Promotion of a Free Trade Agreement Between Central America and South Korea: El Salvador’s Economic Potential

by | Sep 27, 2024 | FDI Latin America

In recent years, El Salvador has experienced a substantial increase in exports to South Korea, rapidly becoming a key trading partner for the Central American nation. It is estimated that from 2017 to August 2024, Salvadoran exports to South Korea grew by an impressive 193%, highlighting the transformative potential of the free trade agreement between Central America and South Korea. This growth trajectory indicates a promising future for Salvadoran exports to South Korea. The Embassy of the Republic of Korea and the Korea Trade-Investment Promotion Agency (KOTRA), in collaboration with the Salvadoran Chamber of Commerce and Industry (Camarasal), organized the Korea-El Salvador Business Forum, an event designed to deepen bilateral cooperation and uncover new opportunities for business and trade.

Overview of the Korea-Central America FTA

Signed in 2018, the free trade agreement between Central America and South Korea is a comprehensive trade pact that links South Korea with El Salvador, Costa Rica, Honduras, Nicaragua, and Panama. The agreement aimed to promote economic exchange between the two regions, create new markets for Central American products, and provide South Korean investors and businesses with easier access to the Central American economies. This FTA is a testament to the mutual benefits of international trade, as it opens up new markets for Central American products and provides South Korean businesses with opportunities to invest in and benefit from the growing economies in Latin America.

The free trade agreement is a comprehensive pact covering various goods and services. It has significantly benefited El Salvador. It has facilitated greater access to South Korean markets for Salvadoran exports and has encouraged investment in key sectors like textiles, construction, and manufacturing. The results are promising, with Salvadoran exports to South Korea growing from $13.21 million in 2017 to $38.74 million by August 2024, a clear testament to the positive impact of the FTA on El Salvador’s economy.

The Significance of Trade Growth for El Salvador

The 193% growth in El Salvador’s exports to South Korea indicates the expanding economic relationship between the two nations. Export growth reflects the country’s ability to diversify its product offerings, increase competitiveness, and fully exploit international trade agreements like the free trade agreement between Central America and South Korea. Historically, El Salvador has relied on exports of traditional coffee and sugar; however, the FTA has provided opportunities to expand into non-traditional sectors like textiles, pharmaceuticals, and industrial goods.

South Korea’s demand for quality products has encouraged Salvadoran exporters to innovate, invest in improving their production processes, and develop new products that meet international standards. For example, companies in the textiles and apparel industry are now exporting higher-end products, while manufacturers in the pharmaceutical sector are finding new market opportunities for their goods.

According to Leticia Escobar, President of Camarasal, the export volume strengthens the bilateral trade relationship and provides new avenues for Salvadoran businesses to integrate into global value chains. This is particularly important as the country seeks to grow its small and medium-sized enterprise (SME) sector and create jobs through export-driven growth fostered by the free trade agreement between Central America and South Korea.

Fostering Investment and Business Opportunities

The Korea-El Salvador Business Forum, held in the context of the free trade agreement between Central America and South Korea, serves as a platform for businesses from both countries to engage in dialogue, establish partnerships, and explore trade opportunities. The forum featured a wide range of stakeholders, including representatives from KOTRA, the Korean company Dongbu, and various Salvadoran industry chambers such as the Chamber of the Textile, Apparel, and Free Zones Industry (CAMTEX) and the Salvadoran Construction Chamber (CASALCO).

The event covered key topics, including:

Leveraging the Korea-Central America FTA: Strategies for maximizing the benefits of the free trade agreement between Central America and South Korea, particularly in industries like textiles, construction, and manufacturing.

Investment Environment in El Salvador: An analysis of the country’s favorable investment climate, which includes a young workforce, competitive wages, and various investment incentives offered by the government.

The Arrival of New Korean Companies: Korean firms plan to expand operations in El Salvador, particularly in sectors like construction and manufacturing.

Current Status and Outlook of the Textile Industry: A sector with robust growth in El Salvador, driven by increased demand for high-quality apparel products from South Korea.

Current Status and Outlook of the Construction Industry: This section overviews how El Salvador’s growing infrastructure needs present opportunities for Korean investors and construction companies.

Business Matchmaking and Sectoral Opportunities

One of the forum’s most significant components was the business matchmaking session led by KOTRA. This session allowed Salvadoran businesses to meet with Korean companies to explore potential business partnerships and exchange information on market demands and production capacities, all within the free trade agreement framework between Central America and South Korea.

Several vital sectors were highlighted during these discussions, reflecting the diverse range of opportunities available under the free trade agreement between Central America and South Korea:

Polyester and PET Plastic Straps: The demand for sustainable packaging solutions has driven growth in this sector, and Salvadoran manufacturers have an opportunity to meet South Korea’s demand for high-quality plastic straps.

Cosmetics: South Korea is renowned for its vibrant cosmetics industry, and Salvadoran producers are increasingly looking to export natural ingredients and skincare products.

Body Composition Analyzers: With the global focus on health and wellness, Salvadoran companies are exploring opportunities to export medical devices like body composition analyzers, which are in demand in South Korea’s health-conscious market.

Pharmaceuticals and Veterinary Products: Salvadoran pharmaceutical companies have an opportunity to enter the South Korean market with products like antibiotics and veterinary medicines, which are experiencing rising demand.

Botox and Hyaluronic Acid: The global cosmetics industry has created a substantial market for these products, and Salvadoran producers are looking to tap into this lucrative segment.

New and Used Auto Parts: The automotive industry in South Korea presents opportunities for Salvadoran exporters of both new and used auto parts as demand for reliable components continues to grow.

The Future of the Korea-Central America FTA

The free trade agreement between Central America and South Korea holds excellent potential for further deepening the economic ties between South Korea and El Salvador. With a 193% increase in exports already realized, the next phase will likely focus on building infrastructure to support further trade growth, promoting greater awareness of FTA opportunities, and encouraging investment in high-potential sectors like technology, construction, and manufacturing.

As El Salvador diversifies its economy and integrates into global value chains, the free trade agreement between Central America and South Korea provides a strategic framework for sustained growth. The collaboration between government entities, private businesses, and trade promotion agencies like KOTRA will be crucial in ensuring that Salvadoran companies can capitalize on the opportunities presented by this agreement.

In conclusion, the Korea-El Salvador Business Forum represents a significant step toward a brighter economic future for both countries. With South Korea becoming an increasingly important trading partner, El Salvador is well-positioned to continue expanding its export base, attracting investment, and driving economic development through international trade, guided by the free trade agreement between Central America and South Korea.