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Central America: A Region Open To The World

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ver the last fifteen years, Central America has taken a big leap towards recovering its macroeconomic stability and has continued to increase its integration at regional and international level. One of the most important goals of the policies implemented in this region has been to pursue an outward-oriented economy with increased trade opening. A set of measures aiming at that purpose have been implemented, including unilateral liberalization, elimination of controls on foreign trade, opening to foreign direct investment and broader participation in multilateral, regional and bilateral trade agreements ( Jaramillo and Lederman, 2006). These measures have been supported by amendments to currency and fiscal policies and by other accompanying measures such as infrastructure improvement and customs upgrading. At present, Central America has, or is negotiating, trade agreements with practically all of the northern countries in the western hemisphere, including Chile5. All the countries in this region are members of the WTO and they have had full participation in the Doha Development Round negotiations since 2001. As a result of this outward-oriented development, Central America is at present one of world’s most open regions and definitely the most open region in Latin America. In the year 2000, the weighted average import tariff was 7.1%, ranging from 3.3% for Costa Rica to 10.9% for Nicaragua. In 2005, the share of foreign trade in GNP reached 84% in Costa Rica, 81% in Honduras, 67% in Nicaragua, while in Guatemala and El Salvador such share was close to 40%6 Another indicator of Central America’s effective insertion into the world economy is its degree of export diversification. Unmistakably, the composition of exports has sustained a structural change in all the countries in this area. The economic dependence on a few basic products has been reduced and the share of non-traditional products in total exports has soared. Even though there has been a new concentration on the export of products manufactured in maquila7, Central 5 At present, Central American countries have in force or have concluded negotiations for the following agree-

ments: FTA between the Dominican Republic, Central America and the United States, FTA between Central America and the Dominican Republic, FTA between Costa Rica and Canada, FTA among El Salvador, Guatemala, Honduras and México, FTA between Costa Rica and Mexico, FTA between Nicaragua and Mexico, FTA between Central America and the Republic of Chile, FTA between Central America and Panama, FTA between Costa Rica and CARICOM, FTA between Guatemala and the Republic of China (Taiwan) 6 Central American Foreign Trade Statistics System SIECA. www.sieca.org.gt, consulted on August 17, 2007. 7 Textile and micro-processors sectors. A “maquiladora” or “maquila” is a factory that imports materials and equipment on a duty-free and tariff-free basis for assembly or manufacturing and then re-exports the assembled product, usually back to the originating country

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