PuentesVolumen 9Número 1 • marzo de 2008

El sector agrícola centroamericano de cara a la negociación del AdA con la UE


by Andres Leon

Currently Central America (CA) is immersed in the negotiation of an Association Agreement (AA) with Europe. The importance, both economic and socio-demographic, the agricultural sector to the Isthmus, argues that although the expected impact is less than the trade agreement with the United States (CAFTA-DR), it is not negligible.

The present review aims at presenting some likely points of conflict between the two blocs in the context of negotiation and some potential impacts for Central agro. The central argument is that while the agricultural sector is not a central concern for the European Union (EU), it is for the Central American Isthmus and the AA is clearly embedded within the strategy of trade liberalization that is promoting the region since the nineties and, therefore, it may result in adverse effects to set the Central rural areas.

The Central American agriculture: importance and interest

Since the eighties the region has been implementing a development model aimed at ‘export promotion’, deepening levels of integration and participation in the global economy Isthmus. Broadly speaking, the new model in the making has been characterized by the formation of a new economic system dominated by the (especially textiles) maquiladora industry, tourism, non-traditional agro-industrial production and an increasing burden of family remittances. It is within this strategy have been signing free trade agreements with a significant number of partners.

With regard to agriculture, this sector is one of the most important for Central America, due to both its commercial dynamism with the rest of the world, and its socio-productive importance. During 2005, the total value of agricultural exports translates into an 21.5% contribution to the total regional gross domestic product (GDP) for that year. Moreover, at least 30% of the regional population is employed in the sector ‘agriculture and fishing’, of which 82% relates to the employment generated by small-scale farming or traditional. In addition, regional rural areas concentrated around half the population centroamericana1.

Regarding trade, the EU is extremely important to be the second external destination of the products of the primary sector in the region. Thus any coherent strategy where the export of this product is important, must necessarily seek mechanisms to consolidate and improve their access to these markets.

From the Central American side can be defined two lists of interests, an offensive and defensive another. The offense is defined in great proximity to the logic of regional development, based on the promotion of a narrow range of goods for export by the maintenance or opening access of the few target markets.
Offensively list Central bananas be accounted where CA is highly competitive, to the point that Costa Rica is the third largest exporter in the world. However, CA does not have efficient entry into the European market due to high tariff barriers and subsidies given to banana production in Spain, Portugal and the French Caribbean island territories.

Then there is the sugar cane, a major agricultural exports from the world CA. Access of this asset to the EU is limited by the existence of huge subsidies and strong protectionist policies to encourage the production of refined sugar in the EU (which is the largest exporter in the world). The meat case is similar to cane because it is also considered as the basis of food sovereignty policy of the EU, which is why having a closed against the export of other more competitive international producers market as Nicaragua .

Among the defensive interests lie: the dairy sector in Costa Rica, where production is carried out by several cooperatives with trade inflows of small and medium producers of milk. This depends on the production model who enjoys high protectionism sector. The liberalization of this sector could hurt many producers due to lower prices of highly subsidized European milk production.

A second group of products that would be affected to the extent of their low competitiveness are potatoes and onions to Costa Rica and corn for the rest of the region in which Europe is highly competitive. The Central American production, although it has high value export regionally, provides the foundation for important groups of local farmers.

Possible conflicts in the agricultural negotiations

A couple of items before characterizing potential conflicts:

    Agriculture is not a priority in the EU compared with the AA Central. The current model of development of the EU intends to increase its rate of economic growth by promoting productive sectors with an aggregate value ever higher, which would result primarily in improving the competitiveness of industry and services sectors, which are the cornerstones of the European economy.
    However, agriculture has a great socio-economic importance to the basket for food sovereignty and sustainability of rural regions. From this we can deduce a highly protectionist trade strategy.

When comparing these with Central European interests, can be placed two groups of potential conflicts. The ‘very likely conflict’ include products where the claims of a block could face more strongly with the other. Three recognized: first banana where the troubled history and given the importance of the production of the good in the context of Central American development model, CA seek a sponsor that opening markets to a likely European reluctance to allow it. In the same trend found sugar. Last but inversely (sensitive to CA), dairy sectors are recognized.

As ‘potential conflicts’ product information is entered where the potential for conflict is lower, but always present. Here, the case of the meat sector could be important, especially as regards the Nicaraguan beef and European swine, which are highly competitive.

As a corollary, it is important to consider three aspects for analysis. First, the European interest in the AA, which is more than commercial geostrategic and geo-economic character. Overall, the EU raises three basic criteria for selecting the counterparties with which intends to sign bilateral trade agreements: market potential (economic size and growth), level of protection against the interests of EU export (HS and non-tariff) and the potential impact it may have on European interests the existence of trade agreements with direct competitors of the Union. In this regard, it is clear that CA only meets the last two, but more importantly, that the third element is fundamental.

A second aspect has to do with the specific time at which it is conducting negotiations. Europe must be very careful with the way in which it conducts negotiations with CA on topics such as bananas, sugar and beef, as this negotiation could set precedents for other more complicated negotiations currently in course. With respect to bananas, in negotiations with the Andean countries, the EU should meet with Ecuador and Colombia, world first and fourth, respectively exporters. The same happens in the case of sugar, where the EU still has to negotiate with MERCOSUR, which is Brazil’s leading exporter worldwide. A similar situation could be found in the case of beef, where the treatment granted to CA about it could set a precedent uncomfortable under the EU-Mercosur negotiations, which are Brazil and Argentina, second and fifth largest producer, respectively. Thus, it appears that the room for maneuver of the EU in the framework of negotiations with CA is relatively limited, which when combined with the fact that these are some of the most important issues for the Isthmus, looks set extremely complex.

Finally, the EU has also made ​​clear that in the case of preferential trade agreements with countries or groups that have signed agreements with his direct global competitors, the minimum trading floor will be the treatment of his competitor. In other words, for the case of Central America, the minimum level of European trading is what gave the Isthmus and the U.S. CAFTA-DR. Concluding Remarks

The Central American agricultural sector shows a contradictory reality. On one side is one of the axes of major accumulation of the New Central Economic Model, as it shows the importance of some agricultural products in exports (about 43% of total exports), while on the other, almost half of poor households in the region are in rural areas and households engaged in family farming show a poverty rate of 76% 2, most of them dedicated to the production of basic grains for subsistence and domestic markets. This contradiction raises its high sensitivity in the context of trade negotiations.

We are of the view that while the AA does not differ significantly from the trade agreements that have been negotiated in the region, and the subject of the CAFTA-DR parity as we evidence, impacts and results are the same or at least very similar . Thus, one would expect that sensitive sectors for Central America, as dairy and pork, receiving the opening of regional markets to highly subsidized European production, so it leaves our producers in a position of distinct disadvantage.

Moreover, it is expected that the AA will result in the ‘creation’ of direct trade between the EU and Central American countries, and if the Central American customs union does not materialize, trade would be reduced among themselves (’deviation commerce). The obvious result would be the progressive weakening of the Central American Common Market and, therefore, each producing avocados towards it. This is especially troubling, considering that about 75% of companies that export are SMEs Market centroamericano3 capital.

* Researcher, Institute for Social Research at the University of Costa Rica and a member of the Committee on Alternative Studies (CEPA). The article is a review of: Leon, A., Ramirez, A. and Dinarte, R. 2007. The Central American agricultural sector for the Association Agreement with the European Union: possible scenarios. Committee on Alternative Political Studies (CEPA), San José. Available in www.southcentre.org/Events/2007Dec_TDP_LAC_Background_material_CEPA_study_Spanish.pdf

1 Trejos, J. 2006. Employment Problems and Policies in Central America. In: Macroeconomics of Development series. ECLAC, Santiago.
2 Ibid.
3 SIECA. 2007. The Customs Union. Secretariat of the Central, Guatemala Economic Integration.