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TLC
(CAFTA) 2007: Good Outlook
As leaders from Central America,
Panama and the Dominican
Republic met in San José over
the past weekend, the mood was
generally upbeat. And with good
reason.
The region is the only one in
Latin America that both has a
free trade agreement with the
United States and likely will be
the first to have one with the
European Union.
And the host, Costa Rican
president Oscar Arias, managed
to get his wish of a rotating
trade negotiator with the EU
instead of a single negotiator,
as the other countries in the
region had favored.
Arias also went into the meeting
with another victory: A key
committee in the Costa Rican
congress had finally approved
the Tratado Libre de Comercio
(TLC) after months of
debate.
"CAFTA's outlook in 2007 looks
good," says Isaac Cohen,
president of Washington
D.C.-based consultancy InverWay
and former Washington director
of the United Nations Economic
Commission for Latin America (ECLAC).
The summit also made progress on
customs harmonization. A formal
agreement on a customs union
will likely be signed early next
year, according to U.S.-based
consultancy Global Insight.
So far, the countries have
agreed on customs regulations
for pharmaceuticals, cosmetics,
hydrocarbons, sanitary and
phytosanitary rules and plan to
reach agreement on common rules
for cross-border trade of
services.
"A customs union ...would ...
facilitate negotiations of a
trade agreement with the
European Union (EU) and work as
a prerequisite to a
cross-Atlantic scheme," Global
Insight said in a recent
commentary.
Central American exports likely
received a boost from CAFTA this
year, especially in the last
quarter, according to a forecast
from the Inter-American
Development Bank. Nicaragua and
Costa Rica posted the strongest
results, at 19.7 and 17.6
percent respective growth, and
El Salvador (4 percent) and
Honduras (-4 percent), the
weakest.
Meanwhile, U.S. IT (Information
Techonology) companies are among
those expected to benefit most
from the free trade agreement,
according to Fernando D. Sedano,
an economist with U.S.-based
Manufacturers Alliance/MAPI.
Overall, 99 percent of U.S.
exports of electronics and
instrumentation receive
immediate duty-free access under
the agreement, which compares to
pre-CAFTA average tariffs
ranging from 2.1 percent to 5.5
percent, he points out in a
recent report.
Other sectors with good U.S.
export potential include include
capital goods, chemicals,
environmental technologies,
electrical power generation and
distribution equipment, and
automotive parts and services
equipment.
Despite the good news, a key
challenge for Central America is
to fully take advantage of free
trade, Cohen argues.
"For the Central American
governments and private sectors
the main challenge consists in
implementing the agreement, to
benefit from all the
opportunities that CAFTA opens
in exports and imports,
attraction of foreign investment
and the enforcement of rules,
which will improve the
investment climate," he says
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