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NS4540
Winter Term 2017
Central America:
Trade Opportunities
Overview
• Outlook for Central American trade
• Election of President Trump has created uncertainty over the
outlook for trade in Central America
• Region open to international trade and recent trade deal with
South Korea illustrates attraction as a partner
• South Korea trade deal likely to come into effect in 2017
• However, increased US protectionism would be felt in Central
America
• Other Asian countries could show growing interest in negotiating
trade deals with Central American countries
• For well over a decade Central America has had open trading
relationships with the rest of the world
• Includes Nicaragua whose leftist government has been relatively
pragmatic on the issue despite periodic rhetorical hostility
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CA Trade Agreements I
• Two multilateral deals are key to the region’s
international trade relationships
• DR-CAFTA The Dominican Republic-Central America Free
Trade Agreement (DR-CAFTA)
• Took effect in January 2009, and encompasses the U.S.,
Dominican Republic, Costa Rica, Nicaragua, El Salvador,
Honduras, and Guatemala
• Panama has a bilateral trade deal with the U.S. took effect
in October 2012
• Deal has eliminated tariffs on consumer and industrial
goods with nearly all agricultural tariffs being phased out
by 2010
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CA Trade Agreements II
• EU The EU and Central America finalized and
Association agreement in June 2012 with three pillars
• Political dialogue,
• Cooperation, and
• Trade
• The trade pillar came into force in 2013.
• Following a phase-out period it will end tariffs on manufactured
goods, and fisheries, and eliminate most tariffs on agricultural
products except for “sensitive areas” for local markets
• In addition a bilateral free trade agreement (FTA) took
effect in 2011 between Costa Rica and China.
• This eliminates tariffs on more than 90% of bilateral trade over
15 years and opens up a large number of Costa Rican service
sectors to direct Chinese investment
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Uncertainty I
• Trump’s election has injected uncertainty throughout
Latin America
• Trump repeatedly pledged to renegotiate or even withdraw from
NAFTA
• Also pledged to impose a 35% tariff on imports from companies
that move job s abroad – mainly targets Mexico
• Trump’s transition team managing expectations over
NAFTA
• Now talking about unspecified adjustments and modifications
• The 35% tariff would require congressional approval and signs
this will not be forthcoming
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Uncertainty II
• Central America has not been an explicit focus of the
Trump campaign
• However the Northern Triangle countries – Guatemala,
Honduras and El Salvador may bear the brunt of any
moves to deport undocumented migrants with criminal
records.
• This would potentially exacerbate insecurity in these countries,
particularly as future US development assistance may also be in
doubt
• In addition the resulting increased uncertainty and insecurity for
undocumented migrants in the U.S. could affect the level of
remittances sent back to Central America
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Prospects I
• Effect of Trump presidency on trade with Central America
is likely to be relatively limited
• U.S. has promised to withdraw from the Trans-Pacific
Partnership – trade deal involving twelve Pacific Rim
countries
• Beneficial to CA textile producers because reduces the
risk of competition from cheaper Vietnamese producers
• Trump focus on Mexico and NAFTA likely to mean DRCAFTA and trade relations with Central America more
generally not a priority
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Prospects II
• This could create an opportunity for the CA countries
• A key motivation for the South Korean FDT was a desire
to create an advantage over its neighbors and use CA as
an entry point to North America and rest of LA
• Should it be successful, other countries, particularly in
Asia could seek to deepen trade relations with the region
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Assessment
• Reviewing its trade deal with Central America unlikely to
be a priority for Trump administration
• Any increased protectionism moves towards Mexico
could well increase Central America’s attraction to a
abridge to the U.S. market.
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