The process of forging a formal relationship between Central America and the European Union (EU) has dragged on for years, stalled mainly due to political crises in the region and disagreements over bananas.
But negotiations made a notable leap forward last week when European Trade Commissioner Benita Ferrero-Waldner announced a target completion date of May 18 for an Association Agreement.
The push to finish discussions shows Europe’s commitment to a relationship with Central America, according to Roberto Echandi, Costa Rica’s chief negotiator in talks with the EU.
Echandi said that the EU needs this agreement because no region-to-region trade talks to date have been successful.
In addition, leadership in both regions will soon change, making it challenging for new leaders to recreate existing dialogue. In addition, the next summit between the EU and Latin America and the Caribbean (after a May 18 summit in Madrid) is not scheduled for another few years.
Before returning to his home in Brussels, Echandi spoke to The Tico Times about landmarks that already have been reached in the negotiations, future hurdles and how the agreement would benefit Costa Rica.
TT: What can you tell me about the Association Agreement?
RE: This is a very important agreement for several reasons. It’s not only a free trade agreement. It’s also an Association Agreement, which is different. What’s the difference? Well (the Association Agreement) is more comprehensive and it includes three different pillars: political dialogue, cooperation and the establishment of a free trade agreement. The important part is that each of the pillars complements the other.
What does the political agreement consist of and how does it benefit Costa Rica?
Political dialogue is key for Costa Rica because, in a region as unstable as Central America, our regional image and our regional stability (can impact each individual country). It’s in the best interest of Costa Rica to have a stable and democratic Central America …The political dialogue is a key component of the agreement for a lot of reasons, but one of them is the political democratic clause, which is basically the commitment and cooperation of all the countries to ensure we will be ruled by democratic regimes. If that is not the case, then the whole agreement can be suspended according to international law.
You can imagine it is in the interest of Costa Rica and the EU to establish more stable and democratic regimes in the region.
Another important point of the political dialogue is that we will have a venue for the Central American countries to (harmonize) policies … over the promotion of democracy, human rights, sustainable development, and the rule of law, among others.
What about in the cooperation (development assistance) realm? What are you looking to see here?
Europe provides Central America with €100 million in aid per year. Therefore, the key point is not only to increase the cooperation, but rather to use it more efficiently and in a more focused way. It’s not only the facilitation of resources per se, it’s the negotiation of a legal framework whereby the region will identify certain areas as priorities … (The agreement) will enable the EU to provide (aid) in areas that are priorities for our countries, such as health, education, security, rule of law, justice, promotion of human rights, sustainable development and culture. There is a very ample span of activities, which are covered there.
And in trade?
The EU is one of the biggest markets in the world. It’s about 500 million people with a very high purchasing power. For obvious reasons, for countries like us, which depend on exports, it’s very important for us to diversify our markets and, of course, to attract investment and foster integration, not only with Europe, but also with the United States (and other countries). The beauty of all these agreements is that it fosters cross-country integration. U.S. companies can come to Costa Rica, set up business here and benefit from the region’s entry into the EU … This is a response to a strategy that aims to integrate Costa Rica into the world market. This is basically why we are very, very enthusiastic.
Do you have any numbers in terms of how this will impact import or export figures in Costa Rica?
It is very difficult to see how economic actors will behave in the future, but I can tell you in rough terms. The EU is around 18 percent of our trade right now, which is almost one fourth of all our exports. Europe buys a lot of fish because of the cultural tastes of the Europeans. So the communities of Guanacaste and Puntarenas would benefit a lot just from the duty free access that would be granted. Bananas (would also benefit). As you have heard, the Europeans have one of the most protected markets for bananas in the world.
Tariffs will be reduced under the new banana agreement. The Association Agreement would reduce banana tariffs further?
It would. Exactly. The same would happen with sugar. (The new agreement allows for a tariff of) €114 per ton of bananas. We are aiming to have a preference over that number and that would certainly give us an edge in the European market.
I thought the banana agreement stipulated that the Latin American countries couldn’t ask for a better deal. One of the requisites in the banana agreement was that countries wouldn’t demand reduced tariffs later.
We are negotiating a free trade agreement. The banana negotiation was done in the context of the World Trade Organization, where basically all the countries of the world participated. The concessions that the EU is granting are concessions to countries all over the world. But the Association Agreement – as the name suggests – is a preferential agreement. Therefore, we will receive better treatment.
Bananas aren’t the only product that will benefit. Right?
Right. In addition to bananas, you have other key products, like sugar. We are seeking important market access for beef and rice and, of course, some vegetables.
How much do you expect exports to grow? Take for example, sugar.
Sugar exports easily could grow by 500 percent. Right now, we can’t export anything. The tariff in the EU right now is €400 euros per metric ton, which makes it impossible right now to export a single tablespoon of sugar …Therefore, the increase in exports to Europe will be very significant.
When you spoke to The Tico Times at the outset of the Association Agreement negotiation, you said Europe came out very tough. Have they relaxed at all in their position?
Oh, yeah. We started almost two years ago. The positions are normally a very dynamic exercise. They came in very tough in round one, but that is normal. That happens with any negotiation process… I would say that we are very near an agreement right now, and very near to a good agreement for both parties. Now the key point will be to take advantage of time. As you know, there will be a summit in Madrid in May, and that is a summit that takes place every two years.
Therefore, the window of opportunity to sign an agreement will be between now and May. Otherwise, we’ll have to wait more than three years before the next summit takes place. We are so close to a deal right now, and we have built up a lot of political momentum. It would be a shame not to take advantage of that. There is a turnover in leadership. So the institutional changes within the EU also exert some pressure.
I think the important point is that the EU needs a success story. They’ve started negotiations with a lot of countries and, so far, they’ve only been able to wrap up an agreement with Korea. They have also started negotiations between regions with different parts of the world. Yet, the only region that is capable of delivering the agreement right now is Central America. It would be the first ever region-to-region agreement. And that would be an important (landmark) for the Europeans.
Do you think the Central American Free Trade Agreement with the U.S. (CAFTA) paved the way for this Association Agreement with Europe?
Sure. No doubt. CAFTA prepared a lot, just like other agreements prepared Central America for CAFTA. The Europeans are very interested in open telecommunications and insurance and we have those sectors open. There is no doubt that CAFTA actually paved the way. Big time, I would say.
In past negotiations for the Association Agreement, Nicaragua has been rather diplomatically demanding. Do you think Nicaragua will be a problem going forward in these next three months?
I don’t know. From a rational perspective, I think it would be very unwise for Nicaragua to refrain from participation in the agreement. For a simple reason, the (European) trade commissioner said that the negotiations are going ahead and they will not allow any country to block the process – not Nicaragua, not Costa Rica, not Guatemala, not El Salvador. No one will be able to block it.
As a Central American country, why would one deprive the private sector from having access to one of the most protected markets in the world? It would be very unwise. There are huge advantages, especially for the agricultural sector. For Nicaragua, (there would be benefits to) products like sugar, products like rum, products like beef. Those are key products for Nicaragua. It would be difficult for any government to go to the Nicaraguan private sector and tell them they won’t have access to the European markets, but the other Central American countries will. From an economic perspective, at least, it makes sense. It’s just a no-brainer.