Getting the Most out of Central America’s Free Trade Agreements

Central America has put trade liberalization and the promotion of international trade at the center of its development agenda. Over the past years, the region has witnessed the successful conclusion of negotiations for a significant number of free trade agreements (FTAs). Some of these FTAs have taken the form of bilateral agreements (for example, Costa Rica with Canada, Chile, Mexico, Panama, China, and Singapore; Honduras with Mexico), whereas others have been negotiated as a block. These include the historic Dominican Republic–Central America Free Trade Agreement (DR-CAFTA)1 between Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic with the United States and, more recently, the Association Agreement of the CA-6 (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama) with the European Union, which has yet to be ratified. Box 1.1 highlights the priority placed on trade by Central American policy makers and the steady progress made on liberalizing tariffs. The priority given to trade liberalization in Central America’s development strategy is not surprising: trade is generally perceived as being both a benefit for growth and a means of advancement for developing countries. Trade may contribute to faster growth through different channels, all of which are extremely relevant for Central America. First, trade openness C H A P T E R 1