El Salvador’s President Nayib Bukele announced on Tuesday that he will suspend tariffs on imported basic food products for ten years, seeking to mitigate price increases, which has already been criticized locally.
The measures once morest price increases appear to be a new crusade by Bukele following pacifying the country with a “war” once morest gangs that began in March 2022, but his new initiative generated controversy because it would encourage food imports to the detriment of national production.
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“Hoy [martes]I will send a proposal [al Congreso] to suspend tariffs on all products in the expanded basic basket, as well as on another 70 food products, for a period of ten years,” the president reported on the X network.
“Any initiative that tends to generate a benefit for the population, especially now with the rise in prices of basic goods, is important and is supported,” said Ramón Villalta, director of the NGO Social Initiative for Democracy.
However, independent economist Rafael Lemus said that this is an “ineffective measure because most have a 0% tariff rate. Bukele encourages importing instead of producing locally.”
Another economist critical of the government, César Villalona, said that the president sells the idea that he is fighting inflation by promoting “cheap” imports, but there are “errors in his announcement” because the majority of basic basket products do not pay tariffs, “since they are mainly imported from Guatemala, Honduras, Nicaragua, Costa Rica, Mexico and the United States, countries with which there are free trade agreements.”
Meanwhile, opposition MP Claudia Ortiz said that since 2021 her Vamos party has requested the elimination of the food tax to “protect the most vulnerable people” and affirmed that the country should focus on agricultural production.
“The ruler sells the idea that he is fighting inflation by promoting “cheap” imports, but there are “errors in his announcement” because most of the products in the basic basket do not pay tariffs”
Cesar Villalona, Salvadoran economist
According to official data, El Salvador imports 90% of its legumes, vegetables and fruits, as well as a large part of its cereals, oils and milk.
What is sold to you
This situation has raised expectations among Guatemalan producers, given that El Salvador is the main trading partner, mainly for the food sector. According to official figures, from January to May alone Guatemala shipped around US$220 million in food products to the Salvadoran market, which represents a 27% share of total exports to the neighboring country, out of a total of US$803 million.
Among these goods, the most notable are commercial fats and oils; cereal and beverage preparations, as well as meat; legumes and vegetables; fresh fruit; potatoes and tomatoes.
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Some agricultural producers in the Almolonga Valley, Quetzaltenango, who supply El Salvador, said they were unaware of the new measures, and that their buyers had not informed them regarding them, so the shipments were maintained.
Depending on the season, farmers from Almolonga send between five and 10 trucks of vegetables to various markets in the neighbouring country every day, which means that on average, regarding 300 vehicles deliver carrots, cabbage, parsley, potatoes, spinach, broccoli, lettuce, cauliflower, onions and tomatoes every month.
Possible consequences
When consulted, the Food and Beverage Association (Gremab) of the Guatemalan Chamber of Industry (CIG) stated that the decision to suspend all tariffs on foods in the expanded basic basket is a significant move that may have multiple implications for the national industry.
“Guatemala is El Salvador’s second most important trading partner in terms of total exports, so this measure might represent an opportunity to strengthen our exports, since our food products would have preferential access to its market without tariff barriers, which might increase our competitiveness in the region,” he said in writing.
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However, he suggested considering the challenges this might pose: the entry of tariff-free food into the neighbouring country might increase competition for our domestic producers, especially if those products are cheaper due to subsidies or other competitive advantages. “This underlines the importance of continuing to support our food and beverage industry with policies that encourage innovation, efficiency and sustainability, ensuring that our products remain attractive both locally, regionally and internationally.”
He added that in this context, it is crucial to work in a coordinated manner with the authorities to strengthen the capacities of this industry, promoting fair and balanced regulatory frameworks, as well as strategies that encourage national production and technological development, to take advantage of the opportunities and mitigate the risks associated with tariff liberalization in the region.
When asked how the import of goods with tariffs is going in the region, Gremab indicates that it has experienced significant changes in recent years, moving towards a panorama of greater simplicity and harmonization.
“The entry of tariff-free food into the neighbouring country might increase competition for our domestic producers, especially if those products are cheaper due to subsidies or other competitive advantages.”
Food and Beverage Association affiliated with the Chamber of Industry of Guatemala
“One of the most important achievements has been the implementation of the Central American Import Tariff (ACI), a computer tool that centralizes tariff information, requirements and procedures for importing products in the region. On the other hand, the consolidation of a Free Trade Zone has allowed the free circulation of goods between the majority of Central American countries, eliminating tariffs for products originating in the region. In addition, the free trade agreements signed with various extra-regional partners have expanded access to new markets and reduced tariffs for a wide range of products.”
Despite the above, Gremab lists several challenges that hinder fluid and efficient trade: there are tariff differences between countries, which generates complexity for importers; and non-tariff barriers such as sanitary and phytosanitary requirements; as well as standards and technical barriers to trade, which hinder commercial exchange.
“The logistics infrastructure in the region also has limitations, increasing the costs of transporting and storing goods. Improving this aspect is essential to streamline trade and make it more competitive.
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Overall, the importation of tariff-exempt goods into Central America has improved significantly, but there is still a long way to go to achieve more fluid and efficient trade. Overcoming pending challenges, such as complete tariff harmonization, the elimination of non-tariff barriers and the modernization of logistics infrastructure, will be crucial for the economic development and competitiveness of the region.”
In conclusion, this association indicates that the elimination of tariffs can open new opportunities to increase exports, since Guatemalan products might become more competitive in the Salvadoran market due to the reduction in costs. This might facilitate greater access to Salvadoran consumers, increasing sales volume and strengthening the presence of the Guatemalan industry in that market.
But on the other hand, the measure might also intensify competition, as other countries that export food to El Salvador would also benefit from the elimination of tariffs. This might put pressure on Guatemalan producers to maintain or improve the quality and efficiency of their products and processes to maintain their competitiveness.
“While the suspension of tariffs in El Salvador can be seen as an opportunity to expand exports and strengthen bilateral trade, there is a need for the national food industry to continue innovating and improving to maintain its competitive advantage in a more open and dynamic market.”
“Dubious measure”
The Guatemalan Chamber of Food and Beverages (CGAB) also expressed its opinion on the matter, indicating that general tariff liberalization measures are an action that can help new suppliers participate in the market, although there is not enough evidence that eliminating import taxes would improve the supply or price of food, since Central America already has free trade with many countries in the world.
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And it agrees with Gremab that the Guatemalan industry competes with imports from all origins with products that, due to the Free Trade Agreements (FTA), already have zero tariff percentages, as well as with those that enter even paying taxes. “This is a matter of supply and logistics, which directly affect product prices.”
Finally, he considered that decisions such as that of El Salvador can be adopted from a political point of view, but in practice, the reduction of prices by eliminating taxes on imports must justify its positive impact on national production, tax collection and health effects, among others.
Dispatches continue
Julio Siquiná, manager of the La Llave agricultural cooperative in Almolonga, Quetzaltenango, announced that deliveries of vegetables and fruits produced in that region continue normally.
Producers, agricultural associations and cooperatives maintain their commitments to deliver to their buyers; at the moment there is no official provision, said Siquiná.
He explained that the market regulates the prices of agricultural products and that there is currently a shortage of vegetables and legumes due to the effects of winter, although prices are expected to fall in August and September, the time of the second harvest.
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