollars to the Asian country.

Not even sugar, the most popular product in sales to China according to the figures, has increased in volume of exports.

The sale of sugar to China fell from 74 million dollars exported in 2020, to 67 million sold last year. The figures for 2022 have not yet been published by the Central Reserve Bank (BCR) of El Salvador.

These foreign trade data contrast with the statements by the Chinese ambassador to El Salvador, Ou Jianhong, who in a press conference on November 10 stated that “in recent years, bilateral trade between China and El Salvador has increased by big measure”.

The reality is that the year in which El Salvador has exported the most products to China was 2018, when it decided to establish diplomatic relations with that country after interrupting the link with Taiwan.

rise and decline

Until the year 2000, the average export to China was 4 million dollars worth of products. But in 2018 foreign trade with the Asian nation grew like never before. According to official figures, that year El Salvador managed to export a value of 84 million dollars.

But the joy was short-lived: the growth rate dropped in 2019, 2020 and 2021, the latter closing with 49 million dollars in products exported to China.

The year 2022 does not look good. As of September, El Salvador has sold $4 million in products to China. Much less than the last three years.

“El Salvador has minimal or almost no opportunity to take advantage of an agreement from the point of view of trade because it is a totally asymmetrical relationship with China. El Salvador imports billions of dollars worth of Chinese products, but it only exports sugar and coffee, traditional products from the last century,” he told the voice of americathe economist Rafael Lemus.

Consulted representatives of the business sector in El Salvador consider that the possibility of a trade agreement will represent both challenges and opportunities. They warn that any deal should be framed within the guidelines of the World Trade Organization (WTO) and take into account the differences between the two economies.

“It is not that we can say that overnight we are going to sign the treaty and we are going to be exporting more,” said Silvia Cuéllar, executive director of the Exporters Corporation of El Salvador. At the same time, she recognized that it is “an opportunity, a challenge.”

Treaties of El Salvador with other countries

El Salvador’s largest trading partner is the United States. In 2021, the Central American country exported 2 billion dollars worth of products. Then there are Guatemala and Honduras.

According to the Ministry of Economy of El Salvador, almost all of the goods and services included in a Free Trade Agreement that El Salvador maintains with the United States are free of tariffs.

Among the products with the greatest demand are agri-food, plastics, textiles and clothing, as well as chemical products.

Likewise, the Central American country treated with Mexico, Mexico, Panama, the Dominican Republic and Chile.

[Con reporte adicional de Nery Mabel Reyes]

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