The Increasing Emphasis on U.S. Central American Trade


Originally published May 3, 2013

Summary

In the spectrum of U.S. relations, Central America holds a far lower profile than the Middle East, Europe or Asia, but stability in Central America and the Caribbean is fundamental to North American security. U.S. President Barack Obama traveled to Costa Rica on May 3 for a meeting with leaders from Costa Rica, Nicaragua, Belize, Panama, Guatemala, El Salvador, Honduras and the Dominican Republic. The visit marks a waypoint in the slow evolution of the region’s relationship with the United States — a relationship that since the end of the Cold War has become increasingly focused on economic integration and criminal issues.

Analysis

Obama is the first U.S. president to visit Costa Rica since 1997, but U.S. diplomatic visits to Central America occur on a relatively regular basis, including at the presidential level. In fact, lower-level diplomatic and technical engagement with countries in the Caribbean Basin is quite frequent.

Though Central American countries are both geographically and economically small, the region holds high strategic importance for the United States. The Caribbean Basin, including the nations of the Caribbean, Central America and Mexico, constitutes the northernmost subregion of Latin America. The region brackets the Gulf of Mexico and thus gives shape to a strategic maritime corridor connecting U.S. agricultural and energy producing centers and the global market. The region’s proximity has determined a long history of deep U.S. involvement in the region. This was especially true prior to World War II, when the United States frequently became militarily involved in the region. Direct interventions in Central America were less common during the Cold War, but the United States relied heavily on covert support of both governments and militant groups to push back against Soviet influence in the region.

A New Phase in Relations

Since the end of the Cold War, Washington has prioritized trade and investment relationships in the region with renewed vigor. The United States is an important investor in the region, and trade between North America and Central America is growing. After the 1994 North America Free Trade Agreement established a free trade arrangement linking Mexico to the United States and Canada, pushed for a regionwide free trade agreement. Opposition from Brazil, among other states, put an effective end to the Free Trade Area of the Americas, but in 2004 the United States signed the Central America-Dominican Republic Free Trade Agreement, known as CAFTA-DR.

Since the implementation of CAFTA-DR, exports from Costa Rica to the United States have more than doubled. Exports from the other partners to the United States have increased by 37 percent on average. Although this trade is still dominated by coffee and fruit (primarily bananas), Central America is increasingly a source of electronics and textiles for the United States, albeit still at diminutive volumes. U.S. exports to its CAFTA-DR partners have increased by about 60 percent. For the Central American leaders meeting with Obama this week, trade will be a key topic of conversation. Although the region has recovered from the impact of the financial crisis, national governments are anxious to see growth increase. This has become increasingly pressing as states confront rising debts that accumulated as a result of deficit spending in the wake of the financial crisis.

Reports ahead of the visit indicated that Central America is eager to benefit from the boom in U.S. natural gas production, and business councils in the region are pushing for a natural gas pipeline to connect the region to the United States. The project would complement ongoing regional efforts to integrate electricity networks, although financial, geographic and legal barriers will likely make its construction a long-term prospect.

Security will be a key topic during Obama’s visit. Violence associated with efforts to dismantle drug trafficking groups in Mexico has been gradually increasing in Central America for years — parts of the region are now even more violent than Mexico. There is rising concern, particularly in Costa Rica, over whether the Central American governments have the capacity to handle rising street crime associated with drug trafficking. Honduras and Guatemala are confronting particularly challenging criminal landscapes. Washington has increased its commitment to funding counternarcotics efforts in Central America, but its involvement has remained limited as the United States focuses the majority of its security efforts on the Middle East and Central Asia.

While security concerns remain extremely important, economics and pending immigration reform in the United States will likely dominate the conversation — much as they did during Obama’s recent visit to Mexico.


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