A Call for Free Trade in Central America, and Not in Name Only

EspañolThe truth is that free trade fosters peace and prosperity. By promoting exchange, national leaders ensure mutual gain and improve their economic competitiveness globally, providing a path to development and cultural enrichment. As Otto T. Mallery coined, “When goods don’t cross borders, soldiers will.”

Currently, in Latin America, we can see how a new bloc of countries that face the Pacific — including Mexico, Peru, Chile, and Colombia — are embracing free trade and free markets through the Pacific Alliance, and therefore, reaching high levels of foreign investment and low inflation. Despite similar geography, culture, and history in this region of the world, the Atlantic bloc — Brazil, Argentina, and Venezuela — and their free trade agreement, Mercosur, has not had the success of the Pacific Bloc, perhaps because it’s not really free trade.

As for Central America, it is a region where integration initiatives have proliferated. Liberators like Francisco Morazán have proposed regional integration since the 1800s, but not until the 1950s did the idea of a Central American Common Market started booming. Since then, the region has striven to implement free trade to facilitate the free exchange of goods and services. The objectives included the establishment of a common external tariff, a standardized customs service (Customs Union), and the elimination of all unnecessary and bureaucratic border controls.

Free Trade That Wasn’t

Central American economic integration in the 1990s, however, was based on theoretical frameworks very different from those proposed during the heyday of the Central American Common Market.

The economic integration model proposed in the 1960 Guatemala Protocol consisted of a customs union, common policies, and the establishment of a single regional market that emphasized the free circulation of capital and workers among the Central American countries.

The results, though, have not been as one would expect. After 65 years, the Central American integration process is yet to be active and making the five original countries — Guatemala, Honduras, El Salvador, Costa Rica, and Nicaragua — reach development. The reality, unfortunately, is that the barriers to trade within Central America are stringent, and the free circulation of people — similar to that enjoyed in the European Union — between these countries is not really free.

We also have a long way to go in the standardization of tax laws, facilities for opening regional businesses, and the simplification of procedures to attain residency for those Central American immigrants who want to work in these countries: in short, all the necessary conditions to facilitate friendly exchanges between nations.

Although there have been great advances in tariff harmonization, with almost 97 percent of goods and services tariff free, the remaining 3 percent includes the most critical goods, such as unroasted and roasted coffee, sugar, oil derivatives, distilled alcoholic beverages, and ethanol.

Losing Out to the Big Boys

With a genuine strategy for a Central American Common Market, we could achieve a platform for successful entry into international trade as well. Beyond Central America, we could negotiate access to larger and more competitive markets and trade blocs. The mutual opportunity would be greater, since the region’s attractiveness for investment would increase if a common customs territory were present.

If Central America doesn’t get serious about free trade, our primary commercial trade partner, the United States, will look for new markets to provide the same goods, but streamlined and cheaper. The Trans-Pacific Partnership (TPP) is one such example, currently being negotiated with Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam.

The TPP will represent one of the world’s most expansive trade agreements, with a plan to reduce tariffs on a vast array of goods and services and to harmonize regulations. If agreed to, it would affect 40 percent of US exports and imports.

Initiatives like the TPP that eliminate tariffs and related trade barriers among economies are set to strengthen US clout in Asia and affect Latin America, and more specifically Central America, due to its heavy emphasis on the textile sector. Because many Asian enterprises are more competitive, with cheaper labor and energy costs, our exports could suffer.

Given this competition looming, leaders in the region need to focus urgently on allowing their countries to enjoy the full benefits of freedom, not limited to democracy and the rule of law, but also free trade and free movement of individuals. It’s time to leave the demagogic speeches that justify the existence of bureaucratic agencies behind and start thinking about integration processes marked by globalization and competitive insertion of countries in the international economy.

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