Doing Business In (Insert Country Name Here)

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The U.S.-Central American-Dominican Republic Free Tr= ade Agreement (CAFTA-DR), entered into force March 1, 2006 between the United States and = El Salvador. El Salvador was the first nation in Central Americ= a to implement the agreement. The agreement has also entered into force with Guatemala, Honduras and Nicaragua, and is awaiting approval by Costa Rica and the Dominican Re= public.
El Salvador has free= trade agreements with Chile, Mexico, Dominican Republic, Panama and Central America. It also belongs to the World Trade Organization. Free trade agreements with Canada, Colombia and European Union are under negotiat= ion.
Like the rest of Cen= tral America, El Salvador offers an open market for U.S. goods and services. Tariffs are relatively low and will be reduced further with the implementation of CAFTA. VAT rate is 13%. There are almost no import restrictions. Standards take ISO, Colombian and Mexican and those in t= he U.S. as reference. Labeling and testing are not major issues.
As of December 2006,= trade statistics indicated that the United States is El Salvador’s lea= ding trade partner, enjoying a 40% import market share. The U.S. is the destination of 57.1% of Salvadoran exports. Central America and Mexico= are other top bilateral trade partners.

El Salvador has clos= e ties to the U.S and is only a 3-4 hour flight from key U.S. gateways. =
Increased trade with= the United States is key to further growth and development. El Salvador offers an outstanding platform for industrial= and service investments aimed at re-exports to the region.
The Government of El Salvador (GOES) views private investment, both domestic and foreign, a= nd increased trade as crucial to development.
The government has a marginal role in the economy du= e to privatizations that began in 1990.&nb= sp; =
El Salvador has the = most open trade and investment environment in Central America and is surpas= sed in Latin America only by Chile, according to the Heritage Index of Economic Freedoms. In 2006 El Salvador ranked 29, “mostly free,” out of 161 countries (Economic Freedoms Index).
Transparency Interna= tional Corruption Perception 2006 Index ranked El Salvador 57 out of 163 countries. (Transparency Index).
The US dollar is the official currency. El Salvador enjoys excellent macroeconomic stabilit= y, low inflation, and relatively low interest rates.
Per capita income has risen during the last decade. Consumer demand is fueled both by the increase in income = and the massive inflow of remittances from Salvadorans living in the United States.
More than 2 million Salvadorans live in the U.S. The= most outstanding feature of El Salvador's balance of payments is the countr= y's dependence on remittances, by far the largest source of foreign income. In 2006, remittances reached $3.3 billion – 17.9% = of GDP.
El Salvador enjoys a democratically elected government and has = an excellent relationship with the United States. Most Salvadorans view t= he United States favorably.

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U.S. firms need to be aware of certain challenges, including the following:=

·= ; = The judicial system presents significant hurdles for U.S. companies.= The system is slow and tends to favor national interests. Attempts at establish= ing commercial arbitration have not been supported by the judiciary.=

·= ; = IPR protection is in its early stages and making progress.

·= ; = The expiration of the Multi Fiber Arrangement (MFA) at the end of 20= 04 caused dislocations and disinvestments in El Salvador’s textile maquiladora sector. In contrast, the most efficient and largest companies in the sector are expanding by vertical integration. Investment decisions from foreign textile mills and textile finishing companies are underway.

·= ; = El Salvador needs to address its anemic growth rate through programs= to encourage new business in order to provide jobs and raise living standards.=

·= ; = Under the electricity sector law approved in April 2003,= the government can influence the retail price of electricity. This adversely affects potential investors in the sector.

·= ; = Although the National Civil Police force has improved, high levels of crime add measurably to the cost of business operations. =

·= ; = Low levels of literacy and of English as a Second Language are long-= term drags on economic development.

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El Salvador offers a steady and growing market for a wide range of U.S. goods and services. U.S. companies exporting to Mexico under NAFTA are well positioned to increase exports by taking advantage of CAFTA.= Best prospects include:

· Automotive Parts and Service Equipment

· Electric Power Generation and Distribution Equipment

· Medical Equipment

· Telecommunication Equipment

· Tourism

Leading sectors for U.S. exports and investment to the Central Ameri= ca region are:

· = Automotive parts/equipment/accessories/service =

· = Computer/peripherals and software services

· = Construction equipment/building materials

· = Food processing and packaging equipment/process= ed food

· = Franchising

· = Hotel/restaurant equipment

· = Telecommunication equipment

· = Textiles machinery/equipment/fabrics

· = Medical equipment/dental/drugs

· = Safety and security=

Major Projects Include:

· La Union Port construction and other projects related to a possible = dry canal

· Rehabilitation of railroad

· Renewable-energy generation of electricity

· Regional electric grid interconnection

· Regional telecommunicatio= ns interconnection

· Regional Highway interconnection

· $461 million investments = in education, public services, enterprise development, and transportation infrastructure projects funded by the Millennium Challenge Corporation (lea= rn more in chapter 7).

Major projects are generally financ= ed with funds from IDB, Central America Bank for Economic Integration (CABEI) and Millennium Challenge Corporation.

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· The use of agents and distributors is the most common way to export products and services.

· One agent is sufficient as commercial activity is concentrated in the capital San Salvador and the size of the country does not justify regional agents.

· Agent or representative agreements should be non-exclusive. An exclusive territorial contract is recommended only when the business relationship has proven to be stable, professional, and profitable for both parties. An exclusive agent is entitled to compensation for damages up= on termination of the relationship. A local lawyer should be consulted. <= o:p>

· U.S. companies should visit potential partners or agents prior enter= ing into a relationship.

· U.S. firms should check the bona fides of potential partners as soon= as a business relationship begins to develop.

U.S. exporters seeking general export information/assistance or country-specific commercial information should consult with their nearest U.S. Export Assistance Cen= ter or the U.S. Department of Commerce's Trade Information Center at = (800) USA-TRADE, or go to the following website: http://www.export.gov.

To the best of our knowledge, the information contained in this report is accurate as of the date published. However, The Department of Commerce does not take responsibility for actions readers may take based on the information contained herein. Readers should always conduct their own due diligence before entering into business ventures or other commercial arrangements. The Department of Commerce can assist companies in the= se endeavors.

= Doing Business In El Salvador: A Country Commercial Guide for U.S. Companies

Chapter 1: Doing Busines= s In El Salvador

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STA= TE, 2007. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

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