Central America to Trade Directly With European Union

Since June 29, 2012, Central-American trade officials and European Union authorities have been working on the implementation of the Association Agreement between the regions.

According to Guatemalan commerce officials from the Ministry of the Economy, this Association Agreement is the only one of its kind for the EU. It is the first agreement between whole regions — Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama — and it includes not just trade clauses but also political cooperation for development terms.

The Agreement introduces Central-American producers to a 502.5 million person market with an average US$32,900 Gross Domestic Product per capita. It also grants better legal certainty for the trading dynamics and international relations between the regions. Europeans, on the other hand, stand to gain up to €90 million saved on customs taxes and service intermediaries.

However, the political implications for Central-American countries go beyond simple commerce. The EU will grant its Generalised Scheme of Preferences Plus (GSP+), which allows developing country exporters to pay lower duties on their exports to the EU — but with a catch.

For the GSP+ to take effect, Central American countries must ratify and implement international conventions relating to human and labor rights, the environment, and good governance, under the EU’s principles and standards. They are bound to implement new policies to fund, for example, the Millennium Development Goals: eradication of poverty, universal elementary education, gender equality, reduced infant mortality, improved maternal health, reduced HIV/AIDS and other diseases, environmental sustainability, and a global partnership for development.

These conditions, or at least the attempts to achieve them, guarantee higher taxes for Central Americans and expanded, paternalistic states in the region.

By making this agreement a regional standard, Central-American nations are encouraged to monitor and conform to each other’s laws and economic legislation. This situation brings a trade-off, contrary to the sovereignty and independence of every country involved, bringing individuals to a more bureaucratic and less responsive government structure.

Ricardo Avelar, a Salvadoran policy analyst from the classical liberal advocacy and educational organization CREO, points out that “standarized legislation would be ideal for commercial integration in every country, but under current political circumstances with rent-seeking groups installed in Central-American governments, an Agreement of this kind just compiles privileges and creates more bureaucracy.”

“In the end, our free trade agreements have ended up being trade treaties controlled by thousands of clauses, rules, and exceptions, with no free trade at all,” Avelar laments.

The Agreement is set to take effect this month for the Central-American countries where it has been legally ratified, meaning El Salvador, Honduras, Nicaragua and Panama. The other countries, Guatemala and Costa Rica, are still battling to get all the legal structures ready without local businessmen complaints.

Central-American trade officials and representatives of the European Union are, however, still deciding which regulations are necessary for compliance with the Agreement and which new agencies are needed to make the controls work.

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