After breaking off relations with Taipei, the Salvadoran government could give Beijing the management of a strategic port in the region.

Until a few years ago, China had no interest in Central America, basically due to the lack of raw materials. The region's quasi-bloc diplomatic relationship with Taiwan also diverted its attention. But the dynamics have changed. Encouraged by Chinese promises, in August El Salvador joined other neighbouring countries that have been closing their embassies in Taipei. Why is China now interested in Central America? The Salvadoran case points to a desire to gain weight in a area of historic US influence.

article / Jimena Villacorta

"After this careful analysis, advertisement that my government has taken the decision to break the so-called diplomatic relations maintained until today between the Republic of El Salvador and Taiwan and to establish diplomatic relations between the Republic of El Salvador and the People's Republic of China". This is how Salvadoran President Salvador Sánchez Cerén announced the establishment of diplomatic ties with Beijing on 20 August. The decision followed those taken in May by the Dominican Republic and in 2017 by Panama, breaking the Central American countries' support for Taiwan.

Taiwan responded to this advertisement by asserting that the government of El Salvador had demanded an "astronomical sum" of money to finance the Salvadoran port of La Unión and the 2019 presidential election campaign of the government party, the Farabundo Martí National Liberation Front (FMLN), which the Salvadoran government denied. The Taiwanese foreign minister, Joseph Wu, presented the rupture of relations as a decision by Taipei, due to its refusal to yield to these pressures, even though everything indicates that the initiative was Salvadoran.

The internship of hidden payments is, of course, nothing new in the links between Taiwan and Central America, as it has been demonstrated that submission cheques have been given to leaders of El Salvador and other countries to maintain diplomatic recognition that is so convenient for the Asian island. In any case, this is a margin of corruption that, sometimes in the form of commissions, has also accompanied China's disembarkation in various countries.

The Salvadoran government's move was criticised by civil service examination. The mayor of San Salvador, Ernesto Muyshondt of the Nationalist Republican Alliance (ARENA), described the decision as "terrible" and regretted that the FMLN leaders not only support "the repressive and murderous dictatorships of Cuba, Venezuela and Nicaragua", but also that "now they are breaking with a democratic country to establish relations with another dictatorship".

partner The civil service examination criticised the government for being motivated by partisan interests and leaving in the air the treaties and agreements signed with Taiwan, which has been a strategic partner for the country for 85 years and one of its main cooperating partners in the areas of technology, health, agriculture and Education. Thus, there has been a loss of cooperation projects, financial resources and other aid, such as the scholarship scheme for Salvadoran students in Taiwan.

US Alert

The change of partner is expected to mean the replacement of Taiwanese programmes with Chinese investment projects. In recent years, El Salvador has imported much more from China (804 million dollars in 2016) than from Taiwan (135 million dollars), but has exported similarly to both countries (around 50 million dollars to each). It is likely that Taiwan will now stop favouring the purchase of Salvadoran products, which it used to prioritise, and that China will compensate for the new relationship with investment in infrastructure.

This is where the possibility that China could take over the concession for the port of La Unión Centroamericana, in the south-eastern corner of El Salvador, in the Gulf of Fonseca, comes in. The government has acknowledged Chinese interest in the port, while civil service examination criticises the lack of information in the negotiations. The US Embassy has even raised suspicions about the risk that, given the lack of transparency in the negotiations, China could use the facilities as a military base. Ambassador Jean Manes stated that "China's strategy of expansion in the region, not only economically but also militarily, is alarming". In fact, Washington has been warning for some time about China's increased presence in Central America, as in the case of the Panama Canal, in principle with civilian projects but which in certain circumstances could call into question US security.

The US Embassy has also indicated Chinese interest in buying Perico Island, located next to the port of La Unión. Last October, Ezequiel Milla, mayor of La Unión, declared that he had met with Bo Yang, a Chinese businessman and vice-president of the China-El Salvador Chamber of Commerce, to discuss the sale of the island to build hotels. For his part, the businessman admitted to having discussed purchase intentions with the owners of the private part of the island, where several families reside, who must be willing to vacate their homes. The island contains an important flora and fauna reservation .

Untapped port

The port of La Unión is strategically located on the Gulf of Fonseca, where El Salvador, Nicaragua and Honduras meet (it is Honduras' only access to the Pacific). In addition, it can connect in a matter of a few kilometres to the dry canal that Honduras is about to complete by widening the road linking its facilities at Puerto Cortés on the Atlantic to the Gulf of Fonseca. Honduras' coastline in the Gulf is not suitable for a deep-water port, so the natural outlet for its goods to the Pacific would be La Unión.

The project construction of the port started in 1994, under the presidency of Armando Calderón Sol, with the goal aim of becoming the future "hub of the Americas", so that ships larger than the Panama Canal could dock there. Thanks to a loan from the Japan Bank for International Cooperation (JBIC), the project was launched. The port was built between 2005 and 2008 and inaugurated in 2010.

Under the presidency of Antonio Saca, there were two decrees for its concession. The first, in 2008, was a master concession formula, i.e. there would only be one operator managing the port for 25 years; however, it was not possible to reach an agreement in the Legislative Assembly, agreement . In 2009, the second decree was presented, proposing a company composed of the state-owned Autonomous Port Executive Commission (CEPA) and an international operator, with a 10% and 90% shareholding, respectively. But due to the change of government and other internal complications it was not approved either.

In June 2010, with Mauricio Funes as president, the port of La Unión was inaugurated under state administration, in the hope that a concession could be agreed that same year. In the end, it was decided to apply the master concession. In September, the Assembly approved decree 834, containing the port concession law. Due to the lack of approval of the instructions tender and the contract by other institutions, the port concession was postponed for a couple of years, during which time the interested companies dropped out of the talks.

The bidding process was finally launched in 2014, but the tender was declared void in 2015 because there were no bids to operate the infrastructure. In 2017, some laws were amended to attract investors, given the urgency of operating the port, which has cost the country almost $20 million to maintain over the past decade.

Special Economic Zone

If the facilities have so far attracted so little interest from investors, what benefit could China see in La Unión? ARENA deputy Mauricio Vargas does not believe that Beijing has any economic interest in the port, but rather that it is pursuing strategic objectives, as the Gulf of Fonseca provides access to three Central American countries and is part of the area which the US considers important for its own security.

To make the option of La Unión more attractive, in July 2018 the FMLN government presented the Special Economic Zone Law for the South Eastern Region of El Salvador, area corresponding to La Unión and a score of neighbouring municipalities. Thanks to tax advantages, China could turn this Pacific point into a distribution centre for its products in the Central American Northern Triangle and Nicaragua. The connection through the Honduran dry canal would facilitate connections with the Atlantic.

The civil service examination believes that the creation of this special economic zone, which in case of a massive influx of Chinese products could negatively affect local manufacturing, has been agreed in advance with China. The ECA president, however, denies any obscurantism in the process. "We have nothing to hide. The process we are going through is transparent; we have entered a stage of enquiry. The interest of our administration is that the port of La Unión is operated and we must see it as project of the country". He assured that there are companies interested in the concession also from Europe and America, not only from Asia.