UK signs accord with Central America to ensure continuity of trade deal

Key words: Association Agreement; tariffs; liberalisation.

On 18 July 2019 in Managua the United Kingdom signed an agreement with the Central American nations to guarantee that British companies and consumers would benefit from the same freedom of tariffs when it leaves the European Union as it enjoyed as a member of the EU. The trade deal signed in 2006 between Central America and the European Union was called the Association Agreement.

Commerce between the UK and the six countries of Central America (minus Belize) amounted to US$1.255 billion in 2018 with a balance in favour of the Central American countries. UK consumers will continue to benefit from low prices for goods imported from Central America, such as shrimps, coffee, fruit, vegetables and sugar, amongst others.

Central American consumers will continue to enjoy low tariffs on British products such as alcoholic drinks, medicines, machinery and cars.

The agreement also provides a framework for cooperation and development, especially in matters relating to the environment and human rights.

Despite the balance in favour of the Central American countries, the Agreement requires various market liberalisation measures to be implemented by the Central American governments and allows well-financed UK firms to compete with less well-financed Central American firms in many spheres of economic activity.

The Central American Bank for Economic Integration (CABEI)

The Organised Crime and Corruption Reporting Project (OCCRP) is a global network of investigative journalists specialising in crime and corruption. It publishes its reports in English and Russian and its website is at:  On 31st October the OCCRP released a report on The Central American Bank for Economic Integration (CABEI). The full report can be found at: , but a summary of the key points and the report’s introduction are given here for The Violence of Development website. OCCRP credits are given as follows.


Credit: James O’Brien/OCCRP

by Eli Moskowitz (OCCRP), Jonny Wrate (OCCRP), Madeline Fixler (Columbia Journalism Investigations), Bill Barreto (No Ficción), Ernesto Rivera (Lado B), Daniel Valencia (Redacción Regional), Andrew Little (Columbia Journalism Investigations), and Mariana Castro (Columbia Journalism Investigations). Data by Romina Colman (OCCRP). Research by Angus Peacock (OCCRP)

31 October 2023


The Central American Bank for Economic Integration was created (in 2006) to give the region more control over its own development, but a new investigation by OCCRP and partners raises questions about the bank’s lending practices.

Key Findings

  • CABEI has funded major infrastructure projects that have later been engulfed in scandal, where its loans were used to pay bribes, or seen as an easy source of cash by alleged conspirators.
  • Internal audits obtained by reporters show the bank has ignored red flags when investing in projects, including lending money for hydroelectric dams even after violent crackdowns on protesters.
  • In recent years the bank has begun giving out policy-based loans, a few-strings-attached type of financing that critics say is easily misused.
  • In El Salvador, reporters found $200 million of one CABEI loan designed to support small businesses through the pandemic was diverted to fund the country’s ill-fated plan to make Bitcoin a national currency.
  • CABEI has faced criticism for lending billions of dollars to Central America’s authoritarian governments, providing an important source of funding for the region’s authoritarian leaders as they committed widespread human rights abuses.
  • Late in 2021, nine of CABEI’s directors wrote a letter warning of the bank’s worsening financial situation and raising transparency concerns. Financial statements show these indicators have declined since then.

In mid-November, the Central American Bank for Economic Integration (CABEI) will appoint a new executive president for the next five years. Whoever takes the helm of the region’s main investment bank does so at a key moment in its history.

While only a small player compared to global institutions like the World Bank, CABEI plays a vital role in channeling billions of dollars into its five founding states: Nicaragua, El Salvador, Honduras, Guatemala, and Costa Rica. The bank says it accounts for close to half the development finance in Central America, one of the poorest parts of the Western hemisphere.

CABEI played a critical role during the COVID-19 pandemic, when the bank gave over a billion dollars in loans and grants to keep its founders afloat. With all of these states’ sovereign bonds rated as “junk,” CABEI has become a lifeline to international financial markets — and a key source of funding for the region’s authoritarian leaders.

“It doesn’t matter what the politics are as long as poor people are getting services,” the bank’s outgoing president, Dante Mossi, said at an event in Washington, D.C., this year, as he faced criticism for providing funding to Nicaraguan dictator Daniel Ortega.

“The bank is not a political model,” Mossi told the assembled crowd.

Others disagree.

CABEI has been criticized for giving billions of dollars to Central America’s authoritarian regimes — led by Ortega, President Nayib Bukele in El Salvador, and the former president of Honduras, Juan Orlando Hernández. Now an investigation by OCCRP and partners can show the bank has funded projects that led to environmental destruction, and others where loans were diverted for corrupt practices or used to fund the pet projects of dictators.

Reporters spent more than a year investigating CABEI, combining open-source data with official investigations, leaked documents, and interviews with current and former bank employees. To get a clearer picture of the bank’s track record, reporters also compiled a database of more than 500 approved operations from the past quarter century. Together, they show how CABEI’s failures have enabled waste and corruption in one of the most unequal regions on Earth.

Aims and effects of CAFTA-DR, according to UNES

In March 2011 to mark the fifth anniversary of the signing of CAFTA-DR, UNES (the Salvadoran Ecological Unit) sent an open letter to Deputies of the Salvadoran Legislative Assembly demanding an evaluation of the trade agreement, whose effects they claimed included the following:

  • The 60,000 new jobs to be created each year, as promised by those who promoted the agreement, have not been realised; in fact unemployment is greater than it was five years before.
  • Small farmers and small businesses have not been able to export their goods to the US market; in fact the crisis experienced by the campesino sector and by small businesses has deepened.
  • Food cannot be bought cheaper than it was in 2006; in fact the price of basic foodstuffs is much more expensive; similarly with the price of medicines.
  • There is no greater stability or security for Central Americans who migrate to the USA; in fact the humiliation and deportations have increased.
  • The commercial deficit between El Salvador and the USA has widened; although exports from US, European and Korean TNCs in El Salvador have increased, imports from the USA have increased much more. Also, despite their stagnation, dependence on remittances from family members has grown.
  • Two mining TNCs have claims against the government of El Salvador in a foreign tribunal for US$170 million as compensation for the cancellation of their permits for gold and silver extraction in El Salvador.
  • Central American regional integration is experiencing greater difficulties now than it did in 2006 when CAFTA-DR came into force.
  • CAFTA-DR is particularly beneficial for transnational corporations that the European Union has also begun free trade treaty negotiations with the region; this is euphemistically called an ‘Agreement of Association’.

Source: Revista Ecotopia 272 (March 2011) ‘Organizaciones Sociales Demandan Evaluación y Denuncia del CAFTA-DR’, San Salvador: UNES.

CAFTA’s promises of more employment in Costa Rica did not materialise, research finds

By Fabiola Pomareda García,

7 October 2022, Semanario Universidad 

We are grateful to Fabiola and to Semanario Universidad, a weekly Costa Rican newspaper, for permission to reproduce her article in The Violence of Development (TVOD) website. We are also grateful to Pamela Machado, a Brazilian journalist, for doing the translation and summary of Fabiola’s article specifically for the TVOD website. What follows is more of a summary than a direct translation. 

Promises of increased employment opportunities in Costa Rica made at the signing of the free trade agreement with the United States, known as CAFTA, have not materialised, research from Andrej Badilla Solano from the Centre for Research in Culture and Development (CICDE) of the Universidad Estatal a Distancia (UNED), has found.

At the time of the signing of CAFTA, the second administration of Óscar Arias Sánchez had said that the CAFTA would generate 500,000 jobs.

According to Badilla, “there have been no changes in employment data in the entire period after the implementation of the agreement,” which came into effect in 2009. The reason for this, Badilla said, is that the strategy pursued by the government was the creation of Free Zones “which are under an ‘exception’ regime and their contributions are limited to the payment of social charges under very advantageous conditions,” he said.

As of 2018, the number of jobs generated by the Free Zones represented only 5.3% of the total workforce in Costa Rica, representing approximately 116,000 jobs – lower than the half a million positions promised by former president Oscar Arias Sánchez. “The indicators show a marked deterioration in the labour market during this decade. We are still waiting for the 500,000 jobs that Arias Sánchez promised us,” Badilla said.

In addition to the unfulfilled promises of employment, medicines have become more expensive in Costa Rica as a result of an intellectual property clause included in CAFTA, Badilla said. The agreement established more favourable conditions for patent holders. This, in turn, has made medical drugs more expensive and has strained the budget of the country’s social security fund, said Badilla, citing a study by Martínez Piva and Tripo (2019) which shows that 35% of the budget allocated to the purchase of medicines from the Fund corresponds to medicines with patent protection.

“Since there is a list of official medicines and some have this intellectual property protection, the Fund has no choice but to pay for them, it has no choice but to pay the price determined by the producers. But we could pay less and allocate less of the budget if these drugs were generic”, Badilla highlighted.

Moreover, the researchers said that the agreement had increased the availability of junk food and harmed people’s diet. According to Badilla, in all Central American countries the prevalence of obesity in adults ranged between 12% and 15% before CAFTA was signed. But after the approval of the treaty the prevalence of obesity increased by 10%.In Costa Rica the prevalence of obesity among adults was 14.8% in the year 2000; while in 2016 it was 25.7%.


Andrej Badilla, Researcher at the Centre for Research into Culture and Development of the State Distance Learning University (UNED)


Highlights of the trade pillar of the Association Agreement between Central America and the European Union

Mariah Jen 20 June 2011

The Association Agreement between the EU and Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama) marks an important step forward in the relationship between the two regions. The Parties have finalised the legal review of the Association Agreement which includes a comprehensive trade part. Once ratified, this agreement will open up markets on both sides, help establish a stable business and investment environment, increase benefits for citizens and will foster sustainable development. The Agreement is also meant to reinforce regional economic integration in Central America and the EU hopes for it to have a positive spill-over effect on the overall political integration process and contribute to the stability of the region. In 2010, bilateral trade in goods between Central America and the European Union was worth €12 billion.

Negotiations of the Association Agreement between the European Union and Central America were finalised in May 2010. The Agreement can enter into force once the legislative procedure involving the Council and the European Parliament has been concluded.

The Association Agreement consists of three pillars: political dialogue, cooperation and trade. The key elements of its trade pillar are presented below:

1. Substantially improved market access for EU exports to Central America

Tariff elimination – manufactured goods, fisheries and agriculture
The Agreement will largely eliminate tariffs for manufactured goods and fisheries with complete liberalisation at the end of the tariff phase-out period, generally within a ten-year period and with only a small amount (4 percent) of products after 15 years. Upon entry into force of the Agreement, Central America will liberalise 69% of its existing trade with the EU. Once the trade pillar of the Agreement is in force, EU exporters will save €87 million annually in customs duties.

In agriculture, tariffs on key agricultural products will be largely eliminated whilst “sensitive areas” for local markets are being respected. Panama, for example, is a main importer of European whiskeys to the region. 70% of its whiskey imports come from the EU and those will be liberalised on day one of the entry into force of the Agreement. All other Central American countries will liberalise this market after six years. Wine, another key product for the EU, will be fully liberalised at entry into force of the Agreement. EU exporters of wine and spirits can expect savings of €6 million annually in customs duties.

Tariffs on dairy products will be entirely eliminated with the exception of milk-powder and cheese, for which the EU has obtained duty-free quotas. These quotas cover the currently traded quantities and will be increased on an annual basis.

Addressing obstacles to trade in goods
Tariff elimination is only of real benefit if technical or procedural obstacles to trade are also being tackled. The proposed Agreement will ensure more transparency and better cooperation in the areas of “standards” and market surveillance. The agreed provisions go beyond the WTO Agreement on Technical Barriers to Trade (TBT). The requirements for marking and permanent labelling have been simplified. The Parties agree to cooperate when drafting technical regulations, setting standards and establishing conformity assessments. Most importantly, the parties will promote the development of harmonised regulations and standards within each region with a view to facilitate the free movement of goods.

It has been agreed to move towards international standards in customs legislation and simplify their procedures. This will improve trading conditions, while at the same time maintain an effective customs control. Central America has not yet harmonised standards, but has agreed to promote the development of regional customs regulations. This will facilitate operations for traders and business both within and outside the region.

As regards sanitary and phytosanitary (SPS) barriers, the Agreement also goes beyond WTO SPS requirements in key areas such as the regionalisation of animal diseases and pests, and the transparency of SPS import requirements and procedures. It includes other useful trade facilitation tools such as the listing of establishments, exports can come from. Further improvements, e.g. in the field of animal welfare have been agreed. These will help strengthen capacity building in the Central American countries and hence facilitate their market access.

Improved market access to government procurement, services and investment
The services and establishment commitments obtained from Central America are significant and meet the EU’s key interests in telecommunication, environmental, financial and maritime services. Further commitments cover cross-border services, investment and non-service sectors as well as key personnel, graduate trainees and business service sellers. The Agreement also liberalises current payments and capital movements between the Parties. These sectors will benefit from an easier access and possibilities to expand onto all markets of the Central American countries.

The opening of Central America’s public procurement market varies in terms of levels of liberalisation, with Costa Rica and Panama opening their markets more significantly than the other countries covered by the Agreement.

2. Common rules to level the playing field

Intellectual property rights & Geographical Indications
Protection of intellectual property rights is an important part of the Agreement. It includes a chapter on the effective protection of intellectual, industrial and commercial property rights and other rights covered by the WTO Agreement on trade-related aspects of intellectual property rights (TRIPS). As a result, EU rights holders will profit from improved procedures to defend their rights more effectively in case of infringements.

The Central American countries have adopted new or amended their legislation to incorporate regional specialities, so-called ‘Geographical Indications’ (GI) in a manner similar to the EU. Additionally, over 200 geographical indications, such as Champagne, Parma ham and Scotch whisky, are also specifically protected on the Central American markets to the benefit of producers of GI products in the EU.

The Agreement also makes specific reference to the importance of promoting access to medicines as well as protecting the biological diversity.

More competition and enhanced transparency on subsidies
Once the Agreement enters into force, it ensures a level playing field for European operators by calling upon national governments to ban all types of anticompetitive practices including restrictive agreements, cartels and abuse of dominance. This will help guarantee a fair and reliable competition environment for European companies.

In an effort to increase transparency particularly on subsidies, the EU and Central American countries will regularly report on the subsidies given to companies that trade in goods and also exchange information about matters related to subsidies in services. The Agreement goes beyond existing WTO rules in setting up a platform to discuss subsidies in the services sector.

A transparent way to settle trade disputes
The Trade pillar of the Association Agreement between the EU and Central America includes an efficient and streamlined dispute settlement system in accordance with the principles that the EU considers to be most important such as transparency (open hearings and amicus curiae briefs) and sequencing (no right to impose retaliation until such time as non-compliance is verified). A mediation mechanism for non-tariff barriers is also foreseen.

3. Regional Integration

The Agreement responds to Central America’s commitment to strengthen regional economic integration in the region and thus facilitate the movement of EU goods within Central America. Regional rather than “national” regulations and using a single administrative document for customs declarations will considerably ease the administrative burden on European exporters. Customs procedures as well as customs itself are going to be harmonized. Eliminating double duties over time, an importer will have to pay a single duty for the region rather than at each country’s borders. The transition period for this elimination is 2 years.

Regional integration will also help reduce the current regulatory divergences between Central American countries in the services sectors, including maritime transport. Dairy products and processed pig products, for example, will see a harmonisation of sanitary and phytosanitary requirements within the region in the coming years so as to facilitate the free movement of goods in the region.

4. An agreement for sustainable development

Further economic development through trade
Thanks to this Agreement Central American countries will benefit from liberalised access to the European markets in numerous sectors. This entails important economic and social benefits in Central America with gains in national income for Central America as a whole expected to amount at € 2.6 billion. The change in national income is estimated to vary from 0.5% in Nicaragua to 3.5% for Costa Rica in the long run due to the Agreement. In addition, the Agreement is expected to have an overall poverty-reducing effect across the Central American region.

According to an independent Trade Sustainability Impact Assessment commissioned by the EU, the Agreement is expected to contribute to large sectoral gains in the fruits, vegetables, and nuts (FVN) sector, especially for Panama and Costa Rica. Guatemala and Nicaragua are expected to become more competitive in the textiles and clothing sector for example, while El Salvador and Honduras will see an increase in their export of transport equipment.

By granting Central American countries immediate and fully liberalised access to European markets in industrial goods and fisheries, the Agreement will help exporters from these countries to move up the value-added chain. When fully enacted, the reduced costs of trade will have a beneficial impact on growth and jobs in all Central American countries.

Sustainable development
An overarching objective of the Association Agreement is to contribute to sustainable development in both Central America and the European Union, taking due account of the differences and specificities of each region. This objective is embedded in all the sections of the Agreement and finds a specific expression in the trade part through a chapter addressing the interrelation between trade and social and environmental policies. The chapter reflects the Parties’ commitments as regards internationally recognised core labour standards and multilateral agreements addressing environmental issues of international concern. It recognises the right and the responsibility of the Parties to adopt social and environmental regulations in the pursuit of legitimate objectives, and puts much emphasis on the effective enforcement of domestic labour and environmental laws. The Parties also undertake to encourage and promote trade and marketing schemes based on sustainability criteria, and to work towards a sustainable management of sensitive natural resources.

An important element in the overall structure of the Association Agreement is the role of civil society in the follow-up. A Joint Consultative Committee is foreseen and, specifically in the trade area, consultation of civil society stakeholders at domestic level goes hand in hand with a “Bi-regional Civil Society Dialogue Forum” to facilitate exchanges across the Atlantic regarding sustainable development aspects of the trade relations. Should divergences between the Parties arise in the implementation of this chapter’s provisions, recourse to an impartial panel of experts is possible under conditions of transparency.

Cooperation in trade areas
Both Parties have agreed to improve cooperation in areas such as competition, customs, intellectual property or technical barriers to trade. Enhanced cooperation in the production of organic products or the promotion of sustainable development have also been agreed.

Trade flows
In 2010, EU was Central America’s second trade partner after the US (and intra-regional trade), representing almost 9.4% of the trade flows.

In 2010, the main exporters from Central America to the EU were Costa Rica (53.9%), Honduras (21.6%) followed by Guatemala (12%). Exports consisted mainly of coffee, bananas, pineapples and microchips. EU’s exports to Central America went first to Costa Rica (36.3%) then Guatemala (28.1%) and El Salvador (15.2%) and were mainly medicines, petroleum oil and vehicles.

For more information
Text of the Association Agreement:
More details on the benefits of the Association Agreement:


Las promesas del CAFTA sobre generación de empleo no se cumplieron, expone investigación

Por Fabiola Pomareda García |

7 octubre, 2022, Semanario Universidad

Les estamos muy agradecido a Fabiola y al Semanario Universidad, un semanario tico, para su autorización para reproducir su artículo en el sitio web The Violence of Development. Además le estamos muy agradecido a Pamela Machado, una periodista Brasileña, para la traducción y el resumen del artículo de Fabiola específicamente para nuestro sitio web.

La investigación analizó cuáles han sido las implicaciones del CAFTA en la seguridad social, específicamente en lo que respecta al mercado de trabajo, los medicamentos y propiedad intelectual, la apertura del mercado de los seguros y la importación de alimentos.

Indicadores del mercado laboral de la última década desmienten la promesa hecha por la segunda administración de Óscar Arias Sánchez de que el Tratado de Libre Comercio con Estados Unidos generaría 500.000 empleos, según una investigación del politólogo Andrej Badilla Solano.

El investigador del Centro de Investigación en Cultura y Desarrollo (CICDE) de la Universidad Estatal a Distancia (UNED), expuso lo anterior en su conferencia “A 15 años del DR-CAFTA: Cómo el tratado de libre comercio con los Estados Unidos ha impactado a la seguridad social”.

Badilla señaló que el tratado tuvo consecuencias directas sobre la seguridad social en cuanto al mercado laboral y los medicamentos; así como consecuencias indirectas, como la segmentación médica producto de la apertura de mercado de seguros y la importación de alimentos.

Si bien actualmente un 42% de las exportaciones del país tienen como destino los Estados Unidos, según datos de 2022 de la Promotora de Comercio Exterior (Procomer), aquella promesa de generación de empleo de la segunda administración Óscar Arias Sánchez nunca se cumplió, afirmó Badilla.

Mostró los datos de cómo en el periodo entre el 2010 y el 2021 la tasa de desempleo ha oscilado alrededor del 10%, mientras el subempleo ha oscilado alrededor del 20% y la tasa de informalidad se ha mantenido en un 40%.

“Todo el periodo posterior a la implementación del tratado no ha habido variaciones en los datos sobre empleo. La estrategia implementada por el Estado ha sido la atracción de Zonas Francas, que están en un régimen de excepción y sus contribuciones se limitan al pago de cargas sociales bajo condiciones muy ventajosas. Pero la estrategia de generación de empleos a través de Zonas Francas resulta insuficiente para la demanda de empleo que tiene la población costarricense”, explicó Badilla.

Al 2018 la cantidad de empleos que generaban las Zonas Francas representaba solo el 5,3% del total de la fuerza de trabajo de Costa Rica (alrededor de 116.000 empleos), citó Badilla.

“Los indicadores muestran un marcado deterioro del mercado laboral durante esta década. Seguimos esperando los 500 mil empleos que nos prometió Arias Sánchez”, dijo.

El Tratado de Libre Comercio entre Centroamérica y Estados Unidos (conocido como DR-CAFTA por sus siglas en inglés) fue ratificado por el país mediante el referéndum del 7 de octubre de 2007 y el tratado empezó a regir el 1 de enero de 2009.


Presupuesto para compra de medicamentos

En cuanto a los medicamentos y la propiedad intelectual, Badilla aclaró que Costa Rica pudo haber negociado mejores condiciones de propiedad intelectual, ya que el tratado generó un encarecimiento de los medicamentos debido a la protección de patentes y propiedad intelectual.

Según explicó, muchos de los medicamentos que se utilizaban en Costa Rica ya estaban protegidos por reglas de propiedad intelectual desde la segunda mitad de los noventas, ya que Costa Rica se unió a la Organización Mundial de Comercio (OMC) en 1995 y a la Organización Mundial de Propiedad Intelectual (OMPI) en 1999.

Con el tratado lo que hubo fue una ampliación de las medidas y una creación de condiciones aún más favorables para los dueños de las patentes, dijo. Esto tuvo un impacto en la seguridad social ya que los medicamentos que tiene protección de propiedad intelectual son muchísimo más caros que los genéricos. La situación tiene un efecto en el presupuesto asignado a la compra de medicamentos de la Caja Costarricense de Seguro Social (CCSS) destacó.

Badilla citó un estudio de Martínez Piva y Tripo (2019), que muestra que un 35% del presupuesto asignado a la compra de medicamentos de la Caja corresponde a medicamentos con protección de patentes.

“Como hay una lista de medicamentos oficiales y algunos tienen esta protección de propiedad intelectual, a la Caja no le queda más que pagarlos, no le queda más que pagar el precio que los productores determinen. Pero podríamos pagar menos y destinar menos del presupuesto si estos medicamentos fueran genéricos”, destacó Badilla.


Mayor acceso a «comida chatarra»

Otro señalamiento del investigador es que el aumento en la importación de productos agrícolas, tanto para la producción como para el consumo, permitió un acceso a una mayor variedad de alimentos con alto contenido calórico, lo cual generó cambios en la dieta y ha tenido un impacto en la salud de la población.

“Hay consecuencias como una mayor disponibilidad de comida chatarra, con efectos dañinos para la salud”, resaltó Badilla.

Citó que en todos los países de Centroamérica la prevalencia de obesidad en adultos oscilaba entre un 12% y un 15% antes de la firma del CAFTA. Pero después de la aprobación del tratado la prevalencia de obesidad aumentó en un 10%.

En Costa Rica la prevalencia de obesidad entre adultos era de un 14,8% en el año 2000; mientras que en el 2016 era de un 25,7%.

La obesidad está asociada a enfermedades crónicas como diabetes, hipertensión, problemas cardíacos y prevalencia de cáncer, entre otros, recordó Badilla.

El investigador del Centro de Investigación en Cultura y Desarrollo (CICDE) de la Universidad Estatal a Distancia (UNED) Andrej Badilla.


Nicaragua and China Speed Up Implementation of Free Trade Deal

Over the last few years, since the demise of the most recent plans for a building of a trans-oceanic canal, relations between Nicaragua and China have grown closer. This short piece from TeleSUR outlines the newest trade link between the two countries. 12 July 2022 ,By teleSUR/MS in the  Newsletter

Nicaraguan and Chinese diplomats sign trade agreements, Managua, Nicaragua, July 11, 2022. | Photo: Twitter/ @Plomo19792


Key words: Nicaragua; China; Free Trade Agreement; Agriculture; Early Harvest Agreement.


On Monday, Nicaragua’s Trade and Industry Minister José Bermúdez announced that President Daniel Ortega’s administration is promoting actions to implement the Free Trade Agreement (FTA) with China.

This Central American country signed the “Early Harvest Agreement” (EHA), a trade instrument whose objective is to facilitate the bilateral exchange of agriculture-related goods by establishing preferential tariffs.

Among other things, this agreement favours trade in harnesses for vehicles, textiles, beef and bovine meat, seafood, vegetables, rum, plants and flowers, garlic, sweet corn, tuna, pasta, bakery products, truck tires, and raw materials.

“Nicaraguan exports to China could increase by some US$100 million in tariff-free goods. Chinese demand will force us to increase our production,” lawmaker Wilfredo Navarro said, adding that the EHA “contemplates investments from Chinese companies to Nicaragua.”

Recently, Nicaragua and China also signed a Memorandum of Understanding (MoU) for the establishment of the Joint Commission for Economic, Trade, and Investment Cooperation.

This instrument is designed to facilitate the participation of the Central American country in China’s new “silk road”, which implies multimodal interconnection between countries on several continents.

Between January and May of this year, Nicaraguan exports to China reached US$3.1 billion, which represents a year-on-year increase of 19.1 percent.

Central America Between China and the United States

by Alberto Belladonna

Over the last twenty years, the role of the Chinese in Central American development has grown. Of course it has not been entirely through altruism – China gains considerably from Central American resources. In October 2019 Alberto Belladonna of the Italian Institute for International Political Studies (ISPI – produced a commentary on the geopolitical trends in the comparative influences of China and the United States on the region of Central America. We are grateful to Alberto and to the ISPI for their permission to reproduce the commentary in The Violence of Development website.

“The Monroe Doctrine is alive and well”, proclaimed former US National Security advisor John Bolton in April 2019, re-invoking an old vestige of American foreign policy dating back to 1823. A time when an infant United States was attempting to affirm its sphere of influence south of the Rio Grande, declaring that any interference in the region from European powers would be recognised as an unfriendly act against Washington. Bolton’s message, rather than to the “old European colonial powers”, was referring to new powers, as former Secretary of State Rex Tillerson already did one year before, when he warned Latin America against China’s new imperial power. A warning message aimed especially at South American countries but which also concerns Central America (CA), an often-neglected region but with a strategic geopolitical role in the current context of big-power confrontation.


The United States: Central America’s “Big Brother”

Since the foundation of the United States, for Washington CA has always represented a natural sphere in which to extend its geopolitical presence. An inseparable bond, sometimes too tight: “So far from God, so close to the US” Porfirio Diaz, president of Mexico in the end of nineteenth century, once said. But, how could CA not be so close to the United States? A few sheer numbers are sufficient to underline the role played by the US as gravitational pole for the whole region.

Washington has always been the region’s main trading partner. Today, it still accounts for almost 47.5% of total exports and 40.6% of imports; more than doubling the volumes of the European Union (CA’s second trading partner with 24 % of exports; 9.6% of imports) and even surpassing inter-regional trade (which accounts for 30.8% of total exports and 14.8% of total imports).

The US and CA are also bound together by the Central American Free Trade Agreement (CAFTA), a trade deal that goes beyond tariff-cutting and includes the protection of international property rights, investments and norms regarding public procurement procedures and financial services. CAFTA consolidated the role of the US as the major source of foreign direct investment (FDI) (27.3%) for the region, well ahead of the European Union (17.2%) and intra-regional flows (12.3%).

The US is also the major source of official development aid with annual average spending of $700 million between 2016 and 2017 focused on strengthening political, social and economic conditions in the region.  In particular, through the Central America Regional Security Initiative (CARSI), the United States invested almost $500 million to combat criminal organizations and illegal trafficking in CA.

Finally, the US is also the main destination of migration flow from CA: in 2017, 3.5 million CA immigrants resided in the US. They play a pivotal role in developing their countries of origins with their remittances representing on average 7.5% of regional GDP, ranging from 0.9% in Costa Rica to more than 20% in Honduras. But they also constitute an important source of labour force for the US, as CA nationals register a participation rate higher than both the overall foreign and US-born populations. There is, however, a rising fear of a potential demographic revolution caused by uncontrolled Hispanic migration, as well-known political scientist Samuel Huntington contended in “The Clash of Civilizations” (1996) and later reiterated in his in-depth study “Who Are We? The Challenges to America’s National Identity” (2004). Indeed, Mexican and CA immigrants represent 37% of the US’s foreign-born population, and 71% of the country’s 11 million illegal immigrants. This last group was the main target of president Donald Trump’s 2016 election campaign. Rising tensions culminated in April 2019 when Trump froze about $450 million of US foreign aid to Guatemala, Honduras and El Salvador due to their inability to limit migrant outflows to the United States.
China’s ‘Yuan Diplomacy’ in Central America

While the US seems eager to step back from the region, considered mostly a source of instability and constant mismanagement of aid and cooperation funds, China is silently advancing on the chessboard by extending its Belt and Road Initiative (BRI) to ‘America’s backyard’.

China’s presence in CA has been growing since the late nineties with a breakthrough in 2007 when Costa Rica became the first country in the region to end diplomatic relations with Taiwan. “An act of elemental realism, an awakening to the global context we are forced to deal with”, declared at that time Costa Rican president Óscar Arias. Indeed, elemental realism was at the core of Chinese interest in Costa Rica. A small market of almost non-interest for Chinese exports (0.25% of its total in 2018) Costa Rica became a strategic platform after the signing of a bilateral Free Trade Agreement in 2010, which allowed Chinese enterprise to indirectly exploit the US market through CAFTA. Beijing’s plans also called for Costa Rica to become a strategic platform to refine Venezuelan oil directed to China through a joint project worth $1.3 billion: a project that turned out to be a failure, overwhelmed by government scandals, legal restrictiveness and environmental abuse.  Nevertheless, trade with China increased over the last decade at the annual rate of 14.9% with an increasing trade balance in favour of Beijing. Most importantly, in September 2019 Costa Rica decided to scale up its relations with Beijing by signing a memorandum of understanding under the umbrella of China’s BRI as well as by promoting the country’s plans to create a Special Economic Zone (SEZ) in Puerto Limón where Chinese products could be manufactured.

Yet the first CA country to sign a BRI agreement was Panama. With almost 6% of the total global maritime trade passing through the country, China’s main interest undoubtedly was the Panama Canal. After failing to create a similar infrastructure in Nicaragua, Beijing in fact invested massively in Panama, making the country the prime destination for Chinese FDIs ($2.5 billion) in the region. Among major projects, in May 2016 China Landbridge, a privately owned company, bought Panama’s largest port located on Margarita Island. The investment in the Panama Colón Container Port (PCCP), which cost over US$1.1. Chinese Overseas Shipping (COSCO), another key player in the area, also decided to expand its operations on the Atlantic side of the canal. Finally, China also focused on the free port of Colón, where tons of Chinese products are disembarked, transformed and reshipped to Latin America and the US. Here, Huawei installed its sixth global distribution centre.

China’s pragmatic attitude did not prevent the country from doing business with Panama even before formal diplomatic ties were established between the two countries. The same goes for China’s business relations with Guatemala and Honduras, two countries that are still close to Taiwan. Indeed, from 2006 to 2016 Chinese exports to Guatemala and Honduras increased by 300% and 750% respectively. Chinese products found a very receptive market in CA: on the one hand, they were not required to follow the same strict standards of Western markets. For example, China has become the second exporter of vehicles to Guatemala and Honduras with a market share of 11.75% and 14.75% respectively. On the other, thanks to lower prices, China gives CA the chance to access a larger range of products, which would have been impossible otherwise.

The frontrunner of China’s expansion in CA is Huawei. In fact the company has built telecommunication networks throughout the region, works with most major telecommunications providers such as Millicom, and is ready to build an underwater cable link between China and Latin America. A situation which is prompting concerns from the US, which released a document stating that “China’s aggressive telecommunications investments in the region raise security concerns about placing the region’s communications backbone on Chinese networks; an increasing portion of data and message traffic will flow through and come to depend on, Chinese-supplied infrastructure”.

Still, China’s interests in the region are more subtle. Increasing its relations with CA will indeed also increase China’s negotiation power when it comes to Asia Pacific and the South China Sea: a wild card to play switching their respective backyards.

Future perspectives

But is CA de facto shifting into China’s orbit? Probably not. Last May, Mexican president Andrés Manuel Lopez Obrador and the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) presented the Comprehensive Development Plan for Central America, which sets an investment of about $30 billion in production and infrastructure projects in CA. The objective is to integrate CA and Mexico in a way that could also serve the US market through the newly established United States-Mexico-Canada Agreement (USMCA). Although Trump thwarted this project with a new clause, which imposes a minimum wage of $16 per hour in those factories that export cars to the US, CA’s future remains tied to closer integration with the US. Against the backdrop of the ongoing trade tensions between China and the US, CA could benefit from the ongoing decoupling process and a more regionally integrated value chain intercepting more delocalization process from North America. CA is indeed meant to remain bound to the US. However, China will not cease to exploit the US’s inattentions and negligence to increase its influence, as if the two were engaged in a long-term game of Go.

Guatemala offers El Salvador a port on the Atlantic Coast

Shortly after the inauguration of Alejandro Giammattei as the new Guatemalan President, he met with President Nayib Bukele of El Salvador and offered a deal of potentially great benefit to El Salvador: namely a port on the Atlantic coast of Guatemala. Lucy Goodman translated and summarised articles about the deal from La Prensa Gráfica (by Melissa Pacheco, 28.01.20) and El Economista (29.01.20), and Martin Mowforth added various commentaries on these for The Violence of Development website.

March 2020

Key words: El Salvador – Guatemala integration; Atlantic port; security cooperation; domestic flights.

El Salvador and Guatemala plan to eliminate the border initially for the passage of persons and later for freight. They have also re-defined flights between the two countries as ‘domestic flights’.

(Melissa Pacheco) The presidents share the announcements between themselves about the removal of the border for the transit of people and goods.


The Guatemalan president offered a concession to create a public-private partnership as the means to enable completion of a Salvadoran port on the Atlantic coast. Land from the Santo Tomás de Castilla National Port Company (Empornac) will be ceded to El Salvador for this purpose. The area to be ceded is known as El Arenal (or The Quicksand) and currently serves as a depot for containers. Last year (2019) Empornac carried out technical studies to determine the feasibility of constructing a pier to accommodate dredgers and cruise ships there.

“We have offered El Salvador something unprecedented in the history of Central American integration and today I want to announce it publicly because we’re going to explore, as soon as possible, the possibility of El Salvador having a port in the Guatemalan Atlantic. We will deliver this Project as a public-private partnership so that El Salvador can develop it. It is an offer that we have made to El Salvador, we consider it to be the right thing to do,” Giammattei announced at a press conference that took place at the Presidential House.

He added that he had spoken with the authorities of SICA (Sistema de la Integración Centroamericana / Central American Integration System) in order to receive the support of the institution in the implementation of the project. He also announced that he made a firm pledge to officially de-categorise flights between Guatemala and El Salvador to ‘domestic’. This comes as part of the initiatives to improve integration in the region.

The Guatemalan Minister of Economics, Antonio Malouf, confirmed that a legal-technical analysis for ceding the land of Empornac will be carried out.

“Basically, it would be our entry to the Atlantic. Our goods will have the power to go from the Atlantic and enter from the Atlantic. I believe what we’re doing is making a real union that is going to spread to other countries in Central America that will want to unite and do similar,” declared the Salvadoran President.

Apart from the possible construction of the Salvadoran port on the Guatemalan coast and the re-categorisation of flights, the leaders announced that in one month they hope to have removed the border for the passage of people and within three or four months the barriers for goods between the two countries.

“We have to sign papers where we can eliminate the customs on goods respecting that goods entering El Salvador and destined for Guatemala have already paid taxes in El Salvador and do not have to pay them in Guatemala and those that have entered Guatemala destined for El Salvador do not have to pay them in El Salvador. We believe it will take us about three months,” the Guatemalan president declared to the media.

The elimination of the borders for the passage of people also requires the implementation of a bi-national arrangement on security. “If someone passes from Guatemala to El Salvador evading an arrest warrant, they will not be evading anything because we are going to have the same approaches in both countries,” Bukele stated.

Giammattei referred to their intention to apply similar security sanctions, one of which was to standardise the criminal codes in both countries. In the language he used to explain this part of the agreement, Giammattei betrayed his profoundly hateful and hardline understanding of crime in society. “Standardising the penalties, the sanctions, the punishments, so that when they spray ‘Baygon’ here the cockroaches do not go there because they think that there they will find it easier, and when they spray ‘Baygon’ the cockroaches won’t come here, as the law will be the same for the two countries,” said the new president

Moreover, he said that they had been monitoring Bukele’s Territorial Control Plan (PCT), the main commitment of the Salvadoran Government to improve security conditions, and he (Giammattei) did not rule out implementing some of the same sanctions in Guatemala.

Another way is possible: fair trade, cooperation and solidarity with ALBA in Nicaragua

3While the Euro zone plunges into meltdown and the governor of the Bank of England predicts the worst crisis in the UK since the depression, innovative new ideas based on relationships of solidarity between countries are being successfully put into practice in the countries of the Bolivarian Alliance for the Peoples of our America (ALBA).

Trade between these countries is being turned into a tool to combat poverty, rather than the enrichment of powerful countries at the expense of the systematic impoverishment of poorer countries. Membership of ALBA has played a key role in the success of Nicaragua in rebuilding its economy, and infrastructure and implementing social programmes that have contributed to reducing high levels of poverty.

Nick Hoskyns from London has worked in Nicaragua since 1997 with rural cooperatives and is now quality manager for ALBANISA, an ALBA food social enterprise. He talks to David McKnight, from the Wales Nicaragua Solidarity Campaign. .

Can you explain what ALBA is?

ALBA is made up of Venezuela, Cuba, Nicaragua, Bolivia, Ecuador, the Dominican Republic, Antigua and Barbados, St Vincent and the Grenadines. It was set up to counteract the free trade agreements promoted by the western world; in Latin America it was ALCA (the Free Trade Area of the Americas). ALBA is everything that ALCA and the free trade agreements are not. Free trade agreements only talk about economics, only talk about trade, ALBA is all about the poor, solidarity, Latin American peoples coming together to resolve their problems.

ALBA means ‘daybreak’, hope, it’s the first rays of the sun. In a country like Nicaragua that has always had people against it – it’s always been a struggle, within ALBA you have a group of countries willing to understand revolution and in a very practical sense willing to support you and help you. I think it’s also important to understand it’s a real southern initiative.

How does ALBA differ from other trading blocs like the European Union for instance?

The difference is that ALBA is about giving and supporting and solidarity. It’s about how countries help each other to develop and it’s about how poor Latin American countries work together to resolve their problems. When ALBA countries get together, it’s not a negotiation of who gets most and who gives least, it’s the complete opposite, it’s what can they do, how can I help you?

…in the European Union when you hear that countries go to negotiate they are mandated to get the best possible deal for their country.

ALBA is an incredible space for innovation, putting ideas into practice within a politically, socially, clear model for the poor and the disadvantaged. I just feel that ALBA is talking sense when I listen to the debates around the bailouts of the banks at the European Union, “what are we going to do with Italy, Spain and Greece, these countries that are bringing the whole European Union down?” It’s all about economics, it’s all about money, whereas ALBA works within a framework which talks about solidarity, which talks about social development, which talks about the health of people, the education of people, for everyone not just those that can afford it.’

21I think ALBA is going to provide an alternative for us in the western world. From what I can see we are pretty lost, we haven’t really got any ideas of where we are going. It can’t be about bailing out bankers and their bonuses. So for me, ALBA really does provide that framework.’

How does the fair trade agreement [between Nicaragua] and Venezuela work?

Venezuela sells its oil to Nicaragua and Nicaragua pays the market price but 50% of the value of the oil is on payment terms of 25 years at 2% interest. Nicaragua invests this money in infrastructural projects – roads, energy – and long-term development. The other 50%, that Nicaragua has to pay in 90 days, Venezuela said to Nicaragua ‘you can pay me back in cash or if you’ve got anything that Venezuela needs then we’ll take your products’. So Nicaragua is now selling very large amounts of products to Venezuela under that fair trade agreement. The major product is meat and livestock, then there’s coffee and beans then there’s milk, cooking oil and sugar. The priority is given to the small farmers organised into cooperatives.

The principle is making sure that the farmers can produce at a price which works for them but also making sure that consumers get a good quality product at a fair price. Fair trade within ALBA is making an enormous difference to both peoples.

In 2008 Nicaraguan exports to Venezuela totalled $27 million. That went up to well over $250 million in 2010 and we are heading for way over $350 million in 2011. Venezuela has now become the second most important destination for Nicaraguan exports. The first of course is the US. So the importance of the US to the Nicaraguan economy can’t be minimised but this is a very different trading agreement.

What are the benefits of ALBA for Nicaragua?

It’s an integrated approach with lots of different programmes, very specific, very concrete, that benefit the Nicaraguan population. There was Miracle Operation, where every Nicaraguan who had eye problems such as a cataract has had a free operation here in Nicaragua or they’ve been flown to Venezuela or Cuba. People who thought they were never going to have full vision again, have had their sight given back to them. And that’s a successful programme right through all the ALBA countries.

Then there’s the solidarity bonus, where employees who earn less than C$5000 (£150) get a solidarity bonus which is just a top up or a bond, now worth C$700 a month, this is particularly important for low paid women workers.

Electricity was an enormous problem in Nicaragua – we used to have eight hours power cuts a day – we were trying to run our sesame and coffee plants and you never knew when the energy was going to be cut off and now we have got energy production funded through ALBA.

…it is an integrated approach coming from so many different angles. Poverty has gone down 7%. Exports are growing at around 30% ay year. The economy is growing at 4% whereas in the West it is stagnating. So ALBA is working for people directly and it’s also working for the economy as a whole – for big businesses, for medium businesses, for small businesses and for individual families. It really feels like Nicaragua is on the move.

What does Nicaragua contribute to ALBA?

It is very important for Venezuela to have a secure market for its oil. Also Nicaragua provides a great ally within Central America that speaks out on international issues in favour of the ALBA countries. Nicaragua is out there at the United Nations giving a clear, strong voice – an independent opinion from any lobbying from Western countries.

The cooperative movement in Nicaragua has been identified as a possible model for the whole of ALBA. I’ve personally been privileged to have been involved in an interchange between the Cuban and Nicaraguan cooperative movements, Cuba is looking at the cooperatives in Nicaragua as a model for them in the development of their economy. So that’s a great privilege for Nicaragua and Nicaragua is just there, chomping at the bit to help and give something back to any of the ALBA countries. And I truly believe that in the future, Nicaragua is going to provide a real model for the other ALBA countries of how to work in a way that is inclusive, incorporating large companies, medium-sized companies but without compromising commitments to the small farmers and the cooperatives. I think that’s going to be a valuable example for the rest of ALBA.

What’s the future for ALBA?

The thing to understand about ALBA is that it’s about doing and it’s about achieving. So in Nicaragua where you had power cuts, it was decided to invest in energy so there were no more have power cuts. They decided that all disadvantaged children should get at least one good meal a day, that’s happening. Because of the rains and the hurricanes it was decided that everyone should have a roof, ALBA Plan Techo [Roof Plan] provides 12 large corrugated iron sheets to each family that needs it.

ALBA is a group of countries that’s there to develop and to make a difference for the poor and disadvantaged. And, in Nicaragua it’s successful. This is real and it’s working and it’s developing.

Source: NSC website

North American Free Trade Agreement (NAFTA)

The following was extracted from the text of Ch.7 in the process of editing down to 100,000 words forPluto.

The NAFTA Agreement came into force on 1st January 1994 and lifted restrictions on trade between the USA, Canada and Mexico over a period of fifteen years, although some specific production sectors were excluded. Broadly its goals were to eliminate barriers to trade, to facilitate cross-border movement of goods and services, to promote fair competition between the three nations, to increase investment opportunities and to provide protection of intellectual property rights within each nation.[1] NAFTA was promoted to increase jobs, raise living standards and improve environmental conditions in the three countries.[2]

These have been the oft-stated goals of most free trade treaties between nations until the more recent Association Agreement between the European Union and Central America. The Bolivarian Alliance for the Peoples of our America (ALBA) also offers a different model of trade between its participating countries. (For both these cases, see later sub-sections.)

Proponents and opponents of NAFTA continue to prosecute their cause regardless of the other’s arguments. For instance, former President of Mexico, Carlos Salinas de Gortari who negotiated NAFTA is reported as saying in 2002 that “The level of trade and type of products that crossed the borders silenced even the most ardent critics.”[3] The corporate lobbyists and government officials who he was addressing probably agreed with him, and certainly trade across the borders increased substantially. Those who hold a different view of the effects of NAFTA – the Mexican farmers, the utility workers and many other groups of workers who in the same year protested vehemently against the agreement – were certainly not silenced.

At the same time as the trade in products increased across the borders, the migration of Mexicans northwards also increased. It was explicitly stated by various protagonists of the treaty (including former US President Gerald Ford) that NAFTA would stem the migration of Mexicans northwards. In fact, as Jeff Faux reports, between 1990 and 2000, “the number of Mexican-born residents in the United States increased by more than 80 per cent.”[4]

NAFTA reduced import tariffs on a number of agricultural products which allowed the import of heavily subsidised US crops to be sold at a price less than the costs of production in Mexico. Mexico had previously used the tariffs to protect its farmers from cheaper, subsidised US exports. Timothy Wise (Director of the Research and Policy Programme at Tufts University) states that the effect of this was 2.3 million people leaving agriculture and heading to the cities and the USA.[5]

In manufacturing industry, before NAFTA Mexico’s laws required car manufacturers such as Ford, Chrysler, General Motors and Volkswagen to buy some of their components from Mexican producers. NAFTA prohibited such laws and car manufacturers supplied their assembly lines with parts from their own subsidiary companies, often from other countries. The result was that “Mexican auto-parts workers lost their jobs by the thousands.”[6]

Regarding NAFTA’s effects on the environment and environmental standards, Kevin Gallagher[7] of Tufts University’s Global Development and Environment Institute has examined the opposing arguments that NAFTA’s effect of increasing incomes would lead to environmental improvements against the idea that free trade would automatically worsen environmental conditions in Third World countries. In summary, he found that by all indicators, Mexico’s environmental institutions were “unable to keep up with the demands of the economic transformations occurring in the country.”[8] Spending on the environment fell, plant-level environmental inspections declined, and NAFTA’s environmental ‘side’ agreement was unable to match up to Mexico’s environmental problems. Gallagher warned that “trade-led growth without the proper environmental policies in place will not automatically lead to environmental improvements.”[9]

A further point of concern for objectors was the loss of national sovereignty. Salvadoran economist Raúl Moreno explains that under NAFTA “national governments which implement policies that limit the ability of private corporations to make profits – such as environmental laws or taxation regimes – can be sued before international tribunals.”[10] This became one of the major objections to later free trade treaties involving Central America.

The issue of communal land ownership by indigenous peoples is also pertinent to later trade treaties that involved Central American countries. Article 27 of the Mexican constitution granted indigenous peoples and landless campesinos communal land ownership. Before Mexico could join the NAFTA, it had to re-write Article 27 to facilitate the privatisation of communal lands. This ensured that indigenous peoples and campesinos swelled the ranks of objectors to NAFTA and was an important factor prompting the start of the Zapatista war against the Mexican state, on the same day as NAFTA came into force.

Even though NAFTA did not directly involve any of the seven Central American nations, the brief summary of its effects and arguments given above explains the strength of feeling of much of Central American civil society against free trade treaties which were later to involve their own nations. NAFTA alerted many sectors of civil society to the threats that they would face if similar treaties between their own countries and the USA were to be agreed.

[1] NAFTA and Inter-American Affairs website (2004) ‘Chapter One: Objectives’,
[2] Public Citizen website, ‘North American Free Trade Agreement (NAFTA)’,
[3] Jeff Faux (2003) ‘How NAFTA Failed Mexico’, The American Prospect,
[4] Ibid.
[5] Timothy Wise (January/February 2011) ‘Mexico: The Cost of US Dumping’, NACLA Report on the Americas, pp.47-8.
[6] David Bacon (September 2008) ‘Displaced People: NAFTA’s Most Important Product’, NACLA Report on the Americas,
[7] Kevin Gallagher (June 2004) ‘Economic Integration and the Environment in Mexico: Lessons for Future Trade Agreements’, Working Group on Development and Environment in the Americas, Discussion Paper No.6.
[8] Ibid., p.13.
[9] Ibid., p.17.
[10] Raúl Moreno (autumn 2005) ‘Avoiding free-fall’, Interact, Progressio, p.21.