El Salvador´s competitiveness as a center for footwear manufacturing increased with the recent negotiation of a free trade agreement (DR-CAFTA) signed by the Central American countries and the US, and waiting to be ratified in the summer of 2005.
With the CAFTA, the United States grants the region the most liberal rule of origin granted to date, requiring simple assembly to grant origin. For most categories, pre-manufactured components manufactured in third world countries can be incorporated, assembled in El Salvador, and enter the United States with no quota and no entry rate.
The footwear industry in El Salvador is formed by 15 companies that currently represent more than 7,500 jobs in the Salvadoran economy. It exports 60% of its production to the United States.
Exports grew 31% between years 1999 and 2003 and for the period 2002-2003 the industry grew 8%.
When combining this factor with others such as lower investment incentives, the idea of complementary manufacturing operations in El Salvador becomes a logical option for the foreign investor.
El Salvador’s competitiveness as a center for footwear manufacturing increased and especially benefited the industry, with the recent negotiation of a free trade agreement with the Central American countries, the Dominican Republic and the US.
By way of the CAFTA, the United States grants the region the most liberal rule of origin granted to-date, requiring simple assembly, or an entry jump, to grant origin. For most categories, pre-manufactured components manufactured in third countries can be incorporated, assembled in El Salvador, and enter the United States tariff and quota free.
Tariffs to take footwear into the US may reach 67%; which is why the savings opportunity is substantial. When combining this factor with others such as lower labor costs, low electric power and telecommunications costs, and other investment incentives, the idea of complementary manufacturing operations in El Salvador becomes a logical option for the foreign investor. Along with the earnings for cost reduction, US proximity eases response times and allows fashion niche specialization, which often achieves greater profit margins.
Investment Opportunities
Because the Taiwanese’s industry is vertically integrated, the rule of origin in CAFTA allows it to strengthen its present operations through complementary operations for fashion footwear manufacturing and high turn-over from El Salvador, while at the same time taking advantage of what the country has to offer as a regional distribution center, supplying other countries with intermediate goods.
For further information on the sector please contact:
Lorena Aceto / Footwear
– Investment Advisors / laceto@proesa.com.sv