NS4540 Winter Term 2017 Central America: Trade Opportunities Oxford Analytica, Central America: Trump may trigger trade opportunities, January 5, 2017

Overview Outlook for Central American trade Election of President Trump has created uncertainty over the outlook for trade in Central America Region open to international trade and recent trade deal with South Korea illustrates attraction as a partner South Korea trade deal likely to come into effect in 2017 However, increased US protectionism would be felt in Central America Other Asian countries could show growing interest in negotiating trade deals with Central American countries For well over a decade Central America has had open trading relationships with the rest of the world Includes Nicaragua whose leftist government has been relatively pragmatic on the issue despite periodic rhetorical hostility

CA Trade Agreements I Two multilateral deals are key to the region’s international trade relationships DR-CAFTA The Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) Took effect in January 2009, and encompasses the U.S., Dominican Republic, Costa Rica, Nicaragua, El Salvador, Honduras, and Guatemala Panama has a bilateral trade deal with the U.S. took effect in October 2012 Deal has eliminated tariffs on consumer and industrial goods with nearly all agricultural tariffs being phased out by 2010

CA Trade Agreements II EU The EU and Central America finalized and Association agreement in June 2012 with three pillars Political dialogue, Cooperation, and Trade The trade pillar came into force in 2013. Following a phase-out period it will end tariffs on manufactured goods, and fisheries, and eliminate most tariffs on agricultural products except for “sensitive areas” for local markets In addition a bilateral free trade agreement (FTA) took effect in 2011 between Costa Rica and China. This eliminates tariffs on more than 90% of bilateral trade over 15 years and opens up a large number of Costa Rican service sectors to direct Chinese investment

Uncertainty I Trump’s election has injected uncertainty throughout Latin America Trump repeatedly pledged to renegotiate or even withdraw from NAFTA Also pledged to impose a 35% tariff on imports from companies that move job s abroad – mainly targets Mexico Trump’s transition team managing expectations over NAFTA Now talking about unspecified adjustments and modifications The 35% tariff would require congressional approval and signs this will not be forthcoming

Uncertainty II Central America has not been an explicit focus of the Trump campaign However the Northern Triangle countries – Guatemala, Honduras and El Salvador may bear the brunt of any moves to deport undocumented migrants with criminal records. This would potentially exacerbate insecurity in these countries, particularly as future US development assistance may also be in doubt In addition the resulting increased uncertainty and insecurity for undocumented migrants in the U.S. could affect the level of remittances sent back to Central America

Prospects I Effect of Trump presidency on trade with Central America is likely to be relatively limited U.S. has promised to withdraw from the Trans-Pacific Partnership – trade deal involving twelve Pacific Rim countries Beneficial to CA textile producers because reduces the risk of competition from cheaper Vietnamese producers Trump focus on Mexico and NAFTA likely to mean DR-CAFTA and trade relations with Central America more generally not a priority

Prospects II This could create an opportunity for the CA countries A key motivation for the South Korean FDT was a desire to create an advantage over its neighbors and use CA as an entry point to North America and rest of LA Should it be successful, other countries, particularly in Asia could seek to deepen trade relations with the region

Assessment Reviewing its trade deal with Central America unlikely to be a priority for Trump administration Any increased protectionism moves towards Mexico could well increase Central America’s attraction to a abridge to the U.S. market.