Developing a Common Agricultural - …ageconsearch.umn.edu/bitstream/188509/2/Edition 6- Article...

ince the efforts to achieve CentralAmerican economic integrationwere re-launched in the early 1990s,the countries of the region havedemonstrated their determination togradually achieve greater integra-tion. A full-blown free trade area

remains some way off but the negotiations areongoing and significant progress has been madetoward the creation of a Customs Union involvingCosta Rica, El Salvador, Guatemala, Honduras andNicaragua.1

Establishing a common market, with the freemovement of the factors of production, the coor-dination of macroeconomic policies and commonsectoral policies, including a regional agriculturalpolicy, is a medium-term goal. The immediate pri-ority is to create the Central American CustomsUnion, for which there is a lot of political and tech-nical support.2

The agricultural sector is one of the key players inCentral American economic integration but formspart of the wider process. The outcome dependson other actors and a number of variables, not allof which are related directly to agriculture.

Bearing in mind all of the above, this articleexplains where the Central American economicintegration process currently stands, and the diffi-culties still to be overcome and the future outlook,particularly with regard to the issues that are mostimportant for the region’s agricultural sector.

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Perspectives Developing a Common AgriculturalMarket in Central America Problems and prospects

Roger Guillen Bustos, Executive Secretary of CORECA-CAC andDirector of Regional Operations and Integration for the Central Region

Oscar Quesada Madriz, Manuel Jimenez Umaña and Ezequiel Garcia Jimenez,CORECA-CAC specialists, IICA

S

The views expressed in this document are those of the author and do not necessarily represent the views of the Inter-American Institute for Cooperation on Agriculture (IICA).

Establishing a common market is a medium-term goal; the immediate pri-ority is to create the Central American Customs Union, for which there isa lot of political and technical support.

1 This article is based on a technical paper prepared by the Executive Secretariat of the Central American Agricultural Councilfor the Round Table “Developing a regional common agricultural market: problems and prospects.” This activity took placeduring the 29th FAO Regional Conference for Latin America and the Caribbean, held 24-28 April 2006, in Caracas, Venezuela.2 The process consists of fusing the five customs areas into one, consolidating the free movement of goods, regardless of theirorigin. Products imported from third countries must first be processed, and pay any customs duties required, in one of theStates Party (SIECA).

I. Present situation

General framework of regional integration in Central America

In the Tegucigalpa Protocol to the Charter of theOrganization of Central American States, adoptedin 1991, Central America redefined its regionalintegration model, adopting a systemic arrange-ment called the Central American IntegrationSystem (SICA). Belize, Costa Rica, El Salvador,Guatemala, Honduras, Nicaragua and Panama arefull members of the SICA and the DominicanRepublic is as associate member.

The SICA has five subsystems (economic, social,cultural, political and environmental) and its high-est governing body is the Meeting of Presidents.The structure of the SICA also includes, as integra-tion bodies, the sectoral and intersectoralMinisterial Councils, whose role is to facilitatecoordination among the subsystems.

For institutional purposes, the Central AmericanAgricultural Council (CAC) forms part of the eco-nomic subsystem, which is governed by the Protocolof Guatemala to the General Economic IntegrationTreaty, signed in 1993, and encompasses only fivecountries (Costa Rica, El Salvador, Guatemala,Honduras and Nicaragua). The Central AmericanAgricultural Council (CAC), made up of the minis-ters of agriculture, was created under the protocol.The CAC is the integration body responsible for:

Proposing and executing the actions neededto develop regional actions, programs andprojects in the fields of agriculture, forestry

and fisheries, both with respect to plant andanimal health policies and aspects of scientificand technological research and the modern-ization of production, and

Coordinating, with the Council of Ministersfor Foreign Trade, matters related to regionaland international trade in agricultural prod-ucts that are marketed in the region.

Based on the sectoral spheres of competenceestablished in the Protocol of Tegucigalpa and theProtocol of Guatemala, the CAC has played animportant role in spearheading and promoting theintegration of the region’s agricultural sector. Italso serves as an interlocutor with other ministeri-al forums, such as the Council of Ministersfor Economic Integration (COMIECO), theCouncil of Ministers for Environment and theCouncil of Ministers for Health, at intersectoralmeetings that deal with shared concerns andresponsibilities.

Importance of agricultural production in Central America

The combined surface area of the seven countriesthat make up the Central American isthmus is522,000 km2. The Central American marketencompasses roughly 41 million inhabitants,whose average per capita income is aroundUS$2200. The subgroup comprising the five coun-tries involved in the Central American economicintegration process (Costa Rica, El Salvador,Guatemala, Honduras and Nicaragua) has a com-bined population of 37.5 million.

The agrifood sector is very important for the CentralAmerican countries. Agrifood value added accountsfor between 10.3% (Panama) and 35.2%(Guatemala) of Gross Domestic Product (GDP). Whenbackward and forward linkages are taken into account,agriculture’s contribution is considerably greater.3

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3 The measurement of agriculture’s true contribution to GDP performed by IICA showed that agriculture as an expanded sec-tor accounted for over 32% of GDP in Costa Rica (2001), 35% in Belize (2003) and 30% in Nicaragua (2000).

The CAC has played an important rolein spearheading and promoting theintegration of the region’s agriculturalsector. It also serves as an interlocutorwith other ministerial forums.

Central America’s agricultural sector continues tobe one of the most important sources of employ-ment in the region, especially in rural areas. Ruraljobs (agricultural and non-agricultural) accountfor 51.4%, 40.1% and 36.4% of all employmentin Honduras, Guatemala and El Salvador, respec-tively. Even in those countries where the agricul-tural sector is relatively less important, ruralemployment accounts for an important percentageof total employment (the figures for Costa Ricaand Panama are 14.8% and 19.1%, respectively).The production structure of the agricultural sectorshows how important the agricultural and live-stock sub-sectors are in all the CA-5 countries.

The agricultural sub-sector accounts for a largerpercentage of the total value of agricultural pro-duction, ranging from 58.5% (Guatemala) to71.6% (Costa Rica). The livestock sub-sector issecond in importance in all five countries andaccounts for a relatively larger slice of agriculturalproduction in Guatemala, El Salvador andNicaragua. Forestry and fisheries are substantiallymore important in Honduras than in the othercountries. Finally, Costa Rica is the countrywhere agriculture is most diversified. The percent-age of nontraditional agricultural products isconsiderably higher (38.1%) and it has grown inrecent years.


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As already mentioned, the CentralAmerican economies are heavilydependent on the agricultural sec-tor. Consequently, any difficultiesthat the sector faces are bound tohave an important socioeconomicimpact. The location and geographyof Central America expose it to avariety of natural hazards, such ashurricanes, floods, landslides,droughts, volcanic eruptions andearthquakes. Measurements of theimpact of these hazards show thatthe agricultural sector and the ruralenvironment are vulnerable tothem. On average, agriculture borethe brunt of 35% of the economiclosses caused by disasters between1997 and 2001. In the case of water-related events, the percentage waseven higher (40%).

To offset this vulnerability, thecountries have identified operatinginstruments for risk reduction,including the Climate Forum forCentral America and an initiativeaimed at strengthening and

The agricultural trade of the CA-5 countries accountsfor a large percentage of their total trade. During the2002-2003 biennium, agricultural exports made up43% of the value of total exports, while the figure forimports averaged a relatively low 13%.

The Economic IntegrationSecretariat (SIECA) systematically monitors the dismantling of barriersto free trade, with verygood results.

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developing agriculturalinsurance markets. Thegoal with regard to insur-ance is to find innovativemechanisms that willenhance competitivenessand prevent productionunits from becomingundercapitalized. This, inturn, will guarantee ruralproducers a more stableincome, create more attrac-tive conditions for invest-ment, make agriculture amore appealing activityfor the financial sectorand have a positive influ-ence on the adoption ofbest production practices.Producers who traditional-ly have been denied accessto these instruments alsoneed to be incorporated.

Importance of agricultural trade

The agricultural trade ofthe CA-5 countriesaccounts for a large per-centage of their total trade.During the 2002-2003biennium, agriculturalexports made up 43% ofthe value of total exports, while the figure forimports averaged a relatively low 13%.

Main agricultural trading partners

The United States is the main trading partner ofthe CA-5 countries. It purchases 40% of allCentral American agricultural exports and is alsothe chief source of imports (40% of all agricultur-al imports). Agricultural trade among the CA-5countries is also very important, accounting for

one fifth of the value of total exports and a littleover one third of imports. Trade within the CentralAmerican region began to experience stronggrowth in the 1990s following the reactivation ofthe integration process.

Flows of intraregional agricultural trade

El Salvador (35.3%) and Guatemala (23%) are thechief importers of agricultural products that origi-nate in Central America, while the countries that


export most agricultural products to other nationsin the region, as a percentage of intraregional trade,are Guatemala (28.3%) and Costa Rica (24.5%).

The agricultural sector in the CentralAmerican economic integration process

With very few exceptions, there is free trade in allproducts that originate in the five countriesinvolved in the creation of the UAC. The excep-tions include only two agricultural products(unroasted coffee and cane sugar).

The Economic Integration Secretariat (SIECA) sys-tematically monitors the dismantling of barriers tofree trade, with very good results. Some 60 obsta-cles were identified in 2002 but the report present-ed in March of this year notes that only three com-plaints were lodged, two of which involved tradein agricultural products.

Furthermore, a Trade Dispute SettlementMechanism established in 2003 for the CentralAmerican countries permits the States Party toresolve their trade conflicts in an appropriate, con-sistent and expeditious way, using a reliable, pre-determined procedure. Recourse has been made tothis mechanism on eight occasions, and all these

cases involved trade in agricultural products.Three cases have been resolved so far, two bymeans of agreements signed between the partiesand one by removing the measure that gave rise tothe dispute.

Another important step toward regional integra-tion has been the approval of a series of regionalregulations on Unfair Trade Practices (1995),Safeguard Measures (1996), Origin of Goods(1998), Standardization Measures, Weights andMeasures and Authorization Procedures (1999),Sanitary and Phytosanitary Measures andProcedures (1999), International Customs Transit(2001), the Central American Standard CustomsCode (2002) and Valuation of Goods for CustomsPurposes (2004).

As already noted, the Central American countriesare making steady progress with the negotiationsaimed at establishing a Customs Union. The for-mula for these negotiations is similar to the oneused for other trade negotiations that the countriesof the region have undertaken with other tradingpartners, consisting of “rounds” during which var-ious working groups meet at the same time. Thereis a specific procedure for dealing with issues thatare the direct responsibility or concern of the agri-cultural sector. The procedure was adopted at the

Intersectoral Meeting of Ministers of Agricultureand Ministers of Economic Integration held inJanuary 2005, in Honduras.

With regard to the Common External Tariff, thecountries have managed to harmonize 94.6% ofall tariff items (6198) applicable to third countries,which make up 89% of the region’s external trade.Of the 5.4% of tariff items that have yet to be har-monized, 188 are products of agricultural origin(121 of which have undergone a process of tariffi-cation at the WTO and 67 of which have not).

The ministers of agriculture of the five countriesintent on creating the Customs Union met in CostaRica in February 2006 with representatives ofregional private-sector organizations to draft pro-posals for the tariffication of the remaining itemsthat would be acceptable to the private sector.These proposals will be forwarded to the Councilof Ministers for Economic Integration for apprais-al and final approval.4

An important development with respect to theparticipation of regional private-sector organiza-tions was the recent creation of the AdvisoryCommittee on Economic Integration (CCIE). TheProtocol of Guatemala made provision for thisbody, whose brief is exclusively advisory. Thiscommittee will issue opinions regarding issuesrelated to integration when the bodies or institu-tions of the Economic Subsystem ask it to do so, oron its own initiative. COMIECO created the CCIE(Resolution 140 of June 2005). Initially, theCommittee will comprise representatives of 11regional private-sector organizations, seven ofwhich are related to the agricultural sector. All of

them took part in the meeting with the ministers ofagriculture mentioned in the previous paragraph.

Another important development for agriculturaltrade was COMIECO’s approval (by means of res-olutions 144-2005 and 145-2005) of general prin-ciples for managing tariff-rate quotas for importsand donations of food and agricultural inputs. Anyfailure to harmonize these aspects at the regionallevel could have serious repercussions for agricul-tural markets and trade.

With regard to Sanitary and PhytosanitaryMeasures (SPS), at the request of the CentralAmerican presidents, the ministers of agricultureand COMIECO established a work program aimedat achieving equivalence or the harmonization ofsanitary and phytosanitary standards and proce-dures. The aim is to facilitate trade in products andby-products of agricultural origin, while at thesame time protecting plant and animal health.

The work program involves five lines of action:

i. Streamline formalities, speed up proceduresand strengthen sanitary and phytosanitarycontrols;

ii. Prevent the entry of exotic pests and diseases,or those that are important for quarantinepurposes, into the area covered by the UAC;

iii. Improve and strengthen the sanitary andphytosanitary status of the countries of theCentral American Customs Union;

iv. Strengthen food safety systems; and,v. Complementary actions: Coordination with

international organizations, and humanresources training and education

Furthermore, as a result of the progress of thenegotiations for the creation of the CustomsUnion, regional agreements have been reachedthat are important for the agricultural sector.


4 The following regional organizations took part in the meeting with the ministers of agriculture: the Central AmericanFederation of Agricultural and Agroindustrial Chambers (FECAGRO); the Central American Rice Federation (FECARROZ); theCentral American and Caribbean Federation of Pig Farmers (FECCAPORC); Sugar Producers of the Central American Isthmus(AICA); the Central American Federation of Dairy Producers (FECALAC); the Federation of Central American and CaribbeanPoultry Producers (FEDAVICAC); and the Central American Beef Federation (FECESCABO).

An important development withrespect to the participation ofregional private-sector organizationswas the recent creation of theAdvisory Committee on EconomicIntegration (CCIE).

These agreements were approved in COMIECOResolution 117-2004, adopted in June 2004. Thisand other COMIECO resolutions are binding onthe countries that sign them and implemented atthe national level by means of executive decrees.

By means of COMIECO Resolution 117-2004 thecountries approved, among other things:

Exemptions for 469 plant-based products andby-products that are no longer required tohave a plant health import or export permit;A procedure for including or excluding prod-ucts and by-products from the list of the 469mentioned above;A manual of procedures for granting a sani-tary permit for the transportation of animalswithin the Customs Union; and,The sanitary criteria applicable to trade in ani-mals and animal-based products and by-prod-ucts within the Customs Union.

Major progress has also been made in drafting aSanitary and Phytosanitary Directive to facilitatetrade in agricultural products that originate in theStates Party to the UAC, grouping the productsinto three categories:

a) Products that Pose a High Sanitary andPhytosanitary Risk

b) Products that Pose a Medium or ModerateSanitary and Phytosanitary Risk, and

c) Products that Pose a Low or InsignificantSanitary and Phytosanitary Risk

The strictness of the requirements for marketingproducts will depend on the category into whichthey are placed.

COMIECO has adopted specific resolutions for themutual recognition of sanitary registration certifi-cates and the definition of equivalent or common

technical standards for processed foodstuffs and agri-cultural inputs. Recognizing each other’s sanitaryregistration procedures reduces the time required toobtain sanitary certificates in the countries of theUAC as a whole; makes the registration process lessexpensive; ensures harmonized requirements andmore transparent processes; and, avoids the duplica-tion of tests and product certification.

Furthermore, as part of the negotiations for thecreation of the UAC and with support from theCAC’s Executive Secretariat, the TechnicalSubgroup on SPS has begun to strengthen sanitaryand phytosanitary controls. To do this, it is con-ducting an assessment of the national quarantinesystems and, in particular, each of the 33 peripher-al quarantine posts in the UAC countries. The aimis to identify, among other things, the investmentin infrastructure and equipment required for eachquarantine post. The assessment will also focus onother needs such as harmonized manuals and pro-cedures, professionalization and staff training anda data-sharing network.

This diagnostic assessment will be used to preparea regional project that will enable the countriesinvolved in the creation of the Customs Union toidentify and finance the implementation of theinfrastructure, equipment, personnel and proce-dures needed to handle the goods passing throughtheir peripheral quarantine posts.

Due to the progress achieved in the SPS field as partof the process of creating the Customs Union,the countries will have to review the CentralAmerican Regulations on Sanitary andPhytosanitary Measures and Procedures (approvedin 1999).

The process of preparing a regional agricultural policy

Finally, in November 2005 the countries begandrafting a regional agricultural policy. The CentralAmerican Agricultural Council set up a working


COMIECO has adopted specific resolutions for the mutual recognitionof sanitary registration certificates and the definition of equivalent or common technical standards for processed foodstuffs and agricultural inputs.

group to do this, comprised of representatives ofall the ministers of agriculture of Central America.The Executive Secretariat of the CAC, IICA andRUTA are assisting the group.

The relevant national and regional public- and pri-vate sector actors and civil society will be consult-ed about the proposed regional policy. The minis-ters of agriculture will then seek to reach agree-ment with the other ministerial forums that willbe involved in the policy’s execution, such as thoseof the ministers of economic integration, healthand environment.

During the formulation phase, a mechanism willbe designed to coordinate and align internationalcooperation for the agricultural sector throughoutthe region, to support the development of theinstruments and specific actions required for thepolicy’s execution. This effort will complementSICA’s ongoing initiative aimed at promoting thecoordination and alignment of international coop-eration to support the regional integration processas a whole.

II. Difficulties for economic integration from the perspective of the agricultural sector

Despite the progress achieved in the CentralAmerican economic integration process, particu-larly with regard to the agricultural sector, somemajor difficulties have yet to be overcome. Theseinclude tariff harmonization, agricultural health,the formulation of a regional agricultural policy,the participation of the regional agricultural pri-vate-sector organizations and the implementationof regional agreements at the national level.

Harmonizing the tariffs for the remainingagricultural products is a complex task. Mostof the products involved are subject to tariffsor bound at the World Trade Organization atvery disparate levels, making regional consen-sus difficult. In a few special cases, they will

have to be renegotiated at the WTO (both thetariff listing and tariff levels, and quotas).

The Central American countries also negotiat-ed different tariffs in free trade agreements(FTAs) that they have already signed withthird countries, especially with the U.S., theregion’s chief trading partner.

Furthermore, to harmonize the tariff fractionsof sensitive agricultural products, the situationin the different member countries must betaken into account and the productive sectorsconsulted, bearing in mind the political andsocial problems that could ensue.

The sanitary status of the countries varies, asdoes their capacity to respond to sanitary andphytosanitary emergencies. This raises doubtsabout the credibility of the respective nationalsystems and creates mistrust. This will be animportant obstacle when the time comes toeliminate the internal customhouses in theUAC countries.

Implementing a regional agricultural policy callsfor actions and guidelines that exceed the brief ofthe sectoral forum. Therefore, the policy willhave to be negotiated with other sectorsinvolved in the integration process and otheractors consulted who are important for the sec-tor. These negotiations and consultations willmake the policy more viable, but formulatingand implementing it will be a complex process.

To support all these actions, the role of theAdvisory Committee on Economic Integrationwill have to be strengthened. Although it wasincluded in the Protocol of Guatemala signed in1993, it was not set up until June 2005. Thecommittee has a key role to play as a counter-part. It will be required to adopt a comprehen-sive, regional vision to integrate the opinions ofthe agricultural sector organizations consultedby the Central American Agricultural Council,working both at the sectoral level and withCOMIECO.


Since November 2005 the countries began drafting a regional agricultural policy. The Central American Agricultural Council set up a working group to do this, comprised of representatives of all the ministers of agriculture of Central America.

Finally, it will be difficult for each country toimplement the regional agreements alreadyadopted in the process of creating the CentralAmerican Customs Union and those that haveyet to be negotiated. In the case of the agricul-tural sector, this calls for: a) major coordina-tion and monitoring efforts, working bothwith the private sector and other nationalauthorities involved in implementing theagreements; b) information and continuoustraining for the specialists responsible for exe-cuting the agreements; c) the allocation ofmore budgetary resources to the bodies con-cerned; and, d) technical cooperation andinvestment projects, which usually entail bor-rowing abroad, to strengthen the nationalagricultural health and food safety services.

III. Outlook

The indicators selected show that the agriculturalsector has played, and will continue to play, animportant role in the Central Americaneconomies. Recent trends suggest that the effortsto develop and/or strengthen a number of promis-ing areas are gathering momentum. Some cases inpoint are biotechnological applications, the gener-ation of environmental services and bio-energy.Together, they could give the sector a new boost.

The Presidents have reiterated systematically theirpolitical commitment to the creation of the CentralAmerican Customs Union and the ministers ofagriculture have responded by making it one oftheir priorities, consulting with the regional organ-izations of the agricultural private sector and coor-dinating with COMIECO.

On 9 March, in Panama, the Heads of State andGovernment of the SICA member countries decid-ed that, despite the difficulty of meeting the dead-lines set, substantial progress with the customsunion was needed. Therefore, they agreed: i) toachieve tariff harmonization by 31 July 2006 atthe latest by establishing timeframes for a targettariff, and to set dates for removing tariffs on the

last native products; and, ii) by 31 December 2006at the latest, to sign the Agreement for theCreation of the UAC.

Another factor that is spurring integration is thecoordination of external trade relations. Theimportant negotiations taking place include: i) theFree Trade Agreement with the United States (DR-CAFTA), which has already been ratified by theLegislative Assemblies of El Salvador, Honduras,Guatemala and Nicaragua, and by the U.S.Congress; and, ii) the likely start of the negotiationof an Association Agreement with the EuropeanUnion (EU), which would include an FTA.

The Central American presidents expressed theirdetermination to announce the launching of thenegotiations for the Association Agreementbetween Central America and the EuropeanUnion during the Vienna Summit, in May 2006.During the preparatory stage, in recent months,the countries conducted the joint evaluation ofregional integration required by the EuropeanUnion. From the outset, the EU has insisted thatthe Central American countries advance towardintegration before the start of the formal negotia-tions for the Association Agreement.

The European Union is currently assisting theCentral American countries with significantamounts of resources, intended to: i) supportregional integration; ii) promote the design andimplementation of common policies; iii) strength-en the participation of civil society in the integra-tion process; and, iv) reduce vulnerability and per-mit environmental improvements. As part of theseefforts, the European Union is providing theSIECA with cooperation for the development of aproject in support of the Central AmericanCustoms Union.

The negotiation with the European Union looksset to be different from the one with the UnitedStates. Everything suggests that the negotiationswill be “region-to-region,” i.e., the EuropeanUnion will negotiate with Central America as asingle unit, not separately with the five or six


The Presidents have reiterated systematically their political commitment to the creation of the CentralAmerican Customs Union and the ministers of agriculture have responded by making it one of their priorities.

countries (Panama may decide to take part in thenegotiations).

Another element that must be borne in mind isthe Government of Panama’s desire to achievegreater economic integration with the countriesalready participating in the process. This wasannounced at the Special Summit of Heads ofState and Government of the SICA countries, on 9March 2006. El Salvador is the only country in theregion that has reached a bilateral trade agreementwith Panama, ratified by El Salvador in 2002, andPanama in 2003.

To sum up: i) the agricultural sector is, and will con-tinue to be, economically important for CentralAmerica and for intraregional trade; ii) the politi-cal will exists at the highest levels of governmentto take economic integration a step further by cre-ating a Customs Union, and the agricultural sectoris actively involved in the process; iii) formulatinga regional agricultural policy will take the coun-tries beyond the Customs Union; iv) the regionalnegotiations with third parties, in particular withthe European Union, are a bigger incentive for,and elicit a stronger commitment to, CentralAmerican economic integration; v) the participa-tion of Panama could provide a new and impor-tant incentive for further regional integration; and,vi) the complex nature of factors associated withregional integration and in the agricultural sectormakes it necessary to establish intersectoral mech-anisms for dialogue and joint work with other sec-tors, such as foreign trade, environment andhealth.


The negotiation with the EuropeanUnion looks set to be different

from the one with the United States.

The political will exists at the highest levels of government to take economicintegration a step further by creating a Customs Union, and the agriculturalsector is actively involved in the process.

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