On July 26, the Presidents of Guatemala and Honduras launched the first joint-customs territory in the Americas at the border crossing of Corinto, one of thirteen access points. The territory will now operate under rules agreed to, by both nations, to facilitate easy passage of people and goods between the two countries.
The customs union is expected to raise Guatemala’s GDP by 1 percent and Honduras’ by 1.2 percent,and it could cut logistics costs by 25 percent, which would be particularly beneficial for small and medium-sized enterprises. Together, the countries make up over 46 percent of Central America’s GDP, 40 percent of the region’s territory, and 42 percent of its population, so other countries are expected to jump on the integration bandwagon with renewed speed.
In recent days, El Salvador also announced its formal desire to join the customs union and is working on its own roadmap to adhere. Nicaragua is watching closely, and is expected to join in the near future as well.
Economic integration: Old recipes die hard
Central America was a pioneer in regional integration. Starting in 1960, when the Central American Common Market was launched, member states were quick to liberalize trade between themselves and adopt a common external tariff, allowing the explosion of intra-regional trade in less than ten years, from a negligible 6.8 percent of total exports in 1960 to 26 percent in 1968.
Despite this, initial progress soon stalled. Several conflicts and crises prevented regional integration from becoming a priority in the following decades. And while the Central American regional integration process was relaunched in the 1990s, it has offered only lukewarm results. Intra-regional trade slowly grew to its current 32 percent share of total exports and the region has negotiated several preferential trade agreements as a block. But the main objective of deepening economic integration has generally lacked support from high level authorities and most of the work has been done on the margins, adapting and updating technical regulations.
Excessive caution characterized this approach–proven by an attempt to get “conditions right” before embarking on any path towards the pooling of economic policy–, but also a failure to appreciate that economic integration needs to be a transversal policy. Trade is directly linked to other areas of policy including migration, public health, internal revenue, and customs administration, to name a few. And while trade ministers had ample powers within some of these areas, working in tandem with other government agencies and ministries required higher-level support.
[reportPullQuoteRight]”If regional integration is to be successful, it will be by adapting to its context and bringing together all stakeholders involved, and Guatemala and Honduras appear to be doing so.”[/reportPullQuoteRight]What worked this time around?
The strategy for regional integration in Central America changed in 2014, after the Presidents of Guatemala and Honduras agreed to create a customs union. Building on the region’s existing institutional capacity, they empowered their teams to move faster by offering a clear mandate.
This effectively inverted the logic that Central America had been experimenting the previous two decades. Taking into account that trade is no longer an isolated area of policy, foreign trade ministers were empowered to oversee all aspects of the implementation of the customs union, in consultation with their peers from other ministries.
They worked hand in hand with their technical staff, itself charged with figuring out the best way to harmonize regulations and processes to ensure the successful implementation of the customs union. This collaboration between high-level officials with their men on the ground was crucial to ensure they could build a customs union that worked for both countries. In doing so, Central America broke away from the ideal integration scheme–the European Union has often taken this spot–, and built a feasible customs union to be rolled out immediately.
What next?
Central America’s long tradition of modern regional integration needed fresh thinking and political will to move forward. If regional integration is to be successful, it will be by adapting to its context and bringing together all stakeholders involved, and Guatemala and Honduras appear to be doing so.
In a time where there is renewed interest in Latin American integration, particularly as an antidote to populism and slow global growth, it’s worth taking note of lessons learned by Guatemala and Honduras as they launch the first customs union in the continent, a model that could lead the way for other Latin American countries to work out integrated, transversal and shared governance schemes.
