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Comprehensive Association Agreement between Central America and the European Union

European Commission - MEMO/12/505   29/06/2012

Other available languages: ES

European Commission

MEMO

Brussels, 29 June 2012

Comprehensive Association Agreement between Central America and the European Union

The signing of the Association Agreement between the EU and Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama) marks a milestone in the relationship between the two regions. 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 2011, bilateral trade in goods between Central America and the European Union was worth €6.7 billion. It is expected that trade flows will increase significantly after the entry into force of the Agreement.

Now that the Agreement has been signed, both sides will go through their respective ratification procedures and the entry into force of the trade pillar could already be expected for the end of this year. On the European side, the next important step will be the consent of the European Parliament which should take place in the course of autumn.

The Association Agreement consists of three pillars: political dialogue, cooperation and trade. The Agreement is a comprehensive tool that provides with all the means needed for an integrated relation, going from political dialogue to cooperation and trade. The different parts of the Association Agreement complement each other. That is the most important added value of this instrument. It is not only a trade agreement and it goes far beyond traditional agreements as it creates interdependence between the various parts of the Agreement. The key elements of the three pillars are presented below:

1. Political dialogue

The San José Dialogue, which was launched in 1984, forms the cornerstone of the EU-Central American relations. Its objective was to seek solutions to the armed conflicts by means of negotiations. Since then, the EU has made a significant contribution to the peace and democratization processes as well as to the socio-economic development of Central America.

Negotiations for an Association Agreement between the EU and Central America to build on the EU-Central America Political Dialogue and Co-operation Agreement of 2003, including the establishment of a Free Trade Agreement, were formally launched in October 2007 following a Council Decision to authorise these negotiations in April 2007. Panama, which had followed the negotiations as an observer, joined the negotiations in March 2010.

The negotiations were successfully concluded in May 2010 and - after a phase of legal review - the text of the Agreement was initialled on 22 March 2011.

In terms of Political Dialogue, the Agreement covers all aspects. The Agreement includes all the political clauses as an essential element, which reflects core values shared by both Parties. Among the political clauses which pursue various foreign policy objectives, human rights, democracy and the rule of law clause have a specific significance. In case of violation by one of the Parties of these essential clauses, the Agreement foresees the possibility to suspend it.

An Association Agreement is the most advanced type of Agreement that the EU can engage in with a country or a region in the world. It is proposed to partners with which the EU intends to forge a strong relationship, based on mutual trust and on common values and principles. The Agreement will give a legal framework to all aspects of EU’s relations with Central America.

On the other hand, the Regional Central American Strategy Paper 2007-2013 and the bilateral envelopes with each of the 6 Central American countries signatories of the Association Agreement confirms the EU as the leading donor of official development aid to Central America and its countries, with € 860 million set aside.

2. Cooperation

With regards to Cooperation, it has been agreed to include provisions to enhance bi-regional cooperation in all areas of common interest with the aim of achieving more sustainable and equitable social and economic development in both regions. The general objective of cooperation is to support the implementation of the Association Agreement in order to reach an effective partnership between the two regions by facilitating resources, mechanisms, tools and procedures. It envisages the following main areas for cooperation: democracy, human rights and good governance; justice, freedom and security; social development and social cohesion; migration; environment, natural disasters and climate change; economic and trade development; regional integration; cultural and audio-visual cooperation; and knowledge society.

3. Trade

1. Substantially improved market access to EU and Central American markets

Tariff elimination - manufactured goods, fisheries and agriculture

The EU will liberalize 91% of tariff lines for Central American exports immediately after the entry into force of the Agreement. Central American will do so for 48% of lines and will complete the liberalisation schedule within the 10 year period. Only a small amount of products (1%) will be liberalised after 15 years. Central America will liberalise 69% of its existing trade for industrial and fishery products upon entry into force of the Agreement. Complete liberalisation will come about at the end of the tariff phase-out period and generally within ten years. Once the trade pillar of the Agreement is in force, EU exporters will save €87 million annually in customs duties.

Examples of EU gains:

  • Exporters in the automotive and car parts sector will be relieved of paying of up to €31 million in annual tariffs after full implementation of the Agreement.

  • The pharmaceutical industry will see significant annual savings of around €8 million duties each year.

  • Chemical producers are expected to save €10 million annually once the Agreement fully enters into force.

  • The textile and clothing industry will save an estimated €4 million in annual 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 and olive oil, other key products 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. This, in turn, benefits Central American consumers who will be able to buy these European products at more affordable prices.

The EU will eliminate tariffs on most dairy products with some exceptions (milk-powder, condensed milk and natural yogurt will be excluded). CA will eliminate tariffs on some dairy products, such as evaporated and condensed milk and will grant limited duty-free quotas on milk powder and cheese. These quotas cover the currently traded quantities and will be increased on an annual basis.

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. For example, Nicaragua expects to gain USD 120 million annually just from exports of sugar, textiles, meat and dairy products, taking advantage of the duty free quotas granted in 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.

Examples of CA gains:

  • Consolidated and permanent duty-free access for all products which benefitted from the GSP+ scheme

  • Access going beyond GSP+ for products such as shrimp, bottled rum, cheese, yucca

  • Duty-free quotas, with annual growth, for important CA export products, such as sugar, beef, bulk rum and rice

  • Flexible rules of origin for products such as tuna, textiles and plastics

  • Significant reduction in tariffs for bananas: EU will cut its tariff to 75 €/t, by 1 January 2020, compared to MFN level of 114 €/t that will apply as of 2017.

  • Enhanced cooperation in the area of private sector development

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, Feta cheese and Scotch whisky, could be 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 and Central American goods within the region. 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. SPS procedures will be harmonized. Strengthening Central American customs union will result in reduced costs and less waiting times at the borders for all traders, thus making the Central American region more competitive.

Regional integration will also help reduce the current regulatory divergences between Central American countries in the services sectors, including maritime transport.

4. An agreement for 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 2011, the EU was Central America's second trade partner after the US (and intra-regional trade), representing 9.6% of the trade flows.

The main exporters from Central America to the EU, in 2011, were Costa Rica (43.9%) and Honduras (25.6%) followed by Guatemala (13.6%). Exports consisted mainly of coffee, bananas, pineapples, seafood and microchips. EU's exports to Central America went first to Costa Rica (28.6%), Guatemala (23.1%) and Panama (19.7%) and were mainly pharmaceuticals, petroleum oil, cars and machinery..

For more information:

Text of the Association Agreement

http://trade.ec.europa.eu/doclib/press/index.cfm?id=689


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