Two years ago, Grupo Calvo opened a tuna cannery in this burgeoning port town. The Spanish company figured that a factory in El Salvador would help it expand beyond Latin America and Europe and strategically position it to begin exporting to the United States.
Breaking into the U.S. market will be no easy task. Even with the recent passage of the Central America Free Trade Agreement -- which reduces trade barriers between the United States and El Salvador, Guatemala, Honduras, Nicaragua, Costa Rica and the Dominican Republic -- U.S. tariffs on canned tuna will persist for the next 10 years.
Nevertheless, Miguel Angel Penalba, Grupo Calvo's director of operations in El Salvador, is jubilant about CAFTA's possibilities. "There is a big opportunity," he said last week during a visit by Montgomery County Executive Douglas M. Duncan and a trade delegation to Calvo's cannery in El Salvador. "Anything is possible."
Penalba's feelings reflect the psychological -- though not yet tangible -- impact of the trade agreement's passage among many of El Salvador's businesses and government leaders. Even as they regard CAFTA as a sign of U.S. willingness and desire to do business with Salvadoran companies, they largely lack specific plans to capitalize on the trade agreement.
"You don't find a huge number of firms with concrete strategies," said Robert Z. Lawrence, a professor of international trade and investment at Harvard University. Companies must have the size and capacity to compete in the U.S. market, he said. "The Salvadoran firms have their work cut out for them."
Authorities in El Salvador tout the country's recent economic reforms as proof that the country is ripe for new business and foreign investment. El Salvador adopted the U.S. dollar as its currency in 2001, has improved its highways and is relying on Japanese investment to construct a $130 million seaport that will boost the nation's ties to other Central American countries.
"El Salvador has made many strong structural reforms in the last 10 years," said Mario Garza of the International Monetary Fund. Nevertheless, "foreign direct investment has been low," he said.
Economists who have studied CAFTA's potential impact on the Salvadoran economy say that to see real benefits from the agreement, the country's government must first deal with a host of social challenges. These issues include a high crime rate, poorly educated workforce and weak infrastructure in some parts of the country, according to a report co-written by Garza and released by the International Monetary Fund last week. The IMF also found that El Salvador needs to develop better oversight of its financial system and increase its national savings.
If CAFTA prompts the Salvadoran government to tackle those issues, the agreement could create a ripple effect that strengthens the country's economy and attracts foreign investment in many industries, economists said. Industries that stand to gain include light auto-parts manufacturing and niche agriculture focused on food products indigenous to the country, Garza said.
The tourism industry also hopes to benefit from the trade agreement, he said. The Salvadoran government's economic development agency and tourism ministry are actively marketing the country's rustic beaches to potential foreign investors and are seeking to build hotels and resorts.
"Because of CAFTA, more people will be looking at El Salvador as a place to invest," said Jose Ruben Rochi, El Salvador's minister of tourism.
Rene Antonio Leon, El Salvador's Ambassador in Washington, said Grupo Calvo's decision to put its tuna cannery near the port in La Union is a harbinger of the greater investment inflows the country will see under CAFTA. Even before the treaty was signed, the company had invested $2 million in a new plant here and hired some 900 workers -- more employment than La Union had seen in years. And it has begun pursuing the licenses it needs from the U.S. Food and Drug Administration to enter the U.S. market. Leon was part of the trade mission that toured Grupo Calvo's tuna plant last week, watching women in white galoshes and aprons skin large tuna with knives and stuff the cooked pieces in cans coming down a large conveyor belt.
"A man told me you have lived without CAFTA, and you can continue living without CAFTA, but he did not see this," Leon said after the tour. "They have always said that in El Salvador there are no opportunities." But now, he said, "there are people who are investing in El Salvador."