Private Sector Case Study
America’s exports - particularly of non-traditional agricultural products, processed food and other light manufacturing products - show a significant diversification8. Such diversification is an important and defining characteristic of this region, since it has been proved that those countries that are strongly dependent on a few export products are more vulnerable to international markets ups and downs. However, the disproportionate growth of the textile and micro-processor sectors needs to have a closer relationship with the domestic industry and at the same time, with the proportional growth of other products in the export basket. The Central American Common Market (CACM), launched in 1961, was the first free trade agreement in Latin America and one of the first agreements of this nature in the world. After the economic and political setbacks during the 1970’s and the 1980’s, the CACM was restructured under the principle of open regionalism, with a common platform on tariffs and regulations in the areas of agricultural and farming health, technical standards, intellectual property rights and mechanisms to solve trade disputes. Nowadays, the results produced by the CACM are noteworthy, particularly in terms of the complete liberalization of intra-regional trade as well as the harmonization of almost 95% of the common external tariff. The integration process, however, has more ambitious goals, which go beyond the trade field and pursue economic integration. The commitment to create a customs union implies the elimination of border posts, the creation of common standards and rules in the different areas, customs interconnection and coordination, as well as the homologation of trade policies among the five economies. The countries of the CACM have been working uninterruptedly on these issues over the last decade, with more concerted efforts during the last four years. There is a strong political will for moving forward toward Customs Union, as evidenced in the signing of the Legal Framework for the Customs Union in June 2007, which is also considered as the final element to pave the way for the negotiation of the Partnership Agreement with the European Union. That agreement includes provisions regarding free trade and free movement of goods, sanitary, phytosanitary and technical measures, rules in connection with origin, system for trade in services and investment, competition policies, intellectual property rights, and dispute solving, among others. The most significant landmark in trade development has been the negotiation (2004) and subsequent ratification (2006 and 2007) - in all the countries with the exception of Costa Rica—of the Free Trade Agreement with the United States, major business partner and investor in the area. In addition, in 2007, the five countries of the CACM will conclude the final negotiation of a free trade agreement with Panama, which consolidates the vision of an integrated region from the trade perspective, with the Panama Canal as one of its most important assets. As if this were not enough, Central America and the European Union announced they would start Partnership Agreement negotiations in September 2007. The framework of these negotiations could help speed up policy coordination and economic integration in Central 8 Arze, Benavides and Umaña (1998) demonstrate that Central America, whose economy used to be based on
four export products (coffee, banana, sugar and meat), now boosts a broadly diversified export basket consisting of at least 1,500 different agricultural and farming products.
Published on Sep 14, 2007
this report was prepared by the integration and trade sector (int) as a contribution to the regional meeting on mobilizing aid for trade: la...