Customs Union, EU Talks Put Region to Test
SAN SALVADOR, El Salvador – After years of plodding advance and unremarkable achievement, the process of Central American Integration faces two major benchmark challenges in the coming years that will largely determine the future of regional integration.
The Central American Customs Union and the negotiation of an Association Agreement with the European Union (EU), are expected to put Central American integration to test like never before, and could ultimately decide whether the lofty goal of integrating the isthmus is realistic or not.
The first challenge is the customs union, considered a basic requirement of any unification process, yet one that has remained elusive so far in Central America.
The customs union would essentially create one single Central American Customs Agency and a uniform customs code and legislation, eliminating additional paperwork and procedures in each of the individual countries. Import taxes would be paid at the point of entry into Central America, allowing merchandise to then circulate freely across the isthmus until reaching its final destination, where the value-added tax (IVA), selective consumer tax, and income tax would be paid upon arrival.
All customs taxes would go into one joint fund, which would then be redistributed among all the countries to finance the customs agency and infrastructure maintenance and repairs.
Once the customs union is operational, a truck driving from the United States to Costa Rica would have to pass through only one Central American customs check – in Guatemala, the point of entry – before continuing straight down to San José. Under the current system, that same truck would have to undergo customs procedures in Guatemala, then again in El Salvador, Nicaragua and Costa Rica – each country with its own procedures, regulations, costs and paperwork.
Needless to say, the current system is slow, expensive, highly repetitive and fraught with corruption.
A study of regional transportation issues by the Secretary of Central American Economic Integration (SIECA) revealed that a truck traveling from Guatemala to Costa Rica, roughly 1,400 kilometers, takes approximately 72 to 90 hours, requires customs revisions at three borders and paperwork from an average of seven government institutions at each border. The total cost is about $2,400.
By comparison, the study found, a truck covering that same distance in the United States would take an average of 19 hours and cost $800. And on better roads.
Diana de Mazariegos, a Guatemalan economist and director of the Central American Customs Union, says that the increase in intraregional trade in Central America over the last decade justifies a customs union. Since the 1990s, intraregional trade in Central America has been growing steadily, with a jump in the last five years.
Intraregional trade in 2006 totaled $4.4 billion, according to SIECA, up from $1.1 billion in 1980. And those numbers are expected to jump even higher in the coming years as the Central American Free-Trade Agreement with the United States (CAFTA) continues to mature.
Although the United States is still Central America’s largest trading partner, representing 33% percent of all Central American exports in 2006, intraregional trade now represents 26.4% of Central American exports, and growing.
De Mazariegos notes that advances in the customs union have been made.Of the 6,038 products that Central America exports, some 95% have now been harmonized in terms of their customs codes and tariff rates, she said.
Progress has also been made to link all the customs agencies and outposts in Central America to a common database and filesharing software – an important technological step to building the customs union.
By linking all checkpoints to a joint database, the customs union also hopes to improve transparency and reduce corruption, De Mazariegos says.
“Through training customs agents, we have discovered the immense need in Central America for transparency in administration; customs agents need to be better trained and be professionals who are selected for the job based on their capacity, not because they were appointed as a political favor or payment – a situation that foments corruption and high levels of job turnover,” De Mazariegos tells The Nica Times. “We need to give the tools to eliminate the discretion of customs agents, and teach them to apply the law, not interpret it.”
Despite the challenges ahead, De Mazariegos says, progress is being made in Central America’s “own particular, tropical manner of doing things.”
She notes that Costa Rica’s adherence to the customs union last December was a big step in helping to complete the puzzle.
De Mazariegos says she can’t predict when the customs union will be ready, because “it’s a process that will take its own time.”But, she adds, the rules of the game are clear and the negotiations with the EU, which requires Central America to integrate as a bloc, is helping to add an extra impetus to move forward on the customs union.
The important thing, she says, is for Central America not to be afraid of taking the integration plunge, even if everything is not perfect from day one.
“The pool has water,” she says. “We have to jump in and make adjustments along the way.”
EU: Beyond CAFTA
Central America’s other major challenge to integration will be its ability to negotiate an “association agreement” with the EU.
Unlike the CAFTA negotiations, in which each country negotiated with the United States on a bilateral level, the EU has required that Central America negotiate as a unified region, using only one Central American spokesman. The situation has forced Central American countries to cooperate with one another and come to agreement in working sessions, before sending their spokesman to the table to present the region’s position.
The Central American spokesman is chosen from each country on a rotating basis for what is expected to be 10 rounds of talks over two years. Experts predict the final agreement could be unveiled during a regional summit scheduled for May 2010 in Lima, Peru.
A Costa Rican delegate, Roberto Echandi, represented Central America during the first round of talks last October in San José, and next it will be El Salvador’s turn to provide the spokesman during the second round of talks in Brussels, Feb. 25-29.
Unlike CAFTA, which is a strictly commercial accord, the “association agreement” with the EU will be more multi-faceted, with components of politics, trade and other cooperation.
A third difference is that, according to EU charters, civil society has to be included in the consultation process, both in Europe and in Central America.
“The EU can’t leave civil society out, and it can’t negotiate an agreement with another region of the world that doesn’t take into account its own civil society,” says Carlos Molina, of the SICA Consultative Committee (CC-SICA).
“This is a fourth generation accord that will be more systematic and based more on solidarity,” says Fernando Laiseca, of the Latin American Center for Relations with Europe (CELARE). “The EU is not just an economic arrangement between countries, so its accords with other regions of the world are not just economic.”
Still, trade could figure to be an important component to the association agreement, as Central America will be trying to negotiate a liberalization of trade terms and quotas on agricultural products.
The EU – a market of 495 million people – represents the world’s largest agricultural importer, bigger than the United States, Canada, Australia, Japan and New Zealand combined, according to Laiseca. Central American hopes to capitalize on that need for food items by increasing its annual trade to the EU, which currently accounts for 16% of Central America’s exports.
By uniting to sign a partnership with the EU, Central America will also help to strengthen its geopolitical position in the world, experts note.
Central America may not become a heavy hitter, but as a united region of 42 million people, it can become a player.
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