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ASAMBLEA PARLAMENTARIA EURO-LATINOAMERICANA
EURO-LATIN AMERICAN PARLIAMENTARY ASSEMBLY
ASSEMBLEIA PARLAMENTAR EURO-LATINO-AMERICANA
ASSEMBLÉE PARLEMENTAIRE EURO-LATINO- AMÉRICAINE
PARLAMENTARISCHE VERSAMMLUNG EUROPA-LATEINAMERIKA
Committee for Economic, Financial and Commercial Affairs
29.4.2015
WORKING DOCUMENT
Trade aspects of the various EU-LAC negotiations currently under way
LAC co-rapporteur: Guillermo Antonio Osorno Molina (Parlacen)
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United in diversity
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ASSESSMENT OF THE TRADE PILLAR OF THE ASSOCIATION
AGREEMENT BETWEEN CENTRAL AMERICA AND THE
EUROPEAN UNION
INTRODUCTION
The trade pillar of the Association Agreement between Central America and the European
Union was formally initiated by all the Central American states on 1 December 2013. It had
come into force between the EU and Nicaragua, Honduras and Panama on 1 August 2013.
Due to a difference of content, it came into provisional force between the EU and Costa Rica
and El Salvador two months later. It came into effect with Guatemala on 1 December 2013,
bringing the trade pillar into operation with the six Central American signatory countries to
the Agreement.
According to the report from the Central America Economic Integration Secretariat (SIECA),
Comercio bilateral de Centroamérica con la Unión Europea: evaluación del primer trimestre
de 2014 (Bilateral trade between Central America and the European Union: evaluation of the
first quarter of 2014), Central American exports to the European Union in the first quarter of
2014 amounted to US$ 1 021.6 million, 10.5% less than for the same period in 2013. As
Figure 1 shows, however, by the end of 2014 the region had exported a total of US$ 3 853
million, US$ 34 million more than in 2013, meaning that the recovery had gathered pace since
the beginning of the year.
Figure 1 Value of exports from Central America to the European Union
Source: www.sieca.int
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However, Central American exports to Europe fell even further than in the present year
between 2012 and 2013. A similar trend occurred in Europe, as shown in Figure 2. The fall
was however due to lower exports worldwide, as shown in Figure 3. As will be explained
below, the trade pillar of the Association Agreement between the European Union and Central
America has generated new opportunities for both regions via new markets and costs savings
by removing tariffs.
Figure 2 Value of exports from the European Union to Central America
Source: http://wits.worldbank.org/
Figure 3 Value of world exports
DESCRIPTION
Source: http://wits.worldbank.org/
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Central America
The greatest reported falls in Central American exports in 2014 concerned coffee, ethyl
alcohol and fruit juices. However, according to the Bank of Guatemala, the trade pillar has
provided a new market for non-traditional products from the region, such as bananas,
fertilisers, iron, steel and other base metals which, according to the statistics, were exported
by Guatemala to Europe for the first time thanks to the Association Agreement's trade pillar.
Guatemala's exporters' association, Agexport, reports major growth in the exports of 54
varieties of Guatemalan products to the EU, for a total value of US$ 72.2 million,
representing 35% of exports to the region.
Growth products included vegetables (26.2%), fresh fruit (9.6%), sesame seeds (16.25%),
bananas (13.5%), flowers and foliage (10%), prawns and crayfish (56%), household furniture
(40%), machinery and appliances for electronic use and articles of apparel (55%). All these
products benefit from tariff preferences under the Association Agreement. Where Guatemala
is concerned, products whose exports decreased, but not as a result of the Association
Agreement, were primarily alcoholic beverages, which fell by US$ 23.4 million, fats and oils
for human consumption by US$ 7.8 million and coffee by US$ 7.5 million, a decisive factor
in the 14% reduction in exports to the European Union.
Almost the same pattern occurred with El Salvador, although while the overall value of
exports to the European Union fell, it reported a substantial increase in its sugar exports.
According to data from the Sugar Producers' Association of El Salvador (AAES), exports of
sugar and molasses to the EU amounted to US$ 25 million between January and October
2014. This is the first year in which the sugar industry managed to market its products under
favourable conditions, thanks to the Association Agreement, as explained in the El Salvador
daily newspaper La Prensa Gráfica. It also reports on other products that previously did not
reach Europe, such as aircraft parts. This is one of the few added-value, technological
industries in which El Salvador can compete at world level, and very favourably with the EU
thanks to the trade pillar of the Association Agreement.
Table 1 - drawn up by the Central American Parliament using data from a range of sources shows favourable markets for each Central American country following the entry into force of
the trade pillar of the Association Agreement. PARLACEN is strongly supported at
institutional level in these sectors.
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Table 1
Favourable markets by country under the new Association Agreement
Country
Guatemala
El Salvador
Honduras
Nicaragua
Costa Rica
Panama
Potential markets
Plantains, fertilisers, iron, steel and other base metals
Sugar and aircraft parts
Meat and bananas
Sugar, chia plant seeds and honey
Microchips, pineapple and manioc
Beef, rice and tuna loin
Source: ACAN-EFE (2015), CentralAmericanData (2014), Chacón, S. (2013), El19Digital (2015), Quintanilla, L.
(2014), Vides, A. (2014), Porras (2011)
Available information indicates that Costa Rica, Honduras and Guatemala are the Central
American countries that have derived most benefit from the Association Agreement with the
European Union in the brief period since it came into force. Costa Rica, Honduras and
Guatemala together account for 83% of exports to Europe. A little more than 50% of the
region's exports come from Costa Rica. Trade between Costa Rica and the EU has been
increasing steadily for 10 years, reaching the EUR 8.7 billion mark in 2012. Historically,
Costa Rica's presence on the international markets has mainly been on account of its
agricultural sector. In recent decades, Costa Rica has successfully supplied more products that
meet the strictest quality standards, such as microchips and medical equipment, on the
European market.
Nicaragua's sale of 42 000 tonnes of sugar to Romania in October 2013 was the most
representative under the Association Agreement for Nicaragua to date, as confirmed by the
Head of the EU Delegation to the Central American Integration System (SICA), Ambassador
Javier Sandomingo, resident in Managua. He pointed out that non-traditional Nicaraguan
products that had taken advantage of the Association Agreement included chia plant seeds,
which have health benefits (also known as "chan" in the region). Nicaragua also exported
honey worth US$ 1.4 million during 2014, an increase of US$ 1.04 million (288.9%)
compared to 2013. In 2014, Germany became the leading market for Nicaraguan honey,
absorbing 83% of its production.
It is however reported that the tariff-free quotas of beef, rice and tuna loin negotiated under
the Agreement with the European Union are not being taken up by Panamanian producers.
The lack of certification regarding meat processing plants for export, the crisis in the stockbreeding sector and the lack of incentives to produce exportable food products are all factors
that, in the producers' view, prevent the country from taking advantage of the tariff benefits
that the Economic Association Agreement provides for the country. Neither are meat or
bananas from Honduras reaching Europe. This is due to a shortage of products, technical
requirements or commercial shortcomings. German Zepeda, director of the Coordinadora de
Sindicatos Bananeros y Agroindustriales de Honduras (Honduran agricultural and banana
trade union federation, COSIBAH), reports that almost 100% of banana exports are
concentrated on the US market and there is no sign that the situation will change in the near
future. The specific reason is that the sector is still not ready for larger-scale production. Mr
Zepeda does not rule out the possibility of exploring the European market, but calls for
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government support, which he says has not been interested in opening transport links to
promote its products in Europe.
In conclusion, several reports suggest that there is room to expand production of regional
exports to the European Union, covered by the more liberal tariff conditions of the trade pillar
of the Association Agreement. What is lacking, however, are the technical means to fill the
quotas available on the European market. In other words, where some products are
concerned, what is needed is not more markets, but more production and organisation.
European Union
9.5% of EU exports to Central America were of agricultural products, 90.3% industrial
products and 0.2% fisheries products. The EU's main exports to Central America include
machinery and transport equipment, accounting for 47.2% of exports, while chemicals
represented 21.5% of exports in 2012.
According to the World Trade Organization (WTO), the EUR 5 243 million of exports to the
EU represented 0.3% of the European Union's total exports. Across all these exports, it is
expected that the European Union may save a total of EUR 87 million each year by removing
tariff duties, as agreed under the Association Agreement. Panama, for example, is one of the
region's largest whisky importers. With imports of 70% of its whisky from Europe, major
European savings will be made in this sector. Similarly, the European Union expects to save
EUR 6 million per year by not having to pay customs duties on wines exported to the region.
The key objective of the European Union, in terms of trade with Central America, is to boost
trade between the two regions in order to strengthen the regional integration process between
the Central American countries. In the long term, this means setting up a customs union and
the economic integration of Central America. Such integration would facilitate the movement
of European goods within Central America. It is hoped that the region will harmonise its
customs procedures and use a single customs document in the future, instead of applying the
current "national" regulations. The abolition of double levies over time would mean that an
importer would only have to pay a single duty for the region instead of several at each border
within the region, which would attract more foreign investment to Central America. This will
help local businesses to develop greater regional strength, enabling them to compete on
foreign markets.
INSTITUTIONAL ARRANGEMENTS BETWEEN THE TWO REGIONS
The purpose of the Association Agreement - from the Central American side - is to foster
sustainable development and to deepen the integration process in the region. Closer economic,
political, social and cultural integration between the countries of Central America is important
in order to attract investment to the region and to help local businesses to develop their
markets so they can compete internationally. This type of reinforcement has been supported
by the European Union through a range of programmes. One of the most widely-recognised
projects, which seeks to facilitate trade between the two regions by harmonising
complementary regional policies, publicising the benefits of the Association Agreement and
strengthening regional integration institutions, is the Regional Support Project for Central
American Economic Integration and for the Implementation of the Association Agreement
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(PRAAIA). The project seeks to encourage Central American producers to harness the
Agreement.
The project was launched in November 2012 and is expected to be completed in April 2017.
The total cost of the project is estimated at EUR 10.5 million, EUR 500 000 of which cofinanced by the Central American Integration System (SICA). The aim of the project is to
boost the participation of regional and national SMEs. This is to be achieved in various ways,
including regional and national courses, seminars and workshops. The first of these were
carried out with the "Euroforos" (Euroforums), which analyse the advantages of Central
American exports to the European Union. These forums were inaugurated in Managua,
Nicaragua, where 90 of the country's SMEs with an export profile, operating in the fruit,
vegetable, processed food, honey, chia seeds, cocoa, textiles and craft goods sectors, received
training on aspects of the Association Agreement. These included "non-tariff requirements
for access to the EU market", "European consumer trends and habits", and "Emerging market
niches for Central American products". A Euroforum event was also held in Panama City on
19 November 2014 at which the main exporters of bananas, pineapples, watermelons, ethyl
alcohol and coffee, among other products, were informed about the sanitary and phytosanitary
requirements of the Agreement for exports to the European market, together with a
presentation of companies that had already successfully exported to Europe.
The process of setting up a Central American Customs Union extends beyond the duration of
EU cooperation through the PRAAIA project. The results of the project also seek
harmonisation, standardisation and simplification of customs procedures. This includes
improving and facilitating electronic links between the customs systems of the signatory
countries to the Agreement, together with more robust regional statistics, transport and
financial services.
Greater commercial transparency between the regions is also a primary objective of the
customs union, especially where subsidies are concerned. Under the Agreement, the EU and
the Central American countries are to report regularly on subsidies granted to producing and
exporting companies, and also to exchange information on matters concerning subsidies
granted to services.
Lastly, sanitary and phytosanitary standards are to be harmonised in Central America over the
coming years. This will facilitate the free movement of Central American goods both within
the region and internationally.
CONCLUSIONS
Given that many Central American products are being exported more, and in some cases for
the first time to Europe, it is clear that the treaty will bring many new advantages to the
region. Seeing that such non-traditional products as chia seeds, honey, plantains and aircraft
parts have been imported into Europe in significant quantities over the last year, it can be
guaranteed that new products will be exported to the EU in the future, thanks to the trade
pillar.
As has been argued here on behalf of PARLACEN and the region, what is standing in the way
of greater exports abroad, and to the EU in particular, is in many cases low production in
Central America. This is why the Association Agreement must be harnessed in such a way
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that it brings more jobs to our countries, by creating products for which demand is high
abroad, and which can be produced with fewer resources or greater facility in the six Central
American countries that have signed the Agreement.
This challenge can be successfully met in various ways, one being certification of processing,
or improving the technical requirements often needed to export products to the new markets
being opened up through treaties such as the Association Agreement. It is frequently difficult
to compete with foreign products, many of which are subsidised by European governments
through programmes such as the Common Agricultural Policy (CAP). In such cases,
administrative, economic and logistical studies are of great importance in verifying the
opportunities available for the various Central American products in the light of these rules.
RECOMMENDATIONS
Thanks to the Central American climate, as the figures show, many of the most-exported
products to Europe are raw materials: Europe's geographical situation does not allow the
production of many of the products that are cultivated and harvested here, such as tropical
fruit. Teak wood also grows must faster in this region than in Europe, giving us a
"comparative advantage" with these products. This means that we can harvest teak more
easily than in Europe. It would therefore be advisable for us to concentrate on products where
we enjoy the greatest comparative advantage, in exchange for products for which they enjoy
the greatest comparative advantage. For this reason, the Europeans seek to import such
products from foreign countries. However, what the six Central American countries covered
by the Agreement should seek to do is to remain as productive as, or become more productive
than, other parts of the world where similar products can also be produced at competitive
prices, such as southern Asia.
Similarly, Central America now also has the option of importing products from both the
United States and Europe. Since many products can now come from Europe with better
quality or at lower prices than from the United States or Asia-Pacific, it is important to remain
abreast of new options available on our markets. At the same time, no effort must be spared
in ensuring that these treaties remain fair. At many WTO conferences, the developing
countries have criticised the industrialised countries for subsidising their agricultural produce,
as in the case of the CAP in Europe. In addition, the developed countries often prevent the
entry of foreign products, particularly agricultural ones, as they do not meet the necessary
requirements - these are known as non-tariff barriers. This type of trade discrimination can be
countered mainly through the capacity-building that governments can provide in particular to
SMEs and micro-enterprises to enable them to compete on the international market.
Lastly, work should continue to sound out sectors in which Central America has the greatest
competitive advantage. This does not necessarily have to be a new product, as in the case of
honey in El Salvador or plantains in Guatemala: the aim could be to identify goods that are
already being produced at competitive prices in Central America, and to identify the countries
that are importing them at the highest prices in Europe. Here, it would be a matter of seeking
specific markets in Europe while in other cases, it is necessary to boost Central American
production to fill the quotas provided by the European Union or gradually allowed under the
trade pillar of the Association Agreement.
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