DDP 693. José Tavares. "The Access of Central America to Export Markets: Diagnostic and Policy Recommendations." April 1999. 61pp. Central America Project Series

This paper offers an overview of the status of Central America’s access to export markets. It reviews the creation, evolution and current status of the Central American Common Market (CACM), as well as the status of trade relations between Central American nations and countries outside the region. Central America’s trade is characterized by a short list of very important clients where the United States is prominent, a non-diversified export base relying on agricultural products and textiles and an increasing dependence on maquila exports. The regional trade area has not yet attained the status neither of a fully developed common market nor of a free trade area. The paper lays out the different strategies for Central America to secure access to the important US market, in the wake of NAFTA and preferential access of Mexican exports to the United States. The main risks Central America faces are: the unilateral nature of the Caribbean Basin Initiative agreement, increasing differential between Mexico’s and Central America’s access to the US market and the risk of being left out of both NAFTA and a Southern American trade area. Finally, this paper delineates the components of a trade strategy that would improve and secure access to foreign markets. First, work to secure access to the United States market by negotiating both with the US and US partners on as many trade and ancillary issues as possible. Second, pursue better trade relationships with markets that are large and close geographically as well as culturally such as Mexico, Venezuela and South America. Third, take regional integration seriously. It is the best available avenue to increase credibility as a partner and creating a larger internal market.

Keywords: trade integration, trade liberalization, Central America, NAFTA

JEL codes: F0, F1, O5

José Tavares, Ph.D. is a Development Associate at the Harvard Institute for International Development (HIID).