Lights and shadows 20 years after the signing of the FTA between Central America and the US.

On May 28, 2004, Central America and the United States celebrated the signing of a “historical” agreement of free trade which has translated into a jump in the exports of some countries of the isthmus but also in the deficit of the trade balance, something that experts attribute both to the nature of the agreement and to the inability of the signatories to take advantage of it.

The Free Trade Agreement between Central America and the United States (CAFTA), signed at the Organization of American States (OAS), was negotiated between January 2003 and January 2004 and was incorporated into the Dominican Republic in July of that same year, then adopting the acronym DR-CAFTA.

By 2009 it had already been ratified by all countries, amid controversy over the ability of Central Americans to compete with the production of the largest economy in the world.

Panama, although it is in Central America, did not adhere to the regional agreement and bilaterally negotiated a trade promotion treaty (TPC) – which has been in force since 2012 – with the United States, which before the entry into force of the agreements was already the first trading partner of the Central American nations.

The rise of Central American exports

In the case of Nicaraguaexports to the US market have almost quadrupled after the regional agreement came into force.

“Since CAFTA-DR came into force in 2006, Nicaraguan exports to the United States have almost quadrupled from US$1.5 billion to US$5.7 billion.” in 2022, according to data from the US Embassy in Managua.

A study by the Salvadoran Foundation for Economic and Social Development (Fusades) placed the growth of Nicaragua’s exports to the United States at 385.1% from 2005 to 2022.

In Costa Ricadata from the Foreign Trade Promoter indicate that in 2007, trade with the United States was US$6,870 million and in 2023 the record figure of 21,933 million was reached.

At the same time, US investment went from US$802 million to a record of US$2,617 million in the same period, according to data from the Costa Rican Central Bank.

“Since the entry into force of CAFTA for Costa Rica in January 2009, we have seen how exports and the flow of foreign direct investment from that market to Costa Rica have been stimulated and increasing.“said Costa Rican Minister of Foreign Trade, Manuel Tovar.

Costa Rica has managed to consolidate the United States market as the main destination of its exports, with 45.8%, while 38.2% of the goods that arrive in the Central American country come from the North American giant, Tovar added.

A growing imbalance in the trade balance

At the same time, countries like Honduras They have maintained a high trade deficit with the United States after the entry into force of the free trade agreement.

By 2023, Honduran exports to that country totaled US$2,106.4 million while imports reached US$5,062.8 million, according to figures from the Central Bank.

In this context, Honduran economist Mario Palma told EFE that Honduras has to “consolidate” the relationship with the United States to take greater advantage of the trade agreement, exploiting, for example, its “quite privileged geographical position“, well “nothing better than being close to the biggest market” of the world.

In Palma’s opinion, 20 years after its signature, the regional agreement “should be evaluated“also doing”a mea culpa“and reviewing what was not done”to get the best out of” of the same, as Costa Rica and the Dominican Republic have done, the countries that “more benefit” have pulled out of the FTA with the United States.

In Dominican Republicanalysts talk about the benefits of the regional treaty but also about how the tariff reduction planned for 2025 may affect national rice production, a fundamental sector for the country’s economy and that employs, directly or indirectly, more than 300,000 people.

In Guatemalaexports to the United States have grown at an annual average of 2.1% between 2006 and 2021, but imports of American products grew by a total of 216% in that period.

The products that Guatemala usually exported to the United States also changed, since coffee, fruits and mineral fuels were the most in demand before 2006. Today, it is textile products.

Something similar happened in The Saviorwhere, according to Fusades, through the treaty with the United States, the country achieved a strategic change from the export model based on the maquila service to a vertical integration of the cotton textile industry.

The above, through the implementation of the model “Complete package”, generating profitability and competitive capacity throughout the value chain, which allowed us to reduce the disadvantage compared to China and Asia.

Fusades also points out in a report presented last September that when El Salvador signed the treaty it was already experiencing and continued to register losses in positions in the global competitiveness ranking, reaching position 103 in 2019, from 61 in 2006. .

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