## _wp12234

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---

### I. Introduction and Summary
- Purpose:
  - Assess potential for the export sector to play a larger role in promoting economic growth in Central America, Panama, and the Dominican Republic (CAPDR) through increased intra-regional and global trade integration.
- Contextual points:
  - CAPDR growth in recent decades has been lower than comparator countries and is expected to be modest in most countries in upcoming years.
  - Swiston and Barrot (2011) find scope to raise growth through supply-side reforms—especially to the domestic financial system and key product markets.
  - CAPDR ranks relatively well in de jure external openness (tariff rates and explicit transaction restrictions); this paper expands analysis of CAPDR’s outward orientation—the extent to which the export sector drives long-term growth.
- Trade and integration status:
  - Entry into force of CAFTA-DR in 2006–2009.
  - Signature in June 2012 of an Association Agreement (AA) with the European Union (EU).
  - Implementation of regional projects to improve transportation and electricity linkages has accelerated.
  - Import tariffs substantially reduced; broader trade-supporting policies (infrastructure investment, customs union, harmonizing regulations) have lagged.
- Quantified potential gains:
  - CAPDR’s exports would be 10 to 20 percent of GDP higher if its logistics and outward orientation equaled large Latin American countries, ASEAN, or the EU.
  - Growth in CAPDR economies could be higher by an average of 0.8 to 1.6 percent per year if the export sector were as dynamic as these comparator regions.
- Paper structure:
  - Six sections: II (historical growth & outlook), III (regional integration initiatives), IV (export data and outward orientation indicators), V (models of exports to GDP and growth), VI (conclusion).

### II. Historical and Prospective Economic Performance
- Long-term income and growth:
  - Real GDP per capita at PPP has more than doubled since 1960, but the gap with the United States or the EU has not been reduced.
  - Income per capita in CAPDR declined to 16 percent of the U.S. level in 2005–2009, from 19 percent in the early 1960’s.
  - Dominican Republic and Panama experienced growth of about 3 percent per year over that period.
- Comparative regional performance:
  - Average ASEAN growth = 3.7 percent (PPP GDP per capita, annual average, 1965-2009).
  - U.S. = 2.2 percent (PPP GDP per capita, annual average, 1965-2009).
  - CAPDR growth during global boom years (2004–2007) = 4 percent per year; LA5 = 5 percent; ASEAN = 6 percent.
- Medium-term outlook:
  - IMF staff forecasts for 2012–17 suggest the pre-crisis acceleration was temporary for most economies; growth expected to decelerate to more typical pre-boom rates.
  - Slower external demand and unfavorable terms of trade weigh on growth; terms of trade deteriorated substantially in the 2000’s and are not expected to improve substantially from current levels.
- Openness and export performance:
  - Exports-to-GDP ratios tend to be higher in smaller countries; CAPDR’s outward orientation over the last half century has been below that of the typical small country.
  - Regression framework predicts non-oil exports to GDP using population, land area, and dummies for island or landlocked countries.
  - Cross-country correlation: higher adjusted openness (deviation of non-oil exports from predicted value) associated with higher average annual growth in PPP GDP per capita, 1960-2009.
- Trade composition and destinations:
  - CAPDR trades far more with the United States than with fast-growing Asian economies.
  - CAPDR combined market size ~ Colombia or Peru, but a fraction of the U.S. and Mexican economies.
  - Trade with Mexico is very low (< 1 percent of GDP), suggesting unexploited opportunities.
  - CAPDR has not expanded trade links with the rest of the world over the last decade.

### III. Trade Integration Agreements and the Mesoamerican Project
- Main multilateral trade agreements and initiatives:
  - Central American Common Market (CACM): began 1960; members Costa Rica, Guatemala, Honduras, El Salvador, Nicaragua; Panama expected to join in 2012. Aims: free trade area for goods, common external tariff, customs union, harmonize trade regulations.
  - CAFTA-DR: includes the five CACM countries, the Dominican Republic, and the United States; came into force 2006–2009. Aims: free trade area for goods, liberalization of services, investor protection, reduce tariff and non-tariff barriers, boost customs transparency and efficiency.
  - EU-Central America Association Agreement (AA): signed June 2012; includes CAPDR and the 27 EU countries; requires ratification. Aims: free trade area in goods and services, reduce tariffs and non-tariff barriers, reinforce customs cooperation, extend into intellectual property and competition policy.
  - Free trade agreement between Mexico and five CACM countries: signed late 2011; requires ratification.
  - Mesoamerican Project (MP): launched June 2008; aims to improve regional infrastructure and trade logistics; includes CAPDR, Belize, Colombia, and Mexico.
- Box 1 — Mesoamerican Project: key projects and figures
  - International Network of Mesoamerican Highways:
    - Route length: 3,244 kilometers.
    - Transports 95 percent of the commercial goods of the region.
    - In 2011 the IDB and national authorities prepared the US$2.3 billion investment program.
  - TIM (International Land Transit of Goods): implemented at all border crossings along the Pacific corridor to harmonize IT systems and customs transit procedures.
  - Short Distance Sea Transport: launched 2009; 18-month technical assistance project began October 2011 to evaluate state of ports.
  - SIEPAC (Central American Electrical Interconnection System):
    - Transmission line length: 1,800 kilometer from Panama to Guatemala.
    - Status as of early 2012: 90 percent of construction completed; 50 percent of transmission lines operating.
    - Project completion scheduled for May 2013.
- Implementation gap and priorities:
  - Tariff reductions achieved but broader policies lag: infrastructure investment, customs union, harmonizing regulations.
  - Immediate priorities: deepen integration for economies of scale, improve trade logistics, broaden trade partnerships outside region.
- Remaining challenges identified for MP:
  - Tariff harmonization: SIECA reports 95.7 percent of tariff lines harmonized (figure lower when excluding vehicle lines and accounting for CAFTA-DR effects).
  - Non-tariff barriers: persistent TBT and SPS issues, customs delays due to security and governance weaknesses, low capacity, and financing shortfalls.
  - Infrastructure and logistics: inadequate roads, railroads, ports, electricity; public investment averaged about 4 percent of GDP.
  - Crime and violence hinder trade and logistics.
  - Institutional/legal issues: national legislation not fully harmonized; regional transit legislation stalled.

### IV. Trade Logistics and Export Profile of CAPDR
- Trade logistics and LPI:
  - Trade logistics in CAPDR have improved but lag behind LA5, ASEAN, and the EU on many LPI components (roads, railroads, ports, electricity, customs, procedures, transparency, regulatory environment, physical security).
- Export shares and composition:
  - Exports account for about 40 percent of GDP on average in CAPDR.
  - Exports of goods: over 30 percent of GDP.
  - Exports of services: 10 percent of GDP.
  - Panama: exports at 70 percent of GDP (including significant re-exports from the Colón Free Zone and canal-related transportation services).
  - Dominican Republic, El Salvador, and Guatemala: exports less than 30 percent of GDP.
- Trends and comparisons:
  - Exports rose sharply in the 1990s, then leveled off in the last decade.
  - CAPDR’s exports are lower and have risen less quickly in recent years than similarly-sized countries in ASEAN, the EU, and MENA.
  - Intra-regional trade averaged 6.9 percent of GDP in the 2000’s, up from 4.8 percent in the 1990’s, but well behind small ASEAN and EU countries.
  - Goods exports to the United States average 14½ percent of GDP for CAPDR; trade with Mexico is less than 1 percent of GDP.

### V. Outward-Orientation Indexes, Export Structure, and Econometric Results
- Outward-orientation indexes constructed:
  - Market Penetration Index (MPI): share (0–100) of world import markets a country participates in, weighted by export basket.
  - Vertical Integration Index (VII): overlap between imports and exports by product (0–100), proxying participation in global production chains.
  - Product Sophistication Index (PSI): assigns productivity score to each product based on average exporter income (United States = 100 reference).
  - Index of Outward Orientation: product of PSI, MPI, and VII (with PSI scaled relative to the United States).
- Empirical observations:
  - CAPDR’s outward-orientation indexes have room to improve; CAPDR, ASEAN, and LA5 had similar indexes in the 1960’s but ASEAN and LA5 climbed since the 1990’s while CAPDR lagged.
  - Average MPI for CAPDR countries is less than 20.
  - VII for CAPDR has risen since the 1980s and is in line with LA5 and ASEAN but much lower than the EU.
  - PSI for goods: CAPDR improved gradually but remains lower than LA5, ASEAN, and emerging-market EU countries; Costa Rica and the Dominican Republic have higher shares of capital goods/high-tech exports.
  - Services sophistication: CAPDR services exports concentrated in travel and transportation; Costa Rica has IT and business services niches; Panama’s financial services raise services sophistication.
- Exports-to-GDP (cross-section, 2005–2009) — selected regression coefficients and diagnostics:
  - Current account openness (index): 0.888** (column (1)); 0.384 (column (2)); 0.0398 (column (3)).
  - Index of outward orientation (log): 0.330*** (column (3)); 0.247*** (column (4)).
  - Logistics performance index (log): 2.813*** (column (4)).
  - Lagged income (log of per capita PPP GDP): 0.470***, 0.419***, 0.194**, -0.125 (columns (1)–(4)).
  - Size (log of area times population): -0.119***, -0.119***, -0.157***, -0.192***.
  - Island (dummy): -0.272*, -0.363**, -0.291**, -0.241*.
  - East Asia dummy: 0.968***, 1.060***, 0.701***, 0.409*.
  - Number of countries: 101, 101, 100, 97 (columns (1)–(4)).
  - Adjusted R-squared: 0.546, 0.571, 0.645, 0.743 (columns (1)–(4)).
- Interpreted impacts (using column (3)/(4)):
  - One standard deviation increase (15 points on a 100 point scale) in the index of outward orientation estimated to raise exports by 11 percent of GDP.
  - One standard deviation increase in the LPI estimated to raise exports by 12 percent of GDP.
  - Counterfactuals: CAPDR export ratios would be higher by 10 percent of GDP on average if logistics and outward orientation comparable to LA5, and 20 percent of GDP higher on average if at EU levels.
- Growth model (dynamic panel, 1965–2009, System GMM) — selected coefficients:
  - Index of outward orientation (log): 0.691** (column (1)).
  - Market penetration (log): 2.149** (column (2)).
  - Vertical integration (log): 0.951*** (column (3)).
  - Product sophistication (log): 2.403* (column (4)).
  - Lagged income (log of PPP GDP per capita): -2.165***, -2.365***, -1.711***, -1.629*** (columns (1)–(4)).
  - Capital formation (log of investment to GDP): 2.452***, 1.861*, 2.735***, 3.091***.
  - Human capital (log of advanced schooling): 0.860**, 1.021**, 0.847**, 0.260.
  - Inflation (log of 1 plus inflation rate): -2.500*, -1.966, -2.679**, -2.277**.
  - Structural reforms (index): 4.318**, 6.604***, 3.724*, 4.925***.
  - Labor force (share of population, log): 0.604***, 0.655***, 0.648***, 0.666***.
  - Observations: 698; Number of countries: 79.
- Empirical conclusions:
  - The outward-orientation index and its subcomponents (MPI, VII, PSI) are positively associated with higher long-run growth rates, alongside investment, human capital, structural reforms, and labor force participation.
  - Market penetration and vertical integration are statistically significant; product sophistication is marginally significant.
  - Applying results to CAPDR:
    - Growth would be higher by 0.3 to 1.8 percentage points per year if CAPDR’s export sector were as dynamic as the LA5.
    - Growth would be higher by 1.1 to 2.5 percentage points per year if CAPDR’s export sector were as dynamic as the EU.
    - Average CAPDR country could raise long-term growth by 0.8 to 1.6 percentage points per year if exports were 10 to 20 percentage points of GDP higher under improved logistics and outward orientation.

### VI. Policy Implications and Recommendations
- Trade facilitation and logistics:
  - Upgrade roads, railroads, ports, and electricity infrastructure.
  - Improve customs efficiency, procedures, and transparency (LPI is a strong determinant of exports).
- Geographic reach and global production chains:
  - Raise MPI by expanding shipments of existing products to new trading partners.
  - Increase VII through policies that promote processing trade, intra-industry linkages, and co-production arrangements (rules of origin and cumulation reforms).
- Product and services sophistication:
  - Encourage innovation, adoption of stringent quality standards, and development of higher-technology and capital-goods exports.
  - Support services sophistication (e.g., information technology, business services, financial services niches like Costa Rica and Panama).
- Regional integration institutions and implementation:
  - Effectively implement MTAs: build a customs union, harmonize trade rules, and increase capacity of firms and officials to implement rules.
  - Strengthen regional coordination: implement a strategy on integration, coordinate transport and customs reforms regionally, and monitor implementation.
- Financing and execution:
  - Use public-private partnerships selectively where governments face financing constraints, provided projects are within frameworks that minimize fiscal risks.
  - The Mesoamerican Project should continue coordinating projects, improving regional transport linkages, and attracting financing.
- Governance, security, and capacity:
  - Address security and governance shortcomings that impede customs and transit efficiency.
  - Provide technical assistance and training to officials and firms to implement harmonized trade rules and strengthen tax collection and customs efficiency.
- Institutional targets:
  - Fully implement a common external tariff and harmonize rules of origin and cumulation to facilitate vertical integration.
  - Increase public investment and maintenance (public investment in the region averaged about 4 percent of GDP) and improve coordination between governments.

*Source: _wp12234 - excerpted content from the IMF working paper.*

### References .............................................................................................................

### References

### I. Introduction and Summary
- Purpose:
  - Assess the potential for the export sector to play a larger role in promoting economic growth in Central America, Panama, and the Dominican Republic (CAPDR) through increased intra-regional and global trade integration.
- Key contextual points:
  - CAPDR has grown in recent decades, but on average growth has been lower than in comparator countries and is expected to continue to be modest in most countries in upcoming years.
  - Swiston and Barrot (2011) found CAPDR has significant scope to raise growth through supply-side reforms—especially reforms to the domestic financial system and key product markets.
  - CAPDR countries rank relatively well in terms of de jure external openness (tariff rates and explicit restrictions on transactions), but this paper expands the analysis by examining empirically CAPDR’s outward orientation—the extent to which the export sector is a driver of long-term growth.
- Trade and integration status:
  - Entry into force of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) in 2006–2009.
  - Signature in June 2012 of an Association Agreement (AA) with the European Union (EU).
  - Implementation of regional projects to improve transportation and electricity linkages has accelerated.
  - Import tariffs have been substantially reduced, but implementation of broader trade-supporting policies has lagged (infrastructure investment, customs union, harmonizing regulations).
- Findings from outward orientation indexes:
  - Indexes cover geographic scope of trading relationships, involvement in global production chains, and technological sophistication of exports.
  - CAPDR countries have increased participation in global production chains and export sophistication but lag regions like the EU and ASEAN.
  - CAPDR could increase exports by penetrating untapped markets for products they already export.
- Quantified potential gains:
  - CAPDR’s exports would be 10 to 20 percent of GDP higher if its logistics and outward orientation were at the levels of large Latin American countries, ASEAN, or the EU.
  - Growth in CAPDR economies could be higher by an average of 0.8 to 1.6 percent per year if its export sector were as dynamic as these comparator regions.
- Paper structure:
  - Six sections: II (historical growth & outlook), III (regional integration initiatives), IV (export data and outward orientation indicators), V (models of exports to GDP and growth), VI (conclusion).

### II. Historical and Prospective Economic Performance
- Long-term income and growth:
  - Real GDP per capita at purchasing power parity (PPP) has more than doubled since 1960, but the gap with the United States or the EU has not been reduced.
  - Income per capita in CAPDR as a whole declined to 16 percent of the U.S. level in 2005–2009, from 19 percent in the early 1960’s.
  - Dominican Republic and Panama experienced growth of about 3 percent per year over that period.
- Comparative regional performance:
  - Average ASEAN growth = 3.7 percent (PPP GDP per capita, annual average, 1965-2009).
  - U.S. = 2.2 percent (PPP GDP per capita, annual average, 1965-2009).
  - CAPDR growth during global boom years (2004–2007) = 4 percent per year; LA5 = 5 percent; ASEAN = 6 percent.
- Medium-term outlook:
  - IMF staff forecasts for 2012–17 suggest the pre-crisis acceleration was temporary for most economies and that growth is expected to decelerate to more typical pre-boom rates.
  - Slower external demand and unfavorable terms of trade weigh on growth; terms of trade deteriorated substantially in the 2000’s and are not expected to improve substantially from current levels.
- Openness and export performance:
  - Exports-to-GDP ratios tend to be higher in smaller countries; CAPDR’s outward orientation over the last half century has been below that of the typical small country.
  - A regression predicting exports of non-oil goods and services to GDP uses population, land area, and dummies for island or landlocked countries.
  - Cross-country correlation: countries with higher adjusted openness (deviation of non-oil exports from predicted value) show higher average annual growth in PPP GDP per capita, 1960-2009.
- Trade composition and destinations:
  - CAPDR trades far more with the United States than with fast-growing Asian economies.
  - CAPDR’s combined market size would be about the size of Colombia or Peru, but a fraction of the U.S. and Mexican economies.
  - Trade with Mexico is very low given proximity and economic size, suggesting unexploited opportunities.
  - CAPDR has not expanded trade links with the rest of the world over the last decade.

### III. Trade Integration Agreements and Regional Initiatives
- Overview:
  - CAPDR has emphasized multilateral initiatives to underpin integration with the rest of the world; the section reviews implications for trade, benefits, and challenges.
- Main multilateral trade agreements (MTA’s) and initiatives:
  - Central American Common Market (CACM):
    - Began in 1960.
    - Includes Costa Rica, Guatemala, Honduras, El Salvador, and Nicaragua; Panama expected to join in 2012.
    - Aims: create a free trade area for goods via tariff elimination among members, establish a common external tariff, create a customs union, eliminate non-tariff barriers via harmonizing trade regulations.
  - CAFTA-DR (Dominican Republic-Central America-United States Free Trade Agreement):
    - Includes the five CACM countries, adds the Dominican Republic and the United States.
    - Came into force upon ratification in signatory countries between 2006 and 2009.
    - Panama and the United States have also signed a free trade agreement that will enter into force in October 2012.
    - Aims to establish a free trade area for goods and extends liberalization to services and other areas important for trade, such as investor protection; aims to reduce tariff and non-tariff barriers, including boosting transparency and efficiency of customs.
  - EU-Central America Association Agreement (AA):
    - Signed in June 2012.
    - Includes CAPDR and the 27 EU countries.
    - Still needs ratification by the legislatures of CAPDR countries and the European Parliament before implementation.
    - Aims: create a free trade area in goods and services through reduction of tariffs and non-tariff barriers; reinforce cooperation in customs to promote regional integration in CAPDR; extends into intellectual property rights and competition policy.
  - Free trade agreement between Mexico and the five CACM countries:
    - Signed in late 2011.
    - Requires ratification by national legislatures before implementation.
    - Will replace bilateral trade agreements Mexico has with Costa Rica, El Salvador, Guatemala, and Honduras.
  - The Mesoamerican Project:
    - Launched in 2008.
    - Aims to improve regional infrastructure and trade logistics.
    - Includes CAPDR, Belize, Colombia, and Mexico.
- Implementation gap and policy priorities:
  - While substantial progress on tariff reduction and trade agreements has occurred, policies supporting trade more broadly have lagged: infrastructure investment, creation of a customs union, and harmonizing regulations remain priorities.
  - The full impact of recent initiatives will materialize over decades; immediate priorities include deepening integration to take advantage of economies of scale, improving trade logistics, and broadening trade partnerships outside the region.

*Source: _wp12234 - References .............................................................................................................*

### Box 1. Mesoamerican Project

### Box 1. Mesoamerican Project

### Background and institutional framework
- The Mesoamerican Project (MP) replaced the Plan Puebla-Panama (PPP), which was launched in 2001 by CA and Mexico as a regional initiative to promote economic development but had mixed results securing financing and building consensus for regional projects.
- The MP was launched in June 2008, incorporated finance ministers into its institutional framework, and established guidelines for the approval of new projects.

### Key infrastructure and transport projects
- International Network of Mesoamerican Highways (regional highway network)
  - Redevelopment of the Pacific corridor from Mexico to Panama into a “five-star highway” and the main logistics corridor for transport in the region by 2020.
  - Route length: 3,244 kilometers of highway.
  - Current importance: transports 95 percent of the commercial goods of the region.
  - Timeline and financing:
    - Project launched in mid-2009.
    - In 2011 the IDB and national authorities prepared the US$2.3 billion investment program for construction of infrastructure and security.
    - In December 2011, the heads of state approved the establishment of a management committee to explore financing options and execute the project.
- International Land Transit of Goods (TIM)
  - Objective: facilitate and reduce costs of transporting goods through customs and border crossings by improving and harmonizing information technology systems and customs transit procedures to reduce the time trucks take at crossing borders in transit.
  - Implementation: implemented at all the border crossings along the Pacific corridor.
- Short Distance Sea Transport
  - Objective: develop and modernize maritime transport in the region.
  - Launched in 2009 under coordination of Panama’s Port and Maritime Authority with support of the Central American Commission of Maritime Transport.
  - Financing and technical assistance:
    - With financing from the IDB and Panama’s Port and Maritime Authority, an 18-month technical assistance project began in October 2011 to evaluate the state of all the ports in the region.

### Energy integration
- Regional electricity market development is an objective of the MP.
- Central American Electrical Interconnection System (SIEPAC)
  - Flagship project: construction of a 1,800 kilometer transmission line from Panama to Guatemala.
  - Status as of early 2012:
    - 90 percent of SIEPAC’s construction was completed.
    - 50 percent of the transmission lines were operating.
  - Project completion scheduled for May 2013.
- The electrical interconnection line between Mexico and Guatemala was completed in 2009.

### Trade integration, tariffs, and trade agreements
- CACM progress
  - Advances: tariff reductions and harmonization of technical rules on trade and customs regulations.
  - Remaining issues: slower progress in harmonizing trade regulations and building a customs union; non-tariff barriers, particularly sanitary and phytosanitary (SPS) regulations; no integrated or common customs system; national legislation often not harmonized to regional rules.
- CAFTA-DR
  - Objective: facilitate the region’s access to the U.S. market; expands and makes permanent previous U.S. bilateral preferences under the Caribbean Basin Initiative.
  - Tariff liberalization:
    - Duties eliminated on most goods immediately.
    - Remaining products: tariffs phased out over five to twenty years, depending on the product and country.
    - Central American countries have a significantly larger number of products under gradual phase-out of tariffs than the United States for sensitive agricultural products.
    - Goods protected under the CACM are not subject to liberalization.
  - Rules of origin and cumulation:
    - New rules allow the same favorable tariff treatment to inputs and value-added in production from any member country, encouraging co-production arrangements across countries.
    - For some manufactured goods, duty-free inputs will be allowed from certain third countries.
  - Services and regulatory provisions: secures market access for cross-border services including telecommunications, finance, and tourism; requires regulatory authorities to improve transparency; reduces technical barriers to trade (TBT) and provides technical assistance for SPS issues; liberalizes government procurement; enhances intellectual property and investment rights; addresses enforcement of competition, labor, and environmental standards.
- Association Agreement (AA) with the EU
  - Benefits: makes permanent zero tariffs Central American exporters already have under GSP+ and extends these to bananas, raw cane sugar, and shrimp.
  - Tariff elimination: largely eliminates tariffs for manufactured goods, fisheries, and agriculture over ten to fifteen years, while certain sensitive agricultural products remain protected.
  - Rules of origin: allows members to use inputs from other members and share production in the elaboration of goods.
  - Integration measures: aims to develop harmonized trade regulations moving towards international standards in customs; offers technical assistance; attempts to introduce a single customs declaration and duty for the region and a regional competition authority.

### Remaining challenges and constraints
- Tariff harmonization and rules
  - SIECA reports that 95.7 percent of tariff lines are harmonized, but this figure is lower when excluding vehicle lines, temporary disharmonization under CAFTA-DR, and differences in rules of origin due to different bilateral free trade agreements.
  - Complex and varying rules of origin under CAFTA-DR can be hard to apply; determinations can be lengthy, leading U.S. importers at times to pay tariffs rather than wait for favorable determinations.
- Non-tariff barriers and technical regulations
  - Persistent TBT and SPS issues due to lack of harmonization, lack of regulations, and technical capacity constraints in some administrations.
  - Delays at customs caused by security, governance, electronic exchange of information shortcomings, coordination failures, low capacity, and inadequate financing.
- Infrastructure and logistics
  - Inadequate infrastructure (roads, railroads, ports, electricity) results in CAPDR scoring lower on average on trade logistics and facing higher transport costs.
  - Weak logistics attributed to low levels of investment spending and maintenance and a lack of coordination between governments.
  - Regional legislation to facilitate transit is stalled.
  - Despite progress in integrating electricity distribution via the Mesoamerican Project, individual member countries need to boost their supply capability.
- Crime and violence: rising rates of crime and violence hinder trade and logistics.

### Policy recommendations
- Trade rules, tariffs, and customs union
  - Remove remaining trade restrictions on products.
  - Harmonize customs requirements, inspection procedures, SPS and other technical standards.
  - Fully implement a common external tariff.
  - Harmonize existing free trade agreements regarding rules of origin and cumulation of origin to facilitate vertical integration.
  - Provide more technical assistance and training to officials and firms to effectively implement harmonized trade rules and strengthen tax collection capacity and efficiency of customs administrations.
  - To achieve a full customs union: standardize import tax and tariff rules and centralize the collection of import duties.
- Infrastructure
  - Increase construction and maintenance of roads, railways, ports, and electricity, noting that public investment in the region only averaged about 4 percent of GDP.

*Source: Box 1. Mesoamerican Project (excerpt).*

### 2011. Governments facing financing constraints could utilize public-private partnerships to

### _wp12234 - 2011. Governments facing financing constraints could utilize public-private partnerships to finance some projects, provided that they are undertaken within sound frameworks that minimize fiscal risks. The Mesoamerican Project should continue to coordinate projects, improve regional transport linkages, and attract financing.

### Regional coordination, security, and institutional priorities
- Governments facing financing constraints could utilize public-private partnerships to finance some projects, provided that they are undertaken within sound frameworks that minimize fiscal risks.
- The Mesoamerican Project should continue to coordinate projects, improve regional transport linkages, and attract financing.
- A regional approach is recommended to:
  - address transport, logistics, and customs issues;
  - improve security and governance, particularly in border control and customs administration;
  - enhance institutions for regional integration; and
  - draft a strategy on integration to establish common objectives, coordinate efforts, and monitor implementation.

### Trade logistics and infrastructure (CAPDR)
- Trade logistics in CAPDR have improved but lag behind other regions; the regulatory and security environment are also behind comparators.
- Key descriptive findings:
  - Logistics Performance Index (LPI) and components (roads, railroads, ports, electricity, customs, procedures, transparency, regulatory environment, physical security) show CAPDR trailing LA5, ASEAN, and the EU in many dimensions (figures presented for 2007 and 2012 comparisons in source).

### Profile of CAPDR exports
- Overall export shares and composition:
  - Exports now account for about 40 percent of GDP on average in CAPDR.
  - Exports of goods: over 30 percent of GDP.
  - Exports of services: 10 percent of GDP.
  - Panama: exports at 70 percent of GDP (including significant re-exports from the Colón Free Zone and canal-related transportation services).
  - Dominican Republic, El Salvador, and Guatemala: exports less than 30 percent of GDP.
- Trends and comparisons:
  - Exports rose sharply in the 1990s, then leveled off in the last decade.
  - CAPDR’s exports are lower and have risen less quickly in recent years than in similarly-sized countries in ASEAN, the EU, and MENA.
  - Intra-regional trade in CAPDR: averaged 6.9 percent of GDP in the 2000’s, up from 4.8 percent in the 1990’s, but well behind small ASEAN and EU countries.
  - Extended-region trade: goods exports to the United States average 14½ percent of GDP for CAPDR; trade with Mexico is less than 1 percent of GDP.

### Outward orientation indexes and export structure
- Three outward-orientation indexes constructed:
  - Market Penetration Index (MPI): share (0–100) of world import markets a country participates in, weighted by export basket.
  - Vertical Integration Index (VII): measures overlap between product categories of imports and exports (0–100), proxying participation in global production chains.
  - Product Sophistication Index (PSI): assigns a productivity score to each product based on average exporter income (United States = 100 reference).
- Empirical observations:
  - CAPDR’s overall outward-orientation indexes have room to improve; CAPDR, ASEAN, and LA5 had similar indexes in the 1960’s but ASEAN and LA5 have climbed since the 1990’s while CAPDR lagged.
  - Average MPI for CAPDR countries is less than 20 (CAPDR ships its products to countries that account for less than 20 percent of global imports of those products).
  - VII for CAPDR has risen since the 1980s and is in line with LA5 and ASEAN but much lower than the EU.
  - PSI for goods: CAPDR’s product sophistication has improved gradually but remains lower than LA5, ASEAN, and emerging-market EU countries; Costa Rica and the Dominican Republic are exceptions with relatively higher shares of capital goods/high-tech exports.
  - Services sophistication: CAPDR services exports (concentrated in travel and transportation) are less sophisticated than ASEAN, the EU, or the LA5. Costa Rica has niches in information technology and other business services; Panama’s financial services raise its services sophistication.

### Econometric models: exports and growth
- Exports model (non-oil exports to GDP, cross-section, 2005–2009):
  - Key controls: lagged income, country size, island dummy, regional dummies, oil exports, export deflator, landlocked dummy.
  - Selected regression results (dependent variable: log ratio of non-oil exports to GDP, 2005–2009):
    - Current account openness (index): coefficient 0.888** in column (1); 0.384 in column (2); 0.0398 in column (3).
    - Index of outward orientation (log): coefficient 0.330*** (column (3)) and 0.247*** (column (4)).
    - Logistics performance index (log): coefficient 2.813*** (column (4)).
    - Lagged income (log of per capita PPP GDP): coefficients 0.470***, 0.419***, 0.194**, and -0.125 across columns (1)–(4).
    - Size (log of area times population): coefficients -0.119***, -0.119***, -0.157***, -0.192***.
    - Island (dummy): coefficients -0.272*, -0.363**, -0.291**, -0.241*.
    - East Asia dummy: coefficients 0.968***, 1.060***, 0.701***, 0.409*.
    - Number of countries: 101, 101, 100, 97 (columns (1)–(4)).
    - Adjusted R-squared: 0.546, 0.571, 0.645, 0.743 (columns (1)–(4)).
  - Interpreted impacts using column (4) coefficients:
    - An increase of one standard deviation (15 points on a 100 point scale) in the index of outward orientation is estimated to raise exports by 11 percent of GDP (as reported in text using column (3) or column (4) application).
    - An increase of one standard deviation in the LPI is estimated to raise exports by 12 percent of GDP.
    - Counterfactuals: CAPDR export ratios would be higher by 10 percent of GDP on average if logistics and outward orientation were comparable to the LA5, and 20 percent of GDP higher on average if they were at EU levels.
- Growth model (dynamic panel, 1965–2009, System GMM):
  - Index of outward orientation and its subcomponents are associated with significantly higher long-run growth rates.
  - Selected coefficients from Table 2 (dependent variable: growth in PPP GDP per capita):
    - Index of outward orientation (log): 0.691** (column (1)).
    - Market penetration (log): 2.149** (column (2)).
    - Vertical integration (log): 0.951*** (column (3)).
    - Product sophistication (log): 2.403* (column (4)).
    - Lagged income (log of PPP GDP per capita): -2.165***, -2.365***, -1.711***, -1.629*** across columns (1)–(4).
    - Capital formation (log of investment to GDP): 2.452***, 1.861*, 2.735***, 3.091***.
    - Human capital (log of advanced schooling): 0.860**, 1.021**, 0.847**, 0.260.
    - Inflation (log of 1 plus inflation rate): -2.500*, -1.966, -2.679**, -2.277**.
    - Structural reforms (index): 4.318**, 6.604***, 3.724*, 4.925***.
    - Labor force (as share of population, log): 0.604***, 0.655***, 0.648***, 0.666***.
    - Observations: 698; Number of countries: 79.
    - Hansen test p-values and AR(2) p-values reported in table (see source).
  - Conclusion from these regressions: the overall outward-orientation index and its subcomponents (market penetration, vertical integration, and product sophistication) are positively associated with higher economic growth, alongside investment, human capital, structural reforms, and labor force participation.

### Policy implications distilled from the analysis
- Improve trade logistics to raise exports:
  - Upgrading roads, railroads, ports, and electricity infrastructure and improving customs efficiency, procedures, and transparency could materially increase exports (LPI is a strong determinant of exports in econometric results).
- Widen geographic reach of exports:
  - Raise Market Penetration Index by expanding shipments of existing products to new trading partners.
- Increase participation in global production chains:
  - Policies to enhance Vertical Integration (processing trade and intra-industry linkages) can facilitate technology transfer and higher value-added exports.
- Raise product and services sophistication:
  - Encourage innovation, adoption of more stringent quality standards, and development of higher-technology and capital-goods exports; support services sophistication (e.g., information technology, business services, financial services niches such as those developed in Costa Rica and Panama).
- Strengthen regional integration institutions and strategies:
  - Enhance institutions for regional integration, draft and implement a strategy on integration, and coordinate transport and customs reforms regionally to realize gains in intra-regional trade.
- Use public-private partnerships selectively:
  - Where financing constraints exist, utilize public-private partnerships to finance some projects within sound frameworks that minimize fiscal risks.

*Source: _wp12234 - 2011. Governments facing financing constraints could utilize public-private partnerships to finance some projects, provided that they are undertaken within sound frameworks that minimize fiscal risks. The Mesoamerican Project should continue to coordinate projects, improve regional transport linkages, and attract financing.*

### 1.3 percentage points. Market penetration and vertical integration are found to be statistically

### _wp12234 - 1.3 percentage points. Market penetration and vertical integration are found to be statistically

### Key empirical findings
- Market penetration and vertical integration are found to be statistically significant and export sophistication marginally significant.
- The indexes are interpreted as good proxies for aspects of a country’s outward orientation that are beneficial for economic growth.
- Applying the results to CAPDR countries:
  - Growth would be higher by 0.3 to 1.8 percentage points per year if CAPDR’s export sector were as dynamic as the LA5.
  - Growth would be higher by 1.1 to 2.5 percentage points per year if CAPDR’s export sector were as dynamic as the EU.
- The model of exports-to-GDP ratios suggests:
  - Exports could be 10 to 20 percentage points of GDP higher with improved logistics, a broader geographic scope of trading partners, deeper integration into global production chains, and increased technological sophistication of exports.
  - If these conditions were in place, the average CAPDR country could raise its long-term growth rate by 0.8 to 1.6 percentage points per year.
- Footnote: The results on vertical integration do not change if the Grubel and Lloyd (1971) definition of the index is used.

### Policy implications and recommendations
- CAPDR should prioritize putting in place the conditions to facilitate:
  - Broadening the scope of its trading relationships.
  - Exploiting niches in global production chains.
  - Enhancing the sophistication of exports.
- Implementation priorities for policymakers:
  - Effective implementation of MTAs (mutual/trade agreements) is critical to reap potential benefits.
  - Build a customs union, harmonize trade rules, and increase the capacity of firms and officials to implement these rules.
  - Overcome divergent national legislation and institutional capacity; strengthen coordination; work within budget constraints.
- Structural and public goods priorities:
  - Improve logistics and regional infrastructure links.
  - Address the security situation and governance shortcomings.
  - Increase funding and high-level political coordination to tackle deep-seated structural issues.
- The IMF’s role:
  - IMF has facilitated trade integration in the region through technical assistance on customs issues and urging countries to raise levels of public infrastructure.

### Quantitative indexes and interpretation
- Market Penetration Index (MPI):
  - Represents the share (on a scale of 0 to 100) of world import markets in which country j participates, weighted by the export basket of country j.
- Vertical Integration Index (VII):
  - For each product, potential trade related to vertical integration equals the minimum of exports and imports of that product.
  - The VII is total vertical-integration trade over total exports, resulting in an indicator with a scale of 0 to 100.
- Product Sophistication Index:
  - Each good is assigned a productivity associated with the per capita PPP GDP of the exporters of that product.
  - Export sophistication is taken relative to the United States, as the unadjusted index trends up over time owing to rising PPP GDP levels around the world.
- Index of Outward Orientation:
  - The index multiplies the previous three indexes (product sophistication, market penetration, and vertical integration), with export sophistication scaled relative to the United States.

### Data, methodology, and scope notes
- Data sources cited in the analysis include:
  - Heston and others (2011) for PPP GDP per capita and investment.
  - Barro and Lee (2010); Cohen and Soto (2007) for educational attainment.
  - IMF, International Financial Statistics and World Economic Outlook databases for inflation, real GDP, total exports, and related series.
  - United Nations, COMTRADE database (SITC2 4-digit level, ~700 products) for bilateral exports by product.
  - World Bank for the Logistics Performance Index.
- The COMTRADE data used are mostly importer-reported and cover trade by product by partner for up to 275 areas of the world; Asmundson (2012) extends back to 1990; Feenstra and others (2005) provide data back to 1962.
- The analysis uses index formulas where X denotes exports at the 4-digit SITC level and Y denotes per capita PPP GDP; all indexes are constructed to produce comparable scales (0 to 100 for MPI and VII).

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12234.pdf*

### Appendix II.

### Appendix II.

### Areas and member countries
- Areas discussed:
  - Central American Common Market (CACM)
  - Central American Free Trade Agreement (CAFTA-DR)
  - European Union-Central America Association Agreement (EU-CA AA)
- Member countries:
  - CACM: Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua
  - CAFTA-DR: Costa Rica, El Salvador, Guatemala, the Dominican Republic (DR), Honduras, Nicaragua, and the United States
  - EU-CA AA: Costa Rica, El Salvador, Guatemala, the Dominican Republic (DR), Honduras, Nicaragua, Panama, and the 27 countries in the European Union

### History and implementation
- CACM:
  - Launched in December, 1960 with Guatemala, Honduras, El Salvador, and Nicaragua.
  - Costa Rica joined in July, 1962.
  - Panama is expected to join in 2012.
- CAFTA-DR:
  - Signed in 2004.
  - Came into force in the U.S., El Salvador, Guatemala, Honduras, and Nicaragua by mid-2006; in the DR in March, 2007; and in Costa Rica in January, 2009.
- EU-CA AA:
  - Negotiations concluded in May 2010; signed in June, 2012.
  - Will come into force once ratified by the European Council and Parliament, and by each national assembly in Central America.

### Single market and product exceptions
- CACM aim and status:
  - Aim: Creation of a free trade area for goods for the five member countries of the region, including through the elimination of tariffs.
  - Details and status: Largely implemented. The vast majority of goods are traded freely. As of January 12, 2012, only untoasted coffee and sugar cane had restrictions in the five member countries, although there are also some bilateral restrictions in specific products (which are allowed under the agreement).
- CAFTA-DR aim and status:
  - Aim: Establishment of a free trade area for goods and services for the seven member countries including the US, including through the elimination of tariffs.
  - Details and status: Being implemented. Most products are duty-free or are subject to a tariff elimination schedule, except for coffee and sugar and the other products currently excluded from intra-CACM free trade. There are also some exceptions for some products traded between CACM countries and the DR. Central American countries have a higher number of products than the US under a gradual phase-out of tariffs. For agricultural products, there is a separate tariff reduction schedule defined for each country, with some products excluded for entry in a few countries.
- EU-CA AA aim and details:
  - Aim: Creation of a free trade area in goods and services for the seven Central American countries (including the DR) and the EU, including through the elimination of tariffs.
  - Details: Most products will be duty-free or are subject to a tariff elimination schedule, though some sensitive products are excluded from the liberalization (e.g. for CA these products include beef, pork, prepared meat, sugar, rice, some vegetables and dairy products; for the EU, these include certain meat products, powered milk, yoghurt, butter, tomatoes, some fruits, cereals, rice, grain sorghum, some sugars, and certain animal feeds).

### Tariffs
- CACM:
  - Aim: Establishing a common external tariff. The Central American Tariff System is based on a harmonized classification code.
  - Details and status: As of early 2012, this is in place for about 95.7 percent.
- CAFTA-DR:
  - Aim: Immediate elimination or phasing out of tariffs over time, depending on products.
  - Details and status: Being implemented. For sensitive agricultural products, CA tariffs are being reduced according to product and country.
  - Implementation details and timelines:
    - While the tariffs in 50 percent of all products were eliminated immediately, the phase out time frames also include 5, 10, 12 15, 18, and 20 years.
    - Tariffs on most U.S. exports will be eliminated within 15 years.
    - There is also back loading if tariff elimination for CA, with liberalization taking place at 7 or 12 years.
    - Almost all US tariffs were eliminated immediately on agricultural goods.
    - For manufactures, almost all manufacturing tariffs were eliminated with the implementation of CAFTA-DR, though some items will see reductions over a period of five to ten years.
    - The US liberalized 99.8 percent of manufacturing products with the implementation of CAFTA-DR, Central America liberalized 80 percent of U.S. manufacturing exports when the agreement began to be implemented, with the remainder having a phase-out period of 5, 10, 12 and 15 years.
- EU-CA AA:
  - Aim: Immediate elimination or phasing out of tariffs over time, depending on products.
  - Details:
    - The agreement will eliminate tariffs on 99 percent of products traded between the two regions upon full implementation.
    - For agricultural products, CA eliminates tariffs 32 of product tariff lines, but excludes vehicle lines.
    - The member countries apply the following tariff levels:
      - 0 percent for capital goods and raw materials not produced in the region.
      - 5 percent for raw materials produced in Central America.
      - 10 percent for intermediate goods produced in Central America.
      - 15 percent for final consumption goods.
    - There are exceptions to these tariffs related to fiscal rules, WTO regulations, and certain productive sectors.
    - The EU will abolish duties immediately on most agricultural goods, and the rest within seven years. The EU will also have tariff rate quotas on a few products.
    - For manufactures, CA will remove tariffs immediately on 50 percent of tariff lines (two thirds of EU exports), 96 percent of tariff lines within 10 years, and virtually all tariff lines within 15 years. The EU will remove virtually all duties immediately on manufactures.

### Non-tariff barriers
- Aim: Elimination of non-tariff barriers to create a single market.
- Status: These measures are targeted across agreements and are covered in related sections below (Rules of origin, Customs administration, SPS, TBT).

### Rules of origin
- General purpose: To ensure that goods benefiting from trade preferences are produced in the members’ territory and properly certified.
- CACM:
  - Aim: Goods originating from the five CACM countries benefit from free trade within the region, with specific verification procedures in case there are doubts over origin.
  - Details and status: Defined product by product in Central American regulations. Not all goods are classified as originating goods. There are no rules established for textile products, which benefit from free trade until they are defined. There are simplified documents and procedures for originating goods, but problems exist with their verification.
- CAFTA-DR:
  - Aim: Rules of origin allow free trade of goods originating from the seven member countries, including the Dominican Republic and the U.S. Cumulation of origin permits different stages of inputs and final goods production to occur in any member country and allow the use of material from the U.S.
  - Details and status: Implemented. Problems remain mainly from difficulties in interpreting the rules of origin, especially for textiles. For textiles and apparel, there are no duties on apparel made from regional fabric using yarn made in member countries, while a limited amount of inputs from Canada and Mexico also count as domestic inputs. The amount of third-party content (the “de minimis rule”) has increased to ten percent. Less restrictive rules of origin exist for certain products, such as underwear and pajamas. Many manufacturing goods are subject to special rules of origin that can be flexible, and allow some input from third countries (for example, steel production).
- EU-CA AA:
  - Aim: Rules of origin will allow free trade of goods originating from the seven CA countries and the EU; intraregional trade facilitated by allowing members from a wide area to share production and use inputs from all other members.
  - Details: For many manufactures, the amount of non-originating material that is allowed is 10 percent of the price of the product (the “de minimis rule”). For many textile products, such as cotton garments and stockings, a flexible rule of origin was agreed that allows import of a cloth from any other country within the quota. For coffee, CA countries obtained rigid rules of origin, whereby the good needs to be grown and harvested in CA or the EU for it to be subject to trade preferences. The agreement also allows the use of inputs for goods from countries with which the two regions have free trade agreements (Bolivia, and Colombia, Ecuador, Peru, and Venezuela).

### Customs administration
- CACM:
  - Aim: Gradual creation of a customs union for the free transit of goods regardless of origin within the CACM through harmonization of customs procedures.
  - Details and status: Not implemented. CACM customs administrations have an agreement on mutual cooperation and technical assistance, but there is no free circulation of goods and separate national customs administrations remain. Basic common customs regulations exist but are not uniformly applied across countries. Progress inhibited by security problems, fraud, governance issues, technical, software, cooperation problems, lack of resources, and a lack of political will and financing.
- CAFTA-DR:
  - Aim: Encourage transparency, predictability, and efficiency in customs; boost cooperation; modernize operations. Rules of origin designed to be easier to administer.
  - Details and status: Central American countries agreed to a list of actions within three years, such as internet publication of all norms and regulations, automation of clearance procedures, electronic presentation of certificates of origin, and adoption of management and risk evaluation systems. Nonetheless, modernization of customs has lagged. Countries have been unable to carry out all their commitments. Delays persist at borders, and customs determination of rules of origin and other specifications are lengthy. Central American exporters do not always understand U.S. customs procedures and rules.
- EU-CA AA:
  - Aim: Reinforce cooperation in customs to ensure legislation, procedures, and administrative capacity fulfill objectives of effective control, trade facilitation, and regional integration.
  - Details: Introduction of a single duty for the region within two years. Implementation of a single administrative document for customs declarations within three years. Harmonization of customs legislation and customs requirements for imports within five years.

### Sanitary and phytosanitary (SPS) measures
- Definition: Regulations that protect human, animal, plants or health from risks, including pests and diseases, additives, contaminants, toxins, or organisms that cause disease in food and beverages.
- CACM:
  - Aim: Harmonize and regulate measures to protect human health, and that of animals, plants, and vegetables, so that these do not affect intra-regional trade.
  - Details and status: Some harmonized regulations on SPS exist, and members are working towards the adoption of a SPS guideline for CA. Implementation remains challenging due to weak administrative capacity in some countries. This area is still particularly problematic for intra-regional trade.
- CAFTA-DR:
  - Aim: Apply WTO agreement on SPS measures and resolve problems to meet standards required to enter the U.S. market.
  - Details and status: U.S. sanitary and agriculture agencies are providing technical assistance to help reduce delays in food inspection procedures for some products from Central America. Member countries are moving toward accepting the U.S. meat inspection system as their own. Problems persist regarding the understanding and implementation of very technical SPS rules.
- EU-CA AA:
  - Aim: Reaffirm and go beyond WTO agreement on SPS to improve market access whilst safeguarding health.
  - Details: The AA will regionalize SPS import requirements and procedures, including inspections of imports and certification. The agreement will aim to identify certain products as low risk within two years, and others as medium risk within five years. EU will assist CA exporters to comply with EU regulations. There is a commitment to provide technical assistance.

### Technical barriers to trade (TBT)
- Definition: Obstacles arising from product standards (technical regulations) and conformity assessment procedures (e.g. product weight, size, packaging).
- CACM:
  - Aim: Standardize TBT rules and authorization procedures to avoid obstacles to intra-regional trade.
  - Details and status: Some advances on the harmonization of Central American Technical Rules (CATR). 47 CATRs have been harmonized and six are under revision as of February 2012. However, CATRs are not always implemented properly or uniformly across the region.
- CAFTA-DR:
  - Aim: Build on WTO rules on TBT to encourage transparency, accountability, and cooperation on regulatory issues.
  - Details and status: Technical barriers to trade persist and CAFTA-DR countries continue to work towards their elimination.
- EU-CA AA:
  - Aim: Facilitate trade in goods by reducing TBT; promote development of regional technical regulations to replace national ones; enhance capacity and cooperation.
  - Details: Members will cooperate when drafting technical regulations, setting standards, and designing conformity assessments. The requirement for permanent labeling will be simplified. The AA will promote development of harmonized regulations and standards, aiming to adopt specific technical regulations within five years on food and beverages, and other products. Technical assistance will be provided.

### Trade in services
- CACM: Not covered.
- CAFTA-DR:
  - Aim: Regulate and liberalize cross-border trade in most service sectors.
  - Details and status: One of the main obligations is to give national treatment and most favored nation treatment to service suppliers of other member countries. There are some exceptions for sensitive sectors depending on the country (e.g. insurance companies in Guatemala). The agreement has been implemented in specified service sectors, including financial services, insurance, telecommunications, express delivery, computer and related services, tourism, transport, construction, audio-visual and entertainment, e-commerce, professional services (architects, engineers, and accountants), and energy.
- EU-CA AA:
  - Aim: Liberalize the cross-border supply of services.
  - Details: The agreement commits a member country to provide treatment no less favorable than it accords to its own services and service providers and does not allow a country to place limitations on the number of services suppliers, or place limits on the total number of service operations. The EU-CA AA will cover business services; telecommunications; information; postal services; financial services; maritime transport; other transport; construction and engineering; educational services; environmental services; health related and social services; travel, cultural and sporting services; and energy.

### Other areas
- CAFTA-DR provisions:
  - Provides equal rights to foreign investors as domestic ones.
  - Strengthens intellectual property rights and copyright protection.
  - Requires member countries to enforce domestic labor and environmental regulations.
  - Commits to nondiscriminatory access to government procurement and enhances transparency in this process.
  - Cooperation on competition policy enforcement.
- EU-CA AA provisions:
  - Protection of intellectual property rights and CA countries will adopt geographical indications (for example, Champagne).
  - Will liberalize current payments and capital movements between members.
  - Requires CA countries to adopt regional standards on competition policy and requires CA to establish a regional competition authority in seven years with EU support.
  - Contains a human rights clause and a sustainable development chapter covering labor and environmental standards to comply with international conventions.
  - Rules on transparency in public procurement, with the EU to liberalize its procurement to CA immediately, and CA liberalization commitments differ per country.
  - Includes efforts to establish a single point of access for public procurement at CA regional level.

*Sources: de Gavidia (2011); González (2005); Hornbeck (2012); Jaramillo and Lederman (2006); SIECA (2012); Woolcock, Keane, Stevens, and Bartels (2012); SIECA, CAFTA-DR, and EU-CA AA official trade regulations, summaries, and press releases.*

### Appendix III. International Trade Agreements in CAPDR

### Appendix III. International Trade Agreements in CAPDR

### Bilateral and Multilateral Agreements: Parties and Implementation Status
- Bilateral Free Trade Agreement between Central America and Chile  
  - Countries: Chile with Costa Rica, El Salvador, Guatemala, and Honduras  
  - Status: Implemented in Costa Rica and El Salvador in 2002, in Honduras in 2008, and in Guatemala in 2010.

- Bilateral Free Trade Agreement between Central America and Canada  
  - Countries: Canada with Costa Rica, Guatemala, El Salvador, Honduras, and Nicaragua  
  - Status: Implemented in Costa Rica in 2002. Honduras concluded negotiations in 2010, but not implemented yet. Guatemala, El Salvador, and Nicaragua are still negotiating.

- Bilateral Free Trade Agreement between El Salvador, Guatemala, and Honduras with Colombia  
  - Countries: Colombia with El Salvador, Guatemala, and Honduras  
  - Status: Implemented in Guatemala in 2009, and in El Salvador and Honduras in 2010.

- Bilateral Free Trade Agreement between Costa Rica and CARICOM (Caribbean Community)  
  - Countries: Costa Rica with Antigua and Barbuda, Barbados, Belize, Dominica, Granada, Guyana, Jamaica, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, and Trinidad and Tobago  
  - Status: Implemented in Trinidad and Tobago in 2005, and Barbados and Guyana in 2006.

- Bilateral Free Trade Agreement between Costa Rica and China  
  - Countries: Costa Rica and China  
  - Status: Implemented in 2011.

- Partial Preferential Free Trade Agreement between Guatemala and Ecuador  
  - Countries: Guatemala and Ecuador  
  - Status: Pending approval by congress in Ecuador.

- Bilateral Free Trade Agreement between Panama and Central America  
  - Countries: Panama with Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua  
  - Status: Implemented in El Salvador in 2003, Costa Rica in 2008, and in Guatemala, Honduras and Nicaragua in 2009.

- Bilateral Free Trade Agreement between Peru and Central America  
  - Countries: Peru with Costa Rica, El Salvador, Honduras, Guatemala, and Panama  
  - Status: Signed in 2011 and pending approval by national legislatures.

- Bilateral Free Trade Agreement between Central America and the Dominican Republic  
  - Countries: The Dominican Republic with Costa Rica, Guatemala, El Salvador, Honduras, and Nicaragua  
  - Status: Implemented in Guatemala, El Salvador, and Honduras in 2001, and in Costa Rica and Nicaragua in 2002.

- Bilateral Free Trade Agreement between Taiwan Province of China and Guatemala  
  - Countries: Taiwan Province of China and Guatemala  
  - Status: Implemented in 2006.

- Bilateral Free Trade Agreement between Taiwan Province of China and Nicaragua  
  - Countries: Taiwan Province of China and Nicaragua  
  - Status: Implemented in 2008.

- Bilateral Free Trade Agreement between Taiwan Province of China and El Salvador and Honduras  
  - Countries: Taiwan Province of China, El Salvador and Honduras  
  - Status: Implemented in El Salvador and Honduras in 2008.

- Bilateral Trade Agreement between Costa Rica and Singapore  
  - Countries: Costa Rica and Singapore  
  - Status: Signed in 2010 and pending approval by the legislative assembly in Costa Rica.

### Key Dates and Temporal Note
- Implementation and signing years cited include: 2001, 2002, 2003, 2005, 2006, 2008, 2009, 2010, 2011.  
- Negotiation conclusion year cited: 2010 (Honduras with Canada).  
- Pending approvals referenced for Ecuador and multiple national legislatures for the Peru–Central America agreement.

- Data status: As of February 2012.

*Source: Secretaría de Integración Económica Centroamericana (SIECA), and the Organization of American States*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12234.pdf_